June 29, 2012
Health Care After SCOTUS Decision
We asked some of our contributors to analyze the impact that the Supreme Court's historic decision upholding almost the entirety of the Patient Protection and Affordable Care Act will have on the American health care system and political landscape. Here are their responses:
The Supreme Court has finally issued its ruling on the Patient Protection and Affordable Care Act. The Court ruled that it is illegal for the government to require people to purchase health insurance, but the government may tax people if they do not purchase the product. As Chief Justice Roberts wrote, "the individual mandate must be construed as imposing a tax on those who do not have health insurance."
The Court also ruled that the government cannot take away states' Medicaid funds--funds for providing low-income Americans with health care--if the states do not set up mandated Medicaid programs.
Although the Court has upheld PPACA, the law as currently structured is unworkable. This is because the penalty for not signing up for insurance, which is now termed a tax, $750 a year, is too small relative to the cost of health care coverage, about $5,500 a year.
Since insurance companies are required to take all applicants, healthy people, especially the young, will pay the tax rather than buy insurance. This makes the pool of insured individuals sicker and more costly, on average, and their premiums will be higher. With higher premiums, more people will choose to pay the tax, and a downward spiral will unfold.
Unless Congress raises the tax to the level of premiums, the system will have to be replaced with a public option.
This is a poignant victory for President Obama. When he argued for the passage of PPACA, he stated that the penalties were not taxes. He assured Americans that he had not raised their taxes. But now, with the Supreme Court ruling, he is responsible for one of the largest tax increases in American history.
This is a warning to American presidents that they do not know who they will get when they appoint Supreme Court justices. It was Chief Justice Roberts, an appointee of President George W. Bush, who sided with the liberals and called PPACA constitutional when interpreted as a tax.
Paradoxically, the Supreme Court victory helps Governor Mitt Romney, the presumptive Republican presidential nominee. The law is tremendously unpopular, so his position that he will repeal the law will resonate among many. If the Court had tossed out the law, his platform of repeal would have disappeared.
Where to from here? PPACA has severe economic costs, is at least partially responsible for the slow economic recovery, and needs to be replaced. With the Supreme Court ruling, a new healthcare law is the hands of Congress and a new president, if elected. Otherwise, PPACA stands.
Diana Furchtgott-Roth is a senior fellow at the Manhattan Institute, a contributing editor of RealClearMarkets.com, and a monthly columnist for Tax Notes. From 2003 to 2005, she was chief economist of the U.S. Department of Labor. From 2001 to 2002 she served as chief of staff of President' George W. Bush's Council of Economic Advisers.
There is broad recognition that we need healthcare reform. The original legislation focused mainly on access to more consumer sensitive healthcare insurance (e.g. ending lifetime caps on benefits, doing away with denials for pre-existing conditions in 2014, and enabling children to remain on their parents' policies until age 26). But as almost everyone has now realized, insurance reform was only one leg of a 3-legged stool. Real reform requires delivery and payment reform, the ultimate goal being better health outcomes at lower cost.
This issue isn't new; it's been the subject of debate for decades and those who agree reform is a legitimate goal typically play a sophisticated game of NIMBY (not-in-my-backyard), suggesting that while change is needed, it's really the domain of some other sector! True reform requires business model change and that brings about massive resistance.
Clearly, intense discussions about the law have elevated awareness of the problem and the need for real solutions, especially in front of the quickly approaching silver tsunami. The law served as an important catalyst for change and focused discussion on the proper role of government and whether healthcare is a right, a privilege or something in between. It also focused attention on the degree of dissatisfaction with the status quo.
Now that the law has been upheld...its days are limited if a Republican White House comes into office in November. Together with a more conservative Congress, it will be legislated out of existence. Congress will attempt to keep selected pieces that can stand alone, for instance coverage for pre-existing conditions and the removal of the lifetime cap. The need is for transformation -- an industry actually centered on the consumer (it's not despite protestations to the contrary) and real transparency. Innovations in the market, already in place before the decision, will continue. We will see more provider carve outs for orthopedics, cancer care and cardiology, for example, as well as new competition from traditional retail businesses (e.g. Walgreens and Walmart). CMS will continue to put more downward pressure on reimbursement.
Resistance will continue to come from parts of the medical community as pressure for meaningful outcomes and transparency of cost continue to be fueled by consumers and employers. Indeed these two groups have an opportunity to dramatically change the dynamic especially as more and more risk is born by both. Consumers need to step up and assume more accountability for good choices. Utilization of unnecessary services can be changed when there's more accountability for good outcomes, as well as incentives and consequences for providers. Healthcare delivery is the only industry where you get paid more for fixing mistakes. Only when CMS introduced 'never events' did hospitals work seriously on managing care transitions and preventing errors.
It continues to be outrageous that the Federal Government is offering money to invest in improvements the industry should have been making on its own to remain competitive (e.g. IT, Medical 'home' to improve care coordination and outcomes). In any other industry a true marketplace would have penalized poor providers and rewarded good ones. The tax status of hospitals remains an issue and at some point will need to be addressed. Small business pooling still needs to be tackled as smaller employers are disadvantaged in negotiating competitive rates. But debates around healthcare reform are far from over.
Rita E. Numerof, Ph.D., is the co-founder and president of the strategic management consulting firm Numerof & Associates. She has authored five books and is an adjunct faculty member at the Olin School of Business at the Washington University in Saint Louis.
Yes, the Supreme Court's decision to uphold the health overhaul law is disappointing, but the final judgment on the law will be made by the voters in November.
The president now must spend the next four months defending a law that the majority of Americans dislike, and the more they learn about it, the more they dislike it. Worse, the part of the law that is the least popular - the individual mandate - has now been declared a tax.
That's double jeopardy for the president: The unpopular mandate stands and now it is called a tax. And this is only one of the 20 new and higher taxes in the law.
In its decision, the Supreme Court has determined that Congress can compel otherwise free private citizens to purchase a private product with their own after-tax money - a product that would cost them $20,000 a year for a family - under penalty of federal law. The court decided that only those who refuse to comply with the mandate will be subject to the tax.
Importantly, the court did not base its ruling on the Commerce Clause of the Constitution. The government had argued that this provision should be used to compel private citizens to engage in commerce so the federal government could regulate it. The court said no. By calling the mandate a tax, they have actually put new limits on the Commerce Clause's ever intrusive rule over our economy.
The first job for the American people is to demand that Congress repeal the law in its entirety. The focus of the November elections now will be fixed on health care and on the positions of candidates and incumbents on the law.
We all know there are problems in our health sector that must be fixed to get more affordable health care and coverage to millions more people. But the health overhaul law tries to do too much, too fast, and a strong majority of Americans have concluded it will limit their choices, lower the quality of care, increase health costs, and raise their taxes. While the Supreme Court has declared the law to be constitutional, Americans still overwhelmingly object to the approach that the Obama administration has taken with its law to put one-sixth of our economy under government control.
As an analogy, it may be constitutional to raise income tax rates to 100 percent, but that doesn't mean it is right, and the voters would issue their final verdict at the ballot box.
The health law must be repealed so Congress can get a fresh start in addressing the problems the American people want fixed: protecting the most vulnerable, help for the uninsured, lower costs, more choices, and portability of insurance. Once the health law is repealed, the work can begin in forging targeted bills with bi-partisan support to build toward these objectives.
Grace Marie-Turner is the founder and president of the Galen Institute, a non-for-profit public policy research organization that is devoted to the promotion of market-centered health care reforms. She is also the founder of the Health Policy Consensus Group, a forum for the development of health care policies conducive to innovation and consumer-driven care.
It doesn't stop with the Supreme Court. Now we actually have to do something.
One of the big mistakes of the Affordable Care Act ("Obamacare") was to try to solve all of our national healthcare problems at the same time and on a national scale. The Individual Mandate was just the poster child for many of the law's fantasy solutions.
Now's the time to stop talking about healthcare "reform" and start focusing on the need for healthcare evolution.
But the Supreme Court ruling notwithstanding - a grandiose national solution is never going to work. While it sounds good politically to say, "we solved the healthcare problem" - it's just not feasible.
Post the Supreme Court ruling many see problems, but there's also opportunity.
The opportunity is to realize that the way we can evolve healthcare is by recognizing that it must be done locally - on a state-by-state level. When it comes to reform, states are the laboratories of invention. (Welfare reform and the "Wisconsin Works" success come to mind as stellar examples.)
But, just as a "one size fits all" national model is a naïve chimera, so too is the hope that one state's success in healthcare will be equally workable in any other member of the Union. The many positive achievements of "Healthy Indiana" (which requires enrollees to contribute up to 5% of their gross income to an account used to pay for medical expenses - with the state picking up the rest) may not translate to larger states such as New York, Texas or California. Needless to say, there are many lessons to be learned from the failure of "Commonwealth Care" in Massachusetts (such as the danger of providing insurance without ensuring access to a physician).
If a key goal of healthcare evolution is broader coverage at lower costs, one national program that does offer valuable lessons for the path forward is Medicare Part D (the Medicare prescription drug benefit). Part D applies free-enterprise principles to the nation's health-care system (letting competition drive down prices and increase choice and quality) rather than operating like a government-managed utility.
Part D is a resounding success among seniors (as measured by participant satisfaction pushing 90%), below budget costs (the price of Part D over the next decade is expected to be nearly $120 billion less than originally estimated) and lower than expected premiums (in August 2011, HHS announced that premiums would be slightly lower in the drug program in 2012).
Smart partnership between government and the free market works.
It works at keeping costs low and - most importantly - improving care. As JAMA reported, "Implementation of Medicare Part D was followed by increased use of prescription medications, reduced out-of-pocket costs, and improved medication adherence." And this, in no small measure, significantly reduces more drastic medical interventions -- which in turn reduces our overall national health care spending.
The Supreme Court's ruling notwithstanding, the President should grant waivers to all 50 states to opt out of the ACA's dictates and restrictions and allow them to develop their own strategies for healthcare evolution.
"It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change."
-- Charles Darwin
Peter Pitts is President and co-founder of the Center for Medicine in the Public Interest. From 2002-2004 Peter was the Associate Commissioner for External Relations for the FDA. In that capacity, he was the senior communications and policy advisor to the FDA Commissioner.
Bad news for any hope of stabilizing our nation's health care economics, bad news for my fellow physicians (particularly the next generation of them), and bad news for patients.
The core issue that destabilizes our health care system is - without question - the cost-shifting from Medicare and Medicaid. As presented annually from the Medicare Actuary, these programs currently pay at far less than private contract rates - 80% and 60% respectively. How odd in the case of Medicare, as 40-year-old private sector patients are almost universally easier to care for than 80-year-olds on Medicare. In a health care system that makes sense, I would expect to be paid less for the "easier" non-Medicare patient, yet in the aggregate, my colleagues and I have to negotiate to be paid 125% of Medicare rates - or more - just to stay viable.
Obamacare does not address this ongoing destabilization - rather it doubles down on it. A staggering $500 billion in direct cuts to Medicare, plus the IPAB, plus direct pandering to seniors by closing the Part D donut hole, not to mention what will still be at least 10 million new Medicaid patients. All his underfunding will require even more cost-shifting to the private side to keep docs and hospitals afloat. And let us not forget all the provider taxes to devices, pharma and insurers, all of which will add to the cost-shifting - in the end the pressures on the private side of things will mean almost-unimaginable increases in private premium levels, and thus many trillions of dollars in insurance exchange shortfalls.
For physicians, Obamacare has accelerated what already was a trend of Generation Y physicians to abandon any thoughts of independence and just "join a team" - be they good teams like Kaiser-Permanente, or dubious "teams" created overnight by ACO-driven pressures from the local hospital. Obamacare also does nothing to address the $150-250K cost of four years medical school tuition, and even worse, it lays out policies and incentives that seem to be designed to turn the bulk of primary care over to nurses with far less training.
For patients the reality will be the harshest - a health care system that is less economically viable, less innovative, more restrictive, less accessible (particularly in ER's packed with new Medicaid patients), and one populated by dispirited docs whose focus now will be to just "get a job" to start paying off their debts, rather than what my generation of physicians did, which was to "start a professional practice" to make a difference in the lives of their future patients.
Robert Hertzka is a senior member of the American Medical Association's Health Policy Council. He formerly was the president of the California Medical Association.