Thanks to Crony Capitalism, Healthcare Competition Is Flatlining for Consumers

January 7, 2020

Nearly a decade after the passage of the Affordable Care Act (aka Obamacare), the government is as determined as ever to get between you and your healthcare. A slew of regulations gives patients fewer choices and less access to their healthcare, jacking up the price of coverage by requiring services they may not want or need. And then there’s the giveaways to large, entrenched insurers and hospitals designed to create guaranteed profits for these players—at taxpayers’ and consumers’ expense. It’s time to end these crony practices and bring back some much-needed competition to the healthcare sector.

Many pundits declare the American healthcare system to be a failed “free market” model, even though competition and choice are distant memories for patients across the country. Insurers enjoy plenty of handouts from Uncle Sam, including billions of dollars in subsidies thanks to Obamacare. There are also “essential benefits” mandates, which make it difficult for any insurers not offering, say, maternity coverage or smoking cessation policies to stay in business. Thanks to the 1945 McCarran–Ferguson Act, the industry on the whole benefits from an anti-trust exemption. The legislation granted insurers the ability to coordinate in ways that other companies in other industries could not, such as sharing information and coordinating pricing. In actuality, collusion of this sort doesn’t happen much due to state-level regulation and the ability of most insurers to get accurate health/mortality data independently. But the anti-trust exemption is just the cherry on top of a regulatory regime that doles out goodies to companies and entire industries in the healthcare sector.

Because of more misguided policies from the 1940s, the insurance industry is already far larger than it needs to be. As the Second World War raged on, the Roosevelt administration (with some help from Congress) created a tax exemption on employer-paid premiums for health insurance. This tilted the scales away from individuals directly purchasing their healthcare from doctors’ offices and fed the growth of health insurance. All of a sudden, a cacophony of companies (insurers and employers) were in charge of making the buying decisions instead of patients. As most patients know, typical policies extend far beyond emergencies (i.e. Emergency Room (ER) visits) that are the traditional purpose of insurance policies. Thanks in part to the tax exemption, most patients don’t think twice using health insurance to pay for a routine check-up with their family physicians. But these same patients would acknowledge (and understand) that they can’t use their auto insurance policy for routine car upkeep, such as filling up their vehicle with gas or getting the oil changed.

Insurers are hardly the only healthcare companies buoyed by government favoritism. Thanks to certificate-of-need (CON) laws across the country, hospitals looking to expand services or add on a new wing to their facilities need to fill out extensive paperwork with state and local regulators. These hoops tend to benefit the very largest providers, who can more easily navigate bureaucracy and have less of a need to expand beyond their already-large operations. According to a report released in 2018 by the Department of Health and Human Services, CON laws, “suppress supply, misallocate resources, and shield incumbent healthcare providers from competition from new entrants.”

But reform is tough, and no company or industry wants to give up their government-provided goodies. Short of a comprehensive truce ending favoritism for both insurers and hospitals, a special interest war is likely to erupt without actually making patients better off. Lawmakers can end the anti-trust exemption for health insurers and eliminate taxpayer payouts, but only if they also push states to kibosh CON laws. And this sort of truce is only the beginning of healthcare reform. Restrictive tax polices around Health Savings Accounts (HSAs) make it difficult for consumers to use tax-free dollars to buy health plans or purchased direct care “subscriptions” to doctors’ offices. Expanding the tax-free umbrella would make patients healthier and wealthier, while giving both insurers and providers a seat at the table. Healthcare reform may be tricky to navigate but must be done for the millions of patients hurt by government meddling.