Unaffordable healthcare is an unnecessary access barrier that has burdened too many people with financially ruinous debt. Worsening these outcomes, healthcare waste is excessive, and productivity is stagnating.
In response, more and more policymakers are favoring reforms that would nationalize healthcare or create a public health insurance option. Further socializing the U.S. healthcare system in not the answer.
The government already pays 41-cents of every dollar spent on healthcare, and government regulations and tax subsidies fundamentally influence the remainder. Since government policies drive the current system, it is reasonable to conclude that government failures also drive its problems.
Consider that on a per enrollee basis, Medicare’s administrative costs are consistently higher than the costs for private insurers. Medicare and Medicaid also reimburse providers at unsustainably low rates. A single-payer system, or a public option program, would undoubtedly continue these traditions and increase administrative costs while imposing tremendous financial stress on many providers and healthcare facilities.
When combined with the record of single-payer systems in other countries that includes lengthy waiting lists, access issues, and doctor shortages, the argument that the system’s current problems can be fixed by expanding the government’s control over healthcare falls short.
Instead of increasing the role of the government, as I have argued in a new analysis, reforms should encourage entrepreneurial innovations to solve the problems of unaffordability, access, and stagnating productivity.
Unlike the results from expanding government, entrepreneurial innovations are already helping patients. Despite the large disincentives for such efforts, healthcare entrepreneurs have still developed new technologies and new delivery models that, if widely implemented, could substantially improve the quality of healthcare in the U.S. while simultaneously reducing its cost.
Unfortunately, the overly restrictive regulatory environment and ineffective payment system limit the scope of these entrepreneurial innovations.
Starting with the current third-party payment system, the incentives of those paying the bill will often vary from the needs of many patients because coverage policies are based on group averages, but effective patient care is individualized. Consequently, patients who require atypical care receive treatment that is not reflective of their preferences and needs.
Since healthcare providers are responsive to the needs and preferences of payers rather than patients, this structure precludes vibrant entrepreneurial experimentation that responds to the needs of patients. Fixing this problem is politically complex, but economically straightforward – reforms are needed that prioritize the preferences of patients over payers.
Patient preferences can only be prioritized if they control more of the spending, which is why expanding the scope and reach of Health Savings Accounts (HSAs) are an essential part of the solution.
HSAs should be open to all, and employers, employees, and the self-employed should be able to contribute to the account. The owner of the HSA should have wide latitude to use the funds to pay for healthcare costs including daily expenses, health insurance premiums, and co-insurance costs. Account holders should be able to save any money that is not used during the year it was contributed for use in future years or (if never used) as part of their retirement income.
Beyond the benefits from enabling consumers to seek more affordable healthcare services and avoid unnecessary care, HSAs empower patients to financially reward those providers who find new or innovative ways to deliver healthcare that reflect their values and needs. This ability to reward entrepreneurial healthcare providers incentivizes the healthcare system to better serve patients’ needs and efficiently adopt innovative new technologies.
Patients would also be empowered to choose delivery models that provide higher quality services that better meet their needs.
Most people still have coverage under the fee for service model that reimburses healthcare providers based on the quantity of services provided. There is growing evidence that value-based payment models can provide patients with higher quality, lower cost healthcare. These models include capitation payment arrangements and pay for performance models that connect payments to meeting specific care benchmarks.
Empowering patients to choose their preferred delivery model encourages the growth of these alternatives as well as the development of new innovations that will lead to further improvements tomorrow.
Improving the practice of medicine also requires comprehensive regulatory reforms that will empower providers to better serve patients. There are many examples of these regulatory burdens.
The need for physicians to obtain licenses in every state is one such regulation, as are overly stringent scope of practice laws that prevent many healthcare professionals (e.g. pharmacists and nurse practitioners) from practicing medicine to the full extent that their training enables. Other regulations, known as Certificate of Need (CON) laws that are effective in 35 states and the District of Columbia, require healthcare providers to obtain government permission to expand their capacity or purchase capital equipment.
Regulations like these erect barriers that make it more difficult for potential entrepreneurs to implement cost-saving/quality-enhancing innovations that would better serve patients. The surge in the use of telemedicine during the coronavirus pandemic once the regulatory burden was temporarily lifted exemplifies the potential surge in entrepreneurial innovations that could follow from permanent and widespread regulatory relief.
Empowering patients, implementing innovative new healthcare delivery models, and applying innovative new technologies to better serve patients is the key to addressing the problems of cost, accessibility, and lack of productivity growth. Unlike the government-centric solutions that dominate the headlines, an entrepreneurially focused healthcare system is well positioned to achieve these goals.
I am a Senior Fellow in Business and Economics at the Pacific Research Institute and the Director of PRI’s Center for Medical Economics and Innovation. My research explores the connection between macroeconomic policies and economic outcomes, with a focus on the health care and energy industries. I have over 25 years of experience advising Fortune 500 companies, medium and small businesses, and trade associations. I received my Ph.D. in economics from George Mason University.
Reforms Should Empower Healthcare Entrepreneurs Not Bureaucrats
Wayne Winegarden
Unaffordable healthcare is an unnecessary access barrier that has burdened too many people with financially ruinous debt. Worsening these outcomes, healthcare waste is excessive, and productivity is stagnating.
In response, more and more policymakers are favoring reforms that would nationalize healthcare or create a public health insurance option. Further socializing the U.S. healthcare system in not the answer.
The government already pays 41-cents of every dollar spent on healthcare, and government regulations and tax subsidies fundamentally influence the remainder. Since government policies drive the current system, it is reasonable to conclude that government failures also drive its problems.
Consider that on a per enrollee basis, Medicare’s administrative costs are consistently higher than the costs for private insurers. Medicare and Medicaid also reimburse providers at unsustainably low rates. A single-payer system, or a public option program, would undoubtedly continue these traditions and increase administrative costs while imposing tremendous financial stress on many providers and healthcare facilities.
When combined with the record of single-payer systems in other countries that includes lengthy waiting lists, access issues, and doctor shortages, the argument that the system’s current problems can be fixed by expanding the government’s control over healthcare falls short.
Instead of increasing the role of the government, as I have argued in a new analysis, reforms should encourage entrepreneurial innovations to solve the problems of unaffordability, access, and stagnating productivity.
Unlike the results from expanding government, entrepreneurial innovations are already helping patients. Despite the large disincentives for such efforts, healthcare entrepreneurs have still developed new technologies and new delivery models that, if widely implemented, could substantially improve the quality of healthcare in the U.S. while simultaneously reducing its cost.
Unfortunately, the overly restrictive regulatory environment and ineffective payment system limit the scope of these entrepreneurial innovations.
Starting with the current third-party payment system, the incentives of those paying the bill will often vary from the needs of many patients because coverage policies are based on group averages, but effective patient care is individualized. Consequently, patients who require atypical care receive treatment that is not reflective of their preferences and needs.
Since healthcare providers are responsive to the needs and preferences of payers rather than patients, this structure precludes vibrant entrepreneurial experimentation that responds to the needs of patients. Fixing this problem is politically complex, but economically straightforward – reforms are needed that prioritize the preferences of patients over payers.
Patient preferences can only be prioritized if they control more of the spending, which is why expanding the scope and reach of Health Savings Accounts (HSAs) are an essential part of the solution.
HSAs should be open to all, and employers, employees, and the self-employed should be able to contribute to the account. The owner of the HSA should have wide latitude to use the funds to pay for healthcare costs including daily expenses, health insurance premiums, and co-insurance costs. Account holders should be able to save any money that is not used during the year it was contributed for use in future years or (if never used) as part of their retirement income.
Beyond the benefits from enabling consumers to seek more affordable healthcare services and avoid unnecessary care, HSAs empower patients to financially reward those providers who find new or innovative ways to deliver healthcare that reflect their values and needs. This ability to reward entrepreneurial healthcare providers incentivizes the healthcare system to better serve patients’ needs and efficiently adopt innovative new technologies.
Patients would also be empowered to choose delivery models that provide higher quality services that better meet their needs.
Most people still have coverage under the fee for service model that reimburses healthcare providers based on the quantity of services provided. There is growing evidence that value-based payment models can provide patients with higher quality, lower cost healthcare. These models include capitation payment arrangements and pay for performance models that connect payments to meeting specific care benchmarks.
Empowering patients to choose their preferred delivery model encourages the growth of these alternatives as well as the development of new innovations that will lead to further improvements tomorrow.
Improving the practice of medicine also requires comprehensive regulatory reforms that will empower providers to better serve patients. There are many examples of these regulatory burdens.
The need for physicians to obtain licenses in every state is one such regulation, as are overly stringent scope of practice laws that prevent many healthcare professionals (e.g. pharmacists and nurse practitioners) from practicing medicine to the full extent that their training enables. Other regulations, known as Certificate of Need (CON) laws that are effective in 35 states and the District of Columbia, require healthcare providers to obtain government permission to expand their capacity or purchase capital equipment.
Regulations like these erect barriers that make it more difficult for potential entrepreneurs to implement cost-saving/quality-enhancing innovations that would better serve patients. The surge in the use of telemedicine during the coronavirus pandemic once the regulatory burden was temporarily lifted exemplifies the potential surge in entrepreneurial innovations that could follow from permanent and widespread regulatory relief.
Empowering patients, implementing innovative new healthcare delivery models, and applying innovative new technologies to better serve patients is the key to addressing the problems of cost, accessibility, and lack of productivity growth. Unlike the government-centric solutions that dominate the headlines, an entrepreneurially focused healthcare system is well positioned to achieve these goals.
Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.