11 pieces of not-so-conventional wisdom on Obamacare

by Megan Mcardle

Bloomberg

As we approach the Great Unveiling of Obamacare, Americans are going to see a lot of these talking points repeated as if they’re facts. Most of the talking points are not dead wrong — they could be true. But they’re considerably more uncertain than most pundits seem to think.

1. Once Obamacare goes into effect, it will be impossible to substantially cut it back.

Both sides seem convinced of this — Republicans in terror, Democrats in glee. Funny thing, though — the other day, my father mentioned casually that many of his classmates at Syracuse’s Maxwell School of Public Policy in the mid-to-late 1960s had been on Medicaid. And then, suddenly, they weren’t.

It turns out that in 1965, when Medicaid passed, the State of New York had a great idea: shower a bounty of federal money on New Yorkers by setting the income eligibility limits much higher than other states. They financed this by requiring the local government to kick in 25 percent of the cost.

The Feds matched state and local dollars, so that for each dollar New York State spent, it got one local and two federal dollars to go along with it. At the income levels they set, a third of the state was eligible. Then the federal government noticed that it was spending many multiples of what had been projected, with a lot of those dollars going to New York. New York cut back the program sharply, turning Medicaid into what it is today — a shoestring program for low-income families, rather than the comprehensive middle-income safety net that New York State had envisioned.

This drama has played out in other states, most recently in Tennessee, where a large Medicaid expansion into more middle-class populations had to be rolled back when the state could no longer fund it. Entitlements are hard to roll back, but it is clearly not impossible, because it has been done.

2. Accountable Care Organizations are certain to bring down overall health spending.

Here’s another interesting observation I heard the other day, this time from a participant in the recent Brookings’ papers: It’s not clear that ACOs are going to save money. The idea behind ACOs is that they will help us move away from fee-for-service medicine, in which doctors are paid for doing stuff, and toward a system where doctors are paid by the patient, a system usually rendered in the popular lexicon as “paying for health, not treatment.” The unspoken underlying assumption being that this means “paying less for health.”

This is the holy grail of health care economists, and perhaps it is finally upon us. But we should be cautious. The obvious reason is that “health” is hard to measure, so what you often end up is “paying for the condition of the patient.” That is, you give doctors a certain fee for all patients with moderate heart disease, diabetes and a thyroid condition. Since they get the same fee no matter what they do, you end the incentives for over-treatment.

Cynics have observed, however, that you then create incentives for under-treatment. The cynics are right.

The un-obvious reason that we shouldn’t be too confident in the ACO revolution is that bundling payments this way encourages — in fact, nearly requires — doctors to band together in much larger practice groups. A small practitioner with a few hundred patients is extremely vulnerable to the possibility that some of those patients will end up requiring much more treatment than their health status classification would predict. A few of those, and you’ve lost money for the year. And what if those patients are also extra-expensive next year? Bankruptcy court looms. So you need a very large practice to make the financials work, so that you can be sure that the extra-expensive patients are balanced out by some extra-cheap ones. This also makes it easier to manage a patient’s entire set of health problems within a single practice.

But as the participant pointed out, consolidation is one of the things that is known to drive up prices in health care markets. When you’re an insurer negotiating with 2,500 individual doctors, you have a fair amount of leverage to keep their fees down.

When you’re negotiating with four large practice groups, suddenly you’re not so powerful, because you might lose customers if your policy excludes a quarter of the doctors in town. So it’s not yet clear whether ACOs are actually going to lower costs — or even work at all.

3. Obamacare works because it gets money from deadbeats who go to the emergency room and then stiff the rest of us for the cost.

Actually hospitals have a pretty effective mechanism for collecting money from the deadbeats: debt collectors.

Uncompensated care is definitely a problem, and it will almost certainly fall under Obamacare. But in Massachusetts, which achieved much higher coverage rates than most states will see (90 percent of the state was insured when they started, and they have comparatively few illegal immigrants), such care fell by less than half between 2006 and 2010:

Moreover, this is a relatively small amount of overall health spending — about $62 billion in 2009, on total health spending in the trillions. Obamacare mostly works by getting young and healthy people to spend more on health care than they otherwise would, thus subsidizing older and sicker people. You can argue that this is unfair, or that it’s merely a down-payment on their own future as old and sick people. But either way, this is the real mechanism for making the insurance expansion affordable to individuals, and the government.

4. Emergency room use will decline.

When health care wonks want to reach for an example of useless care, they inevitably settle on back surgery. When journalists do the same, it’s almost always emergency room visits. The legend goes like this: People who don’t have a primary care physician, or insurance, end up in the emergency room because that’s the only place that will take them. By the time they’re there, they’re a lot sicker than they would have been if they’d been treated earlier, so they cost more. Moreover, emergency room care is incredibly expensive to provide even for routine conditions, so you’re taking a $75 doctor’s visit and turning it into a $1,000 ER bill.

It’s a compelling theory. Unfortunately it doesn’t seem to be true. In Massachusetts, ER visits actually rose post-Romneycare. It turns out that people use the ER for nonemergency care for a number of reasons — sometimes a painful-but-not-life-threatening condition like a urinary tract infection arises on a Saturday morning, and sometimes people who work for hourly wages don’t feel that they can afford to take off work to go to a doctor’s office. Or sometimes they have a primary care physician, but can’t get a timely appointment — a situation that got worse in Massachusetts after Romneycare passed.

That’s not to say that Romneycare caused ER visits to rise. It may have (since more of those visits were now insured), but we don’t know that. What we do know, pretty conclusively, is that it didn’t cause them to dramatically decline.

5. People can game the system by going without insurance and then buying it when they get sick.

Republicans have been skating a thin line between prophesying this, and encouraging it. But they’re wrong. After March 2014, this is going to be a pretty dangerous game to play. You will only be able to enroll in an exchange policy during open enrollment at the beginning of each year.

Now this would work for a lot of conditions — even necessary surgery can often wait nine months, and while I really wouldn’t recommend it, it probably wouldn’t actually kill you to wait six months to get into a diabetes treatment program. But if you get into a car accident in April, the next 10 months of expensive treatment will be on your dime.

I’m not saying that this means everyone’s going to buy insurance. I don’t think we know that yet. But the Republicans arguing that people will cost us a bundle by only paying premiums after they get sick is just wrong.

6. Breaking the link between health insurance and employment will spur entrepreneurship.

There’s a decent amount of evidence suggesting that access to health insurance outside of your job reduces what economists call “job lock” — people who stay tied to a job when they’d rather be elsewhere. This has led a lot of observers suggest that we might be on the verge of turbocharging our economy by unleashing a wave of entrepreneurs who are currently tied to their job for the insurance.

It’s a compelling, and entirely plausible, story. But at this point, it’s just a story. For a lengthy discussion of the various studies, and why we might or might not believe them, you can read the piece I wrote this summer. The too-long-to-read version is that people who have a chronic illness end up tied to their jobs for lots of reasons — you don’t want to take many risks if you, or a loved one, might have a medical emergency at any moment, so it’s not clear how much health insurance, rather than the steady paycheck, accounts for the job lock.

And while ending job lock may unleash entrepreneurship, it may also encourage people to exit the labor force earlier than they otherwise would, creating a net drag on the economy.

You also have to consider the fact that the new health care law raises the cost of expanding your company — suddenly, when you hit that 50th employee, you either have to buy them all health insurance, or pay a big penalty. (At least, assuming the employer mandate actually eventually takes effect.) On the other hand, it might lower the costs of growing a small company, since you don’t have to buy your employees health insurance to tempt them away from a larger company.

It’s all very complicated. Which is why this should be classified as “speculative” rather than “conventional wisdom.”

7. Obamacare will reduce the budget deficit.

The latest Congressional Budget Office score that I am aware of estimates that the Patient Protection and Affordable Care Act will reduce the budget deficit by $109 billion over 10 years. (It’s a year old, but CBO director Doug Elmendorf said in May that the projections were little changed from that estimate.) But that doesn’t mean this is what will actually happen. I mean no disrespect to the CBO, which is my favorite government agency ever. But it is required to assume, when making forecasts, that the things which are written into law actually happen. There is very good reason for this — otherwise, it would be too easy for the forecasts to degenerate into a partisan war over baseline assumptions. But it means that such forecasts have a certain vulnerability: If the law mandates the unlikely, the CBO is required to treat the unlikely as a 100 percent certainty.

The Government Accountability Office made this point in a recent report, the title of which says it all: “Patient Protection and Affordable Care Act Effect on Long-Term Federal Budget Outlook Largely Depends on Whether Cost Containment Sustained.”

The nearly $1 trillion cost of the Obamacare insurance expansion was financed by cutting payments to providers, and by raising taxes on certain wealthy people and medical device makers. The problem with deep reimbursement cuts is that they have often proved politically impossible to maintain — just witness the 1990s cuts to doctor payments, which have been “temporarily” fixed for so many years that allowing them to take effect would now require cutting doctor reimbursement rates by almost a third. This is impossible not merely because it would make doctors angry, but because some of them would stop taking Medicare, and then seniors would get very angry indeed.

Other provisions also look vulnerable. You’re starting to hear noise on the left about getting rid of the employer mandate entirely; it’s proven very difficult to implement, and there’s also fear that it will result in people having their hours cut back, or losing their jobs outright. But that would be extremely expensive.

Here’s my colleague Ezra Klein in 2009, describing what an early version of Obamacare looked like without the employer mandate: “It would’ve cost, in other words, 70 percent more and covered 20 percent fewer people.” The difference, he goes onto explain, is the mandate.

Enough of the cost-control provisions look vulnerable that the much-vaunted deficit reduction seems more likely than not to disappear. At the very least, we should not treat this as a done deal; it will require a lot of quite unpopular political exertion over the next few years to keep these measures alive.

8. The Independent Payment Advisory Board is going to radically change the relationship between you and your doctor.

The basic idea behind the IPAB is that it will look at all the latest medical research and then set reimbursements to encourage the use of best practices. I’d go into more detail, but you’re already wondering when this is going to end, aren’t you?

That’s the nub: Its members recommend changes to Medicare reimbursements based on evidence, and then Congress has to either accept those recommendations or come up with its own changes that save an equal amount of money.

I’m pretty skeptical that this will actually work. It is, as P.J. O’Rourke once said of a similar scheme, like “trying to stop smoking by hiding cigarettes from yourself and then leaving a note in your pocket telling you where they are.” Congress wrote this law, and can unwrite it anytime they want.

And even if this does take effect, this is not some sea change in your relationship with your doctor. Insurers and Medicare already control what health care you get by deciding what to pay for.

This may be more restrictive than earlier regimes, but it’s not a radical alteration of the Golden Rule of Health Care: “He who pays the gold, makes the rules.”

9. People with pre-existing conditions will be able to buy insurance in the private market for the first time.

I used to believe that I was uninsurable in the private market because I have a (fairly boring) autoimmune disease. My colleague Virginia Postrel, a breast cancer survivor who buys insurance in the private market, set me straight. Since the Health Insurance Portability and Accountability Act passed in 1996, people with pre-existing conditions can still be covered as long as they maintain health coverage. It’s only if your coverage lapses that you run into trouble.

Obviously, not everyone maintains coverage — when you’ve lost a job, health insurance is often one of the first things that gets cut, and some people never had coverage in the first place. But it isn’t true that no one with pre-existing conditions could get health insurance before Obamacare came along and fixed everything.

This is, by the way, one more reason to be skeptical of predictions that we’re about to unlock a massive untapped well of entrepreneurship.

10. Obamacare will bend the cost curve.

One more point I heard made at Brookings last week: The consensus about Obamacare among health economists is narrower than the range of opinion among the broader community of public intellectuals, and much narrower than that in the general public. Mostly the experts think that it will be good for the individuals it covers, but that the other beneficial effects promised — such as bending the cost curve — aren’t particularly likely. Increasing the demand for a service does not usually drive the price of that service down, especially when supply is constrained, as the supply of doctors is in the U.S.

11. Obamacare will make bankruptcy a thing of the past, at least for the people who gain coverage.

You have probably read the studies showing that well over half of all bankruptcies are driven by medical problems. Well, maybe you didn’t read the study, but you read the headlines on the articles about the studies.

Unfortunately those studies weren’t very good — they used extremely expansive definitions of “medical bankruptcies,” which included people with relatively minor medical bills. And those same authors did a study in Massachusetts that found no significant decline in bankruptcies after Romneycare took effect.

Don’t get me wrong: I think medical bankruptcy is real. But it’s complicated, because people who have really severe medical problems often also have really severe income loss, which gives them a severe mismatch between their debt payments and their ready funds.

Getting rid of the medical bills helps — I don’t trust that latest study any more than the earlier ones — but while I expect that Obamacare will somewhat reduce the number of people who end up in bankruptcy after a major illness, you’ll still have a lot of sick people who end up bankrupt as well as ill.

Canada, for example, still has medical bankruptcies despite a very comprehensive single-payer system.

  • Ian

    Canada has medical bankruptcies? This is a false statement, as far as I know as a Canadian citizen. We are all covered by own provincial medical programs, so how is a hospital bill going to sink us into debt? Only cosmetic surgery patients get medical bills, for the most part, with few exceptions. People here can still go bankrupt because of loss of income, but not because of medical bills. Get the facts straight, American press!