PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

A Sensible Guide for Fixing What’s Wrong in Health Care

By at 5 December, 2018, 1:01 pm

New HHS Reports Identifies Costs Drivers, and Reforms

by Raymond J. Keating-

When an undertaking in our economy or society isn’t working as expected or faces challenges, the answer too often from politicians is to have government do something about it. That usually means government throwing tax dollars at and/or imposing regulations on the real or perceived problem.

The idea that government action might make matters worse and/or create more problems rarely seems to enter into such political thinking. And when government-generated ills inevitably develop, the last thing that politicians want to do is admit their own mistakes. So, they tend to point fingers elsewhere and pile on with more programs, spending and regulations – let the facts and economic realities be damned!

This long has been the case with health care policymaking – from failing to think through and deal with all of the consequences of, for example, policies in the 1940s and 1950s favoring employer-provided health insurance, creating Medicaid and Medicare in 1965, all the way up to ObamaCare (or the Patient Protection and Affordable Care Act (PPACA)) being signed into law in 2010.

However, a new report from the U.S. Departments of Health and Human Services, Treasury and Labor offers not only a refreshingly hopeful title – “Reforming America’s Healthcare System Through Choice and Competition” – but also a substantive analysis of what actually needs reform in health care. The focus, correctly, is on assorted government policies that distort, misdirect and undermine the workings of the health care marketplace. The report walks through the impact that assorted policies have on consumer control and choice, on competition, and on costs, and notes assorted actions that the federal government and the states could take – in effect, fixing problems that government has created – to improve the overall quality of health care in this country.

Problems, and Solutions

Among the various problems identified is the issue of third-party payments. When talking about utilization issues and rising costs, the central problem is third-party payments. That is, when a third party picks up the tab – whether an employer-provided insurance plan or a government program – the consumer has no incentive to be concerned about costs, and is, in fact, incentivized to increase utilization. The tradition buyer-seller relationship is eliminated, with neither health care provider or consumer concerned about costs or utilization. Add in the fact that health insurance generally goes far beyond covering unlikely, high-cost events – which is the true purpose of insurance – and instead covers predictable, routine, and shoppable service, the third-party payer problem is magnified.

This phenomenon is explained in the report this way:

“In conclusion, in most other markets, consumers pay the full price of what they purchase and are therefore likely to carefully consider the value of products relative to alternatives. Active shopping by consumers motivates competition on price and quality among producers. Third-party payment for routine, predictable and shoppable expenses reduces consumers’ incentives to obtain maximum value and has contributed to opaque and byzantine prices and bureaucratic complexities. As a result, consumers have less ability and less incentive to carefully shop for healthcare, compare prices and quality, and select the most efficient providers. This, in turn, means that providers have a diminished incentive to innovate and increase their efficiency.”

Considering the universe of misguided policymaking in the health care arena, it is further summed up:

“Many government laws, regulations, guidance, requirements and policies, at both the federal and state level, have reduced incentives for price- and non-price competition, increased barriers to entry, promoted and allowed excessive consolidation, and resulted in healthcare markets that lack the benefits of vigorous competition. Increasing competition and innovation in the healthcare sector will reduce costs and increase quality of care—improving the lives of Americans.”

The report largely goes on to suggest constructive reforms. These include various measures that would enhance efficiency, reduce costs and improve affordability and care, such as:

●  “States should consider adopting interstate compacts and model laws that improve license portability, either by granting practitioners licensed in one state a privilege to practice elsewhere, or by expediting the process for obtaining licensure in multiple states.”

●  “The federal government should consider legislative and administrative proposals to encourage the formation of interstate compacts or model laws that would allow practitioners to more easily move across state lines, thereby encouraging greater mobility of healthcare service providers.”

●  “The Department of Health and Human Services, in coordination with the Accreditation Council for Graduate Medical Education (GME), should identify foreign medical residency programs comparable in quality and rigor to American programs. Graduates of such equivalent programs should be granted ‘residency waivers,’ allowing them to forgo completing an American residency and instead apply directly for state licensure.”

●  “States should create an expedited pathway for highly qualified, foreign-trained doctors seeking licensure who have completed a residency program equivalent to an American GME program.”

●  “State ‘certificate-of-need’ (‘CON’) laws require healthcare providers to obtain permission from a state (or state-authorized) agency to construct new healthcare facilities, expand existing ones, or offer certain healthcare services.165 States initially adopted CON laws to further laudable policy goals, including cost control and access to care. The evidence to date, however, suggests that CON laws are frequently costly barriers to entry for healthcare providers rather than successful tools for controlling costs or improving healthcare quality. Based on that evidence and their enforcement experience, the two federal antitrust agencies–the FTC and the Antitrust Division of the Justice Department—have long suggested that states should repeal or retrench their CON laws.”

●  “The Affordable Care Act introduced a number of mandates and burdensome requirements that significantly reduced choice and competition in insurance markets and caused premiums, particularly in the individual market, to soar. This occurred to a significant extent because government rules and price controls on health insurance premiums, designed to assist some people with higher anticipated health expenditures, inhibited the application of actuarially determined pricing and created an adverse selection spiral in the individual market. These requirements also produced a significant reduction in coverage options for most consumers. In addition to reducing consumer choice and competition between insurers, the higher administrative costs associated with the ACA mandates disproportionately hurt smaller employers, in part because smaller employers were unable to spread these costs as broadly as larger employers and in part because the large-group market is not bound by all of the ACA’s mandates. Therefore, as a general matter, smaller employers that continued to offer coverage were forced to disproportionately raise premium contributions paid by covered workers, making them less competitive with larger employers and with other smaller employers that chose not to offer health coverage to their employees.”

The following remedies are highlighted:

– “The administration should continue to work with Congress to enact legislation that remedies key problems resulting from the ACA, that promotes greater choice and competition in healthcare markets, and that produces a sustainable government healthcare financing structure.”

– “Similarly, the administration should provide states with the maximum ability to expand healthcare choice and competition and create a sustainable financing structure.”

– “States should allow maximum consumer choice and competition in their healthcare markets, including through Association Health Plans and short-term limited-duration insurance.”

– “Congress should repeal the ACA’s employer mandate consistent with the FY 2019 President’s Budget.”

●  “Congress should consider repealing the ACA changes to physician self-referral law that limited physician-owned hospitals.”

●  “The primary vehicles that put more control in the hands of consumers and reduce the bias toward third-party payment are high deductible health plans (HDHPs) paired with HSAs [health savings accounts] and Health Reimbursement Arrangements (HRAs). Research demonstrates that consumer- directed health plans, such as these, can lower healthcare spending, largely through reductions in usage of outpatient care and pharmaceuticals…” The report goes on to highlight assorted reforms that would lift various constraints on and expand the use of HSAs, such as:

– “Congress should expand consumers’ abilities to benefit from Health Savings Accounts (HSAs), including by allowing a greater number of plans (e.g. any plan with an actuarial value below 70 percent) to be HSA-qualified plans, raising the contribution limit on HSAs, allowing people to use their HSA to pay HSA-qualified non-group premiums, allowing Medicare beneficiaries in enrolled high-deductible health plans to contribute to an HSA, and enabling consumers with HSAs to enter into provider-consumer fixed-fee arrangements, including direct primary-care arrangements.”

As noted in this report, the administration already has taken steps to reform health care policymaking. For example:

“In October 2018, the Departments of HHS, the Treasury, and Labor and Labor proposed a rule that would provide employers with significant new flexibility in how they fund health coverage through Health Reimbursement Arrangements (HRAs). If finalized, this flexibility would empower individuals to take greater control over what health insurance benefits they receive. The Treasury estimates that more than 10 million employees would benefit from this change within the next decade.”

“In August 2018, the Departments of HHS, the Treasury, and and Labor finalized a rule to expand Americans’ ability to purchase short-term, limited-duration insurance — coverage for which premiums are generally much more affordable than Affordable Care Act (ACA) plans. Millions of Americans, including middle-class families who cannot afford ACA plans, will benefit from the additional choice and competition resulting from this reform.”

“In June 2018, the Labor Department finalized a rule to expand the ability of employers , including sole proprietors without common law employees, to join together and offer health coverage through Association Health Plans. For many employers, employees, and their families, these employee benefit plans will offer greater flexibility and more affordable benefits.”

Implementing many of the suggested policy reforms in this report, as well as repealing all ACA taxes – including the health insurance tax, which hits small businesses hard –  would make a substantial difference in expanding choice and competition in health care. And of course, given that high and rising health care costs serve as a major problem for small businesses, such reforms would be good news for the entrepreneurial sector of our economy.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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