WASHINGTON, March 9, 2017 — The GOP led House of Representatives’ proposal to eventually repeal and replace the Affordable Care Act (ACA) is designed to lower health insurance costs by creating an environment that will lead to more competition in the health insurance market. But this proposal should really concentrate on the cost of healthcare itself, not just the cost of insurance.
Every economist will agree that competition produces positive results. Competition will lower the price of goods or services, increase their availability and eventually increase profits for those firms supplying the goods or services. This happens every time it’s put into practice, and there are numerous examples to prove it. Historically regulated markets with limited competition have all experienced positive results after deregulation.
The airline industry, the communication industry and the energy industry all greatly benefited by deregulation, which allowed and even encouraged competition. The results were dramatic decreases in price, vast improvements in the quality of the product or service and, eventually, greater efficiency, which led to greater profitability for the businesses.
This happens for a simple reason. If only one firm supplies a given service—which is what a single-payer system would put into effect—there is no incentive for the service provider to reduce the cost or improve the quality of what it offers. In a competitive market, there is always pressure to lower cost and improve quality so that a firm can maintain or increase its market share. With just one firm in control, there is no possibility of losing or gaining market share since the firm already has 100 percent of the market.
The current GOP plan aims to allow consumers more choice when selecting an insurer. The plan also increases the use of Health Savings Accounts (HSA), which gives consumers more control of their spending so that they can shop for services and perhaps negotiate prices. The actions are meant to attack high prices from the demand side with the expectation that suppliers will react to consumer demand by offering lower prices and better service.
While this makes sense, what about the supply side?
There is nothing in the current ACA or the proposed GOP bill that encourages increases in the supply of healthcare goods and services. Indeed, many question how the U.S. can add 20 million Americans to the health insurance rolls and eventually add even more. In both situations, universal care seems to be the real goal, without addressing an increase in the supply of doctors and other medical professionals and facilities. Increasing supply is really the key to solving the problem.
Suppose money were spent to vastly increase the number of medical students. That would eventually lead to a large increase in the number of practicing doctors. Logistically, current medical schools would have to increase enrollments and there would have to be an increase in internship and residency programs. Once accomplished, however, the increase in the number of medical professionals would inject so much competition into the system that prices for procedures would fall and healthcare quality would increase as these professionals seek to increase their share of the market.
If healthcare consumers put money into a HSA and spent that money to pay doctors directly, they would become more price conscious, which would also contribute to lower prices and higher quality.
In many instances, the consumer could pay directly for services rather than using insurance. Already, we can see the Surgery Center Network, which is a website that lists doctors who perform certain procedures at outpatient facilities rather than in a hospital. Many of the physicians do not accept insurance. The patient knows the cost up front and pays up front, often from an HSA.
The result is that procedures are 45 to 60 percent less expensive, and sometimes as much as 80 to 90 percent less than traditional insurance-paid hospital procedures. Patient surveys show a 92 percent satisfaction rate for these types of procedures as compared to an average 70 percent satisfaction rate for traditional hospitals.
Some may wonder if adding so many new doctors to the system will lead to lower quality care and less-qualified physicians. That is simply not true. Last year the Association of American Medical colleges reported that more than 53,000 pre-med students applied to medical school but less than 40 percent were accepted. Each applicant knew he or she had to perform well in college to even consider applying to medical school. Even so, more than 30,000 were rejected. Most of them are qualified to be doctors.
House Speaker Paul Ryan is right. The current ACA is collapsing and must be fixed. Republicans were elected because they promised to repeal and replace the ACA. They are right to come up with a better law. But they should consider the supply side as well as the demand side of this issue. Then all the goals they seek to reach could be easily met and would be far less costly.