Pennsylvania is heading toward another healthcare collision. Nearly 700,000 Medicaid recipients are being notified of federal changes taking effect in 2027 that could leave more people uninsured, increasing uncompensated care for hospitals and reigniting the question of who absorbs the cost.
Hospitals respond by raising prices; insurers restrict spending; employers shift costs to workers; government limits reimbursement. Each response may be rational on its own, but together they push more of the burden onto families.
In Philadelphia, the median household income is about $61,000. A $5,000 deductible, common in many health plans, consumes more than 8 percent of that income before premium contributions. For families, healthcare costs compete with housing, education and savings. For employers, they limit what can go toward wages and investment. For taxpayers, Medicaid alone accounts for nearly one-quarter of Pennsylvania’s General Fund in FY2026-27, making it the state’s largest single expenditure.
Our hospitals are vital community institutions and major employers, but they too are constrained by the current payment model. We cannot expect them to absorb continually lower payments while maintaining the care and capacity communities depend on.
After decades working on employer healthcare financing, I have heard versions of this problem repeatedly. Years ago, a client who ran a Texas restaurant chain asked me whether Washington, DC, would ever understand that “the price of a traditional health plan for my employees is not built into the economics of a barbecue sandwich.” She knew that every additional healthcare dollar spent by her company displaced something else, whether wages, hiring or long-term investment.
That arithmetic points toward a different approach. Dr. Darshak Sanghavi argued in The Wall Street Journal that access and innovation are not opposing goals when incentives are designed differently. Operation Warp Speed reduced the risk of vaccine development by guaranteeing a market, while the makers of Beyfortus, an anti-RSV injection for infants, pursued a broader market at a lower price rather than maximizing revenue from a smaller group of patients.
The goal is to identify what produces value, measure it and create financing structures that allow effective interventions to grow.
Healthcare economics are not immutable. Change the incentives, and different solutions become possible. That same discipline could guide healthcare reform: Identify specific failures, test different economic models, measure the results, and build on what succeeds.
Pediatric asthma in West Philadelphia offers a useful example. A 2012 West Philadelphia study found asthma in roughly one in four children screened. For perspective, current Montgomery County data indicate diagnosed pediatric asthma in about one in 12 children. When asthma is poorly controlled, children miss school, parents miss work, and preventable emergency visits and hospitalizations add costs for Medicaid and private health plans.
For more than 25 years, CHOP’s Community Asthma Prevention Program (CAPP) has worked upstream, with community health workers educating families and helping them manage asthma in their homes. Through CAPP+, home repair partners address environmental triggers such as mold, leaks, pests and dust. The program has reduced emergency visits and hospitalizations while improving school attendance and quality of life. The model also suggests an opportunity to recruit and train community health workers and skilled tradespeople from the neighborhoods being served, extending the economic benefit locally.
CAPP addresses several problems at once: unnecessary acute care, family disruption, unhealthy housing conditions and avoidable healthcare spending. Yet its financing does not reliably capture or reinvest the value the program creates. One approach would be to quantify the savings CAPP generates across Medicaid, insurers and hospitals, then reinvest a portion in the intervention.
Pediatric asthma is one example. Similar experiments could be tested elsewhere, whether the challenge is site of care, financing breakthrough therapies or managing chronic disease before it becomes a crisis. The goal is to identify what produces value, measure it and create financing structures that allow effective interventions to grow.
Families, employers and taxpayers have absorbed the consequences of our healthcare system for long enough. The institutions that finance, deliver and regulate healthcare have the expertise to test better models. The next measure of reform should be whether they produce better results.
Steve Kelly is a healthcare entrepreneur and investor who has spent more than four decades working on healthcare financing, employer-sponsored coverage and strategies to improve affordability and access. He is the co-founder and former CEO of ELAP Services, now Imagine360, and chairs the Oncology Board of Visitors at Children’s Hospital of Philadelphia.
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