John McCracken, PhD
U.S. healthcare is at a crossroads. The choice is between a more transparent, market oriented system characterized by competition on price and quality or one characterized by greater government control over healthcare services and pricing. The Coronavirus pandemic could easily tip the balance in favor of the latter.
After 10 years the Affordable Care Act has expanded the number of Americans with health insurance, but it has done virtually nothing to restrain the growth of healthcare costs. Payment reforms advanced by CMS have shown disappointing results, and taxes, penalties and other mechanisms contained in the Act intended to rein in costs have been abandoned.
In 2019, the average monthly premium per enrollee in the individual market was $515, a 137% increase from 2011. Deductibles also have risen dramatically. This year, the average deductible for a silver plan offered on Healthcare.gov is $4,500, up 86% from 2014.
The principal driver behind healthcare cost inflation has been rising provider prices, not greater service utilization. The Health Care Cost Institute reports that between 2014 – 2018 total annual health care spending for people with employer-sponsored insurance grew 18.4%, with three-quarters of that increase due to growth in service prices. Other studies have confirmed the same finding, that healthcare providers have increased and continue to increase their service prices far faster than general price inflation.
Cost Control Alternatives
The cost of healthcare dominates today’s political discussion, and the public consistently ranks it as the number one issue they want government to address. So far, the debate has centered on two diametrically opposite approaches:
- unleashing the forces of market competition through greater healthcare price and quality transparency; or
- greater government control through some flavor of Medicare for All.
These two approaches to controlling cost are mutually exclusive. Which one the American polity will choose is likely to be decided relatively soon.
Last November the Administration finalized a rule requiring hospitals to publish payer-specific negotiated rates in a consumer-friendly, online format by January 1, 2021. It also requires hospitals to provide pricing information for 300 shoppable services as well as discounted cash prices, de-identified minimum negotiated charges and de-identified maximum negotiated charges. The outcry from the healthcare industry was predictably swift and fierce, and last December four major hospital groups filed suit to block the rule.
The Administration’s goal in establishing the rule was to promote consumer-style competition. Price transparency is essential to a functioning competitive market, and access to usable information about price and quality would enable both patients and employers to shop for the most cost effective care available. Opponents of price transparency claim the public would not be able to interpret and utilize the vast and complex array of data that would result, though no doubt online disruptors like Google, Apple and Amazon would quickly develop apps to collect, organize and present the data in a decision-useful format.
Medicare for All
The alternative to market competition is some variant of Medicare for All, which has been a central theme for all of the Democratic presidential candidates. On the heels of Sen. Bernie Sanders’ recent exit from the race, presumptive Democratic nominee Joe Biden outlined his plan to lower the Medicare eligibility age from 65 to 60. Biden’s expanded coverage proposal is sure to gain traction with the American public; polling by the Kaiser Family Foundation shows that 66% of the public favors a Medicare purchase option. Detail of the plan are scarce other than that in order to protect the Medicare Trust Fund it would be financed from general revenue.
According to recent census data, there are around 20 million Americans between ages 60 and 64. According to HHS, in 2015 this age cohort accounted for 6% of the U.S. population but 17% of costs paid by private insurers. If a substantial portion of this higher cost age group joined Medicare it likely would result in lower premiums for commercially insured plans, though providers would stand to lose a significant portion of their commercial revenue as these patients became covered by Medicare.
If adopted, Mr. Biden’s proposal to lower the Medicare purchase age to 60 likely would eventually transmogrify into a public plan option available to all. But whatever form the plan eventually takes, it’s sure to be accompanied by an expansion of the federal government’s role in setting clinical prices and an attempt to restrain total spending through global budgets.
Impact of the Coronavirus
Unemployment is likely to remain high for quite some time in the wake of the Coronavirus pandemic. Older workers may have the most difficulty regaining employment in an unstable economy, making Mr. Biden’s Medicare expansion proposal particularly relevant in the current environment.
More importantly, as the pandemic has escalated, U.S. policymakers have embraced economic interventions long considered unthinkable outside of wartime. The Administration recently signed a $2 trillion CARES Act rescue plan, and the Federal Reserve has undertaken an open ended bond buying program that essentially monetizes the resulting federal deficit. In addition, the Fed and Treasury Department have established several special purpose vehicles (SPVs) to provided targeted support to specific American industries and financial markets. Democrats and Republicans alike have embraced big government activism, and politicians on both sides of the aisle have tossed budget deficit worries out the window. As a result, U.S. government debt could soon rise to levels even higher than World War II, when it reached around 120% of GDP.
The Coronavirus pandemic may well have tipped the balance of public opinion in favor of a much larger scale of government intervention in the economy than has ever been seen outside of wartime. If so, it could also tip the balance in favor of government price setting to control healthcare costs as an alternative to market competition. Though the jury is still out, it’s likely to return soon with the verdict.
John McCracken is Director of the Alliance for Physician Leadership, an educational partnership between the University of Texas at Dallas and The University of Texas Southwestern Medical Center. The Alliance offers an MS/MBA program in healthcare leadership and management exclusively for physicians.