Medicare Drug Costs

Retired public school teacher Gail Orcutt, of Altoona, Iowa, holds some of the prescription drugs she takes, Friday, Feb. 15, 2019, in Altoona, Iowa.  (AP Photo/Charlie Neibergall)

States are pulling in opposite directions on health care — blue states to more socialism and red states to empowering individuals. Washington should encourage these laboratories for public policy by unshackling state governments from the morass of regulations imposed by the Affordable Care Act (ACA) and feeble federal antitrust enforcement that enables profiteering by hospitals, medical specialists and health insurance, drug and medical device companies.

Radical change is coming, because the ACA is destined to collapse under the weight of price gouging and prohibitive premiums. Either Democrats will force Americans to pay even higher taxes and eventually bear the tyranny of a single payer system, or Republicans will turn the whole mess over to the states with block grants that leave millions without coverage.

Neither will make health care more accessible but rather rearrange who gets butchered and who grows fat from the lack of competition and effective regulation.

The ACA applies a two-prong approach to broadening access to insurance: A mandate that businesses with more than 50 employees offer federally approved insurance policies and government-run marketplaces where other Americans may purchase coverage.

And permitting states to expand Medicaid — originally established to cover poor seniors and children and pregnant women — to include essentially all low-income individuals. Thirty-three states have chosen expansion.

In addition to more taxes, the scheme imposes much higher premiums, even with federal subsidies, on younger and healthier Americans. Although the federal government pays 90 percent of the opt-in costs for Medicaid expansion, the consolidation of federal control of insurance and local markets through county-level insurance exchanges considerably increases state health care costs for traditional Medicaid services and state workers.

Hospitals and insurers have colluded to limit competition, drive up prices and increase their market shares for tests and procedures. Pharmaceutical companies are freed to benchmark prices by charging Medicare whatever they like, and medical specialists to form large group practices — pricing cartels — covering entire regions.

Remaining doctors are often forced to become employees of large hospitals — where administrative bureaucracies bloat but the physicians hardly share in the largesse.

At the conclusion of the Obama administration, about 27 million non-elderly adults remained without insurance — including many working poor in the states that chose not to expand Medicaid and millions of others who paid a fine rather than pay exorbitant insurance premiums.

In 2018, the Republican Congress repealed the unpopular individual mandate. However, the mandate that large employers must provide insurance stands, and it now costs about $20,000 for businesses to purchase a family policy.

Overall, Americans pay about 75 percent more for insurance, medical services and drugs and devices than do Europeans in private insurance based systems similar to Obamacare.

California, other blue states and New York City are moving aggressively to resurrect the personal mandate and expand Medicaid or similar programs as a precursor to Bernie Sanders’ Medicare for all.

Republican-led states are moving toward work requirements for Medicaid, permitting the sale of insurance policies that do not meet ACA standards and formulating plans to let individuals establish health-spending accounts with federal insurance subsidies.

Neither approach will work, because neither does much about the monopolization of markets by hospitals and insurance companies, drug manufacturers and other service providers. And the ACA limits how much flexibility the administration may give states in modifying Medicaid and doling out federal subsidies, and no authority to regulate prices.

Let the states administer as they please block grants for virtually all federal spending in their jurisdictions. Blue states can use the funds to establish single payer systems while the red states could set up medical-spending accounts and the like.

Also empower the states’ attorneys general to bring aggressive antitrust suits through the federal courts against local pricing cartels established by hospitals and insurance companies, physicians group practices and price gouging by pharmaceutical companies and medical device manufacturers when they charge more than prevailing prices in other high-income markets like Germany and the Netherlands.

Then the socialists and capitalists can compete to demonstrate whose approaches work best.

Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.