Hoover Institution (Stanford, CA) – The Hoover Institution’s Healthcare Policy Working Group convened a two-day conference March 3–4, 2025, examining major challenges facing the healthcare system, from Medicare and Medicaid to private insurance markets and pharmaceutical policies. Throughout the discussions, participants highlighted the unsustainable fiscal trajectory of federal healthcare programs, regulatory barriers to competition and innovation, and potential market-based reforms that could enhance consumer choice while addressing cost challenges. While participants generally favored increasing the role of markets and consumer decision making in healthcare, they acknowledged the political and structural obstacles to comprehensive reform, resulting in a focus on identifying incremental changes that could improve system efficiency without disrupting access to care.
Medicare Reform
The Medicare session highlighted the program’s central role in federal fiscal challenges, with projections showing its costs rising to almost a quarter of the non-interest federal budget by 2050. Participants discussed structural problems, including the complexity of beneficiary enrollment options, outdated administrative pricing structures, and shortcomings in Medicare Advantage payment systems. Reforms ranged from bold measures, like means testing or premium support models, to more targeted approaches, such as delivery system reforms and value-based purchasing. In Medicare Advantage, reform ideas centered on standardizing benefits across traditional Medicare and Medicare Advantage programs to improve comparability, implementing competitive bidding instead of benchmark-based payments, and reforming risk adjustment to address favorable selection and upcoding issues.
Health and Technology
The health technology discussion focused on how artificial intelligence and automation could address healthcare’s productivity challenges while improving quality and reducing costs. Panelists highlighted that the United States spends more on healthcare administrative costs than France, Germany, and Italy combined spend on their entire healthcare systems, with a complex system of 318,000 different health plans, 600,000 billing codes, and 57 billion negotiated prices. Technology applications discussed included AI-generated clinical notes, automated prior authorization processes, augmented radiology and pathology readings, and remote monitoring systems for high-risk patients. Participants debated whether technology would ultimately lower healthcare costs or simply redirect spending, with some suggesting AI could reduce administrative costs by 5 to 8 percent in the near term. Barriers to technology adoption included state regulatory variations, product liability concerns, and misaligned incentives that fail to reward efficiency gains. Participants agreed that administrative simplification represents a substantial opportunity across healthcare sectors.
Drug Pricing and Approvals
The pharmaceutical policy session examined tensions between drug innovation, affordability, and access, with participants noting that while drug spending may increase healthcare costs in the short term, it often reduces overall healthcare spending in the long run as generics become available. Critics of the Inflation Reduction Act’s drug price negotiation provisions argued it targets high-volume, low-price drugs rather than truly overpriced medications, creates a “pill penalty” by treating small and large molecules differently in terms of exclusivity, and establishes an unofficial cost-effectiveness threshold through the Medicare drug price negotiation program. Participants also discussed international pricing disparities—with the United States funding approximately 70 percent of global pharmaceutical earnings despite that sector representing 23 percent of global GDP—and debated potential reforms to Food and Drug Administration approval processes to reduce the “valley of death” between product approval and insurance coverage, which can delay patient access by up to six years.
Medicaid Reform
The Medicaid session examined structural problems with the federal-state partnership, where states have incentives to expand eligibility and services because the federal government covers most costs. Speakers highlighted how the Affordable Care Act’s Medicaid expansion, with its 90 percent federal match for the expansion population, exacerbated these incentives and led to enormous improper payments. Reform ideas included phasing down the enhanced federal match rate, moving people above 100 percent of poverty to the marketplace exchanges with premium tax credits, limiting state financing gimmicks like provider taxes, capping state-directed payments, and improving coordination for dual Medicare-Medicaid beneficiaries. Georgia was highlighted as a case study for expanding coverage only to 100 percent of the poverty line while directing those above that threshold to the exchanges, demonstrating how this approach led to increased private market competition and potentially better care access for beneficiaries.
Private Health Insurance
In the private insurance session, participants contrasted the lack of innovation in health insurance with dramatic improvements in other technologies over similar time frames, noting that insurance products remain largely unchanged despite decades of rising costs. Participants advocated for deregulating healthcare markets, expanding individual coverage health reimbursement arrangements (ICHRAs) to give employees more choice, enhancing healthcare savings accounts (HSAs), creating functional cash markets for healthcare services, and addressing price transparency and cross-subsidization issues. Several speakers highlighted Georgia’s approach to health insurance exchanges, which uses private-sector entities for enrollment while achieving cost savings and increased carrier competition. The session featured debates about the nature of health insurance and healthcare as services, with some arguing that unique characteristics of healthcare necessitate different approaches than pure market solutions, while others contended that most healthcare could function effectively in a properly structured market environment.
Affordable Care Act and Health Policy Beyond 2025
The final session addressed the future of the Affordable Care Act (ACA) and health policy directions, with panelists suggesting the ACA will likely remain in place with only incremental reforms rather than be repealed. Participants noted that Republicans are focusing primarily on tax reform rather than healthcare reform for 2025, with healthcare provisions potentially included in reconciliation only if they generate savings for tax cuts. Participants discussed a vision of a robust free-market healthcare system with true price discovery and competition, while acknowledging the challenges of transitioning from the current system with its entrenched cross-subsidies and regulatory structures. Others offered a pragmatic view of the 2025 political landscape, suggesting potential policy changes like making HSAs an alternative to cost-sharing reduction subsidies.
General Themes Across Both Days
Several consistent themes emerged across the two-day conference. First, participants generally agreed on the unsustainable fiscal trajectory of federal healthcare programs, but they often differed on the appropriate balance between market-based and regulatory solutions. Second, there was broad recognition that excessive administrative complexity drives significant costs in the system, with potential for technology and standardization to address these inefficiencies. Third, discussions revealed a tension between ideal policy solutions and politically feasible reforms, with acknowledgment that healthcare reform faces substantial obstacles from institutions and interest groups. Fourth, many participants advocated for approaches that provide more consumer choice and control while recognizing the limitations of consumer decision making in healthcare contexts. Finally, there was agreement that any reforms must consider implementation realities at the state level, with successful state models potentially offering pathways for broader system improvements.
