Regardless of what you think about the health care law, the debate was epic. Both sides made regular apocalyptic statements claiming all manner of calamity if it passed or not. Neither is true. The bill will neither be the end of the world nor solve all our health care problems. So if the result is not apocalyptic or an answer to all problems what is the likely impact? With a tip of the hat to Sergio Leone, Clint Eastwood, Lee Van Cleef and Eli Wallach, the following is The Good, the Bad and The Ugly of health care reform.
Unless you believe the current individual and small group health care marketplace is in fine shape and not on the verge of collapse, the exchanges should create a more organized and stable marketplace than currently exists. The most well known exchange is the Federal Employee Health Benefit Program (FEHBP), which works quite well. There is one important difference in that FEHBP is regional in nature while the new exchanges are state-by-state. This may need to be changed. State based exchanges could lead to uneven offerings and be less efficient than regional ones. There may be enough flexibility in the law itself to allow HHS to encourage regional exchanges. If so, this would be a good idea to pursue.
Central to the new law is the individual mandate. The only way the insurance reforms, which nearly everyone agrees are good, will work without increasing costs is if nearly everyone has insurance. Requiring people to purchase is the most efficient way to achieve this goal. This makes the individual mandate a good idea. However, execution is everything, which if done poorly could make it an ugly idea. In the current law, the penalties for not purchasing insurance are low, thus creating the risk that large numbers of persons, especially young healthy individuals who are vital to a well functioning market, will escape. If this is not addressed skyrocketing costs are likely. But we won’t know the actual extent of this problem until the 2014 reforms. It would be in our best interest to address this problem now rather than wait until it occurs. The politics of raising the penalty after the fact would be difficult.
The Independent Payment Advisory Board is a good idea. The Advisory Board will propose reforms to Medicare based on spending targets. These reforms can’t increase cost sharing or taxes and they can’t change eligibility or benefits. Instead, they change what Medicare pays for and how it pays for it. Because the process of how proposals become law is convoluted, it is easier to explain how they don’t go into effect: if Congress votes them down and the President agrees the recommendations die.
Some of the best ideas in the new law are in the area of changing Medicare’s payment/reimbursement system from fee-for-service to one based on pay for performance or quality and delivery system reform. The new reforms move the system away from outdated fee-for-service to one based more appropriately on comprehensive reimbursement. This needs to happen because the driver of health costs is chronic disease (our disease burden) and people with chronic disease require a more managed delivery system than what we have today. The only complaint in this area is that Congress did not act boldly. Instead they took small steps that could take decades to have an impact. Unfortunately we do not have decades. They must move more quickly than current plans call for.
While a case can be made for increasing taxes to help pay for expanding coverage, the taxes settled on in the final bill set troubling precedents. The law imposes a new 3.8% tax on dividends and interest for individuals making $200,000 and above and couples making $250,000. This is a bad idea for two reasons. First, it sets a precedent and opens a new area of taxation. As sure as the sun comes up, there will be future political pressure to increase subsides as well as pressure not to reduce Medicare spending as much as outlined in law. Unless they resist, Congress will have to come up with a revenue source to pay for larger subsidies or less Medicare cuts (or both). Now that dividends are fair game, they may well come back to this well. The other reason is that it creates another type of income (capitol gains the other) that are subject to double taxation and this is just bad tax policy.
In addition, the new .9% increase in the Medicare tax for those earning $200,000 and above ($250,000 for joint filers) also sets a bad precedent. Previously the tax went to the Medicare trust fund, by peeling off a certain amount to go toward the coverage expansion, it again sets a bad precedent that could be trouble in the future. As the financial picture of Medicare worsens, Congress is certain to look at the Medicare tax as a source of revenue. However, now that the tax is a source for coverage expansion, as pressure to increase subsidies grows so will the pressure to increase this tax. If this tax does go toward the Medicare Trust Fund then the Administration and Democratic Leaders were less than straightforward as was the CBO.
While everyone agrees that we need to do something about long-term care (LTC) issues, The CLASS Act, is not the answer. The Community Living Assistance Services and Supports Act sets up a national, voluntary, LTC and disability insurance program. The problem is that while it helps to offset the cost of expanding coverage in the first ten years, the CBO has warned that it could end up being an unsustainable entitlement that could rival our Social Security and Medicare obligations. A recent Milliman report provided a stark assessment of the problems with the new program, “the voluntary aspect of the program allows low-risk individuals to never sign up for the program while the guaranteed issue enables some of the highest-risk individuals to join the program. This is a formula that is virtually certain to create financial instability…”
One of the responses to the high cost of health care has been the emergence of physician owned hospitals. While not all are created equal, there is a good argument to oppose so-called specialty hospitals that focus on just one disease (e.g. cancer or heart), acute care physician hospitals are good competitors. The decision to bar new physician owned hospitals from participating in Medicare is short-sighted in that it precludes a model of care and potential tool in reducing costs. Instead of expanding choices in hospital care the law reduced choice. If there is an issue of abuse, tighter regulation is the answer, not a ban. This is a bad idea.
Perhaps the ugliest parts of the debate were the politics surrounding it—from the unseemly deals that Majority Leader Harry Reid (D-NV) entered into with various Senators to gain their vote to the post vote death threats and general bad behavior by Members toward one another and the public toward Members.
Also ugly, and troubling, was the demonizing of the health insurance industry. It is not hard to understand why the White House and HHS engaged in the name calling—they needed to shift momentum in the aftermath of the Massachusetts election, which threatened to stop the debate in its tracks and the insurance industry polls the lowest in the public’s eyes of all the health care players. However, this tactic is very short sighted because the insurance industry is the sector with the greatest impact on the success or failure of the implementation of the new law. And for The President a successful implementation is critical to his re-election in 2012. But by demonizing the industry the White House has sent a contradictory message to the public. On the one hand, the White House portrayed health insurers in a very negative light, while on the other, the public will be expected to sign up with insurers in the exchanges.
Instead of a panacea or a government takeover of our health care system, the new health reform law is a mixed bag of good, bad and ugly. And while the bill is now law, debate continues. Democrats are fanning out across the country selling it, attacking any one or group that criticizes it. Republicans are engaging in various strategies to try and roll it back including going to court to overturn the individual mandate, to calling for repeal and replace as part of their November election campaign.
There is one lesson that both sides should not forget regardless of what aide you are on—history shows us that progress is not made by those who refight the last war. Winners are determined by those who find opportunity in change and take advantage of it.
William Pierce is Senior Vice President for APCO Worldwide, Inc.