How states could improve healthcare in America

[Editor's note: This story originally was published by Real Clear Wire.]

By Tomas Philipson & Alex Ignatowski
Real Clear Wire

The American healthcare industry has a problem — the costs for patients keep rising and Americans' satisfaction with the industry continues to fall.

Right now, the United States is spending approximately 18% of its gross domestic product on the healthcare industry. Simultaneously, public satisfaction with the healthcare system is at historic lows, with nearly one-half of Americans saying the system has “major problems.” Since the start of the industrial revolution, the American consumer is accustomed to improving standards and quality, while products and services become more accessible and less expensive.

So why is healthcare different? We think it is because the supply of health care is held back by governments thereby raising prices and lowering quality.

Thus, while this is often thought to be a complicated question, the answer lies in politics and public policy. For nearly six decades, the US has continuously been moving toward government-run healthcare. Public payers are monopolies that mandate you pay a premium through your taxes as opposed to a free market where plans compete to get your premium handed over voluntarily. If you could keep your taxes and you were allowed to spend them on competing health plans, you would be much better off.

Contrast this with the views of President Biden who recently gave a speech highlighting 13 years since the passage of the Affordable Care Act. In between praising the expansion of government monopoly plans, he forgot to mention that health care is more expensive and out of reach than ever for the average American. As prices continue to rise, the loudest voices in healthcare have called for the government to spend and regulate more — both of which have done nothing to alleviate this financial burden on average Americans. In actuality, government intervention into the healthcare market, increased mandates and regulation, publicly funded programs that reimburse healthcare providers at lower rates than private insurance, and a lack of options for consumers is what has brought us to this point.

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Washington DC has not and will not solve these problems, regardless of who is in power. Supply-side healthcare reforms that open up competition by providers and plans offer a solution for states that are tired of waiting on the federal government. At the Institute for Reforming Government our recent report outlines these reforms and shows that there is a different way to approach the challenges facing our state and the rest of the country. These common-sense healthcare reforms for Wisconsin focus on practical and actionable supply-side solutions in the healthcare system and in publicly funded programs like Medicaid.

For example, today, the supply of providers is artificially restricted through ”fence-me-in” legislation and maddening “scope of practice” fights. Instead, each clinical professional should be able — and even encouraged — to practice at the top of his or her license and training. A simple reform that would increase access to healthcare at a lower cost to consumers.

This principle also applies to the supply of physicians here in Wisconsin: The admission rate for medical schools in our state is lower than comparable schools nationwide. Generally medical schools have been unwilling or unable to meet the need of increasing the supply of doctors, which leads to higher physician fees. This will be exacerbated with an aging population and the corresponding demand for health services rising.

The Medicaid program in Wisconsin also needs reform, particularly as the number of members has grown nearly 25% during the pandemic. The program operates through the use of managed care organizations (MCOs). Unlike the private sector where MCOs compete on price (premiums), in the public sector they only compete on quality of care. Given that competition has been limited, many have enjoyed strong profits. However, there is opportunity to aggressively promote MCO quality through enhanced competition. Wisconsin has a strong health insurance industry, and the competitive spirit of that market should be maximized to consumer advantage.

The Medicaid program could similarly enhance provider accountability through exploring payment reform referred to as “site neutrality”, already utilized in the federal Medicare program. The current system stifles productive competition by imposing financial incentives to perform certain procedures in higher-cost settings. In a normal market, the cost of a procedure should not change because of what type of institution it is performed in.

Another opportunity can be found in how the State purchases prescription drugs in the Medicaid program. Currently, the State administers prescription drug purchasing on its own, without the engagement of the MCOs. This differs from most other states, which typically transfer the financial risk and clinical analytics to the MCOs that address patient care. A third-party analysis and/or audit of this model is needed to determine the best mechanism to ensure access and manage costs.

Similarly, as more life-altering drugs and treatments are developed for various diseases and ailments, the State should also explore utilizing competition on outcomes-based arrangements (OBAs). This would ensure that manufacturers of such promising treatments are accountable to taxpayers through refunds, rebates, or other means if such treatments do not deliver the expected results. At least twelve states have received federal approval to test this approach, and Wisconsin should join this group.

Finally, policy makers have been trying for years to bring transparency to health care pricing and thereby enhance price competition to empower the consumer. Unfortunately, such efforts have brought limited results. Rather than layering a new requirement on providers, Wisconsin should ensure that providers are complying with federal transparency regulations — and impose substantive penalties for consistent failure.

It’s time for Wisconsin (and other states) to do what Washington is not able to do, expand the supply-side by enacting straightforward, common-sense initiatives that will improve consumer choice, access, and cost-effectiveness. We urge policymakers and stakeholders to take these modest steps before the path to government-run healthcare reaches the point of no return.

Tomas Philipson is an economist at University of Chicago and former Member and Acting Chairman of the President’s Council of Economic Advisers. Alex Ignatowski is the Director of State Budget and Government Reform with the Institute for Reforming Government.

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