ABSTRACT
The central theme of the best approach to reforming health care policies is the need to use market incentives in the implementation of both private-sector and public-sector policies. Building market incentives into public programs should be clearly distinguished from privatizing government programs. Greater use of market-oriented incentives increases the need for a more effective safety net to catch those too poor or too ill to obtain adequate health insurance on their own. Innovative approaches to health care financing and delivery will be rewarded, and inefficiency will be penalized under a more deregulated, market-oriented system. Medicare needs new sources of funds for two purposes: to meet the expected revenue shortfall associated with factors as the aging of the population, and to extend a greater degree of coverage for long-term care. The structure of Medicare's payment system for physicians is a model of adverse incentives.
