Reforming the Incentives that Drive Health Care Spending
Federal health programs are the nation’s largest fiscal challenge, consuming a rapidly growing share of federal tax revenue while failing to deliver commensurate improvements in health outcomes. This paper argues that Medicare, Medicaid, the ACA exchanges, and related federal policies share a common flaw: their financing structures reward higher spending, cost shifting, consolidation, and enrollment growth rather than value, competition, accountability, and efficiency. In Medicare, payment distortions, growing reliance on general revenues, and the Inflation Reduction Act’s Part D redesign have increased costs and weakened sustainability. In Medicaid, provider taxes, intergovernmental transfers, and state-directed payments have encouraged states to maximize federal reimbursements rather than obtain value, though the One Big Beautiful Bill enacted major reforms to limit these financing schemes. The ACA exchanges similarly rely on open-ended subsidies, weak eligibility verification, and automatic reenrollment, contributing to improper enrollment and rising federal costs. Additional policies, including the tax exclusion for employer-sponsored insurance, the 340B program, and the ACA’s medical loss ratio rules, further increase spending and consolidation. The paper recommends reforms across these programs to strengthen program integrity, reduce payment distortions, improve incentives, promote competition, and place federal health spending on a more sustainable fiscal path.
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Obamacare notes & links.
