{"id":1159,"date":"2022-02-17T13:13:00","date_gmt":"2022-02-17T18:13:00","guid":{"rendered":"https:\/\/paragoninstitute.org\/index.php\/2022\/02\/17\/brian-blase-testimony\/"},"modified":"2024-04-19T15:33:32","modified_gmt":"2024-04-19T19:33:32","slug":"brian-blase-testimony","status":"publish","type":"post","link":"https:\/\/paragoninstitute.org\/public-health\/brian-blase-testimony\/","title":{"rendered":"Testimony of Brian Blase, PhD, Before the House Subcommittee on Health, Employment, Labor, and Pensions"},"content":{"rendered":"

On February 17, 2022, Paragon’s Brian Blase testified before the House Committee on Education and Labor Subcommittee on Health, Employment, Labor, and Pensions.<\/p>\n<\/div><\/div>

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Exploring Pathways to Affordable, Universal Health Coverage<\/h3>\n<\/div><\/div>

My name is Brian Blase, and I was privileged to work for the House Committee on Oversight and Government Reform from 2011 through 2014. You have vital jobs serving the American people, and it is an honor to testify before this Committee today on this important topic.<\/p>\n

I am the founder and president of a new health policy think tank\u2014Paragon Health Institute. My testimony today represents my views and not those of Paragon. I am also a senior research fellow at the Galen Institute and a visiting fellow at the Foundation for Government Accountability. From 2017 through 2019, I served as a Special Assistant to the President for Economic Policy at the White House\u2019s National Economic Council. In that capacity, I led policy and regulatory work on several areas that I am testifying about today, including Association Health Plans, short-term limited-duration health plans, individual coverage health reimbursement arrangements, and price transparency rules.<\/p>\n

The title of today\u2019s hearing is \u201cExploring Pathways to Affordable, Universal Health Coverage.\u201d I\u2019m here to discuss how we can achieve more affordable, higher quality health care\u2014a worthy goal that nearly everyone supports. The goal of achieving universal health coverage can only be achieved if both health care and health coverage are affordable\u2014and for too many people today, they are not. I will focus my testimony on how to achieve more affordable and higher-quality health care which will lead to millions more people having health coverage.<\/p>\n

In many areas of the economy, products and services have become higher in quality over time while real prices, after accounting for inflation, have declined (Figure below: \u201cPrice Changes\u201d).1<\/a><\/sup><\/span> Unfortunately, this has not been the case for most health care products and services.2<\/a><\/sup><\/span> As the following figure shows, prices for hospital services\u2014the largest component of health care expenditures\u2014have increased more than three times faster than general inflation over the past two decades.3<\/a><\/sup><\/span> As health costs have risen, insurance premiums have correspondingly soared, even as plan deductibles have risen dramatically. In 2020, health care spending was 19.7 percent of U.S. Gross Domestic Product, a 6.4 percentage point increase and 48 percent increase from the 13.3 percent of U.S. GDP expended on health care in 2000.4<\/a><\/sup><\/span> Importantly, over the past few decades, there have been some noticeable advances in health, such as a decline in cardiac mortality, improvement in cancer survival rates, a cure for Hepatitis C, and new AIDS treatments. However, there is also significant waste in the health sector and health outcomes have recently stagnated despite the Affordable Care Act\u2019s (ACA) new spending and the significant expansion of Medicaid. American life expectancy was lower in 2019 than it was in 2013, before the ACA\u2019s coverage and spending provisions took effect.5<\/a><\/sup><\/span><\/p>\n<\/div><\/div>

\"1MS<\/a><\/div>

Government Impact on Rising Health Care Prices and Costs<\/strong><\/p>\n

Current Policies<\/em><\/p>\n

There are many policies\u2014at both the federal and state levels\u2014that raise health care prices and costs. Generally, high prices convey high value. But in health care because of government\u2019s involvement, excessive third-party payment, and generally consolidated markets\u2014high prices are often not a reflection of high value. A major consideration for policymakers in addressing high prices for medical care should be examining how existing government policies contribute to the problem and then focusing on reform.<\/p>\n

A primary way that government inflates health care prices and costs is through tax and spending policies. In 2020, government health care spending\u2014including both state and local government spending\u2014was half of total U.S. health care expenditures.6 Federal policy also has a major influence over private sector health care spending, particularly through the tax exclusion for employer-sponsored health insurance. The Tax Policy Center estimated that this tax exclusion reduced federal revenue\u2014both income and payroll tax collections\u2014by $273 billion in 2019.7<\/a><\/sup><\/span><\/p>\n

The key economic reality is that when government subsidizes something, that thing becomes more expensive. Subsidies increase demand, raise prices, and thus increase total spending in that area. For complete economic analysis, the taxpayer share of the total cost must be considered. For households to receive subsidies, other households must finance those subsidies. This financing can occur through higher taxes or through greater debt. More debt represents higher taxes in the future, either through direct taxes or higher inflation.<\/p>\n

Reforming government health care subsidies is crucial to making health care more affordable for families, businesses, and taxpayers. While such reform is critical to reducing health care cost pressures on family and government budgets, I am generally limiting my testimony on federal health care subsidies to current proposals that would make the existing problems even worse.<\/p>\n

Health Subsidy Design Flaws<\/em><\/p>\n

Although the magnitude of government subsidies for health care increases prices and spending, the design of the subsidies is also problematic. Historically, government programs and tax policy have encouraged third-party payment of health services. Thus for the vast majority of health care transactions, individuals do not directly spend their own money but instead rely on a government program or their insurance plan. Insurance should play a significant role in financing catastrophic and expensive care but having insurance pay for routine and shoppable services rather than relying on markets for these services distorts decision-making and leads to overconsumption and waste. While inflation in health care services has been substantial, health care services where third-party payment is limited\u2014such as cosmetic surgery and Lasik-eye surgery\u2014have had real price declines as quality has significantly improved.8<\/a><\/sup><\/span> Also, a number of physician practices and medical centers, such as the Oklahoma Surgery Center, do not accept insurance and have much lower average prices.9<\/a><\/sup><\/span><\/p>\n

As I discuss below, the ACA made individual market health insurance less affordable and introduced a generally inefficient set of subsidies. The ACA expanded coverage in two ways\u2014with a large Medicaid expansion funded almost entirely by federal dollars and with new premium subsidies to help people afford individual and small group insurance that was made much more expensive because of the ACA\u2019s extensive new federal regulation.<\/p>\n

Nearly the entire net coverage gains from the ACA occurred through Medicaid expansion, although many people who gained coverage through Medicaid were, in fact, not eligible for the program.10<\/a><\/sup><\/span> Enrollment in individual market changes through the exchanges has largely been disappointing, falling far below original projections. From 2015-2020, exchange enrollment averaged about 10-11 million people11<\/a><\/sup><\/span>\u2014about 60 percent below what the Congressional Budget Office projected in May 2013 in its last analysis before the ACA\u2019s provisions took effect.12<\/a><\/sup><\/span><\/p>\n

Low exchange enrollment may be explained by the individual market premiums increasing 105 percent from 2013 to 2017.13<\/a><\/sup><\/span> The vast majority of enrollees receive large subsidies as the premium increases have largely priced unsubsidized individuals out of the market.<\/p>\n

For the unsubsidized in 2021, the average exchange plan annual premium plus deductible for a family of four was about $25,000\u2014meaning that a family needed to spend about $25,000 before they received any real meaningful financial benefit from their insurance.14<\/a><\/sup><\/span> In addition to the high cost, ACA plans tend to have narrow networks, excluding the best hospitals and doctors in local regions. For example, in Texas, not a single ACA plan covers Houston\u2019s world-renowned MD Anderson Cancer Center.<\/p>\n

Rather than addressing underlying problems with the ACA that caused high premiums and deductibles and narrow plan networks, the American Rescue Plan Act (ARPA) further increased subsidies for this coverage. These subsidies have multiple problems, including being inflationary and inefficient. They push up prices and premiums, and they are a poor use of taxpayer dollars since much of the benefit accrues to higher-income people who are already insured. I further detail the subsidies\u2019 problems below.<\/p>\n

Due to these problems, the projected subsidy expansion in ARPA equates to about $17,000 each year per newly insured individual. The expanded subsidies will increase exchange enrollment but will do so by shifting more cost to the taxpayer. For example, an individual who faced a $600 monthly premium and qualified for a $500 subsidy and refused to purchase ACA coverage would likely enroll if an expanded subsidy covered the entire cost of the premium. HHS reported that 14.5 million people enrolled in coverage or were automatically re-enrolled in coverage for the 2022 plan year through January 15, 2022\u2014a 21 percent increase from the previous year before the ARPA\u2019s increase in taxpayer subsidies.15<\/a><\/sup><\/span><\/p>\n

Increasing Affordable Health Coverage Without New Federal Spending<\/strong><\/p>\n

There are ways to increase affordable health coverage without new federal spending. Many policies implemented by the previous administration expanded affordable coverage options for families and workers without new federal spending.<\/p>\n

These policies included:<\/p>\n