Obamacare In Pictures

A seasoned colleague recently told me that some PowerPoint presentations have no power and make no point.

But sometimes, a picture really is worth a thousand words. Or maybe — in the case of any meaningful discussion of health reform, thanks to its density and complexity — it might be worth 10,000 words. Hence our handy little exhibit.

This picture captures the 10,000 words it would require to explain with technical precision where President Obama’s Affordable Care Act fits relative to all health reform plans. It places “ObamaCare” along an ideologically scaled continuum of all serious reform options developed, debated and discarded or ignored since the 1980s.

They are all here: from the single-payer, centrally controlled models popular with those who detest corporations and the influence of money in medicine — two actual, not imagined “government takeovers of health care” — to two free market, laissez-faire models favored by those who detest regulation and the heavy hand of government in medicine.

On the far left, the federal (or provincial) government is the main insurer, owns most hospitals, and employs most doctors. This pure form of single payer seems to be supported or reviled in equal measure — especially by the nation’s physicians. As a model for nationwide reform, it is like religion — people either believe it will be health care’s Messiah, or the anti-Christ, and no one will convince them otherwise. This model is the foundation for many of the systems in Europe, and the systems in Canada, Australia, New Zealand, and Singapore. Unbeknownst to many in their care, there are actually two working systems based on this model in the U.S. today: Kaiser and the Veterans Health Administration.

The second model, Medicare-for-All, differs from the pure form of single payer by retaining the current independence of most hospitals and doctors. This model jettisons private insurance companies, while an all-encompassing Medicare program pays for covered care delivered by today’s crazy quilt of providers: large and small groups, for-profit, religious-affiliated, independent, academic, the works. This is what Medicare beneficiaries have today — except for the 27 percent who opt for Medicare Advantage plans offered by private insurers. It is supported by those who believe it would bring the relative efficiencies, fairness and low administrative costs of Medicare to all, and reviled by those who think Medicare works like hell. Because there are oceans of data to support both views, this too is ultimately a matter of secular faith: government, good; government, evil.

Next is “managed competition,” the basis for the plan proposed by President and Hillary Clinton. This model is built on the current system of multiple private insurers and providers, but highly organizes and regulates both, mandating employers and individuals to participate and requiring everyone, with or without current coverage, to give up what they have and commit to one of several competing vertical insurer/provider entities. This model is based on managed care theories developed in the ’70s and ’80s, and when proposed by the Clintons in the early ’90s, was popular with much of the Washington technocracy and vilified by conservatives.

Most Republicans and health industry critics attacked “Hillarycare” as cumbersome, over-engineered, and hyper-bureaucratic. It was destroyed in the court of public opinion by an insurer-funded TV ad campaign — “Harry & Louise” — that people remember better than any details of the plan itself. Modified versions of this model exist in Germany and Israel, and in a handful of U.S. markets (e.g., San Francisco and Portland, Oregon, sort of) with vertically integrated providers who compete with Kaiser.

To the right of “Hillarycare” is President Obama’s Patient Protection and Affordable Care Act, known as “PPACA, “the ACA,” or “Obamacare.” It retains most of the features of the current employer, insurance and provider systems, but expands all of its current dimensions by mandating that most of the uninsured participate in it, unless their incomes are low enough to qualify them for an expanded version of Medicaid.

Obamacare requires insurers to compete for customers through health insurance exchanges, deeply misunderstood and thus easily politicized creatures, as I discussed here last week. Obamacare outlaws insurers’ discrimination — and price-discrimination — against people with prior health problems. And it standardizes insurance coverage by market to focus insurer competition on price and service rather than plan design. Because Obamacare requires insurers to cover all comers — and does away with caps on those with catastrophically expensive medical situations — it is funded by mandated participation by almost everyone, either directly or through employers. It is based on principles of market competition developed by conservatives and proposed by Republicans as an alternative to Hillarycare.

To the right of Obamacare are two versions of free market models — containers for the “replacement” options crafted by or pointed to those who want to “repeal and replace” Obamacare. Both shift all purchasing decisions about coverage and plan design to individuals and insurers, believing this will reshape markets and drive efficiency in pricing and overall medical resource use. Most versions do not require anyone to purchase insurance, nor any insurer to cover anyone.

The two models differ mainly with regard to how health insurance and non-covered medical expenses are treated by the tax code. Proponents of the model on the far right believe that market distortions created by the tax deductibility of health insurance and expenses are enormous, and the extra political mile it would take to eliminate these well worth the effort in terms of marketplace correction and health system self-reform.

The first of the two models on the right actually expands the current system of tax deductibility of health insurance and direct medical expenses to individuals and the self-employed. Its architects believe this would level the playing field for insurance purchasing, ease out the distorting role of the employer from the system, and convert much of what is covered today by health insurance to health savings accounts and cash payment. The model would allow small businesses and individuals to pool together to buy whatever coverage they wanted across state-lines — the “Association Health Plans” often put forward by Republicans — a modified version of which is included in Obamacare as the “Multi-State Plans.” We have a version of this model in the US right now in miniature: dentistry.

The model on the far right also seeks to reduce the role of the employer in health care, but is structured on the belief that a better, faster way to get there is by removing the tax deductibility health care spending. Its proponents believe this would extract employers from the system in short order, convert health insurance into something resembling auto and homeowners insurance, and maximize the power of market forces to control health care spending in general. Under this model, everyone is free to purchase whatever mix of insurance and services they want and can find, from whatever organization will sell it to them, at whatever price the market yields. Modified versions of this model exist in China and India on top of threadbare single-payer systems incapable of serving the needs of their large and growing populations and emerging middle classes.

The proponents of both models on the right believe their inherent pricing efficiency would drive the marketplace to very high deductible insurance plans while converting routine medical care to a cash-and-carry system. Both models would subsidize the uninsured and others priced out of these markets with either a “premium support” or “voucher” program — two ideas that sound similar but play out very differently as health care costs increase.

The core economic reform mechanisms of the two models on the right show up every few years by newcomers to health care from the business sector, usually after a jarring personal encounter with the health care system. The latest entry is David Goldhill and his Catastrophic Care: How American Health Care Killed My Father — and How We Can Fix It. The subsidy mechanism — loaded with dangerous ammo for semantic and political branding wars over “premium support” vs. “voucher” — is the economic fulcrum in Congressman Paul Ryan’s proposal for reforming Medicare.

The above illustration of health reform plans along a political continuum reveals one of the more bitter political ironies of our time: President Obama’s health care reform law is based, for the most part, on right-of-center ideas.

This may have escaped the notice of most journalists and pundits and, for obvious reasons, the president’s legion of political opponents. But it is an odd and awkward fact for those in the trenches of health policy who care more about reforming the health care system — if only in hard-fought, belated baby steps — than they do about the purity of models, the promotion of a broader ideology, or the mud-slinging and name-calling that has come to define our national politics.

That Obamacare is a right-of-center plan, especially when viewed relative to all viable alternatives, explains why it has so little political support from either side. Liberals hate Obamacare because it is not single-payer, and feeds tens of millions of newly insured people to what they revile as a money-gobbling, profit-obsessed health insurance dragon. Conservatives hate Obamacare because it is the heavy, stupid hand of Big Government choking whatever air is left out of the current, dysfunctional health insurance market. That, or because they cannot see beyond their political rage at President Obama to recognize their own ideas at the core of his health reform plan.

Ideologically, this makes Obamacare a political orphan. And Washington, D.C., even back in the days of decorum and actual policy discussions, has never been kind to political orphans. How else to explain why the president (e.g., in his inaugural address, State of the Union speech) makes almost no mention of what could prove to be his signature domestic achievement — even as tens of thousands of Americans working for health insurers, hospitals, physician practices and other health care organizations grind away at its implementation.

Perhaps this is because Obamacare, which will affect to some unknown degree nearly one-sixth of the U.S. economy, has been reduced to a broken political piñata. Another seasoned colleague recently told me that the reason I do not understand the disconnect here is because the health reform “debate” has nothing to do with the substance of Obamacare as policy and everything to do with its politics.

Those interested in understanding where the plan fits into decades of earnest struggle with this difficult and important subject — rather than scoring political points against the president — would be well advised to consult this one PowerPoint slide.

J.D. Kleinke is a pioneering health care information entrepreneur, medical economist, author, policy expert, and business strategist.

20 replies »

  1. J.D. – your chart is great and thanks for sharing it. My two big concerns with Obamacare are still that it includes what I call “too many moving parts” and that trying to effectively coordinate all of the moving parts by later this year is simply impossible. Opponents of Obamacare think this is intentional as a prelude to ‘single payer’. My contention is that if there is an effort to roll out the enrollment process and it is deemed by a significant portion of the population to be disastrous that the Obama Administration and the proponents will not get a second chance. I am already hearing people on ‘exchange boards’ making comments about the notion that they won’t get this right the first time and that we will just fix the problems as we go along.
    And I don’t see, in the present political climate, how this helps the cause of ‘single payer’.
    Many of my friends think a ‘failure’ of Obamacare will naturally lead to our elected officials to realize that ‘single payer’ is the logical conclusion. I counter by noting that we are currently watching our political leaders (using the term “leaders’ rather loosely here) who said there was no way the sequester would actually trigger and I think the proponents of single payer should not assume that opponents of Obamacare will see a failure as a justification to move to single payer.
    While I much prefer President Obama to the alternatives I have been presented with the last two times and have hoped for his success in general – I just do not see the ACA (what we now call Obamacare) working all that well due to its complexity and the significant obstacles in the way of its successful implementation. But I just can’t agree with those who think this somehow ultimately leads to ‘single payer’.

  2. count me confused by the conversation regarding “wasteful” patients & docs. comparisons of US care usage with other nations indicate Americans don’t use significantly more health care than people in, say, Switzerland. What we DO do is pay more for it. Our prices are higher.

  3. Margalit –

    The Swiss spend 12% of GDP for healthcare as compared to our slightly less than 18%. So, they pay 2/3 of our cost, not half. Also, they have 83 insurance companies in a country of seven million people. The six largest insurers account for about 80% of the business. I don’t think insurer administrative costs are a big issue in the scheme of things. I do think though that there is more that our insurers could do to standardize payment rules, especially for different policies offered by the same company, and to move toward uniform documentation requirements as well. The elimination of medical underwriting and a probable reduction in broker commissions will also shrink administrative costs.

    Separately, I forgot to mention that the pharmacy benefit managers (PBM’s) are also large direct buyers of generic drugs which they fill for patients via mail order. The three largest PBM’s in order are Express-Scripts, CVS-Caremark, and OptumRx, a division of UnitedHealth Group. Overall, I’m told that generic drugs are roughly 10% cheaper in the U.S. than in other countries.

  4. Barry, if you add together what we could save on drugs and devices and the incidental 1% here and 5% there, and throw in the administrative expense caused by the fragmentation of payers and payer rules, you just may be able to get to Swiss percentages of GDP. It’s not like they can do this for half our price, and we shouldn’t expect that either.
    As to non-profits, well, I am not sure what that means any longer, other than not paying taxes.

  5. “We are being driven into insolvency by corporations extracting profit from the system, which is not the case in those European countries”

    Margalit –

    I flat out disagree with this except in one area – brand name drugs. I support the use of more restrictive formularies and/or reference pricing to reduce brand name drug costs in the U.S. If we were successful in doing this, I think drug prices would rise somewhat in other countries as drug makers argue that they need to recapture some of the lost profits from the U.S. market in order to sustain research and innovation. Interestingly, generic drug prices are actually cheaper in the U.S. than anywhere else because of our large population and the buying power of direct purchasers including Walgreen, CVS and Wal-Mart. Brand name drugs, by contrast, are distributed through three large wholesalers – Amerisource Bergen, Cardinal Health and McKesson.

    Medical devices are also a very profitable business and their cost comes through in hospital based surgical care where most devices are used. I don’t know how much European systems pay for these vs. the U.S. and U.S. hospitals pay wildly different prices depending on their volume and influence (academic medical centers).

    The biggest price differences between the U.S. and European healthcare systems is centered on hospital based care even though 85% of U.S. hospitals are non-profit. I suspect but can’t prove definitively that the cost of operating U.S. academic medical centers and community hospitals is significantly higher than comparable hospitals in Europe and Canada. The reasons include everything from higher compensation for doctors and senior management to fewer patients per nurse to more private rooms and amenities to more total employees per licensed bed.

    While I would also like to see us move away from fee for service in favor of capitation and bundled payments and pay for value instead of volume, I note that the Swiss system also operates with a fee for service model, at least for the most part. I think there is also more fraud in the U.S. public programs as well as more defensive medicine.

    Finally, on the insurance side, 40% of commercially insured people already get their insurance from a non-profit insurer, mainly the Blues and Kaiser. Their profit margins are in the 1% range. The for profit insurers, which have been growing as a result of industry consolidation in recent years, have profit margins typically in the 5% range before taxes. There is not a lot of profit extraction going on here. Moreover, at least in theory, we could give them an anti-trust exemption so they could negotiate with hospitals and other providers regionally and all pay a given provider the same price for the same service. This is the way the Swiss do it.

  6. Bev & Barry,
    Obviously not everything people want or everything doctors prescribe is either needed or necessary, and obviously much can be done to objectively (objectively being the key word) assist with decision making for both parties.
    I am proceeding under the assumption that most physicians are not crooks and most patients are not stupid. I see the doctor’s job to be one that includes teaching and explaining disease, treatments, benefits, harms and scientific evidence while the patient’s job is to weight the information and make his/her decision. And as Dr. Berwick said, if they still want that extra MRI, let them have it (and no I don’t mean antibiotics and narcotics on demand).

    This MRI is not going to bankrupt us. We are being driven into insolvency by corporations extracting profit from the system, which is not the case in those European countries, and the uniquely American solution, i.e. clamp down hard on people (including doctors), lie to them, vilify them and use divisive rhetoric in order to maintain acceptable levels of profit extraction, is not acceptable to me. And I would venture a guess that once the smoke clears, this will not be acceptable to most people.

  7. bev M.D. —

    I strongly agree with you on both points a and b.

    I’ve also said many times that lots of patients think more care is alwlays better care and more expensive care is always better care when much of the time, it isn’t. They also often think that doctors who don’t order every possible diagnostic test, especially imaging tests, aren’t sufficiently thorough. Then they wonder why insurance costs so much and their employer can’t afford to give them much of a raise.

    Doctors also order plenty of tests for defensive medicine reasons alone. They wouldn’t order them for a family member or if they were paying the bill out of their own pocket.

  8. Margalit –

    As you know, the Swiss system has no public option even for the elderly. People are required to buy their own insurance but 45% of the population qualifies for a subsidy. As a result, about 35% of healthcare costs are covered by insurance premiums individuals pay themselves, another 35% comes from the taxpayer funded subsidies plus a portion of hospital operating costs and 30% is paid for out-of-pocket. In the U.S. the out-of-pocket number is 12%-13%.

    No insurance plan anywhere covers everything. They all have lists of covered and non-covered services. Mr. Zeltner probably meant services that doctors deem appropriate are paid for assuming they are on the list of covered services. Drug prices are considerably lower in Switzerland than in the U.S. but that can only happen as a result of either the use of restrictive formularies or reference pricing. The latter could account for significant out-of-pocket costs for more expensive drugs within a therapeutic class than happen to be more appropriate or effective for a particular patient.

    While I’m not quite sure what to make of it, when I was in Switzerland as a tourist for almost two weeks in 2011, I could count the number of obese people I saw the entire time on probably one hand. There are only about seven million people in the country and the incidence of poverty is also likely considerably lower than in the U.S. but most of them looked very healthy. Prices for most other goods and services are higher than in the U.S. but their healthcare costs are about 12% of GDP vs. our 18% or a bit less.

    I think the cost per unit of hospital based care is far higher in the U.S. than anywhere else even at Medicare rates and drug prices are higher as well. Doctors in the U.S. make more money than their counterparts in other countries as well. Our litigation system drives more defensive medicine than elsewhere especially with respect to diagnostic testing that is not painful or invasive. Attitudes toward death and dying are different in the U.S. in a way that makes end of life care more intensive and expensive. I think the easiest issue to tackle, at least in theory, is drug prices though industry lobbying would be an impediment. Tort reform would be much harder because trial lawyers are a key constituency for Democrats. End of life attitudes are more of a cultural issue but seem to be slowly moving toward a preference for more conservative treatment and more of a willingness to execute a living will or advance directive.

    I think our system will always be more expensive than others but I’m willing to give Obamacare a chance and I think some of the new value based insurance design products have the potential to mitigate cost growth assuming they gain traction with both employers and individuals buying coverage on the exchanges. Doctors also have a key role to play in identifying the most cost-effective high quality hospitals and specialists and steering patients to them. There is a lot of work to do here; that’s for sure.

  9. Margalit, along with Barry I am confused by your comments. Are you saying that a) no patient ever insists on care despite it being unneeded care? and b) that everything a doctor prescribes is necessary care?
    I would have to answer those questions a) plenty of patients want all the care they can get whether needed or not and b) plenty of docs prescribe unneeded care (see defensive medicine, influence by pharma, and just plain ignorance)
    Your views are not clear to me from the way your comments are worded. Thanks.

  10. Barry, I suggested no such thing, but yes, if “a doctor recommends it, we should pay for it no questions asked.”
    Just to remind you, in another Health Affairs article I know you read, Thomas Zeltner (the ex-boss of Swiss health care) said: “First, whatever a doctor prescribes, the health insurance plan deems appropriate and therefore covered.”.
    As you know I am a fan of that particular system, which seems to thrive by providing its citizens as much choice as possible, and its mostly independent doctors as much freedom as they need to practice medicine. And it’s still much more affordable and equitable than what we have here.
    I just find it hardly plausible that the problems we have with our health care system are due to some inherent deficiency in the morals of our nation, but I can see how shifting the conversation in this direction is conducive to diverting scrutiny from the affairs of certain unsavory parties. That whole thing about offense being the best defense….

  11. Margalit –

    The NYT did write about the Health Affairs article I mentioned about a week or so ago. By the way, the entire February, 2013 issue of Health Affairs is devoted to the issue of patient engagement as part of a strategy to improve both care quality and cost-effectiveness.

    Your comment seems to suggest that there is no such thing as wasteful, unnecessary, inappropriate or overpriced care. If a doctor recommends it, we should pay for it no questions asked. Even if the doctor doesn’t recommend it but the patient still wants it anyway, we should still pay for it. Then we watch healthcare costs relentlessly grow faster than inflation year after year which crowds out other worthwhile public sector priorities and soaks up money that employers would have otherwise put into raises for their employees.

    I’ve written often about ways to make the U.S. healthcare system more efficient, competitive and rational and any changes to it that I recommend I and my wife are more than willing to live with ourselves.

    Finally, when we hear the constant talk about solidarity and collectivism and willingness to pay taxes to support a comprehensive social safety net in other developed countries, part of the bargain is that people don’t impose unreasonable expectations and their associated costs on their fellow citizens. In the U.S. the attitude when it comes to healthcare is too often I want what I want when I want it and I expect someone else to pay for it. That’s not a sustainable model.

  12. That is high praise coming from you, Bill. By all means!

    As you well know, this problem is indeed hard – and pointing fingers and throwing mud, as fun and productive as it may seem, helps no one. (Or am I just over-reacting to my re-location to Washington DC?)

    Was hoping to see you at HIMSS…
    …but next time!

  13. JD,

    This is great! I hope you won’t mind me pointing students to it (with attribution!). I am sorry to say I will have to miss your talk in Portland in a couple weeks since I will be out of town.


  14. Ok, that made me laugh. If I had to pick one, I’d go with the latter. “Fascist Plan” really would cover the one on the far left – yes, health reform and its ironies – and in a move toward editorial fairness, I’d re-label the one on the far right “Lord of the Flies Plan.”

  15. I would replace the word “Hybrid Plans” on the top with either “Fascist Plan” or “Crony Capitalism”. Otherwise, I think it is a fair summary.

  16. Wow Barry, thank you for the link to the Health Affairs article. I hope the NYT picks it up and gives it due space preferably on the first page. Such a crass attempt to paint Americans as irresponsible and selfish because they expect excellent care regardless of ability to pay and because they are not willing to risk their lives in defense of insurers and “health” corporations profit margins and excessive executive pay is sure to resonate with the public in much the same way Mr. Romney’s moocher comments did, and the part about performing “psychologically informed interventions” for the masses should go over particularly well.
    Those who desire to frame the health care costs as a moral issue should remember that they live in glass houses, or should I say Baccarat crystal houses.

  17. Peter1 –

    BCBS of NC or any other insurer won’t be able to compete effectively if its costs are excessive, On the claims side, BCBS of NC probably has lower reimbursement rates per service, test and procedure than competitors because it has the largest market share in the state, I think. With respect to executive compensation, I don’t know how their prior year numbers stack up against local and regional health insurance competitors but the marketplace for executives in all major industries is national in scope. If you want to attract and hold competent people, you have to pay competitive compensation. At any rate, if non-medical claims costs only account for 13% of the company’s premium revenue, the total compensation of even the 25 highest paid executives probably accounts for less than one percentage point of the 13%. At the end of the day, even if they are grossly overpaying their CEO, it’s not driving premiums to any meaningful degree.

    Their rates are being driven by what in the industry is called medical trend or increases in claims costs per insured member. This, in turn, is going up mainly due to higher prices per service, test and procedure, especially for hospital based care. Rising drug and device prices are also a factor despite the growing use of generic drugs. The introduction of newer and more expensive technologies, like proton beam therapy for prostate cancer treatment and new biologic drugs to treat other forms of cancer is another factor. Another one may be a decline in the average health status of the insured population as younger and healthier people drop their insurance as premiums rise or if they lose their jobs while sicker folks hang on to their coverage or take it up under COBRA if they can.

    If we want to see lower health insurance rates, we need to see lower healthcare costs or at least slower growth. For that, we need good price and quality transparency tools available to both patients and referring doctors and we need patient to care more about costs even when insurance or taxpayers are paying. Right now, most of them don’t care and resent any suggestion that they should. That has to change and soon.

  18. But Maggie, we don’t buy from providers, we buy from insurance companies.

    This year BCBS of NC (non-profit) raised it premiums 8.8% (compounded yet again) and lost profits, and to reward its executives for this “success” raised their compensation an average of 40%. This even when BCBS spends about 87% of revenues on patient care (above state mandate). BCBS ads tell us how they’re working to lower our healthcare costs.

    Tell me how Obamacare will change this?

  19. As a right of center fiscal conservative / social liberal, I actually have fairly high hopes for Obamacare. I have two main fears though. The first is that the subsidies to purchase health insurance will cost taxpayers significantly more than the CBO estimates. We will get the verdict on that issue soon enough. The second relates to an article published in the most recent issue of Health Affairs titled “Focus Groups Highlight That Many Patients Object to Clinicians’ Focusing On Costs.” The prevailing attitude that more care is better care, more expensive care is better care, and I want the best and I don’t care how much it costs Medicare or private insurers or society in general is discouraging.

    The good news on the latter point is that the insurance subsidies can only be used to purchase a health insurance policy through an exchange and the policies available on the exchanges are virtually certain to be primarily narrow network and tiered network products. That means that if a policyholder wants to go to one of the more expensive providers outside of the insurers’ the network, he or she will have to pay far more out-of-pocket and, hopefully, that will be made clear to patients before a provider is selected and services are rendered. There is a huge need for both price and quality transparency here and I think patients need to be hit over the head with a figurative sledgehammer to drive home the message that there are significant cost differences among doctors and hospitals that have nothing to do with the quality of care delivered or the outcomes achieved. We have a lot of work to do the change the culture when it comes to patient perception of price, quality, value and outcomes.

  20. J.D.

    Not all liberals hate “Obamacare” becuase it is not single payer.

    Liberals who have read the Affordable Care Act (ACA)realize that it moves us much closer to the health care models used in Western Eurupe (none of which are single-ayer) where government palys a much greater role in
    regulating heatlh care.

    As you know, under the Affordable Care Actt CMS (Medicare and Medicaid,) will be chaning how we pay for health care, by moving away from paying for volume( fee-for servcie) and instead paying
    for value (better outcomes at a lower cost) with providers having “skin in the game” as they share in the risk of nor achieving better outocmes.

    (This is already begginning to happen. Everyone– please Google Atul Gawande’s piece “Big Mediicine” in the New Yokrer and scroll down to the final half of the article. where he talks about the new contracts his hospial has made, both with insurers and with Medicare.)