Deregulation Leads to Uncontrolled Costs of U. S. Health Care

Healthcare will be a lot less expensive for everyone—the government, consumers, providers.  —President Donald Trump (1)

The above statement by Donald Trump could not be more uninformed, misguided, and blatantly false. Just one more example of his more than 3,000 documented lies as president. Unfortunately, however, much of conservative thought among policy leaders and economists still holds that deregulation, theoretically allowing unfettered markets to work their magic, will control costs through competition. That may be true in some parts of the economy, but has never been true in health care.

This blog has three goals: (1) to show how deregulation is being implemented under TrumpCare; (2) to describe how deregulation increases costs and prices as competition fails to work in health care; and (3) to summarize some takeaway lessons we should learn from our long experience with the failures of deregulation as a cost containment policy.

Deregulation under TrumpCare
A continuing mantra during Trump’s presidential campaign and his first 18  months in office has been to claim that deregulation of health, safety, labor, financial, and environmental sectors will somehow get us on a better track in this country. He issued an executive order just ten days after his inauguration that government agencies should kill two rules for every one they propose. His Cabinet has been carefully selected to loyally pursue the “deconstruction of the administrative state,� as urged on by Steve Bannon, Trump’s former policy guru. This policy has also been strongly supported by the Freedom Caucus, many trade organizations, and corporate lobbyists. (2)

Subsequent administrative actions by the Trump administration’s Department of Health and Human Services (HHS) have dropped advertising for and shortened the ACA enrollment period, scaled back maintenance of its website, and spread disinformation that discourages enrollees of the ACA’s marketplace. Other actions by HHS include encouraging selling insurance across state lines, marketing short-term plans lasting just less than a year (thereby skirting the ACA’s requirements to cover pre-existing conditions and ten essential benefits), proposing expansion of association health plans with lax requirements, shifting control of health care back to the states, and promoting increasing privatization of public programs, such as Medicare and Medicaid.

How Deregulation Increases Prices and Costs of Health Care
Deregulation of the private health insurance industry in these ways leads to further gaming of the system with the intent to increase insurers’ profits, including increasing premiums for less and less coverage and gaming reimbursement by false claims. As one example, Freedom Health in Florida paid almost $32 million in 2017 to settle allegations that it exaggerated how sick some patients were to increase profits while dropping others that were costing them too much. (3) Centene Corp., the largest private Medicaid insurer in the country, took in $1.1 billion in profits between 2014 and 2016 despite its plans being among the worst performing in California. (4)

Prices of labor and goods, including pharmaceuticals, medical devices, and administrative costs are driving the run-away train of health care inflation in our deregulated market-based system without significant price controls. (5) The profit-driven medical industrial complex adds to the impossibility of achieving cost containment of health care in this country. Giant corporate systems buy up hospitals and physicians’ practices at an increasing rate, raising their market shares to near-monopoly levels with leeway to set prices to what the traffic will bear. (6) They also increase administrative costs of growing bureaucracy to intolerable levels. It is estimated that we waste at least $150 billion a year on hospital bureaucracy and another $300 billion on private insurers and the paperwork they impose on physicians. (7)

Some takeaway lessons
1. Free markets do not control prices or costs through competition in health care.
Within our complex market-based system, there is no real transparency of prices to let patients save money through more information, whether for hospital services, prescription drugs or other services. Don Berwick, M.D., former administrator of CMS and founder of the Institute for Healthcare Improvement, sums up the current situation this way:

I find little evidence anywhere that market forces, bluntly used, that is, consumer choice among an array of products with competitors fighting it out, leads to a health care system you want and need. In the U. S. competition has become toxic: it is a major reason for our duplicative, supply-driven, fragmented health care system. (8)

2. The pervasive business “ethic� to maximize revenue to providers of health care, together with involvement by Wall Street profiteers, work against the public interest.
Ever larger corporations have taken over the medical-industrial complex in recent decades with close ties to Wall Street. Many physicians and other providers are employed by large health systems whereby they are being pushed by administrators to bill for services with higher reimbursement. The traditional ethic of service has largely been replaced by “shareholder capitalism.� As just one example, 20 of the 25 drugs with the fastest-rising prices between 2013 and 2015 were owned by firms that were involved with a hedge fund, private equity ort similar speculative attacks during that time. (9)

3. Our payment policies to date have failed to contain costs or improve quality of health care.
Payment experiments adopted by Medicare in recent years were intended to save costs and improve quality of care. Neither goal has been achieved by such attempts as accountable care organizations (ACOs) or the Pay-for-Performance (P4P) programs. Instead, they have produced no savings and little or no improvement in patient outcomes. Most physicians and health policy experts consider the supposed “quality� measures flawed. (10)

4. We cannot contain health care costs until we reform our financing system.
Containment of U. S. health care costs will require a transformational change in how we finance and pay for health care services. We will need to replace the largely for profit private health insurance industry with a not-for-profit single-payer service-oriented system. This can and should happen with enactment of expanded and improved Medicare for All legislation (H. R. 676 in the House) that will ensure universal access to all necessary health care for all Americans. Much of today’s bureaucracy and waste will be eliminated with a five-fold reduction in administrative costs. Physicians and other health professionals will be paid on a negotiated fee basis. Prices for prescription drugs will be negotiated, as the Veterans Administration has done for many years, achieving discounts of more than 40 percent. Hospitals and other facilities will be paid through global operating budgets.

This system of national health insurance can be funded through a progressive system of taxation whereby 95 percent of Americans will pay less than they do now for insurance and care. National health insurance will recover more than $600 billion a year in wasteful expenditures, including about $500 billion in administrative overhead and $113 billion in prescription drugs through bulk purchasing. (11) Those savings can be applied to expanding health care coverage for the uninsured and underinsured as well as reducing disparities in underserved populations.

Bad as health care costs are, they will get much worse under Trump’s policies of deregulation, industry-friendly policies, relaxing rules on Wall Street, and deceptive rhetoric. Today’s so-called health care “system� is a socially unjust and unsustainable disaster with a growing part of the population not able to afford care. We can expect increasing variability in access to care from one state to another and worse outcomes for tens of millions of people. With health care now the number one issue in national polls across the political spectrum, even above the economy, we will see a growing public backlash to TrumpCare across the country as the 2018 midterms approach. Fortunately, there is a fix on the horizon when Democrats regain the majority in the House, and perhaps also the Senate.

Adapted in part from my forthcoming book, Trumpcare: Lies, Broken Promises, How it is Failing, And What Should Be Done


1. Trump, DJ. As quoted by Jackson, HC. 6 promises Trump made about health care. Politico, March 13, 2017.

2. Steinzor, R. The war on regulation. The American Prospect, Spring 2017, pp. 72-76.

3. Schulte, F. As seniors get sicker, they’re more likely to drop Medicare Advantage plans. Kaiser Health News, July 6, 2017.

4. Terhune, C, Gorman, A. Enriched by the poor: California health insurers make billions through Medicaid. California Healthline, November 6, 2017.

5. Papanicolas, I, Woskie, LR, Jha, AK. Health care spending in the United States and other high-income countries. JAMA, March 13, 2018.

6. Fulton, BD. Health and market competition trends in the United States: Evidence and policy responses. Health Affairs, September 2017.

7. PNHP press release. Bureaucracy consumes one-quarter of U. S. hospitals’ budgets, twice as much as in other nations. Physicians for a National Health Program. Chicago. September 8, 2014.

8. Berwick, D. A transatlantic review of the NHS at 60. British Medical Journal 337 (7663): 212-214, 2008.

9. Hedge funds attack American health care. Hedge Clippers, September 30, 2015.

10. Woolhandler, S, Himmelstein, DU. New prospects for single-payer activists: Swimming in the mainstream . . . with sharks. Physicians for a National Health Program. Chicago, IL, Winter 2018 Newsletter, pp. 14-16.

11. Friedman, G. Funding H. R. 676: The Expanded and Improved Medicare for All Act. How We Can Afford a National Single-Payer Health Plan. Physicians for a National Health Program. Chicago, IL, July 31, 2013.

Adapted in part from my soon to be released book: TrumpCare: Lies, Broken Promises, How It Is Failing, and What Should Be Done.

Source: Finance Solidaire
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