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In a new AEI paper published today, “Will Health Care’s Immediate Future Look a Lot Like the Recent Past?” Mark Pauly reviews the latest evidence on the past and projected future of health care spending and delivers a seemingly counterintuitive conclusion: The public-sector share of spending continues to creep upward, but so, too, does the share of health care delivered and administered through more “market-like” private-sector mechanisms.
The working hypothesis is that while health care politics still ensures an increased stream of taxpayer subsidies for various forms of public and private insurance coverage, greater reliance on market-like mechanisms can deliver the goods somewhat more efficiently, with a greater range of choices. Rejuggling this mix seems to make balancing political demand and private supply more flexible, at least for the immediate future.
For a more detailed analysis of why the best hopes and worst fears, respectively, of Medicare for All advocates and ACA repealers, have yet to materialize, it helps to deconstruct American Health Care Coverage Inc. into its four main programmatic components.
Pauly finds that the more “market-like” arms of Medicare (Medicare Advantage plans), Medicaid (Medicaid managed care plans), ACA insurance exchanges (less-regulatory federal exchanges), and employer-sponsored insurance (self-insured Employee Retirement Income Security Act plans) are capturing a growing share of spending substantially financed by taxpayers (as well as younger, and future, generations of public debt repayers). Some observers may quibble about the exact magnitudes of the respective numbers, but the directional trends seem clear, for at least as far ahead as our cloudy political vision can see.
The best-case virtuous cycle version of these complementary public/private roles might assume that once necessary rules of the road and need-based subsidies for health care spending are determined through political channels, private market mechanisms will be put in charge of ensuring the most appealing menu of insurance options and more efficient delivery of health care outputs. Of course, “your mileage may vary” from those optimistic estimates in practice.
For example, our current health system is running lower on robust competition these days, particularly on the provider delivery side of the health-care-production function. Despite periodic diversions of rhetorical barking in the political arena, increased private demand for dominant-incumbent protection still seems to find a more than adequate supply of regulatory and reimbursement subsidies. Medicare Advantage plans still prefer to compete by delivering additional benefits fueled by higher reimbursement benchmarks, rather than by delivering traditional Medicare fee-for-service (FFS) benefits more efficiently. Those plans also piggyback on FFS administered prices as a political ceiling on out-of-network provider payments. Private Medicaid managed care plans’ “efficiencies” tend to fade away in states with lower reimbursement rates or for higher-cost eligibility groups. Misfires in designing and implementing ACA exchanges meant that they had to be installed pragmatically at reduced-strength regulatory settings and their insurers belatedly rescued with Silver-Plan leveraged subsidies and desperate state-level approvals of premium hikes.
So the textbook explanation has a few caveated footnotes, and the long-term fiscal jury remains out. The more equivocal story in US health care politics is that the symbiotic private and public sectors need each other, and neither one can dominate the other for long in our mixed system. Political actors cannot afford to drive private providers out of business. They can’t deliver health care on their own. They don’t even want the full responsibility for micromanaging it. The safest setting is maintaining just enough power to selectively blame others when something goes wrong.
What tends to produce relative equilibrium is the combination of relatively generous taxpayer subsidies for care that at least appears to be managed privately, albeit under intermittent political supervision and rent seeking. Pricing floors to accommodate a host of inefficiencies are balanced with unlimited ceilings on circular blame shifting and finger pointing across all health care sectors. Public budgets can look smaller, if highly regulated and amply subsidized private payers can make up the difference.
And so it goes, as long as the money flows. If and when future funding limits — through interim devices such as block grants, defined contributions, or competitive bidding; or more binding governmental rate regulation — actually kick in? Le déluge! But that treatment, like those for many chronic conditions brewing in US health care, will be put off until mañana. Or, better yet, the day after tomorrow.
Political actors cannot afford to drive private providers out of business. They can’t deliver health care on their own. They don’t even want the full responsibility for micromanaging it. The safest setting is maintaining just enough power to selectively blame others when something goes wrong.
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