Flaws with Our Current Healthcare System

Sally speaking 1

Editor’s note: Today’s blog is part one of a three part series featuring PRI’s CEO & President Sally Pipes’ health care speech delivered at Reason Weekend on March 18th. 

Winston Churchill once said that “democracy is the worst form of government except for all those other forms that have been tried from time to time.”

We might be able to say something similar about American health care. A majority of Americans now rate the quality of our country’s healthcare system as fair or poor for the first time in the two decades that Gallup has been measuring public sentiment.

Progressives have seized on such public dissatisfaction to renew their call for a greater role for government in our healthcare system. But government overreach is the main reason why American health care has become much more frustrating for patients, providers, and payers alike.

Consider how the Affordable Care Act has changed American health care since its passage 13 years ago. A record-breaking 16.3 million people signed up for coverage through Obamacare’s health insurance exchanges in 2022, including 3.6 million first-time enrollees. Sign-ups through the federally operated HealthCare.gov exchange have risen 50% since President Biden took office, a point his administration is more than happy to tout.

But this enrollment bump is almost entirely due to the Biden administration’s massive expansion of publicly funded coverage, both through federal coronavirus relief and administrative rulemaking.

Today, federal taxpayers pick up at least part of the health insurance bill for three of every four individual marketplace enrollees. Many of these enrollees moved from private care into Obamacare plans precisely so they could get subsidized coverage.

In other words, exchange enrollment is up because the federal government is paying people to sign up.

The 2021 American Rescue Plan Act expanded exchange subsidies to anyone making more than 400% of the poverty level — $111,000 for a family of four in 2022. Those subsidies, which cost $30 billion in 2022, were supposed to lapse in 2023. But the Inflation Reduction Act, which President Biden signed into law last August, extended them through 2025.

Now, many Democrats want to make these more generous subsidies permanent. If they succeed, it will cost taxpayers $248 billion over the next decade.

These subsidies aren’t just expensive. They’re unnecessary. According to the Congressional Budget Office, 75% of the American Rescue Plan’s subsidies went to people who already had health coverage.

The Biden administration claims that expanding subsidies is necessary because without more federal money, premiums would have been 53% higher this year.

But rather than address the reasons why costs have surged, Democrats are doing everything they can to just mask them.

The average individual market enrollee paid $242 when Obamacare took effect in 2014. By 2019, they were shelling out $589 each month.

And those higher premiums haven’t translated into lower deductibles. The average deductible for a mid-level silver exchange plan was nearly $4,900 in 2023, up from roughly $2,400 in 2014.

Thanks to the Biden administration’s largesse — and the generosity of future taxpayers — most enrollees have no idea how much their coverage costs.

Expanding exchange subsidies is not the only way the government is gobbling up more and more of American health care. Slowly but surely, states are expanding Medicaid.

More than one in five Americans (84 million) are enrolled in Medicaid today, many who were not eligible before Obamacare expanded the program in 2014. Since then, Medicaid enrollment has risen nearly 20 percent.

Just 11 states have yet to expand Medicaid, and even they’re beginning to bow to pro-expansion forces.

On March 16, the North Carolina state Republican Senate approved legislation that would expand the program. The GOP state House is expected to green-light the measure, and Democratic Governor Roy Cooper has said he’ll sign it.

Continued state expansion is one reason Medicaid spending keeps going up. The program now accounts for one of every six federal healthcare dollars spent. Medicaid spending hit $734 billion in 2021, a 9.2% increase from the year prior. And that’s up from $460 billion in 2013, the year before Obamacare took effect.

The program’s beneficiaries aren’t getting much in return for all this spending. One recent study found that Medicaid enrollees and uninsured patients were 50% more likely to die of head and neck cancer than privately insured individuals, even after adjusting for age, gender, race, smoking, alcohol use, site, socioeconomic status, treatment, and cancer stage.

Government overreach is coming for prescription drugs, too. The Inflation Reduction Act imposes a host of price controls that will cripple pharmaceutical innovation. Just this week [MARCH 15], the Biden administration named 27 drugs that are subject to penalties because their manufacturers raised prices higher than the rate of inflation.

The new law also empowers the federal government to “negotiate” lower prices on a certain number of drugs covered by Medicare Parts B and D which do not have FDA-approved competitors on the market by 2026.

These are negotiations in name only. The federal government plans to set a price, listen to one counter-offer from the drug’s manufacturer, and then decide whether to take it — or just revert to whatever figure it wants, with the hammer of massive fines for noncompliance.

Starting in 2026, the government will be able to negotiate prices for 10 Part D drugs. The next year, 15. The year after that, 15 more from Parts B and D. And then in 2029 and beyond, 20 drugs a year drawn from the two programs.

The CBO estimates these negotiations would generate over $101 billion in savings. But those “savings” represents dollars not invested in new drug development.

University of Chicago economist Tomas Phillipson examined a bill with price controls similar to those in the Inflation Reduction Act and found that reducing pharmaceutical revenues by just 12% though 2039 would cut R&D spending by 18.5% — around $663 billion.

Those cuts would lead to 342 fewer new drug approvals over the same window, which in turn could potentially result in 331.5 million life years lost.

The Inflation Reduction Act’s price controls are bad enough on their own. But let’s remember why they exist in the first place: to pay for the bill’s other benefits, including expanded Obamacare subsidies.

As Council for Affordable Health Coverage president Joel White has observed, the plan essentially raids Medicare Part D and decimates the pharmaceutical sector to subsidize insurance for millions of Americans, including those who have no problem paying for coverage.

This backwards thinking is exactly what we should expect from government bureaucrats. The more control they have over American health care, the more harm will befall patients.

Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is “False Premise, False Promise: The Disastrous Reality of Medicare for All,” (Encounter Books 2020).

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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