With the failure of what appears to be the final 2017 attempt to "repeal and replace Obamacare," the Affordable Care Act remains the law of the land. And "Medicare for All" has (again) emerged as a potential successor.
Similar to the ACA, "Medicare for All" is designed to increase health care access. Also similar to the ACA, "Medicare for All" does not directly address the sources of the relentlessly escalating cost of health care -- a fatal flaw.
All recent renditions of "repeal and replace" legislation would have lowered health care costs by reducing health care access or insurance coverage for tens of millions of Americans. Proponents of "repeal and replace" have blamed the ACA for rising health care costs. In so doing, they showed they do not understand what drives the cost of health care.
To comprehend why legislation governing health insurance cannot solve our cost problem, one must first understand how insurance works, and where the costs of health insurance originate.
The ACA is based on private and public health insurance. Private insurance is provided by for-profit and not-for-profit companies. Public insurance – Medicare and Medicaid – is managed by governmental agencies. "Medicare for All" would substitute government-run insurance for commercial insurance.
Health insurance premiums are ultimately determined by the providers of health care. Insurers transmit the costs of medical care to consumers by contracting with health care providers for services, aggregating them into insurance products, and then offering packages to consumers. This same principle applies to both private and public insurance, including Medicare and Medicaid. The main difference between private and public insurance is the source of funding.
Commercial health insurers compete with each other on price and services within an economic framework that is mostly outside their control. This is because roughly 80 percent of health insurance premiums are determined by costs generated by providers.
Payment of providers in our current health care system is based largely on fee-for-service, in which incentives are counterproductive. When attempts are made to control costs by reducing fees, providers increase the number of services. This has led to the pernicious use of "low-value" diagnostic and therapeutic procedures that waste billions of dollars annually and place patients at risk of complications in return for little or no health benefits.
Our cost problem is exacerbated by the fact that more than 50 percent of U.S. health care under the ACA is financed through commercial insurance – either employer-sponsored plans or individual policies purchased on state or federal ACA exchanges.
The profit motive leads for-profit insurers to cherry pick markets and to impose heavy administrative burdens on providers who must deal with pre-approvals and denied claims. Worse, profits of the commercial insurance industry siphon billions of dollars annually to reward shareholders – money that would otherwise be available for patient care.
The ACA is fundamentally flawed by its heavy reliance on commercial insurance. Both the ACA and "Medicare for All" are flawed by their failure to aggressively attack the cost problem. That said, these issues could be fixed with bold legislative action.
Cost control should start with harnessing the ludicrous prices of drugs in the U.S., which far exceed pharmaceutical prices in other countries. Additionally, and more importantly, the payment system for the providers of health care must be reformed.
Health care payment reform will require not only bipartisan legislative cooperation but also consultation and collaboration with the stakeholders – the providers and consumers of health care – including physicians, allied health care professionals, hospitals, and the American people.
Health care costs pose a substantial financial burden on both individual Americans and the U.S. economy. Now is the time to begin the long process that will be required to fix this serious threat.
— Dr. Ronald A. Gabel of Yarmouth Port is a retired professor of anesthesiology and perioperative medicine at the University of Rochester School of Medicine and Dentistry in Rochester, New York.