Make Trumpcare the First Big Step toward a Free Market in Healthcare

Make Trumpcare the First Big Step toward a Free Market in Healthcare

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Say what you will about Obamacare—at least President Obama eventually took ownership of it. When it comes to the American Health Care Act, President Trump isn’t ready to do that. He’s discouraging people from calling it “Trumpcare.” Since Trump normally he puts his name on everything within reach—even the trash can liners at the Trump SoHo Hotel bear his moniker—he must be keeping his distance from the AHCA because he’s ashamed of it.

The editors of The New York Times think he should be. They accuse Trump and the rest of the GOP of “Trading Health Care for the Poor for Tax Cuts for the Rich.” The charge is based on the CBO’s prediction that Trumpcare will immediately cause 14 million Americans to lose their coverage through private insurers or Medicaid, with that number rising to 24 million by 2026. Adding those people to the existing un-covered population, 52 million Americans will be uninsured a decade after Trumpcare incepts.

The consensus among policy wonks on the left and the right is that this would be a disaster for the country. Rolling back Medicaid will harm the states that expanded their programs on the promise that the federal government would pick up the tab. It will damage hospitals and other providers too as the demand for charity care goes through the roof. The newly uninsured will suffer worst of all. Without private insurance or Medicaid to rely on, many will forgo needed medical treatments and all will face the risk of financial catastrophe associated with serious injury or illness. All of these possibilities worry Republican governors and legislators, who fear losing office when the healthcare sector revolts and voters take revenge at the polls.

One can, however, see the GOP’s predicament as an unparalleled opportunity. Instead of vewing the 52 million un-covered Americans as pathetic creatures with nowhere to turn, one could regard them as an enormous army of consumers who will have to buy their own healthcare and who will be hungry for medical services that are effective and cheap. If we were talking about housing, transportation, energy, food, clothing, televisions, cell phones, or computers, we might already see them that way.

These other goods are all things that people pay for themselves, without the help of insurance. They are also all things that retailers have figured out how to deliver to people of limited means. Consider H&R Block, a timely example given that the April 15th filing deadline is nearing. H&R Block has figured out how to make a buck preparing returns for poor people who want earned income tax credits and refund anticipation loans. Markets will not deliver the best goods or services to the poor—poor people are rarely in the market for those things. But markets do a wonderful job of delivering what poor people can afford, and they reward sellers for figuring out how to serve poor people better.

Could markets help the army of the un-covered get what its members need too? That will depend on how much money its members have to spend. Suppose that the average un-covered person would willingly pay $2,000 a year for health care. The un-covered army would then be a potential source of $104 billion in annual aggregate demand. That’s real money that health care businesses should be interested in earning. $2,000 a year should be enough to take care of most of the un-covereds’ medical needs too. Singapore shows that. It spends only $2,500 per capita on healthcare for all of its residents, with fabulous results. Its infant mortality rate is half of ours, and its citizens’ life expectancy at birth is 5 years longer. Singapore relies heavily on direct payment for medical services too. If American healthcare providers operated as efficiently as those in Singapore, the army of the un-covered would fare reasonably well.

As currently written, though, Trumpcare neither guarantees that the un-covered will have any minimum amount to spend on healthcare nor provides any impetus for American healthcare businesses to become more efficient. Fortunately, both shortcomings have the same fix. Trumpcare provides tax credits that range from $2,000 to $4,000 per person, up to $14,000 per family. That’s enough money to turn the army of the un-covered into a formidable purchasing force. Right now, though, the credits are only available to people who buy insurance. That restriction could be eliminated with the stroke of a pen, and should be. If the credits were available to everyone, including the un-covered, Trumpcare would add an enormous stimulus to the market in consumer-driven healthcare.

Stimulating the retail market would have many desirable effects, the most important being that it would give providers strong incentives to make healthcare cheaper. One of the main reasons that American medical services cost too much is that people pay for them with insurance far too often. The more we rely on third party payers to do our shopping for us, the less we care about costs and the more expensive healthcare becomes. By giving money to bargain-hunting consumers, Trumpcare should reduce the impact of insurance-driven demand on the prices that medical providers charge. It should also greatly reduce the rate at which unnecessary medical services are delivered.

The GOP could also improve Trumpcare by adding supply-side reforms that would remove barriers to competition. The bill should pre-empt state laws that prevent doctors from practicing across state lines; that forbid nurse practitioners, physician assistants, and other para-professionals from setting up shop independently; and that inhibit pharmacists from teaming up with doctors, nurses, or PAs and delivering the full range of services that their combined training qualifies them to provide. It should also eradicate Certificate of Need requirements and laws that prevent corporations from running healthcare businesses. Walmart, Costco, CVS Health, and other retailers already operate clinics, pharmacies, audiology centers, and optometry outlets that charge affordable prices for flu shots, routine medical services, hearing aids, drugs, eye exams, and glasses. They will bring down the costs of other medical treatments and services if we let them sell those too.

The deep irony, then, is that although Trumpcare is supposed to repeal and replace Obamacare, both programs have the same goal. Both encourage people to stay in our dysfunctional, third-party-payer-dominated healthcare system by maximizing the use of insurance. But as long as healthcare itself is over-priced, healthcare insurance must be over-priced too. Trumpcare should therefore focus on making medical services cheaper. It should target excessive service levels, absurd prices, rampant fraud, and other major cost drivers. It can do all of that (and more) by turning healthcare purchasing over to consumers. Once that happens, prices and spending will fall, and coverage against catastrophes will become affordable. Because poor people are very price-sensitive, they will benefit the most. If we allow them to lead, the rest of the healthcare system will follow.

Charles Silver is a professor at the University of Texas School of Law. David Hyman is a professor at Georgetown University School of Law. They are leading medical malpractice researchers, and co-authors of After Obamacare: Making American Health Care Better and Cheaper (forthcoming).

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15 Comments on "Make Trumpcare the First Big Step toward a Free Market in Healthcare"


Member
May 7, 2017

Some valid points but I observe that you’re neglecting to mention that in order for a free market to function effectively there cannot be what’s called “asymmetry of information”. Of course markets work to lower the prices of housing, transportation, energy, food, clothing, televisions, cell phones, or computers, because you don’t need to know that much about them before buying. In goods that require knowledge, such as what constitutes a good treatment or a bad medication, free markets lead to market failure, in which the market brings about suboptimal social outcomes. We did in fact have a free market in healthcare about 100 years ago, but the public got tired of charlatans selling patent medicines and other quack treatments, and demanded that the government protect them from it. That’s where the FDA came from, from public demand.

The closest thing we have to observing a “free market” in health care is medical tourism, because then you get a chance to see people voting with their feet with the dollars in their pockets, as most of the time their treatments are not covered by insurance. There is no such thing as a true free market, every country has laws regarding what treatments and meds are allowed, etc. but you still get to see consumers showing what they’re willing to go through the hassle of travelling for, exercising their agency, and even the rare unicorn of pricing transparency, as many medical tourism leaders such as, Bumrungrad, will put treatment prices on their website.

Obviously in a perfect world there would not be such a huge price disparity, to make it worth flying across the world for a surgery a good idea, but if you want a free market in health care, medical tourism is the closest that you’re going to get.

Member
Steve2
Mar 22, 2017

Way too much to fisk here. (Either of you have experience with health care issues other than malpractice?) Please actually read up on Singapore. They have price controls and the government actually runs some of the hospitals. The place is essentially a big city. They have none of the problems or costs associated with rural care. As has been well documented, selling across state lines is already allowed/encouraged in 6 states. Hasn’t happened. Barrier to entry is the real issue. (Go read Mark Pauly.)

WalMart operates places that provide routine care. Nice. The demographics of health care spending are important. About 50% of people account for 3% of our health care dollars. This is routine care. Walmart might be able to cut this, but that isn’t where the real money hangs out. That is in chronic care and major acute care. Walmart might eventually be really good at chemo, but I am not sending my family there right away. You are welcome to send yours.

Finally (almost).

“that forbid nurse practitioners, physician assistants, and other para-professionals from setting up shop independently; and that inhibit pharmacists from teaming up with doctors, nurses, or PAs and delivering the full range of services that their combined training qualifies them to provide.”

Maybe in Texas or down at Georgetown pharmacists aren’t allowed to work with doctors. In our network we work with them all of the time. We even have pharmacies built into our ICUs and have the pharmacist round with the team. (Smart people who have taught us a lot of good stuff.)

This would be a good place for federalism. Why not see if this can work in some of our states? I nominate Texas. Kick out all of your PCP docs (we will take them) and run the place with NPs and PAs. Walmart runs everything. You get $2000 per person to make it work since they can do it Singapore for $2500, and the free market is better so surely you can do $2000. Let us know how it works out. (Ok, that was too much fun, but seriously, I don’t think it would work but I could be wrong. Make it work at the state level and show me i am wrong.)

Steve

Member
Mar 22, 2017

Part 2

Given the possibility of delivering health care more cheaply and effectively, the obvious need is to create incentives for that to happen. The fundamental point of the post is that first-party payment does that, while third-party payment does not. I didn’t see you disagree.

As for retail providers’ ability to deliver treatments for chronic ailments, nothing prevents them from doing this well. Will there be a learning curve? Undoubtedly, but they can speed it up by hiring experienced people to run their clinics.

There’s a lot of money tied up in these services too. My understanding is that chronic conditions like heart disease, diabetes, and hypertension drive a good deal of medical spending. https://www.cdc.gov/chronicdisease/overview/. Retail clinics could provide the services that many people with these conditions need.

Re pharmacists teaming up with docs and others: I’m glad to hear of your successful working arrangements. Thanks for the info! I will learn more about this.

Re federalism: Single-state experiments with retail medicine, independent PAs, etc. may not work terrifically well because compensation will be higher in other states and providers will flock to wherever the highest payments are. But pressure is being exerted to loosen the constraints in many states, and I think we will see more provider freedom to innovate. One of my reasons for writing the column was the hope of giving this movement a boost.

Again, thanks for your remarks.

Member
Steve2
Mar 22, 2017

“The fundamental point of the post is that first-party payment does that, while third-party payment does not. I didn’t see you disagree.”

I largely don’t, but I don’t see a way around it. How does a young couple with premie twins pay for care? Trauma care? That is why we need insurance. Also, you need to be aware of the average amount of savings people have on hand. The pushback against the large deductibles seen in Obamacare, and if you are still going to have insurance and follow any kind of market reform you will have even larger deductibles, is driven by the inability of many people to afford large deductibles. They essentially end up w/o insurance.

While I think markets are great, and the best way to sell most commodities and services, I just don’t se anywhere in the world where we have a mix of first world medicine and market based care. I would feel a lot better about your proposal being viable if there existed a working model somewhere, anywhere. As you acknowledge, there are lots of places with good care and lower costs, but those places all have lots of government involvement. Until demonstrated otherwise markets don’t seem to be the way to go to provide quality care and lower costs. (Please, please don’t even think about suggesting Lasik or cosmetic surgery.)

Member
Mar 23, 2017

Hi Steve,

What’ve you got against Lasik and cosmetic surgery? Just tired of hearing about them? Instead, I’ll mention the Surgery Center of Oklahoma, where prices for a host of surgeries are posted and reasonable, and cash is the rule; IVF, which often isn’t covered by insurance and there’s good price transparency and competition; and MRIs and blood tests, which are sometimes paid for by insurance and sometimes in cash and are always cheaper in the latter instance.

As for how people can pay for expensive medical services: How do they pay for cars, houses, vacations, and other items that cost a lot? Not with insurance (usually). Plus, they’re paying for medical services already, in the form of premiums, lost earnings, taxes (many of which are hidden), etc.

Three more thoughts:

1. Catastrophic coverage will always be needed, the same way it is needed for property damage, etc.

2. The “People can’t possibly save enough to pay for healthcare” mentality reflects the absurd prices that providers can charge under the third-party payment regime. The point of first-party payment is that prices will fall. You didn’t disagree with that, as you said. The mentality also reflects the fact that people have little experience saving to pay for healthcare. Habits take time to build.

3. David and I endorse welfare for the poor. We believe in giving them $, however, not insurance. The amount of $ that gets wasted by running in-kind welfare programs is amazing. The spending distortions are large too.

Best wishes,

Charlie

Member
Allan
Mar 23, 2017

Csilver, you seem to be moving in the same direction I advocate including direct dollars to the poor and needy through no fault of their own. Third party payer is devastating and perhaps the lynchpin behind most of our failures. One of the things I have noted is that even some well informed people do not recognize that getting rid of third party payer doesn’t mean getting rid of insurance or even ESI. It is only a matter of who pays and chooses the insurer or the agent which can be the employer at the employees discretion (the tax benefit if any becomes the employees and can be transferred to the employer).

Member
Mar 23, 2017

Hi Allan,

Thanks for the comment. I’m glad we’re on the same wavelength, generally.

What is ESI? Haven’t seen that acronym before, that I recall.

There will be a problem of fraud to deal with, if tax credits are used to help the poor. But that problem should be more manageable than the multiple forms of fraud and waste that plague the third-party payer system.

Best wishes,

Charlie Silver

Member
Allan
Mar 24, 2017

Charlie, ESI employer sponsored insurance.

Member
Mar 22, 2017

Hi Steve,

Thanks for the comments! I’ll ignore the snark and focus on the merits. Will also post this reply in parts, because there’s much to discuss.

Re Singapore: Have read Hazeltine, Reisman and others, so I know that Singapore intervenes on both the supply side and the demand side–including, on the latter, by encouraging personal responsibility for medical costs and preventing the use of comprehensive insurance. But, really, Singapore was just an example showing that medical needs can be met much more cheaply and effectively than they are in the US. It has lots of company at its spending level, as you would’ve been able to see had the link I included in my submission appeared in the column. https://www.weforum.org/agenda/2016/04/which-countries-have-the-most-cost-effective-healthcare/

Here’s an excerpt:
[O]ther countries’ health systems are managing to achieve similar or better results for far less [than is spent in the USA]. Hong Kong spends $1,716 per person (6% of GDP), Israel $2,599 per person (7.2% of GDP) and Singapore $2,507 (4.6% of GDP). These countries, like Norway and Switzerland, have life expectancies of between 82 and 83 years. By comparison, life expectancy in the US is 79.

Do you mean to deny that other countries meet their residents’ medical needs more effectively and cheaply than we do? I hope not! The US is a huge outlier cost-wise and not nearly the highest quality producer either.

To Be Continued …

Member
Allan
Mar 22, 2017

Csilver, that we spend more money on healthcare than other nations is true, but we also spend more money on TV sets and all sorts of goods inside the home and outside. It is not surprising that we spend more on healthcare, but I agree we do seem to waste a lot of money.

However, our citizens have choice and better outcomes. This is not a claim that other nations should follow our example rather each nation has to satisfy its own needs and we are very different from other nations.

It’s hard to compare outcomes internationally, but let me provide you with one study comparing a lot of the nations you are familiar with. CONCORD Cancer survival in five continents: a worldwide
population-based study

Member
Mar 23, 2017

Hi Allan,

I’ve been pondering your comment, for which I thank you. I think there are areas in which US providers excel. I didn’t mean to imply otherwise. But there is tremendous quality variation in the US too. Also, there are providers in other countries that equal or exceed the track records of the best American providers for a fraction of the cost. The Bumrungrad Hospital in Thailand and Dr. Shetty’s hospitals in India are probably the leading examples, but there’s also the Shouldice Hospital for hernia repair in Canada. My point was not that, as a class, US providers are inferior; just that they don’t deliver bang for the buck.

Best wishes,

Charlie

Member
Allan
Mar 24, 2017

Charlie, I don’t dispute the cost angle which is atrocious, but we have to remember that we spend more on almost everything and our incomes are higher.

No one doubts there are areas of excellence all over the world, but to compare a singular hospital of reknown to the US as a whole isn’t a reasonable comparison. The outcome study I mentioned compared a few common diseases between the US and about thirty other nations many of which are OECD nations. Excluding Cuba where the results aren’t credible the US scored #1 or #2 out of around 30 countries.

I think it is important to recognize that quality is not the issue even though we are always knocking ourselves out about how bad our quality is when it isn’t. We desperately need to lower costs because that brings healthcare to more people without bankrupting them or the nation. Adding quality issues as we do is a distraction for those that disagree with our methods. On the one hand say our quality stinks yet on the other hand they are willing to use physician extenders as physicians and physician extenders have only a fraction of the training physicians have.

We have too much coverage, too many mandates, too much government and with third party payer too little responsibility..

Member
May 7, 2017

The incomes are higher in plenty of places, example Australia, Norway, Switzerland, and they still spend less on healthcare, per capita. I think you’d be hard-pressed to find a place that spends more than we do, regardless of income. Not a great justification.

Member
Mar 24, 2017

Very good points, Allan. Thanks and best wishes, Charlie

Member
Mar 22, 2017

There’s no such thing as a “free market,” and conflating that phrase with “private market” does nothing to make it so.