Why Obamacare Can't Lower Costs
President Obama and the Democratic Party dug themselves into a deep hole by claiming the Affordable Care Act would cut the nation’s health care costs when in fact it will raise them. It’s the gift that will keep on giving to opponents of the law.
The ACA cannot cut costs because its proponents subscribed to the wrong diagnosis of the U.S. health care crisis. They accepted the conventional wisdom that overuse of health care services is the most important reason why per capita health care costs are double those of the rest of the industrialized world, and that overuse is caused by two chronic failings among American doctors: They routinely order services patients do not need and fail to provide them with obviously beneficial preventive ones that would keep them healthy and minimize later need for medical interventions.
This diagnosis is wrong. First, underuse is far more common than overuse, even among the insured. To cite one example, 80 percent of insured Americans showing telltale symptoms, such as shortness of breath, do not see a doctor. Second, preventive services usually raise spending because they cost more to supply than they save.
Predictably enough, the mistaken “overuse” diagnosis led ACA proponents to the wrong solution, namely, that doctors can be forced or induced to stop ordering unnecessary services and provide more preventive services if they are subjected to more control by insurance companies. But the premises upon which this solution is based are also false. It is not true that the methods that the insurance industry uses to control doctors are so precise that they reduce overuse without aggravating underuse. It is also not true that the insurance industry’s methods are so inexpensive compared with the savings due to reduced overuse that, on balance, costs go down.
The ACA’s failure to control costs might not have mattered if we were still in the 1940s or ’50s, when health care spending absorbed 4 or 5 percent of our national income. But it is 2014. Health care spending now eats up 17 percent of our income. Since the 1970s, observers across the political spectrum have agreed that America will never achieve and maintain a substantial reduction in our uninsured rate, never mind universal coverage, unless we reduce the cost of our health care system. As a candidate and as president, Barack Obama made it clear he understood that.
He made that clear, for example, in response to a question put to him by a woman at a town hall meeting in New Mexico in May 2009. The woman asked why “single payer has been taken off the plate.” Obama prefaced his response by emphasizing the importance of cost containment. “If we simply insured everyone under the current system we couldn’t afford it,” he said. “We’d go broke. We’ve gotta drive down costs.”
But in the rest of his reply, Obama made it clear he had no idea how to reduce health care spending. He said he didn’t support a single-payer system because it was “too disruptive,” and then went on to say there were other ways to cut costs that didn’t require the disruption allegedly caused by single payer. He characterized these other ways as “simple things we can do that will save money,” as if these other ways were as obvious as the nose on your face. He mentioned three examples of these “simple things”: “prevention and wellness programs,” “reimbursing doctors not just for treating people after they get sick but for helping people stay well,” and information technology to reduce “error rates” in physician decision making.
The advisers that Obama selected also revealed his belief in the overuse diagnosis and the mantra that keeping people healthy is the solution to overuse. Tom Daschle (Obama’s first choice for Health and Human Services secretary), Peter Orszag (Obama’s budget director), and Ezekiel Emanuel and Nancy-Ann DeParle (his choices for health policy advisers within the White House) were all proponents of the overuse diagnosis and the prevention mantra. Orszag, perhaps the most influential of Obama’s advisers, once said, “Nearly 30 percent of Medicare’s costs could be saved without negatively affecting health outcomes if spending in high- and medium-cost areas could be reduced to the level in low-cost areas.”
Similarly, Obama’s enthusiastic endorsement of an article in the June 1, 2009, New Yorker by Atul Gawande revealed his firm belief in the overuse diagnosis. The article, entitled “The Cost Conundrum,” alleged that “across-the-board overuse of medicine” explains America’s high health care costs. The New York Times reported that Obama brought Gawande’s article into a meeting with senators and said, “This is what we’ve got to fix.”
To sum up, although Obama accepted the dictum that universal coverage in America cannot be achieved without cost containment, his thinking about how to cut costs was defective.
Let us consider first the evidence on overuse. Overuse does exist. The overuse of antibiotics is a good example. But underuse is rampant, and not merely among the uninsured, but among the insured as well, and not just with respect to inexpensive preventive services, but to expensive procedures like heart surgery. Here are some examples of underuse taken from papers published in the peer-reviewed literature. Note that the subjects of these studies all had insurance.
Eight in 10 insured Americans who suffer serious symptoms such as unexplained loss of consciousness, unexplained bleeding, or shortness of breath from climbing a flight of stairs do not see a doctor. Six in 10 seniors insured by Medicare who have been told they need gall bladder surgery don’t get it done. Half of all insured Americans who should have an angiogram to detect blocked coronary arteries don’t get one, and one-fourth of those who do have an angiogram that indicates they have dangerously blocked arteries do not undergo surgery to treat the blockages. Half of all insured people with high blood pressure are not being treated for it.According to the best study of the rates of both under- and overuse (a 2003 paper in The New England Journal of Medicine), underuse occurs at about four times the rate of overuse — 46 versus 11 percent. Here is how the authors summarized their findings: “Underuse of care was a greater problem than overuse. [P]atients failed to receive recommended care about 46 percent of the time, compared with 11 percent of the time when they received care that was not recommended and potentially harmful.”
Once you realize underuse is far more serious than overuse, the claim that reducing overuse can cut costs loses its seductiveness. The question naturally arises, if our goal is to lower costs through better health, how do we improve the overall health of the populace while leaving all that underuse untouched? The logical answer is we can’t (and the moral answer is we shouldn’t). And if we decide we must eliminate or reduce underuse to improve health, how do we do that without spending a lot more money to provide the underused services? The answer is we can’t eliminate or even reduce underuse without spending a lot more money.
The inaccuracy of Obama’s and the establishment’s overuse diagnosis is compounded by the inaccuracy of their claim that prevention, such as smoking cessation treatment and mammograms, must inevitably lead to lower costs. It just isn’t true. A review of the literature on this issue published in The New England Journal of Medicine by Joshua T. Cohen et al. concluded, “Although some preventive services do save money, the vast majority reviewed in the health economics literature do not.”
The reason preventive services generally don’t save money is threefold. First, the preventive services cost money and have to be administered to millions of patients in order to prevent disease in a few of them. Second, like all medical services, preventive services are not 100 percent effective. Flu shots, for example, are effective in about half the people who receive them. Third, some preventive services turn up incipient diseases that require treatment. Colonoscopies and mammograms are examples. If they reveal cancer, patients receive surgery, chemotherapy and radiation, all of which in turn have side effects that can trigger more treatment.
Scholars have reached the same conclusion about a close cousin of prevention known as “disease management.” Whereas prevention aims to avert disease before it starts, disease management aims to prevent chronic diseases such as diabetes from getting worse. Numerous reviews of the literature have reported that most chronic diseases are so resistant to treatment that the savings achieved from better treatment of those diseases (usually in the form of reduced hospitalizations) are swamped by the cost of the additional treatment.
There are exceptions to this rule that prevention and disease management cannot save money. The insurance industry and its allies in business and academia love to talk about these exceptions as if they were typical examples of what prevention and disease management can do. Do not be fooled. They are exceptions to the rule.
Contrary to the conventional wisdom that seduced Obama and proponents of the ACA, the insurance industry’s methods are too crude to reduce overuse without aggravating underuse, and the industry has no secret formula for making patients healthier without spending more money. The industry’s methods for reducing overuse and making patients healthier fall into two categories: financial incentives, and direct interference in doctor-patient decision making.
The most commonly used financial incentive is known as “pay for performance” (P4P). Doctors are paid bonuses if they score well on report cards that purport to measure a tiny proportion of all the activities doctors engage in during the course of a day’s work. For example: the percent of diabetics who receive an eye exam once a year. The most commonly used method of interfering in doctor-patient decision making is “utilization review,” which means someone at the insurance company has to approve a physician’s decision, such as whether to hospitalize a patient or whether a patient must try a cheaper drug first before the doctor can prescribe the drug the physician and patient would choose if the decision were left up to them. But P4P and utilization review are far too crude to reduce overuse without increasing underuse. P4P, for example, cannot accurately measure which patients “belong” to which doctors, and how much of a bad “grade” is attributable to the patient’s health or income and how much is due to the doctor. Moreover, P4P induces “teaching to the test,” that is, it encourages overworked doctors and nurses to shift resources away from patients whose care is not being measured to those whose care is being measured, thereby aggravating underuse for the unmeasured patients.
Perhaps the single best evidence of the insurance industry’s inability to cut costs is its performance within Medicare, the nation’s program for the elderly and the disabled enacted in 1965. Although Congress established Medicare precisely because the insurance industry was avoiding the elderly, lawmakers have over the years (beginning in 1972) allowed the insurance industry to stick its nose further and further into the Medicare program. Congress bought the industry’s claim that its usurpation of physician-patient authority would somehow lead to less overuse and lower Medicare costs. Today 30 percent of all Medicare beneficiaries are insured through the so-called Medicare Advantage program, the privatized branch of Medicare.But Medicare Advantage is raising, not lowering, Medicare’s total costs. According to the latest report from the Medicare Payment Advisory Commission, a panel established by Congress to prepare recommendations on how to improve Medicare, Medicare Advantage increases costs per enrollee by at least 4 percent compared with costs under the traditional program, and probably more (other estimates indicate the Medicare Advantage program raises costs much more than 4 percent). The reason for the uncertainty is that Medicare Advantage insurers “upcode” far more aggressively than do doctors treating patients under the traditional Medicare program. “Upcoding” means the insurance industry tells Medicare its enrollees are sicker than they really are in order to induce Medicare to pay them more.
Medicare’s experience with privatized insurance is a harbinger of what the country can expect from the ACA — more insurance industry control over doctors and hospitals, higher administrative costs, an aggravation of the underuse problem, and higher expenditures on health care. How soon will Obama and the Democrats figure this out? Again, Medicare suggests an answer. The superior performance of the traditional Medicare program over Medicare Advantage should long ago have caused Congress to terminate the Medicare Advantage program. But Congress has continued wasting taxpayer dollars on Medicare Advantage insurers for decades despite receiving numerous warnings from Medpac and other government agencies.
Why is that? The short answer is the insurance industry has the power to propagate the myths discussed in this article — overuse is the main problem, prevention will save money, and it has a secret sauce for reducing spending without aggravating underuse — and our political leaders, in the face of that power, are willfully gullible, gutless or both.
Kip Sullivan is an attorney, activist and writer whose work has appeared in The New York Times, The Nation, The New England Journal of Medicine and the Los Angeles Times.