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April 19, 2011

So Do We Really Need Health Care Reform?

Summary:

Health care reform in the form of PPACA was signed into law by President Obama on March 23, 2010. Now more than a year later it is still a significant matter of discussion. The House and the Senate continue to discuss whether or not we need it. Yes this topic has its political sides and strong supporters on both sides, but few seem to get to the real issue, “do we really need it?” Health care reform has been widely discussed for most of the past forty years. Many have feared its coming, others have anxiously awaited it. Now that it is a reality, it continues to dominate much of the discussion.

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Health care reform in the form of PPACA was signed into law by President Obama on March 23, 2010. Now more than a year later it is still a significant matter of discussion. The House and the Senate continue to discuss whether or not we need it. Yes this topic has its political sides and strong supporters on both sides, but few seem to get to the real issue, “do we really need it?” Health care reform has been widely discussed for most of the past forty years. Many have feared its coming, others have anxiously awaited it. Now that it is a reality, it continues to dominate much of the discussion.The key reasons for wanting health care reform have included:

  • Significant numbers of uninsured and underinsured individuals (i.e., more than 40 million or about 1 out of 7 individuals)
  • High expense of health care services in excess of 17% of the GDP (i.e., more than 1 out of 6 dollars spent on healthcare)
  • Need for improved quality in healthcare (i.e., continuing medical errors as reported by the Institute of Medicine leading to more than 130,000 deaths per year)
  • High rate increases for insurance products limiting the public’s ability to purchase insurance

Most of these reasons are inter-related. The high cost of care forces up premium rates which in turn impacts the ability of individuals to obtain health insurance. This in turn stresses our excellent health care system with the large number of individuals without health coverage, sometimes leading to more than expected medical errors.

Although more needs to be done, PPACA attempted to deal with most of the above issues. It enabled the creation of exchanges to maximize the availability of coverage options to those without coverage. It created a mandate to force individuals to obtain coverage. It provided a significant subsidy for those who could afford it the least. It attempts to fold in to the current Medicaid and Medicare system many, and hopefully most, of those without coverage. It created a concept known as value based reimbursement to improve quality and minimize medical errors. It instituted loss ratio limits to constrain the prices of health insurance products. All of these were attempts at trying to get at the key issues. Were they enough? Probably not, but many of them were focused in the right direction.

The big question remains, do we need health care reform? Did PPACA do enough in the right direction to be worth the effort and expense to continue it? Although this, on the surface, seems to be a simple question with strong supporters on either side of it, it remains a challenging question.

One of the biggest issues inadequately discussed is the second bullet above which deals with the percent of GDP spent on health care. Yes we all know how expensive health care is, but have we seriously considered the economic impact of increasing health care costs. Although I am not an economist, I have spent most of my professional career studying the health care system at both the micro and macro levels. I understand that different sectors of the economy are continually in battle for their share of the economy. Whenever one sector grabs more than its fair share, the rest of the economy essentially fights back wanting it back. For years this has happened without concern. The economy has demonstrated amazing levels of elasticity, responding to new demands, new technology, etc. As long as the economy was strong there seemed to be an endless supply of resources for any sector of the economy.

However, as the economy has become more sluggish, dollars more scarce, with more concern about the economy’s viability, there has been increasing concern about sectors of the economy that are consuming more than expected or more than desired. In the past several years the discussion about elasticity of the general economy has become more common. In a stagnant economy, one without growth, some economists have raised the perspective that the residual elasticity might be as low as four or five percentage points. If true, this suggests that there may be no more than four or five percentage points of the economy available to any current sector without an offsetting reduction by another sector. Most projections for the health care sector show continuing increases with demands for more than four or five percentage points by 2014. What does this mean? This simply means that health care could by itself consume all of the available elasticity by 2014. This is delayed with a robust recovery in the economy, but still presents a serious problem if the economy fails to rebound. The impact of an economy without any additional elasticity is its inability to respond to needs for resources. Without available resources sectors of the economy will potentially decline and die. In our “just in time” economical world, the economy relies upon smooth transition and free access to resources. Without this serious economic problems emerge.

The bottom line is that we need to conserve the available elasticity of our economy to preserve our economy. To the extent that any sector is consuming more of the economy than its reasonable fair share, that sector needs to be restrained to protect the economy. Perhaps the biggest reason for health care reform is this restraint. Without it, our economy is at significant risk. We as a country cannot afford this economic risk. We need health care reform, there is not doubt. However, we need to thoroughly question whether or not adequate controls exist in PPACA to restrain the health care system’s desire to consume more than its fair share.

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About the Author

David Axene started Axene Health Partners in 2003 after a successful career at Ernst & Young and Milliman & Robertson. He is an internationally recognized health consultant and is recognized as a strategist and thought leader in the insurance industry.

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About the Author

Adam DeGraide is the CEO and founder of Astonish. DeGraide and his team are the driving forces behind a vision to help insurers grow their businesses by using the Internet. Astonish was recently ranked 267th on the Inc. 500 list of fastest-growing private companies in the U.S. Astonish currently serves more than 7,000 insurance industry users in America.

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