Code Red: Two Economists Examine the U.S. Healthcare System

July 6, 2012

Is This Health Reform Which I See Before Me?

Filed under: Uncategorized — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 10:43 am

In a recent column, Clarence Page ridiculed Republicans who claim that they want healthcare reform but oppose programs that dramatically reduce the number of uninsured. Republicans counter that the PPACA is not true reform because it fails to contain costs. It seems that our political commentators have finally joined a long standing debate among health policy experts. More precisely, they have joined two-thirds of that debate.

The healthcare system is often described as a three-legged stool, supported by access, cost, and quality. Policy makers have usually paid attention to the most “rickety” leg, sometimes to the detriment of the others. During the 1960s and 1970s, access was the biggest problem, and government gave us Medicare, Medicaid, and the community health center movement. These programs triggered a surge in healthcare spending, and by the mid-1970s through the mid-1990s, the emphasis shifted to cost containment. When government price controls and planning laws failed, the private sector stepped in with a “competitive” solution based on HMOs and selective contracting.

The competitive solution seemed to contain costs for a while but fell victim to a backlash when individuals covered by HMOs were often unable to obtain services ordered by their doctors. Provider mergers further doomed a competitive solution. In the meantime, researchers were pointing out grave shortcomings in quality. The 2000s has been the “quality decade”, with important (though not necessarily successful) experiments in report cards and pay for performance. Without strong regulatory or market pressures, however, costs have reached new heights. And changes in the workforce, combined with the financial pressures of the Great Recession, led to a slow but steady increase in the ranks of the uninsured.

Enter President Obama and a Democratic-controlled Congress. The healthcare system has always been broken, but now all three legs of the stool were showing large cracks and Medicare was tilting towards bankruptcy. How would Congress use its newfound power? Democratic legislators with a grasp of history knew that Congress has repeatedly tried but failed to enact legislation that would improve access. Even as the economy was melting down and the deficit was soaring, it was now or never for dramatic action.

And so we have the PPACA, the biggest expansion of coverage since Medicare and Medicaid. But is the PPACA truly “health reform,” as Clarence Page insists? Or is it doomed to fail, as its opponents claim? Or is it, to quote Macbeth, “full of sound and fury, signifying nothing?” The more I think about the PPACA, the more I lean towards the Shakespearean answer.

The PPACA fixes one leg of the stool but, in the process, puts more pressure on the others, especially cost. The PPACA does include some cost controls and there are quality bonuses in the ACO programs. But these are evolutionary, not revolutionary strategies, and similar efforts in the private sector have enjoyed only limited success.
Meaningful health reform should, of course, address access, just as it should address cost and quality.

Without taking a leap of faith and adopting a single payer system or a fully market based system, perhaps this is all we could have hoped for from the PPACA. We have repaired one leg of the stool and bandaged up the other two. Sometime in the not too distant future, the bandages will fall apart. Will Congress have the will power, and the votes, to prevent it? I fear that we will not see true health reform until Great Birnam Wood comes to Dunsinane Hill.

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