Op-Ed: We Need More than Campaign Slogans to Fix Healthcare System

James J. Florio | March 1, 2017 | Opinion
The ACA has healthcare moving in the right direction except when it comes to costs — and it may be that the rise in healthcare costs has nothing to do with the legislation

Credit: NJTV
Former NJ Gov. James J. Florio
The current debate over the Trump administration’s plan to “repeal and replace” the Affordable Care Act (ACA) should force us to evaluate what it does and what we want out of our healthcare system.  

We, in fact, have already achieved much under the ACA to move us in the right direction, balancing quality, affordability, and access. On access, over 20 million people gained health insurance; 700,000 in New Jersey. There are still another 15 million uninsured people, but we are headed in the right direction.

Concerning quality, there is a growing consensus that the ACA’s operating principle, which we should be embracing, is the view that outcome-driven healthcare reimbursement is preferable to and more efficient than the current fee-for-service system with all of its inefficiencies. Keeping people well is better than waiting to treat them after they get sick. An example of the ACA’s success is that hospital readmissions are down after enacting incentives to treat people correctly the first time.

It is in the area of healthcare costs that policies have been deficient.

Eighteen percent of gross domestic product (GDP) is attributed to healthcare. That means that almost one in five dollars spent in our economy is on healthcare. The ACA has in fact reduced the rate of price increases, but it continues to increase nevertheless and needs our attention. It may be, however, that the causes of such increases have nothing to do with the ACA.

Our system is essentially a market-based one in which the majority of Americans are covered by their employers.

The competitive free enterprise system is supposed to exercise restraint on pricing. Hospitals and other providers, however, are rapidly merging. Such consolidation is reducing competition. Likewise, insurance companies are merging as well. In addition to such horizontal mergers across industries, we are now seeing vertical mergers with hospitals acquiring interests in insurance companies and insurance companies acquiring interests in hospitals and other providers. The most recent example is United Health Group, one of the largest insurance companies, buying Surgical Care Affiliates, a chain of outpatient surgery centers. The net result is less competition to restrain costs.

Additionally, insurance companies are exiting markets they do not dominate and are focusing on those they do; the result of which is that most states have but one or at most two dominant insurance carriers — not particularly conducive to vigorous competition.

In addition to these forces, which fail to restrain price and cost increases, there are other factors causing increasing insurance rates that are unique to the healthcare industry that have nothing to do with the ACA.  

In order to maintain productivity and control costs, every other industry offsets the capital costs of newly needed technology by reducing the personnel that the technology replaces. Somewhat uniquely, healthcare has a level of labor intensity below which you cannot go, so there is little offset to the cost of new technology. In fact, rather than downsize the numbers of employees to reduce costs, economists tell us that healthcare job opportunities are expanding and will continue to expand. Political leaders, especially those in our urban areas, herald their views that the key to future employment growth opportunities are “Eds and Meds.”

I think the obvious policy conclusion is that the simple intent to “repeal and replace” the ACA doesn’t do justice to the complexity and uniqueness of our healthcare system. Healthcare policy decisions require thoughtful analyses not campaign slogans.

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