New healthcare reform proposals are scrutinized from the moment they appear. Every line is picked apart and examined; endless debates are had over the plan’s apparent merits, flaws, and repercussions. But in the end, all of those conversations trace their root back to a single, pervasive question — how do we facilitate affordable care in America?
The United States has struggled with high care costs for decades. It stands as an outlier among similarly-wealthy nations; one recent Commonwealth Fund analysis indicates that the US spends nearly twice as much on healthcare as a share of the economy as the average high-income, OECD-studied country. Despite all this spending, however, our nation reports the lowest life expectancy and the highest chronic disease burden, obesity rate, and suicide prevalence.
But these prices aren’t just high — they’re climbing. In 2003, the United States spent roughly $4,559 per capita on health care expenses. By 2016, that number had more than doubled to $9,892. This was, incidentally, about 25 percent more than Switzerland, the second-biggest-spender of the year, paid.
“In spite of all the efforts in the US to control health spending over the past 25 years, the story remains the same—the US remains the most expensive because of the prices the US pays for health services,” Dr. Gerard F. Anderson, a professor at Johns Hopkins’ Department of Health Policy and Management commented on the matter.
Elizabeth Mitchell, chief executive officer of the Pacific Business Group on Health, put the problem another way in a recent comment for the New York Times: “If we want to keep a private market in US health care, it has to function. It’s really not functioning.”
The question is, how do we bolster that functionality? What can we do to drive down costs and increase affordability that hasn’t been tried in the last few decades?
During his 2020 campaign, now-President Joe Biden presented his solution: a new public health insurance option that he describes as “like Medicare.”
“Whether you’re covered through your employer, buying your insurance on your own, or going without coverage altogether, Biden will give you the choice to purchase a public health insurance option like Medicare,” the president’s proposal explains.
“As in Medicare, the Biden public option will reduce costs for patients by negotiating lower prices from hospitals and other health care providers. It also will better coordinate among all of a patient’s doctors to improve the efficacy and quality of their care, and cover primary care without any co-payments.”
Now, the possibility of an additional public option is intriguing because — as the proposal implies — it could have the leverage necessary to negotiate with provider networks who habitually use their consolidated market power to dictate prices to payers.
As I’ve written before, consolidation-enabled price-hikes are a real and pressing problem in American healthcare. These occur when massive provider networks — think Mass General Brigham, John Muir, and Sutter Health — obtain control of most (or all) hospitals and specialty clinics in a given region. Once uncontested, these networks can raise their prices and compel employers and insurers to pay set rates.
“Sutter won’t allow us to see how much they charge for their services,” Hillary Ronen, a member of San Francisco’s city and county board of supervisors and budget committee, told Leslie Stahl on 60 Minutes. “It– it’s unbelievable. And so we can’t comparison shop. And they keep naming their price, and I feel like I’m handcuffed to do anything about it.”
Ronen isn’t the only one to feel the pinch. Without negotiating power, payers across the nation have been left to foot an increasingly high bill for healthcare. Their experience is notable when you consider that Medicare, a national health insurance program with enough negotiating power to push back on consolidated networks, pays significantly less for services.
According to a recent report from RAND, employers and private insurers paid, on average, 247 percent of what Medicare would have paid for the same services at the same facilities in 2018. The disparity between Medicare and private insurers grew over time, too; as researchers wrote: “From 2016 to 2018, the overall relative price for hospitals (including inpatient and outpatient care) increased from 224 to 247 percent, a compounded annual rate of increase of 5.1 percent.”
In this context, we can see that introducing a new public option could, like Medicare, check consolidated networks’ market power by using federal leverage to compel negotiation. The difference is, of course, that this new Medicare lookalike wouldn’t be limited to seniors. It would encompass Americans of all age demographics — and extend greater affordability to millions as a result.
As one Kaiser Family Foundation analysis concluded in 2020, “Proposals that would extend Medicare rates, or a multiplier of Medicare rates, to a broader population […] could also contribute to lower premiums, deductibles, and point-of-care costs for patients. Lower provider payments could lead to lower per capita spending, leading in turn to lower out-of-pocket costs.”
Hence, a public option would be invaluable from a cost-control perspective. However, if Congress presents Biden’s plan solely as a Medicare lookalike, there will inevitably be pitched debates over quality. As a fee-for-service program, Medicare compensates strictly for services rendered and has little ability to align payers and providers with quality, health outcomes, and patient satisfaction goals. In theory, a fee-for-service option could lower costs but ultimately fail to improve public health.
With all this in mind, I would prefer an interpretation of Biden’s public option that riffed on Medicare Advantage rather than Original Medicare.
With Medicare Advantage, enrollees receive Medicare benefits via a private insurer. MA plans are value-based, rather than fee-for-service — in other words, they utilize provider payment structures that take patient outcomes, satisfaction, and costs into account.
As one writer for Health Payer Intelligence explains, “The ultimate goal of value-based care is to provide the highest quality of care at the lowest possible cost. To that end, CMS has laid out its Medicare Advantage star rating system that is the same for all health plans. But many health plans that strive to achieve truly value-based care also have internal quality measures that they pursue.”
The best value-based plans empower payers and providers to collaborate to improve patient outcomes, bolster care quality, and improve efficiency. The cost-savings of having an effective value-based model can’t be understated, either. In 2019, Humana’s MA programs saved an estimated $4 billion in medical expenses.
There’s no doubt that we need to stop — or at the very least slow — rising care prices in America. Only with a public option will payers have the market power they need to break consolidated provider networks’ command over rates and facilitate real affordability. That said, patients would undoubtedly be better served by a program that riffs on value-based Medicare Advantage than fee-for-service Medicare.
It’s worth hoping that if Biden’s public option does come under discussion in the Capitol, its proponents will seek to extend MA’s potential as an affordable healthcare option to serve more Americans.
