Spiraling medical costs are partly the result of price subsidy health insurance plans that prompt neither hospitals nor the insured to economize. Most regulatory approaches do not directly address the problem. A new kind of insurance might. The authors propose variable cost insurance (VCI). Under its terms, applicable to all types of health insurance, hospitals would be rated according to their expensiveness and a portion of costs, reflected in variable premium plans, would be passed on to subscribers. Many might still choose more costly (which may often be only more "luxurious" or wasteful) treatment. But economy-minded patients and their physicians would use more efficient hospitals, in turn providing rewards for good management. Expected results: a slowdown in the hospital cost spiral and the return of the consumer as a force in the market place.
This report is part of the RAND Corporation paper series. The paper was a product of the RAND Corporation from 1948 to 2003 that captured speeches, memorials, and derivative research, usually prepared on authors' own time and meant to be the scholarly or scientific contribution of individual authors to their professional fields. Papers were less formal than reports and did not require rigorous peer review.
Permission is given to duplicate this electronic document for personal use only, as long as it is unaltered and complete. Copies may not be duplicated for commercial purposes. Unauthorized posting of RAND PDFs to a non-RAND Web site is prohibited. RAND PDFs are protected under copyright law. For information on reprint and linking permissions, please visit the RAND Permissions page.
The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.