As debates rage in Washington about health care costs and rising insurance prices, many wonder how they got so high in the first place.
Premiums increase every year, causing some families to think twice before seeing a doctor due to high deductibles or being uninsured.
If you’re asking why health care costs are rising, the answer starts with government policy, not a lack of medical innovation or patient demand.
Insurance was designed to guard against financial shocks, but it was never intended to bundle every conceivable service into a routine plan.
Federal policy has shifted health insurance away from that model, as lawmakers have, over time, layered on mandates that increased costs and reduced flexibility and patient choice.
The Affordable Care Act is a prime example.
It required all compliant insurance plans to cover a defined set of “essential health benefits.” That meant patients had to pay for services they didn’t want and might never use.
Instead of opting out, everyone has to pay more, regardless of age, health status, or personal needs and priorities.
This is because insurance companies must offset the cost of providing additional services and coverage by raising prices, resulting in higher costs for everyone.
The ACA not only mandated certain treatments be covered, but it also provided subsidies to help lower-income patients afford the higher costs.
When premiums rise, so does government spending.
As the federal government promises to cover higher premiums or prescription prices for subsidized users, providers and health care facilities have little incentive to bring costs down.
Thanks to this poor design, the ACA’s taxpayer costs now approach a staggering $125 billion per year.
ACA subsidies were greatly expanded during the pandemic. The expansion was temporary and expired on January 1. Before expansion, ACA subsidies covered insurance costs for families making up to $130,000 annually.
After expansion, there was no income limit at all. Even millionaires could get subsidies. And millions of people got their insurance fully subsidized by taxpayers. They didn’t have any skin in the game.
These changes, combined with other factors, caused ACA enrollment to double in just two years. More importantly, it dramatically inflated the price of health insurance, so that the average family health insurance policy today costs $27,000 a year.
By making insurance totally free to millions of people, the ACA undermined market discipline. People stopped shopping for value. They went for the most expensive coverage. Why not? Someone else was picking up the tab.
In fact, even without the extra pandemic-era subsidies, ACA coverage is so heavily subsidized that it has led many small businesses to cease offering insurance to their employees.
When a company is guaranteed to have its costs covered by the taxpayer, it has no incentive to seek or offer affordable options.
It goes like this:
Subsidies might make health care look cheaper on paper, but everyday Americans experience higher costs, whether through insurance premiums or taxes.
Health care markets in the United States are heavily regulated.
These regulations limit competition and consumer choice, which naturally leads to higher prices.
For example, at the state level, certificate-of-need laws require government approval before new health care facilities or services can open. These laws hinder new projects and make the process prohibitively expensive for new investors or businesses, thereby giving established players an advantage.
Other government rules add to the problem:
Rather than certainty and access, these regulations leave consumers with unpredictable and rising health care costs.
Lowering health care costs starts with restoring personal choice and control — in other words, fund the patient, not the broken system!
Rather than forcing businesses to provide certain types of insurance or individuals to pay for coverage they won’t use, patients should be empowered to make decisions that work for their families.
For example, expanding health savings accounts and direct primary care reduces costs by encouraging and enabling patients to shop for value.
When patients control their own health care dollars and decisions, health care providers must compete for their business. Prices become transparent instead of hidden. Patients see the price up front, compare, and make choices. Surprise bills can’t happen.
If we want health care to be more affordable, flexible, and patient-driven, lawmakers need to trust people — not Washington — to run their health care.
To learn more about AFP’s Personal Option health care agenda, click here.
To join AFP’s grassroots army and use your voice, click here.
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