Congress Should Embrace Competition To Promote Affordability

Joining the Senate, the U.S. House of Representatives is now taking up the problem of skyrocketing healthcare costs. Democrats have proposed extending the expanded subsidies for the Affordable Care Act (aka, Obamacare or ACA), but this will not address the problem of rising costs. Promoting greater healthcare affordability requires reforms that promote competition and empowers patients.

One of the ACA’s primary justifications was that it would “bend the cost curve” and solve the health insurance affordability problem. If the ACA was bending the cost curve, as its advocates claim, then families earning up to $128,600 – an income that is more than 50 percent higher than the median household’s income – would not require subsidies. And if families earning six-figure incomes cannot afford health insurance, it is safe to say that the ACA has failed.

Fully socializing the healthcare sector, another progressive proposal to promote affordability, will fare no better. According to a national Gallup poll, 46% of Americans now support a government-run healthcare system, which, while down from 2017, is up from the 34% who supported a nationalized system in 2010. As my colleague Sally Pipes explains, socializing the health care sector will inevitably lead to shortages and declining quality of care.

There is also a fundamental arithmetic problem with the calls to socialize healthcare. Typically, it is claimed that socialized medicine can be funded by “taxing the rich.” This is a pipe dream.

Total national healthcare expenditures were $4.9 trillion in 2023. The total wealth of all the billionaires on the Forbes 400 list is $6.6 trillion. This means if you somehow appropriated all billionaire’s wealth – an impossible task – there would only be sufficient resources to cover the costs of a fully nationalized healthcare system for less than two years.

Then what? Inevitably, the socialized healthcare system would have to tax the middle class to provide health benefits to the middle class. Like all socialized healthcare systems, the dollar costs would be controlled by creating even larger healthcare shortages, longer wait-times for care, and a lower quality of care from today’s already distressing levels.

Harmful anticompetitive policies at the state level are just as troubling. California’s recent actions exemplify what’s at stake. Starting January 1, California’s Department of Health Care Services (DHCS) will be limiting competition for plans tailored to the dual-eligible population, which are patients who are eligible for both Medicare and Medicaid (called Medi-Cal in California). These plans are called Medi-Medi- plans. This new rule will limit the number of allowable insurers within each county and actively obstruct organizations that are currently serving dual-eligible beneficiaries from serving new regions or expanding the number of beneficiaries they are currently serving.

It makes no sense for California to prohibit service from health plans that are successfully serving this vulnerable population. The reduction in insurance competition will likely increase costs or reduce the available services that the dual-eligible population can receive. Either way, patients will be harmed because DHCS is limiting competition.

Government programs cannot fix the problems plaguing the healthcare system because the fundamental problem with the healthcare system is excessive government interventions. As of 2023, the government directly paid nearly 43 percent of all healthcare expenditures compared to covering less than 29 percent of the total costs in 2000. Competition is further undermined by government policies that reduce choice and incentivize the consolidation of private hospitals, providers, and insurers.

As the government expands its influence over the healthcare system, the vibrancy and competitiveness of healthcare markets diminish, as I outlined in a recent Pacific Research Institute paper. This is problematic due to the strong connection between robust competition and lower healthcare costs and higher healthcare quality.

In 2019 testimony to Congress, Carnegie Mellon University Professor Martin Gaynor noted that reduced hospital competition has increased prices “on the order of 20 or 30 percent,” “with some increases as high as 65 percent.” A JAMA Health Forum analysis concluded that, the costs for office care visits were 11 percent higher at primary care physician offices associated with hospital systems compared to independent doctor practices.

Reduced competition also worsens the services patients receive from health insurers. A 2022 Rand study found that less health insurance competition brought less compensation for providers and higher premium costs for beneficiaries.

Advocates also argue that a government healthcare monopoly provider will reduce the large amount of administrative waste plaguing the U.S. healthcare system. A nationalized healthcare system, they argue, eliminates profits and duplicative administrative costs, thereby saving money and reducing waste. In practice, these savings rarely materialize.

Innovation, not bureaucracy, is the most efficient way to lower administrative costs. This requires regulatory reforms that strengthen competition by lessening provider burdens and encouraging technological advancements that are readily available and widely used in other competitive markets.

Rather than thwarting competition, policymakers should focus on repealing the rules and regulations that harm competition and encourage consolidation. Markets work best when policies incentivize transparency and competition. Healthcare is no different. By empowering competition, policymakers can incentivize innovations and efficiencies that will improve quality and promote greater healthcare affordability.