Reflections on the coming ‘revolution’ in health care policy

By: Thomas P. Miller, American Enterprise institute

It looks like we are in the early stages of reopening health care policy reform, or at least recycling its rhetorical stage. My calendar for this week includes several rounds of virtual talkfests with the usual experts. Hope springs eternal, but political path dependence remains more infernal.

Far too many seem to think that the pandemic somehow strengthens the case for their pre-pandemic proposals — what was obvious to them before has become even more so after several months of lockdown. Hence, a similar round of “covexit” policy recommendations appears ahead, unified in their tendency to validate past stances while resisting new evidence. They differ only in their previous respective points of departure.

However, dispensing prescription refills without fresher diagnostics continues an unfortunate tradition of policymaking malpractice. The underlying pathologies of US health care policy have become more acute, as the tectonic plates connecting supply and demand shifted seismically. Here are eight thoughts to contemplate before we just try to reinflate the old health care bubbles of the recent past.

(1) Patient demand has plummeted. Even though much of this is driven by short-term worries about contracting COVID-19 in medical offices and hospitals, new habits of “wait til later” are forming. Providers may actually have to consider how to attract, rather than assume, enough patients and procedures to provide them with sufficient billing opportunities.

(2) We are less affluent, collectively and individually, than we used to be, and this is not just a momentary change. Elasticity is returning and snapping back in health care markets. As the economic food chain shifts, other competing needs (education, employment, family formation, infrastructure, basic services, housing, debt service, and the rest of the struggling economy) will look for better seating and more elbowroom at a smaller table.

(3) The geographic barriers of regulation (licensing, reimbursement, information, entry) are becoming more porous and permeable. Competition can be contagious, too.

(4) The health economics of downturns is undergoing a deeper, double-masked, time series experiment. Short-term results of risk-reducing behavioral shifts await the longer returns from delayed and diminished health investments, plus early-life developmental deficits.

(5) The efficiency, and supply, of tax subsidies and cross-subsidies are shrinking. If the economy produces fewer taxpayers and moves them to lower brackets (at least until elections shift partisan balances substantially), the income tax system becomes a less facile political tool for redistribution. Hospitals facing plunging margins are running out of deeper pockets to pick, while temporarily enriched insurers will be pressed to lower bloated premiums (a combination of pre-empting minimum loss ratio (MLR) rebate rules and needing to regain customers). Meanwhile, Social Security and Medicare trust fund actuaries await the competing effects of the rate of workforce detachment and the pace of elder casualties to coronavirus.

(6) So much for expensive amenities and supply-induced demand? In a less-affluent, more risk-averse world, why should patients and purchasers bother with those added costs of inefficiency when they don’t actually improve their health?       

(7) On the bright side, medical errors are down, if only due to fewer opportunities to commit them. That’s the partial upside of down for foregone discretionary procedures, and it shows that a benefit-cost analysis of this pandemic should go beyond an examination of health industry finances.

(8) Although public health advocates have risen in prominence, the long-envisioned refocus on “population health” needs some more attractive rephrasing. Anxious individuals are far more concerned about improving the health of a smaller population first — themselves and their immediate families. Few want to join the herd before it has gained immunity.

In short, we probably are less on the brink of a new “normal” than far more of an altered abnormal in health policy. With a new landscape of demand that simply cannot afford as many of the past luxuries of inefficiency and unresponsiveness, the old habits of supply have to shift as a matter of survival. Some reassembly of our health care system is required, but the instruction manual remains incomplete.

Sometimes, it takes a crisis to learn what you really need and what you can do without. So it’s time to seek out fresher — but more modest — answers that seek to open cracks wider in new doors, without pushing people through them prematurely.

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