Free-Market Solutions to Improving American Health Care

Sally speaking 1

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

As you’ve heard today, there’s no shortage of evidence that neither federal entitlement programs nor government-run healthcare systems can provide patients with truly affordable, high-quality care.

What then shall we do?

The answers, as they so often do, lay in the free market. By encouraging price transparency, empowering patients, and cutting burdensome regulations, we can boost competition and help deliver affordable, accessible, quality care for all.

Let’s start by acknowledging that health care at present is too expensive. Of the 91% of Americans with health insurance, almost half report difficulty paying out-of-pocket costs.

Health costs are so high in part because the prices of various goods and services are not determined by conventional market forces. Payers and providers negotiate in secret, and patients often have no way to shop for the best deal.

The Trump administration tried to inject some consumerism into the healthcare market by mandating that hospitals post their prices publicly in an easily readable and accessible format. Three years after the final rule took effect, three-quarters of American hospitals still aren’t complying.

Price transparency is a necessary first step to fostering competition among buyers and sellers in the healthcare market — and bringing costs down and quality up.

Jonathan Wolfson and Josh Archambault at the Cicero Institute have an idea for boosting the impact of price transparency with model legislation they call the Patient’s Right to Save Act.

Their plan has three components. It would require hospitals to publish the cash price of their services. Insurers would have to count out-of-network care toward a beneficiary’s deductible if the price of that care was less than the lowest in-network price.

And it would allow beneficiaries to share in any savings they generated for their insurer after hitting their deductible by selecting providers who charge less than the cheapest in-network option.

Taken together, these three prongs could incentivize patients to shop for value while forcing providers to give them the tools they need to do so.

Making an approach like this really work would require a significant expansion of Health Savings Accounts. These accounts are triple tax-advantaged — contributions are tax-deductible, investment earnings and interest on the money in the accounts grows tax-free, and withdrawals are tax-free as long as they’re used for healthcare expenses.

HSAs give patients control over their healthcare dollars. Providers who hope to attract those dollars will have to compete on quality or price or both. Those that don’t will lose business. As competition becomes de rigeur, we may even see the rise of apps that help patients compare prices — a kind of Yelp for health care.

Roughly one in ten Americans has access to a Health Savings Account. They’ve failed to deeply penetrate the market because only people with high-deductible health plans can contribute to them. Even then, they can only contribute $3,650 per year for individuals or $7,300 for families.

Fortunately, lawmakers from both parties have proposed plans to remove both of these limits.

Arizona Republican Rep. Andy Biggs’s “Freedom For Families Act” would allow those without high-deductible plans to open HSAs and raise yearly contribution caps to $9,000 for individuals and $18,000 for families. The bipartisan “Health Savings For Seniors Act,” would open HSAs to Medicare beneficiaries.

Employers could help unleash the power of HSAs by agreeing to match employee contributions in some form. Not only can those matching contributions help employees save tens of thousands of dollars over the course of their lifetimes. They can even save employers hundreds of dollars in taxes per employee per year, according to one expert analysis.

Lawmakers could also expand access to quality care by slashing outdated, unnecessary regulations that restrict care on the supply side. For instance, nearly three dozen states still have certificate of need laws, which require hospitals to secure government approval to expand their facilities, build new ones, or offer new services.

That makes no sense. These rules effectively allow incumbents to lobby against the introduction of competitors. We shouldn’t be surprised that per-capita health expenditures are 11% higher in states with certificates of need than in those without.

Even more pernicious than certificate-of-need laws are their close cousins, scope-of-practice laws. These laws restrict what services nurse practitioners and other non-doctors can provide independently.

Doctors say that scope-of-practice rules are necessary to protect patients from subpar care at the hands of unqualified providers. But study after study has shown that nurse practitioners perform just as well as doctors in primary care and specialty settings. Letting these well-qualified professionals do their jobs without restriction would radically increase the supply of care.

There are 355,000 nurse practitioners in the United States, all of whom have graduate degrees, advanced medical training, and prescriptive privileges. But in half the country, nurse practitioners cannot treat or even diagnose patients without a doctor’s sign-off. Twenty states place similar restrictions on physician assistants.

Even doctors can benefit from some deregulation. At the moment, state physician licensing laws make it hard for doctors to cross state lines to treat patients. Relaxing these requirements could allow doctors in border towns and elsewhere to go where care is most needed.

America is in the throes of a physician shortage, and it’s only going to get worse as the population ages. A more liberal physician licensing regime could help address this shortage, particularly in low-income and rural areas, where it’s most acute.

And then there’s telehealth. During the pandemic, state and federal officials relaxed rules governing who was eligible for telehealth and whether doctors had to be licensed in the state in which their remote patient lived.

Our collective embrace of telehealth was among the best things to come out of the pandemic. But now that the public health emergency is coming to an end, lawmakers are reverting to their pre-pandemic ways and erecting barriers to widespread telehealth access once again. That mustn’t happen.

Finally, I’d be remiss if I did not mention the myriad ways to reform federal entitlement programs. Of course, there’s no such thing as a “free-market” entitlement program. And as we’ve seen with the recent dustup over Social Security and Medicare, lawmakers are reluctant to even discuss the possibility of cutting entitlements.

But I am not a lawmaker — thank heavens! So I am free to suggest that the Centers for Medicare and Medicaid Services ramp up oversight to eliminate the fraudulent Medicaid payments that cost American taxpayers over $80 billion last year. Even progressives should be able to get on board with that kind of call — for a government program that spends dollars prudently.

More radical ideas for entitlement reform include disbursing Medicaid funds to the states in block grants, so that they can tailor their programs to the unique needs of their populations, or means-testing Medicare, so that we don’t continue robbing younger, less wealthy workers to underwrite the retirement expenses of the generations that hold the majority of wealth in this country.

President Biden, of course, is going in the other direction. His recent budget proposal calls for more price controls on prescription drugs and higher taxes to address Medicare’s looming insolvency. Not only would those proposals decimate the drug research ecosystem and stall economic growth — they wouldn’t even come close to shoring up Medicare!

Our healthcare system needs less government — and more in the way of market forces. They’ve improved quality and reduced cost in every other sector of our economy. Why can’t they do the same in health care?

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.

Scroll to Top