Health Care Reform: What Could Go Wrong?
In light of some recent discussion on the topic here, I thought I would offer my own thoughts about whether health care reform will “work.” Let me begin by saying that I fully expect that some things will not work out the way reformers expect. That is to be expected. The idea that a single piece of legislation could permanently fix everything that is wrong with the health care system is a fantasy. The legislation currently under consideration will fix some problems and probably create others that will need to be fixed later. I am of the opinion that the net effect will be positive, but we may have to navigate a little whitewater in the process.
As anyone who has designed an IT system knows, there are two types of problems you get in system development. There are problems when the system doesn’t work the way you designed it. The technical term for this is a “bug.” A second type of problem is when the system works the way you designed it, but it causes something else to break. The technical term for this is “Microsoft Vista.” I think most of our problems with health care reform are likely to be of the “Vista” type.
There are parts of reform for which implementation is likely to be reasonably straightforward. Some of expansion in coverage will come from expanding Medicaid and the Children’s Health Insurance Program. Those programs currently exist, have mechanisms in place to enroll people, relationships with providers and health plans, etc. That’s not to say that there are not problems here (e.g. providers refusing to participate in Medicaid because of low reimbursement rates), but expanding coverage through these two programs does not require either federal or state governments to start doing things that they have no idea how to do right now.
Another way that coverage will be expanded is through an employer mandate on employers over a certain size. This is a new thing. On the other hand, the federal government—as any employer will tell you—has a lot of experience in regulating businesses, enforcing mandates, etc. For this reason, I don’t think the employer mandate creates huge technical challenges.
One idea that is somewhat new is the creation of “health exchanges,” where individuals not insured elsewhere could go to purchase coverage. Because these exchanges would aggregate a large number of individuals, they would spread risk reasonably widely and allow insurers to offer the standard benefit package at an affordable cost. While this is somewhat new, both federal and state governments have experience in creating group purchasing arrangements of various types (e.g. “high risk” pools; Medicaid Advantage; the Federal Employees Health Benefit Plan, Children’s Health Insurance Plan, etc.). Much will depend on whether there are enough people in the exchange or exchanges to create a reasonably stable risk pool.
My most significant technical concern is not with the various ways reform will extend coverage, but with the implementation of the individual mandate and the associated subsidies. While the reform bills do contain various types of legal enforcement, the mechanics of actually tracking down non-compliant individuals and sanctioning them could prove challenging.
Exactly how challenging will depend on the subsidies. If they reasonably generous, the number of “mandate evaders” may be somewhat small. But if someone is looking at a health insurance bill of several thousand dollars—even with subsidies—they might well decide to risk non-compliance.
Finally, the “public option” presents some significant technical challenges. It’s true that Medicare has a lot of experience as a payer. But the federal government has never run an insurance plan that had to operate like a business and compete with other plans. Whether the federal government could offer a truly competitive insurance product remains an unanswered question.
That covers a fair number of the “bugs.” What about the “Vista” problems?
One concern is whether insurance regulation (e.g. plans will no longer be permitted to deny coverage based on pre-existing conditions) will drive up insurance premiums. All things being equal, bringing higher risk individuals into an insurance pool would increase rates. At the same time, an individual mandate that brings relatively low-risk individuals into the system would—again, all else held constant—decrease premiums. The ultimate effect may be a wash, but if it’s not that could be a problem.
My second major concern is the impact on the federal budget. Historically, entitlement programs (e.g. Medicare) have cost more than originally estimated. If insurance premiums rise faster than projected, then the subsidies will have to match that growth or risk a major backlash from voters. The resulting crisis would probably lead either to the dismantling of reform or to more aggressive regulation of insurance rates.
Much depends on whether, under a reformed system, market forces would be powerful enough to keep insurance premiums in check. Advocates for a public option think that this would be one of the roles it would play. But if it turns out that the public plan doesn’t have any more luck than private plans in reining in the cost of health care services—and I think this is a significant possibility—then that hoped for feature may not materialize.
All in all, though, I would argue that the upside of reform is worth the risks. We will have established the most important principle, which is that all Americans should have access to a basic level of health insurance. I suspect, though, that we will need to keep working the details—particularly around cost control—as we move through implementation.