Failure to Directly Finance Universal Coverage is Cause of Many of the Problems of U.S. Healthcare System

“The U.S. health care system often works well for persons with financial means and for many providers, but several countries achieve better outcomes at lower costs. This series of articles describes a vision and makes important recommendations to improve coverage and control costs; reform health care delivery and payment to promote person-centered; high-value primary care; and address social and environmental determinants of health.

The recommendations include both commonly proposed and novel approaches to health reform, all of which are backed by thoughtful reasoning and often strong evidence. Nevertheless, powerful forces hinder many ideas for reform. Pharmaceutical and device manufacturers fight rigorous economic evaluation of their products. Hospitals, health systems, and insurers consolidate to reduce competition that could promote consumer choice, lower price, and enhance quality. Managed care grows despite decades-old evidence of worrisome effects on costly, vulnerable patients. Provider organizations support barriers to entry and limit competition.

Politicians and policymakers rarely engage voters in complex issues of health reform.Accordingly, the recommendations in these articles face many barriers to implementation. Moreover, the effects of potential reforms are interdependent—implementation of 1 recommendation often affects the benefits, costs, and likelihood of implementing other recommendations. The interdependence of reforms is illustrated by the idea of eliminating tax exemption for employer contributions to health insurance. Economists have long criticized this exemption as reducing consumer and employer incentives to control health care prices and use. Yet, the private funds pushed into the health care system by this exemption subsidize the costs of the underinsured and uninsured that are inadequately covered by government payment. If those private funds were reduced, the system would quickly unravel. Therefore, the failure to adequately finance care for persons without private coverage makes it harder to address the inefficient incentives generated by employer-sponsored health insurance. Such connections among policies threaten the effectiveness of the health reform approach articulated in these articles if the recommendations are only partially implemented.

Accordingly, it is critical to understand which reforms are more and less important and which may follow naturally if others are initiated first. This issue is especially important because the argument can be made that the fundamental origin—one might call it an “original sin,” or the idea that human failings stem ultimately from Adam’s failing in the Garden of Eden—of problems in the U.S. health care system is our failure to directly finance health care access for so many Americans. Instead, because we have uninsured persons and underfund Medicaid and likely Medicare, we subsidize private coverage to incentivize private spending to make the system work. Unfortunately, this creates incentives for price increases and overuse in private health care, especially for specialized services where competition fails to limit costs. High prices for specialized services that exceed costs produce profits that, in turn, promote excessive incentives for entry—of hospitals into well-insured markets and of physicians into highly paid specialties. Hospitals adorned with unnecessary luxury as well as training programs laden by institutional service are examples of wasteful sequelae of these economic rents. Judge Richard Posner has highlighted such waste as the hidden costs of monopolies and similar distortions of competitive markets, with profits eventually converted to social waste.

Rational policies also mediate the wasteful sequelae of incentives for overuse resulting from subsidies for insurance. To control overuse, we develop costly bureaucracies, including managed care that replaces the financial incentives for overuse with those for underuse, in response to which we incur costly efforts to ensure quality. Moreover, extant approaches to risk adjustment under prospective payment incentivize directing care toward lower-cost patients that may have lower value, perhaps especially in competitive markets. Such rewards for risk selection also challenge proposals to address unmet social need through the health care system. To mitigate concerns of risk selection and compensate for inadequate funding for government programs, including the funding of biomedical research, we then tolerate reductions in health care competition that lower quality and increase costs. Failure to directly finance universal coverage thus contributes to many of the problems faced by the U.S. health care system…”

Meltzer D. “Original Sin” and U.S. Health Care Reform. Ann Intern Med. 2020;172:S62–S63.

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