While there is far more to be done, President Trump has the right idea on health care reform. The low hanging fruit is strategic deregulation, specifically rolling back the ACA-imposed requirements on health insurance that not only directly raised insurance premiums but furthered the inappropriate construct that insurance should minimize out-of-pocket payment for all medical care. When insurance covers nearly everything, patients have little incentive to consider price of care, so doctors and hospitals don’t need to compete on price. The consequences are the overuse of health care and unrestrained costs.
The president’s directive will allow more insurance choices for millions of people who don’t want to buy bloated coverage filled with mandates for care they do not value and will not use. Part of this is the opportunity to buy insurance from other states and without the burden of ObamaCare’s “essential benefits” that increased premiums by almost 10 percent, and many of the 2,270 state coverage mandates for everything from acupuncture to marriage therapy. This will generate cheaper insurance.
Even more importantly, less comprehensive coverage and more widespread availability of high deductible plans will expose patients to paying directly for care. By doing so, patients will incorporate price into health care decisions, a lever critical to reducing the price of medical care itself. And the price of medical care is the major determinant of insurance premiums, the major factor in government health expenditures, and the major obstacle to health care.
Could people consider price for medical care? Yes - almost 60 percent of all expenditures by privately insured adults under age 65 is for elective outpatient care, and these are amenable to price-conscious purchasing. Even for the top one percent of spenders who spend for more than 25 percent of all health spending, a full 45 percent is for outpatient care.
Additionally, the president noted the goal of expanding and deregulating tax-sheltered accounts. Employer provided HRAs (Health Reimbursement Arrangement) and independent HSAs (Health Saings Account) motivate patients to consider price, because account holders keep the money they don’t spend. These accounts are better than tax deductions, because they incentivize saving. Spending of patients with high deductible health plans paired with HSAs decreased at least 15 percent annually in a March 2015 study. When people have savings to protect in HSAs, the cost of care comes down without harmful impact on health. To maximize downward pressure on prices, HSAs should be also be available to seniors on Medicare, the most frequent users of health care. Raising maximum contributions, permitting tax-sheltered rollovers to surviving family members, and allowing HSA payments for the expenses of the holder’s elderly parents would also be significant deregulatory steps.
For patients to effectively seek out the best value for their money, more reforms must also occur.
First, the visibility of information that patients require for assessing value must be radically improved. We know that price transparency encourages price comparisons by patients for outpatient care like magnetic resonance imaging (MRI) and outpatient surgery. Doctors and hospitals would certainly post prices and qualifications once they are competing for price-conscious patients empowered with control of the money.
Second, the supply of medical care must also be strategically increased. We need to remove anti-competitive scope-of-practice limits on nurse practitioners and physician assistants, because they provide effective primary care that is 30 to 40 percent cheaper than that provided by doctors. Additionally, about two-thirds of the 2025 projected doctor shortage of 124,000 will be in specialists, yet medical societies have maintained protectionist training program limits that restrict competition. Meanwhile, medical schools have prevented any increase in graduation numbers for almost 40 years. These longstanding anti-consumer practices should at least be opened to public scrutiny. Simultaneously, archaic obstacles to competition among medical care providers must be eliminated, like state certificate-of-need requirements for installing competitive medical technology.
Third, introduce the right incentives into the tax code and eliminate the harmful, counterproductive incentives of the current tax code. Today’s unlimited income exclusion from taxes for employer-provided health benefits encouraged higher demand for care, regardless of cost, while distorting insurance into covering almost all services. Likewise, artificially propping up high insurance premiums for bloated coverage that minimizes out-of-pocket payment via subsidies or tax credits prevents patients from caring about price. This reduces incentives for doctors to compete on price. Any new tax reform should cap health care deductions and limit eligibility to catastrophic premiums and HSA contributions to incentivize patients to consider prices.
We know that focusing on increasing the number of people with health insurance by expanding government programs and subsidizing premiums is an ill-conceived approach that caused skyrocketing insurance premiums, fewer insurance options, and markedly fewer doctors accepting the insurance. We also know that countries with single payer health care hold down costs by limiting the use of health care, with the expected long waits and worse medical outcomes, particularly for the poor and middle class who cannot circumvent those systems. Instead, America’s reforms should focus on reducing the price of medical care itself without restricting its use or creating obstacles to new drugs and technology.
The key is to incentivize and equip consumers to consider price; strategically increase the supply of medical care to stimulate competition; and introduce the right incentives into the tax code. This is the best pathway to broaden access to high quality care for all Americans.