Next steps for federal health care policy

Douglas W. Elmendorf

Yesterday evening I gave the 15th annual Marshall J. Seidman Lecture in Health Policy at Harvard University. I offered my recommendations on the next steps for federal health care policy, addressing both insurance coverage and health care spending.

To expand insurance coverage, the Affordable Care Act (ACA) significantly increased federal subsidies for health insurance for lower-income people and made important changes to the rules governing insurance markets. In my view, the system of rules and subsidies established by the ACA is the right system in its fundamental elements. That view is based on two judgments:

  • The first is a value judgment: I think we should bear the cost of achieving nearly universal health insurance, especially because incomes of people across most of the income distribution have benefited very little from the growth of total output and income in this country in the past few decades.
  • The second is an analytic judgment: There are no alternatives to the ACA framework that would achieve the goal of nearly universal health insurance at significantly lower cost. Under the ACA, 20 million or more people will have insurance coverage who otherwise would be uninsured. Based on the evidence I have seen, achieving that substantial increase in coverage requires subsidies and rules similar to those of the ACA—or an even larger federal role. Unless we are willing to reverse the sharp gains in health insurance coverage that we have seen in the past few years, we need to keep the ACA framework.

Although health care spending has increased more slowly in the past several years than in the preceding decades, it remains much higher in this country than in other countries and will continue to increase under current policies. It is very important that we make good choices about how much to spend on health care and how to allocate that spending—and we can do so by increasing the role of market forces. We need to change incentives and foster competitive markets so that people make choices about health care that are more cost-effective:

  • We should not provide public subsidies for health insurance that is unduly expansive. That means keeping the so-called Cadillac tax, which effectively limits the open-ended subsidy provided by income and payroll taxes.
  • We should increase competitive pressure in Medicare by moving to a system of premium support, in which all beneficiaries would choose between competing insurers and bear the entire difference in cost between their choice and a benchmark.
  • We should restructure payments to Medicare’s fee-for-service providers, including significantly expanding the use of bundled payments and not paying the full cost of every new treatment that is developed without regard to its effectiveness.

  • We should make the underlying markets for health care and health insurance more competitive by limiting consolidation among providers and insurers, increasing the number of competing providers in other ways, helping people become better buyers of insurance and users of care, and supporting the federal agencies working to improve health care delivery.