Reflections on Impending Obamacare
Reform was surely needed to remove distortions imposed on medical care by its financing. The next big questions are what the Affordable Care Act really reforms; and, whether the result will be affordable for the whole nation. Here are some proposals, just in case.
The Affordable Care Act (Obamacare) is implemented by twenty thousand pages of regulations to be issued by the Secretary of Health, Education and Welfare. They must respond to two thousand pages of laws hastily passed by Congress three years ago. While much remains incomplete, a great deal is known about the coming plan. Are substitute components feasible? Are there potential solutions for the long run, "bending the cost curve downward" after the Affordable Care Act has done whatever it does or doesn't do? Five underlying issues come to the forefront, three of them inherited from the past, and two more added by Obamacare. Discussion of these five items constitutes the bulk of these reflections.
THREE INHERITED ISSUES: Within its announced goal of universal coverage at community rates, the Affordable Care Act built on, and continues to favor, a framework of what preceded it: tax-preferenced, employer-based, service benefits, a mysterious phrase which denotes three inter-connected issues. While the President was entitled to set his own priorities, his reaffirmation means he must actively espouse much of what originally generated the need for reform. In political jargon, by incorporating them within the Affordable Care Act, he owns them.
TWO NEW ISSUES ADDED: The most important question at the present moment is whether mandated universal insurance coverage is both feasible and affordable. Based on theory alone, market-set prices must necessarily disappear as a benchmark for reimbursement -- when everything becomes insured. Unless some additional provision is made, any system which replaces the market by becoming universal must somehow face this issue. The easiest way to retain a marketplace is to leave a large population outside the insurance. Since this would be politically awkward, it is more feasible to exclude a representative component of medical care outside the ring of insurance coverage. And here the most obvious opportunity is to set a higher cash deductible while discouraging supplemental insurance from covering it. Since a small front-end deductible is contemplated for Obamacare anyway, just make it a big one. While it would create some political blow-back, the alternative of ignoring this issue creates an unsustainable need for government price-setting to extend throughout 17% of the Gross Domestic Product, permanently. Because of this issue alone, Obamacare would seem to land on the edge of a Health Savings Account, and should seriously consider going that way entirely. Service benefits could be quite satisfactory retained in the payment of inpatient diagnosis-related groups (DRG), provided it is recognized that certain services like inpatient psychiatry have always proved unsuitable for DRG. In order to retain market-set benchmarks as widely as possible, any other inpatient situations where DRGs are partly unsuitable might be included within the deductible as well, perhaps with small accommodations. And SECOND, as a final last-minute compromise, Obamacare consigned residual uninsured populations to the underfunded (and often poorly administered) state Medicaid programs, to the immediate dismay of state Governors and physicians familiar with existing Medicaid. Health Savings Accounts address both the marketplace and cost issues, simply and quickly. But a second urgent challenge is to bring Medicaid up to speed in the next six months, a daunting prospect indeed, and an expensive one. The administration has seemingly allowed itself to get lost in the weeds of insurance exchanges without a clear and simple insurance design to offer through them. Health Savings Accounts (a savings account linked to catastrophic coverage) afford proven benefits for healthy working people. If the basic plan for ensuring everybody is to give poor people the money, giving them the money takes care of poor people in Health Savings Accounts, too.
STRESS TEST. These two problems -- market pricing destruction, and overwhelmed state Medicaid programs -- readily appear to be deal-breakers because they are newly-created. A more subtle issue is not whether the old problems simply will leave us where we started, but whether the act of universal mandate becomes a stress test which brings out problems which were tolerable with more slack in the system. No one can predict the size and timing of such issues, so it is usually wise to proceed in small steps. Most likely, inherited problems from the old system will indeed emerge as greatly magnified by a universal mandate. The "old" system was business centered, tax preferenced, and delivered service rather than indemnity benefits. It twisted itself and the health industry to help these three requirements endure. With a change in central priorities, the health industry may no longer accommodate them.
So after The Affordable Care Act has been accepted, discarded or modified, the old problems will probably resurface. We suggest here some longer-term goals which could be facilitated by advance preparation for them. Although an essentially unchanged system has accumulated a great many small fixes which need repair, the big ones proposed are these: Eliminate the tax inequity for health insurance based on an employee's type of employer. Any time is the right time to do that. Second, make it easier to migrate from Job Lock and the other problems of employer control, by successively eliminating the advantages of employer-basing. Third, remove the barriers hampering a migration of the (medical office) center of medical care away from tertiary institutions, and toward retirement villages (the principal location of disease). Fourth, utilize the recent advances in large-scale computing to establish a system of individually owned insurance, which can simultaneously subsidize the lingering debts of everyone's first year of life, plus the mostly inevitable expense of everybody's last year of life -- while paying for much of it with investment income during the intervening healthy years of employment.
A number of smaller reforms can additionally be identified, useful in themselves, which would facilitate larger, long-run, goals.