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February 7 2018

Government distorts healthcare market, decreasing competition and increasing waste

by Staff

Before the Affordable Care Act was passed, health care in the U.S. was riddled with problems like high and rising costs, limited choices, and unfairly advantaged employer-sponsored plans. Unfortunately, the ACA introduced more government spending and control in the system, limiting competition among insurance providers and making it more difficult for consumers to find affordable coverage options that meet their needs.

To make matters worse, patients are often billed for tests and procedures they don’t actually need, which has also spurred higher healthcare costs. This was true before the ACA, but the law has not addressed this problem in any meaningful way. In fact, it may be making matters worse.

A recent study in Washington state found that more than a third of the money spent on tests or services went to unnecessary care. In a single year, more than 600,000 patients received an estimated $282 million in care they did not need.

Washington isn’t alone: A study in Virginia revealed more than $586 million in unnecessary costs in 2014. According to the National Academy of Medicine, it’s estimated that a total of $765 billion is wasted nationwide every year. This accounts for about 25 percent of all the money spent on health care in the United States each year.

No other market would allow for this. Why all the waste in health care?

First, price transparency and competition are basically non-existent. Patients are the ones who suffer as a result. Most Americans don’t have the time to research what medical care is necessary and what isn’t. Understandably, most prefer err on the side of caution and get whatever treatment their doctor recommends, and they consume without knowing the value of their care (as a function of utility – or how useful the services is to them – versus price).

Insurance should exist to help people shoulder the costs of unexpected expenses so they are prepared in the event of an emergency. Instead, the Affordable Care Act mandates coverage for routine treatments and incentivizes the overconsumption of care by beefing up the role of middlemen (like insurance companies) and blinding consumers to the true costs. As insured consumers we still pay – we simply get the bill via higher and higher insurance premiums.

Second, the ACA failed to address the high cost of medical malpractice insurance, an input in the cost of health care. This is reasonable, considering tort law should be handled at the state level (not the federal level). Indeed, some states have made reforms. But others lag behind. Many health providers still choose to over-test or over-treat because they are fearful of lawsuits, and this practice, called “defensive medicine” comes with a cost.

The ACA has largely failed to contain costs because it addressed health insurance, not health care. Affordable health insurance can only become a reality when health care is more affordable. To make health care more affordable, we need greater price transparency and competition, which can only be the result of a free market. We must work to offer Americans greater freedom to choose the health plans and services that are right for them, and to provide them with the price information they need to shop wisely.

IIndependent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​
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