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This fall’s federal government shutdown was an unnecessary political gesture. However, it did, in a roundabout way, help highlight what is wrong with health care in our country.
The debate this time was over whether to extend COVID-era Affordable Care Act subsidies and premium tax credits. Those subsidies, like the debate over whether to continue them, are merely a symptom of a far bigger structural problem. The subsidies were not an existential “lifeline” for millions of patients but for insurance companies.
The issue that imposed the longest government shutdown in history — furloughing government employees, delaying flights and keeping military service members from being paid — was entirely over the insistence of maintaining subsidies to insurance companies to bail out unaffordable ACA plans.
This ignores the bigger problem. Why are premiums going up? It is not simply because a temporary Band-Aid subsidy is going away; it is because of structural distortions in the health care market.
Insurers pass along costs primarily through premiums. If they have extra costs, they pass those along. Some of the extraneous expenses incurred by insurers are self-inflicted — through complex billing structures, for instance — but most are directly caused by the government, mainly through coverage mandates and other arbitrary requirements.
This was a growing problem before the Affordable Care Act, but the act’s provisions and mandates exacerbated it. Insurance companies are certainly not blameless — they were more than happy to accept taxpayer largesse in the form of subsidized bail-outs of the unaffordable products they were forced to sell — but the fact remains that every coverage mandate and requirement piled onto insurance carriers translates into added costs, which are then passed on to consumers in the form of higher premiums.
Nobel Prize-winning economist Milton Friedman’s axiom that there is no such thing as a free lunch applies as much to health care as to any other industry.
The fallout from this economic distortion is felt not only in higher premiums but also throughout the industry. Hospitals, predominantly rural and community hospitals, are frequently affected by this government-created imbalance. Insurers pass costs onto hospitals primarily through underpayment for services or claim denials.
Hospitals also typically face well-below-market reimbursement rates from Medicaid, which accounts for the bulk of many smaller hospitals’ revenue.
Unlike insurers or most other businesses, hospitals do not have the luxury of denying service; anyone who comes through the doors of a hospital with a medical problem will be treated, by law, whether they can pay or not. So when the government places more mandates and requirements on hospitals and insurers, as it did through the ACA, who gets stuck with the bill? That is why so many rural hospitals are closing.
If bailing out Affordable Care Act plans through subsidies to insurance companies is not the solution, then what is?
There are no simple, overnight solutions to a problem as complex and ingrained as this, but we can do a few things to help correct the system. Direct funding to individuals, via instruments such as health savings accounts, rather than to insurance companies, is a good start. Repealing unaffordable mandates that distort the insurance market would be a logical next step. Maintaining safety-net care for the minority of patients it was created for, and adequately funding it, is also essential.
That does not mean insurance carriers should be let off the hook: Loosening coverage mandates ought to reestablish a competitive environment where insurers compete with one another in a much freer market, based on reliability and delivery, rather than on who can best leverage the correct algorithm to deny the most claims.
Instead of distorting the market, the government can fulfill its legitimate role of enforcing contract law, ensuring claims are paid promptly and in full and enforcing guardrails to prevent abuse of prior-authorization rules. Patient billing and invoices should also be simplified.