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by Paul Ballard
March 16, 2013
~ “ A desire to take medicine is, perhaps, the great feature which distinguishes man from other animals”~
– William Osler, Canadian physician, 1849-1919 –
In a few months time, vital elements of the President’s health care reform plan – the 2010 Affordable Care Act, ACA, or Obamacare – will come into effect. Awaiting this, the U.S. Congress – especially Republicans – have been sounding the alarm on the urgent need for reform of entitlements – most notably Medicaid and Medicare – to cap their future growth to make them sustainable long-term for the Federal budget. These two developments seem to be moving strongly in opposite directions, on a sort of massive potential collision course.
For me, the key questions this raises are : Where do we stand on health care reform today? How far will Obamacare go in addressing the twin needs of improving American health care outcomes, while reducing their cost? What else remains to be done and how can we as individual consumers play a role?
Where We Are and How We Got There : It’s worth recalling some recent history briefly. Since 1980, U.S. health care has seen a dramatic expansion. As a share of our economy it has doubled from nine to eighteen per cent. During 2000-09, it grew about 10 per cent annually – almost three times as fast as our income. Health care prices have risen much faster than inflation. This has been propelled by rapid development of new but costly treatments, drugs, and surgeries – such as heart bypasses, hip replacements, cholesterol lowering drugs etc.
The aging of the US population with the coming to retirement of the Baby Boomer generation has added to this, as has the increase in poverty among Americans. Today 16 per cent of us (46 million) live in poverty compared to only 9 per cent in 2000. As health care costs have risen, ever more Americans have been priced out of private, employer based group health insurance plans. These now serve less than 50 per cent, down from over 60 per cent in 1995. Today, over 50 million Americans (17 per cent) have no insurance. And over 100 million more are covered by government funded programs – Medicare and Medicaid.
Lack of health insurance causes a double whammy of hardship: The uninsured must pay out of pocket fully all their health care costs. But health treatments at full ‘market’ prices – not negotiated down by insurance companies or Medicare or Medicaid – often cost two or three times higher for the same treatment! US average annual health care costs per person are about $8000, or three quarters of poverty line annual household income of $11,500. This compares with annual average healthcare costs of $3,250 in advanced (OECD) countries. In virtually all of these, population health care coverage is over 95% and is met over 80% by government-run single payer plans of different kinds.
Meanwhile, US health care is predominantly (over 75%) provided through the private market. Historically and still today, much health insurance is provided through employer group insurance plans. These are often generous with low co-pays and deductibles for employees and their families, but lack portability with change of jobs.
US health care has often played a leading global role in medical innovations – supported by a strong protective patenting system, managed by the Food and Drug Administration (FDA). However, this is a protected market, enabling oligopolistic and monopolistic practices, and a lack of price transparency by private health care providers. So, innovations have more often spurred technological advances without sharing cost reductions with consumers, as other “high tech” sectors of the US economy have done – notably in IT and computers. That’s why a heart bypass costs over double today what it cost fifteen years ago. In the same time, computer prices have fallen over fifty per cent!
What Obamacare Will Do and Will Not Do : A key Obamacare goal is to redress these major imbalances. It will considerably improve health care access by disallowing private insurance exclusions for pre-existing conditions, allowing children up to age 26 to be covered by their parents’ insurance plans, setting up state- and federal-level health insurance exchanges to create a competitive market of private insurance plans for the uninsured, considerably expand Medicaid to include over 30 million poor and uninsured Americans.
These are positive developments for poverty alleviation and enhancing American productivity. Even though they will entail additional costs for American businesses, as well as for younger affluent currently uninsured individuals. The safety net will be strengthened by minimizing “free loading”. Moreover the exchanges offer potential to reduce insurance costs and improve health benefits through competition – especially in states with insurance oligopolies currently – and creating larger pools of insured to better spread risk.
Crucially, however, in my view, Obamacare fails to pay sufficient attention to reducing health care costs and prices over time. In the coming decade, the costs of Obamacare average $120 billion annually, but it will not prevent Medicaid program costs from doubling, and Medicare costs rising by two-thirds. Obamacare aims to address health care cost problems essentially through bureaucratic means and not through market forces. Its focus is rather nebulously upon “bending the cost curve” through encouraging best-practices, and a shift from fee-for-service to health outcome-based payments.
Market Dynamics and Market Failures : To avert confrontation with powerful vested interests, Obamacare avoided addressing key factors that drive very high health care prices in the US private health care provider markets. These include such things as : ~ Over-consumption due to under-payment by insured consumers with low co-pays and deductibles, that discourage shopping around and budgetary saving efforts; ~ Small segmented private insurance markets, divided up by employer companies of widely differing sizes each with their own separate insurance plans and pricing systems; ~ Monopolies created by pharmaceutical companies signing up physicians to exclusive contracts to sell their products; ~ Unwillingness of private health care providers (doctors, hospitals, labs, pharmaceutical companies et al) to share price information with the consumers in advance of treatment so they can choose based upon least cost-best quality.
Combined such factors have created an extremely high-cost, uncompetitive private health care market. It reinforces market power by health care providers. It is driven by a byzantine administrative pricing system run by private insurers through negotiated deals with private providers. It causes vast amounts of paperwork for processing claims – of which doctors and patients often complain.
The flip-side is that those of us lucky enough to have health insurance have become complacent or lazy consumers of high cost health care. So much so that we do not usually bother to comparison shop or check prices. Recent studies have shown the price of same health care treatments and drugs can vary by as much as several hundred per cent among providers within a small suburban location – such as the Maryland suburbs of Washington D.C.
What Can We Do ? – Ideas for Empowering Consumers : For years now, as in the US housing market before the 2007-08 crash, health care costs have been rising far faster than Americans’ incomes. This trend has been cushioned by switching ever larger numbers of folks to Medicaid and Medicare or becoming uninsured. Obamacare will help improve access greatly to health care and competition in health insurance.
But, if we are to preserve our private health care market for the future, avoid a crash like in housing, and not have to switch to a European style single payer system with reference prices, we all – consumers and health care providers – need to take action now to empower consumers to make decisions on health care treatments for themselves and their families based upon better information on market prices. In short, we need to shift private health care to a truly open, transparent competitive market – where as consumers we have strong incentives to shop around for the best quality at the lowest price.
I have some ideas : ~ Require all privately insured Americans to get price quotes for all treatment, or face lower insurance coverage (say 50% of cost), but give rebates for cost savings; ~ Require all health care providers to ensure price transparency of all their main treatments and services – freely available and updated online; ~ Develop online market places for health care treatments, in parallel to online market places for health insurance; ~ Over-turn long-standing barriers to competition that greatly increase US health care prices compared to other countries, e.g., the ban on importation of prescription drugs; ~ Focus greater efforts on poverty alleviation, to reduce demand for social safety net programs such as Medicaid; ~ Means-test eligibility for Medicare and Social Security to give greater support to the truly needy.
I, for one, believe we all, as Americans, need to be empowered to play our part in making our clinically excellent health care system sustainable and affordable for the long-term – by making it economically efficient too!