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Essay: Healthcare After 2014

One of the most daunting healthcare challenges in New Jersey and the nation -- how to stem the relentless growth of healthcare costs.

Understandably, the attentions of health-policy watchers are focused intently on the implementation of the landmark 2010 health reform law. The future of the law seems as unsettled as ever. "Obama-care" draws sharp barbs in the nascent presidential-nominating race. Meanwhile, appellate review of constitutional challenges to the Patient Protection and Affordable Care Act (ACA) grinds toward a Supreme Court showdown. Closer to home, New Jersey -- and indeed most state governments regardless of party control -- is engaged in high-level decision making about how health insurance exchanges, oversight of private insurance and other features of the law will take shape as 2014 approaches, when most Americans will have to buy coverage or face penalties.

With many ACA implementation deadlines over the next 27 months, it is easy to lose sight of one of the most daunting healthcare challenges in New Jersey and the nation -- how to stem the relentless growth of healthcare costs. The data puts this challenge in sharp relief. New Jersey has among the highest per capita healthcare spending in the U.S., the nation with the most expensive healthcare system in the world.

U.S. health spending per capita is more than twice the median of the Organization for Economic Cooperation and Development (OECD) member nations, and nearly 50 percent higher than the next most expensive OECD country. Worse, while we lead in spending, accessibility, quality, and healthcare outcomes in the U.S. lag in contrast to our peer nations. The trends do not look good either. National healthcare spending is expected to grow at an average rate of 5.8 percent between 2010 and 2020. As U.S. healthcare spending approaches one-in-five dollars of the U.S. economy, it is easy to see that our system is simply unsustainable. Indeed, the single biggest contributor to the U.S. debt crisis is Medicare and other federal health programs.

Observing the ongoing healthcare policy debates in this country, one could not be faulted for suggesting that the ACA simply adds more covered lives to the sinking ship of U.S. healthcare, but that would be too simplistic. Many have criticized national health reform for not doing enough to "bend the cost curve," but the ACA and related policy initiatives include dozens of provisions intended to stem cost growth. Foremost, the ACA seeks to change incentives faced by providers, particularly in Medicare. Under the current system, delivering more care is almost always rewarded financially, regardless of its value for patients. The most widely touted of ACA provisions designed to change this incentive is the Medicare Shared Savings Program (also known as Medicare Accountable Care Organizations or ACOs), which will give financial rewards to groups of healthcare providers that successfully trim cost increases while maintaining or improving quality of care. The national reform also promotes more consistent use of the most effective preventive services, like blood pressure monitoring. Other ACA provisions, like a tax on high-cost employer-sponsored plans, are designed to give the private sector incentives to engage in more effective means of slowing cost growth. The ACA also makes substantial investments in developing new reimbursement incentives and efficient delivery systems, as well more evidence about the effectiveness of alterative clinical approaches.

Arguably almost every idea ever advanced by health policy wonks to save money while improving care appears somewhere in the ACA. But many of these ideas are new or at least they have never been tried on a large scale. No one can say when, or even if, real savings will materialize from the changes that are promoted by the health reform law. The ACA does include one fail-safe mechanism, called the Independent Payment Advisory Board, which will recommend ways to trim excess Medicare spending starting in 2015, if cost growth exceeds a specified target. If Congress fails to find other ways to reduce spending growth, Medicare is required to adopt the Board's recommendations. While nothing that is ultimately in the hands of Congress has an assured outcome, this approach holds promise. But it has one serious flaw -- it is limited to Medicare. The more Medicare squeezes payments to healthcare providers, the more providers will seek to shift expenses to private payers. If Medicare squeezes enough, its beneficiaries will experience reductions in access to care as providers shift their practice to more remunerative payers.

The 2006 Massachusetts comprehensive health reform, which foreshadowed the ACA, took a similar approach by expanding coverage first and creating a commission to recommend ways to contain cost growth later. Ultimately, the Massachusetts commission recommended moving toward a system of global budgets, to be applied to all payers. Such a system would cap the amount health spending per capita may rise in a given year, giving providers incentives to manage utilization effectively and keep medical prices in check. Global budgets are different than price controls, since they would limit total spending, not just prices, and are thus much less subject to gaming. Since it applies to all payers, a global budget would also avoid the problem of cost-shifting in the federal government's Medicare-only strategy. Global budgets are also compatible with other strategies to rein in cost growth, including medical malpractice reforms and incentives for everyone to adopt better diets, increase physical activity, stop smoking and engage in other health-promoting behavior.

Of course, there are huge challenges to making sure that healthcare providers have the tools to manage costs (like creating effective ACOs and high-functioning electronic medical records) and that all payers are on board (including the federal government) before a state-based budgeting system could work. New Jersey was once on the forefront of all-payer cost containment, with some limited success, but New Jersey’s program focused only on hospitals and suffered other limitations. Unlike cost containment strategies that apply only to public programs like Medicare and Medicaid or to a single category of service providers such as hospitals, a global budgeting strategy could be designed to stem increases in healthcare costs across the board in a way that benefits all New Jerseyans.

Despite the cost-saving intentions of the ACA, there are reasons to be dubious about waiting for federal solutions. The federal government has never had much appetite for addressing health system inflation (the Clinton health plan included strong cost controls, almost certainly contributing to its demise). Moving in the direction of serious healthcare cost control in Washington seems out of the question in the current political environment. But states like New Jersey and Massachusetts, as outliers in health spending even by U.S. standards, may be better positioned to move now toward effective solutions.

Joel C. Cantor is the director of the Center for State Health Policy and professor of public policy at Rutgers University. He has authored numerous studies of health insurance regulatory policy, healthcare delivery system performance, and access to care for low-income and minority populations. He serves frequently as an advisor on health policy matters to New Jersey state government.

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