There is no such thing as “free-market” healthcare in the United States. Beyond subsidized healthcare in the insurance exchanges set up by the Affordable Care Act (ACA), everyone with health insurance through their employer participates in the second largest entitlement in America, after Medicare and Medicaid. These problems, and others, have the American healthcare system and economy speeding toward dangerous territory, says health policy scholar Avik Roy.
“We’re either going to have a massive financial crisis or austerity measures that shed federal spending on healthcare,” Roy, a senior fellow at the Manhattan Institute, told a gathering of healthcare industry leaders called Thrive25. Something has to change; the U.S. already spends more per capita on healthcare than any other country. By 2024, healthcare spending may account for 20 percent of the economy.
Health insurance, of course, is one part of the problem; it’s is like an open bar, Roy says: “People expect top shelf because they’re not paying for it.”
Unlike in the auto insurance industry, which offers specific coverages for specific types of incidents and is priced accordingly, health insurance throws everyone into the same barrel; all people in the same community pay the same rate for the same plan, whether they are young and healthy or old and sick. What’s more, we expect to have easy access to expensive care that we essentially aren’t paying for directly – because insurance costs are pooled, when your insurance company pays its portion of that $2,000 or $3,000 MRI for your back pain, the money to cover the cost comes from many people in your health plan, not just your monthly premiums.
Healthcare costs have risen as a result. Despite Americans spending less time on average in a hospital for care than people in other industrialized nations, the cost of that stay in America is five times higher. Why? American healthcare facilities charge more, middlemen push prices up, and the consumer is none the wiser, says Roy. The American healthcare system is so inefficient, a stay in one hospital can cost $1,514 while another may charge $12,537 or more.
While government spending is expected to increase by $1.2 trillion under the ACA, the real problem is Medicare and Medicaid, Roy says. The ACA expands coverage to more people, but Medicare and Medicaid are paying healthcare providers less and less each year, as our nation grows older and more retirees join the rolls of those programs. At this point, many doctors aren’t even accepting new patients because of Medicare and Medicaid, Roy says.
The number of emergency room (ER) visits have surged since Medicaid expanded at the start of the decade, visits that are far more expensive than seeing a primary care doctor. ER visits were supposed to decline under the ACA, although a study by the UCLA Center for Health Policy Research says the increase will level off. It hasn’t thus far, especially since the ACA went into effect in 2014.
Repeal of the ACA isn’t going to happen, Roy says. There needs to be well-crafted reform, instead. Roy, health policy advisor for 2012 Republican presidential candidate Mitt Romney, says America needs to look to the Swiss and Singapore for answers. Both countries are much higher than the U.S. on the Heritage Foundation’s economic freedom list, both are far better than America when it comes to public health expenditure per capita, and both have universal healthcare.
In Switzerland, everyone shops for private insurance on exchanges similar to those in the ACA; there’s no employer-sponsored or government-run insurance programs. The Swiss government subsidizes everyone, the lower your income the less you pay. Prices are transparent. The system pays for preventative services, just like the ACA does, and is far more cost-effective than the U.S. system.
“If we had a Swiss healthcare system in America, and only subsidized healthcare for the poor, we wouldn’t have a deficit,” Roy says.
The Singapore healthcare system, meanwhile, is universal, with single-payer catastrophic coverage for big health problems like cancer. All other healthcare is paid for through individual health savings accounts (HSA) and paying cash for non-emergency care, based on your income tax level.
Because the ACA insurance exchanges are like those in the Swiss system, Roy says more robust exchanges, HSAs, and a diminishing reliance on Medicare and Medicaid can give rise to real, consumer-driven healthcare reform in America.
Roy would deregulate the ACA exchanges, repeal costly ACA taxes and mandates, and give regulatory authority of the exchanges to the states. Participants would start HSAs and pick the private catastrophic coverage that best suited their needs, through the exchanges. Unspent HSA money would amount to another way to save for retirement.
He would raise the eligibility for Medicare by 4 months each year, essentially shifting retirees to the exchanges over time. Then he would privatize Medicaid by gradually shifting low-income enrollees into the exchanges, as well.
Roy says his plan would permanently stabilize the U.S. healthcare system and leave it solvent, save trillions of taxpayer dollars while reducing the national deficit, and lower federal and state taxes. Coverage, meanwhile, would expand to more people than it will under the ACA, while lowering their premiums, which the ACA has increased.
The end result: Our healthcare system would resemble Switzerland’s, but with less regulation, providing universal coverage and improving the health of the poor.
“A system with universal coverage, individual choice, and fiscal sustainability is within our reach. It would be far better than the system we have now. Isn’t it worth a try?” Roy says.
August 06, 2015
Christopher Nystuen, MD, MBA