OPINION:
Justice Antonin Scalia famously called it “SCOTUScare” when the Supreme Court rescued Obamacare in 2015. Today, the late justice might be grousing about “Shutdowncare.”
Unless health care costs are brought under control, voters can expect a repeat of this fall’s budget impasse. Congressional Democrats are already signaling another shutdown if the Obamacare subsidies expire next month.
The Trump administration may have won the shutdown battle, but the war will be won by the party that addresses health care’s spiraling costs. The primary driver of excessive outlays across the sector is structural. Lawmakers clamor for affordable health care, but the existing system is short on competition and long on rules that bend the cost curve in the wrong direction.
For example, Obamacare mandates that premiums for young people can’t be less than a third of what the oldest enrollees pay. The result: Young, healthy people drop out of the system, driving premium inflation for everyone.
Reining in health care costs requires commonsense reforms that promote consumer choice, expand coverage options and encourage positive health outcomes. Although the proposals of influential free market reformers such as Brian Blase, who is calling for expanded health savings accounts, and Avik Roy, who is pushing to relax Obamacare’s counterproductive rules, differ in the details, they share a common throughline: Health care subsidies must be combined with deregulation, giving consumers more choice and generating cost savings.
A bipartisan reform effort should combine the reforms pushed by Messrs. Blase and Roy and other advocates of market solutions with targeted, data-driven enforcement measures that ensure a competitive health insurance ecosystem exists in the first place. The effort should start in the hospital market, which accounts for 31% of total health care spending, a staggering $1.5 trillion in 2023.
Without competition, hospitals have pricing power. From 2000 to 2022, those prices surged faster than the rate of inflation in any sector of the economy. A recent report by researchers from the University of Chicago, Yale, the University of Wisconsin and Harvard concluded that the federal government could do a better job of ensuring that competition conditions apply.
They calculate that from 2002 to 2020, the Federal Trade Commission flagged only 1% of more than 1,000 hospital mergers. As a result, the hospital market in 90% of U.S. metropolitan areas is “highly concentrated,” according to the Justice Department and FTC’s 2010 Horizontal Merger Guidelines. That figure would be even higher under the Biden administration’s revised standard, which lowered the bar for identifying potentially problematic mergers.
The authors of the hospital merger study do not advocate for a new, untested standard for evaluating market consolidation. Nor do they suggest that all hospital mergers are anticompetitive. They simply point out that by applying the merger screening tools in effect during the Obama administration, from 2010 to 2015, federal regulators could have flagged 20% of hospital mergers as likely to produce higher consumer prices.
As it turns out, after these mergers, prices rose by more than 5%, more than three times the price increase of the average hospital merger.
It’s also likely that these increases were passed along to employers and employees in the form of higher insurance premiums. The researchers explain that hospital costs are often the first domino in the chain of health care outlays because insurers cannot exclude a dominant hospital from their coverage options.
A separate study by the same authors and two Treasury officials found profound downstream effects because of higher health care costs, as employers facing higher health insurance premiums are compelled to shed jobs and limit wage growth. The burden falls heaviest on workers earning $20,000 to $100,000 annually.
A silver lining of the latest shutdown is that it prompted lawmakers to discuss health care reforms for the first time in more than a decade. The stakes are high for both parties. They should come together around measures that create more flexibility by applying downward cost pressures and expanding health care options.
Well-intentioned measures, such as rules pegging subsidies at 100% of the premium cost, have proved to remove incentives for customers to shop for the most affordable plan while rewarding shady intermediaries behind the surge of “phantom enrollees.” (These are people signed up for coverage without their knowledge by unscrupulous brokers.)
At the same time, the Trump administration could build bipartisan support for deregulatory, market-oriented reforms by devoting resources to preventing health care consolidation from creating its own structural barrier, preventing rigorous price competition. Protecting vibrant health care markets requires more consumer choice and smart enforcement measures so employers and families aren’t forced to pay more.
• Michael Toth is the director of research at the Civitas Institute.
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