I'm re-posting my earlier analysis of the Affordable Care Act because of how intensely the controversy that surrounds it has flared again. I've updated it to reflect some of the things that have transpired since I first wrote it. I think it's important that we all understand what's actually in the law and think about what the consequences of its numerous provisions might be.
WARNING: The time required to read this post will violate my five-minute rule—by a wide margin. This isn't so much to punish readers for my decision to read all 1,163 pages of the "Patient Protection and Affordable Care Act" (HR3590) and all 337 pages of the "Health Care and Education Reconciliation Act of 2010" (HR4872)—known collectively as the Affordable Care Act—but rather because a shorter post couldn't possibly do an analysis of it justice (not that a longer post will either, but here goes...).
SPECIAL NOTE: Claiming I read "all 1,163 + 337 pages of the health care law" requires some clarification. My eyes did indeed follow all the sentences (if you can call them that), but HR3590 and HR4872 both contain large parts that are largely indecipherable, referring, as they do, to other laws often by stating things like this: "(1) IN GENERAL—Section 1861(s)(2) of the Social Security Act (42 U.S.C. 1395x(s)(2)) is amended—(A) in subparagraph (DD), by striking 'and' at the end." I was simply unable to carve out the time or summon the mental energy to refer back to all the other statutes the health care law amended. Further, the law is written backwards (a standard for lawmakers, I presume), by which I mean declarations are made that require an understanding of other declarations and terms that are described below them—and often far below them. This required a lot of re-reading and parsing of sentences that induced severe brain fatigue and more than a few headaches. Finally, though in several places the meaning of the law's provisions was plain, the thinking and the intent behind them often (though not always) remained obscure. Lawmakers rarely include explanations for why their laws say what they do. This is all to sound a warning that what follows represents my sometimes uncertain understanding of the substance of the law and may actually contain errors of fact. Knowledgeable readers are encouraged to point out any they identify. The law is unbelievably complex and the one overriding impression with which I was left after reading it is this: I doubt anyone, even the law's principal authors, fully understands the way it will change American health care.
The health care law certainly contains a number of controversial provisions, but among the most controversial (as evidenced by the contesting of its constitutionality in front of the Supreme Court) is that all Americans are mandated to have health insurance beginning in 2014. If they don't purchase it, the law says, they have to pay a tax penalty of no more than $750 per year (prorated by number of months they go without insurance) multiplied by a cost-of-living adjustment beginning in 2016. The rationale for mandating that every American be required to purchase health insurance is that "by significantly increasing health insurance coverage, requiring all Americans to purchase health insurance will minimize adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums."
This reasoning seems logical at first glance: increase the number of (presumably healthy) people who pay insurance premiums but who are less likely as a group to need health care services (and thus who will require insurance companies to spend less money on them) and insurance companies will be able to cover the cost of providing coverage for all the additional beneficiaries who get sick.
Yet because insurance companies will no longer be able to refuse to insure someone because of a pre-existing condition, to motivate healthy people currently without health insurance to purchase it before they perceive they actually need it, the cost must be less than the penalty for failing to purchase it. And it's not: who believes anyone will be able to find insurance for less than $750 per year?
But let's put that problem aside for a moment and assume that enough healthy people currently without health insurance will indeed purchase it (it's way too early to tell, but so far it doesn't seem that too many people actually have purchased new policies). But if we assume they eventually will, I agree that almost certainly then there will be an even distribution of these new healthy enrollees across most insurance plans—"spreading the wealth" so to speak—that will minimize adverse selection (where certain insurance companies get stuck with the sickest patients who cost the most). But the idea that this will lower premiums simply doesn't follow. First, it ignores the actual cause of increased premiums—the continually increasing cost of providing health care. It costs doctors and hospitals more to provide care as time goes on so they charge more, so insurance companies have to pay more, so they raise premiums. The increased revenues insurance companies will enjoy from the huge influx of new (healthy) enrollees may widen their profit margins enough to enable them to hold off on increasing premiums for a while. But eventually they'll have to start raising premiums again when health care costs rise above a certain threshold. Which they will, as nothing in the health care law directly addresses the true cause of increasing health care costs (as I discussed in a previous post, A Prescription For The Health Care Crisis, and which I discuss again below).
But even if the rise of our nation's health care bill plateaued, why would higher profits lead insurance companies to reduce their premiums if no one can take away their customers? Everyone in America will now be required to have health insurance and large insurance companies (that might be able to afford reducing premiums) operate in relatively competition-free markets (residents of one state can't buy insurance from companies that operate in another). The end result? Consumers currently have almost no ability to "vote with their feet." Thus, no competitive pressure exists to motivate insurance companies to lower their premiums at all (remember, just because there are multiple plans on the exchanges doesn't mean they're being offered by as many companies). Quite the opposite: they have every reason in the world to pocket that extra money (as long as it doesn't exceed the limit the Act puts on their profits—see below) they'll get from all the new enrollees (for one thing, it makes their shareholders happy, which means you if your 401K happens to include a health insurance company or two). No wonder the stock market valuations of most large insurance companies surged when the health care law was first passed.
So why would Congress expect premiums to go down when they failed to create a system in which free market forces have a chance to operate? The answer is because of all the provisions they crafted into the health care law that regulate the health care insurance industry—and not just with respect to insurance company practices (a reasonable role for the government to play when market forces aren't strong enough to safeguard consumers against abuses) but with respect to what premiums companies can charge their customers. Even more than that, with respect to what insurance companies can do with their revenues. There is legitimate disagreement in our country about the role government should play in regulating any private business, but as I pored through the health care law I found myself astounded at the reach the government is taking into the private enterprise of health insurance. For example:
I find it ironic that charges of socialism have been leveled against the Obama administration when these provisions in the health care law seem far more reminiscent of the principles of communism (in which market prices are set by a central body rather than the market). (Please note I'm not using this label to be pejorative—the only objection I have to communism is that it doesn't work.) What will set the price insurance companies can charge isn't the market but the judgment of specific individuals whose primary concern is the affordability of insurance to consumers. This last is, of course, critically important, but if the system that ensures premiums are affordable also creates a business model that's unsustainable, the health care insurance industry will eventually collapse. Those who support the government single-payer model will perhaps be delighted to imagine this happening, but moving to a government single-payer model by itself won't do anything to control rising health care costs. One way or another, we'll still have to pay for it: if premiums aren't higher under a government single-payer model, taxes certainly will be.
Truly, I don't have a well-formed opinion about the wisdom of maintaining a private insurance/government payer model vs. a single government payer model. But if we want to give the private insurance model a fair chance to work (and I recognize that's a big "if" for many), we need to create incentives where each participant in the system (health care providers, patients, and insurance companies) are internally motivated to act in a way that sustains it. Currently, none of the three has those incentives. Physicians are motivated to order more tests and perform more procedures because the advance of technology enables them to (and, in fact, in many cases brings real benefit we all want), because many of them make more money if they do, and because they fear malpractice suits if they don't—all of which drives up the cost of health care by increasing utilization. Patients are motivated to want more tests and treatments because they perceive more intervention leads to better outcomes (even though studies suggest it often doesn't), which makes them complicit in increasing health care resource utilization. Insurance companies are motivated to charge high premiums because of the high cost of health care and to avoid paying out promised benefits because such payments subtract directly from their bottom line. I've already written about the first two points in my previous post, A Prescription For The Health Care Crisis; regarding the last—I'd be curious to see what would happen if insurance companies were forced to compete across state lines so that enrollees could choose the best rates and benefits in the entire country (or just those plans that fit their perceived needs best) and then flock to those plans, forcing the other plans to reduce rates and improve service (i.e., willingness to pay claims) in order to remain competitive. I should note, however, that I doubt interstate competition would lower premiums enough to enable people currently unable to afford health insurance to swing it. That problem would have to be solved separately.
The law includes many provisions that protect the insured. Insurance companies may no longer:
Points #1 through #3 seem at first glance like basic protections consumers should be able to enjoy. And though I'm confident these provisions will indeed be of great benefit to hundreds of thousands of people, if not more, and should be included in our health care reform, I also feel bound to sound an alert that they simultaneously help sustain a moral hazard that currently contributes significantly to our country's rising health care costs: patients in America no longer pay themselves for the tests or treatments they receive so have no incentive to think carefully about whether or not they should get them. Though cost shouldn't be a limiting factor on one's ability to get a test or receive a treatment, having to pay nothing for a service makes it hard psychologically to not want it, even when getting it may not actually be in one's best interest, as I noted above.
Point #4 is tricky. As a physician I find myself enraged when I diagnose a patient with a disease whose treatment they can't afford because they lost their previous insurance through no fault of their own and whose new insurance won't pay for the treatment I want to give them until, for example, they've been on their books for a year. From an insurance company's point of view, I understand the rationale: if they can't refuse granting insurance or paying claims for patients with preexisting conditions, what's to stop someone from waiting until they get something bad and then applying for insurance, essentially becoming a profit-drainer from the very first day they're covered? While I hate preexisting condition clauses and agree they should be prohibited, how are insurance companies to guard against the potential for abuse? If everyone in America buys health insurance as the health care law mandates, this won't be a problem—but as I mentioned above, as the law is currently written, I'm not so sure this will happen.
I have no quarrel with the following provisions:
All insurance companies must also cover preventive care interventions with evidence-based ratings of "A" or "B" according to the U.S. Preventive Services Task Force, as well as cover immunizations. Further, all insurance companies must cover "essential health benefits," which are defined as:
My take on the above: all reasonable protections that provide a baseline level of support many of us will need at one point (or more) in our lives. And though I agree such consumer protections are required in our current system, the size of the new bureaucracy created to enforce them is simply staggering (the details of which are too elaborate to post here). To partially help offset this cost, insurance companies must pay a fee to the government beginning September 30, 2012 equal to $2/covered life per policy offered. Given that our current population is approximately 310 million, this will provide 620 million in revenue to the government. (This tax the insurance companies are forced to pay, by the way, in most cases being is passed on to beneficiaries.)
As we've all been hearing lately in the news, the health care law requires each state to create an American Health Benefit Exchange (government entity or non-profit established by a state) that:
My take on the above: In deciding to assign government watchdogs to the health insurance industry rather than create incentives for the industry to regulate itself, Congress is risking the same kind of failures that led to the economic meltdown of 2008 as well as the BP oil rig disaster. Though I'm not arguing for no regulation, no government watchdog can watch everyone and everything (even if it isn't plagued by incompetence). Though far more difficult to legislate, strategies that link an industry's survival directly to behaviors that best serve its customers are far more successful. I would have preferred the main force of regulatory control to come from the clever placement of these incentives (even at the cost of a major restructuring of the health care insurance industry) with governmental regulations sprinkled on top to provide adequate consumer protections. As it is, the cost of maintaining the bureaucracy the health care law creates will add significantly to our nation's health bill. How effective this strategy will be remains to be seen.
Some further examples of insurance industry regulation:
My take on the above: The intended benefit of the government's Exchanges is that they provide an easy way for consumers to compare different insurance plans as well as confidence that all enrolled plans meet minimum quality standards. But I'm not sure these measures don't add levels of bureaucracy that will create little bang for their buck while adding significantly to the difficulty of navigating our health care system.
In order to cover the millions of Americans currently without insurance, as mandated by the health care law, 90 days after the passage of the law, the Secretary of Health and Human Services established a temporary high risk health insurance pool program that will remain in effect through January 1, 2014 and which:
This high-risk pool has funding of $5 billion to pay claims in excess funded by premiums. The Secretary of Health and Human Services will "make adjustments as are necessary" to eliminate any deficits in the program. He or she is empowered to stop taking applications to this pool to comply with this funding limitation. That this might mean barring the very people this pool is meant to help remains an open possibility. The program will end January 1, 2014, and all enrollees will be transitioned to a health care Exchange.
My take on the above: I feel that the basic health care needs of every member of our society should be met. To argue otherwise—that we should deny people unable to afford care access to it—is morally unacceptable to me. The issue for me, then, isn't should the rest of us subsidize the care of people unable to afford it themselves but how we do so most cost-effectively. Currently we allow people unable to pay for health care access to health care services mostly through our nation's emergency rooms, which as a result are hopelessly overcrowded with non-emergent cases. This significantly impairs the quality of emergency care we all receive.
Yet as numerous studies demonstrate, significant health benefits and economic savings occur if we can prevent health problems rather than treat them once they've occurred. So to provide access to health care for people unable to afford it makes the best economic and medical sense when that access takes the form of visits to primary care providers who emphasize preventive health measures. In fact, we could make the argument (as yet unproven) that preventing enough serious illnesses in the medically underserved might actually save money overall. Then again, even if we could bring to bear the resources necessary to provide appropriate preventive care services to most people in the country, that wouldn't guarantee most people in the country would take advantage of them or alter their behaviors in ways that decreased their risk of future illness.
Finally, even if we found a better way to motivate people to adopt healthier behaviors, little in this law provides for an effective way to increase the number of primary care providers available to meet the health care needs of the population. Though provisions are included that increase funding for expanding primary care residency slots, as long as reimbursement for primary care services lags behind specialty services, there will remain a relative dearth of medical students who want to go into primary care and an excess of primary care physicians who want to get out of the field altogether. This imbalance between supply (primary care providers) and demand (patients who want to see them) in my view explains most of the customer service failures that have dogged the health care industry for the last decade (increased waiting times to see providers, poor accessibility to providers, and too little time spent with providers during appointments, to name just a few).
The health care law mandates a series of experiments it dubs "demonstration projects" that will be designed to examine different systems for paying for health care. I highly recommend Atul Gawande's article, Testing, Testing, for an excellent analysis of the value of these pilot programs. Though I don't entirely share his optimism, I am encouraged that the law has provisions for trying things out and measuring their outcomes. We need real data to figure out the best way to curb health care costs.
Just a few examples of the ways in which dollars will flow to support the provisions of the health care law:
How will the mammoth expense of our health care bill be paid?
Because other than the "demonstration projects" mentioned above nothing in this law directly addresses the real cause of the majority of our increasing national health care costs (overutilization of health care resources by both physicians and patients, and medical innovation), many more Americans than Congress anticipated will likely find themselves enrolled in a "Cadillac plan" without intending to be (as the cost of their premiums rises between now and 2018 in order to keep up with rising medical costs). Which means insurance companies will be paying far more in taxes on these plans in total than Congress expected. Which means they will almost certainly be forced to pass on that extra cost to enrollees, further raising premiums in 2018.
The health care law has begun some much-needed reform. Unfortunately, I find its funding approach flawed and strongly suspect it will prove itself unsustainable. I'm encouraged by the number of provisions in it for experimentation, though, as I believe the best way for us to create a viable health care system is by trial and error; the American medical system is simply too complex for anyone to accurately forecast all unintended consequences. I can only hope Congress and the American people retain their appetite for continued reform and aren't afraid to throw out what doesn't work.
As long and complicated as this post was, it failed, of course, to cover every provision of the new health care law or even to emphasize every issue I think is important in health care reform. I hope readers will feel free to bring up whatever issues interest them in the comments and that the discussion over this critically important topic can continue.
Dr. Lickerman's book, The Undefeated Mind: On the Science of Constructing an Indestructible Self, is available now. Please read the sample chapter and visit Amazon or Barnes & Noble to order your copy today.