What would really bring down health care costs in NC

Adobe stock image on cost of healthcare.

This week I participated on a panel on the health care system in North Carolina and the United States, specifically on whether moving to a “free” single-payer system would be a help to citizens struggling to afford health care.

Despite coming from different perspectives and parties, all agreed that the US system of delivering health care was too expensive and complicated. Everyone also agreed that it would be very difficult to start fresh or to untangle the giant knot of various fixes applied to other fixes, with state and federal actors from both the public and private sector contributing to the problem.

But there are certainly things we can do to make our health care system more affordable and accessible. Unlike many on the left who believe the answer is to increase government involvement (maybe even by creating a Canadian-style single-payer system), I think the answer lies in doing as much as we can to create a real market in health care. For nearly every other sector in our economy, markets increase quality and bring down costs over time. Why would health care be any different?

The problem with the US system

Our problem in the United States is not a lack of modern high-quality care. It’s cost. We spend about 18% of our GDP on health care, while other advanced nations tend to spend around 11%. On a pure cost basis, the US spends over $13,000 per person on health care (as of 2023), while other wealthy nations spend closer to $7,000.

Many see these numbers and think: Those countries like Canada and the United Kingdom that have government-run systems are not only almost half as expensive, they cover everyone — it’s a win-win! But there are massive tradeoffs not visible at that level of analysis.

First, single-payer systems, according to a Fraser Institute study, have the worst wait times. Where we wait 5 weeks to be seen by a specialist, they wait 30 weeks in Canada. That certainly saves money, but care doesn’t feel “universal” to those suffering for months without seeing a doctor. Also, the costs per GDP numbers take into account all health care spending, both public and private. If we were to transfer all our health care spending to the government, taxes would necessarily skyrocket. Americans are used to lower levels of taxation than are Canadians or Europeans, and they would revolt at this dramatic shift. And if Medicare and Medicaid seem impossible to pay for now, just wait.

Most importantly, this would ignore the key question: What’s actually making the care so expensive in this country?

Singapore, not Canada, as the model of success

To understand why we spend so much, we only have to look at how our system differs from, not the middle-of-the-pack countries like Canada, but by looking at the wealthy nation that has both the lowest cost health care AND the best results — Singapore.

Across recent rankings by Bloomberg Businessweek, Legatum Prosperity Health Index, and UN data on best life longevity, infant mortality, and maternal mortality, Singapore has consistently been, if not No. 1, then in the top five in the world. And yet, this small Southeast Asian nation only spends around 5% of the GDP on health care. The US, on the other hand, often ranks alongside developing nations in its overall health, while spending more than triple.

Singapore’s system is very simple:

Providers must post bundled prices for all to see. The government also posts quality data on each provider for consumers to consider. This price and quality data allows consumers to make informed decisions.
Citizens and their employers must deposit money into a health savings account, and this is what they use to pay for most health care expenses. It’s their money, and citizens build and spend it carefully.
People are opted into high-deductible health insurance to prevent free riders. But, like car insurance, this insurance is not meant to be used outside of catastrophic situations. Imagine how expensive car insurance would be if you had to file a claim every time you got an oil change or pumped gas.
For indigent care, instead of a complicated, expensive, and unpopular (with providers) system like Medicaid, they simply put cash into the HSAs of those who cannot afford care. Instead of a situation where half of providers don’t want to take on new Medicaid patients, like in the US, indigent patients show up with the same HSA-backed payments as everyone else, so they’re treated the same.

All of these elements create a real market dynamic, even if the government is involved at many levels. Consumers shop around for the best care they can find at the best price, and the providers are incentivized to improve quality and lower costs over time. This is why a heart surgery in Singapore will cost often a fraction of what it does in the US with better results. Sean Flynn, a professor at Scripps College, in his book, “The Cure that Works: How To Have the World’s Best Healthcare—at a Quarter of the Price,” lays out a lot of the details of how Singapore’s system is able to do what it does.

You can listen to Flynn’s discussion with Steve Forbes of Forbes Magazine on this subject here.

Can NC and the US create a market too?

As my fellow panelists stated though, we are currently stuck with a fairly knotted-up ball of yarn. So how do we get from here to there? Here are a few reforms that will help create a market over time:

Direct primary care: This growing model for primary care allows primary-care doctors to charge a subscription, rather than spend time arguing with insurance companies and the Center for Medicare and Medicaid Services (CMS) over each minor service. It’s like moving gyms from charging for each exercise you do to a monthly membership fee. Much simpler.
More ambulatory surgical centers: Our current Certificate of Need laws make it harder for ambulatory surgical centers to open up if a hospital or other major provider can argue that they already have the area covered. But competition and more options are needed for a market to develop. When the Surgery Center of Oklahoma opened up, they posted bundled prices for their procedures and announced they would only take cash, no insurance or CMS. Their founder, Dr. Keith Smith, said, the immediate effect was that planeloads of Canadians — tired of waiting forever for their “free” care — began arriving. Like with Singapore’s prices, Smith says SCO is able to charge about a tenth of what mainstream providers do for their services.
Greater use of health savings accounts (HSAs): There has been movement on price transparency at the federal and state level. The problem is, providers aren’t quite sure what they charge (until after they’ve spent weeks haggling with insurance or CMS), and patients aren’t incentivized to ask, because they aren’t the one ultimately footing most the bill. The answer is HSAs, as Singapore found. Until we move the primary payer from being a third-party (insurance and CMS) to being the first-party (the patient), real shopping around by consumers and real competition among providers is unlikely to emerge as is necessary in a market.
True insurance: As was described above in Singapore’s system, health insurance should be like every other kind of insurance — a guard against unexpected catastrophes, not to pay for expected routine situations. If it pays for everything, patients and providers are not incentivized enough to care about price.
Portability of coverage: We have a very employer-focused system, which has a lot of benefits. It’s also unlikely to change. But we can make adjustments to this system by allowing better portability of coverage. What if someone could choose to keep the same coverage from their last coverage but shift which employer paid? HSAs thankfully are fairly easy to maintain and transfer between employers. Association health plans are also a good way of expanding on the employer-based system, letting non-employee groups (churches, non-profits, etc) group together in a similar way.

In North Carolina, there are many other things that would help: like eliminating CON laws, allowing providers to practice at their full authority without extra supervision, and making it easier for out-of-state providers to transfer in with interstate compacts.

If all these elements were to gradually spread in the American health care system, a real market could emerge. This is the only thing that can actually bring down costs. In Sean Flynn’s book, he asks us to imagine what it would mean to really solve this problem. If we could move from a nation that spends 18% of our GDP to one that spends 5% of our GDP, we’d have an additional 13% of GDP to play with. Making Social Security solvent, he says, would only take 1-2% of GDP. Funding our entire military only takes 4% of GDP, so adding 1% there would give us an advantage over any geopolitical foe. Taxes could be dramatically lowered. The sky would be the limit.

The effect of fixing our health care system would be to unleash a wave of prosperity that is hard to imagine. It’s true that our health care system is a big complicated ball of interconnected knots. But the benefits of solving it, and the consequences of not, are too large to ignore.

For those interested, more information on the health care forum is below:

The forum was organized by NC IOPL (a non-partisan fellowship program I attended in 2011), was hosted by Duke University, and will air on Spectrum News across the state on Oct. 26. The other participants were state House Rep. Grant Campbell, R-Cabarrus; state House Rep. Sarah Crawford, D-Wake; and Duke University professor of health policy Nathan Boucher.