Conservative tack on market-based reforms comes with high degree of political risk

Conservative economic ideology on reforming America’s health care system is that being a market — albeit an “unbelievably complex” one as President Donald Trump told governors gathered at the White House Monday — market-based reforms are the best and most appropriate remedy to achieve lower costs and better value care and outcomes. These goals are also central to the Patient Protection and Affordable Care Act. The law took a decidedly interventionist approach to making the health care market work on both the payer and provider sides, particularly with regard to individual medical plans. In an effort to save the market from collapse, the Affordable Care Act recast the marketplace rules based on a principle coined by healthcare economist Alain Enthoven called managed competition. Under managed competition, the rules of the game are designed to strengthen the sell and buy sides of the market and force sellers to play under market rules designed to reduce market manipulation and level the playing field. Creating state health benefit exchanges and subsidizing purchasers are intended to create a more robust market where plan issuers have to compete on value for a larger pool of buyers than might otherwise exist without the new rules. Those rules also required all plans to offer a core set of benefits to ensure a minimum level of value while leaving plans to offer five different levels of generosity, i.e. how much plan members must pay out of pocket before reaching statutory out of pocket maximums.

Central to market-based reforms is enhancing competition among sellers. The big question in the very complex, multi-siloed market of health care is to what extent competition is possible. Market competition isn’t a black or white, yes or no issue. Rather, competition is a matter of degree. Economists define a perfectly competitive market as one in which there are many sellers and buyers on relatively equal footing with real time access to information about the products or services offered and their price and value. Few if any markets are perfectly competitive. Using that standard, health care is far from a perfectly competitive market, especially so since most consumers don’t directly deal with their medical care providers as beneficiaries and members, respectively, of government and commercial medical plans that do so on their behalf. So far in fact that it is questionable that it can be reformed into a truly competitive market. Cost barriers to entry to new players are high, driving both payers and providers to consolidate, further eroding competition by reducing the number of sellers.

Because competition hasn’t effectively controlled the cost of health care, stakeholders are instead left to attempt to shift rising costs and blame for them to other stakeholders. Or reduce demand for health care by providing disincentives for utilization by forcing consumers to share more of the cost. Under the Affordable Care Act, that has taken the form of higher deductibles. Problem is those higher deductibles have not come with the customary tradeoff of significantly lower premiums. Premium rates have gone up along with the deductibles. That has led consumers and particularly those who purchase individual plans without subsidies to view their plans as “useless,” offering little or no value. That sentiment proved corrosive to the Affordable Care Act since they naturally felt ripped off. They were more than happy to vote for candidates in the November elections committed to scrapping a law they saw as giving them a lousy deal.

Today’s Los Angeles Times reports on political downside of shifting more costs onto consumers as a theoretical means of boosting competition to lower medical utilization and with it, demand stoking rising costs. Doing so runs the risk of irritating consumers even more, who will then take their anger out on their federal representatives in the upcoming midterm elections. Excerpts from The Times story:

Those are politically risky ideas, said Robert Blendon, an authority on public attitudes about healthcare at Harvard University. “Skin in the game has been never popular,” he said. “It may be an economist’s dream. But it’s never been something people say they want.”

“We believe in a patient-centered system, where individuals have the freedom to buy what they want and not what the government makes them buy,” (House Speaker) Ryan told reporters at the Capitol recently. “It’s really, really important to have choice and competition in healthcare because choice and competition lowers cost and increases quality.”

If Ryan were talking about another market like furniture or automobiles where consumers deal directly with sellers and make calm and rational purchasing decisions free of the anxiety that accompanies often painful, highly stressful medical issues, his vision of putting more power in the hands of buyers might be doable. That along with the reality that consumers are tied to government and commercial medical care plans that negotiate and set the terms and conditions of their medical care makes Ryan’s goal a very tall order.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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Frederick Pilot

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