Healthcare Affordability: How Democrats Can Press Their Advantage On This Key Issue

Here's a set of affordability ideas that reside at the intersection of good politics and good policy.

[This one’s joint with Neale Mahoney, the director of the Stanford Institute for Economic Policy Research, where I’m a policy fellow.]

Government shutdowns typically have a short shelf life in the minds of voters. To most, it’s just the latest example of DC-dysfunction. But there was something different, and likely more lasting, about the recent shutdown. While Democrats failed to restore the health-coverage tax credits that Republicans refused to include in their funding bill, they successfully elevated the issue of healthcare affordability, a huge issue for voters that predated the shutdown and continues with even greater intensity today. And it’s not just that healthcare affordability is one of the Americans’ top concerns. It’s that they trust Ds far more than Rs to address it.

That trust asymmetry makes sense. The Affordable Care Act, even while under constant attack from Rs, constituted partial reform of our complex, expensive system. It has held down some cost growth and substantially boosted coverage, more so after the enhanced premium tax credits took effect in 2021. But the American public is clearly and correctly calling for the next round of healthcare reform, this time with a laser focus on affordability. Given the Ds successful elevation of the issue during the shutdown, alongside their trust advantage, they must act now to capitalize on this moment. Doing so creates the potential to meet critical affordability goals, but it could also help repair their party’s brand and improve their showing in forthcoming elections.

What should that agenda look like? Republicans are re-floating versions of a familiar idea in this space: health savings accounts. They’ve long maintained that high-deductible plans paired with HSAs would encourage price-shopping and limit wasteful spending. In practice, most healthcare is not shoppable—nobody comparison-shops in the ambulance—and research shows that higher out-of-pocket costs often force people to cut back on care they need.

In the current context, funding HSAs instead of premium tax credits risks destabilizing the ACA exchanges, as healthier patients take their HSA funding elsewhere, leaving behind a riskier pool and driving up exchange premiums. HSAs are also regressive, as the tax savings increase with income, thereby disproportionately benefiting high-income families.

Ds should hammer away at these profound shortcomings. But to truly take advantage of the opportunity they’ve created, they must quickly put forward their own affirmative vision for healthcare affordability.

The agenda must both address voters’ desire for immediate relief from our costly system, while aggressively going after the chronic issues that make healthcare in the US 50% more expensive than our international peers, burdening both household and government budgets.

In our previous affordability work, we’ve emphasized a three-legged stool: abundance-style supply expansions (which often require retiring stale regulations), targeted cost supports, and stronger competition.

Supply expansions

In fact, there are many rules and regs that make healthcare more expensive in America, delivering “rents” to powerful parties at the expense of affordable care.

• We should remove barriers to entry in the healthcare labor force. This includes expanding caps on medical school enrollment and residency programs, as well as using available federal authority to broaden scope-of-practice rules that excessively limit the care that can be provided by nurse practitioners, physician assistants, and other advanced practice professionals. The hurdles for highly trained and experienced foreign physicians to practice here are too high and should be lowered.

• We should also support innovation through sustained funding for basic research and by removing barriers that add unnecessary delay and cost to bringing new therapies to market. As technologies like AI, CRISPR, and mRNA accelerate the pace of discovery, outdated regulatory approval processes risk becoming the primary bottleneck – slowing, or choking off life-changing innovations.

Cost supports

As is often the case with affordability policies, supply additions are powerful and essential over the long run, but they do not increase affordability and access to healthcare today. Mapping doctors’ Hippocratic Oath—“First do no harm”—onto budget policy militates that the most immediate way to address affordability is to reverse some of the big ugly policies that are about to make health coverage a lot more expensive for millions of Americans:

• Reverse the drop in the ACA premium tax credits that, if unaddressed, will, on average, double the premium payments for more than 20 million people.

• Reverse Medicaid work requirements, which research shows do not increase employment but will push millions off coverage through labyrinthine administrative hurdles.

Even economists, including us, who worry about the government messing with market prices, tend to feel quite different when it comes to healthcare. Most of us feel an obligation to make sure our fellow citizens can get access to necessary health care without financial ruin; it’s part of the social contract. We’ve passed laws requiring hospital emergency rooms to treat you, even if you don’t have the ability to pay. This means that traditional market forces often don’t function in this sector.

The federal government is already a huge healthcare player, accounting for almost a third of all spending. It’s just getting a terrible bang for its buck compared to other systems that pay much less and get the same, if not better, results. One reason for this is the plethora of private hands in the healthcare cookie jar, or, in economo-mese, “rent-seeking.” While these powerful, lobbied-up forces will fight hard to protect their excess profits, the path to healthcare affordability must cut through this mess.

A first step is to expand public insurance coverage and further negotiate down the price of prescription drugs.

• Some Ds tried to expand drug negotiations to the private market in 2022, but ultimately pared back their ambition. To address affordability, Ds should pick up that mantle again, expanding Medicare’s authority to negotiate prices for a broader set of drugs and allowing negotiated rates to carry over to the commercial market. Concerns about innovation could be addressed by pairing these policies with investments in basic research and improvements in the efficiency of drug testing and approval.

• Expand Medicare access to younger people and/or add a public option to the insurance choices in the ACA exchanges and to employer-sponsored insurance (see below).

• Currently, Medicare does not cover dental, forcing millions of Americans to choose between spending down their savings or enduring what can be debilitating tooth pain. Medicare could be expanded to offer subsidized supplement coverage for dental, vision, and hearing services to seniors. Medicaid programs, which currently cover these benefits in some states but not others, could be required to provide basic dental, vision, and hearing benefits.

Stronger competition

Even while health care is not a traditional market, we can still lower costs in the sector through stronger competition (where possible) and cap prices (where not).

Consolidation has dulled market forces in healthcare. Mergers among hospital systems (horizontal integration) and between physician groups and hospital systems (vertical integration) are a key factor in the gap between U.S. healthcare spending and that of other countries. Today, as metro areas increasingly become quasi-monopolies dominated by a single large system, the problem has only worsened.

Democrats should strengthen antitrust laws and properly fund the FTC and DOJ so they can enforce the laws on the books. But with many of the competition horses having left the stable, slamming the door can only do so much.

Forcing large systems to break up is one option, but breakups are hard, and there may be some efficiencies from scale that would be lost. Instead, the best (least worst) ways to restrain pricing power are a public option and/or price caps.

• Allowing consumers to buy into Medicare and/or public option using subsidies that they would otherwise use on the exchanges or their employer contributions for health insurance is one approach. This could be implemented by allowing younger people to buy into the existing Medicare program or setting up a public option that pays hospitals and physicians’ practices at close to Medicare rates. Either way, the establishment of a low-cost alternative would put downward pressure on the broader market, where commercial insurers currently pay up to twice Medicare rates.

• Instead or in addition, we could cap what hospitals and physician practices can charge at some multiple of Medicare. This would provide an immediate check on the worst monopolistic behavior. Over time, the cap could be gradually lowered to bring prices closer to a reasonable level.

Beyond this, there is a large set of more technocratic reforms to the healthcare system, including payment reform, site-neutral payments, reforms to Medicare Advantage risk adjustment to reduce overpayments, reforms and enforcement to prevent drug companies from gaming the patent system, and the like. Clamping down on the excessive use of prior authorization (insurers’ pre-approval), is not a direct cost saver for consumers, but it would remove a hassle factor that has metastasized into a nightmare for patients and docs.

We cannot overstate the opportunity we believe these reforms offer for Democratic policymakers. American voters have shown they will continue to cycle through elected officials, with little regard for party, until somebody stands up to the vested interests that are blocking common-sense affordability reforms like those outlined above. There are not that many policies that locate firmly at the intersection of good politics and good policy. But that’s precisely where this one lives.