On March 23, 2016, the Patient Protection and Affordable Care Act (ACA) — Obamacare — turned 6. Like most 6-year-olds, the ACA has brought a lot of great moments, but caused its share of headaches. The ACA has gone a long way toward reducing the number of uninsured Americans, which is a crucial measure of its success. However, in many ways it has failed to address health care costs that remain too high. So what are some of these cost issues, and how might they be addressed while retaining, and perhaps even enhancing, the successful aspects of the ACA?
One of the reasons our health care costs so much is that Americans pay a lot more for prescription drugs relative to the rest of the world. Thanks to a provision in the Medicare Modernization Act, the federal government cannot negotiate prices for prescribed treatments, unlike private insurance companies and most Western governments. With the support of both presidential candidates, and nearly 83 percent of all Americans, giving the government negotiating power might put a dent in the ballooning cost of increasingly personalized and specialized treatments. We also need to continue the process of moving toward generic drugs.
According to a recent Harvard Business Review article, nearly $1 trillion could be saved by eliminating various forms of “waste” in the health care system. Issues like administrative complexity, fraud and abuse and wasteful clinical goods and services could be addressed by increasing the availability of Medicaid waivers or simplifying Medicaid to simple block grants in order to facilitate innovative solutions to these problems.
Another costly shortcoming of the ACA is the complicated system through which federal advanced income tax credits are given to pay for insurance. Users are required to project their income for the coming year, with steep penalties for those not returning excess tax credits. Also, due to a loophole called the family glitch, family members who are offered self-only, employer-provided insurance are not eligible to receive subsidies to purchase family plans. These issues could be solved by simplifying the subsidy structure into a few brackets or replacing it with a standard reimbursement.
Did you ever wonder exactly how much it costs for someone to use the emergency room? Thanks to Stephen Brill’s Time article “Bitter Pill,” there is now a common person’s guide to these types of issues. Increasing transparency by informing patients how much their care costs, how much their insurance is really paying, and how much other providers are charging allows market pressures to lower, or at least keep in check, health care costs. Contrary to some public opinion, many people will use the emergency room less when they know how expensive it is.
For the last few decades, medical payments have followed a fee-for-service model, much like a fast food restaurant: you come in, receive a treatment, and are charged for it, regardless of outcome. With the passage of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), Congress allowed Medicare payments to be distributed along two different models: Merit-Based Incentive Payment System, which scales fee-for-service based on various quality measures, and Alternative Payment Models, which include things like bundled payments. Moving away from fee-for-service incentivizes physicians to emphasize cheaper preventative measures instead of expensively treating disease.
Despite the ACA’s success with reducing the uninsured rate, costs for health care continue to rise above the rate of GDP growth. With health care costs projected to be 20 percent of GDP by 2022, it is more important than ever to look for the best solutions from both sides of the aisle to reduce health care spending.
John Hoffmire is director of the Impact Bond Fund at Saïd Business School at Oxford University and directs the Center on Business and Poverty at the Wisconsin School of Business at UW-Madison. He runs Progress Through Business, a nonprofit group promoting economic development.
Craig Yugawa, Hoffmire’s colleague at Progress Through Business, did the research for this article.
