High prices, no prices, and subsidies: a Healthcare Election Guide
Just like choosing ice cream or recess!
To learn about the upcoming election, my favorite second graders told me about their class vote on whether good behavior would earn them an ice cream day or 30 extra minutes of recess. I heard persuasive arguments on both sides (and, like adult elections, they seemed to balance each other out—at least calorically!). One encouraging aspect of healthcare policy is that both sides agree on major problems and want to address them. Whether or not this election has "ice cream day" vibes for you, my goal here is to shed light on the issues at hand.
Here are three issues whoever is elected will be wrestling with in the coming term and what the candidates have done so far.
1. Drug prices are too expensive.
My previous four-part series laid out the messy layer cake of the pharmaceutical industry. Before a drug makes it to a consumer, drugs go through the wholesaler, the pharmacy benefit manager (PBM), the insurance company, and the pharmacy retailer, pushing up price at each layer. To top off this layer cake, drug companies and PBMs pay hidden incentive rebates to the middlemen even after the consumer’s purchase. Copious middlemen, hidden negotiations, and opaque prices for consumers mean ample opportunities to push up prices, not even counting that the origin drug maker is usually a monopoly or faces little competition.
Trump’s presidency introduced some executive orders on the middlemen, without much traction, but the most notable legislation is the Biden/Harris Inflation Reduction Act, which allows Medicaid to negotiate lower prices for certain drugs. The goal is to balance the strong bargaining power of monopoly drug companies with a larger player opposite the table.
Unfortunately, the rest of the Inflation Act imposes ad-hoc price caps on drugs and out-of-pocket expenses. Duct tape and the “there I fixed it!” memes pretty well summarize the economics of price caps. Prices get a bad rap, but they are merely the messenger of bad underlying forces. Declaring “Prices shall now be low!” doesn’t address the root issues of no competition, too many middlemen, and high demand, and introduces additional problems of shortages and increasing costs of time and bureaucracy for patients to access them.
2. Prices? If only!
High pharma prices are one thing, but an even more pervasive problem in healthcare is a total lack of prices at all! At least until the bill arrives several months later. A cornerstone of good markets is the ability to see the price of your choices. Jeans, produce, refrigerators, over-the-counter drugs- you make your best choice given information on the relative cost of other options— which is readily available before the moment of purchase.
The healthcare system pushes consumers to choose services without knowing their price tradeoffs. And producers of these services select prices knowing this, as well as knowing that the sting of these prices will be softened by insurance coverage. It’s not surprising that health care inflation grew 121% since 2020, compared to the 86% of other consumer goods (jeans, produce, refrigerators)! [1]
One of the splashiest attempts at price transparency was a Trump presidency executive order requiring hospitals to post negotiated charges for their services online for at least 300 shoppable services. This is totally unprecedented because prices generally hide behind closed doors of negotiations between the hospital and each insurer. It’s a start, though compliance has been too low for much impact—as of March 2022, for example, only 60% of hospitals disclosed had prices for common shoppable radiology services.[2] Pricing in hospitals is complex, with multiple services and negotiated rates per insurer, making transparency challenging.
3. ACA Marketplaces subsidies- continue or expire?
Whether ice cream or recess, elections often regrettably come to down enticing voters with free stuff. And the best free stuff in healthcare lately has been the ACA Marketplace subsidies, enhanced during COVID-19, which lowered premiums for consumers and nearly doubled enrollment to 21.4 million.
The tricky part is these enhanced subsidies are set to expire in 2025. While they increased coverage, they also proportionally increased government spending and potentially displaced viable private insurance options. The Congressional Budget Office estimates that, of the 7 or 8 million people who would leave without subsidies, about half of these would end up in coverage through their employer.[3]
In the end, these subsidies are about how we pay for insurance in the U.S. Both Marketplace plans and employer plans are administered through private insurance companies, not the government. However, employer-sponsored insurance directly connects the premium cost to the benefit recipients. General taxation funds the Marketplace subsidies, but pays out selectively to Marketplace consumers only, often lower income individuals or those in industries with low rates of employer-sponsored coverage.
[1]Rakshit, Shameek, et al. "How Does Medical Inflation Compare to Inflation in the Rest of the Economy?" Peterson-KFF Health System Tracker, August 2, 2024.
[2] Jiang JX, Krishnan R, Bai G. Price Transparency in Hospitals—Current Research and Future Directions. JAMA Netw Open. 2023
[3] Ortaliza, Jared et al. “Inflation Reduction Act Health Insurance Subsidies: What is Their Impact and What Would Happen if They Expire?” Kaiser Family Foundation, Affordable Care Act section. July 26, 2024.