Take Another Swing at Health Care Reform

On March 24, Republicans scrapped their first health care proposal, the long-promised replacement for Obamacare. Yet most of the party — and many other Americans— agree that health care needs reform. Liberals had their chance in 2010, and they made some decent changes. But the system needs much refinement. Conservatives must step up to the plate and make their mark on the US health care system, before inertia sets in.

Republicans have already considered plans from multiple sources — Paul Ryan/Tom Price, Susan Collins/Bill Cassidy, Rand Paul, and many others have thrown their hats into the ring. Another plan is in the works, according to recent news sources, focusing on relaxing federal requirements for insurance rates. All of these plans address the massive scope of Obamacare and try to scale back the federal government’s involvement in individual health care. That is good. But none of them have straightforward mechanisms for addressing the central issue: as a whole, the US spends more per person on health care than any other country and yet has lower life expectancy and worse health.

Image from Peter G. Peterson Foundation; Data from OECD Health Statistics, June 2016.

Of course, the developed countries in this comparison — as liberals frequently point out—have government-provided health care. Based primarily on this fact, many draw the simplistic conclusion that reasonably priced health care can only be provided by the government. But I disagree, advocating a conservative stance here: that a free-market solution, regulated properly by government, may indeed provide cheaper, more innovative care. We simply need to discover that solution.

Toward that goal, following are 5 straightforward principles which could improve health care availability, minimize government involvement, and lower costs. These are broad strokes and would need improvement from the pens of those more experienced than mine, but hopefully they are useful to those drafting legislation currently or in the future:

  1. Require HSA availability for every insurance plan
  2. Regulate the cost of emergency care to prevent companies from profiting on patient crises
  3. Provide a government-subsidized plan for low-income Americans, available on the free market
  4. Maintain protection for pre-existing conditions

1. Require care providers to publish the costs of every procedure

Currently, most Americans have no idea how much their medical procedures cost. A check-up? A hip replacement? If they have the same co-pay, they may as well have the same price. Dr. Zack Cooper, a Yale professor, recently examined data from three of the five largest insurers in the nation. He discovered that prices vary enormously across hospitals, even hospitals in the same market or city. And those price differences aren’t correlated strongly with quality scores. Rather, they tend to be strongly correlated with the size of the hospital network — a large hospital network can charge higher prices because they dominate the supply of services in the area. This is even true in not-for-profit hospitals.

So how do hospitals get away with this, when other large companies cannot? Think of Walmart — it dominates many rural markets as thoroughly as any hospital network, but it can’t get away with drastically raising its prices because the smaller stores will steal customers. If Walmart triples the price of hammers, someone will notice and tell the neighbors, and before long everyone buys hammers at the local home improvement store. If Walmart quadruples the price of apples, the same thing will happen and the local farmer’s market will see a boom in apple consumption. When prices are transparent, little players keep the big ones honest.

In health care, I have never heard anyone talk about the prices at their favorite hospital. They might talk about the kindness of the staff, or the ease of paperwork, or the convenience of service. But the most important factor in any free-market decision, price, is out of the picture because we don’t know what the prices are. If my local hospital negotiates with my insurer to double their prices but leave my co-pay the same, I’ll never know. And another fraction of American GDP goes toward health care.

Image from a 2010 AEI article on price transparency — worth a read if you’re willing to dive into details on health care pricing and economics.

There is a difficulty here — most hospitals negotiate different procedure costs with different insurance providers, so they may find it difficult to name one cost for all consumers. However, the advantages of the policy outweigh the difficulties of execution, and I am confident that the health care experts who wrote thousands of pages of clarification for the ACA are capable of writing clarifying language on how to post prices despite varying insurance charges.

American consumers should know what their hospitals are charging, and should be able to compare hospitals across their area. Then insurance companies will be motivated to find ways of encouraging customers to select the lowest price, and smaller hospitals can prevent larger ones from gouging patients.

2. Require HSA availability for every insurance plan

Health Savings Accounts (HSA’s) are untaxed accounts to which consumers contribute. As long as the funds are used for medical expenses or retirement, they cannot be taxed. Thus, since they are using their own money, consumers are more likely to be price conscious. Rand Paul proposed a similar idea in his recent health care bill. Coupled with the price transparency in #1, this action can create a more robust free market around healthcare.

Politicians may need to allow certain high-premium plans to dispense with an HSA, but the majority could tack on an option for the account without any problem. Enabled by price transparency, consumers could then use the power of their wallets to motivate health care providers to compete on cost, not just quality.

3. Regulate the cost of emergency care to prevent companies from profiting on patient crises

The first and most important reason for government regulation of health care is the potential for crisis. A friend seriously injured in a car wreck doesn’t need me to call several ambulance services to ensure we get the best price. They just want me to find the closest, fastest emergency service regardless of price, for in such moments, life has no dollar value.

Image from medicina.med.up.pt

This creates a non-free-market environment for hospitals and care providers — they have no incentive to reduce emergency care prices, but rather to provide the fastest and highest quality regardless of price. The better an emergency room’s reputation for saving lives, the more business it will get. However, these high prices raise the cost of health care for everyone.

To adjust for this difficulty, the federal government could assemble a board composed of public and private health care stakeholders. These hospital employees, insurance employees, doctors, and bureaucrats would set price ceilings on essential emergency care procedures — stitches, setting broken bones, traumatic brain surgery, and the like. The ACA already has a board which performs similar functions: the Independent Payment Advisory Board (IPAB). The group could simply be redirected to a simpler job that has a more direct impact on consumers.

4. Provide a government-subsidized plan for low-income Americans, available on the free market

*NOTE: Several readers have noted that the plan I indicated previously in this section is much more burdensome on low-income Americans than our current system of Medicaid. Naturally, I am thoroughly embarrassed. I have to admit that I was not sufficiently thorough in my research on this section, which focused mostly on the cost portion (above). Thus I’ve made some edits here to keep it more general. As long as low-income Americans have basic health care options, I’m happy.

No one thinks that low-income Americans should go without health care. And indeed, it doesn’t make sense economically — everyone eventually needs health care, at very least in emergency, birth, and death, so those without insurance still end up in hospitals or clinics. American workers end up paying those bills, through a combination of higher insurance premiums and higher taxes for government health care subsidies. So, both morally and practically, it makes sense to formalize this process and have a government-subsidized health insurance plan.

The current system of Medicaid, along with other plans, certainly provides some coverage and might only need minor changes. Or there might be a way for the government to provide a income-based plan on the free market. Whatever the solution, keeping all Americans as healthy as possible should be a priority for us all. Each individual should have access to a doctor for regular visits and during emergencies.

5. Maintain protection for pre-existing conditions

Obamacare introduced an important protection for “pre-existing conditions,” ensuring that insurance companies cannot require unsustainable premiums from individuals who try to buy medical coverage after being diagnosed with expensive medical issues (such as cancer or diabetes). This protection should be preserved. There may be some room to allow for higher premiums in such cases, but reasonable limits should be imposed — no one wants a cancer patient to also lose their house and savings at the same time they are while also battling a vicious disease.

From lodiwineawards.com

Hope for the Future of American Health Care

Health care in America is already strong. We show great ingenuity in solving intractable health problems, great compassion for the poor in our hospitals, great determination to preserve the lives of infants and the elderly alike.

But the cost is high, and cuts into our ability to innovate in other fields and provide decent incomes for thousands of low-income Americans. Bringing down costs should be top priority. Many organizations are working on long-term plans to encourage more healthy lifestyles (“value-driven care”). Others are focusing on educating patients to make more cost-effective choices.

However, while these issues will take years to bear fruit, the five points outlined in this article are ideas which can be made into legislation immediately, by our current Republican Congress. The first two can help health care behave more like a free market, with the cost and quality improvements that will accompany that reform. The last three will maintain or improve protections for the most vulnerable in our society — the poor and the sick. I can think of no more noble cause for lawmakers to champion.



“I do not understand one thing in this world. Not one.” — Marilynne Robinson, ‘Gilead’

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Abe Collier

“I do not understand one thing in this world. Not one.” — Marilynne Robinson, ‘Gilead’