A better way than Obamacare to curb runaway costs

Obamacare, officially known as the Affordable Care Act (ACA), sits at the center of this most recent federal budget stalemate. Aside from the partisan way in which it was legislated, the ACA is problematic because it does not address the structural reasons why healthcare is so expensive.

The ACA forces everyone to pay for the uninsured. People with insurance pay through higher premiums and/or less coverage. Taxpayers subsidize the expansion of Medicaid and subsidies. The unemployed and the under-employed pay in the form of less full-time work. Even those whom the program supposedly benefits will pay in the form of inadequate coverage.

Yet, the ACA still does not address the underlying cost drivers of healthcare. So the potential exists for the economy to bear the brunt of covering more people at ever-increasing costs.

What the country needs is a way to delivery high-quality medicine more efficiently. In other words, we need to improve our healthcare productivity. By increasing productivity, we can control healthcare inflation, and as the president famously said, “bend the cost curve.”

There are several steps we can take. None of them is quick and easy. They probably would take decades to implement, especially when our healthcare system faces the cultural problem of overuse.

Incentivize most-necessary procedures, not most expensive

The first area that needs to be addressed is Medicare. Medicare always comes up in the debate over budget and entitlement reform. However, Medicare actually has an impact on the entire healthcare system. (Incidentally, reforming Medicare from a healthcare productivity perspective would improve its budget outlook as well.)

Because of the sheer size of Medicare, insurance companies’ payment methods take their cues from how Medicare provides payments. Medicare pays through fee-for-service: Providers are paid for each service that they provide. Meanwhile, patients receive those services at a heavily subsidized rate. Therefore, the incentive exists for everyone to seek more and more services even if they are of marginal necessity. Most private insurance companies follow Medicare’s lead of paying for each service, which in turn drives up costs.

A better model would be pay-for-performance, where providers are reimbursed for outcomes. This model incentivizes the best, necessary treatment versus the most expensive treatments. Obviously, with better outcomes, the patient would be getting a better quality of life. Converting Medicare, and ultimately, insurance in general to a pay-for-performance model would take time and effort. It would and should not affect current Medicare beneficiaries.

The conversion would also spur demand in other areas. Greater implementation of Electronic Healthcare Records (EHR) would be required. EHR implementation has been supported by both the Bush and Obama administrations. However, with Medicare pay-for-performance, the drive for quality would force EHR implementation instead of mandates and subsidies. Vouchers for Medicare might also receive renewed scrutiny since now the choice of how to use the voucher will not necessarily mean choosing less coverage.

Restringing the social safety net

The second area that should be reviewed is our healthcare social safety-net programs, another area that is viewed from a budget rather than quality perspective. Federally Qualified Health Centers, a program still in place from the Bush administration, have proved successful. These are federally supported clinics that provide health services with payment based on ability to pay. Because of their success, these health centers should continue but move towards a performance-based model to emphasize wellness.

Medicaid should be converted from its current form of federal-state partnerships to block grants for states. The states then would have the flexibility to employ various models of care and eligibility requirements. They could employ medical homes, where patients receive care from a team of providers; accountable care organizations, which are insurance companies that emphasize quality of life; or even co-operative clinics like the Patch Adams Clinic which is set to open in Philadelphia. States could even use the grant to design sustainable risk pools for pre-existing conditions. The best practices that might come out of this experimentation could serve as the basis for legislatures when they implement mandates for insurance for all of their state’s citizens. Ultimately, each state has a better understanding of its citizens to deliver cost-effective healthcare. The federal government simply needs to provide the tools.

Healthcare expenses are staggering in the United States and reform is needed. Reform must be slow if it is to be successful. However, there is no such thing as a free lunch. If only the president and his followers would understand this concept.