Making health care more affordable
September 19, 2024 – Throughout the fall, Harvard Chan faculty will share evidence-based recommendations on urgent public health issues facing the next U.S. administration. Meredith Rosenthal, the C. Boyden Gray Professor of Health Economics and Policy, offered her thoughts on the challenges related to health care affordability and opportunities for action in the short- and long-term.
Q. Why is health care affordability such a pressing public health issue?
A. Affordability is a widespread problem even as fewer Americans go without health insurance. The amount people spend directly on health care (not including insurance premiums), known as “out-of-pocket” costs, has been growing faster than inflation and this has several important implications. Surveys consistently show that people delay or forgo care due to cost, worry about their ability to pay for health care bills, and incur medical debt.
Health care affordability—or a lack thereof—can harm individual health. Affordability impacts whether people can get the care they need, like insulin to manage their diabetes or following up on a mammogram. If those are too costly, people will delay or skip care, which has significant impacts down the line on both health outcomes and cost.
As health care expenses continue to go up, household budgets have to adjust—which means people can’t afford the same kind of groceries or housing they’re used to. That is a public health problem, which has particularly burdensome effects on lower-income, high-need families.
Finally, rising costs create an increased risk that people will face catastrophic health care situations that have massive financial implications, with consequences ranging from mortgaging their homes to personal bankruptcy. That also has a direct consequence on people’s well-being.
Q. What are the biggest challenges facing the next administration on health care affordability?
A. The biggest challenge is simple: The forces that make health care increasingly unaffordable are complicated.
The biggest threat we’ve found is consolidation in medicine. For example, there is a growing trend of hospitals and other corporate entities buying up physician practices and then negotiating as a unit with health insurance companies, driving up prices significantly.
To address the root causes, we have to recognize where medical monopolies are forming and try to prevent them from passing on inflated prices to consumers.
Q. What are your top policy recommendations to address health care affordability?
A. There are two kinds of solutions to improve affordability: the band-aids and the systemic shifts.
The band-aids are short-term solutions that can improve affordability for folks in need now, including providing government subsidies to help consumers afford their copays. This assistance would alleviate the immediate price shock for patients and make care more accessible, which is a good thing. However, there is a downside—with the government on the hook for the bill, health care conglomerates are incentivized to raise prices even further. The short-term benefit can create long-term challenges.
Another band-aid option is to cap the prices that, for example, hospitals can charge. This could get closer to the heart of the issue but brings its own serious risk; providers could opt out of the market for certain services, which could create shortages. Nailing that balance is a real challenge.
Then there are efforts to address the underlying forces that drive price increases—chief among them antitrust enforcement to address the vertical integration currently occurring in health care, which is when independent physicians, hospitals, and physician groups merge to create a health care network.
The combined powers of large consolidated health systems and other types of health care corporations mean that some entities can set health care prices with little oversight or pushback. The federal government has antitrust laws in place to address these sorts of monopolies, but it has traditionally been reluctant to challenge health care mergers, especially when those mergers involve vertical integration or other types of consolidation.
Enforcing these antitrust laws is a very complicated task that requires coordination between the federal government and state attorneys general, as well as significant political will to stand up to the influence of health systems that have real sway in their communities.
Given the challenges and drawbacks of band-aid solutions and systemic shifts, the ideal policy recommendations would strike a balance of short- and long-term solutions. Instituting present-day policies that save consumers money while building to break up the vertical monopolies dominating health care is the best-case scenario to create real and long-lasting relief for consumers.
Q. What’s the evidence supporting those recommendations?
A. My Harvard Chan School colleague Anna Sinaiko and I have found that vertical integration is increasing—and driving price increases. We’ve also found that vertical integration of primary care physicians and large health systems does drive an increase in per-patient spending—but has no impact on readmission rates, meaning the promise of “integrated” care remains elusive and the extra spending associated with integration is not necessarily making patients healthier.
The cost increases alone are important for public health, which we know because there is a strong body of research indicating the importance of health care affordability to people’s physical and mental well-being.
For example, Katherine Baicker, a former Harvard Chan School economist now at the University of Chicago, led several papers studying the impact of Medicaid expansion in Oregon following passage of the Affordable Care Act. The studies found self-reported physical health benefits, increased rates of diabetes detection and management, and better follow-through on preventive care. Beyond the physical benefits, the peace of mind offered by health coverage was noticeable. Newly enrolled Medicaid beneficiaries demonstrated lower rates of depression, thanks in part to reduced financial strain. By making care more affordable and accessible, we can significantly improve health.
Q. What do you hope could be accomplished to make health care more affordable in the next four years?
A. Policymakers need to consider both short-term fixes to help people most affected by high health care prices and longer-term policies that get at the root causes of declining affordability. Some “band-aids” could be readily implemented—including extending increased health insurance subsidies that were put into place during the public health emergency [of the COVID pandemic] to help people afford their coverage.
We could also pursue targeted policies, such as expanding limits on out-of-pocket costs for critical medicines—for example, medicines that control asthma and cardiovascular disease—similar to the recent policies enacted to cap out-of-pocket costs for insulin. These high-value treatments that keep people of out hospitals could be partially paid for by savings on health care expenditures and yield better outcomes.
On the antitrust enforcement side, hope for action in the immediate future is mixed at best. Efforts to regulate health care prices at the federal and state level may have some role to play going forward, although such efforts face substantial political headwinds. For example, federal law permitted the Centers for Medicare and Medicaid to negotiate prices with manufacturers for a small number of drugs. Manufacturers sued the government but the price negotiations proceeded, with the results announced earlier this year. The federal government should try to learn from its first foray into price negotiation in Medicare and look for ways to continue to leverage its buying power to keep some of the highest cost drugs accessible and affordable—but those benefits only relate to Medicare. Whether and how Medicare’s new price limits can affect privately insured patients remains unclear. I hope that the next administration will make progress in this area, but true change will likely take longer than four years.
photo: istockphoto/Vitalii Petrushenko
