Against Expectations, Health Care Reform Shows Signs Of Working

By Todd Hixon

U. S. attempts at health care reform, centered on the 2010 Patient Protection and Affordable Care Act (“ACA” or “ObamaCare”) have created controversy and evoked much criticism and cynicism. I and others have observed that the ACA is much stronger on coverage extension than on cost control. But, we are now seeing evidence that cost growth is moderating.

U.S. Health Care Spending As A Percentage Of GDP: 1960–2011. Data via CMS and Dept. of Commerce.

Three recent signs:

  • U.S. health care expenditure did not grow as a percentage of GDP in 2011 (more).
  • Prices for individual health insurance policies on the new health exchanges are coming in well below current prices and expectations in numerous states (more).
  • New approaches to coordinated care and results-oriented medicine are showing measurable benefits. For example, hospital readmission rates, a key driver of health care costs, declined in late 2012 (more).

Probably the best fact is that most of the new approaches are just beginning to be deployed and measured. If they are showing results already, then we can expect much larger benefits over time.

For 50 years U.S. health care spending grew about twice as fast as GDP and more than tripled as a percentage of GDP, to 17.9% in 2009. Since 2009 health spending has been flat as a percentage of GDP (see chart above). Most observers think a major factor behind this moderation has been more consumer skin in the game: employee exposure to health care costs has about doubled in the last eight years. Employee-directed health care spending accounts (HSAs or HRAs) are growing very rapidly and are now available to about 50% of private sector employees (see chart below). And, the 2008 recession put many consumers out of work, with reduced or no health benefits. With more skin in the game, consumers spent less.

Employee exposure to health care cost, and availability of HRAs/HSAs. Data via Towers, Watson. Average for family plans.

This trend is just beginning. High-deductible insurance plans for example, are growing rapidly, but still have low penetration. And, numerous health care price transparency initiatives are underway, but a real market in health care is still in its infancy (more).

The most exciting idea of all, IMHO, is what I call “results-oriented medicine”. Obviously medical practitioners (and their clients, you and I) care about results, but the practice of medicine has long been managed and compensated mainly on the basis of inputs: procedures, treatments, and medicines. The basis of compensation is changing due to provisions of the ACA and the rise of new practice models such as Direct Primary Care (“DPC”: more). Direct Primary Care means primary that care is paid like a health club membership: a fixed amount per month, paid directly by the patient or employer, outside of the procedure-based compensation structure used by health insurance companies and (historically) by Medicare and Medicaid.

Most DPC practices are independent of hospital systems, so they are not financially driven to feed to big machine. The doctor can think about what the client needs without having to fight the structure of the payment system. For clients who need a lot of education or support, plan longer and/or more frequent office visits. For busy, basically health, established clients with a narrow problem or a need for a check-in, set up a phone call. If the client needs an operation, help him/her weigh different options for the surgery: a big-name hospital, a well-respected less-known hospital, or a surgery center. It’s incredibly liberating to be able to look at care delivery with fresh eyes.

Let’s not get too excited here. It’s early days and we are looking at a few data points which could prove to be temporary improvement or balloon-squeezing (the cost has gone somewhere else). Still, what we see is encouraging. And we have only begun to tap the potential for change.


[This post first appeared at blogs.forbes.com/toddhixon on August 6, 2013.]

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