The Business of Health Care

ObamaCare and the End of Nothing

“The only constant in health care is change.”

It’s one of those clichés peddled at health care industry conferences by consultants who charge by the hour for helping attendees brace their organizations for all those terrifying changes just over the horizon. Not only is this cliche not true, but it is exactly untrue. The only constant in health care is gnawing anxiety about change that never actually occurs.

The Obama Administration’s health care reform plan – we can all call it “ObamaCare” now that the Administration finally owns the label it should have from the outset – is the motherlode of anxiety over change about to storm through the health care system. That is, unless you happen to cover your ears and block out all the partisan screaming, along with the political ideology dressed as legal arguments in the Supreme Court this week, and look at the actual plan and its numbers.

Yes, ObamaCare is expected to cram 30 million uninsured people into the current non-system. Complementary elements of the law make it illegal for health insurers to kick any of us out if we get too sick or stop paying our bills if we get too expensive. And if an insurer makes too much money in the process, it needs to refund a portion. Aside from these four economically intertwined health insurance market reforms, most everything else about ObamaCare is business as usual.

To wit: access to commercial health insurance for most of us will still run through the workplace; our employers will still, for better or worse, be charged with money-managing the system they love to hate, a messy, intrusive, difficult role foisted on them as an accident of history in the 1940s and enshrined in the tax code ever since. Health insurers will continue to operate half their book of business on a state-by-state basis, and the other half nationwide for self-insured employers, thus maximizing complexity, confusion and administrative cost for everyone involved.

There will be no new public health care plan for hard-pressed households – just a huge expansion of the nation’s 50 broke and broken Medicaid plans, plus subsidized coverage for the luckier among the working poor to purchase (at the fountain-pen gunpoint of the IRS) a plan from commercial health insurers. Those insurers will continue to design and sell their plans based on the crazy-quilt of local standards and state benefit mandates, along with a few new federal mandates for preventive services – including things like the economically trivial but culturally explosive birth control pill.

If this is starting to feel like less than the “government takeover of health care” shouted daily on the Republican campaign trail, and more like the status quo with some belated, populist insurance market regulatory reforms, then maybe we should look at the actual numbers.

The table below calculates the estimated coverage cost of ObamaCare as a share of projected national health spending from now until 2020.

Oops! In the year 2020, ObamaCare is expected to cost $234 billion – roughly 5.04% of all health spending, with an average cost running at 3.49% per year between now and then. The bottom line: in full flower, ObamaCare is an artfully diffused redistribution of health care funding costing barely 1/20th the size of the entire non-system it is supposedly taking over.

The rest of ObamaCare – the 906 pages of the actual law, not the 2,400 or 2,700 pages of draft bills, as erroneously reported and re-reported in the general media – is window-dressing.  Yes, it includes some big, expensive, controversial make-work projects for the health care technocracy, some of which are long overdue, some of which will be dangerous, but most of which will merely add to the current cacophony of conflicting medical evidence on everything from cholesterol management to hormone replacement therapy.  But after the Supreme Court is done pretending not to factor in the intensely political nature of their task this week and rules on the constitutionality of the mandate, life will go on precisely as it always has for what will be, by 2020, nearly a $5 trillion per year colossus, unchanged at its foundations.

As with the bitterly debated Medicare drug benefit in 2004, ObamaCare is merely expanding the exact same things we have today for most Americans, to include all Americans, almost. The plan spreads the economic pain around the system fairly evenly, via taxes and fees that will show up in new equilibrium prices for insurance, drugs, and devices. And the economics of finally putting almost everyone into the system – instead of waiting until they are on death’s door, a.k.a., the door to the emergency room  – will offset some, most, all or none (depending on where you stand politically) of the upfront costs of getting them there. Anyone who says they know for sure how these systemic economic effects will play out is deluding himself and/or attempting to delude all of us, and is beating a political, not an economic drum.

Entropy Rules

How the Medicare drug benefit has played out in the past eight years is the only precedent we have for what will happen if/when ObamaCare is implemented. When that program was debated in Congress, critics on the right screamed on cue about “government bureaucrats” in our medicine cabinets, an entitlement that will bankrupt the country, etc., while critics on the left carped about the evils of capitalism, the program’s outrageous use of money-making corporations to deliver products to people, etc.. Out of this political sausage-grinder came a classically American public health care program of government funding and corporate delivery, a “modernization” truly consistent with the essence of the Medicare program.

With that modernization, the insurers, PBMs and specialty drug plans that administer the new drug benefit – and the drug companies that supply it – did not get everything they wanted; but they got enough to stay in business, make some money, and deliver long needed drug care to millions of people who previously could not afford it.  The Medicare drug benefit may be working no more perfectly than anything else in health care, but it is working just fine for millions of Americans who had too often been forced to choose between medicine and food, between certain death and slow starvation.  Maybe that’s why so few on the right or the left have brought it up in the debate: its embodiment of both political compromise and programmatic success constitute enough actual empirical evidence to sully anyone’s ideological certitude.

Indeed, the Medicare drug benefit may be a perfect trial run for ObamaCare.  It too wasn’t really a health “reform” plan – you know, where the whole payment system changes radically so that teams of doctors, hospitals and other providers are paid to keep us healthy and minimize the effects of disease, rather than ignore us until we are sick and then maximize the use of interventions.  Such true reform would apparently require an Act of God, not just an Act of Congress. But if you are running a health care organization and worrying about the impact of ObamaCare, take note of what happened to those involved with the Medicare drug benefit: a few organizations failed miserably, some have profited mightily, and most have muddled through, figured out the rules of the new game, and are doing just fine.

Such will be the fate of hospitals and physician groups, as they scramble to build the “accountable care organizations” they should have built a decade and a half ago, when managed care was attempting the same sort of payment reforms included, barely, on the margins of ObamaCare.  Better to build these organizations to first-mover advantage for new, quality-driven contracting with insurers and employers – who want precisely this kind of true reform and who are not going anywhere anytime soon.

In the meanwhile, the US health care system will continue on its long march of three steps forward two steps back, bracing for that monster storm that never gets here.  A politically and legally embattled “health care reform” plan that reforms almost nothing fundamental about health care will likely prove to be the troubled, underachieving child of American democracy’s rapidly deteriorating marriage. A third of this country thinks health care is a basic human right and the government should finance the whole shebang; another third thinks health care is a market good that should be earned, with the government banished from sight; a middle third does not know what it thinks, only what it fears, based on the latest anecdote about Medicare fraud, insurance company abuse, government incompetence, or medical private profiteering in their local news cycle.  If nothing else, ObamaCare has proven to be a dark mirror on our most deeply embedded cultural conflicts, from the death panel freakshows to the neanderthal discussion on birth control.

The only constant in health care is indeed gnawing anxiety about change that never actually occurs. This is true most of the time, for most of the health care non-system, which is ruled less by either government or markets than it is by entropy. When real change does occur in health care, it does so one private business contract at a time – with six months’ of meetings worth of notice – not via any grand re-engineering from Washington.

J.D. Kleinke is a Resident Fellow of the American Enterprise Institute. He has been instrumental in the creation of four health care information organizations; served as a health care business columnist for the Wall Street Journal; advised both sides of the political aisle on pragmatic approaches to health policy and legislation; and authored three books about health care and medicine. His latest book is Catching Babies, a novel about the training of obstetrician/gynecologists.

15 replies »

  1. Sort of a long winded but well written article. Summation: Healthcare is mess, before, during and after #Obamacare. PPACA makes a bad situation worse, introducing even more fraud and corruption into the system. As if Medicaid & Medicare weren’t enough, with their billions in losses!

  2. Great article.

    There is no doubt that this is a complete mess.

    In the end, the powers that be (pharma, hospitals, insurance companies) will maintain their positions and MORE importantly (at least for them) their profits.

    We as consumers and tax payers will pay whether it’s through insurance or taxes. This political fight is simply window dressing for status quo. It really only comes down to government elected officials playing politics and serving the interest of those that matter most (lobbyist for health related industries).

  3. I sat with headphones on and listened to the entirety of Day Two, with a copy of the transcript in hand and yellow highlighter and red pen at the ready.

    Verrilli sucked, no doubt. Bad day for him. Ugh. I cringed.

    Clements was feisty and focused, adept on his feet.

    Breyer made the most cogent observations in support of PPACA.

    And, Chief Justice Roberts, IMO, was gracious and charitable, and warmed up to the Mandate idea as Clements went on and was peppered by Ginsberg, Sotamayor, and Breyer. Kennedy, while guarded, seemed to be open-minded. Alioto seemed to me perfunctory in his opposition.

    Maybe my prediction of 6-3 to uphold will be vindicated, though it still seems minimally 5-4 (i.e., “Barack, this is all we’re giving you. You need to go back to Congress and re-do some of this”)

    Just my $0.02.

  4. Ease up on the doom and gloom, folks. Allow me to be contrarian and toss a couple of different ideas into the mix.

    First, it will become clear after tomorrow that without the mandate risk pools and exchanges simply won’t work. The mandate is to the ACA what the kidneys are to the body. Taking it away is not like chopping off a hand. It’s more like putting the whole enterprise into ERD, and there ain’t enough dialysis to keep it alive much longer. You think people without insurance are gaming the system now? Just wait til they figure out they can do it even better with pre-existing conditions. What’s that term the pros use — adverse selection?

    Without the mandate, a public option becomes essential. And we all remember how much that was opposed. Of course it was the insurance industry that opposed it most as they salivated at the prospect of those millions of new customers getting insurance, vouchers in hand from Uncle Sugar.

    Second, if the mandate is deemed unconstitutional (or if the whole ACA, gets overturned) the political effect will be two-fold and both will benefit the Democrats. First, it will energize the base like nothing else could possibly do. And second, it would remove the linchpin of the GOP opposition to Barack Obama.

    I believe even the Justices who really hate the thing are smart enough to know this and may hold their nose and let it pass, knowing that the alternative would be even more disagreeable to them. As the old joke said, they may be crazy but they aren’t stupid.

    Frankly, I’m starting to feel energized just thinking about it.

  5. Thanks, as always, J.D. for a clever and fitting commentary on the “oh so very little” that is to be gained or lost with the Supreme Court’s decision. Listening to the glib and counter productive comments and questions (both in and out of the courtroom) I can barely hold myself back from curling up in the fetal position to rock the discussion away!


    “That’s right: since 1984 (surely an appropriate year) while the elderly have grown their wealth in nominal terms, the young are much worse off both in inflation-adjusted terms, as well as nominal terms (pretty hard to believe given that the money supply has expanded eightfold in the intervening years). So why are the elderly doing over fifty times better than the young when they were only doing ten times better before?

    Older people vote in droves. Politicians want their votes and therefore promise them more free stuff — medicare, medicaid, services — and they vote for whoever offers them the most.”

    This is going to be the coming fight about Medicare and entitlements. You saw in this GOP primary this year. Paul’s numbers for those 35 and under was the strongest among GOP candidates in the earliest primaries including Iowa and NH.

    This is going to come down to a huge budget battle between Gen X/Y vs. Boomers before 2020 if the bond market doesn’t force the federal gov’t hand before then.

  7. What does Diamond’s ‘Collapse’ have to do with this Supreme Court decision?

    I am much more concerned about some of the various energy production including Hubbert’s Curve and Peak Oil. You can always print away. Can’t deny the laws of physics.

  8. Thank you for a thoughtful discussion. Today I fear for our country because of the possibility that the Supreme Court might overturn ObamaCare.