Curing What Ails Us: How the Lessons of Behavioral Economics Can Improve Health Care Markets

Abstract

The Supreme Court's decision to consider the constitutionality of the Patient Protection and Affordable Care Act (Affordable Care Act or ACA) has catapulted the policy debate over health care into a new chapter fraught with profound questions about the nature of American federalism. Even as the constitutional debate takes center stage, it is worth remembering that the Obama Administration chose to frame its reform bill as a practical solution to the country's mounting fiscal challenges. As policy makers begin building the administrative machinery that will give life to the Affordable Care Act, it is worth evaluating their efforts with the law's fiscal goals in mind. The White House framed its arguments in favor of health care reform by insisting that effective control of the nation's ballooning deficit would be impossible without reining in skyrocketing health care costs. Peter Orszag, head of the White House Office of Management and Budget from January 2009 through July 2010, spent nearly the entirety of his term as director of the Congressional Budget Office fine- tuning the "health reform is deficit reform" argument. As Orszag argued in testimony before the Senate Finance Committee, "The rate at which health care costs grow relative to national income-rather than the aging of the population-will be the most important determinant of future federal spending." U.S. health care costs now constitute a share of our gross domestic product (GDP) that is 7.9 percentage points higher than the average for other countries in the Organization for Economic Cooperation and Development. The ability of health care reformers to effectively control costs will be one of the central public- policy challenges of the coming decade.