“This is a conservative wish list,” said House Speaker Paul Ryan, as he cheerfully ticked off the main provisions of the American Health Care Act (AHCA), the Republican bill to replace Obamacare, at his press conference last Wednesday. So, what’s not to like?
Plenty, it turns out. The problem with this particular wish list is that it fails to provide a coherent framework for curbing the relentless rise in medical prices—the same inflation that plagued Democrats at the voting booth since 2010. During Mr. Obama’s eight years in office, the medical cost trend—the prices that insurers pay for health services, drugs and devices—rose 79 percent. These increases were passed on to consumers in the form of higher premiums and cost sharing. Annual health bills for a working family of four soared by nearly $11,000.
Even if private medical costs were to grow “just” 5.6 percent a year going forward—well below the average of the past five years—annual health bills for the typical working family will go up by another $13,000 over the extended length of the Trump presidency.
The fact that many Republicans are tempering their support for the AHCA makes common sense. The lesson of the past eight years is that politicians who enact their wish list on the thinnest of partisan margins own the result. The Democrats did this when passing Obamacare in 2010, and were massacred in the next three elections, losing a total of 62 House seats, nine Senate seats, 12 governorships and 958 seats in state legislatures. Republicans would be crazy to proceed with insurance reforms that don’t also include reductions in medical costs.
As Congress contemplates replacing Obamacare with something that actually works, here are four facts to keep in mind:
1. Medical expenses are too high, even for Republicans. Premiums and out-of-pocket costs this year will total about $27,000 for the typical working family of four. Many Trump voters, meanwhile, have both moderate incomes and high health bills. The simple fact is that many proud working people cannot afford health coverage without a subsidy. So while rearranging insurance markets may have some appeal, the only way to get lower premiums long term is by holding medical inflation below the rate of wage growth.
2. Insurers can’t control costs anymore. In the mid-1990s insurers paid less than Medicare did for many common health services, but today they pay almost twice as much. Behind this turnaround has been the stunning increase in the pricing power of medical providers, as hospitals have consolidated into monopolies and bought up physician practices and outpatient centers. Conservatives who resist price-setting by government should be even more vigilant against price-setting by medical monopolies. It’s time to shed sunlight on hospital, doctor and drug costs through price and quality transparency. Consumers will lower costs by choosing efficient providers.
3. Labor costs are the culprit. Hospitals rarely compete against one another for consumer dollars, but they compete fiercely for health professionals. Almost nine in ten dollars of hospital value-added goes toward compensation, according to the Bureau of Economic Analysis. Most inflation, then, is the result of growing payrolls. Health services accounted for more than 100 percent of U.S. job growth during 2000-2014. And while other workers have seen their wages go down since 2000, medical incomes have grown sharply. Holding medical inflation below wage growth in the rest of the economy will never be popular with health workers or their employers, but reformers’ willingness to take on this constituency is a key barometer of their seriousness.
4. Regulatory costs are growing. Roughly a third of medical spending—about $1 trillion this year—is waste. Much of this inefficiency is hard-wired into our health system through antiquated federal and state rules. Super-punitive privacy laws siphon off the consumer benefits from information technology. Malpractice laws provide a legal excuse for (often harmful) unnecessary care. State-licensed health gilds drive up prices by creating artificial labor bottlenecks. Among the fastest growing health professions is the regulatory compliance specialist. A serious attempt to tame medical inflation would include requirements to sunset and review regulations every five years, ERISA-like preemption (to allow modern insurance products and small business purchasing cooperatives to be sold across state lines), malpractice and privacy reform.
None of these issues are addressed by the current Republican health plan. They should be in successor legislation moving in Congress this year. If Republicans turn a tin ear to the primary health concern of voters – its cost – they will pay a dear price at the voting booth next year.
Wish lists, by definition, are big on happy talk and weak on critical thinking. They rarely live up to their billing. Unfortunately, the AHRA seems headed down the same path as Obamacare—unless Republicans come to their senses.
Joel C. White is president of the Council for Affordable Health Coverage.
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