Understanding the Status Quo in Healthcare

The Status Quo and its Problems

Healthcare in the United States is notoriously confusing and expensive. Relative to other major advanced countries, the United States spends twice as much per person on healthcare, despite a life expectancy 6 years shorter (source). Most Americans get health insurance through their employer, which negotiates and subsidizes health insurance plans. The US federal tax code gives tax advantages for this and there are several laws requiring all employers to offer insurance. When employees change jobs, they typically must switch insurance plans. Additionally, firms may drop existing plans, so that employees must switch to another insurer. Most plans at major insurers involve a complicated web of copays, deductibles, co-insurance, provider networks, and coverage limits. Patients face uncertainty, including surprise bills from out-of-network providers, coverage denial, and opaque pricing. Though price transparency is slowly improving, it is still nearly impossible to know ahead of time the coverage status and pricing of a procedure. Meanwhile, medical providers must accept insurer-set rates or engage in burdensome negotiations, often dealing with high administrative costs and inconsistent coverage decisions. A lot of time is spent on the phone with insurers, and many providers have to hire billing specialists to navigate the complex system. This leads to a lot of wasted time and money for both patients and providers, which inflates healthcare costs. This leads to the US having the highest healthcare costs in the world. There is a patchwork of laws and regulations that govern the healthcare system, but they do not address the root of the issue. The result is a system that is inefficient, expensive, and frustrating for everyone involved.

The status quo suffers from three main problems. First, the system suffers from a lack of price transparency. This means that people cannot shop around for cost-effective care, which inhibits the competitive forces that drive down costs in the rest of the economy. Additionally, price uncertainty means that people cannot budget for medical expenses, leaving millions of Americans with hundreds of billions of dollars of medical debt (source). Second, ever-changing network designations and coverage restrictions create confusion and surprise bills for patients. For providers, these rules mean higher administrative costs and reduced autonomy in patient care. One study calculates that these administrative burdens may account for 30% of excess healthcare costs in the US relative to peer countries. Third, tying insurance to employers means that job loss comes with healthcare disruption. Additionally, it creates an uneven playing field for small businesses, who do not have the resources to negotiate with big insurers to attract workers. Moreover, since leaving your job to start a company also means losing coverage for your family, this dynamic further discourages entrepreneurship. Finally, workers face frequent plan changes over the course of their career, which disincentivizes long-term care. Insurance companies have no incentive to promote long-term health when their members are unlikely to still be with them.

Existing Proposed Solutions and their Problems

Several major proposals aim to reshape the health insurance system. Medicare-for-All, backed by many on the political left, would expand Medicare and replace private insuranceto cover all Americans, removing the link between employment and coverage. The Affordable Care Act (ACA), a centrist reform, retains the employer-based model and preserves big insurance companies, but expands access through marketplaces, subsidies, and Medicaid expansion. On the political right, some advocate for a Health Savings Account (HSA)-based system, which creates tax incentives for individuals to save for health expenses paired with high-deductible plans.

While each major reform idea offers potential improvements, they also leave key problems unresolved. Medicare-for-All would eliminate employer-linked coverage and reduce administrative costs, but it does not tackle the issue of limited competition among healthcare providers. It also retains network designations and coverage denial mechanisms. Its two largest issues are taxation and price-setting. This policy would require significant increases in tax revenue, on the order of $10,000 per person. It is important to note that total expenditures in healthcare would likely decrease, but the required level of taxation would be politically challenging at the federal level and prohibitive at the state level. It is likely for this reason, that not even liberal states have attempted to implement such a policy. Perhaps most importantly, Medicare-for-all allows for the government to sets prices, which risks distorting incentives to medical providers. Prices set too low would reduce quality and could result in long wait times seen in the UK and Canada. Overall, Medicare-for-all and similar policies make many improvements over the status quo, but they have some key limitations.

On the other end, an HSA-based system maintains employer-based insurance and its issues, and does not address the complexity of the status quo. Moreover,it risks leaving many without adequate coverage. The Affordable Care Act (ACA) tries to blend elements of both but functions as a band-aid on a gaping wound. All three approaches ultimately fail to address the structural inefficiencies that keep healthcare costs high. If we want to escape this problem, we must redesign the entire system on the grounds of transparency, simplicity, affordability, and security.