To Improve Health Care, Let Consumers Choose | Opinion

Americans typically don't shop for their doctor, hospital, or health insurance plan. A lack of shopping means that health care markets lack the competitive discipline that characterizes most of the American economy. Competition is important because it enhances quality and convenience and lowers prices.

Hospital consolidation and acquisition of physician practices have contributed to this lack of competitive pressure in health care. As a result, hospital prices have risen more than three times faster than inflation while average family premiums plus deductibles for workplace coverage have climbed from $6,000 to $25,000 over the past 25 years. Economists agree that higher health plan costs directly result in lower wages.

Nearly half of Americans get health insurance through an employer. In a traditional employer health plan, employees have no control over the design of their policy and little incentive to find the best value for their spending. Most employees get a choice of no more than three employer-chosen plans. Employees at small businesses typically get only one option.

We can improve health care and drive costs down by giving Americans greater choice and control of their coverage, allowing them to take their business to insurers that offer them the best deal. A 2019 rule from the Trump administration provides employers with an opportunity to put more control in the hands of their employees.

Under this rule, employers of any size can use pre-tax dollars to fund health reimbursement arrangements (HRAs) that employees can use to buy an individual market plan that best fits their needs. This financial tool is called the individual coverage HRA, or ICHRA.

Unfortunately, most employers and employees are not aware of this option. Many companies' HR departments are resistant to changing benefits and typically renew the same insurance plan year after year.

Indiana legislators recognize the value of ICHRAs and decided to help employers utilize them. In this year's legislative session, Indiana enacted a tax credit for small employers (those with less than 50 full-time workers) that offer ICHRAs. The credit is available to employers for two years.

ICHRAs help employers by allowing them to establish a health care budget without the burden of choosing the plan and having to worry about the annual underwriting and renewal process. ICHRAs also eliminate the risk that a high-cost event with one employee will cause higher company health care costs. So Indiana's new legislation directly benefits both Hoosier employers and employees.

But the main benefit of expanded ICHRAs is how the expanded choice and competition will improve Indiana's health care market.

Using an ICHRA, employees will shop for the lowest-cost plan that best meets their needs. As more employees shop for themselves, insurers will develop more attractive and innovative products because they would be selling plans directly to people and would be forced to meet their individual needs, not the needs of the employer. The increased pressure on insurers to offer higher-value products will incentivize them to minimize the prices that they pay for medical services and administrative expenses. This will lead to lower health costs and higher wages.

A few examples show that choice and competition can lower health care costs. People pay out-of-pocket for Lasik surgery and plastic surgery, and vigorous competition has led to improved quality and price reductions. In the Medicare Part D prescription drug program, seniors use a government subsidy to shop for the plan that offers them the best value. Insurers compete fiercely for their business, and Part D has cost less than expected year after year, making it an outlier among health programs. In fact, during the first 10 years, Part D cost 45 percent less than predicted.

The ICHRA tax credit has two additional benefits. First, it will expand health coverage since most small businesses do not offer insurance. Second, enrollment in the Medicaid welfare program will decline because more workers will have access to an individual market plan using their ICHRA.

The last 60 years have witnessed the emergence of a health care system mostly run by either the government or large bureaucracies. We do not have a system built around the consumer. ICHRAs are the best, most realistic way to bring more consumer choice and free market forces to health care. Under ICHRAs, insurers and providers must be responsive to consumer demands. With the legislation enacted this session, Indiana is poised to lead the way to a better future.

Brian Blase, who served as a special assistant to President Trump at the National Economic Council, is president of Paragon Health Institute. Al Hubbard is chairman of Hoosiers for Affordable HealthCare and served as director of the National Economic Council under President George W. Bush.

The views expressed in this article are the writers' own.