Perhaps the topic that causes the most internal conflict between my conservative, supply-side-capitalist self and my liberal, the-government-can-do-some-things-well self is health care. The great American experiment has proven that an economy that has limited government interference and sensible regulations will produce more jobs and create more wealth than economies where the government controls much of the means of production and/or overburdens the economy with unnecessary red tape.
But, even in America we have elements of socialism that work. Our tax dollars go to fund fire departments, law enforcement, public libraries, streets, roads and highways. None of us want every road to be privately owned and funded by tolls. None of us want to have to pay for our own security guard to protect us from bad actors. How does health care fit into a largely private economy? Should it be treated as a private sector competitive industry, a public sector service, or some combination of both?
In 1960, about 5% of GDP was linked to health care. Today that number is over 18%. What changed? The introduction of Medicare and Medicaid in 1965 caused a spike in health care spending. This was largely a good thing. Millions of Americans now had access to care that they didn’t have previously. But the increased demand for health care services caused prices to rise faster than the rate of inflation. And physician salaries skyrocketed. They found it much easier to negotiate rates with the government or a private insurer than with their patients directly. This continued in the 1970s and 80s as the increasing pool of government and insurance money provided financial incentives for producers of medical devices and pharmaceuticals to develop new and more effective methods to diagnose and treat diseases.
The next shock to health care spending occurred in the aftermath of the Affordable Care Act (ACA). Government subsidies helped decrease the number of uninsured Americans from 16% to 9%. Similar to the late 1960’s, increasing the number of individuals with access to health insurance created more demand. As our population continues to get older, this percentage is likely to grow.
Recently, Newt Gingrich and Bernie Sanders published editorials on Fox News supporting totally different visions for how to fix this. Newt puts forth a reasonable set of arguments for inserting free market principles into the health care arena. I asked ChatGPT to create a chart comparing the increase in costs for elective surgeries such as LASIK or cosmetic procedures to the cost of non-elective surgeries related to heart disease and cancer, for example. Costs for elective procedures have risen only slightly since 2000, while the costs of the medically necessary procedures have increased dramatically over the same period. It is obvious (and intuitive) that patients act like consumers when shopping elective procedures that aren’t covered by insurance. They ask for referrals, they check on-line ratings, and they shop cost. Newt assumes with increased transparency and fewer restrictions, people will also shop MRIs and heart catheterizations. More on that below.
I was hoping Bernie might make a more compelling argument for continuing the current subsidies, but he mostly just railed against the greedy pharmaceutical companies and noted how many people might lose coverage if the Republicans eliminate the subsidies the way Gingrich suggests. He’s not wrong – without subsidies, many Americans will go back to being uninsured. This would artificially reduce health care spending, but having fewer people with access to health insurance isn’t the solution.
One reason I’m conflicted is that I’m not convinced the capitalist model works for non-elective medical care. Most people are trapped by a network of providers linked to their primary insurance carrier. The cost of an MRI, for example, might vary significantly between provider A and provider B in the same community. Patients go where their doctors direct them, typically without question. Without carrier limitations, would that same patient check pricing at several MRI providers? I’m not sure. I am sure that when faced with a medical emergency, most people are going to go to the closest emergency room rather than checking to see whether it’s more cost effective to go to urgent care or an emergency room at a different hospital across town.
Furthermore, many organizations have sprung up in recent years that are attached to insurance carriers and are designed to help facilitate consumer-driven behaviors. GoodRx and MDSave are examples. Sophisticated shoppers can find better deals using these services, but they wouldn’t be necessary with a single payer system in place. Something doesn’t seem right when person A pays $500 for a prescription their doctor calls-in and their neighbor, person B, gets the same prescription for $100 because they found a coupon on line.
Another reason I’m conflicted is that Medicare and Social Security have worked pretty well since their introductions in 1940 and 1965 respectively. They routinely face funding challenges, but this is a function of congress more than the programs themselves. Bernie and Democrats are correct that if health care is left to the consumer, many people on the lower end of the economic ladder would choose to not have insurance just as they would choose to not set aside current earnings toward retirement.
While I am not convinced that consumers will shop non-elective medical procedures like they shop big-screen TVs or automobiles, I am convinced that they will shop insurance plans. Being self-employed, I have experience going to healthcare.gov and comparing different plans to determine the best fit for my situation. The portal is easy to navigate and makes it easy to compare plans.
Medicare Advantage Plans offer another glimpse at a potential alternative to current health insurance options. Individuals 65 and over are covered by the base Medicare coverage (parts A and B) and can select a Medicare Advantage Plan that fits their situation at either no-cost to them or at some cost, if they choose more robust coverage. There is a strong network of agents who are compensated by the Medicare system who will assist consumers in choosing a plan.
I do not claim to be an expert in our health care system, but I will suggest some potential solutions that might slow the rapid cost of insurance through a combination of market-based and government-based solutions:
- Build a plan that assumes consumers will shop insurance plans but not specific treatment alternatives.
- Develop a system that eliminates the link between health insurance and employment. This was an unintended consequence of Roosevelt’s wage and price controls in the 1930s and is a drag on the private sector’s efficiency. Companies will be happy to substitute a tax for the premium costs they currently pay so long as their costs are comparable. They would love to eliminate the time involved in managing benefit renewals each year and providing benefits administration support to their employees.
- Change the Obama-era rules requiring all plans to include coverages that may not apply to many individuals. For example, a couple in their 50’s may no longer need a plan that covers pregnancy and childbirth. A young, healthy adult in their 20’s may only need major medical coverage. People with religious objections to birth control could select a plan that doesn’t cover it. Allowing carriers to tailor plans for target markets is more cost effective than making every plan contain every benefit.
- Allow the purchase of plans across state lines. This has been a frequent suggestion going back to Hillary Clinton’s failed attempt at health care reform back in the 1990s.
- Expand Medicare to offer a base level of major medical and preventive care coverage for all Americans. And allow insurance carriers to expand what are now medicare advantage plans to cover more people with very targeted plan designs.
- Create a system where the middle-market service providers of health care cost control services for employer health plans are no longer needed.
The health care industry in the U.S. is complicated and powerful. We saw the influence the pharma industry had on government during the COVID epidemic. Reforming how we finance health care is a near impossible task with so many powerful stakeholders who benefit from the status quo. Hopefully we can start taking intermittent steps toward programs that work better for more people.