It’s All Going According to Plan

Most people regard health care reform in America as thoroughly bungled. The proverbial train left the station weak and wheezing, was pushed off the rails by hooligans and is about to crumple in an inglorious heap in the ditch. Only about 20% say the reform hits the sweet spot, with the rest convinced it went too far or didn’t go far enough.

To review the most recent pilings-on: in a time of huge Federal deficits, we get depressing predictions that the PPACA will do little or nothing to slow the growth of health care costs. Only a year after passage of what was supposed to be comprehensive reform, Democrats acknowledge that Medicare and Medicaid spending remain out of control and propose new cuts in the hundreds of billions. In the span of four months, Republicans switched from posing as aggrieved defenders of Medicare spending, to proposing to slash it and leave seniors to absorb the spillover. Medicaid funding is probably even more precarious, since fewer Medicaid recipients vote.

To add injury to injury, the Supreme court may rule to invalidate the entire law, or perhaps just the mandate to purchase insurance, thereby removing the most hated part of the law, but eliminating the “universal” part of universal coverage and inviting an actuarial death spiral. Oh, and the few reforms that look like they might bring costs down, like the IPAB board in Medicare and the minimum medical expense ratio for insurers, are under threat of being watered down. A year after legislation has been passed that will transform nearly a fifth of the American economy, to the casual observer it looks like nothing much has happened and nothing in the future is secure, especially anything that the big industry players don’t like.

In light of this and more, pessimism is understandable, but what we are witnessing in these turns of events is not mere politically-driven chaos. There is good reason to think that events are unfolding more or less in line with a staged strategy for deep reform that emerged out of the experience in Massachusetts. The strategy is essentially this: enact universal coverage first to precipitate a sense of crisis. This will lead to deep reform on the problem that exacerbates all other problems: the cost of health care. Readers of this blog need little reminding that these costs are twice as high as in any other nation.

So why precipitate a crisis, and what reason is there to think it will end well?  Long time observers of health care policy know that sharp cost controls are a political third rail. Reducing costs means changing how millions of people do their jobs, paying many of them less, and laying off many more. It means less income for organizations that collectively have over 2 trillion dollars in annual revenue.

The power of the lobbies is hard to overstate. Aside from the lobbying money, nearly every House member has a hospital among the largest employers in their district. On top of that, physicians and hospitals are highly trusted and find it relatively easy to mobilize public opinion against cuts. Health care industry lobbies are even more formidable if they work with the Republicans’ sense of ideology and self-preservation to stoke fears about reform.

Stoking fears about health spending cuts is, of course, exactly what happened in the 2010 elections, and can be credited with bringing the Republicans back into sharing power in Congress. It isn’t hard to imagine the bloodbath if there actually were death panels or severe cuts in Medicare spending in the PPACA. As for the original legislation itself, Democrats could not have afforded to lose a single Senator, which would almost certainly have happened if the AMA, AHA, AHIP or PHRMA had turned against the bill.

Under these circumstances, the best the Democrats could hope for in the short term was to find a compromise with the health care industry and peel it away from the Republicans. It was an odd scene: Republicans, the friends of big business, were screaming at the top of their lungs that “Obamacare” was a socialist infiltration to destroy market-based health care, while the big industry lobbies were all on record as supporting the legislation and worked to promote it.

But for all the heat that the PPACA has gotten for being too corporatist and/or not serious enough about reforming what is driving the costs higher, it has in fact successfully triggered a major increase in concern on costs, unprecedented in recent years. This new seriousness about cutting costs is not an accident, or a reason to censure PPACA. It was foreseeable by those who learned the lessons of Massachusetts.

Reforms to how health care is paid for that were impossible before passage are becoming inevitable and even accelerated after. Instead of paying simply for the volume and complexity of care–encouraging more volume and more complexity, regardless of whether it is making us healthier, let alone whether it is the best way to make us healthier–the next 20-30 years will see a transformation to paying for the outcomes of health care, for keeping populations healthy, and for doing the care that is shown to be most effective. Some of this is vaguely present in the PPACA, and some of it will have to come from future reforms.

The promise of universal coverage in PPACA changes the debate, and nowhere more starkly than in Republican attitudes. Instead of defending the status quo of American spending as an example of markets at work giving people what they want, or as justified by providing us with the highest quality health care system in the world (a false statement by most measures), Republicans are increasingly coming to identify health care spending with government spending. In doing so, they associate it with what nearly all social program spending is in their eyes: a wasteful effort to redistribute wealth to the undeserving. One can only imagine their zeal to cut overall health care spending once 2014 rolls in and federal subsidies go out to millions of Americans to pay for private insurance coverage. But there will be no way to cut government program spending without cutting private insurance spending, which will mean cutting health care spending overall.

The gambit of the Massachusetts approach is this: once you have universal health care, it is locked in. Just like with Medicare and Social Security, no one is going to take that entitlement away. The focus instead will be how to pay for it, as is happening now in Massachusetts. More Republicans will begin to turn their attention away from defending the bloated delivery system (we’re the best in the world! Government cost controls just make it worse!) to criticizing it (how wasteful!). More liberals will turn their attention away from universal health care (pretty much got it!) to reducing the revenues of massive corporations and making it easier for the non-wealthy citizens to afford care. Non-ideological tax payers will take a greater interest as well, once tax dollars are seen as propping up more of the system, especially in the first few years.

The basic strategy mirrors the Grover Norquist strategy on the Republican side. The Norquist approach is to cut taxes whenever politically possible (politically popular) and never raise them (politically popular), while taking a soft stance in the short term on government spending cuts (which are generally unpopular). The result is the massive deficits under Republican presidents since Reagan. The goal is to force a reckoning that brings the American public to choose lower taxes over higher government services to bring the books back into balance. The ultimate agenda, obviously, is small government, but accomplished by precipitating a crisis on national debt. The Massachusetts strategy employs a similar idea: take the easier step first (coverage expansion), which entrenches the political change, but also brings higher costs and (fear of) deficits, which in turn triggers a reckoning, but with a different calculation of the end result: serious reforms to the way that money is spent to reduce inefficiencies and overpayments. Time will tell whether the Norquist or Massachusetts strategies will achieve their ultimate goals, but at the very least one can be sure that they have both in their ways managed to precipitate a feeling of fiscal crisis, and something will soon have to give.

But isn’t this gambit irresponsible? For the Norquist approach, yes, because the trillions in the deficit are real and must be paid back. For the Massachusetts approach, no, or at least, not yet. The major costs of the PPACA don’t kick in until 2014, giving three years to plan on how to reduce the cost of the system before the subsidies take effect. And even then there are new revenues to cover most or all of the additional cost of care. The law has precipitated a psychological sense of fiscal crisis in the beltway without yet creating the crisis itself.

The great real fear is that what is coming next to lower costs is the wrong kind of reform. Paul Ryan has inadvertently indicated what that wrong kind of reform is: cuts in the level of benefits, without tackling the cost of care itself. The worst scenario is to still pay twice as much for a drug or a hospital visit as the rest of the world, but have employers or the government save money by cutting the benefits in half and forcing people to decide whether they can afford to pay for it, rationing by ability to pay. That is the biggest threat to the path we’re on now, from a public interest perspective.

The choice we face is to cut costs primarily by reducing benefits, or by keeping the benefits (the actuarial value of the plans) but reducing the effective fee paid per service and reducing care that is least likely to produce good outcomes. It is only with health care reform that we can seriously, once again, consider the second approach, having abandoned earlier attempts in the 1990s. Interestingly, it hasn’t taken long for Ryan himself to say that his proposal was misread, and that his plan all along was to get consumers to be the force that reduced the cost of care so that benefits could be maintained. This is increasingly the language that we will speak, though the methods to get there still differ.

So yes, I’ve taken some artistic license in saying that it is “all going according to plan.” For one thing, there wasn’t just one plan, even among Democrats. Many did not see the need for further legislation to enact deeper cost reforms, and many bought into the myth of higher costs for higher quality care. And of course, the train could certainly still derail. I would even grant that the track is still being laid as we go. But as I’ve watched this reform unspool over the last three years, I’ve grown increasingly pleased by how far we’ve come and more confident in how well we are set up to fight the major unfinished battles ahead.

Jonathan Halvorson, PhD, has worked for the past six years in managed care for a regional non-profit insurer. His views are entirely his own and do not represent those of his employer or other known individuals, living or dead.

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AveryBernadette E. CardoneJustine L. EfthimiouClemmie Z. BerdarValarie C. Dobler Recent comment authors
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This is an excellent analysis of the complicated politics of healthcare reform! The truth is that true healthcare reform is so complicated and represents such a tremendous cutural change to American society, that the only way to truly accomplish reform is in stages. The problem with the PPACA is that it is a standalone health-insurance only reform that seems so broad in scope but only represents a band-aid to our very broken healthcare system. Offering increased access to health insurance might increase the number of insured, but because the quality of insurance and the access to care that the insurance… Read more »

Margalit Gur-Arie

The AHRQ studies also say that seniors are responsible for 36% of costs, but since they are (or were at the time the study was done) only 13% of the population, as a group they consume almost three times as the rest.


Barry Carol
Barry Carol

Margalit and rbaer – I’ve seen the age breakdowns as it relates to healthcare costs several times in recent years, including in a Health Affairs article within the past year. I don’t have a link but a subscription would be required in any case. I think even people with chronic disease can ask for services, tests and procedures that are not indicated. I’ve been guilty of it myself occasionally. For example, a bit over a year ago, I was having trouble with certain balance exercises that my personal trainer wants me to do so I asked my PCP to refer… Read more »

Margalit Gur-Arie

I don’t know about the worried well. If they were the ones ratcheting up costs, you wouldn’t see the 80-20 concentration of expenditures. It seems that half of Americans use almost no care at all (3.1%) and 5% of Americans use almost half of all health care (47.5%). This does not look to me like a widespread, frivolous, consumer induced over-consumption. http://facts.kff.org/chart.aspx?ch=1344 AHRQ has pretty good studies on where the money goes and it seems to be going to folks with multiple chronic conditions, with CHF patient leading the pack. Can’t post more than one link on these comments so… Read more »


Barry, you wrote ” So far, though, the older folks account for about one-third of healthcare costs, a number that hasn’t changed much in quite awhile.” – where are these estimations/numbers coming from? “I’m not sure I understand why that is. Maybe all of these so-called worried well we hear about are asking for more and more expensive imaging for every little thing or they want the latest drug they saw advertised on TV whether their doctor thinks it will do them any good or not. If they don’t get this stuff, they complain that their doc isn’t thorough enough.… Read more »

Barry Carol
Barry Carol

Margalit – You’re the technology expert here so I’ll defer to you on that. You could well be right about the price curve for the GE ultrasound scanner, but a lot of the cost impact depends on how much gets billed for each scan and how much gets paid. When I see my urologist for a checkup each year, he does two ultrasound scans (with a larger machine) and each takes about 30 seconds plus a little more time to calculate the results on his computer. He bills each test at $350 and insurance pays a bit more than one-third… Read more »

Barry Carol
Barry Carol

Margalit – In most other parts of the economy, improving technology reduces costs – better, faster, cheaper. In healthcare, new devices, surgical procedures and specialty drugs often extend lives which also gives people more time to continue to incur healthcare costs, Fifty or sixty years ago, if someone had a heart attack, they usually died either right then or soon thereafter. Now we have stents, ICD’s, LVAD’s, CABG, etc. and the number of age adjusted heart disease related deaths declined sharply since then. In an area like imaging, the images sometimes replaced the need for exploratory surgery. However, we didn’t… Read more »

Margalit Gur-Arie

Yes, that’s it! That little scanner is exactly what I want to see. It sells for $7,900 on the GE website. In a couple of years, a better one would probably sell for half the price and any PCP can use it. I want more of these things….. I keep thinking that we just happen to be in a difficult place in the road right now, where technology is very expensive and it is make lifespans longer and therefore disease load larger and more expensive to deal with. But, here is a thought, is this just a temporary stage between… Read more »

Margalit Gur-Arie

“They know what their competitors are paying me, and they use it.” That has been my anecdotal experience as well. Why is that not an anti-trust violation, while physicians sharing the same details is not allowed? And why is it that all these people are cutting deals with prepaid customers’ funds without having to disclose the prices to same customers? At least with Medicare everybody knows what is being paid out. Perhaps if people knew that a particular insurer is paying tons of money to providers and then turns around and charges customers higher premiums for the same services as… Read more »

Jonathan Halvorson

Margalit, I don’t know this part of the business well, but my assumption is that this is not willingly shared information. Every major insurer will have friends and spouses of employees, or even employees themselves, who have another insurance. And when they use services they get EOBs, and those EOBs can then be studied to understand the rates. No collusion required.

Dale M. Krause

Until insurance companies stop paying ridiculous invoices for medical services, and get some input from the insureds regarding the services provided, the health insurance industry is not going to change. Doctors are the only profession where fees and charges are every discussed with the patient, unless, of course, the patient is without any type of insurance.


Pardon the fragment.

What remains to be seen is if such a centrally planned sector can function in a culture where aggrieved citizens reserve the right to litigate, with contingent fee arrangements, all slights. Have your cake and eat it? No, and there is also no such thing as cold fusion. Sorry.