There are a lot of federal employees, way too many in my opinion. There is a massive health plan that provides coverage for federal employees, the Federal Employees Health Benefits Plan. It gets the best possible rates from the private health plans it contracts with. Notwithstanding that rate protection, the FEHBP has announced that its premiums will rise by an average of 8.7% for 2023. That means that for similar large groups insured by the same private health plans, the premium increase must be at least that much. By comparison, for 2022 the increase was 3.8%. The portion of the premium paid by employees is increasing by 8% to 10%. Health care is going to be a major contributor to continuing inflationary pain for consumers. (WP Article)
And this article describes how the price of many drugs has skyrocketed in the last year. Between 2021 and 2022, the price of over 1200 drugs increased by an average of 31%. There is simply no excuse for that. The drug companies are not experiencing cost increases anywhere close to that magnitude but they have never been shy about exploiting their patent power to push huge price increases. I have for years given my solution, which involves limiting the patent term when there are either excessive initial prices or price increases. Not big on price constraints, as you will see in the next nugget, but this is different because the pricing power exists solely because of a government-granted monopoly. That distorts the market, so undistorting it is appropriate. (HHS Article)
And the Congressional Budget Office, recognizing that provider prices are about to take off, weighs in with an analysis of approaches to limit those prices. The government sets prices for Medicare and Medicaid by fiat, subject to lobbying from providers. So the report focuses on what private health plans can do to limit costs. Three large buckets are reviewed. The first is encouraging price transparency and consumer shopping. CBO finds that this will only result in very small price reductions. The second is limiting the market power of providers. CBO determines that this would result in small price reductions. The last is regulating and limiting the prices providers can charge. CBO claims this would lead to moderate to large price reductions. (CBO Report)
What CBO is saying has to be understood in the context that nothing is actually going to reduce existing prices; they are talking about reductions from what the prices might otherwise be. I completely disagree that limiting market power would have only small effects. We got into this mess because government agencies allowed unlimited consolidation of hospitals and of hospitals buying medical practices. It further allowed health plans to consolidate and to buy providers. The end result is a mutual oligopoly, in which both sides, the providers and the health plans, are happy to charge high prices to consumers and employers so they make lots of money. The CBO report itself says that this market power is the primary reason for high and rapidly increasing prices.
The obvious solution is to undo that consolidation. Force hospital systems to break up, force them to divest medical practices, do not allow large combinations of specialized physician groups, force health plan breakups and don’t allow health plans to own or buy provider assets. We need a system where no provider of any type or health plan has more than a 20% market share in any geographic area. People have made up all kinds of justifications for consolidation, none of them happened. Prices went up, not down. Quality didn’t improve. Access didn’t improve.
And I don’t know how many failed experiments in price regulation we need across many industries before we understand that it always fails and introduces unintended consequences. I know that health care is an odd market with so much paid for by a third party, but price regulation should be an absolute last resort. And to be realistic, there is no way Congress is going to pass price caps, given the campaign contributions and lobbying from the provider industry.
I would strongly, strongly encourage you to read this report in full, it will really help you understand provider pricing dynamics.