MacIver Solves: Wisconsin's Health Care Cost Crisis

Introduction

While Republicans and Democrats agree very little on the way health care policy should look in the United States, there is one undisputed fact: health care in America is far too expensive and is in need of meaningful reform.

Generally, policymakers have taken a very statist approach to addressing issues in the health care system. Most notably, the Patient Protection and Affordable Care Act was the federal government's biggest attempt at overhauling the U.S. health care system. This landmark legislation was passed in 2010 with the goals of increasing health insurance coverage, expanding Medicaid, and making health care more affordable for all Americans.

While the hope was to bring down health care costs, the years following the enactment of the ACA were plagued by rapidly rising health insurance premiums and market consolidation. Following full implementation in 2014, insurance premiums in the individual market increased by an average of 105% from 2013 to 2017.

Moreover, the median number of issuers per state in the individual health insurance market decreased from 30 issuers in 2011 to 10 in 2022. By 2018, over half of U.S. counties on the federal platform had only a single issuer, offering consumers little to no choice.

Despite government involvement only leading to rapidly rising costs and further hospital and health insurance market consolidation, free market solutions continue to get sidelined. Below are some realistic free-market policy reforms that both the state and federal government could consider to make a truly affordable and competitive health care system for all Americans.

Expand Physician-Owned Hospitals

Physician-Owned Hospitals (POHs) are facilities that are both owned and operated by doctors and are often able to offer lower costs for their services due to less administrative overhead.

However, establishing new POHs or growing current POHs is largely prohibited due to the regulatory provisions of the Affordable Care Act. Particularly, one provision in the ACA bans new or expanding POHs from being able to bill for Medicare, making the practicality of opening or maintaining one nearly impossible.

POHs are usually able to provide low-cost, quality health care, as physicians are uniquely positioned to identify opportunities for entry into the market. Moreover, their knowledge of both health care practice and medical sciences means they are more likely to innovate. Both of these things together increase the quality of care offered to patients and increase patient choice in the hospital market.

An example of how POHs can successfully reduce health care costs can be found with the Surgery Center of Oklahoma. This is a cash-only, physician-owned hospital that is able to thrive and grow due to their refusal to take Medicare or insurance payments.

The Surgery Center of Oklahoma is able to offer surgery prices at a fraction of the cost of most hospitals, with all of their prices transparently listed on their website. They have attracted patients from all over the country, potentially saving the lives of those who have been priced out of the regular health care market.

One possible reform to our health care system could be encouraging the creation of more POHs, modeled after the Surgery Center of Oklahoma. This means the POHs would still not be able to take insurance or Medicare payments.

An even better policy reform would be removing the provisions in the ACA that bar new or expanding POHs from billing for Medicare, allowing for the creation of POHs to be a much more practical solution. This would likely improve care, counteract monopoly power in the health care market, and result in overall lower health care prices.

Increase Price Transparency in Health Care

Health care is one of the few industries where consumers have to purchase very expensive services before even knowing the total price they will be expected to pay. While there are federal laws against hospitals concealing prices, compliance and enforcement have been difficult.

Requiring hospitals to clearly state their prices is an important piece of health care affordability, as it allows for patients to compare costs and make well-informed decisions. When patients have this ability, hospitals have a greater incentive to offer competitive prices, causing downward pressure on overall health care costs.

State and federal policymakers can consider passing legislation that increases the penalty for hospitals not complying with federal and state price transparency laws. This will reduce the enforcement and compliance problem and allow for more transparent market-driven prices.

Expand Health Savings Accounts

Health savings accounts (HSAs) are a type of savings account that is paired with high-deductible plans, where consumers can set aside pre-taxed money to pay for future qualified medical expenses. Generally, HSAs can not be used to pay for insurance premiums, but they can be used to pay for other major expenses such as coinsurance, deductibles, and copayments.

The key benefit of HSAs is the “triple tax advantages.” This means that contributions to the HSA are tax-free or tax-deductible, any earnings made in the account are tax-free, and any withdrawals made from the account to pay for qualified medical expenses are tax-free.

Furthermore, HSA funds are portable, meaning the funds can travel with you even if you change employers, switch plans, or retire.

Expanding HSAs is one solution that would lower consumers' out-of-pocket health care costs and increase consumer choice. By putting more money back into consumers’ pockets, more control will be given to the consumer, who knows how and where they want to spend their money in the health care sector. This will ultimately lead to greater choice and competition.

One way that policymakers have suggested expanding HSAs is by removing the high-deductible plan requirement, so more people will have access to an HSA with their health care plan.

Another legislative reform is increasing or even eliminating the annual contribution caps to HSAs. Currently, for the calendar year 2026, the annual contribution limits are $4,400 for those with self-coverage and $8,750 for those with family coverage. By increasing annual caps, consumers could have even more choice over their own dollars in the health care market.

Moreover, Congress could also pass legislation that would allow for untaxed money from HSAs to be used to pay for insurance premiums.

Reform the Affordable Care Act

Since repealing the Affordable Care Act in the current political climate is not very practical, reforming key areas of the ACA may be a better solution. Particularly, policymakers should focus on reforms to the ACA that increase consumer choice and decrease the regulatory burden.

The reason the Affordable Care Act increased health care prices and drove market consolidation is twofold. First, the law imposed new rules and regulations, including minimum coverage requirements, modified community rating, and the introduction of standardized medical loss ratio requirements. These provisions raised insurers’ costs and restricted risk-based pricing, leading to higher premiums and reduced competition.

One potential remedy to these regulatory burdens would be expanding the ACA’s already existing waiver program. Section 1332 waivers, also known as “State Innovation Waivers,” are a carve-out that allows states to waive certain regulations under Section 1332 of the ACA.

However, there are some restrictions as to what states can waive and if they can get approval. There are certain guardrails that must be met, including having the same overall comprehensive coverage and maintaining or increasing the same number of people enrolled in coverage if the waiver is obtained. Core provisions of the ACA are also not eligible for waivers.

Wisconsin currently has a State Innovation Waiver that waives section 1312(c)(1) of the ACA, which requires insurers to consider all enrollees in a market to be part of a single risk pool (adjusted community-based rating).

While the Trump Administration took action in 2018 to broaden State Innovation Waivers, Congress could take further action and pass legislation that makes the waivers more accessible and effective.

This can be done by reducing guardrails and streamlining approval, particularly by allowing greater flexibility from modified community rating requirements. Expanded waivers would enable states to pursue market-driven reforms that increase competition and lower premiums.

The second reason for rising costs involves an incentive structure created by the ACA’s premium tax credits. Since premium tax credits are often paid directly to insurers, consumers are largely shielded from premium increases. Therefore, insurers face less pressure to control prices, as they know the government will cover the premium costs above a predetermined share of the subsidy recipient’s income.

At the same time, consumers who receive subsidies also face little incentive to choose cheaper plans, as they do not get to keep any of the money saved by choosing a plan that costs less money. This further reduces the incentive for insurers to keep costs down.

To address these distortions, Congress should reform incentives around the premium tax credits to make them more consumer-oriented.

The first way this can be accomplished is to establish a Health Savings Account for premium tax credit and Medicaid recipients within the framework of the ACA. Then, if consumers choose a cheaper plan, they can deposit the money that they save from the cheaper plan into their HSA. The funds can later be used to pay for premiums or future medical expenses.

This will incentivize consumers to less expensive plans and increase the pressure on insurance companies to compete for lower prices.

Secondly, lawmakers should consider tying subsidy amounts to medical CPI rather than the silver benchmark premium.

Tying subsidies directly to premiums weakens cost control incentives and leads to overall higher payouts and premiums. Indexing subsidies to the medical CPI would help contain federal spending while also encouraging insurers to compete for lower costs rather than rely on government reimbursements.

Conclusion

The rapidly rising health care costs in Wisconsin, and the rest of the nation more broadly, do not have to be an inevitability. Policymakers must start looking to free market reforms such as increasing physician-owned hospitals, increasing price transparency, expanding HSAs, and reforming incentives around the ACA.

These reforms would place decision-making back into the hands of consumers, rather than government bureaucracies. A freer and more competitive health care market offers a realistic path for more affordable and quality care for all Americans.