The limits of incrementalism

Only bold solutions that solve health care’s enduring problems of access and cost can put the U.S. on the road to better health.

This most fateful of election seasons is nearly over. I suspect many of my readers have donated money, written postcards and knocked on doors. Tomorrow is get-out-the-vote day. Keep it up. You understand that nothing less than the future of our democracy is on ballot.

Regular readers know I usually don’t cover politics. I’ve always been an issues reporter. For the first quarter century of my career, I reported on labor, business, economic development, foreign affairs, the economy and government regulation. For the past quarter century, I’ve covered health care with an eye toward advancing what former CMS director Don Berwick dubbed the triple aim: Better health at lower costs with patient-centered care.

Anyone who endorses those goals knows for whom they will be voting. Yet beyond abortion and reproductive rights, public pronouncements by Kamala Harris and Donald Trump about health care have not had much impact on voters this election season. Though Harris has proposed  the most far-reaching addition to Medicare since Congress passed a prescription drug benefit in 2003, most voters aren’t even aware of her plan to provide long overdue financial assistance for stressed out family caregivers.

In the past week, we’ve finally seen the contours of GOP plans for health care should they win the White House and Congress. House Speaker Mike Johnson admitted he plans to eviscerate the Affordable Care Act. Trump is likely to install vaccine fear-monger Robert Kennedy Jr. as overseer of the agencies that regulate drug, vaccine and device approvals and ensure food safety. 

Improbably, neither campaign has addressed what non-elderly people tell pollsters are their main health care concerns: The prohibitively high out-of-pocket costs for drugs and hospital stays. They also resent insurer abuses like service denials and narrow networks. They can see their physicians’ frustration with insurers’ prior authorization demands.

The response by Trump and the Republican Party is to say nothing about these issues, even as they plot to turn over Medicare to the insurance industry. Meanwhile, Harris and the Democratic Party are touting recent gains (capped insulin prices; negotiated drug prices, which won’t go into effect until 2026; and the $2,000 cap on out-of-pocket drug spending for seniors).  Even the proposed home health program is half a loaf. It’s not a comprehensive plan for long-term care, which almost every other advanced industrial country provides through either compulsory long-term care insurance or government-financed benefits.

A decade ago, Democrats, historically the party that the public trusted on health care issues, offered a similar incremental approach to the problem of the uninsured. After his election, President Barack Obama followed through on his promise to do something about the broken U.S. health insurance system. He adopted a plan, implemented in Massachusetts when Mitt Romney was governor, that traced its roots to conservative Stuart Butler’s work during the 1990s at the Heritage Foundation, which more recently has been captured by Christian Nationalists and stands ready to implement its religion-based Project 2025 agenda for health care should Trump win.

The insurance industry loved the Affordable Care Act, aka Obamacare. Why? The ACA provided large subsidies to low- and moderate-income individuals and families so they can afford the individual plans they were already selling – albeit with new regulations guaranteeing no discrimination against people with previous medical conditions and free preventive services.

The medical industrial complex loved and still loves Obamacare, too, since it promised to lower hospitals and physicians’ non-paying patient load, even if they had to give up some future government payments. Suppliers (drug makers, device makers, test makers) also loved the ACA since it expanded their customer base and sales.

Still inadequate insurance

Obama succeeded politically because its architects brought every special interest group within the medical-industrial complex to the table. Despite this kumbaya moment for health care lobbyists, not a single Republican voted for its passage.

The ACA was reduced to a partial success story largely because of the 2012 Roberts Supreme Court ruling that allowed states to ignore the bill’s Medicaid expansion and the 2017 Trump tax cut that repealed the mandate that individuals buy insurance. Despite those setbacks, Obamacare cut the uninsured rate by more than half. President Joe Biden’s substantial increase in plan subsidies further ratcheted down the uninsured rate to the lowest in U.S. history, now around 8%.

But it also exacerbated some of the problems people are experiencing today. Private insurers under the law were allowed to offer plans that boosted profits while penalizing individuals and families that made ill-informed or wrong choices.

Insurers emphasized high-deductible plans (bronze plans) on the exchanges, which the previously uninsured embraced because of their low premiums. Private employers also expanded their use of insurer-administered high-deductible plans, which ever larger numbers of low- and moderate-wage workers signed up for to reduce their monthly upfront premiums. Even where employers offered health savings accounts to help workers pay their rising out-of-pocket expenses, few employees properly funded them.

The insured individuals and families only learned about their plans’ limitations when they were left with large, unaffordable bills after they became seriously ill. Meanwhile, even people in traditional plans saw their out-of-pocket costs soar since health care prices (and as a result, total insurance costs) continued to rise at rates faster than inflation. Since employers insisted the employee share of total costs remained the same, workers experienced the same cost increases as corporations – but with less ability to pay.

Cost – the enduring problem

The U.S. still spends nearly 18% of gross domestic product on health care, half again as much as the next most expensive country. Obamacare succeeded in holding that share relatively constant over the past decade. But it failed to bring it closer to international norms.

Solving health care’s enduring cost problem requires bold solutions, not incrementalism. Solutions must address both the flaws in the insurance system and the major drivers of the cost problem, which can be described by three simple facts:

1. We pay the highest prices in the world for almost every drug, hospital stay, test, image and procedure that sick people require;

2. The medical industrial complex profits most when it delivers the most expensive options and promotes unnecessary care; and

3. Federal, state and local governments do very little to promote public health, leaving themselves impotent to meet the nation’s most pressing public health issues: obesity, substance abuse, maternal and infant mortality, gun violence, suicidality, and racial and socio-economic inequality.

Let’s start with the enduring problem of inadequate coverage. Getting everyone into the insurance system remains an imperative in any comprehensive program to address costs. When the uninsured or under-insured get sick and cannot pay their bills (the system by law cannot deny them care), those costs are spread across everyone else’s bills. Universal coverage also ensures the greatest number will receive preventive care and earlier diagnosis of disease, which reduces future costs and improves the population’s overall health and well-being.

The next Democratic administration (I harbor no delusions about a Trump-led Republican Party coming up with a workable plan, much less contributing to a bipartisan solution) must complete the work that the Obama and Biden administrations started. Biden temporarily expanded subsidies for Obamacare plans. They expire next year and must be extended.

Meanwhile, the ten states that still refuse to expand Medicaid to cover people up to 138% of poverty must be brought on board. If that requires federalizing Medicaid for all states, so be it. Make them an offer they can’t refuse – an increase in federal taxes to pay the state portion of Medicaid. That means making federalization applicable everywhere. This will relieve states of an obligation that consumes a fifth of their budgets, which will be a boon to local taxpayers and will help fund other services states provide (most significantly public education). It would also establish enforceable national standards for the program. If states want to spend their own money to go above the national standard, they could still do that.

We also must regulate the insurance system so no one is ever forced to go into debt to pay for health care. It’s time to end the tyranny of out-of-control, out-of-pocket expenses. People fighting cancer, heart disease, diabetes and the other chronic illnesses, which affect half the population and account for 90% of all health care spending, must be allowed to focus all their attention on getting well. Worrying about paying bills only makes that job harder.

A simple and easily enforced solution would be adoption of a national regulation that caps the amount people can pay out-of-pocket in any given year. The cap should be a relatively low percentage of annual income – say no more than 4%. It should cover all forms of spending: premiums, co-pays and deductibles.

Historically, insurance regulation was left to the states. Congress chipped away at that over the years. For example, ERISA governs the financial adequacy and governance of multi-state health insurance plans. Obamacare set national standards for exchange-based individual plans. It’s time to add another layer of federal regulation: Setting an annual limit on out-of-pocket expenses for every public and private plan.

Lowering prices

While these major reforms can fix the insurance system and ensure access at a price that every family can afford, it doesn’t solve the overall cost problem. That will require fundamental changes in the way the medical industrial complex delivers care. Without those changes, the limits on out-of-pocket spending will only shift costs to taxpayers and private employers and do nothing to stop further expansion of a bloated health care sector.

The ACA devoted about half its 900 pages to experimenting with various delivery system reforms in Medicare under the rubric of value-based care. The hope was that reforms in the government program would lead to private insurers implementing similar changes.

After a decade of experimentation, the Innovation Center at the Centers for Medicare and Medicaid Services succeeded in developing a few pilot programs that somewhat lowered costs. Last week, CMS announced that its most successful shared savings program saved the government slightly over $2 billion last year. That is a rounding error in the agency’s $850 billion budget. Most programs did little to bend the upward trajectory of the cost curve.  More significantly, none of the successful programs have been universally implemented by the agency.

The result is a delivery system that remains wedded to fee-for-service reimbursement, which both providers and insurers prefer. Why? Providers in the U.S. have extraordinary pricing power. Hospitals are now organized for the most part into large, oligopolistic chains that face little competition and less private sector price regulation.

Most doctors now work for either large hospital systems or insurers or are part of large physician practices that behave like their hospital partners. Organized medicine through the American Medical Association’s Relative Value Scale Update Committee sets physician pay scales and tilts the playing field to favor high-priced specialists at the expense of primary care, behavioral health and family practitioners. The result is a delivery system that deemphasizes primary care, care coordination and prevention, which can lower costs, and emphasizes high-priced specialty care once people get sick.

Suppliers in the medical industrial complex like it that way, too, because the more people get sick, the more goods they sell. And unlike in other countries where they operate, they can charge whatever the market will bear. Medicare’s new right to negotiate drug prices will put a small dent in their profits. But drugmakers still benefit from long patent monopolies and a legal intellectual property regime that provides endless opportunities to prevent generic entry. The medical device and imaging equipment manufacturers enjoy similar patent protections.

Insurers ought to be the institutional force that stands in the way of this price gouging. Yet pharmacy benefit managers, rather than forcing down prices, have become rent-seeking middlemen. Rather than manage care, insurers have returned to a business model where they deny service to hold down spending after they get their premiums in the current fiscal year. Then, when providers demand higher prices, they turn around and charge higher insurance premiums in the following year, which regulators in states that still review rates invariably approve.

In other words, there is no corporation, institution or group inside the system that has a financial stake in lower prices. And the ones outside who do – patients, workers and employers – either have no say or, in the case of employers, refuse to exercise their potential power.

Inadequate strategies

The myth that price transparency, a reform pushed by both political parties, will allow health care “consumers” to drive down prices defies all empirical evidence to the contrary. Health care is a social service that for the most part is used at times of maximum stress, i.e., when the patient/consumer is so sick they must access care. There are some discretionary or non-time dependent elements like imaging or routine procedures where price-sensitive consumer choices could shop around. But they are an insignificant part of overall costs. No one asks questions about the price of the chemotherapy regimen that might save their life, especially if they are well-insured. Nor, as I previously wrote in Modern Healthcare, does anyone in an ambulance during a heart attack say to the EMTs, “Let’s go shopping.”

The Biden administration’s renewed interest in using antitrust law to bust up health care monopolies will be similarly limited in its effectiveness. Institutional health care may not be a perfect natural monopoly like electricity or gas distribution, but it is close. In many small and medium-sized communities, there is only one hospital. If it belongs to a large chain, forcing divestiture won’t change its local monopoly status.

The same is true when there are multiple community hospitals in larger towns and cities. People use the local hospital or the one where their physician sends them. In major cities and university towns, the academic medical centers that train physicians charge premium prices for what locals consider “prestige” medicine, which insurers cannot oppose fearing healthcare providers will stop accepting their plans.

Price controls

One hatchet capable of cutting through the Gordian knot of health care special interests boosting prices is government price controls. Here’s a little-known fact: The payers that have registered the most success in limiting price increases over the years work for the government.

Both Medicare and Medicaid set prices. Medicare sets prices in its traditional fee-for-service program through regulatory rate-setting. Its annual rules setting hospital and physician pay are thousands of pages long. Medicare Advantage, which now covers half of seniors, and state Medicaid managed care programs, which now cover over three-quarters of beneficiaries, pay a fixed monthly premium to insurers, which must cover the total cost of care. The Veterans Administration offers another model for keeping total costs in check. They operate their own hospitals and employ their own physicians – like the British National Health Service – and rely on Congress to provide adequate budgets so they can make good on the nation’s promise to its veterans.

But lower prices in government programs depend on higher prices for the privately insured. Service prices for private insurers and employers who self-insure are on average over 2 ½ times what Medicare pays for the same service, according to the latest Rand study. Many academic health care economists claim there is no cost-shifting through this variable pricing. Reality begs to differ. Hospital and physician practice revenue is a blend of multiple funding sources with actual costs somewhere between what the public sector and private sector pay. When Washington state created a public option for plans sold on its exchange, it had to set its hospital and physician rates at 160% of Medicare rates before providers would agree to accept the plan.

A single-payer insurance system – Sen. Bernie Sanders’ Medicare for All – would establish a single pricing system (with adjustments for regional differences) and put an end to cost-shifting. Hospitals, physicians and other providers could easily adapt to a single payer if service rates were set high enough to maintain current revenue. Beyond the massive administrative savings immediately achieved by eliminating multiple billing systems, the government would be well-positioned to keep future cost increases in check through rate-setting pegged to increases in the system’s actual costs.

A single payer could also drive delivery system reforms that empower providers to deliver higher quality care with better outcomes. It could mandate greater investments in primary care, care coordination and prevention. It could set budgets and give providers flexibility on how they spend their money as long as it is used to achieve better health outcomes.

Unfortunately, moving to single payer is a huge political lift, and not just because it is attacked by conservative politicians as socialism and the insurance industry, which would be out of a job except for the payment processing that it already performs for Medicare. Many employers like providing health insurance for their employees because it reduces turnover (job lock). And workers' are easily scared off by insurance industry ads claiming they will “lose what they have.”

But the largest obstacle is funding the transition. Shifting to single payer would require taxing corporations to capture the nearly $800 billion they now pay annually to provide health insurance for their estimated 180 million employees and dependents. Raising that amount would more than double the $530 billion the federal government collected in corporate income taxes in fiscal 2024.

In addition, to hold household expenditures below the 4%-of-income cap that I described earlier, personal income taxes would have to be increased in a progressive manner to sharply reduce the more than $1.2 trillion paid by householders for health care in 2022 (this includes not just the premiums, co-pays and deductibles on private insurance but on Medicare, Medicare supplemental plans, and self-paying patients). The liberal governor of Vermont, the only state that seriously considered moving to single payer, abandoned the effort when the magnitude of tax increases required to fund the transition became apparent.

The next big move

I have no idea what will happen after election day. A Trump victory, with or without a Republican Congress, means health care advocates will be playing defense for the next four years. If they enact “reforms” similar to what Trump appointees allowed during his first term in office, the system will become immeasurably worse for millions of Americans. A Harris victory with a divided Congress will preserve the Affordable Care Act but make it difficult to enact meaningful reforms.

But should Harris win tomorrow with a Democratic Congress, defying what most pollsters tell us is highly unlikely, it might be possible over the next two years to enact another major reform. Her home care proposal on the campaign trail suggests she is open to pursuing major moves.

Given Republican plans to disrupt state counting efforts, it may be weeks before we know Tuesday’s outcome. But should the Democrats triumph, health care advocates can once again harbor hopes that major reforms are possible. Here’s hoping that is the outcome because it is so, so necessary.