How the Free Market Can Make Health Care More Affordable For Everyone
One of the primary burdens poor Mainers confront is the constant struggle to remain healthy. Unable to afford costly medical care, many people are simply left hoping that their luck holds and that medical issues, if they arise, can be dealt with using inexpensive remedies. When serious health problems develop, the poor commonly delay seeking professional attention, often leading to irreparable damage and ultimately more expensive emergency care. A recent study by the Maine Center for Disease Control found that 20% of Maine adults with household incomes under $25,000 had needed to see a doctor in the last year but didn’t because of financial constraints.
Not only do exorbitant medical costs motivate the poor to avoid regular checkups and ignore warning signs, but low-income individuals disproportionately embrace unhealthy habits like eating junk food and smoking.
As a result, on average, the poor are more likely to develop severe illnesses, more likely to become injured, more likely to die early, and more likely to experience chronic stress than the general population. A 2010 survey found that the percentage of adults who rated their health as excellent, very good, or good fell from 96% among middle- and upper-class adults to only 59% among those earning less than $15,000 per year.
In Maine, an estimated 25,000 poor adults lack health insurance. They fall into a “coverage gap” between qualifying for Medicaid (as many low-income parents do) and being eligible for health insurance tax credits through the Affordable Care Act.
For many of these low-income individuals, health care costs are prohibitive. According to the Maine Health Data Organization, most hospitals in the state charge more than $100 for a single preventive care visit. Simple surgical procedures such as precancerous skin removal often cost more than $200, while imaging services like X-rays and ultrasounds cost as much as $450. Overall, per capita health care spending in Maine is fifth in the nation, totaling over $5,000 annually.
At the same time, private health insurance is often either unattainable or largely useless. For years, premiums and deductibles have risen sharply. According to the Maine Bureau of Insurance, a 30 year-old living in Knox County faces a $378 monthly premium for a $1,000 deductible individual plan, while a $6,300 deductible plan costs $225. Most low-income people can’t afford the more expensive plan with better coverage, and the high deductible plan is of little use unless a catastrophe occurs.
Over the past two decades, Maine lawmakers have repeatedly tried to address the medical needs of the poor. In 1993, legislators passed several health insurance regulations that weakened free market forces and increased health insurance prices for most Mainers.
Two policy changes in particular contributed to rising costs. The first was “guaranteed issue,” which required insurance companies selling individual health insurance plans to issue all plans to all individuals applying for coverage, regardless of health status.
The second harmful reform was a requirement that premiums in the individual and small-group markets vary by only 1.5:1 for age and geographic disparities combined. This means that an individual couldn’t be charged more than 1.5 times the lowest rate charged to another person for the same insurance.
These restrictions ignored the fact that naturally occurring age-related variation in health care utilization is roughly 5:1 – in other words, on average, sick, elderly people require five times more medical care than young, healthy individuals. This forced carriers to reduce rates for older individuals while significantly increasing rates for young adults. The 1993 reforms had a devastating impact on Maine’s health insurance market, causing premiums and deductibles to skyrocket and motivating tens of thousands of young enrollees to drop their health insurance entirely.
In 2003, then-Governor Baldacci – who had championed universal health care during his gubernatorial campaign – instituted DirigoChoice, a state-designed, privately administered health plan with premium and deductible subsidies based on family income. Legislation was also passed to dramatically expand Medicaid and further regulate the health insurance industry. Governor Baldacci’s stated goal was to eliminate all uninsured by 2009, but projected enrollment figures were found to have been grossly inaccurate; in fact, even fewer Mainers were insured in 2009 than in 2003. In 2011, after spending more than $183 million in taxpayer funds, a bipartisan majority of the Legislature voted to end the Dirigo Health Program.
Finally, in 2011 lawmakers passed Public Law (PL) 90, which rolled back many of the restrictive and damaging policies that were hindering Maine’s health care system. The legislation loosened community rating regulations, allowing the free market to determine premium rates more fairly. It also guaranteed access to reinsurance funding to high-risk individuals, loosened regulations regarding the purchase of insurance across state lines, and made it easier and more affordable for the long-term unemployed to buy health insurance.
Since PL 90 was enacted, average annual premium rate increases in the individual and small group markets have slowed, while many enrollees are even enjoying lower prices than before. Freed from burdensome regulations, insurance companies have begun to offer new, more affordable plans that are more closely aligned with consumers’ needs.
Moving forward, Maine lawmakers need to learn from our past that heavy-handed government intervention in health care is not the answer, while enacting free-market reforms would go a long way in reducing costs, increasing access, and encouraging innovation in the health care industry.
A bill currently being debated in the Legislature, LD 1305, sponsored by Senator Rod Whittemore, would improve cost transparency in health care and empower patients to seek low-cost medical services rather than simply relying on the closest hospital or clinic. As the Foundation for Government Accountability points out, “health care is the only major service we buy without knowing the cost up front.” Sen. Whittemore’s bill would require health care entities to create telephone hotlines and publically accessible websites to provide consumers with a reasonable estimate of the cost of care before procedures are performed.
In addition, patients who receive a treatment that costs significantly less than the average price for that procedure would receive a payment from their insurance carrier for 50% of the saved cost, up to maximum of $7,500. If a patient receives less expensive treatment from an out-of-network health care provider, then the savings are applied towards the patient’s insurance deductible, as if it was an in-network provider. These steps would make patients more mindful of health care costs, forcing hospitals to compete for the lowest prices.
The second measure lawmakers should approve is a repeal of Maine’s Certificate of Need (CON) laws, which require that all medical providers looking to build or expand an existing health care facility, offer new services, or acquire new medical equipment must first be granted approval by state regulators.
Well-intentioned federal policymakers created CON regulations in 1974 and threatened to cut funding to states that didn’t adopt their own CON laws. By 1980, every state except Louisiana had CON regulations on the books.
Supporters believed that by limiting investment in capital projects, inefficiencies in the health care marketplace could be reduced. They also thought that by restricting market entry, the government could force the remaining health care providers to use their inflated profits to subsidize medical services for the poor.
Special interest groups, however, soon began using CON laws to keep competition out and raise medical costs. A study by the National Institute for Health Care Reform found that “in five of the six states studied…the CON approval process can be highly subjective and tends to be influenced heavily by political relationships rather than policy objectives.” Dr. Roy Cordato, a health policy expert, has pointed out that “believing that CON laws and the bureaucrats that administer them can do a better job than the competitive market process, is not only wishful thinking, it is the economic equivalent of believing the Earth is flat.”
According to a study by the Mercatus Center at George Mason University, “By limiting the number of providers that can enter a particular practice and by limiting the expansion of incumbent providers, CON regulations effectively give a limited monopoly privilege to providers that receive approval in the form of a Certificate of Need. Approved providers are therefore able to charge higher prices than would be possible under truly competitive conditions.”
In 1987, realizing the program’s failure, the federal government repealed its CON mandate. Since then, 14 states have repealed their CON laws, leaving 36 states and the District of Columbia with CON regulations.
Maine has twenty-three CON laws on the books, behind only three states and the District of Columbia. Four decades of experience shows that these regulations have failed to control costs, and instead benefit large health care corporations by stifling competition. Policymakers in Augusta should repeal these harmful regulations and unleash the power of the free-market to calibrate supply and demand in the health care industry.
Finally, lawmakers in Maine should eliminate barriers to direct primary care (DPC). For the poor and uninsured, the DPC model can provide affordable, quality medical services in a way that large hospitals cannot. The idea is simple: the patient directly pays the doctor a monthly “subscription” fee for routine medical care like physicals and chronic disease management. Medications, vaccines, and lab tests are also provided with no mark-up, resulting in substantial savings for patients compared to services priced thought large hospital-owned clinics and laboratories. As a result, doctors and patients avoid the bureaucratic complexity, wasteful paperwork, and time-consuming claims processing that are responsible for as much as 40% of primary care spending. Physicians are accountable to their patients, health care costs are modest and predictable, and patients enjoy more personalized attention. With high deductible health insurance plans becoming the norm as the negative effects of the Affordable Care Act ripple through the health care industry, many Mainers – especially the poor – would do well to consider a direct primary care plan instead of shouldering several thousand dollars in medical costs before their insurance kicks in.
Since direct primary care doesn’t cover surgeries and other expensive procedures, patients typically also invest in very high deductible catastrophic health insurance plans or faith-based health sharing accounts.
The direct primary care model also reverses the perverse incentives inherent to many doctor-patient relationships – namely, that the more care a patient needs, the more the doctor earns. “It puts you in the very uncomfortable position of waiting around and hoping for people to get sick so you can make a living,” says Dr. Michael Ciampi, a physician with a DPC practice in South Portland. “We really want to get away from this paradigm. The healthier I keep my patients, the less hard I work and the better I do financially.” As a result DPC doctors tend to spend more time with their patients and provide more personalized and coordinated care.
Direct primary care does not sacrifice quality for affordability. To the contrary, several studies have found that because physicians are more invested in their patients’ health and spend more time emphasizing preventive strategies and treating chronic illness, direct primary care practices yield superior health outcomes. The American Medical Association estimates that as much as 25% of all health care-related spending results from avoidable diseases that direct primary care physicians are more likely to prevent entirely or identify early. A report focused on five states – New York, Florida, Virginia, Arizona, and Nevada – revealed that direct primary care practices generated per-capita savings of $2,551 annually, compared to a cost generally ranging from $1,500 to $1,800 per patient per year. One researcher concluded, “The empirical evidence indicates that patients with direct primary care experience substantially lower admissions, fewer emergency room visits, and few hospitalizations.”
Despite the many advantages that DPC offers patients, Maine law may hinder physicians’ efforts to transition to this type of practice. According to Dr. Ciampi, only five DPC practices exist in Maine, largely because of complicated regulations. Maine lacks specific DPC legislation that clearly defines what it is and specifically states that it is not insurance, so it is not to be regulated by the insurance commission. Without such legislation clarifying the legal status of DPC, some physicians may be hesitant to migrate to this model. Dr. Ciampi also points out that “some type of legislation to permit doctors who are not contracted with an insurer to make referrals on behalf of patients would be extremely helpful.” Often, health insurance companies don’t recognize the referrals of DPC doctors who are not contracted as primary care physicians, forcing DPC practices to turn away patients.
Unleashing free market principles is the best way to drive down costs and encourage innovation in the health care field. Common sense reforms like repealing harmful CON laws, enhancing price transparency, and helping direct primary care practices thrive will help all Mainers, especially the poor, afford the medical care they need.