If the Court throws out both the “individual mandate” (the rule requiring that virtually all Americans buy insurance, or pay a fine), and the provision that insurers must cover all applicants, and cannot charge higher premiums, even if a new customer has just been diagnosed with cancer? This might sound like the end of reform, but in fact, many of the most valuable reforms in the legislation would almost certainly still stand–including those that will change the way we pay for care, reducing costs, while lifting quality. Under the Affordable Care Act (ACA), hospitals will continue to find ways to reduce preventable errors–or face financial penaltie.. Doctors who succeed in managing chronic diseases, keeping their patients out of the hospital, will receive rewards. Medical students willing to practice in underserved areas “Where No One Else Will Go” will receive scholarships, and their ranks will grow. New funding will double the capacity of Community Health Centers that can provide medical homes for many who now receive their care in an ER. Reform will go forward.
There is, of course, the possibility that the court could declare the entire Affordable Care Act unconstitutional, but this seems extraordinarily unlikely. Too many planks in the law already are being implemented, and patients are benefiting. As Henry J. Aaron pointed out in an earlier post on this blog, overturning the law would be an “Rx for Chaos.”
Still, even if the judges “only” throw out the mandate and the requirement that insurers cover everyone, the results will be, as former Obama administration adviser Ezekiel Emanuel recently put it in a New York Times opinion piece “less than optimal.” (Unlike Rahm Emanuel, Zeke is known for understatement.)
Under this scenario, premiums for those who do buy insurance would climb because, without the mandate, insurers could no longer count on millions of new, healthy customers. Instead of “the 32 million Americans predicted to gain coverage under the health insurance reform act, only around 16 million Americans would gain coverage,” observes Emanuel.
Although health reform legislation still would offer low-income and middle-income individuals subsides to help buy insurance for themselves and their families, many healthy people who don’t qualify for large subsidies would opt out. “This would drive up premiums by an estimated 15 to 20 percent,” Emanuel adds, “and push more healthy people out of the market, creating a downward spiral until the only people buying insurance are those who are very sick. While many states may still try to move forward with their exchanges without the mandate, they will eventually collapse.”
I agree. Keep in mind that under the Affordable Care Act, insurance companies that sell their products in the state-run Exchanges must offer “essential benefits” in all of their plans. This means insurers are required to cover benefits that are not included in many of the less costly plans that they now peddle to the public– including maternity care, and mental health services. To make up for the extra costs, insurers would be forced to raise premiums.
Instead of hiking premiums, couldn’t insurers just cut their profits? No, these days insurance companies have been losing customers, and as a result industry profit margins are slim. This is why, as I noted in part 1 of this post, both Aetna’s CEO and Ezekiel Emmanuel have predicted that the health insurance is on the brink of extinction. (Note that “profit margins”– which represent a percent of revenues that the company is able to keep– are very different from “profits” expressed in dollars. A company that reports operating profits of $500,000 on sales of $500 million might sound successful, but in fact, this means that it is spending 99 percent of what it takes in on manufacturing, marketing, payroll and other operating expenses. Its profit margin is just 1%; if this continues, it will have a hard time staying afloat. Lately, insurers have been reporting profit margins of only 2% to 4% which is why many realize that they must find a new business model.)
–An Obvious Alternative: Medicare for All. If the private insurance industry is on the verge of collapse, many progressives ask, why not go directly to a single-payer, government run system? If the Supreme Court throws out the Affordable Care Act, wouldn’t that pave the way to the reform that many think we should have chosen in the first place? Conservatives argue that the mandate is unconstitutional because it forces them to buy a product from a for-profit private company. But we know that it is constitutional to insist that we buy health insurance from the government. We have been doing it for some 47 years. It’s called Medicare.
Moving to “Medicare for All” might seem an easy answer. But supporters face two daunting roadblocks. The first is Congress. There simply are not the votes in Congress to pass a single-payer solution; opposition to a “government takeover” is fierce. Of course after the November election, we will see some new faces on the Hill. But there is no way that voters will elect a majority that would endorse a government-run system. Too many Americans would be afraid of such a massive change. Over the next few years, I hope that we accept government sponsored insurance (a.k.a. a “public option”) as an alternative to private insurance.” But it will be a very long time before the majority of voters will embrace a single-payer system.
Physicians would be wary that Washington would slice their fees. Many would be adamantly opposed to working for the government.
As for patients, those with good employer-based private insurance would not want to give it up for an unknown government program. Even if private insurers close up shop, most larger companies self-insure, and their employees would continue to be covered. And the truth is that the best coverage that these employers offer, with no annual limits or lifetime limits on reimbursements, does offer better protection than Medicare. Under Medicare, when a senior hits the limit on how much Medicare will pay out, he must spend down almost all of his savings–and perhaps sell his home– before he qualifies for Medicaid. At that point he may well have to switch doctors because so many physicians will not accept Medicaid’s lower reimbursements.
I myself have a policy with no limits, no deductible and co-pays that are only slightly higher than Medicare’s ($50 when I see a specialist, rather than $35.) If Congress did pass “Medicare for All” I would be reluctant to join unless I could afford a private “MediGap” or “Medicare Advantage” policy that would cover the many holes in Medicare. (Even then, under many Medicare Advantage policies, I would have to shell out $35 to see a specialist, and I would face deductibles that I might not be able to afford.) Could the government force people with generous private insurance to give up their policies? Perhaps, but it would be a bloody battle.
Meanwhile, Americans who have the best private coverage usually are relatively affluent–and healthy. If they refused to join the single-payer pool, it would be skewed toward poorer, sicker customers, and once again, we’re looking at higher premiums.
Granted, the administrative costs of a single-payer system would be lower, but as Robert Reich, who supports Medicare-for-all (or “at least a public option”) recently pointed out on this blog, private corporations that self-insure –(and offer the most generous policies to their employees) spend only about 5-10 percent on administration, just 2 percent to 7 percent more than Medicare. Let’s assume the difference is 10%: this means that a family plan that now costs a large employer and his employees roughly $13,000 a year would cost taxpayers only $1,300 less. Meanwhile, most of us, like most seniors, would feel we had to purchase a MediGap or Advantage policy to plug the holes; premiums for those supplemental plans would eat up most of the $1300.
– The Second Roadblock: The Cost of Medicare for All. Medicare is an extremely pricey program, in part because, in the U.S, we pay far more for every pill and every procedure than the citizens of any other developed country, and in part, because our system is so wasteful.
Begin with hospital charges. In Germany, the average bill for a hospital stay is just $5,004–compared to $15,734 in the U.S. By and large, patient outcomes are just as good in Germany. That is just one example. Next, consider the cost of drugs and devices, which now account for roughly 18 percent of the nation’s medical bill. Incidental Economist’s Aaron Carroll, quoting from a McKinsey & Company study. “For name brand pharmaceuticals, we pay about 77% more. Why? Some will say that it’s because we’re wealthier and need to subsidize for the rest of the world. But even if we paid more based on our relative wealth, it would come to about a 30% premium, not the 77% we do pay. Some will say that it’s because we in the US subsidize the massive research and development for drugs. But the entire bill for R&D for the pharmaceutical industry was less than $50 billion in 2006, far less than the ‘extra’ we paid for drugs.”
Under the Affordable Care Act this could change. If Medicare’s costs are climbing too quickly, an Independent Payment Advisory Board would be able to trim Medicare’s payments for over-priced drugs. The Board would be likely to do this if the drugs were no better for most patients than older, cheaper rivals. Following the Medicare Payment Advisory Commission’s recommendations, Medicare would cover the pricier pill only for patients who would benefit. (Congress could override the Board only it could save an equal amount of money without rationing care, or shifting costs to patients.) Moreover, as reform unfolds, President Obama has signaled that it’s likely that Medicare will begin bargaining with Pharma, just as the Veterans’ Administration does today.
As for the “waste” in Medicare, not long ago, Dr. Donald Berwick, the former director of the Centers for Medicare and Medicaid, explained that much of the over-spending “comes from subjecting people to care that cannot possibly help them – care rooted in outmoded habits, supply-driven behaviors, and ignoring science.” Thus, patients are exposed to risk without benefit. Some die after picking up a “hospital-acquired infection” –when they didn’t need to be in the hospital in the first place.
But unfortunately, one man’s waste is another man’s income stream. In the past, when Congress tried to cut the waste, lobbyists intervened. By contrast, under the Affordable Care Act, Medicare will have the right to use financial carrots and sticks to reduce errors and unnecessary treatments–without having to go through Congress. For instance, if a pilot program that aims at improving care while cutting costs is successful, the Secretary of Health and Human Services will be able to roll it out nationwide, without needing Congressional approval. In other words, in voting for the Act, legislators purposefully tied their own hands so that they will not be tempted to succumb to lobbyists bearing gifts.
Once these reforms (along with some those that I mentioned at the top of this post) have had a chance to kick in, Medicare should be a much stronger, more affordable program. Then, it would make sense to model a public option on Medicare. If it were affordable, and offered better, safer care, millions Americans might well choose “Medicare for All.”
Today, however, the high cost of Medicare illustrates the heart of the problem in our bloated health care system: the growing gap between the run-away cost of care in the U.S. and the resources that we, both as a nation, and as individuals, have to pay for it. Already, we are spending 16 percent of GDP on medical care, while other wealthy countries lay out only about 11 percent. If we let the bill continue to balloon, spending on medical care will crowd out investments in other things we care about: education, jobs, public health, the environment . . .
– The Exorbitant Cost of U.S. Care Explains Why Asking Patients To Pay At the Point of Service Wouldn’t Work. Some observers have suggested that if the court decides that both the individual mandate and the rule that insurers must cover everyone are unconstitutional, we could just insist that uninsured patients pay for their care when they show up at an ER, a doctor’s office or a hospital. He or she would be required to pay the bill up front tapping into the money he saved by not buying insurance. This would solve the “free rider” problem.
This assumes, of course, that uninsured patients have squirreled away the money they didn’t lay out for insurance, and haven’t already spent those dollars–going out to dinner, ordering in, or just paying for the necessities: rent, utilities and groceries.
The truth is that according to the Federal Reserve, the average American family has only $3,800 in a savings account, and $117,951 in household debt. Fully 25% of all families have no savings, yet a fair number of them would not qualify either for Medicaid or government subsidies to pay for their care. They earn too much, yet not enough to foot a hospital bill. Where would they find the cash to pre-pay when they arrive at the ER? Even if they dip into retirement savings, the typical household has just $35,000 socked away for old age. Meanwhile, as noted, in the U.S., the typical bill for a hospital stay is $15,733– and that’s if , like most patients, you are in and out in a few days.
But couldn’t someone who decided to forego insurance refinance their home–or even sell it– if faced with a medical crisis? The typical homeowner boasts just $65,000 equity in his home, if the family is lucky enough to own a home, and it isn’t “under water.”
What would happen to a young couple who found themselves unexpectedly pregnant? Assume the new mom needs a C-section. The tab can range from $10,137 to $24,339 depending, in large part, on whether her obstetrician is affiliated with a “brand-name” hospital. Marquee hospitals have the market leverage to charge both insurers and patients more. Five percent will hit her with a bill that actually tops $24,399. U.S. And this doesn’t include prenatal care or the pediatrician’s bills over the next six months.
–The Good News. As I suggested at the beginning of this post, it is not likely that the Justices will choose to kill the Affordable Care Act. Even if they dispose of the two provisions that are now in the spotlight, hundreds of other reforms will remain. The government subsidies for low-income and middle-income individuals will attract many young, health customers to the pool. Some have suggested that young Americans don’t buy insurance because they think they are “invincible.” But this very pragmatic generation is not that foolish. Research reveals that 20-somethings and younger 30-somethings who can afford insurance do purchase coverage. Those who go without just don’t have the money. With subsidies, they will.
Meanwhile, other provisions in the bill will lead to safer, more efficient, and less costly care. Today “tens of thousands of Americans die because of hospital-acquired infections every year, and far more are harmed by medical errors,” notes Zeke Emanuel, who is not only a health policy expert, but an oncologist who knows what can happen, even in some of our top academic medical centers. “Last year, the Obama administration announced a $500 million program called Partnership for Patients aimed at reducing hospital-acquired infections, errors and other preventable complications” he adds. This program which was authorized by the reform legislation, “also requires Medicare to begin posting online each hospital’s rate of certain medical errors and infections, and to cut payments to hospitals with the highest rates.”
Consequently, hospitals across the country are working to reduce preventable hospital errors. Once it’s clear that this is a major priority, significant progress can be made. A few years before the health care reform act was passed, the Hospital of the University of Pennsylvania, where I work, started paying attention to reducing preventable errors, and it managed to reduce infections from intravenous lines to 1 or fewer per month from 30 to 40 per month.”
“The same goes for the problem of hospital readmissions,” Emanuel continues. “Right now, nearly 20 percent of Medicare patients who are discharged from a hospital are readmitted within 30 days. Some are scheduled readmissions; others occur for completely unrelated health problems, like falls and accidents. But many could be prevented by paying more attention to the coordination of care between physicians and hospitals and by better follow-up after patients are discharged. Beginning this year, the health care reform act will penalize hospitals that have high readmission rates for three conditions: pneumonia, heart failure and heart attacks. This list will later be expanded. As a result, all hospitals are now scrambling to figure out how to create “the perfect patient discharge” so patients don’t become hospital ‘frequent fliers.’”
Finally, thanks to the Affordable Care Act “accountable care organizations” are beginning to spring up in various parts of the nation. Groups of physicians and hospitals are banding together to deliver coordinated care at a lower cost. Under reform, they will share in the savings.
Make no mistake: all of this will take time. As I have said since the beginning, overhauling 16% of the economy will be a process, not an event. But reform will continue. We have no choice.
Maggie Mahar is an author and financial journalist who has written extensively about the American health care system. Her book, Money-Driven Medicine: The Real Reason Health Care Costs So Much, was the inspiration for the documentary, Money Driven Medicine. She is a prolific blogger, writing most recently for TIME’s Moneyland. Previously she wrote and edited the Health Beat blog for the progressive think tank, The Century Foundation. Previous work for the Health Insurance Resource Center includes Will the Supreme Court strike down health reform? She also recently provided background on Congressional health care legislation for HealthReformVotes.org, a special project of the Health Insurance Resource Center.