Empowering the demand side: from regulation to purchasing.

The primary justification for private insurance is the hypothesis that competition among private insurers will lead to an environment in which physicians and hospitals will continually strive to improve the quality and economy of the care they provide, and to be responsive to the preferences of the consumers they serve. However, to date, competition among private insurers has failed miserably in achieving this goal. In order to achieve this goal, competition among insurers must be regulated in an entirely different manner than it is currently. This article describes the ways in which health insurance is currently regulated, and argues that passive regulation directed at assuring financial solvency of insurers should be transformed into an active purchasing authority. This purchasing authority would empower the demand side, creating an environment of managed competition that rewarded those provider groups able to offer high quality, economical care.