Health policy disrupters who hope to shift health care payments from third parties to first parties over rely on simplified adaptation of financial reform models like defined contributions. It holds special appeal to those seeking to solve imbalances between revenue and spending in public health coverage programs like Medicaid and Medicare. But solving structural problems in those systems involves more than a simple budgetary math matter, particularly during an era of fiscal profligacy, not austerity.
Moves to “disintermediate” insurance middlemen in health care transactions face consumer resistance to taking on new duties themselves and uncertainty in which type of new parties will arise to “reintermediate” some, if not all, of those tasks (e.g. price negotiation, quality assurance, liquidity, provider access, administrative scale) in better ways than through more conventional insurance. Like pension reform, a switch to defined contributions is about the money. But for health care reform, it is not “all about the money.”
Visions of using tax-advantaged health savings accounts as a parking space for funds either needed for individuals’ future health care needs over longer time horizons or liberated for their other competing preferences have not unfolded that way in early experience. Spiegel and Fronstin of the Employee Benefit Research Institute report that the majority of accountholders seem to use their HSAs as specialized checking accounts to pay for current health care expenses and do not take complete advantage of the tax benefits or investment opportunities that HSAs offer. Indeed, it seems that the more that individuals HSA balances begun to grow, the more that their health care spending soon increases. In short, if you subsidize health care spending in other ways, it still will increase, in other ways.
Nevertheless, there should be inescapable limits, eventually, to how much health care spending can be paid by third parties (either insurers, or current and future taxpayers), particularly since the funds mostly are recycled and redistributed private earnings (with a haircut for administrative fees). Hence, as the spigots of dollars run out, the question is where the coverage/subsidy donut hole will reappear, whether for early-dollar spending, catastrophic-level spending, or hidden somewhere in between. Switching from third-party to first-party payment may shift the direction and incidence of those out of pocket costs, but it cannot make the hole disappear. The political odds of either the most resource-constrained or medically-vulnerable population cohorts coming out ahead in that political competition remain low.
The next set of dilemmas facing disruptive innovators in health policy involves history. Earlier, more limited efforts to increase personal responsibility and first-party control of health care spending in programs like Medicaid and Medicare have fallen short of more ambitious goals. Their future windows of opportunity may be closing. The number of states still “holding out” on accepting the Affordable Care Act’s Medicaid expansion has been dropping close to single digits. Future state elections and the persistent lure of federal dollars promise to shrink that figure further. Various efforts to craft Medicaid waivers attractive to holdout states fell far short during the Trump administration, due to mismatched federal and state objectives, the legal limits of the program’s statutory purposes, and fading appeal. Any revival of a waiver approach for consumer-focused control of funding overlooks that state governments are the essential counterparties in that process, not end-user beneficiaries. State officials have different agendas and objectives (i.e. more money and control, with less accountability, rather than substantial consumer empowerment).
One illustrative example from recent history — the highly-regarded Cash and Counseling Medicaid waiver for certain self-directed long-term care services, launched in the 1990s — reveals the low ceiling for even well-designed reforms in this direction. Concerns about policing potential fraud and abuse, combined with limited funds for administering expanded versions of the concept, kept the approach from growing into broader service categories. Doing complex things well often requires narrow targeting. But narrow targeting limits building a broader constituency and sufficient political support for future expansion.
A related political challenge is how to gain support for market-based health policy reforms centered on direct-to-consumer defined contributions, when the appearance of “private-like” administration of highly regulated third-party coverage options may be close enough for non-government work (e.g. Medicaid managed care, Medicare Advantage, the Affordable Care Act’s subsidized exchange insurance plans).
The last resort of aggressively market-based health policy disrupters for Medicare’s future is to hope for the fiscal near-calamity ahead. However, the Higgs-Boson god particle of American government’s expansion toward Leviathan power appears to be our immediate, and lasting, responses to national “crises” (real or imagined), including economic upheavals as well as war. Imminent budgetary meltdowns of major entitlement programs are not great recipes for decentralization and delegation.
Is there still space for some Curbed Enthusiasm progress? Part III will sketch out some paths forward.
The post The Health Policy Disrupter’s Dilemmas appeared first on American Enterprise Institute – AEI.