Publication

The pandemic has thrown the shortcomings and inequities of America’s health care system into sharp relief. These include the extreme vulnerability of the elderly in nursing homes; the poor health status of impoverished and minority communities; regulatory obstacles to deploying telemedicine; and, a lack of basic medical equipment and surge capacity in hospitals.

There’s never been a better time to fundamentally change the way we deliver and pay for health care. Progressives should build on the foundation of the Affordable Care Act (ACA) to finish the job of universal coverage. But there’s an even bigger challenge: Driving down the exorbitant cost of medical treatment in America, which drives up insurance costs, lowers wages, and sucks up resources we need for social investments that promote public health.

It’s time for a new approach to regulated competition that caps medical prices and uses global budgets to create incentives for improving health on the front end to reduce the need for heroic interventions on the back end. These steps will generate large societal savings that we can invest in improving the “social determinants” of a healthier society – especially better housing, schools, nutrition, public safety and opportunities for our most vulnerable citizens.

The coronavirus pandemic has laid bare the weaknesses of the American health care system. Despite the fact that we spend far more on health care than any other advanced country in the world, we have worse outcomes. The United States spends 18 percent of its GDP — nearly twice as much as the average of the 11 OECD countries — yet has the lowest life expectancy and the most uninsured people. This grim reality set the stage for the novel coronavirus to rip through the population and take a particularly high toll on vulnerable populations.

The virus has disproportionately impacted the elderly, low-income people and people of color. According to the New York Times, 42 percent of the more than 130,000 U.S. coronavirus deaths are tied to nursing homes. A lack of resources, including testing and personal protective equipment, low-paid vulnerable direct care workers compounded with the defenseless elderly population they serve, was a tinderbox ignited by the virus.

In every age bracket, Black people are dying at rates equivalent to white people a decade older. There are likely a number of reasons for the variation in death rates.

For one, Black and Latinx citizens may be more likely to contract the virus because they are more likely to work in grocery stores, direct care, food processing and public transportation — jobs deemed “essential.” In addition, they are more likely to suffer from chronic conditions like hypertension, obesity, diabetes, and lung disease, and have less access to good health care services because of poverty and the legacy of racial discrimination.

The pandemic also has illuminated a fundamental lack of resilience America’s health care system. For example, more than five million Americans have lost their health coverage because it was tied to jobs they lost in the shutdown. They should be able to turn to Medicaid for coverage, but 13 states have refused to expand their Medicaid programs under the ACA. Thus the rise of uninsured is expected to hit these Republic-led states harder.

Covid-19, and the subsequent shelter in place orders, have exacerbated mental health conditions. Because many people couldn’t access their usual care, drug overdoses have increased during the pandemic. Treating patients via telehealth might not work for every condition, but it is effective for many mental health issues. Seeing this, many states have changed regulations to expand access to telehealth services.

Even as we fight to contain the Covid-19 pandemic today, U.S. policymakers should be looking ahead to constructing a more innovative health care system that covers everyone, holds medical costs down, creates healthier conditions in low-income communities and makes our society more resilient against future public health emergencies.

PPI has proposed a comprehensive architecture for health care reform. This report highlights two critically important steps forward: Plugging coverage gaps and adopting global budgeting to lower health care costs.

First, to make coverage truly universal, lawmakers should expand the Affordable Care Act’s subsidies, set up auto-enrollment mechanisms for the uninsured, and cap the price of medical services. The recent vote to approve Medicaid expansion in Oklahoma demonstrates that Republican resistance to expanding Medicaid as allowed by the ACA is slowly melting away.

In addition, PPI has endorsed a “Midlife Medicare” buy-in. As conceived by health care analyst and historian Paul Starr, Midlife Medicare would respect the traditional status of Medicare as a program for the elderly by allowing the not-quite retired (those aged 55-65) an opportunity to buy their benefits early. By taking many older, high-cost people out of the individual insurance market, Midlife Medicare would lower premiums for younger workers.

Second, we need to change the perverse incentives in our system for overspending on after-the-fact medical treatment so that we can invest more in upstream social determinants of health.

Getting everyone covered is essential, but it will not by itself address racial disparities in health. Health status is a product of more than medical care – things like public safety, housing, education, transportation, and nutrition all impact a person’s health. The United States spends roughly 18 percent of GDP on health care – the most of any OECD country. At the same time, America spends the least on social services.

Reducing U.S. health care spending to 12 percent of GDP – the amount that the second highest cost country, Switzerland, spends on health care – would free up roughly $1 trillion dollars to invest in a broad array of social services that are conducive to better health. For example, the data overwhelming demonstrate that access to affordable, quality, safe housing improves health outcomes.

As former Oregon Governor John Kitzhaber, MD argues, America needs to shift from an after-the-fact medical treatment model to a sickness-prevention and health promotion model. The only to break the back of health care cost inflation, he argues, is to embrace global budgeting:

“Doing so requires that everyone has timely access to effective, affordable, quality medical care; and that we have room in the budget to make strategic long-term investments in stable families, housing, nutrition, safe communities and economic opportunity. In other words, the key elements are universal coverage, financial sustainability and effective social investment. The economic reality is that the only way these three elements can exist together, is if universal coverage is accompanied by a reduction in the rate of medical inflation; and the only way we can effectively reduce medical inflation is through a global budget indexed to a sustainable growth rate.”

The key mechanism to reduce the cost of medical services is global budgeting. A global budget is a fixed amount of money all payers in a region agree to pay to deliver care to a defined population.

For example, hospitals in Maryland, which operate under a global budget, found themselves better positioned to weather the Covid storm because their revenues did not drastically change when elective procedures stopped and they continued receiving predictable revenue as they delivered care to Covid patients. Rural hospitals in Pennsylvania also recently moved to this model.

Global budgets also eliminate incentives for hospitals to inflate prices for Covid-19-related services to compensate for the loss of normal revenue. A recent analysis in JAMA outlines why these hospitals will be better positioned to bounce back from Covid-related economic hardship.

The federal government should take its cue from Maryland and Pennsylvania. Rather than set a federal cap on health care spending, Washington should encourage each state to set its own global budget and work with the payers and providers in its borders to work out the details.

Washington also should give States should also have greater flexibility to spend Medicaid dollars on housing and other social determinants that can reduce health care expenditures, as Oregon has done.

There is no question that dramatic reform of the health care system will be difficult. But the U.S. has long been the outlier of advanced countries – overpaying for poor health outcomes. We have a crisis that has laid bare the weaknesses of our system and policymakers should not let the moment pass without dramatically reforming our system more cost effective, productive and resilient for the future.