By Inas Kelly, Erin Kaplan, and Matthew Hill
Despite a general concern about the state of the American health care system, politicians and the public are divided when it comes to solutions. In health economics we often think of health care as a three-legged stool composed of cost, access, and quality. It is difficult to find policy solutions that simultaneously address all three aspects of the health care system, but this framework is useful for organizing our thoughts around health care proposals put forward by presidential candidates. A two-tier system is often an effective solution to addressing these goals, and one that is politically feasible.
The Affordable Care Act (ACA), also known as Obamacare, contained some provisions to address all three of these goals, but the primary focus of the law was on increasing access to care through health insurance. The percent of non-elderly Americans without health insurance dropped from about 18 percent in 2010 to a historic low of 10 percent in 2016, following the initial rollout of the law. People gained access to insurance through expansions of state Medicaid systems, and millions enrolled in plans through the newly established individual marketplaces. Approximately a third of the remaining uninsured, especially in states that expanded Medicaid, are eligible for Medicaid and can enroll at any time, and thus are functionally insured in case of an unexpected health event.
Despite an expansion in insurance uptake, many Americans still lack access to health care. In addition to the millions of Americans who remain uninsured, even some with insurance effectively lack access due to cost, such as having a high-deductible plan where out-of-pocket costs are prohibitive. Many put off seeing a doctor due to cost or fear that a major health event could result in personal bankruptcy.
Although many Americans have gained access to health insurance through the ACA, concerns remain about the rising costs of insurance, prescription medications, and health care services. Addressing costs without sacrificing access or quality is difficult, but there are several policy options available, including expanding insurance coverage, regulating surprise billing, collective rate setting, pharmaceutical pricing restrictions, increased price transparency, and stronger enforcement of antitrust laws to encourage competition.
Both hospitals and pharmaceutical companies enjoy incredible market power in their respective markets. Health system consolidation has increased substantially over the past decade, and although consolidation reduces operating costs, these cost savings are not generally passed on to payers. On the contrary, research has shown that prices have increased following consolidation. If more competition could be introduced in the hospital market and anti-trust laws enforced on pharmaceutical companies, it may be possible to achieve both lower prices and higher quality.
The practical elimination in 2017 of the individual mandate to purchase health insurance by congressional Republicans is one recent change that is expected to both increase cost and reduce access. A study by the nonprofit Kaiser Family Foundation estimated that insurance premiums will be an average of 6 percent higher in 2019 as a result of elimination of the individual mandate. Several states have moved to reinstate an individual mandate in an effort to both expand access and reduce premium costs.
Despite concern about the state of the U.S. health care system, particularly the rising cost of care, overall people are satisfied with the quality of care they receive. In order to drive quality improvement, the ACA and other recent policy has led to payment reform including pay-for-performance, where hospitals and health care providers are given financial incentives or penalties for meeting certain quality benchmarks, such as reducing hospital acquired infections or unnecessary readmissions.
What to Watch For
A recent New York Times article by Ezekiel J. Emanuel and Victor R. Fuchs highlighted many fallacies that you hear in these debates. As well-intentioned as many candidates may be, it is very easy to get the facts wrong. These fallacies included the following two: (1) Employers pay for employees’ health insurance. (In fact, many of these costs are passed on to employees in the form of lower wages.) (2) Medicare for All is unaffordable. (Not true, as it mainly involves shifting costs from private to public.)
It is a complicated issue, but here are a few key factors to look out for during the debates, if they are mentioned at all:
Access: How will access be expanded? Will everyone be covered? Will there be a penalty for those not in the insurance pool?
Costs: How much will people pay out of pocket? How will physicians and hospitals be reimbursed? How will more expensive procedures be dealt with? How will the plan be financed?
Quality: How does the policy affect health care quality? Will it allow for a pay-for-performance incentive structure?
Prescription Drugs: What role will the pharmaceutical industry play in any health care reform? How will companies be regulated to avoid extreme price hikes for drugs with very inelastic demand but be encouraged to research and develop drugs that we need?
Democratic Policy Divide
We do need practical answers that are feasible in a country with a heterogeneous population generally wary of the government’s role in health care. The Democratic field is divided between candidates who want a single-payer system and those who advocate for more incremental reforms, such as adding a public option to the insurance exchanges. These divides reflect a fissure in public opinion among the American people, who are generally split in their support of a government-run health care system.
There are currently six candidates who have qualified for the debate on Dec. 19, 2019 at Loyola Marymount University, but offer essentially only three flavors of heath policy proposals. At the most moderate end of the spectrum, Sen. Amy Klobuchar has proposed adding a public option to the Obamacare Health Insurance Marketplaces. Specifically, she supports creating a Medicaid buy-in, which would compete alongside private health insurance plans and would be eligible for subsidies. Only those currently eligible to purchase Marketplace plans would be eligible for the public plan. Former Vice President Joe Biden, Mayor Pete Buttigieg, and Tom Steyer all have similar health care plans. Like Klobuchar, the three candidates want to expand on the ACA by adding a public option. However, unlike Klobuchar, they want to open the public option to anyone – even those with employer plans, and they favor expanding access to subsidies. Sen. Elizabeth Warren and Sen. Bernie Sanders both advocate for Medicare for All. This would create a single-payer health care system that would provide everyone with comprehensive coverage with no premiums or out-of-pocket costs. Their plans would eliminate the need for private health insurance or Medicaid. Estimates of the cost of implementing such a system range, but on average, it is expected that total health care expenditures in the economy would be similar to what they are now (about 18 percent of GDP).
Medicare for All may be an attractive solution, but more disruptive to the current system. The Affordable Care Act was a moderate solution and empirical evidence by health economists suggests it has been effective; therefore, expanding it may be a more realistic way forward.
Inas Kelly is an LMU associate professor of economics, Erin Kaplan is an LMU clinical assistant professor of economics, and Matthew Hill is an LMU clinical assistant professor of economics.
Ellrich, Mike, and Lance Stevens. Americans Fear Personal and National Healthcare Cost Crisis. Gallup Blog, April 2, 2019. Available at: https://news.gallup.com/opinion/gallup/248108/americans-fear-personal-national-healthcarehealth%20care-cost-crisis.aspx.
Emanuel, Ezekiel J., and Victor R. Fuchs. Four Key Things You Should Know About Health Care. New York Times, Sept. 12, 2019. Available at: https://www.nytimes.com/2019/09/12/opinion/health-care-fallacies.html.
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Learn about the equally complex issues surrounding immigration in The Economics of Immigration Reform.