Is This Health Reform Which I See Before Me?

In a recent column, Clarence Page ridiculed Republicans who claim that they want healthcare reform but oppose programs that dramatically reduce the number of uninsured. Republicans counter that the PPACA is not true reform because it fails to contain costs. It seems that our political commentators have finally joined a long standing debate among health policy experts. More precisely, they have joined two-thirds of that debate.

The healthcare system is often described as a three-legged stool, supported by access, cost, and quality. Policy makers have usually paid attention to the most “rickety” leg, sometimes to the detriment of the others. During the 1960s and 1970s, access was the biggest problem, and government gave us Medicare, Medicaid, and the community health center movement. These programs triggered a surge in healthcare spending, and by the mid-1970s through the mid-1990s, the emphasis shifted to cost containment. When government price controls and planning laws failed, the private sector stepped in with a “competitive” solution based on HMOs and selective contracting.

The competitive solution seemed to contain costs for a while but fell victim to a backlash when individuals covered by HMOs were often unable to obtain services ordered by their doctors. Provider mergers further doomed a competitive solution. In the meantime, researchers were pointing out grave shortcomings in quality. The 2000s has been the “quality decade”, with important (though not necessarily successful) experiments in report cards and pay for performance. Without strong regulatory or market pressures, however, costs have reached new heights. And changes in the workforce, combined with the financial pressures of the Great Recession, led to a slow but steady increase in the ranks of the uninsured.

Enter President Obama and a Democratic-controlled Congress. The healthcare system has always been broken, but now all three legs of the stool were showing large cracks and Medicare was tilting towards bankruptcy. How would Congress use its newfound power? Democratic legislators with a grasp of history knew that Congress has repeatedly tried but failed to enact legislation that would improve access. Even as the economy was melting down and the deficit was soaring, it was now or never for dramatic action.

And so we have the PPACA, the biggest expansion of coverage since Medicare and Medicaid. But is the PPACA truly “health reform,” as Clarence Page insists? Or is it doomed to fail, as its opponents claim? Or is it, to quote Macbeth, “full of sound and fury, signifying nothing?” The more I think about the PPACA, the more I lean towards the Shakespearean answer.

The PPACA fixes one leg of the stool but, in the process, puts more pressure on the others, especially cost. The PPACA does include some cost controls and there are quality bonuses in the ACO programs. But these are evolutionary, not revolutionary strategies, and similar efforts in the private sector have enjoyed only limited success.

Meaningful health reform should, of course, address access, just as it should address cost and quality.

Without taking a leap of faith and adopting a single payer system or a fully market based system, perhaps this is all we could have hoped for from the PPACA. We have repaired one leg of the stool and bandaged up the other two. Sometime in the not too distant future, the bandages will fall apart. Will Congress have the will power, and the votes, to prevent it? I fear that we will not see true health reform until Great Birnam Wood comes to Dunsinane Hill.

David Dranove, PhD, is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including “The Economic Evolution of American Healthcare and Code Red.” This post first appeared at Code Red.

24 replies »

  1. Cost seems to be leg most broken since that is the reason currently which is causing access and quality issues for individuals. If the new PPACA can fix the leg that is cost than the other two legs which are access and quality will be repaired to a great extend for lot of people. In today’s political environment there is no way one party can go ahead and overhaul a system to make any drastic changes in the system. As pointed out the current changes will soon become obsolete and we will be faced with new daunting problems but that should not stop us from trying to fix it in the current situation. All we need is continuous and ongoing changes for betterment with the changing needs and situations.

  2. So Dr. Mike, we all get Med Part A funded by taxpayer, OK I can support that (as I believe in Single-Pay) but the savings part confuses me since Medicaid patients (and others) won’t have their own savings, so the government gives them $5000+? HS to pay for out of hospital health maintenance and deductibles?

    Will Medicaid rates pay providers the same as Med Part A? If you are a doc and believe in this system will you post your prices (assuming to compete) or will you post sign – “I will negotiate my fee”?

  3. Way to go BobbyG. Ignore the contents of the entire thread to focus on semantics. It is obvious from actually reading the above that the concept is about out-patient care which is absolutely amenable to a “fully market based system.” Is there some constitutional provision I am unaware of that mandates continued use of the CPT based billing and payment system? Do away with that and you are one giant step closer to seeing the benefits of market economics. (And BTW, it is entirely possible that within a market based system my income would go down as I, for the first time in my 20+ year career, would be competing on price and quality for the patient’s business. But I’m touched that you are so protective of my income that you wish to see the current third party system continue)

  4. “it remains useful to try to present the concepts that could guide what follows”

    “fully market based system” is not one of them. It will remain a wistful (and internally contradictory) “concept.”

  5. It may seem to some to be a silly argument to be having, but for as long as there remains hope that the abomination that is the PPACA can be made to go away, it remains useful to try to present the concepts that could guide what follows.

  6. Ok, say it very slowly: Medicare part A for all. Cradle to grave Medicare Part A. Medicare Part A is like major medical insurance. Kinda like a HDHP. A taxpayer funded HDHP. The medicaid patient, the employed patient, the retired patient – they all have the same HDHP (or Medicare part A, or a variant thereof). The $5,000 figure was stated clearly to be an example of the concept, not the concept itself. It might need to be $7,000 or even $10,000. No matter – the concept is valid. The deductible could be largely or totally covered by the money in the HSA. The HSA could have built in incentives both to obtain necessary care and to avoid unnecessary care. The concept that ‘money talks’ is beyond the need of proof.
    Yes the laws governing the HDHP and the HSA would have to be changed to make this work – but laws change all the time, don’t they?
    Also, the money in the HSA does not actually have to be there. Just like the sum total of all a bank’s depositors doesn’t physically exist in the bank.

  7. “the money deposited into the HSA could be partially to fully (i.e.progressively) funded by the taxpayers as well.”

    Doesn’t sound like your “fully market based system”. You are also implying that Medicaid recipients use the medical system indiscriminately so that an HSA would “encourage” them to spend their money wisely, thus saving the taxpayers money – do you have proof of that?

    OK Dr. Mike, give me an example of a HDHP coupled with an HSA that present Medicaid recipients could afford, keeping in mind the HD part.

  8. The institution holding the money (i.e. S avings) doesn’t care where the money came from. They only care about who gets to take it out.
    HSAs are best paired with HDHPs. HDHPs are true insurance – they protect against the risk of the unexpected. HSA’s are for the rest which for the most part is expected – routine outpatient care for which a savings account works extremely well. So well in fact that people have been using them for years. HSAs are not a “coverage plan” as in insurance. They are cash that the person uses to purchase healthcare services (strange concept, I know). With the risk protection of a HDHP, $5,000 is probably sufficent for most Americans independent of their tax bracket, espcially if there is allowance to pool the savings accounts among family members. Don’t read this next sentence because you seem to be genetically incapable of comprehending it. HDHPs could provided for Every American (or Medicare Part A for all) AND the money deposited into the HSA could be partially to fully (i.e.progressively) funded by the taxpayers as well. Again, don’t attempt to respond to that last sentence as you can’t understand it.

  9. “An HSA is the perfect vehicle for handling outpatient services and is applicable to all – both rich and poor and those in between.”

    Dr. Mike, have you looked at the state Medicaid eligibility requirements, if you want a discussion point on “poor”? Where would the “S” in HSA come from for that group? As well HSAs are designed with high deductible plans – which I’m sure the poor also have the “S” to cover. Again, give us a $5000 coverage plan that the poor would be able to “participate equally”.

  10. Not even sure what that means, BobbyG. I happen to believe in Medicare Part A from cradle to grave, and market based approaches to what remains. An HSA is the perfect vehicle for handling outpatient services and is applicable to all – both rich and poor and those in between. But it appears that the three letters “H” “S” and “A” are some sort of pavlovian trigger that induce rabid responses in those trained to spew only partisan viewpoints.

  11. “The point was that it could exist, and that solution to giving the poor a chance to participate equally in such a system it would be possible to give them some control over how money they did not contribute is spent.”

    Maybe you could give us a sample of a $5000 policy that would give the poor “a chance to participate equally”? Against of course a person earning $250,000 per year receiving the same $5000 voucher.

  12. Well, a compromise for the quality is expected if the program’s scope covers more beneficiary with the same budget and subsidies. Government funding is also a business matter so why expect something that will cost them more while providing less?

  13. “I didn’t know a “fully market based system” involved any money from the government”
    And I didn’t know that a fully market based system was yet in existence – do you know of one?? The point was that it could exist, and that solution to giving the poor a chance to participate equally in such a system it would be possible to give them some control over how money they did not contribute is spent. Remember, under the current system, the medicaid patient for example, neither contributes any money nor has any incentive to see that the governments money (i.e. medicaid payments to providers) is spent wisely.

  14. Where is the argument that I falsely claimed you were making, followed by its rebuttal? For that is what defines a straw man.
    It is a “false dichotomy” only because it is an illustration of a concept, not an idea for the implementation of that concept. Are you too lazy to even try to understand that concept?

  15. “but the notion of a fully market based system has great merit.”
    “given a blank check valued up to $5,000”

    I didn’t know a “fully market based system” involved any money from the government. Ron Paul and the people who applauded him thought the market system should just “let them die”.

  16. Sorry bobbyG, but the notion of a fully market based system has great merit. What is absurd is that so many on the left cannot even comprehend what a fully market based system is. Imagine two people – one is given a blank check valued up to $5,000 and told to obtain up to $5,000 in health care services. The other is given a blank check valued up to $5,000 and told to obtain only the services they need, and that they can keep a percent of whatever is left of the $5,000 that they don’t spend. The first person represents the current system and the system under PPACA – the person will always spend the entire $5,000 because otherwise they lose ‘free’ money. The second person represents a system which has never existed but which is always cheaper and carries with it greater satisfaction to the patient. The second person represents an example of a market based system that does not in fact “price out” anyone because it doesn’t have to be their money – they only have to be able to use it to shop around for the best deals so that they (and the one providing the money – i.e. taxpayers) have some money left over.

  17. One result of health care reform has been a greater focus on the heath care industry in general. Today intelligent individuals that may have never considered learning about health care are participating in debates and social media conversations across the globe. These individuals and others are not only looking to participate in the conversation, but also to be a part of the change. As a result you see hundreds of health related companies popping up across the US. Health innovation groups like HealthBox in Chicago, Boston, and Portland and innovateHealth in Washington and Oregon are looking to incubate new sustainable businesses. The attention is on health care, and it is not only up to the government to attempt to fix the system…it is the responsibility of capable people as well.

  18. “a fully market based system”

    Would price out those who most need and use health care services (not “coverage,” actual health care “services”). It isn’t going to happen. The very notion is absurd on its face.