Fixing America’s heath-care system is going to require radical reform: price caps

Americans spend more money on health care because prices are higher here than anywhere else in the world. Our system is fraught with waste, our providers (physicians and hospitals) are paid more; and goods like biopharmaceuticals and medical devices are more expensive. On average, U.S. hospital prices are 60 percent higher than countries in Europe and physicians make twice as much as their counterparts in other advanced countries.

But despite spending almost a fifth of the U.S. economy on health care, Americans have no better outcomes (often worse) than other advanced countries. But as long as we are spending so much on health-care services, we don’t have enough funding to go after other upstream solutions to improve health outcomes — things like housing, environment, education and diet, all of which impact a person’s health status. 

In response to high costs and gaps in coverage, many Democrats have pushed for “Medicare for All” — saying that it is the only fix. But using this as a litmus test for the Democratic nomination is an oversimplification of the problem and a disservice to Americans. 

Rather than proposing a government payment system to make health care more affordable and equitable, we have outlined how we can limit health-care spending, encourage delivery reform, and invest the savings in upstream social services without the disruption and inflation in federal spending a single-payer system would bring. 

Among many other comprehensive reforms in the plan, we propose capping insurers’ out-of-network payment rates — starting at 200 percent and then steadily decreasing to 120 percent of Medicare rates. 

A cap on out-of-network provider prices would cut in-network prices. This dynamic works because providers (including hospitals) have no incentive to remain outside of networks if the price they can charge is capped at levels comparable to what they would receive for delivering services to patients in network anyway. This allow all Americans to benefit from the leverage of the government’s bargaining power without dramatically increasing government spending.

Capping out-of-network bills more broadly — not just for surprise bills — would have a huge impact on rates over all. It would place a de facto limit on all health-care prices, tied to Medicare rates, and would create a stronger incentive for hospitals and doctors to negotiate value-based reimbursement arrangements with insurers. 

Injecting price regulation into the private health-care marketplace is not a step we take lightly. But private insurers of all kinds have proved unable to impose reasonable limits on what health-care providers charge Americans for their services. 

As a result, health insurance premiums keep climbing — along with a raft of public subsidies intended to cushion working Americans from sticker shock. By capping prices above Medicare reimbursement rates, our plan would apply greater price discipline over time, so that providers wouldn’t see a precipitous decline in their earnings. More fundamentally, we believe a price cap or default price would speed the move away from fee-for-service towards a more efficient model for rewarding high-value, innovative health care.

Our proposal also includes many other substantial reforms — such as bolstering the ACA, allowing older Americans to buy into Medicare, modernizing Medicare for the 21st century — including prescription drug plan reform, and transition Medicaid to the delivery model of the future. 

Relying on one national fee-for-service plan may hold down prices in the short-term — but it would do nothing to improve care delivery, invest in upstream interventions or prevent a rise in utilization that could driving up costs in the long-term.

Our proposal is an alternative to single-payer: It achieves many of the same aims without centralizing health insurance in Washington, DC and driving up federal spending for years to come. People are hurting in America — health-care costs too much and our health-care outcomes leave much to be desired. 

Democrats should use the bully pulpit of their campaigns to acknowledge the complicated web of social issues and gaps in health coverage that lead to poor outcomes. They have an opportunity to discuss the much-needed formidable reforms to our health-care system — reforms that should improve health in our country — and they should acknowledge that it may take more than a single-payer health plan to address it.

Arielle Kane is the director of Health Policy at the Progressive Policy Institute. Her research focuses on what comes next for health policy in order to expand access, reduce costs and improve quality.