Standing behind My Prediction that Health Spending Will Stabilize

The ultimate challenge of being a futurist is accountability for your prognostications.  I’m particularly susceptible because I publish a lot more than others who assess long-run trends shaping the evolution of health care.   Fortunately, the futures described in my writings from the 1980s and 1990s have played out as foretold.  (The exception is my prediction that HIPPA would be repealed in 2008, a case of wishful thinking getting in the way of objective analysis.)

More than a few followers have been asking lately if I still stand behind the prediction I made in Paradox and Imperatives in Health Care (2008) that American spending on health care would stabilize at 17% of the gross domestic product, beginning around 2010.   My view contradicted the prevailing belief that spending would continue to rise, reaching 20% of GDP in 2015.  Initially, I took heat for predicting the end of growth in medical spending.  But when the Great Recession hit later in the year, a few gracious critics even called to congratulate me for my contrarian perspicacity.  

Then last month’s “health reform” resurrected conventional wisdom that health spending would continue growing.  (See my March 30 post on Reform vs. Overhaul to understand the quote signs around “health reform.”)  However, I stand behind my original prediction that health spending is peaking.  If—and it’s a big if—the legislation is implemented pretty much as presumably intended, it will increase the number of Americans with health insurance.  However, it will not increase their spending on health care for two reasons.

First, getting the laws passed required a political trade-off between breadth and depth of coverage.   More people will presumably be covered, but overall coverage will be proportionally reduced because Democratic leaders promised the laws would not increase federal spending.  Indeed, more than half the increased costs of coverage will be paid by decreased reimbursement to providers.  Congress has historically reneged on such promises, but I think public pressure to reduce the deficit will prevail for the foreseeable future. 

Second, due to new economic realities, consumers will not have disposable income to make up the difference when expected to pay higher premiums, deductibles, and co-insurance for expanded coverage.  These unpleasant side effects of insurance overhaul will create a political backlash and almost certainly cause the laws to be changed, but nothing in the nation’s economic outlook suggests to me that consumers will have available resources to increase their personal spending on health care.  

Please comment if you see a solution I am missing!  Given my personal belief that health care is a pillar of national strength, I would be happy if my prediction were wrong.  However, the economist in me believes just as strongly that progressive partnerships of providers, payers, purchasers, and consumers can build a great health care system with 17% of GDP.  Your thoughts?

Insurance Overhaul: First Step toward Government Takeover?

As a health futurist and medical economist, I’m not surprised to get questions about implications of the latest reform legislation.  Discussing changes in health care with journalists and industry leaders is part of my job.  However, I am surprised at the question asked most frequently: don’t I think that insurance overhaul is the first step toward a total government take-over of American health care?  I do not think so, for several reasons.

First, if the new laws had been engineered as part of a socialist conspiracy, I believe that I would know about it.  I have good working relationships with a wide-ranging group of politicians, staffers, policy analysts, and lobbyists—people who provide background information for my forecasts on the future of health care.  They are committed to their respective causes, but they are not behind-the-scenes conspirators.  I have not heard the slightest hint of a plan to “take over” health care.  (Indeed, most of my political informers tell me that they wish health care would go away; it’s a no-win issue.)  Even my most liberal sources went no further than pushing a government health plan to compete with private insurance.  Single payer, a goal that would qualify as a step toward government takeover, was not even on the table for serious discussion.  Insurance overhaul’s new thrust, creating state insurance exchanges for private health plans, reinforces the status quo.

Second, the exploding federal deficit shaped every discussion of health reform over the past year.  To pass the overhaul laws, Congressional leaders cut $500 billion from authorized federal spending on health care.  This “solution” shifts payment responsibility to states and consumers at a time when neither has disposable resources to make up the difference.  The economic result is going to be hard times for all.  I simply cannot imagine a scenario where the federal government suddenly has enough money and uncontested power to impose a stable equilibrium on the medical marketplace.  I will rethink this position if anyone can convince me that economic recovery and bipartisanship are just around the corner.        

Third, if insurance overhaul were a planned step toward socialism, the plan would need to reverse the underlying dynamic of health system change in the US.  In reality, American health care is moving toward remarkable diversity, not the one-size-fits-all outcome of a federal policy like No Child Left Behind.  The future of insurance overhaul will play out differently in states and in local marketplaces.  (Indeed, if a government takeover occurs anywhere, it will be at the state level.)  We will see a variety of outcomes in the coming years, many of them quite independent of federal reforms.

Above all, I don’t think the federal government is taking over the medical economy because nobody in the federal power structure has a creative, realistic, and unifying vision of a good health care system.  Today’s political process is preoccupied with trying to fix a broken 20^th century delivery model.  When our political leaders can focus on designing a system attuned to the needs and technologies of the 21^st century, I’ll take the takeover hypothesis seriously.  How about you?  

Economic Solution to a Political Problem: Least-Cost Reimbursement?

If the federal government wants to avoid a visceral backlash when 38 million more people presumably start getting health insurance in 2014, it had better start preparing Americans to pay a bigger share of the costs of their care.  The “affordable” insurance product that will be foisted upon them will not pay for everything.  If the insurance overhaul laws of 2010 are ultimately implemented and enforced as enacted—far short of a sure thing, in my view—the mandated plans will be priced on the assumption that beneficiaries pay 35% of their medical bills.  

Congressional leaders had to reduce mandated insurance’s actuarial ratio (the potion of total expenses paid by insurance) to 65% to make estimated program costs acceptable to the conservative Democrats who controlled the fate of reform.  Consequently, the political price paid for increasing the number of Americans with health insurance was reducing the new plans’ overall level of coverage.  Economic and political realities—not “greedy” insurance companies—simply did not allow creating a program with the generous benefits that insured Americans have come to expect over the past 50 years.  Premiums, copayments, and deductibles will all rise dramatically as the actuarial ratio falls to 65%. 

The trade-off is not necessarily bad social policy, but it is sure to create a political firestorm when voters begin to understand the real implications of “affordable” insurance.  Providers and payers will be caught in the cross fire.  They will have no choice but to eliminate inefficiencies in their own operations as overhaul transfers significant payment responsibility to consumers who won’t have more money to spend on health care.  Health reform’s opponents will have a hey-day fighting to neuter overhaul under these circumstances, but they are unlikely to offer an alternative for improving the flawed economics of American health care. 

I suggest a reform-oriented approach to ease the transfer of financial responsibility to patients who believe insurance should cover just about everything—base insurance reimbursement on the least-expensive intervention that can reasonably be expected to meet a patient’s medical needs.  Then, let the patient pay the difference if s/he wants a more expensive treatment.  For example, research suggests that physical therapy and surgery produce comparable outcomes for treating lower back pain, yet surgery is considerably more expensive.  The “affordable” plan’s benefit for lower back pain would be reasonable costs of physical therapy, but the patient would be free to elect surgery and pay the difference. 

Wouldn’t reimbursement generously pegged to least-cost acceptable care address the concerns of anti-reformers who argue that the 2010 overhaul legislation will restrict choice and impose rationing?  As a medical economist, I think it’s a new idea worth serious consideration because the alternatives—especially opposing reform with no new ideas—are scary.  The possibility of an actuarial ratio of 65% compels creativity, sooner rather than later.  How do you think we should respond?  

And now, for something completely different…TDM!

Am I the only person who needs a break from trying to understand insurance overhaul and its implications?  Reading the two laws and juxtaposing their verbiage is numbing my brain, so I’ve decided to think about something else today.  (Don’t fret if you were looking forward to my ongoing commentary on health reform; it will resume next week.)  

Today’s diversion—the thought that keeps coming to mind while I ponder the new legislation—is data.  Insurance overhaul and relentless evolution of medical science will compel all health sector enterprises to pay unaccustomed attention to the numbers in their many data bases.  Operational success will increasingly depend on having good data and the ability to analyze them in real-time. 

Quality of data has been a preoccupation throughout my career.  (Google Statistical Analysis for Decision Makers in Health Care, Second Edition if you want an understandable, in-depth discussion of data quality.)  Having lots of data to analyze is useless if the numbers are not meaningful, accurate, and timely—which is altogether too often the case.  Consequently, we need to start paying careful attention to the validity and reliability of numbers that “reform” will impose.

Efficiency of data is a related concern that comes immediately to mind in context of the overhaul legislation.  Compliance requirements will force providers and payers to handle more data than ever before, which means that spending on data will quickly become a major concern.  (Data costs will be a really big headache for providers also seeking designation as “meaningful users” for HITECH funding.)  Managers will need to prevent data duplication, accelerate access to useful data, stop collecting data that have no value, and halt other unproductive expenditures on information.

The overhaul laws will not force us to focus on the quality and cost of data; we must do it ourselves.  However, we don’t have an enterprise structure for managing all our data as a single resource.  To complicate matters, our data will continue to reside in many locations, both on paper and on disk.  We need a system to manage the interface between different data resources, one that integrates principles and devices for total data management (TDM).  

OK, I just made up TDM, but it has a nice ring to it…like ERP or CRM.  Please give me your suggestions for a better name, but above all, let me know what you think about the need to develop a system for optimizing cost-effectiveness of the paper and electronic data bases we’ve already got.  We’re never going to become paperless, and we barely have the time and money to undertake the truly essential steps in digital transformation (e.g., providing all relevant clinical information to all caregivers simultaneously in an EHR).  We really need to get a getter bang for the bucks we are already spending on data.  I can’t get this thought out of my mind, even with all the other things a health futurist needs to be thinking about these days.  What do you think?