If I were a health care policymaker, I'd probably spend a whole lot more time than most of them do talking with real people who have real, "micro-world" questions which can illuminate the "macro-world" questions which the deep thinkers...well, think about.
Last week I spent a few hours over beers with a few friends who are pretty knowledgeable small business owners. Practical guys, with practical questions. The biggest one was this: Irrespective of the politics of Obamacare, what is the likelihood that some kind of regulatory or market force will actually bend the cost curve down?
Keep in mind that for most small business owners, annual premium increases of 15-25 percent per year have been the norm, not the exception. Even for fairly large small companies, premiums are doubling every five to six years.
I had to tell them the bad news: there's really nothing in the Affordable Care Act which has any concrete potential to reduce the rapidly-escalating price of health coverage, at least in the short to intermediate term.
That's because the Affordable Care Act essentially ignores the principal driver of health care cost increases: provider costs, especially on the hospital side.
Over eighty percent of health costs relate directly to payments to hospitals, physicians, drug and equipment companies, and other providers. And despite the potential promise of some of PPACA's experiments with delivery system reform, the likelihood is that those costs will continue to hyper-accelerate.
There is certainly a tempting target for cost containment: the estimated 210 billion dollars being spent on over-testing and over-treatment.
I wrote a little something about this phenomenon last year (http://polkiananalysis.blogspot.com/2011/10/economicsand-ethicsof-just-being-sure.html). And a recent column in The New York Times (http://well.blogs.nytimes.com/2012/08/27/overtreatment-is-taking-a-harmful-toll/?ref=health&wpisrc=nl_wonk ) expands on the theme.
Twenty to thirty percent of what we spend on health care can be retrospectively labelled as unnecessary. Let's pretend for a moment that, since one person's unnecessary treatment is another person's "do what it takes to help my Mom," only half that percentage is truly wasteful.
Would it/ should it be worth our time to figure out how to cut $100 billion or so per year out of our health expenditures? A reasonable person would say so.
But doctors get paid for how much they do. And while hospitals' primary business is treating disease, they are also in the business of maximizing revenue.
Unless there's a revolutionary (and counter-intuitive, for those revenue-conscious providers) trend toward awarding clinical efficacy versus the volume and intensity of services rendered, the cost curve isn't gonna bend appreciably over the next ten years or so. And until we can get to these root costs, we can expect to see health premiums double or triple over the same period.
What about defined contribution? Won't that have an effect on health costs?
A switch to a defined contribution will certainly do a lot to reduce small employers' cost exposure. But only by shifting the cost burden to employees, and making hyper-inflation their problem.
The myth of defined contribution is that employers will pass along a portion of the savings they experience by capping their own expenditures with their employees in the form of higher wages, which employees might use to pay for their share of health premiums. By and large, this won't happen.
The best example of why not is the proliferation of high-deductible health plans. The myth of HDHP's is that employers would establish partially-employer-funded Health Savings Accounts to enable their workers to cover their deductibles. Only about ten percent of small employers did this; the rest just saved the money.
And while defined contribution models are fine for large, self-insured employers...whose costs are lower to start with, and whose relationships with employees is largely...statistical...small employers tend to have personal relationships with their workers. Most (not all) understand that their employees are only a medical disaster from financial ruin. They see just unloading their problem on their workers not just as worrisome, but as an idea that can jump up and bite them, especially if their employees under-insure or, worse, take the employer contribution and pocket it.
Most small employers will not be subject to the mandate, but most suspect that, in the face of trouble, their employees, or their employees' lawyers, or, worse yet, the IRS, will be calling the business owner first.
My small business owner friends saw defined contribution as a short-term band-aid that simply sets the table for trouble down the road.
Won't health exchanges do something to reduce health costs?
I've written before that, properly organized and operated, health exchanges could do a lot to empower purchasers by aggregating demand and increasing purchasing power through effective administration and negotiation.
Haven't seen too many "active purchaser" exchange models yet. The Massachusetts Connector has certainly improved access for folks in that state, but hasn't had an appreciable effect on price increases.
And as of today, the vast majority of states have yet to begin seriously organizing their health exchanges; in fact, about 26 states have basically refused, for political and budgetary reasons, to consider getting into the exchange business. Most of these "hell, no, we won't go" states have Republican governors and legislatures.
It does strike me, a non-politician, as odd that these state leaders, proclaiming so loudly against federal interference in their health care systems, would default on the development of their own exchanges and create the scenario for a massive federal takeover of their health systems through the formation of a gigantic federal health exchange.
Maybe they're all expecting a Romney victory in November to make this issue go away.
But what if they guess wrong?
That's a damned fine question.
If they guess wrong, and President Obama is re-elected, I expect we'll see the Administration issuing waivers to states to give them more time to build their own exchange plans. So the "drop-dead date" for the formation of health exchanges will slip from January, 2014 to 2015 or later.
None of this should leave small business owners hopeful for long-term price relief any time soon. And yet, despite the confusion, the health insurance environment for small businesses hasn't really changed all that much. After all, if you've been swallowing 15-25 percent per year increases for the last 15 years, can it really get worse?
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