Charles M. Silver , 2025-05-06 08:30:00
In “We’ve Got You Covered,” Liran Einav and Amy Finkelstein describe America’s existing patchwork of health care payment arrangements as a “teardown.” I agree. I support downsizing the Department of Health and Human Services (HHS), eliminating many programs, rolling back regulations, and creating a new system modeled on Social Security that will be simpler, less administratively burdensome, more affordable, and more effective at improving Americans’ health.
At the highest level, existing arrangements should be repealed because the health care system costs too much and delivers too little. STAT readers surely know that the U.S. spends twice as much per capita on health care as other developed countries but gets worse results. Spending more doesn’t buy better outcomes for many reasons, some of which are discussed below, but the inescapable conclusion is that the system is grossly inefficient.
To understand why existing arrangements deliver little bang for the buck, one need only take Political Economy 101. Special interests dominate our federal and state political systems, and they want ever-growing piles of money. Existing arrangements satisfy their desire by making health care more and more expensive. Health care businesses don’t want to be held responsible for improving Americans’ health, however, so doing that is not a condition for receiving money. Every year, billions of dollars are wasted on services that are unlikely to help patients live longer or better.
It is hard to think of anything that might be done to make health care expensive that isn’t being done already. The landscape abounds with price-increasing supply constraints, including excessive educational and licensing requirements for physicians and other providers; Certificate of Need laws and other impediments to expanding facilities; scope of practice restrictions; and restrictions on the ability of foreign doctors to practice in the U.S. Arrangements that encourage reliance on third-party payers — including tax breaks for dollars spent on employer-provided insurance, Affordable Care Act premium subsidies and coverage mandates, Medicare, and Medicaid — eliminate the pressure to reduce prices that consumers ordinarily generate by shopping for bargains. By insulating consumers from the real cost of procedures and treatments, these arrangements also spur demand.
The political economy story also explains why fraudsters are able to suck hundreds of billions of dollars out of the payment system every year. Providers want their bills paid, not audited. The federal government keeps them happy by paying first and chasing dollars later when it has concerns about fraud. This ineffective strategy permits providers to use upcoding and other schemes to increase their revenues.
It also enables criminals to steal mind-boggling sums.
Medicaid money laundering schemes fit the political economy story perfectly. Working hand in glove with providers and insurers, states use these schemes to extract tens of billions of dollars from the federal treasury every year. The federal government knows it is being robbed, but it allows the money laundering to continue because its desire to spend money is stronger than its desire to save it.
Political Economy 101 also accounts for the government’s tolerance of other schemes, such as those that drug and device makers, pharmacy benefit managers, hospitals, infusion centers, and others use to inflate prices. The practice of spending lavishly on intensive treatments for seniors with short life expectancies also makes sense from this perspective. STAT readers undoubtedly know about other scams and misplaced priorities that could be added to the list.
The takeaway is clear, indeed, obvious. As long as existing arrangements remain in place, the health care system will continue to be grossly inefficient. Spending will keep rising, results will be mediocre, and health care costs will continue to inflate the deficit and impoverish consumers.
Health care businesses have been able to rig the system in their favor because it is politically controlled. By employing lobbyists, offering high-paying jobs, and other means, they have convinced elected officials and appointed bureaucrats to do their bidding.
There is another reason to minimize public control. The greater the involvement of governments, the more access to medical services is subject to the whims of voters and politicians. At present, elections have scary potential to leave people in the lurch. That is why in 2020 and 2024, the New England Journal of Medicine ended its 208-year tradition of neutrality and urged readers to vote for Democrats. Rather than give Trump an opportunity to deprive millions of people of insurance coverage by “destabiliz[ing] the Affordable Care Act [ACA],” the editors, like the Democrats, wanted more spending, more regulation, and larger insurance subsidies — more of everything that comprises the teardown-worthy system we currently have.
The Democrats won in 2020 and lost in 2024, and the swings in health care policy have been enormous. When Joe Biden was president, spending on Medicaid and Medicare grew by leaps and bounds, as did the population covered by policies sold on the ACA exchanges and the cost of premium subsidies. Had the Democrats won in 2024, the expansion would have continued, as coverage for weight loss drugs and regulations calling for between $68.5 billion and $134.8 billion in new federal spending were put in place.
But the Republicans prevailed, so Biden’s plans for the future have been scotched, his executive orders are being reversed, and the budgets for federal health programs are on the chopping block. The GOP reportedly wants to reduce future increases in Medicaid spending by $880 billion over a decade, to introduce work requirements and eligibility audits that will knock millions of people off the rolls, and to exclude coverage for gender-affirming treatments. Sales of insurance policies on the ACA exchanges will also plummet, as the enormous premium subsidies that motivated people to purchase coverage expire at the end of 2025. And Trump has already announced that neither Medicare nor Medicaid will cover weight loss drugs.
Health care payment arrangements should not be subject to swings like these. Health care businesses need to be able to make plans. Patients need to know that the services they want will be available when needed. Minimizing public control of health care financing arrangements will help with both.
Treatment options should not be politically controlled, either. Because medical services affect mainly the people who receive them, recipients should be free to choose what they want. Voters, who are often shockingly ignorant and motivated by religious and other unscientific beliefs, should have no say in whether a person can use contraception, receive medical assistance in dying, remove a feeding tube or a ventilator, enjoy hallucinogens, receive gender-supportive care, or access the supply of organs. Because these services (and most others) pose little or no danger to the public, voters have no valid interest in controlling them.
Americans are far too accepting of political control of health-related decisions, first and foremost because governments have no demonstrated ability to make better decisions than consumers. Public control also infantilizes consumers by treating them as incompetents who can’t be allowed to make important decisions. In turn, infantilization breeds ignorance and dependency. People who believe that the government is looking out for them have little reason to educate themselves. The truth, of course, is that the government has other priorities. It wants to maintain the appearance of protecting consumers without actually doing so because real protection would reduce the flow of dollars to health care businesses.
Consider the Food and Drug Administration. It wants consumers to think that it protects them from drugs and devices that are ineffective or unsafe, but it lets manufacturers sell products that do not work, and it lets providers deliver treatments that are untested. It also lets manufacturers skate on commitments to perform post-marketing research that would bring defects to light. The agency thus gives patients a false sense of security and inhibits the development of private regulators whose assessments would be more reliable. Political Economy 101 also explains these consequences.
President Trump started his second term in office by downsizing the federal government, including HHS. The staff cuts were warranted, as Cato’s Michael Cannon has explained. The reduction in force might have been implemented more thoughtfully, of course. For example, the decision to fire reviewers while leaving FDA approval requirements in place delayed Americans’ access to new technologies.
The need to act quickly was obvious, however. If Trump had sought public comments on his plans before implementing them, special interests would have mobilized their forces and frustrated him at every turn. Remember Paul Ryan, the former Speaker of the House of Representatives who ran for vice president on a ticket led by Mitt Romney? When he suggested reforms to the Medicare program, a left-leaning interest group ran a wildly popular attack ad that showed him pushing an elderly wheelchair-bound woman over the edge of a cliff. Because Trump is downsizing the federal government across the board, the scare tactics used to thwart his agenda would have been even worse.
Does Political Economy 101 explain what President Trump is up to? Apparently not. Many of the changes he has made or wants to make have the potential to reduce the flow of money to health care businesses. This is the opposite of what Political Economy 101 predicts. We appear to be living through a moment in American politics that is truly exceptional.
Whether those of us who believe that the existing system is a teardown must applaud Trump’s efforts depends heavily on what he intends to replace it with. Einav, Finkelstein, and I all believe that there must be a safety net. They propose the creation of Medicaid for All, a set of arrangements that would provide everyone with security against financial costs associated with essential health care needs. I have criticized their proposal already.
I would base a new system on Social Security, a popular program that gives people cash to spend as they wish. In 2023, the federal government spent $1.9 trillion on health care, an average of more than $5,600 per American man, woman, and child. If the government deposited these funds into interest-bearing savings accounts, most people would quickly accumulate sufficient wealth to meet their medical needs. I prefer the old Finkelstein who explained “Why Cash Is Better” to the new Finkelstein who would give everyone insurance.
Social Security isn’t a political football. Since 1975, payments have risen automatically at the rate of inflation. In the words of Republican Sen. Lisa Murkowski, the benefits are “untouchable.” Even today, with Republicans searching for ways to reduce federal spending, talk of cutting Social Security benefits is “the third rail. … Any party that touches [the program] is likely to get zapped come Election Day.”
A program modeled on Social Security would also reduce the public’s ability to interfere with health care decisions that should be made privately. It would let consumers decide which services to purchase and how much insurance to buy. With luck, a norm of consumer sovereignty will arise, as patients push back against public officials and bureaucrats who try to stick their noses where they do not belong.
Many types of fraud would disappear. Scams like upcoding and Medicaid money laundering work because the federal treasury is exposed. Under a system modeled on Social Security, that will no longer be true.
Finally, even Americans who want to condition Medicaid eligibility on work requirements are likely to find the proposed arrangement acceptable. Because everyone pays into Social Security throughout their working lives, Americans regard the benefits the program distributes as having been earned, not as welfare, even though many people take out more dollars than they put in.
Continuing the teardown and implementing a better payment system will not be easy. Resistance from hospitals, physicians, drug and device makers, insurers, and other health care businesses will be fierce. Every dollar saved in the future will be a dollar less in revenue for some health care business, and a deregulated system modeled on Social Security would save hundreds of billions. Health care businesses also know that when consumers are in charge, markets will exert serious pressure on them to improve their offerings and lower their prices. They do not want that either.
But if we are at the point where existing arrangements can be torn down and replaced with something better, we should take the plunge, while strenuously resisting the efforts that special interests are bound to make to rig the new payment system in their favor.
Charles Silver holds the Roy W. and Eugenia C. McDonald Endowed Chair in Civil Procedure at the School of Law, University of Texas at Austin.
