Suspend disbelief for a moment and assume that President Biden draws a GOP opponent next year who would have been viewed as mainstream in the Reagan-Bush era. And then go one step further and assume this candidate actually wants to take on challenges that Republicans have typically avoided as too fraught with political risk. In this imaginary and implausible scenario, what should this candidate say about improving health care, if anything?
The focus here is on a potential Republican candidate because it is assumed that President Biden and the Democratic party are fully committed to the course they have charted for years, which is toward stronger public control over both insurance rules and how medical care is priced and delivered. What the country needs is a strong presentation of the alternative to a government-managed system, which is one that relies on competition and choice to deliver better results. If such a plan does not get advanced by a GOP president or presidential candidate, it will never get a real hearing, much less get enacted.
It should be noted that policy-heavy presidential campaigns have never been the norm. What usually matters in these contests are big themes around the role of government, the perceived condition of the country at the time of the election (“peace and prosperity”), and the personal characteristics and traits of the candidates. Policy plans and ideas can provide some additional color to the motif, but they are mostly secondary to the main factors influencing the outcomes.
Even so, policy pronouncements during campaigns are important because they affect how the country is governed. Winning candidates cannot easily push legislative ideas — at least not right out of the gate — that they never previewed when running. Trump’s 2017 gambit to repeal and replace the Affordable Care Act (ACA) ran aground for this reason. On the other hand, candidates who announce specific plans usually feel bound to push for their adoption if they win.
So, what should an imaginary and quasi-normal GOP candidate who wants to weigh in on health care in 2025 say about it in 2024, even if only by way of making a speech no one will remember and posting a high-level policy paper online with few specifics and perhaps even fewer readers?
The status quo certainly provides plenty of room for improvement. It would be hard to argue that health care in the U.S. is as good as can be expected. What exists is best seen as a public-private non-system, built upon a haphazard mix of subsidies and regulations adopted at various points in response to idiosyncratic political and historical factors. There has never been an overall plan or even an agreed-upon list of organizing principles. The dysfunction that is all too evident has proven exceptionally difficult to remedy.
The main challenge is — as it has been for years — high costs. President Biden has emphasized reducing prescription drug prices for the elderly enrolled in Medicare, and higher premium subsidies for low and moderate-income households enrolled in coverage offered through the ACA exchanges. For the vast middle class, however, nothing much has changed. The average cost of family coverage offered by employers was $22,221 in 2021, or the equivalent of 31 percent of the median household income. Medical care remains far costlier in the U.S. than in other advanced economies.
A related problem is the approaching depletion of reserves in the Medicare Hospital Insurance (HI) trust fund, which the program’s trustees now estimate will occur in 2031. The next president may have to take steps to prevent an immediate solvency crisis. It would be better, of course, if that president headed off the crisis before it became acute with proactive measures.
There are also major problems beyond costs. Too many people still lack coverage even though most of the uninsured could secure affordable policies if they availed themselves of their options, and some communities and populations lack adequate access to needed services.
A politician willing to wade into this difficult mix of challenges could buy some goodwill by swearing off a top-to-bottom overhaul. The electorate wants progress but is wary of plans that would upend what they have. The better pitch is to suggest discrete changes that will make what already exists work better.
The main theme for a competition-focused plan should be providing more structure to the market so consumers can more readily identify and benefit from lower-priced and higher-value care and insurance plans. This is the surest route to easing cost pressures through productivity improvements and innovation and not through long waits for services or lower-quality care.
The following reforms would not fix health care once and for all but would deliver tangible improvements.
General Reforms
- Standardize What Is Being Priced. The federal government’s recently imposed rules requiring more transparency on pricing are forcing the industry to disclose what has long been hidden from most consumers. It is a helpful but not sufficient step for building a true market. What is needed now are rules requiring providers to post pricing for standardized bundles of services that lend themselves to consumer discretion, such as high-volume joint replacement surgical procedures. The prices would cover all of the relevant care needed to fully treat the patient. Without standardization, consumers will be reluctant to shop for care because one offering may include services not covered by a competitor. Apples-to-apples prices will make it clear who is charging more, and who less, for the same services.
- Let Patients Keep the Savings. Price transparency will be effective only if the patients are price sensitive. To satisfy that condition, insurance enrollees must be allowed to pocket the savings when they select lower-priced providers, even when they have already satisfied their deductibles and insurance coverage has fully kicked in. That means insurers must give patients control over the dollar value of their payments for services covered by the price transparency rules. Consumers could then apply those payments to the prices charged by providers of services they select and retain any savings from choosing providers with prices below what is the norm in the markets they serve.
- Reform Employer-Sponsored Insurance (ESI). Most working-age Americans and their families get their health insurance through their employers. While the system has many advantages, it has been too slow to adopt cost-reducing reforms as most firms want to avoid upsetting their workers.
One option for overcoming this obstacle would be to offer all firms an optional per enrollee tax credit tied to a short list of conditions. Most importantly, the firms taking the credit would need to foster strong competition among their offerings to workers. Workers should get fixed amounts from their firms that they would apply to the coverage they prefer (the amounts would be capped to ensure the overall plan is budget-neutral for the federal government). If a worker picks a lower-premium plan, his or her premium would be lower than it would be with a higher premium option. Workers would then have strong incentives to gravitate to lower-priced plans. Companies preferring to stick with their current strategies could decline the new federal credit. - Update Health Savings Accounts. Health Savings Accounts (HSAs), which Congress created twenty years ago, have plateaued and need changes to become more attractive. Because HSAs are paired with high-deductible insurance plans, they help to lower overall costs by discouraging the use of some services. However, their reach and influence are limited by prohibitions on contributions after Medicare enrollment and when insurance enrollees have standard deductibles. These restrictions should be eliminated. In addition, HSA enrollees should be given an incentive to build their reserves to cover the many types of expenses they will face in later life, including for long-term services and supports. One option would be to establish a threshold beyond which an has owner could use their reserves for non-health purposes past the age of 80 or so. The reserved balance would be set aside to pay for costs not covered by Medicare, such as assistance with routine activities in the home.
Medicare
- Simplify Medicare’s Benefits and Enrollment System. Medicare has evolved since its enactment into a complex program with multiple parts, private coverage options, and gaps that can be filled with supplemental policies. The government runs an information portal to aid beneficiaries, but it is incomplete and does not facilitate the comparisons that are needed to make informed decisions. The solution is to simplify the benefit structure with standardized offerings, including for supplemental coverage, and then to require all of the offerings to be lined up by category to allow for easy premium comparisons. The result would be ready identification by the beneficiaries of the coverage options offering the best value.
- Phase-In Competitive Bidding. The benefits of simplification would be amplified by requiring competitive bidding from both Medicare Advantage plans and traditional Medicare. However, this is a controversial step that would open up a candidate to heavy attacks from opponents. To blunt that assault, the reform could be paired with strict limits on the effects it would have on premiums paid by individual beneficiaries. For instance, competitive bidding could be used to lower premiums, but if a beneficiary’s current choice would have a large bump in cost in one year, the law could limit the amount the beneficiary owed to no more than a fixed percentage, such as 7 percent.
The main point to emphasize to blunt the attacks is that competition is expected to lower costs for the government and the program’s beneficiaries. It is win-win. The Congressional Budget Office (CBO) estimates that the intensified competition from the bidding process would push overall costs down by 8 percent. On average, Medicare beneficiaries would see savings of 5 percent relative to current law. - Expand Competitive Pricing Within Traditional Medicare. Medicare’s rules for paying providers of medical services and products are often derived from cost data collected decades ago. Introducing more competitive bidding from providers, as was done with durable medical equipment, would reward innovation and efficiency, and could lower costs if some of the savings were shared with the beneficiaries. Providers would then know they could attract more patients to their facilities and practices by offering prices that are below Medicare’s regulated fees.
- Give Medicare Beneficiaries a New Primary Care Option. Primary care physicians help patients navigate an increasingly complex medical care environment. However, Medicare and most other insurers continue to pay for the services these physicians provide on a piecemeal basis, which creates unnecessary hassles for patients and misaligned incentives. The better approach would be to pay each primary care physician a reasonable monthly fee to provide a defined list of services, including ready access for both in-person and video appointments, preventative care (such as vaccinations), and chronic care management. Giving Medicare beneficiaries the power to choose the physicians who will serve in this role for them would foster competition and improve the quality of the care they receive.
Coverage
- Facilitate Automatic Enrollment Into Insurance. Close to 80 percent of the 27.2 million Americans who still lacked stable coverage in 2021 were eligible for subsidized or otherwise affordable coverage but failed to enroll, for a variety of reasons. A major impediment is the complexity and burden of repetitive insurance enrollment processes. A simplified, annual sign-up system that uses income tax data to automatically sort eligible but not enrolled individuals into either Medicaid or coverage subsidized by the ACA would substantially increase insurance protection without creating new programs or requiring an expansion of financial support. Consumers would stay in the same coverage for a full year and thus would avoid the need to continuously re-prove their eligibility.
- Close the Medicaid Gap. A related change would offer a deal to the states that have not expanded eligibility to their Medicaid programs to all households with incomes below the federal poverty line (approximately 2.2 million people fall into this “coverage gap”). If the relevant states agree to expand Medicaid eligibility, they (and the other states that have already taken that step) would receive more freedom to run their programs with less federal interference. Those states choosing not to expand would be subjected to a higher level of federal oversight.
There are many other reforms that might be put on such a list, but there is only so much change that the public can absorb. If a candidate were really serious about injecting market discipline into U.S. health care, the changes brought about by the reforms presented here would go a long way toward achieving that objective. All that is needed at this point is a politician willing to champion them, and a primary electorate willing to reward him or her for doing so. Small probability events do occur of course, just not often.
James C. Capretta is a senior fellow at the American Enterprise Institute.
