While the news cycle over the past two weeks has been focused on the family separation policy at the Southern border, immigration is most likely not going to be the issue of focus by next November at the midterm elections. Instead, the defining issue will be healthcare: Voters rank it as their most important policy area, and progressive advocacy groups are preparing to make it a focus of their midterm election campaigning.
Republicans need policy ideas other than their disastrously unpopular Obamacare repeal efforts. A few weeks ago, President Trump signed Right to Try legislation, allowing terminally ill patients the ability to try certain medicines the FDA has not yet approved. While this change is a welcome one, it does not begin to address larger problems in the healthcare system. Healthcare costs and insurance premiums have continued to rise, partially due to healthy people choosing voluntarily to not buy insurance thanks to the individual mandate repeal. Republicans need to have an agenda that makes healthcare more affordable for the average American first and foremost, albeit an agenda that uses free market principles to get to that end.
As author and health policy analyst David Goldhill wrote in The Atlantic, the U.S. healthcare system is not a free market, but a “heavily regulated, heavily subsidized industry filled with structural distortions.” Not only does the federal government foot the bill for over 30 percent of healthcare spending in the U.S., but it also pushes consumers toward comprehensive insurance programs through regulations, mandates, and tax policy choices.
Comprehensive health insurance is deeply inefficient. Insurance is designed to be a financial tool against excessive risk — which is precisely how other forms of insurance work. However, health insurance is used for everyday expenses, not solely catastrophes. The use of insurance for noncatastrophic expenses unnecessarily obscures the price system, as patients do not see the price for procedures before undergoing them. This distortion allows different healthcare providers to charge wildly different prices for the same service of the same quality: For example, in San Francisco, the price of a mammogram can vary from $128 to $700 by provider, while the price of MRIs can vary up to three times, all without significant variation in quality.
The first step to reining in these distortions is to facilitate price transparency. The prices of procedures, such as LASIK eye surgery, that patients pay for out-of-pocket have fallen relative to inflation over the past 20 years. This rise in affordability has been due to the fact that the market for these services is relatively unencumbered by insurance companies and supply and demand can effectively be coordinated. Creating mechanisms to allow patients to see prices for the same procedure at competing providers before undergoing the operation is a start, but deeper reforms are needed.
The next step would be to move away from a comprehensive insurance model. Repealing Obamacare mandates, both individual and corporate, is an important step. Furthermore, capping, or ideally eliminating entirely, the tax exclusion for employer-sponsored health insurance would reduce the deficit and lower healthcare costs. The exclusion for employer-sponsored health insurance means the tax code prefers compensation in the form of insurance over compensation in the form of regular income. This incentive structure leads employees to prefer comprehensive insurance programs instead of more efficient catastrophic plans.
Moving to curb reliance on comprehensive insurance in favor of out-of-pocket payment is a major shift, and one likely to unnerve many people. But a country with some of the most affordable healthcare in the world follows a similar model: Singapore. The southeast Asian country features a universal catastrophic insurance program, solely for major, unexpected injuries, coupled with health savings accounts and out-of-pocket spending. Its government spends one-fifth per person of what the U.S. government does on healthcare. Furthermore, as writer Ross Douthat pointed out in the New York Times, the typical Western country spends roughly 10 percent of their GDP on healthcare, and the U.S. spends 17 percent of GDP on healthcare, while Singapore only spends 5 percent of their GDP.
Should Republicans move to enact all of these reforms immediately? Perhaps not, given their precarious political standing and the voters’ distrust of them on the issue. But given how important voters think the issue is, the Republican Party needs to have a long-term solution to the healthcare cost crisis that both makes care more affordable and reduces the federal government’s expensive obligations.
Alex Muresianu (@ahardtospell) is a Young Voices Advocate studying economics at Tufts University. He is a contributor for Lone Conservative.
