Empowering consumers and strengthening competition through direct payment are the answer
President Donald Trump sent out a surprising statement on Truth Social last week. Though it applied to a specific policy issue — the expanded Obamacare subsidies which are scheduled to expire at the end of the year — Trump’s statement marked a pivot toward a new perspective on health care reform: cash as king. This seemingly ephemeral social media post and the thought behind it could guide the way toward momentous positive reforms.
Trump said trying anything else to reduce the cost of health care would be a waste of time. We think that there are plenty of additional ways to reform the system, and we discuss some of them here. However, the emphasis on putting cash in people’s hands and having them choose their services, instead of giving big companies that money and having them tell consumers how to spend it, is refreshing and absolutely right.
First, let’s recognize how stunning Trump’s statement is. For the first time, a U.S. president has acknowledged a truth well-known among free-market health care reformers: By putting the consumer in charge of the payment, we can restore some of the natural market forces so lacking in health care today. Putting more and more of the nation’s health care on a cash basis would bring down prices, improve services, and foster further positive reforms all across the system.
Since the inception of Medicare and Medicaid in the 1960s established a strong “third-party payer” approach, health care consumers have become increasingly abstracted from the true cost of these services. Obamacare, starting in 2014, put this system on steroids. When a third party such as an insurer or the government pays the bill, the patient and provider become oblivious to how much they spend.
This has led to massive health care inflation on top of enormous waste, fraud, and abuse. Medical care priced at $1,000 in 1965 costs $21,950 today. That’s a 2,195 percent increase, compared to 931 percent for everything else!
The Obamacare subsidies have made matters even worse, and not just for those with Obamacare plans. Because Obamacare absurdly demands that health insurers rate everyone’s health risks the same, cover a long list of “essential health benefits,” and put everyone (including those with extremely expensive health conditions) in one big risk pool, insurers have been able to demand help from Congress in the form of subsidized premiums. Those subsidies cover up the cost of health care even more.
“With Covid-era subsidies, taxpayers are paying for 90 percent of the premiums charged in the [Obamacare] marketplace exchanges,” wrote John C. Goodman, president of the Goodman Institute for Public Policy Research, in Forbes. “If the subsidies are allowed to expire, the taxpayer share drops to 80 percent. That means the government is still paying the lion’s share of the costs.”
Instead of sending this subsidy money straight to the insurance companies, Trump wants to give it directly to Americans to shop for their own plans and pay for their premiums themselves. Consumers will see firsthand the rising cost of premiums because they, not the government, will be paying the bill. Obamacare consumers sending checks directly to insurers will be alerted to rising costs and will be more likely to demand changes to make health insurance more affordable.
Trump notes that “the people will be allowed to negotiate and buy their own, much better, insurance.” That would be a big change. Under Obamacare, there aren’t many options, and they decrease year after year. Trump’s proposed change would increase competition, which pushes costs down by squeezing out inefficiencies because waste reduces profits.
Read the rest at The American Spectator.
AnneMarie Schieber is a research fellow at The Heartland Institute and managing editor of Health Care News, Heartland’s monthly newspaper for health care reform.
S. T. Karnick is a senior fellow and director of publications for The Heartland Institute.
