Regardless of whether Obamacare is “repealed and replaced” or “fixed”, the future of consumer-driven health care will be defined by how comfortably consumers operate in a market where financial pressures lead them to seek out more affordable, high quality providers—in or out of network. They won’t tolerate being left sick and told to fend for themselves with nothing but their credit cards.
Real competition to lower costs and increase quality must happen quickly—by repealing the regulations and political firewalls protecting America’s health guilds from nimbler, more innovative competitors.
Consider the irony: in the last election cycle, President Obama savaged Rep. Paul Ryan and Governor Romney for having the temerity to propose a premium support plan for Medicare beneficiaries, saying it would expose seniors to excessive out-of-pocket costs. Two years later, turns out Obamacare is…a premium support health insurance strategy. And a high-deductible one at that.
Remember that Obamacare insurance subsidies are pegged to the second cheapest Silver plan on state or federal exchanges. Silver plans come with high deductibles (nearly $3,000), with more affordable Bronze plan deductibles’ well over $4,000. And the most common plan offerings on the exchanges are HMOs and EPOs, with tightly managed “narrow networks”, and little (or zero) out-of-network coverage. True, out-of-pocket costs are capped—but, as of 2014, still exceed over $12,000 annually for families.
Think of it as premium support for the masses. As conservatives have long argued, in a premium support system, price-sensitive consumers overwhelmingly seek out plans that meet the benchmark—here, low-premium, high deductible Silver Bronze plans (outside the exchanges, Bronze plans are most popular, according to eHealthInsurance.com).
But the potential for an HMO-style backlash is real, as insurers define hospital and physician networks in exchange plans largely based on their willingness to accept significantly lower reimbursements, rather than transparent quality metrics. Consumer dissatisfaction could easily spiral and lead state and federal regulators to expand network requirements, increasing pricing pressures on the exchanges—and Obamacare’s price tag for taxpayers.
Another red warning light: recently released Medicare data shows hospital costs continue to rise much faster than inflation, and few experts expect the recent slow-down in health care costs to persist. Rising costs won’t sit well with consumers expected to shoulder ever larger deductibles.
Put aside, for a moment, the question of whether Obamacare needs to be “fixed” or “repealed and replaced.” What would a truly consumer-friendly health care system resemble?
- Link transparency efforts to enhanced competition among providers. Health care experts have been split on whether listing health care prices can, alone, help control runaway health care inflation. The answer seems a qualified yes: a 2013 paper from University of Chicago researchers, studying 30 states’ efforts to enact price transparency regulation, found that transparency reduced health care costs for hip replacements by 7%. The catch: the effect was greatest in areas with significant health care competition (less hospital consolidation), and when consumers had significant incentives (like high deductible plans) to seek out lower cost providers.
Thus, having “skin in the game” is plainly not enough. Alternative, lower cost service providers have to be available to force high-priced providers to reduce prices.
This has implications for both federal and state policymakers. While domestic medical tourism is already a growing phenomenon—larger companies like Boeing and Lowe’s send patients to the Cleveland Clinic for lower cost, higher quality cardiac procedures—it would receive a huge boost if public programs and state employers alike threw their heft into the movement, thereby accelerating the creation of a true national market for health care services.
For instance, Medicare should identify similar procedures (hip and knee transplants, cardiac surgeries), offering incentives to seniors that utilized lower cost, high value providers across the country (or across the street). Currently, Medicare penalizes hospitals with higher readmission rates for some procedures. Reforms rationalizing Medicare deductibles—bundling Parts A, B, and D into one flat deductible, as proposed by Senators Coburn and Lieberman—would also drive volume to efficient providers if Medicare lowered deductibles or co-insurance for covered procedures.
- Use payment reforms to ensure every provider is practicing at the top of their license—and competing with providers offering similar services. Highly trained mid-level providers, like nurse practitioners (NPs), should be allowed to offer all the services they are trained to provide without the supervision of a physician. Yet only 20 states currently allow this.
Evidence suggests that NPs offer the same quality of care as primary care physicians; as such, NPs should be allowed to compete directly with them and be paid the same through federal programs like Medicare and Medicaid. Congress should tie Medicaid matching funds to states which enact such reforms. Similarly, Medicare and Medicaid should pay for all services based on quality and complexity—not location or provider.
- Make it easier for consumers in high-deductible plans to save for unexpected medical expenses. Health Savings Accounts (HSAs) appear to be alive and well on Obamacare exchanges, allowing consumers to rapidly accumulate funds for out-of-pocket medical expenses. But identifying HSA-eligible plans on exchanges can be difficult. As a first step, Congress should require exchanges to clearly identify HSA eligible plans, streamlining HSA qualifications. Any plan meeting the minimum deductible could qualify or—and this would go a step further—any plan with a minimum actuarial value of 70% or less could qualify for HSA status. If purchased when young and healthy, HSAs can be used to offset costs and drive even more competition among providers. Obamacare’s cost-sharing subsidies should also be deposited in an HSA.
Far more could be done to increase provider competition in the U.S. Repealing the cap on physician-owned hospitals would be an important step—as shown time and again, they offer high quality, cost-effective care. Repealing state “certificate of need” laws, shown to protect incumbents, would constitute another important reform.
Obamacare may, or may not, be here to stay. Regardless, savvy policymakers need to recognize that the fundamental force it’s unleashing—millions of consumers with “skin in the game”—can be usefully harnessed to empower consumers, lower costs, and improve quality.
But without increased competition—real choices among providers and insurers—the newly insured will be left with fewer choices, more risk, and higher costs.
Which political party wants to take credit for solving that looming problem?
Paul Howard is a Manhattan Institute senior fellow and director of the Manhattan Institute’s Center for Medical Progress.