The price of health insurance has skyrocketed in recent years, according to a new report from the Kaiser Family Foundation. Average annual premiums for employer-based family plans have risen by 22% percent since 2018, to nearly $24,000.
It’s tempting to see these hikes as a shameless cash-grab by avaricious insurers. But there are more systemic factors fueling the growth of health costs. Only by attacking these root causes can policymakers bring down the cost of coverage without compromising the quality of care.
Among these causes is the overall decrease in the dollar’s purchasing power. As the Kaiser report notes, the 22% increase in premiums since 2018 is roughly the same as the 21% inflation rate across the entire economy during the same period.
Seen in this context, rising insurance premiums are merely one example of an economy-wide phenomenon caused in no small part by profligate government spending during the COVID era.
So Democrats’ standard approach to making coverage more affordable — namely, a deluge of government subsidies — will only compound the problem in the long run.
But inflation is only one factor driving up healthcare premiums. A surge in demand for health care following the pandemic is another culprit.
After avoiding hospitals and doctors’ offices for much of 2020 and 2021, patients are catching up on needed care. Insurers are responding to this increase in utilization — and thus claims costs — by raising premiums.
The healthcare workforce has also contracted since the pandemic. A decline in the supply of care combined with an increase in demand is a recipe for higher prices.
What’s required, then, are reforms that increase the supply of care without adding to the government’s healthcare bill.
Consider the growing shortage of physicians in the United States. As anyone who has attempted to see a primary care doctor lately can attest, appointments must often be scheduled months in advance.
By all accounts, the problem is about to get much worse. According to the Association of American Medical Colleges, the United States will be short as many as 124,000 doctors — including up to 48,000 primary care doctors — by 2034.
One way to increase supply would be to lift restrictions on the authority of nurse practitioners. To become an NP, a registered nurse must complete a master’s or doctorate and undergo extensive clinical training. These healthcare professionals are qualified to prescribe medications, order tests, and treat a variety of chronic conditions.
Yet many states impose limits on when and where NPs can perform these tasks without physician supervision. Rolling back these regulations, and allowing NPs to perform to the full extent of their qualifications, would significantly increase the supply of medical care — at no cost to the government.
Getting rid of “certificate-of-need” laws is another low-cost way to boost the supply of care. These laws require providers to secure government approval before building a new healthcare facility or expanding an existing one.
As such, they give incumbent providers the chance to lobby against the introduction of competition. And by slowing the introduction of new supply, they lead to higher costs.
Policymakers could also consider shortening the amount of time physicians spend in training. To become a doctor in the United States, a high-school graduate must complete four years of undergraduate study, followed by four years of medical school. Three to seven years of residency training is next. A fellowship can add another one to three years.
This is excessive by international standards. In the United Kingdom and Austria, for instance, doctors study for as little as five years after graduating from high school. Most other developed countries require just six years of postsecondary education.
Bringing American medical education more in line with international norms would vastly reduce the barriers to pursuing a career in medicine — and potentially expand the physician population in the very near future.
Rising health costs demand a serious policy response. But price controls and subsidies will only make the situation worse. Increasing the supply of medical care is the most direct way of making coverage more affordable. It’s also the cheapest.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is “False Premise, False Promise: The Disastrous Reality of Medicare for All,” (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes’ Reports — More Here.
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