The Inflation Enemy at the Gate
Inflation remains a persistent problem, with prices continuing to rise albeit at a slower pace compared to earlier this year. However, one surprising aspect of our current inflation is that prices for medical services have risen more slowly than overall inflation. Historically, the opposite has been the case.
It is not entirely clear why inflation has yet to hit the healthcare sector, but there is no doubt it will…and soon. When it does, the newly-elected Republican House Majority will have a huge opportunity to get out front with a positive agenda. Will they take it?
We are already seeing signs of growing healthcare inflation. In just three months, medical services inflation jumped from 5.1 percent to 6.5 percent and is likely to keep rising. A July Peterson-KFF analysis found that the out-of-pocket limit for Obamacare plans – essentially the cap on what you would have to pay for the year – is rising faster than wages.
Politico recently reported that “experts are warning that the wage, revenue and supply chain pressures that hammered the margins of hospitals and clinics during the pandemic are about to send health coverage and out-of-pocket medical bills through the roof.”
Many on the political left advocate for government-run healthcare plans to reduce costs. Advocates of single-payer systems claim that their administrative costs are lower than private insurance plans; however, such estimates are misleading and ignore other side effects of single payer systems such as higher taxes and longer wait times for care. Solid blue states such as Colorado, Vermont, and even California abandoned multiple efforts to enact government-run health care systems due to cost.
For too long Republicans have been reluctant to talk about health care, especially since the failed effort to repeal Obamacare and the lack of a viable alternative. That effort left scars on rank-and-file and elected reps alike. In contrast, Democrats are racking up healthcare policy victories from Medicaid expansion, to reducing “surprise” medical bills, to allowing Medicare to negotiate for lower prescription drug costs. However, too many American families continue to suffer from exorbitaint healthcare costs, higher per capita than anywhere else in the developed world.
As Politico notes, rising health care costs are “poised to become the next big battle in President Joe Biden’s war against inflation. It’s unlikely he’ll be able to declare victory in time for a 2024 reelection bid.” House Republicans can score political victories by clearly articulating an overarching philosophy of healthcare and taking the lead on healthcare solutions.
Some strategists categorize current Republican health policy proposals under the umbrella of the “Personal Option.” This is an approach to healthcare focused on individualized health plans that leave much of the existing system intact rather than sweeping changes. In other words, these plans focus on keeping what works and fixing what doesn’t. In doing so, Republicans would seek to avoid replicating some of Democrats’ failures in creating broad, unpopular changes. The foremost example is the cancelation of numerous health plans in wake of passage of Obamacare despite then-President Obama’s insistence that “if you like your plan, you can keep it.”
The Personal Option would lower costs through more competition and expansion of the free market, rather than through government intervention. It is based on the idea that because health care is so personal, everyone should be able to choose the healthcare coverage that is right for them – regardless of their income.
Health Savings Accounts (HSAs), for example, allow holders to use pre-tax dollars to pay for individual health expenses such as deductibles, copayments, coinsurance, and other qualified medical expenses, helping to lower overall healthcare costs. HSAs have a proven record of success and are popular, but government rules prevent all but 10 percent of Americans from having one. Passing H.R. 9160 (sponsored by Rep. Chip Roy of Texas) would expand Health Savings Accounts into newly dubbed “Health Freedom Accounts,” which would be accessible to all Americans, have higher contribution ceilings, and expand the list of approved healthcare expenditures.
One such approved expenditure would be Direct Primary Care, an alternative to fee-for-service insurance that cuts out the insurance middleman completely. Patients pay a flat membership fee to a doctor in exchange for primary care services, preventive services, and discounts on medications and lab testing.
DPC flips the current system’s focus from the provision of services to the wellbeing of the patient. As one DPC family physician said, “DPC is about focusing our attention, time, and effort on caring for our patients – directly, without oversight from nonmedical administrators, using evidence-based guidelines individualized for the circumstances of each patient.” The DPC model is quite popular among both patients and primary care doctors, however current government rules prohibit the use of HSA funds for DPC membership. This prohibition would be removed if H.R. 9160 were to become law.
The Personal Option also focuses on proven reforms in the states that we know work, such as expanding telehealth and repealing certificate of need laws. A Congressional Budget Office report highlighted these and other supply-side elements that can be found in the Personal Option as “ways to reduce prices by promoting competition among providers.”
Regarding the coming healthcare inflation crunch, Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, told Politico, “I don't know anybody who is taking the lead on this issue." If Republicans don’t, they will end up where they usually do on healthcare – playing defense and being negative. It would be nice to see them step up to the challenge.
Healthcare inflation is the disease and Republicans have a possible antidote – the Personal Option.
Aamir Hussain is a resident physician practicing in Washington, D.C.
