Fixing healthcare by freeing markets
Ge Bai, Ph.D., CPA, is a professor of Accounting at the Johns Hopkins Carey Business School and Professor of Health Policy and Management at the Bloomberg School of Public Health. An expert on health care accounting, finance, and policy, she has testified before Congress, written for major outlets including The Wall Street Journal and The Washington Post, and published in leading journals such as JAMA, Health Affairs, and the New England Journal of Medicine. She recently spoke with American Habits editor Ray Nothstine.
Healthcare now accounts for about one-fifth of the U.S. economy, yet affordability and access remain huge problems. Coverage doesn’t necessarily equate to quality care. From your perspective, what market distortions or policy incentives explain this disconnect between rising spending and stagnant value?
Ge Bai: Policy failures have caused rising spending and stagnant value. For decades, health policy has operated within a government-centered paradigm that follows a four-pronged approach: detaching consumers from their healthcare dollars, turning enterprises into cronies, regulating to raise prices, and blaming the private sector for greed to justify more government intervention.
This approach violates basic economic and actuarial principles and is bound to create inefficiency, as evidenced by rising spending and stagnant value, while enriching special interests both financially and politically.
In your recent Wall Street Journal piece, you argued that extending enhanced ACA subsidies exacerbates cost growth. How do these subsidies shape incentives for both consumers and insurers?
Bai: The enhanced subsidies, paid directly to insurance companies, entice higher-income Americans to buy expensive insurance plans they wouldn’t otherwise purchase by creating an illusion of affordability.
In addition to inviting gaming behavior and enrollment fraud, these subsidies eliminate the market for truly affordable options that could emerge organically. With a “fake” affordable plan in hand, why would consumers seek competing, genuinely affordable plans?
You’ve written extensively about price transparency. How can transparency meaningfully lower costs, and what are its limits without stronger competition?
Bai: People don’t care about prices when they’re spending other people’s money. Patients care only when they personally benefit from lower prices.
Price transparency can drive affordability when paired with reforms that give patients control over their healthcare dollars.
I’m a market-oriented guy, but I feel strongly that we should help Americans with chronic illnesses. Many of those illnesses are through no fault of the patient. What are effective ways to protect people with chronic illnesses or preexisting conditions without dramatically distorting prices for everyone else?
Bai: With a fraction of what is spent on Obamacare, a robust safety net could have been built for low-income, high-risk populations, without damaging the insurance market for most Americans.
Instead of imposing a hidden “tax” on the young and healthy through excessively high premiums, Congress should explicitly tax and directly fund coverage for low-income, high-risk individuals. This would preserve a functioning insurance market that continues to offer affordable options.
Price transparency can drive affordability when paired with reforms that give patients control over their healthcare dollars.
Since American Habits emphasizes federalism, what kinds of reforms can states pursue even within the constraints of federal regulation? Are there state examples you find encouraging?
State efforts should focus on four dimensions. First, free patients – let patients control their healthcare dollars. Second, free clinicians – let clinicians compete with health systems on a level playing field. Third, free insurers – let insurers offer affordable plans that consumers want. Four, deregulate to unburden all players – remove regulatory burdens to bring vitality to all markets. Florida, Montana, and South Carolina have recently repealed their Certificate of Need laws, an example of efforts in the second dimension.
You’re very passionate about fixing our healthcare system. Given your range of expertise, why have you chosen to make healthcare reform so central to your work?
Bai: I view this as both a personal and societal tragedy. We all have a stake in fixing it. Reform isn’t just about healthcare. Every dollar wasted in the system is a dollar taken from taxpayers and hardworking Americans, preventing them from saving, thriving, innovating, and reaching their full potential.
