Obamacare — 10 Years Later (Part 1)

“We came to build a future. So tonight, I return to speak to all of you about an issue that is central to that future — and that is the issue of health care… Our collective failure to meet this challenge — year after year, decade after decade — has led us to a breaking point”

Obama’s Healthcare Speech to Congress, 2009

Twelve years ago, the opportunity fell in the laps of President Obama and became a centerpiece of his 2008 campaign to reform a system that resisted change for over 100 years. In 2010, he achieved the unthinkable: passing major healthcare reform through Obamacare. Let’s take a look at the problems we faced as a nation, what Obamacare set out to accomplish, and now, how it measures against those objectives.

The Problems

Ezekiel Emanuel, a professor of health policy at UPenn and an advisor to the White House on healthcare reform, describes five key problems in his book ‘Reinventing American Health Care’ that Obamacare sought to tackle. It has a good framework in which I’ll base this post around to summarize the problems and goals of Obamacare. I’d recommend reading his book for more details.

1. Costs of the Uninsured

Every developed, industrialized country in the world have a healthcare system built on the principle that every citizen should have healthcare coverage — besides the United States. ( If you’re interested in learning about the healthcare systems of other countries, I’d recommend T.R. Reid’s ‘The Healing of America’ ). In 2010, the US was home to 45 million uninsured individuals, roughly 15% of its population. Among a variety of concerns we hear, some misplaced (like socialized medicine), the underlying opposition for a universal coverage model is that it will be expensive for the United States.

However, Emanuel points to the hidden costs and problems that we all end up paying for as uninsured Americans can still get healthcare. For starters, this takes form in actual lives as the uninsured have more difficulty and delays in getting healthcare. Data shows that uninsured people in emergency care or with cancer are more likely to die earlier than those with private insurance. Studies have also shown that the uninsured are less likely to receive preventative care, more likely to be hospitalized for avoidable health problems, and more likely to postpone needed prescription drugs.

The inability for the uninsured to pay out of pocket then translates to federal funding to hospitals for ‘uncompensated care’ through the DSH program. The rest that don’t get covered through federal funding come as a hidden cost to the insured through increased insurance premiums; in the approximately $116 billion the uninsured received in healthcare, “they themselves paid $43 billion, charity and government paid an additional $30 billion, but the remaining $43 billion comes from the insured”.

2. The Annual Growth Rate of Healthcare Expenditures

In the past few decades, healthcare costs have grown more than 2% faster than the economy. In 2012, we spent $2.8T (17.2% of the US GDP), which rivals that of the entire GDP of other countries. The US spent $8,233 on healthcare per person; the average among the other 33 OECD countries was $3,268. This carries serious implications that affect every level of our economy: businesses are increasingly unable to afford health insurance to their employees, state-level budgets are forced to cut other services (education, transportation, etc), and federal debt outpaces tax revenues. Between 2011–2012, over $1B was cut in K-12, higher education, and public assistance to compensate for Medicaid spending that increased about $16B.

3. Poor Quality of Care

There isn’t a singular metric that defines quality, but as the world’s largest per capita spender, we should expect to provide better quality of care and health outcomes than other OECD countries. There are some areas we excel, for example, the five-year survival rate for breast cancer is the highest in the US. The US also trials more new procedures and treatments than any other country and lead in healthcare research with world class academic centers. However, when we look at other telling health outcomes — life expectancy, infant mortality, disease recovery rate — our results compared to other OECD countries are spotty at best. We also trail at preventative care when comparing rates of child obesity, pediatric immunization, hospital admission, and delivering the indicated care.

4. Lack of Transparency in Costs and Quality

If you’ve ever gone to the doctor before, you’ve been through the experience of absolutely nobody knowing how much a procedure, a drug, or a visit will cost. Nor of its value and whether it is at a competitive rate. This is unlike any other market, in which the suppliers have no idea what the costs are and the recipient have to blindingly accept the costs. We face over-treatment, wasteful spending, and leave 137 million Americans in medical financial hardship. Emanuel also speaks to the importance of accessible data to compare providers against quality — and find that many are nearly worthless. Recall the last time you were looking for a provider and how you went about that decision. Mine were based entirely on proximity.

5. A Problem-Ridden Malpractice System

Emanuel describes the last problem being medical malpractice from a few perspectives. There persists a theory of ‘defensive medicine’, in which a doctor’s fear of a lawsuit leads to unnecessary tests and procedures that drive spending. It’s also difficult for doctors from a psychological perspective and costly for a practice to defend a claim. Secondly, the system itself is inefficient. One of its main goals is to hold providers accountable, which it does poorly at; “97% of the time when a physician or hospital commits a mistake that harms a patient, there is no lawsuit”. Conversely, “ 80% of malpractice suits are not related to an adverse event that was caused by a physician, hospital or order provider mistake”. This disconnect is problematic. Even among a lawsuit, it is ineffective in compensating patients, “the average time to settle a malpractice lawsuit is 20.3 months. Only about 40 cents of every dollar…goes to injured patients; the rest is absorbed in administrative and litigation costs and insurance company profits”. Although the malpractice system comparative to national healthcare spending is not huge at $55 billion in 2008, it’s still a system that isn’t working for any stakeholders.

The Goals

“Today’s vote answers the prayers of every American who has hoped deeply for something to be done about a health care system that works for insurance companies, but not for ordinary people”

Obama addresses the nation on the bill passage, 2010

March 23, 2010 marked the day that Obama signed the Affordable Care Act into law. Let’s take a look at the main tenants of Obamacare that address the above problems.

1. Expanding Healthcare Coverage

To address the uninsured population, Obamacare first expanded the current scope of existing programs. Young adults were allowed to stay on their parent’s insurance plan until the age of 26. Medicaid expansion, subject to state adoption, included income standards that entitled individuals up to age 65 with income below 138% of the federal poverty line to Medicaid. Employers with 50 or more full-time employees were also required to offer health insurance. Second, Obamacare created health exchanges for individuals to buy an insurance plan on a marketplace. Qualified plans established levels of ‘essential coverage’ ( covering emergency services, hospitalizations, preventative care) and prohibited insurance companies from denying coverage to those with preexisting conditions. Individuals up to 400% of the poverty line were provided subsidies on a sliding scale to help pay for their premiums. Lastly, and most contentiously debated, it had an individual mandate that penalized individuals who do not purchase health insurance.

2. Cost Control

Obamacare had two themes to drive cost control, the first being to reduce the price of healthcare services. Some of its key initiatives included Medicare reducing its annual payment increases to providers, allowing for a bidding process for pricing of medical equipment, and implementing a 40% ‘Cadillac tax’ on employers who sponsor a plan with premiums over $10,200 to an individual. It also closed the ‘hole’ in coverage in the Medicare part D drug plan, in which previously plans stopped paying for drugs between $2,970 and $4,750. The second theme is around reducing overutilization of healthcare services. Obamacare created ‘accountable care organizations’ (ACOs) in the Medicare program that bundle a fixed payment based on the type of care, effectively forcing providers to coordinate as they don’t get paid for individual services. Select provisions also penalized high rates of medical errors and hospital readmissions (Hospital Readmissions Reduction Program, HRRP).

3. Quality Improvement

The same cost provisions above tie to quality improvements as providers are financially incentivized to enhance their delivery of care. The development of Electronic Health Record (EHR) standards that document a patient’s care history look to address improvements in medical errors, duplication of services, and provide meaningful data to research how to improve health outcomes. The Patient-Centered Outcomes Research Institute (PCORI) was also established to research patient outcomes, assess treatments, and ultimately drive more efficient healthcare systems.

Preventative care measures are also important indicators of quality and health outcomes. Key initiatives include requirements to menu labeling, providing financial benefits to adopting employer wellness programs, and eliminating deductibles to preventative services and tests. These are all critical to preventing health issues and reduce utilization of healthcare services in the first place.

4. Transparency in Costs and Quality

Obamacare developed a national quality improvement strategy to align quality measures across programs, providers, and insurers. It transformed the Physician Quality Reporting System (PQRS) by extending the scope of providers from not only hospitals but also hospice, care facilities, etc, and penalized those who don’t report on quality measures.

In terms of transparency to consumers, it becomes a bit vague. Under Obamacare, hospitals were required to establish and publish their charges for standard services. There are some consumer protections in place, such as provisions that require insurers to provide documentation of benefits and coverage. Insurers also have to reveal and maintain a 80/20 Medical Loss Ratio (MLR), meaning more than 80% of premiums paid by patients are allocated to healthcare benefits and quality.

5. Malpractice Reform

Emanuel doesn’t really touch upon malpractice reform, and that’s because there’s not much. Obamacare has a small Section 6801 that simply encourages development of alternatives to the current system, and Section 10607 made available $50 million for HHS to award grants to tort litigation projects. Some, however, suggest there will be indirect effects to malpractice litigation from the other above provisions of Obamacare.

There’s definitely much more details (the law is 906 pages), but that’s roughly the main initiatives at a high level. Next, let’s explore the progress we’ve made.

Part 2: What did Obamacare Accomplish?