The Devil We Know

Once again, the Supreme Court was unsurprisingly surprising. The conventional wisdom was that at least part of the health reform law would be overturned, but in practice the court blessed the status quo we have known for two years: The reform law will continue to be implemented.

It’s the devil we’ve known. Washington will issue more regulations. Insurers will be buried in requirements on coverage and benefits, driving up costs. Physicians will have more oversight and report to the government. Hospitals will see Medicare cuts. Millions of individuals will either get a new federal subsidy for insurance or be enrolled in Medicaid.

States will have more interference from Washington. While the Supreme Court gave them some flexibility on whether to expand their Medicaid programs, states will still be forced to either build a new insurance exchange, like Expedia for health insurance, or have the federal government build it for them.

By upholding the law, the court also left untouched two huge problems looming on the horizon. First, as the law expands coverage there will be a tremendous increase in demand for medical services, but there will not be an increase in the number of doctors, nurses and other providers to deliver care.

Millions of people may have very generous coverage, but they will struggle to find providers to deliver it.

Second, as businesses face requirements in 2014 to offer federally approved health insurance or pay a fine, many companies will do the math and see that paying the penalty is far less expensive than continuing to provide coverage.

Knowing that many of their employees can find insurance with a federal subsidy or enroll in Medicaid, many businesses will stop offering coverage. This will shift costs onto the government, exploding federal budgets and exacerbating our long-term fiscal crisis.

But there are health care trends that will be unaffected by the court’s ruling.

Costs will continue to be pushed onto consumers. Health care costs have continued their perpetual rise, leaving businesses with few options other than cutting benefits and shifting costs to their employees.

As a result, out-of-pocket spending is growing across the board. Consumers are paying higher premiums, co-pays and deductibles.

Since 2005, we’ve seen a significant increase in consumers managing more of their own health care dollars through high-deductible health plans with Health Savings Accounts. These consumer trends show no signs of abating.

How doctors are paid will change. Doctors and other care providers are currently paid for delivering specific, individual medical services regardless of whether they worked or were necessary.

Public benefit programs such as Medicare and private insurers are introducing new approaches that tie payment to performance and outcomes.

For example, WellPoint is leading 12 initiatives in eight states around a new payment and care model called Patient-Centered Medical Home. These types of programs reward doctors for improving patient care and lowering overall costs.

Silos of care will be replaced by coordinated care. How many times have you filled out the same medical forms over and over? That’s because very few doctors and hospitals share information or coordinate with each other on a patient’s treatment.

New partnerships among doctors, hospitals and community providers are popping up across the country that will better coordinate care from one provider to the next.

Health care will finally enter the 21st century with information technology. It often feels as if we walk back in time technologically when we see a doctor. But the writing is on the wall for patients being handed a clipboard and a pen.

Technologies such as electronic health records are key components for care providers to coordinate, and there are financial incentives to adopt and use them. New payment models for providers and the general march of technological progress will finally pull health care out of the dark ages and into the information age.

No Supreme Court decision could deter these changes, though some argue that upholding the health reform law will actually accelerate these trends.

David Merritt is the former CEO of the Center for Health Transformation and the Gingrich Group and currently a senior adviser at Leavitt Partners.

13 replies »

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  2. Who passed judgment? These are facts that shape the scope of the physician “shortage” problem.

  3. I’ve always found the whole ‘physicians prefer to practice in or near major cities’ argument a fascinating one. Much like their ‘desire to splurge more on luxury goods’. I am sure that health plan and insurance executives, like their pharmaceutical and financial colleagues, all love to live in small towns and live in frugality. This is one of the most annoying arguments, typically from people who like their expensive toys and near-city living as much as anyone else but have no problem passing judgement on extravagant physicians.

    As far as foreign physicians go, just ask anyone who’s tried to get a J1 visa to practice and see what response you get. They wait for years (I have several colleagues who’ve waited for over 10yrs) and often get professionally abused by employers. Many from countries like India and China are now finding it’s more beneficial for them to stay in their parent countries and enjoy the economic growth there.

  4. “physicians strongly prefer to practice in or near major cities. They do not want to go out to small towns,”

    Their wives don’t want to live in small towns.

  5. Jonathan H.–

    First, you’re entirely right: the community heath centers won’t solve the problem in poor rural areas.,

    But the greatly increased funding in the Affordable Care ACt for med students willing to sign up for the National Health Service Corp. and “go whrere no one else will go” will help.This is funding that we haven’t seen since the 1970s.

    (If you remeber the TV show “Nothern Exposure,” the doctor was part of the NHS Corp. A great many of these physicans wind up staying in the place where they were initially assigned ,for a great many years. I wrote about this on Health Beat: http://www.healthbeatblog.com/2011/03/primary-care-and-the-national-health-service-corps-finding-physicians-who-will-go-where-no-one-else-/

    I’m very hopeful about NPs’–in recent years, states have changed laws re: what they can do., In most states, they can prescribe medications.

    Also,the public is beginning to accept them (and appreciate them) for
    primary care.

    When my son was a grad student at Cornell U. a couple of years ago, whenever he went to their health service, he only saw Nurse Practioners.
    They also had doctors, but they saw patients with serious problems.
    Everyone at Cornell seemed pretty comfortable wtih this, including
    faculty who used the health service for their families .

    Finally, I agree with your most recent post about employers providing benefits.If anything, the ACA will increase the number of employers who offer
    insurance, particularly, as you explain, small employers.

    . .

  6. David makes a point I have heard before, but that doesn’t add up:
    “…many companies will do the math and see that paying the penalty is far less expensive than continuing to provide coverage.”

    The existence of the penalty does not make dropping coverage more attractive for the bottom line for any firm. The penalty could only decrease the number of companies who do not offer coverage.

    “Knowing that many of their employees can find insurance with a federal subsidy or enroll in Medicaid, many businesses will stop offering coverage. This will shift costs onto the government, exploding federal budgets and exacerbating our long-term fiscal crisis.”

    Now this is a coherent argument. But what is the evidence it is true? The best real case we have to look at is Massachusetts, and the opposite happened there. Also, note that in the ACA there are new small business tax credits to offer health insurance. It isn’t just about penalties. The tax credits are not well known now, but they will be by the time 2014 arrives, and this credit will impact firms with lower income workers particularly…these are the same firms that either don’t offer insurance now or will be most tempted to dump workers onto the exchanges.

    For small firms with higher income workers and large firms with a mix of income levels, there is still a strong social expectation to provide insurance and these firms are at a disadvantage in competing for talent if they do not. So I would not expect the ACA to make any real impact there. These firms will continue to offer health insurance at a rate close to 100% in the short term. Some will start to do so through exchanges by offering a set premium payment and letting employees choose the plan they prefer, but that isn’t “dumping” them.

  7. Good responses Maggie. I should have read yours before responding myself. Two caveats: 1) the community health center funding doesn’t solve the issue with poor coverage in rural communities. 2) how much nurse practitioners will expand their role is a very politicized issue and I expect to see a lot of interest group pressure on this. I am not yet confident that the nurse practitioner role will change all that much in the next 2-3 years.

  8. David and M2012, physician shortage is a regional issue that is in large part lifestyle related, not income related or even physician pipeline related. The example M2012 gives make my point: physicians strongly prefer to practice in or near major cities. They do not want to go out to small towns, even though they can earn nearly as much and their cost of living is dramatically lower (meaning they can save far more rapidly and splurge more on luxury goods). There is a good deal of evidence behind this, including results from attempts to induce physicians to practice in smaller communities by forgiving debt, etc.

    With the influx of foreign physicians and growth in new graduates, the overall projected “gap’ is quite small, almost entirely restricted to primary care (due to reimbursement compare to specialist care) and then within primary care the problem is largely in regions where physicians prefer not to practice. That last fact is a national and social problem that the ACA neither caused nor made worse, though the ACA may lead some to notice the existing problem more acutely.

    Finally, yes, lower Medicaid reimbursement is also a problem in that many physicians won’t take it and that is a concern for new Medicaid enrollees due to the ACA.

  9. David–
    Re — will there be enough providers?
    First, the Affordable Care Act provides enough funding to double the
    capacity of Community Heath Centers, which are generally open “after hours” (eary morning, late at night). This is where many of the new Medicaid patietns as well many young people (who often live in low-income neighborhoods and like the convenience of being able to drop in before going to work) will be getting their care.
    For low-income famiies, this will provide better care than an ER— they will be seeing doctors and nurses who know them and their famiiies,
    providing continuity of care. And the care will cost taxpayers far less than it would if these patients were going to ERs.
    Secondly, these community heath centers will be staffed, to a large degree, by nurse practitioners (as many are now.)
    So while we’re likely to need more primary care docs, we won’t need more primary care docs in many places.
    The Affordable Care Act aso provides good fundng for scholarships & loans for nursing students, and higher pay for nursing school teachers– so we will have more nurse practitioners.
    Nurse practioners will also be playing a much bigger role delivering primary and preventive care–working with primary care doctors, and in
    places where doctors don’t want to work (poor rural areas, some inner cities) providing the primary care themselves.
    In addition, many of the newly insured will be young people who couldn’t afford insurance in the past, but will now have subsidies. (Reserach shows that 20-somethings and 30-somethings don’t buy insurance because they can’t afford it–not because they think they’re “invincible.” If you look at incomes, you find that young people with higher incomes do have insurance; those who are uninsured are earning $20,000 to $40,000 and so will qualify for subsidies that will make insurance affordable.
    Most people in this age bracket are relatively healthy. They won’t be flocking to doctors. (Most of people under 65 are not eager to go to the doctor; we go only when we must. )
    The notion that doctors offices will be jammed with the newly insured, and the rest of us will have a hard time getting appointments is just part of the fear-mongering by those who oppose health care reform.
    They haven’t read the bill–don’t know about the new funding of community health centers doubling capacity, the funding for Nurse Practioners, and haven’t thought about the fact that many of the newly insured will be young and healthy.

  10. So here is the AEI link mentioned above.


    The special tax treatment of employer-based health insurance substantially advantaged this type of insurance over policies sold to individuals. An individual insurance policy must be purchased with after-tax dollars; but, if you get your health insurance through your employer, you do not have to pay taxes on the premiums your employer pays on your behalf. This means that tax policy ends up giving a discount on your insurance coverage that is approximately equal to your marginal tax rate. For most workers who pay both income and payroll taxes, this ranges from about 25 percent to over 50 percent, a substantial discount. This discount is greater for higher-income workers than it is for lower-income workers. The result was that a policy that was put in place to help wartime labor problems had a major effect on the way our health insurance industry developed. This relative growth of employer-based health insurance did not happen in other insurance markets such as automobile and life insurance that are still sold mostly to individuals.
    The so-called third-party-payment problem describes the tendency of consumers not to worry about costs when someone else is paying the bill. This also affects the incentives of providers–when consumers do not worry about costs, neither do service providers. The result is increases in both the demand and the supply of medical care. We end up spending more for health care than we would in the absence of government policies that encourage this expenditure. That has obvious benefits for most providers and some consumers but also makes it more expensive for everyone, those who have coverage and those who do not.

  11. No politician from either party has the nerve to say so, but one of the policy drivers of the enterprise it to uncouple employment from health care. Group insurance was a great blessing when it was introduced after WW2 but over the years it has morphed into a surrogate health care source instead of insurance.

    Health care is provided by health care professionals, not insurance companies.
    The mission of insurance companies is NOT health care but financial and risk management.

    American companies are saddled with the expense of subsidizing health care in a global marketplace. The rest of the world has universal health care paid for by some combination of taxes and private insurance, but they don’t handicap companies with the added expense of subsidizing and managing the health care needs of their employees. This puts US companies at a competitive disadvantage.

    The sooner the individual insurance market replaces group insurance, the sooner patients and their families will realize how much money is being spent. Then and only then will health care providers (doctors, clinics, labs, hospitals and other actual medical professionals) become competitive about serving patients instead of negotiating contracts and special arrangements with insurance companies and large employers.

    Much to the chagrin of organized labor, beginning in 2018 high-end group insurance plans will begin paying an excise tax on insurers of employer-sponsored health plans with aggregate expenses that exceed $10,200 for individual coverage and $27,500 for family coverage.


    [In another comment I will leave a link to an American Enterprise Institute paper describing a policy plan dating from the Bush era which never saw the light of day. AEI is by no means a liberal outfit.
    I think one hot link per post will publish without delay, but two or more will kick comments into the “moderation” line.]

  12. as businesses face requirements in 2014 to offer federally approved health insurance or pay a fine, many companies will do the math and see that paying the penalty is far less expensive than continuing to provide coverage.

  13. Huge points about lack of physicians to provide care. Already seeing this issue in small to mid size communities throughout the country. Anyone who thinks doctors are irrelevant and that mid-levels can fill all needs will find out what that means for wait times.

    Then, not only will many businesses choose to pay a fine instead of providing
    Care, but it is exactly correct that minimal has happened to bend the cost curve. Yes, care will be more integrated and that is a good thing, but there are many fundamental issues nowhere close to being addressed.