Democratic presidential candidates are aspiring to replace private health coverage with Medicare. Utah’s Republican-controlled state Legislature recently passed some 26 new health care laws, reforming things ranging from health insurance and Medicaid to prescription drugs and medical bills. Meanwhile, the cost of treating basic illnesses, chronic diseases and common injuries grows ever-more-expensive.
These developments leave Utahns wondering: Will my family be able to access health care in the future?
The answer to that question depends partly on how lawmakers address the big-picture problems in health care, not just the symptoms of those problems.
One of the biggest problems in health care today is that we do not empower cost-conscious consumers (i.e. patients) with the market mechanisms needed to control health care costs. The primary market mechanism we need – which exists in almost every other economic sector not called “health care” – is transparent pricing of health care services and prescription drugs.
Think about what you and your family do when you know the price of a good or service you need. There are certainly factors other than price that play into what we purchase, but when we can conveniently discover prices of goods and services, we tend to gravitate to the most affordable option that meets our desire or need. This is true of both luxuries like vacations and entertainment and essential items like food and transportation. Since the profits of most businesses drop significantly with even a low-percentage loss in customers, those who provide vacations, entertainment, food and transportation are well-motivated to produce the lowest-cost, highest-quality goods and services they can.
Health care doesn’t work this way, however, precisely because it lacks proper price transparency.
Patients and their families rarely – if ever – learn the cost of even basic health care before they receive it. As a result, cost-conscious patients cannot easily find the combination of quality and affordability that’s right for them, and doctors and hospitals are not urgently motivated to produce high-quality, low-cost health care for the sake of their business.
The outcome is predictable: Our health care system fails to adequately control or reduce costs.
Instead, market actors address the symptoms of the dysfunction, often making the dysfunction worse. One prime example of this is prescription drugs, where any number of “solutions” attempt to do for cost-control what shoppers naturally do every day.
Chances are you have heard about pharmacy benefit managers (PBMs). A PBM is a middleman who negotiates rebates on prescription drugs from drug manufacturers. PBMs keep some of the rebates as income and gives the rest to health insurers, who typically do not reduce what a patient pays for drugs. Scholarly evidence suggests that PBM rebates lead drug manufacturers to increase prices to pay for the rebates.
Chances are you have not heard of the Institute for Clinical and Economic Review (ICER). ICER is a nonprofit institute that calculates a dollar value for the life improvement and benefit that a new drug gives to patients, health care systems and society. ICER is a private-sector version of something similar in the socialized health care system of the United Kingdom.
If the ICER valuation of a drug is less than the manufacturer’s price, ICER discourages insurers from covering the drug for patients. This, in effect, can deny patients access to drug treatments in the name of cost control. However, if patients could conveniently find competing drug prices and shop around the movement of patients to the most-affordable, highest-quality drugs would more effectively control costs than ICER’s judgements on which life improvements are valuable enough to merit access to new drugs.
If we want to improve health care for Utahns, we need ways to ensure that patients see the cost of their care before they get it. Then even a relatively small proportion of patients shopping around will put tremendous pressure on doctors and hospitals to offer more affordable care – prioritizing the financial, not just the physical, health of their patients.
More importantly, policymakers will help secure a future of affordable, high-quality health care for Utah families. And that kind of peace of mind is priceless.
Derek Monson | The Sutherland Institute
Derek Monson is vice president of policy at Sutherland Institute.