The Case for Single-Price Health Care: WE COULD LARGELY SOLVE THE COST CRISIS SIMPLY BY MAKING MEDICARE PRICES UNIVERSAL.

• Author: Hewitt, Paul S.

Obamacare has taken a licking but keeps on ticking. The prospect of repeal died on the Senate floor. Republican efforts to roll it back continue, but the bulk of the program is still in place and unlikely to go anywhere. Virginia appears, as of this writing, on the way to expanding Medicaid, and other states will likely follow. Thanks mostly to the Affordable Care Act's expansion of Medicaid, some eighteen million more people have health insurance today than when Obamacare went into effect, cutting the uninsured population nearly in half.

But while progress has been made on expanding access, another problem keeps getting worse: the soaring cost of health care for those who get their insurance through their employers. For these folks--who make up the majority of middle-class, working-age Americans--the ever-rising costs of premiums, deductibles, and co-pays has turned into a full-blown crisis.

Take a median-income family of four whose members are covered by a standard employer-sponsored plan. Last year, the amount that hospitals, doctors, and other providers charged to treat such a family reached an average of $26,944, according to the Milliman Medical Index--nearly $9,000 higher than in 2010, when the ACA was enacted. Families typically paid about a fifth of that difference directly in the form of increased premiums, deductibles, and co-pays. Who exactly paid how much of the rest is not certain, but it's axiomatic among economists that employees bear most if not all of the cost of employer-sponsored health care. To employers, health insurance is just a form of employee compensation. When the cost goes up, they typically respond by cutting back on raises and other benefits.

To put this in perspective, the hit to middle-class families with employer-sponsored insurance has been roughly the same as if the government had imposed a 4.5 percent payroll tax increase beginning in 2010. No wonder, then, that four in ten adults with health insurance now say they have difficulty meeting the cost of their premiums and deductibles, according to Kaiser Family Foundation tracking polls, and another 31 percent say they have difficulty covering the cost of co-payments.

Obamacare didn't cause this crisis--in fact, relative to wages, the rate of medical inflation in the employer-provided market was substantially higher before the law. Nor is the rising cost of employer-provided health insurance the result of Obamacare forcing hospitals and other providers to shift costs on to nongovernmental, or commercial, payers, as some Republicans assert. Instead, as we shall see, it's mostly the result of monopolistic hospitals engaging in price discrimination as they exploit their increasing market power over private purchasers of health care.

But it's easy to understand why many people with commercial insurance feel that the law has made them worse off. In their experience, Congress passed the ACA and now they pay much more for health care. Adding to the grievance of many middle-class Americans is the fact that, even as their own costs have gone up and their choice of doctors has narrowed, millions more lower-income people are now paying little or nothing thanks to the expansion of Medicaid.

Fortunately, there's a straightforward way to attack this middle-class affordability problem. The Affordable Care Act dramatically tightened existing price controls on health care purchased by the federal government. It did so by setting fee schedules for how much doctors and hospitals can charge Medicare, Medicaid, and other federal health care programs for performing specific services or, in some cases, treating specific conditions. Similar price controls apply to Medicare Advantage Plans, under which private insurers are allowed to contract with providers at Medicare prices.

These cost controls save the government roughly enough money each year to fund the entire Defense Department. At a time when the price of health care paid for by commercial insurance has been increasing two to three times faster than the wages earned by most Americans, the price of health services delivered through the federal programs--which account for 37 percent of all health care bills--has actually been declining relative to the average wage.

The answer to the most pressing aspect of our health care crisis is simply to apply these cost controls to commercial plans as well. For a typical middle-class family, such a move, if enacted today, would drop the total price of health care by about a third in the first year, without having to pass any new taxes and without forcing anyone to change their health care plan. Proof of concept comes from the fact that we already do this...