Aggressive deregulation is the key for competition-based, health-care reform

Aggressive deregulation is the key for competition-based, health-care reform
© Getty Images

Contrary to the prevailing narrative, health care reform is alive and progressing. The public only hears about a bungling Congress that cannot repeal and replace the Affordable Care Act, a law that is already imploding on its own. This administration continues to implement strategic deregulation that will lower the cost of medical care and insurance through competition. 

The regulatory swamp amplified by ObamaCare further isolated health care from market forces. This propagated perverse incentives, raised prices and reduced choices, ultimately costing patients and taxpayers dearly. 

ADVERTISEMENT
Insurance on Affordable Care Act (ACA) exchanges continues to worsen, as per Health and Human Services. According to the Kaiser Foundation only one exchange insurer offered coverage in each of approximately one-half of U.S. counties, with large year-on-year premium increases in 2018. This was even in the face of higher deductibles.

 

Moreover, the number of doctors and specialists who will accept those insurances continues to decline, with far less specialists as compared to providers outside ACA exchanges. Now almost 75 percent of plans are highly restrictive.

The Trump administration seems to understand the key concept — expose health care to competition for value-seeking, price-conscious consumers. After several failed efforts by Congress to repeal and replace the ACA, the president issued an executive order on Oct. 12, 2017 that called for reforms to increase consumer choice and more affordable care specifically through enhanced competition and deregulation.

In response, one key regulatory action was issued on Feb. 21, 2018 by the Departments of Health and Human Services, Treasury and Labor. This new directive increases the allowable time period for holding “short-term, limited duration” (STLDI) health insurance to 12 months from its current 3-month maximum.

These plans are flexible and cheaper, with premiums of one-third to one-fourth those of ACA-compliant plans. This is because they are exempt from many of the ACA regulations responsible for the premium increases, like bloated benefit mandates and counterproductive limits on out-of-pocket costs.

STLDI premiums can incorporate differences in health status and age that more accurately reflect medical care usage, i.e. that are actuarially fair. The administration has requested comments regarding further modifications.

Here are some: STLDI plans should be renewable and allowed for longer periods of time; they should be available to everyone, regardless of age or employment; and even more boldly, they should be included in Medicare and Medicaid as alternative, cheaper coverage coupled with a defined benefit instead of traditional coverage. 

A second directive was issued by the Department of Labor to expand access to affordable coverage by removing restrictions on association health plans (AHPs) under the Employee Retirement Income Security Act (ERISA).

Exempt from many costly regulations of the ACA, small businesses, partnerships and self-employed individuals would be able to purchase large group health insurance or even to self-insure as an association, as well as leverage negotiating power with providers and form large risk pools — all ultimately reducing insurance costs and increasing choices for beneficiaries.

Other key deregulatory moves have also been instituted and will benefit patients.

The administration nullified the individual mandate to purchase insurance by removing its financial penalty. Rather than “causing” people to become uninsured, this liberates individuals from punitive coercion to buy insurance they don’t want. Congress finally killed the Independent Payment Advisory Board, or IPAB, a politically appointed body created by Obamacare that even Howard Dean, former Chair of the DNC, admitted was “essentially a health care rationing body.” Seema Verma of CMS continues to empower states via waivers to circumvent ACA regulations to allow more Americans cheaper coverage.  

Scott Gottlieb has instituted competition-based reforms, including reversing the downward trend in drug approvals, with 68 new drugs and biologics approved in 2017 (including those by CBER), the highest in decades. Gottleib’s has also increased generic drug approvals by 60 percent in 2017, which is higher than the previous year.

The next critical action is to instill far stronger incentives for patients to save money when buying health care. Could consider price when they need medical care?

We know this reduces prices by almost 20 percent for outpatient care, like magnetic resonance imaging (MRI) and outpatient surgery. Among privately insured adults under age 65, almost 60 percent of all expenditures is for elective outpatient care, while emergency care represents only six percent of expenditures. One key step is to dramatically improve health savings accounts. When people have savings to protect in HSAs, the cost of care comes down at least 15 percent annually without harmful impact on health.

Beyond doubling maximum contributions, account holders should be able to pay for expenses of their elderly parents and rollover tax-sheltered balances to surviving family members. To maximize downward pressure on prices, HSAs should also be available to seniors on Medicare, the biggest users of health care, whose expenditures are almost 40 percent for outpatient —price-sensitive care.

To fully leverage consumer power in a newly competitive market, 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,30–40 percent cheaper than doctors.  

Additionally, two-thirds of the 2025 projected doctor shortage will be in specialists, yet medical schools have prevented any increase in graduation numbers for almost 40 years and medical societies have maintained protectionist training program limits that restrict competition. These anti-consumer practices should be aggressively questioned. Simultaneously, archaic state certificate-of-need requirements for installing medical technology and nonsensical barriers to cross-state doctor licensing must be eliminated.

Second, the visibility of prices to patients must be radically improved, as Sen. Bill Cassidy (R-La.) and others are now exploring. The most flagrant situation is in prescription drugs, in which complex behind-the-scenes rebates totaling $179B from companies to pharmacy benefit managers (PBM) prevent any price consideration by patients.

Worse, many PBM contracts prohibit pharmacists from volunteering that a drug may be cheaper if purchased at the “cash price” with contractual “gag clauses”, according to a 2016 survey of pharmacies. New data shows a scandalous fact — over 20 percent of co-pays exceeded actual total drug costs, with the PBMs pocketing the difference off of naïve patients.

Other than outlawing anti-consumer gag orders, legislation may not be necessary — as in every other market, sellers would post prices and qualifications once they are competing for price-conscious patients who control the money.

Consumers with strong incentives to save money represent a powerful lever that reduces prices and increases quality. The key is to maximize these incentivizes for consumers to consider price; strategically increase the supply of medical care to stimulate competition; and align these incentives in the tax code. This is the best pathway to broaden access to high quality care for all Americans and we are on the right path to achieve this ultimate goal.

Scott W. Atlas is the David and Joan Traitel senior fellow at Stanford’s Hoover Institution and the author of Restoring Quality Health Care: A Six Point Plan for Comprehensive Reform at Lower Cost.