Obamacare Escapes the Maelstrom

by Michael Liss

ObamacareThat was quite close. But for a handful of votes, and some hubristic miscalculations, virtually all of the ACA would have gone down in a whirlpool of tax cuts and denials of coverage.

And yet, the monster lives. The temptation is to fill volumes with the how and the why, all the inside baseball, who disliked whom. But, being the sort of person who is naturally attracted to dull, I am going to talk about AHCA and ACA without ever mentioning Donald Trump, Paul Ryan, and the Freedom Caucus. Spoiler alert—read further and you enter a sea of boiling wonkiness.

Let's state what the last few weeks should have made obvious: For all the bloviating the overwhelming majority of Congressmen and Senators really don't know what they are doing when it comes to healthcare. They don't understand population health or public health issues or patient needs. They don't understand insurance. And they don't understand economics.

No one should be surprised by this. Politicians rarely have granular knowledge in any field other than politics. Rather, governing is basically the mechanism through which the expertise of other, more informed people (in industry, academia, and inside government itself) is filtered through a political philosophy, debated, transmitted (or sold) to the public, and enacted.

Most of the time this process works—crudely, without attention to fine detail, without being perfectly engineered. Americans have been blessed with great assets. We can usually afford the inefficiencies that have ideology (or just garden variety spoils) triumphing over technocratic precision. Besides, there is always another election coming.

But healthcare is just too complex and nuanced and just plain important for bumper-sticker governance. We really do need deep knowledge and a multidisciplinary approach to have the slightest chance of drafting credible legislation. Whether we like ACA and want to improve it, or hate it and just want to blow it up, the least we can do is make an attempt at understanding its key components.

Obamacare is ultimately about providing insurance which then facilitates transformational change. At a basic level, buying insurance is a bit like placing a bet in a casino. The insurance provider is the House—it acts a mechanism for spreading and allocating risk and reward. An insurer (private or public) pools bets (premiums or taxes) that are determined through handicapping/actuarial assumptions to be enough to pay all claims, the costs of administration, and, in the case of private insurers, make a profit.

Not everyone wants or even needs insurance—to paraphrase an economist I know, if your means are sufficient, and the risk proportionately small, why give away the overhead and the profit? We engage in this type of analysis all the time—for example, refusing to purchase extended warranties for appliances or for the latest IPhone. But for bigger ticket items such as automobiles, homes, health, lives, most of us realize we need a deeper pocket to back us up.

Healthcare insurance has an added wrinkle in that it also acts as the intermediary between patient and provider to negotiate costs. Excessive governmental regulations may drive medical professionals crazy, but it's insurance that hits their wallets hardest. It also offends many of them, by creating a sort of "stars and scrubs" system in which the stars are the deliverers of more "unregulated" high-fee services (elective/cosmetic or highly specialized, like brain surgery) and the scrubs are basically everyone else. Insurance, in effect, commoditizes much of medicine, arbitrarily devalues skill, and often places a lesser importance on results than cost.

Insurance also serves another, less well-understood purpose. It creates paying customers in an industry that needs them. Medicine isn't just highly-trained professionals—it's also the facilities where they deliver their services. In short, it is a business, and whether the provider is a solo with one nurse in a small office, or an uber-hospital complex, both constantly have to balance staffing and equipment needs against capacity utilization. To use a sports analogy, you have to put fannies in seats to make the whole thing work.

There is a hitch to that—the fannies in the seats can't be freebies. Too little compensated care combined with too many expensive "charity cases", and you can't run your business without outside subsidies. If you happen to be a great teaching and research hospital that can build lucrative "non-commodity" practice groups, recruit top scientists to draw in grants, and convince high-net-worth donors to put their names on buildings and professorships, then a diverse revenue stream can cover your losses in patient care. But poorer and more remote communities don't have those advantages, which puts their viability constantly at risk.

That leads to an interesting paradox. The "esthetic" goal of healthcare is to heal the sick, and heal them as quickly as possible. But the business of healthcare requires cash flow–and if paying customers get well too soon, and the non-payers require extended stays, you have the elements of an economic meltdown.

This is where public health comes in, and in my first purely partisan comment, leads us to an area in which Obamacare (with every one of its deep flaws) is clearly superior to any Republican alternative that has been floated. The more people are insured, the more likely it is they will seek care early, before problems become more complex and costly. The more they are encouraged to lead healthier lifestyles, the less likely they are to develop debilitating illness. The revenue per patient may drop, but will be offset by an increase in the number of paying patients, all while reducing the number of catastrophically ill, but non-paying ones.

How do we know these things? Because the market tells us. Businesses and private insurers don't push "wellness" solely because of humanitarian concerns—they do it out of economic imperatives. They recognize that overall health across a group of individuals improves when we can reduce behavioral pathologies. Drinking, smoking, substance abuse, physical idleness and obesity all sicken and prematurely age people first, and then lead to more intensive medical needs (and expense) later. If you can intervene and reduce bad behavior even a bit, you can, across that population group, delay the onset of illness and lower overall medical costs.

The market also knows that true access to very basic healthcare—nuts and bolts things like prenatal and pediatric care, screenings and immunizations, and early treatment for both emergent and systemic medical problems—also improves outcomes substantially. Those almost-free flu shots you can get at any chain pharmacy reflect the same type of philosophy as wellness campaigns do. Your insurer would much prefer to spend a few bucks for a dose today, then bear the risk of paying out a large multiple of that when you get really sick tomorrow.

When you put those two things together, behavioral modification and readily available basic care, you can see how any large group will, on average, benefit from policies that encourage a greater attention to health, and to promptly seek care when needed. But people without a lot of disposable income can't do it on their own. This leaves you with two choices–either refuse care, which is morally offensive and, for physicians, ethically inappropriate, or assist them, by expanding the number of insureds both in the private market and through Medicaid. The latter takes seed money, which means taxes—which is anathema to Republicans and therefore the biggest "repeal" in AHCA.

How do I convince a conservative to expand healthcare, or at least tolerate what Obamacare did? I would start by abandoning the hyperbolic emotional symbology of claiming "people will die" and instead focus on the cost of outcomes to society. I asked my economist friend (who would not be disturbed by being described as a cold-blooded free-market rationalist) about the collapse of AHCA, and I got an intriguing response. To start with, he's a strong believer that the healthy and those of sufficient means should be able to opt-out—in effect to self-insure—which rejects Obamacare's individual mandate. But he had other concerns. "It seems to me there are several reasons for government to get involved in health care: 1) If people don't have normal health care, they show up at emergency rooms. That imposes a bigger cost on society. 2) People who are diseased, spread disease, so everyone has an interest in general health. 3) Children who can't make their own decisions are entitled to health care as a basic right. 4) Some adults are incapable of thinking this through, so we have to give them healthcare rather than money."

To this, I would add one more reason, and it's a very conservative value. You want people to take care of themselves and their families for as long as they can with as little government money as possible. The uninsured day laborer who cuts his arm on the job, sticks a Band-Aid on it, and ten days later is hospitalized on the public dime isn't just a one-time (large) expense. There are collateral effects that can ensue; loss of earnings, loss of job, chronic pain that leads to opioid abuse, maybe even disability which puts him (and his family) on the public dole indefinitely. The same is true, with different fact patterns, at different stages of life, for many other groups. The sick child stays home from school and falls behind. Poorly treated chronic diseases lessen the ability to be productive and self-sustaining. Among older people, it may hasten their institutionalization in nursing homes—and when those folks run out of money
(often having drained their spouses first) they end up on Medicaid.

One could use this argument as a justification to advocate for universal, single payer insurance. It's fine idea, but a trap. To provide to everyone an attainable pathway to being insured (not the "access" that the GOP talks about, but actual insurance) requires an enormous amount of money that we probably cannot raise in a politically palatable way. But that doesn't mean we should be ceding back the successes we have had under Obamacare. A fair number of Republican Governors, who accepted Medicaid expansion (and those now in the process of doing so), implicitly acknowledged this. And the public, with its overwhelmingly negative reaction to the details of AHCA, particularly the massive loss of insurance, acknowledged it as well.

What we ought to be doing is re-examining how we deliver healthcare, and how we can amend Obamacare in a way that substantially improves it. We should be broadening the tax base to support it—it's unreasonable to have virtually all the burden fall on one economic group, no matter how much they have. We should have more detailed econometric scoring of the impact of insurance that includes the collateral effects of keeping people healthier and able to take care of themselves–or take care of themselves with a little assistance. We should be analyzing the implications of increased (and paid for) patient utilization at facilities located in disadvantaged areas. We also should be looking at some of the innovative approaches being initiated at the state level. New York used a Medicaid Waiver to launch the Delivery System Reform Incentive Payment Program (DISRP). DISRP'S primary goal is reducing avoidable hospital use by 25% over 5 years. It expects to achieve this by incentivizing providers to achieve certain metrics in system transformation, clinical management and population health—some of the very places we know create better outcomes.

None of this is going to be easy. It will require time, real expertise and political courage. It will also require restraint on the Republican side to not undermine ACA while we go through the process–and they are making rather loud noises about obstructing ACA further and even revisiting repeal. But with an increasingly obese and aging population, it needs to be done. Obamacare has shown us what even a seriously flawed structure can accomplish. The shortest peek at AHCA gave a glimpse of nothingness, and nothingness is frightening. To quote Edgar Allan Poe in his 1845 "Descent into the Maelstrom":

"Never shall I forget the sensations of awe, horror, and admiration with which I gazed about me. The boat appeared to be hanging, as if by magic, midway down, upon the interior surface of a funnel vast in circumference, prodigious in depth, and whose perfectly smooth sides might have been mistaken for ebony, but for the bewildering rapidity with which they spun around, and for the gleaming and ghastly radiance they shot forth, as the rays of the full moon, from that circular rift amid the clouds which I have already described, streamed in a flood of golden glory along the black walls, and far away down into the inmost recesses of the abyss."

That image should lead everyone to call their representatives and whisper, "Row harder, please…and could you steer away from that funnel?"