Obamacare: The Effects on Your Health Care Costs

Obamacare does encourage the use of Accountable Care Organizations (ACOs), which attempt to address the built-in volume excesses of the fee-for-service system, but only for Medicare and Medicaid patients. The ACOs are designed so that physicians receive a payment for providing care for a specific clinical episode (which might require weeks of care) at a fixed cost. In essence, the insurance risk is offloaded to doctors. Some organizations have seen reductions in volume and overall cost of care from this approach, but not at a level that would significantly reduce the cost differential between the U.S. and other countries if extrapolated to all patients:

Physicians receive payments based on a “defined clinical episode” or a “set period of management of a chronic condition.” Unlike the fee-for-service system, this capitation payment encourages collaboration among physicians to prevent unnecessary medical expenditures, thereby promoting patient care over profit.

The ACO approach is designed to help eliminate the wide gaps in the cost of delivering care that show up when comparing individual hospitals, doctors, and communities. A few years back, Boston surgeon Atul Gawande wrote an article for the New Yorker comparing the cost of Medicare services per beneficiary in two similar border communities in south Texas: McAllen and El Paso. McAllen has the second highest per capita Medicare costs in the country; only Miami’s are higher. El Paso, with similar demographics, has far lower Medicare per capita costs. Physicians in El Paso do a lot less than those in McAllen, with costs roughly half as high, but outcomes are similar despite the higher volume of surgeries, tests, and hospital admission in McAllen.

Gawande argues that the McAllen experience reflects what the system allows, while the El Paso experience, like the  experience at some of America’s highest quality facilities -- Mayo Clinic, Intermountain in Utah -- demonstrates that not all physicians are inclined to behave the same way despite the existing incentives in place to push higher volume (including defensive medicine to protect against malpractice claims).

Gawande wrote another article on an experimental program in Camden, New Jersey, another very poor community, to target the highest cost Medicaid patients and to provide them with care managers to try to address some of the chronic conditions that were causing people to repeatedly wind up in the emergency room.

The Mayo model of collaborative care and the care manager approach in Camden are examples of  what can develop if different models of care are encouraged. Storefront medicine (the Walgreens clinics), medical clinics in offices, online communication with doctors, corporate incentive programs for healthy living, and new comprehensive blood tests that are more accurate, less painful, and at much lower cost are all now available or will be available soon. New approaches to malpractice adjudication could cut the volume of defensive medicine.

The American medical system is no more immune to entrepreneurial innovation than any other industry, and if costs are going to come down significantly before all the baby boomers start Medicare coverage, mere tinkering with the models in place will not provide the answer.

Unfortunately, the approach favored by the central planners in Washington when they designed the new reform effort was to create more of a straitjacket, one-size-fits-all approach. They wanted health insurance to be universal, and comprehensive, and in essence a prepaid benefit model of insurance. In the auto, home, and casualty insurance markets, the buyer insures for risks he does not expect to incur in a given year. This model of insurance, more of a catastrophic model, was rejected by the Obamacare designers. They were not interested in seeing individuals and companies assume greater responsibility for their health care costs, or for real competition in the types of care models that were in the marketplace.

What is likely over the next few years is a modest bump-up in the annual health care inflation rate, reflecting the new volume  of care delivered to those newly insured. Obamacare backers have proudly detailed how the annual rate of increase in insurance premiums has slowed a bit since the financial collapse. This, of course, they attribute to Obamcare, though there is little structurally in place yet from the bill to explain how the two are related. A more likely explanation is that the recession increased the ranks of those who watched their dollars in health care, as in everything else. In Washington, D.C., if the cost of a program goes up 4% a year when it was scheduled to go up by 5%, it is regarded as a 1% cut in spending, and legislators and the president pat themselves on their backs for their achievement in promoting fiscal responsibility. In reality, the American health care system already spends too much and is in need of the fixes that would reduce actual costs, not just slow growth rates.

But we can try to be generous. Assume Obamacare brought the rate of increase down by 1% per year, and will do the same going forward after the first year bump-up from the newly insured. If the base of costs already is almost double per capita what exists in other developed countries, and it is certain costs will rise due to higher volume for the newly insured, this slowdown in annual inflation means, at best, that we will still go broke as a nation due to health care costs. Maybe it will take a year or two longer.

A nation has only so many opportunities to comprehensively address an industry as large and important as health care. This latest attempt will serve to improve access for some (at higher cost to the system), but will likely have negligible effect on the cost problem for everybody else that was already a major threat to the nation’s fiscal future.

Obamacare is certainly complex, and unworkable in parts. None of that should have been a surprise -- this is what happens when progressive legislative staffs and academics combine to draft a 2,000-plus page bill that no member of the Senate or House had read before voting on it. The left predictably created a plan that expands access, taxes “the wealthy” to pay for it, adds new layers of regulation, and limits consumer choice.

On the cost side of the problem, the real problem, Obamacare is a punt.

More: Obamacare Causes Layoffs At the Cleveland Clinic, Chaos Everywhere Else