Reducing the Cost of Health Care
Published: December 5, 2018
Broad access to quality health care starts with making it less expensive. In order to lower cost and improve quality, we should not only eliminate harmful regulations but provide consumers with the incentive to consider different costs. Expanding the supply of medical services would also stimulate competition. Effective reform would put patients in charge of their own spending, while giving them a way to gain from paying less.
Discussion Questions
- What are the benefits of Health Savings Accounts?
- Is legislation necessary in creating an effective health care reform?
Additional Resources
- For much more detail on Scott Atlas’ health care plan, read his book Restoring Quality Health Care: A Six-Point Plan for Comprehensive Reform at Lower Cost, available here.
- Read Scott Atlas’ chapter “Transformational Health Care Reform” in Blueprint for America, available here.
- In “Replace Obamacare With A System That Cuts Costs And Values Quality Care,” Scott Atlas argues for the elimination of Affordable Care Act, available here.
The main objective of health care reform is to broaden access to quality care.
Instead of expanding government programs and subsidies, the direct pathway rests on reducing the cost of care itself.
This requires creating conditions long proven to bring down prices while improving quality: incentivizing consumers to seek value, increasing the supply of care, and stimulating competition.
First, equip and incentivize consumers to consider price.
Critics often claim this is unrealistic: how can you shop around from the back of the ambulance? But emergency care represents only six percent of health spending.
For privately insured adults under age 65, almost 60 percent of expenditures is for outpatient care.
For the top one percent of spenders, responsible for more than a quarter of all health expenditures, a full 45 percent is outpatient. Studies from MRI and outpatient surgery show that when patients are motivated to compare prices, prices come down by almost twenty percent.
And we may not even need legislation to force the visibility of prices.
The most compelling motivation for doctors and hospitals to post their prices would be their understanding that they are suddenly competing for price-conscious patients who control the money.
Obamacare moved in the opposite direction.
Its extensive coverage requirements and misguided subsidies encouraged bloated coverage and furthered the counterproductive idea that insurance should minimize out-of-pocket payments.
When insurance pays the tab, patients have little reason to consider costs, and doctors don’t need to compete on price.
Effective reform would put patients in charge of their own spending, while giving them a way to gain from paying less.
One essential component is widely available, high deductible insurance plans with fewer coverage mandates and cheaper premiums.
Higher deductibles require direct patient payment for care up to the deductible.
A second highly effective tool to motivate patients to consider price is large, liberalized health savings accounts (HSAs).
Tax-sheltered HSAs typically pay for non-catastrophic expenses, the bulk of medical care. Better than tax deductions, HSAs incentivize saving.
When people have savings to protect in HSAs, the cost of medical care comes down without harmful impact on health.
Large HSAs should be available to everyone, including seniors on Medicare because they are the biggest users of health care. Motivating seniors to seek value is crucial to driving prices lower.
Raising maximum contributions, allowing HSAs to be used for the account holder’s elderly parents, and permitting rollovers to surviving family members are additional, important reforms to consider.
Second, increase the supply of medical services to stimulate competition.
In large part, this means removing barriers like unnecessary scope-of-practice limits on qualified nurse practitioners and physician assistants.
When clinics staffed by nurse practitioners and practitioner assistants provide simple primary care, like vaccinations, blood pressure monitoring, and routine infections, it’s 30–40 percent cheaper than by a doctor, and patients are highly satisfied.
Medical school graduation numbers have stagnated for almost 40 years, and training programs have limited the supply of doctors despite known projections of shortages. This is anti-consumer.
National M.D. licensing would help telemedicine proliferate across state lines.
Finally, an often overlooked problem is the unlimited income tax write off for health expenses. This encourages higher demand for care, regardless of cost, while distorting insurance into covering almost all services.
Remember in other countries, governments hold down costs by limiting medical care, drugs, and technology, and get the expected results: long waits and worse medical outcomes, particularly for the poor, who are unable to circumvent those systems.
We should consider a different approach here. Let's create incentives and eliminate harmful regulations to reduce prices so that high quality care is affordable for everyone.