by Jordan Roberts
Director of Government Affairs, John Locke Foundation
“What specifics steps can Congress take to lower health care costs, incentivize care that improves patient health and outcomes of patients, and increase the ability for patients to access information about their care to make informed decisions?”
U.S. Sen. Lamar Alexander (R-TN), chair of the Senate Committee on Health, Education, Labor and Pensions, posed that question at the end of 2018.
In response, policy fellows, research scholars, and health policy experts from the American Enterprise Institute and the Brookings Institution released a report that detailed a set of policies with bipartisan support that could be adopted at the federal and state levels to reform the U.S. health care system.
While the appetite for health care reform is present on both sides of the aisle, the vision of health care reform differs drastically within caucuses of both major parties and even more so between the parties. The AEI-Brookings report offers a glimmer of hope that there can be some federal and state action that both parties can agree on to address some of the policies that contribute to the rising cost of care.
In the space that follows I will describe a few of the policies in the report. (I encourage readers to read the entire report.)
Employer-sponsored Health Insurance Tax Exclusion
The origins of employer-sponsored health insurance started during World War II. In an attempt to control inflation, the federal government placed a wage cap on employers to control the rise in wages and prices. To appease labor groups, the federal government exempted employer-provided health benefits from wage controls and income tax. Naturally, people respond to incentives. The result was that employers began to offer health benefits to employees to attract new workers; it was cheaper to pay for health coverage than wages.
Some health care scholars contend that by eliminating the tax exclusion for employer-sponsored plans, employers will reconsider the amount of health insurance they offer employees. As the report states:
By lowering the net price of health insurance, the tax exclusion promotes the purchase of more generous coverage than if health insurance were taxed like cash compensation. Limiting the exclusion would increase federal revenue, encourage the purchase of lower-cost health insurance, and slow the growth of health spending.
The report recommends capping the tax exclusion at the 75th percentile of premiums. As the cost of care rises, so does the cost of employer-sponsored plans. This policy would force employers to consider whether to purchase the most expensive plan for their employees. Further, there has been a trend of employers shifting more of the costs of the plan to employees in the form of high deductibles and co-pays. Less expensive plans would mean more take-home pay for employees.
Medicare Site-Neutral Payments
As the locus of care in America becomes increasingly concentrated in hospitals and large hospital systems, policymakers should identify the policies that foster this phenomenon. Traditionally, hospitals have been paid a higher reimbursement rate for services compared to the payment for the same service conducted at a physician’s office. The report describes how unequal payments leads to high prices:
Some services can be performed as safely at a physician’s office as in an [hospital outpatient department] HOPD. Providing services in a needlessly costly setting is expensive for both Medicare and patients (through higher coinsurance). The differential also increases the incentive for hospitals to acquire physician practices, which often makes the hospital and physician markets less competitive.
The Bipartisan Budget Act of 2015 attempted to address some of the disparities in payments for services. However, the report recommends that policymakers should apply “site-neutral payment for all for all services that can safely be delivered outside of a hospital.”
Any Willing Provider Laws
Any willing provider laws require that any provider or pharmacy that wishes to join an insurer’s network must be allowed to do so at the same terms in which another similar in-network provider entered into a contract. While this may seem like a good idea to ensure an adequate network for a health plan, this is a perfect example of how a policy with good intentions can have unintended consequences:
Insurers’ main source of leverage in negotiations with providers is their ability to exclude providers from their networks, so these restrictions tend to increase the prices insurers pay for health care services. Those increases in provider prices in turn increase consumers’ premiums and out-of-pocket costs.
North Carolina currently has an “any willing provider” law concerning pharmacies. Research has shown that these laws can increase the costs of prescription drugs. The law should be examined by the General Assembly to weigh its benefits and costs. To require insurance providers to accept any type of pharmacist in their networks may decrease the ability for the insurer to negotiate effectively for the lowest possible prices for patients.
The John Locke Foundation and the authors of this report stand in solidarity in their support for reform of certificate-of-need (CON) laws in North Carolina. Certificate-of-need laws requires a provider to gain permission from the government to create a new facility or add on to an existing one. Hospitals and those who benefit from CON laws claim they are crucial to the ability of the facility to provide adequate levels of care. According to the report:
Research has shown that CON programs do not save money. In fact, they may raise spending by blocking new competitors, such as hospital systems or physicians seeking to set up ambulatory facilities, from entering markets. The Federal Trade Commission and the Department of Justice have urged states to repeal these laws and not enact new ones, based both on empirical evidence from the research literature and the economic argument that market entry (or the threat of it) can make consolidated markets function more like competitive ones.
Health care reform is difficult from a logistical and political standpoint. However, I applaud Sen. Alexander for bringing stakeholders to the table to elevate bipartisan health care reform solutions. Although any systemic reforms are very unlikely, especially given the political party composition of Congress, this report suggests that there are reasons for optimism. Federal and state policymakers have opportunities to take action on health care policies with bipartisan support.