Early on, the Obama Administration made a decision that was
probably correct, although they probably did not understand how compromising it
was. They decided to keep the
vested health interests intact as they pursued reform.
How could they have done otherwise? Who could be more powerful than the
vested interests in health -- insurance companies, hospitals, academic centers,
pharma? It was bring them into the
solution, or do nothing. That’s
just reality.
But the bargain could be Faustian. How could the ACA bring in the health insurance industry and
still accomplish reform? The
answer was, while they kept the players, they would change the rules of the
game. Up to that time, insurance
companies made money by strict underwriting (declaring many people uninsurable,
and others insurable only with very high premiums, and yet others insured with
exclusions); by enforcing rescissions (revoking insurance when illness struck);
by clever marketing and much small print that ended up denying coverage for
care in many instances; by negotiating very low rates of payment with primary
care physicians (who are consequently an endangered species;) and by many other
nefarious tactics. Many. There was insurance company competition
(inadequate in many markets, however), but collectively insurance companies had
few incentives to reduce prices or utilization of care, because their profit
was simply a percentage of premiums.
In addition, to clinicians like me, health insurance
companies became a loathed and reviled industry, both for how they treated
patients and how they treated us.
The ACAs calculated that a change in rules would motivate a
change in behavior. The ACA got
rid of specific underwriting by mandating community rating and abolishing
exclusion for prior conditions.
The ACA also regularized terms of insurance so that they were open and
fair to patients and wouldn’t contain hidden small print exclusions. The ACA also set a limit on insurance
company overhead and profit. The
intent was to harness competition so that insurance companies would compete on
service and price, rather than who could fool the public the most.
So this was the ACA’s great gamble – could a company and an
industry be changed by new rules of the road? Or, since the companies themselves and the personnel in the
companies would remain unchanged, would the essential culture and
characteristics of the industry prevail in the end? Would they find a way to perpetuate their old behaviors even
with new rules?
And, to fill out the picture, note this: insurance companies
stand between two entities in the health care world, patients and
providers. The ACA would change
the rules on the one axis, patient to insurance company. But the rules on the other axis,
insurance company to provider, would not be changed at all. Sometimes the power in that axis rests
on the side of the provider, as with powerful hospitals that would be mandatory
to have in a network, or large specialist groups. But sometimes the power rests with the insurance company, as
when they deal with the typical small physician group. Negotiations on the provider side would
remain as before.
Given this bet, which way would you go? Change the rules and change the
behavior, or change the rules and see the ways that culture persists? The economists typically go with rules
and change, looking for “rational behavior under changed conditions.” Me, I generally go with culture, and
given my years of experience in the field, I go with my by now well ingrained
mistrust of insurance companies.
Also, think of this: what does change require? Certainly, it requires a new set of
incentives, which were delivered by the ACA. But change also requires the use of new techniques, either
invented or adopted from elsewhere.
What are the odds that any invention or adoption of new techniques by
insurance companies will redound to the benefit of the public, or clinicians,
or efficiency? These companies
have been imaginative, all right, but beneficently imaginative? Not so much.
Many in the field shared my skepticism. This was the basis for the “public
option,” a governmental plan that would compete against the private health
insurance companies. If the
private companies sought to game the system, the public option would keep them
honest by its competition.
There is another argument for the public option that I
didn’t see made at the time, but which in retrospect seems obvious: even if the
privately competitive system would in the long term deliver an efficient
result, what about the short term?
Under conditions of severe change, many insurance companies would be
very conservative, seeing as their prime concern that they not make a
catastrophic mistake. Many
companies would want to stay out of many exchanges, letting others take the
risk and planning to ease in afterwards.
Many companies would also want to charge very high prices at first, even
if they had to return some of it to subscribers at the end of the year, just to
give themselves a cushion.
Companies would want to take the opportunity to divest themselves of
policies that were of poor value to them, and thus would simply discontinue
that line of business.
In the short term, then, for transition, there was an
argument for a public option as the transitional object for patients without
employers. But to my knowledge no
one thunk it.
What We See Now
We won’t know for some time whether or not the ACA achieves
its desired results. We are now at
transition, and what we see is the very short-term effects of the ACA.
In transition, fear and stories of loss will predominate,
and that’s what we are hearing.
Most obvious, of course is the catastrophic mishandling of the Exchanges
produced by the incompetent Obama health team – they weren’t great in producing
the law; they were horrid in standing up to Republican criticism of
“Obamacare,” just horrid, which led to their avoidance of making timely
progress in implementation for fear of further Republican talking points; and
they have been at least as bad in implementing it (see the Cutler memo at http://www.washingtonpost.com/blogs/wonkblog/files/2013/11/Cutler-implementation-memo-1.pdf.)
Also prominent are the stories of losers, those who will pay
more. The ACA failed to account
for these souls who would suffer – there should have been a plan for
transition, so that they could have their policies stepped up year by year
instead of all at once. The
policies they had and didn’t want to leave benefited them in many instances by
not paying for services they would not use – obstetrical care, pediatric care. They are not now persuaded by the need
for a community to support these services much as the general public supports
public education. Chickens of
incompetence in both design and messaging coming home to roost. It is indeed so tragic that Obama never
assembled a truly competent health team, and continued to stick it, but change
of team is an executive skill that is hard-won.
In transition, we also see on the provider side a
continuation of the tactics that have so embittered clinicians against
insurance companies. The insurers
have been busy constructing “narrow networks.” These are plans that enroll as providers on those clinicians
who are willing to sign up for 70% or 80% of Medicare fees, which are
themselves already less than adequate for primary care. Thus, with only a few misguided
practices signing up as providers for these plans, patients are often prevented
from keeping their doctors.
Why? Because this is what
insurance companies do. The
independent practicing clinicians are the weakest political actors in the game
– after patients – so they are the weak link that insurance companies go
after. Constructing such networks
is the least-risky path for insurance companies, as they keep their costs down
and premiums still high.
Less noticed at transition is the continuation of the basic
insurance plans that we have gradually been accustomed to – high deductibles
and high copayments, leading to high out of pocket costs. These are very regressive plans that
economize in the least inflated of all medical services, primary care and other
outpatient care services, while leaving intact payment to the very inflated
services of hospitals and procedures – see http://static.squarespace.com/static/518a3cfee4b0a77d03a62c98/t/51dfd9f9e4b0d1d8067dcde2/1373624825901/2012%20iFHP%20Price%20Report%20FINAL%20April%203.pdf.
As fear predominates, the absence of the public option is
not mentioned. In fact, however,
that is just what is necessary. In
time it would be expected that private plans would be able to out-compete the
public option; but right now, what we wouldn’t give for that safe haven. If only the Obama team had been able to
think that through.
In time, we don’t know what will happen. It is possible that insurance companies
will team up with provider groups, all of whom become more efficient together
and are able to increase revenues through higher enrollments with reduced
prices and higher quality.
Capitalism generally outperforms socialism. One can hope, and I do hope. I’m hoping that my pessimism about persistent culture in
companies is proved wrong. I’m
hoping that the whole thing does not just land kerplunk. I’m hoping that the Obama
Administration’s having lain down with dogs does not wake up with too many fleas. I’m hoping.
After all, there is always hope.
Budd Shenkin
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