Affordable Health Care

As we approach the launch date for when the Affordable Care Act state-run exchanges begin enrolling individuals, there have been a number of health-care related articles in the paper. The first that caught my eye was from Adrianna McIntyre over at The Incidental Economist (one of the very best health care policy blogs). Adrianna summarizes a recent New England Journal of Medicine study that reviews public perceptions of the drivers of cost growth in Medicare; unsurprisingly,

the majority do not identify any one of them as the most important. However, the three most often cited reasons relate to poor management of Medicare by government, fraud and abuse in the health sector, and excessive charges by hospitals.

While there are probably areas of waste in each of the health care sectors listed above, health care economists are pretty united in terms of what they view as the driver of long-term growth in health care costs, and its not listed above:

As you can see from the chart above, the overwhelming force behind growing health care costs has been the development of new treatments and technologies. It would be one thing if our health outcomes were dramatically improving as a result of these new technologies. Unfortunately, US health outcomes remain quite poor (relative to other developed nations) along many dimensions. The reason for this is that our health care system is very very bad at systematically reducing insurance coverage for ineffective or inefficient treatments; the reasons for this are likely many: public fear of ‘health-care rationing,’ the third-party payment system, a lack of transparency and data about effective treatments and health outcomes, the political power of large pharmaceutical companies, etc.

To borrow an image from Uwe Reinhardt at the Nytimes:

As the chart above makes clear, there is a point at which additional health care expenditures basically add no value to the health care system, and even a point on the health care cost curve where additional expenditures (for unnecessary treatments and procedures) are downright harmful (side effects resulting from unnecessary treatments).

The worrying thing, here, is that the Affordable Care Act does very little to address technology as a driver of cost-growth in health care. Theoretically, the Independent Payments Advisory Board (IPAB) will be able to evaluate the cost-effectiveness of varying treatments and make changes in coverage, but those changes are subject to overrule from Congress and apply only to Medicare. However, Medicare is already more efficient than private insurers, and without a mechanism that compels private insurers to improve efficiency in health care delivery, it’s going to be extraordinarily difficult for Medicare to keep costs down by cutting coverage for ineffective treatments–at least without convincing an already-skeptical public that Medicare is rationing health care.

Unfortunately, public opinion is the key obstacle to improving the efficiency of our health care system. Just look at the public reaction to the Affordable Care Act–a significant portion of the country is ready to shut down the government and/or cause the US government to default on its debt obligations over the law, and the law only tackles the low-hanging fruit of improving the health care system. Granted, the law is imperfect in many ways, but fundamentally, the law basically tries to eliminate discrimination in the health care sector, increase insurance coverage across the country, and hold down costs by getting more people into the insurance pool (lowering average premiums for everyone and cutting down on emergency care for the uninsured). If we can barely get those reforms accomplished, imagine what the public reaction would (will?) be like if some of the reforms proposed by the authors cited above (such as revoking Medicare coverage for ineffective breast cancer treatments) actually occur?

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