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Pete Buttigieg's health plan gets one big thing right

Democratic presidential candidate South Bend Mayor Pete Buttigieg

Democratic presidential candidate South Bend Mayor Pete Buttigieg speaks during a Veteran's and Mental Health Town Hall event at an American Legion Hall, in Manchester, N.H. on Aug. 23, 2019. Credit: AP/Mary Schwalm

Mayor Pete Buttigieg of South Bend, Indiana, jumped into the Democratic presidential primary's most contentious issue on Thursday with the release of his "Medicare for All Who Want It" outline. A particularly bold part of his health plan tackles a key issue largely avoided by the other candidates.

Buttigieg comes down firmly on former Vice President Joe Biden's side with a plan that closely resembles the one the front-runner released in July. Buttigieg's proposal would retain the private insurance market, create a public health insurance option with limited auto-enrollment and boost subsidies for lower-income Americans.

One crucial difference - and not just with Biden's plan - is that Buttigieg's proposal explicitly calls out hospital and provider prices as a critical driver of health care costs. His plan would cap out-of-network provider charges at double what Medicare would pay for the same service. Many providers charge substantially more than that, but even Democratic presidential candidates tend to avoid the issue and focus on easier political targets like insurers and drugmakers.

Out-of-control prices are an inevitable consequence of America's confusing mash-up of private employer coverage, public plans and individual insurance options. Fragmentation reduces negotiating power and makes it extremely difficult to bargain effectively with providers, especially as hospitals consolidate.

Hospital care and physician and clinical services accounted for more than half of America's $3.5 trillion in health care spending in 2017. Provider prices have been rising more rapidly than inflation for years, which helps explain why the U.S. spends so much more than other developed countries. For example, the average cost of bypass surgery in the U.S. was $78,318 in 2014. The same surgery cost $34,224 on average in Switzerland that year and $24,059 in the U.K. That sort of gap is not unusual.

In addition to already inflated pricing and spending, there are countless individual examples of abusive pricing and behavior from providers.

Even candidates like Senators Elizabeth Warren and Bernie Sanders who call for "Medicare for All," which would require steeper and more widespread provider cost cuts, don't go out of their way to talk about the issue. Provider prices came up only a few times across five Democratic debates in which health care received sustained airtime. It's a touchy subject, considering the large number of people employed by health providers and their relative popularity among voters.

Buttigieg's willingness to openly address the issue is a refreshing step forward in the health policy debate and boosts the appeal of his plan. His proposal would retain many of the current system's flaws, even with the addition of a public option. But the cap has the chance to improve matters substantially. On top of cutting outlier prices, it would bolster negotiating leverage for the public option and private plans by making it less lucrative for providers to refuse to join insurance networks. It could bring the cost of insurance and care down and expand access in a less disruptive manner.

In many ways, his plan still falls far short of single-payer options. Medicare for All could do far more to bring costs down by folding people with private insurance into a national plan and would provide substantially more generous coverage to many more people.

The cost of such a plan and voter concerns about eliminating private coverage means it's not guaranteed to pass even if Democrats take back the White House and Senate. In that light, it's refreshing to have a more moderate alternative that at least acknowledges and attempts to tackle one of the health system's biggest issues.

Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.


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