Just as President Obama’s healthcare law is tightening its grip on American health insurance, there are growing signs of the promise of market-based health plans to lower costs.
There has been a long-running debate among health policy experts on the Left and Right about the best way to contain the growth of healthcare spending. For liberals, most solutions were rooted in increasing centralized control and instituting cost containment from the top down.
The ideal liberal plan would be some sort of single-payer program in which government was the purchaser of healthcare services for everybody, and used its power to limit spending. This philosophy was the driving force behind the liberal push for making a “public option” available alongside privately administered plans on the government insurance exchanges and for allowing Medicare to directly negotiate prices with drug companies.
Liberals weren’t able to achieve those changes with Obamacare, but as liberal economist Paul Krugman has written, the law that was passed “basically relies on a combination of regulations and subsidies to rope, coddle, and nudge us into a rough approximation of a single-payer system.”
Conservatives have long pushed an alternative vision for containing costs, based on giving individuals more control over their healthcare dollars. In most aspects of the U.S. consumer economy, technological breakthroughs are associated with higher quality products and lower costs. This has not generally been the case with medical care. To conservatives, the reason is that most Americans obtain insurance through the government or their employers and are thus insulated from the actual cost of their medical care.
Americans wouldn’t expect their homeowners’ insurance to cover every visit by a plumber, or for their car insurance to cover every oil change. But instead of thinking of health insurance as a financial arrangement to protect them against financial ruin in the event of a major accident or illness, Americans have come to expect comprehensive coverage of routine medical expenses.
However, by changing tax incentives and removing regulations, conservatives have long argued, it is possible to expand choice and competition in the healthcare market, thereby unleashing the American consumer and driving down costs.
On Dec. 3, actuaries at the Center for Medicare and Medicaid Services released a report showing how consumer-driven plans could drive down costs.
The report, published in the journal Health Affairs, found that health spending rose at a 3.6 percent rate in 2013, the lowest level of growth ever recorded since the agency began measuring in 1960.
Actuaries cited a number of reasons for the slowdown, especially the lingering effects of the recession.
Obamacare’s Medicare cuts contributed to the slowdown, but other aspects of the law increased health spending, and the actuaries didn’t measure the net effect of the law. In 2014, Obamacare is expected to contribute to a spike in health spending because of the millions of Americans who gained coverage through Medicaid and the subsidized insurance exchanges.
The report also found that private insurance spending growth had slowed in part because of “significant growth in consumer-directed healthcare plans,” said Micah Hartman, a CMS statistician.
High-deductible health plans carry lower premiums and are often combined with health savings accounts, which allow individuals to pay for routine medical expenses with pre-tax dollars, giving them more control over their money and greater flexibility in choosing what doctors they see.
Between 2005 and 2013, the number of Americans with HSA connected high-deductible health plans rose from 1 million to 15.5 million, according to data from America’s Health Insurance Plans, the industry’s chief lobbying organization.
Hartman, who spoke at the National Press Club in conjunction with the release of the CMS report, noted that there were two reasons why high-deductible plans lowered spending. One, they carry lower premiums. Two, because people have to pay for medical expenses up to the deductible, they become more wary about seeking unnecessary care.
In 2014, some Obamacare plans carried higher deductibles, but they were more limited — and expensive — than they needed to be given the raft of regulations imposed on them.
Supporters of Obamacare insist that the law’s changes to Medicare (which include adjustments to the way medical providers are paid) will help contain costs over time, even as the law increases coverage. But in a separate report released in July, Medicare’s chief actuary warned that Obamacare’s changes will be unsustainable because eventually medical providers will lose money by serving Medicare patients, forcing them to exit the program. This will either reduce access or force Congress to restore funding, thus driving spending back up.
A consumer-driven approach that puts people — rather than the government — in control of healthcare spending would be much more sustainable.
