Long before the recent inflation, healthcare in the United States was widely understood as too expensive. Liberals and leftists have generally done most of the grousing about the high cost of healthcare, and their solution has been to increase government control over the sector in ways that consolidate everything.
President Barack Obama opted to regulate and subsidize insurers and providers in his “Affordable Care Act.” Sen. Bernie Sanders (I-VT) and other socialists want the federal government to become the sole health insurance company. In the United Kingdom, the government is also the dominant provider of healthcare through the National Health Service.
All of these efforts, from regulation to government takeover, exacerbate a root problem with healthcare: consolidation that dampens competition. One reason healthcare works so much worse than most parts of the U.S. economy (higher prices, less efficiency, etc.) is that there is less competition.
Some of this is natural: If your daughter gets a massive cut, you’re not going to take time to shop around for the lowest-price emergency room. But counterproductive and ineffective government policy plays a role here.
In a new paper from the Aspen Institute, American Enterprise Institute scholar Ben Ippolito (a friend and colleague of mine) explains this dynamic and lays out policies by which state governments can improve competition and thus bring down prices.
Ippolito notes that “a significant portion of health care expenditures reflect market inefficiencies owing to factors that include limited competition, moral hazard (because insurance protection can make individuals less sensitive to costs), or a lack of information.”
Again, some anti-competitive forces involve the nature of the healthcare market itself, but many others are caused by regulation — which undermines efforts to lower prices through regulation. For instance, Ippolito comments that state policies regulating hospital prices created a system “so complex that only a small group of regulators and hospitals fully understood how the systems functioned.”
Providers and insurers have been consolidating for decades for all sorts of reasons (including Obamacare), and so lowering healthcare costs requires resisting that consolidation. Ippolito suggests competition policy (including antitrust enforcement) can be improved, but he also targets anti-competitive regulations.
Scope of practice laws regulate who can provide what sort of healthcare. You don’t want physician assistants performing brain surgery, sure, but in many states, the scope of practice laws function as cartel protection for doctors, and they keep nurse practitioners from providing stitches and pharmacists from administering vaccines.
Also, state law often explicitly bans competition among hospitals through certificate of need laws. These laws prohibit all hospitals except for those that can prove themselves to be “needed.”
Ippolito writes that such laws increase prices in two ways: “First, the state may directly block a provider from entering the market or offering new services. Critics have argued that this process has sometimes been subject to regulatory capture by dominant, incumbent providers seeking to retain their control over a given market (Ohlhausen, 2015). Second, CON laws impose administrative burdens on potential entrants, who must spend time and resources to navigate this process (e.g., incurring legal or consulting fees).”
Price transparency is another area Ippolito addresses. Recent federal laws have tried to force hospitals and providers to be more transparent about pricing, particularly targeting “surprise billing.” States, Ippolito argues, could increase compliance with these laws.
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Competition and free markets aren’t sufficient to make a functional healthcare system, in part simply because a significant safety net will necessarily be part of the sector that includes life-saving treatments. But competition and free markets will lower prices and increase quality.
Injecting more competition into healthcare would save money and lives.
