HEALTH CARE REFORM are geared to income, there are the additional disadvantages associated with de termining eligibility and disincentives imposed on people who might increase heir income Medicare and Medicaid. Two other approaches for reducing the number of unin sured people are to build on the Medicaid and Medicare programs For Medicaid, this would involve raising the income level for eligibility; for Medicare, it would involve lowering the age for eligibility. 4 Expansion of these programs would mag ify their existing advantages and their disadvantages. In addition, if nonpoor, working-age people become eligible for these public programs, there would prob ably be a decline in the number covered by employer-based insurance and even some decline in labor-force participation Health savings accounts. Some incremental reform proposals have objectives other than reducing the number of uninsured people. Consumer-directed health care subsidized by favorable tax treatment of HSAs, aims at making patients more cost-conscious, leading to usage reductions and possibly more price competition among providers. 6 It is also said that if costs to individuals vary with use, they will choose healthier behavior, such as stopping cigarette smok ing. Out-of pocket payments do give patients an incentive to use less care; whether they are able to make appropriate choices is much more doubtful. The AND Health Insurance Experiment showed that patients with a higher percent age of out-of-pocket expense use less care, but the proportion of care that experts deem "appropriate"did not vary with the extent of insurance coverage ere a re several reasons for thinking that HSAs, or large deductibles in gen eral, would not have as favorable an effect on utilization as advocates claim First a large fraction of health spending is accounted for by a small proportion of pa tients-patients whose spending levels will be far above their deductible. Second even for those who have not yet exceeded their deductible but expect to do so be fore the end of the year, any particular test, visit, or procedure will effectively be free because the patient's total outlay(the deductible)would be the same, regard less of whether or not they get the particular service. Third, a considerable amount of care is elective with respect to timing. People who have exceeded their deduct ible have a great incentive to undergo in the same year all of the tests and other procedures that they are contemplating because there will be no cost to them. Fi- nally, a deductible that might be reasonable for a high -wage worker would be un reasonable for one making much less. Thus, there will be pressure to have the de ductible vary with income, and that will give rise to other problems, including increasing the administrative costs of such plans Managed competition. Managed competition is another incremental reform pro- posal. Although in principle it can be applied to all health coverage, in recent years at improv efficiency of employer-based insur- ance. The leading proponent of managed competition, Alain Enthe oven eve that employers would see its advantages and voluntarily adopt it. 8 Some have, but HEALTH AFFAIRS Volume 24, Number 6HEALT H CAR E REEOR M are geared to income, there are the additional disadvantages associated with de￾termining eligibility and disincentives imposed on people who might increase their income. Medicare and Medicaid. Two other approaches for reducing the number of unin￾sured people are to build on the Medicaid and Medicare programs. For Medicaid, this would involve raising the income level for eligibility; for Medicare, it would involve lowering the age for eligibility.''' Expansion of these programs would mag￾nify their existing advantages and their disadvantages. In addition, if nonpoor, working-age people become eligible for these public programs, there would prob￾ably be a decline in the number covered by employer-based insurance and even some decline in labor-force participation.'^ Health savings accounts. Some incremental reform proposals have objectives other than reducing the number of uninsured people. Consumer-directed health care, subsidized by favorable tax treatment of HSAs, aims at making patients more cost-conscious, leading to usage reductions and possibly more price competition among providers.'^ It is also said that if costs to individuals vary with use, they will have an incentive to choose healthier behavior, such as stopping cigarette smok￾ing. Out-of-pocket payments do give patients an incentive to use less care; whether they are able to make appropriate choices is much more doubtful. The RAND Health Insurance Experiment showed that patients with a higher percent￾age of out-of-pocket expense use less care, but the proportion of care that experts deem "appropriate" did not vary with the extent of insurance coverage.''' There are several reasons for thinking that HSAs, or large deductibles in gen￾eral, would not have as favorable an effect on utilization as advocates claim. First, a large fraction of health spending is accounted for by a small proportion of pa￾tients—patients whose spending levels will be far above their deductible. Second, even for those who have not yet exceeded their deductible but expect to do so be￾fore the end of the year, any particular test, visit, or procedure will effectively be free because the patient's total outlay (the deductible) would be the same, regard￾less of whether or not they get the particular service. Third, a considerable amount of care is elective with respect to timing. People who have exceeded their deduct￾ible have a great incentive to undergo in the same year all of the tests and other procedures that they are contemplating because there will be no cost to them. Fi￾nally, a deductible that might be reasonable for a high-wage worker would be un￾reasonable for one making much less. Thus, there will be pressure to have the de￾ductible vary with income, and that will give rise to other problems, including increasing the administrative costs of such plans. Managed competition. Managed competition is another incremental reform pro￾posal. Although in principle it can be applied to all health coverage, in recent years it has been aimed primarily at improving the efficiency of employer-based insur￾ance. The leading proponent of managed competition, Alain Enthoven, believed that employers would see its advantages and voluntarily adopt it.'^ Some have, but HEALTH AFFAIRS - Volume 24, Number 6 1403