Avik Roy, Senior Fellow at the Manhattan Institute for Policy Research, Opinion Editor of Forbes, and Editor of The Apothecary blog about healthcare and entitlement reform, breaks down the intricacies of the Affordable Care Act for internists.
Avik Roy, Senior Fellow at the Manhattan Institute for Policy Research, Opinion Editor of Forbes, and Editor of The Apothecary blog about healthcare and entitlement reform, breaks down the intricacies of the Affordable Care Act (ACA) for internists with Internal Medicine World Report Editor-in-Chief Simon Douglas Murray, MD.
The ACA has several goals, one of which is to improve health of Americans by increasing access, and another of which is to improve quality while toeing the line on spending. Are these goals compatible?
I think the primary goal of the ACA was to expand coverage, and there certainly were aspirations to do other things like reduce costs and improve quality. But, at the end of the day, those were aspirations, and the goal was expansion of coverage. I would say that nothing came before that as a priority, and the approach that the ACA used to expand coverage didn’t necessarily involve making a lot of sacrifices in terms of the aspirations for improved cost and quality.
Do you think we can afford the ACA?
I think the law, to its authors’ credit, was designed to be fiscally neutral, so what they do is increase spending on the uninsured by about $2 trillion over a 10-year period and pay for that by increasing taxes by $1.2 trillion and making cuts to Medicare of a total of about $716 billion over that 10-year timeframe. That’s how the law is paid for, but the increased tax burden on the economy means you’re sacrificing economic growth and a lot of the things that actually allow people to have health insurance in the private sector, like employment. And the law does other things to drive up the underlying cost of health insurance, which is going to put a lot more pressure on those subsidies to grow over time.
Do you think there’s going to be enough physicians who will participate to make affordable care a reality for most people?
If you think about it this way, the ACA expands coverage in 2 particular ways. In the way the law was designed, about 30 million people are supposed to get new coverage under the law —half are going to get it through Medicaid, and half are going to get it through health insurance exchanges.
Now, the Medicaid part you have to put an asterisk by because a number of states haven’t expanded their Medicaid programs as the law intended. But, broadly speaking, those are the 2 modalities, and that matters because Medicaid, in particular, is a program that a lot of doctors either don’t participate in or they technically participate in the program but don’t end up finding the time to actually see a lot of Medicaid patients because Medicaid under-reimburses relative to other insurance programs. That’s problem number one.
Problem number 2 is that on the exchanges, the exchange-based plans are making an effort to have narrow networks of physicians who are willing to accept somewhat lower reimbursement rates in exchange for having higher patient volume. Plenty of physicians have said “no” to that thus far, though I could imagine that, over time, that problem will ameliorate, because as more and more physicians interact with the insurers and feel comfortable with the rates that are being offered — or at least if they’re better than Medicaid — then some physicians will accept those rates.
Didn’t the government allow for a temporary increase in Medicaid and Medicare rates for the next 2 years?
After the law was passed, there was a temporary bump in Medicaid primary care rates for 2 years, bringing them up to Medicare levels, but that bump expires and it isn’t being renewed.
For most physicians I talk to, it didn’t really affect their practice because, in a sense, they weren’t going to suddenly start accepting a lot of new Medicaid patients based on a temporary 2-year bump, knowing that bump was going to go away and they’d be stuck with the long-term costs. So, that didn’t have much of an effect on physician behavior.
The American Medical Association (AMA) is predicting a shortage of 90,000 physicians by 2020. Is that likely? If so, do you think the ACA is going to hurt the shortage even more because there will be more patients to pick from, so doctors won’t have to take patients at lower rates?
I generally agree with both of those points, but there is an argument coming out of certain think tanks that there isn’t really a doctor shortage and what we really need is to do more to deploy and employ extenders, like physician assistants. However, I do tend to see a big physician shortage because you see it now in Medicaid, where a lot of doctors just aren’t taking Medicaid patients. We’re seeing this 2- or 3-tiered system where people on private insurance and, to a lesser degree, people on Medicare are being seen, but people on Medicaid and the exchanges are not being seen. And Medicare will eventually evolve in the same direction as Medicaid.
Unless there’s a substantial increase in the supply of physicians, this problem is going to get worse over time as the fiscal pressures increase in Washington, DC. And what do you do about that? Well, medical schools are trying to open up more slots to train more physicians, but the problem is there aren’t enough residency slots to admit those medical school graduates into the system. So, what we really need to do is try to expand funding for graduate medical education (GME), but GME is funded primarily by Medicare, and Medicare is already broke.
That means Congress would have to spend more money, and anything that involves spending more money is just tough to do in Washington, DC, because of all the fiscal constraints that exist. Ideally, what we would do is find other ways to save money by reforming the healthcare system and then use some of those proceeds to not only expand the number of GME slots, but also reform our immigration system so that we’re bringing in more foreign medical graduates into the United States. Those are 2 of the ways in which we can address a problem that is only going to get worse as the supply of people with health insurance goes higher.
Do you foresee the government mandating that all physicians accept Medicaid patients as a condition of licensure?
If there’s ever another Democratic Congress, one could see something like that having a certain appeal. But, at the federal level, there’s going to be too much resistance, so where it’s more likely to happen is at the state level. In fact, Massachusetts already proposed something like this a few years back, and I could see Democratic legislatures and governors in heavily blue states overcoming the resistance to this idea.
Do you think it was a wise idea to involve private health insurance companies in the ACA or should it have just covered the uninsured through Medicare or Medicaid?
In my mind, the most attractive thing about the ACA is that the law attempts to use regulated private plans to offer coverage to the uninsured. I would even go farther and argue that, instead of saying we should have expanded coverage through Medicaid or Medicare, we should take the exchanges and gradually migrate the people on Medicaid and Medicare into the exchanges. That system where private insurers can gradually evolve and develop their insurance plans in a way that consumers want is ultimately going to be the best way to have cost-efficient healthcare in the country.
From a practicing physician’s point of view, I would rather deal with Medicare than private insurers. With the private insurance companies, I feel they can make arbitrary decisions and physicians really don’t have any recourse against them. At least with Medicare, we have some recourse to help set policies and complain, but with private insurers, we really don’t have any power over them.
I totally see that from a physician’s point of view, but from everyone else’s point of view, the problem is exactly the opposite: it’s precisely because Medicare generally pays the claims without scrutinizing them too closely that its cost structure is very inefficient. And so, you have to have a balance.
I appreciate that physicians want their autonomy and want to be able to do what they think is in their patient’s interest and not think about anything else, but the fact is, when you practice medicine, you’re imposing costs on the system that are paid for by insurers, by taxpayers, and eventually by consumers through higher taxes and health insurance premiums. So, there is a need to exert certain controls over that system to make sure that medicine is being practiced in a cost-effective way.
If you look at how Medicaid works — which is where the doctors are underpaid or sometimes not paid at all because of paperwork issues — I think that’s the direction in which the system is going. Whereas, in the golden age of Medicare from 1965 to 1985, there were really no cost controls in Medicare, so the program just exploded and grew and doctors got rich. I can understand why doctors would prefer that system, but I would hope physicians could understand why the rest of the country might find that unsustainable.
Do you think private insurers take too much out of the system when they’re allowed to operate? That they take more for their profit and less for the patient’s benefit?
The data doesn’t indicate that at all; it actually indicates the opposite. If you look at the for-profit insurers in this country, the typical profit margin for an insurer is about 5%, which is extremely low. Most restaurants — a famously low-margin business — have profit margins of about 8%. So, it’s a very, very thin profit margin, particularly when you think about the fluctuation of medical costs and medical utilization, so insurers really aren’t getting a lot of profit.
By the way, only a fraction of health insurance companies are for-profit. For example, the Blue Cross Blue Shield insurers are nonprofit, and they’re dominant in many, many states. So, if you look at the behavior of nonprofit insurers, it’s almost exactly the same as that of the for-profit insurers. If profit-seeking was really what was driving insurers’ behavior, then you would expect to see a substantial difference in the behavior of nonprofit insurers and for-profit insurers, but you don’t see that at all.
Still, the public’s opinion about health insurance companies is that they’re quite wealthy, the CEOs are over-reimbursed, and everybody is making money at their expense. I have to confess that I sort of tend to believe that, too.
The insurance company CEOs do make a lot of money, as CEOs do in most industries. But let’s not forget doctors also make a lot of money and hospital CEOs make a lot of money, and it’s doctors and hospitals who are charging the prices that insurance companies are passing forward in the form of premiums.
If you really want to attack the high cost of healthcare, you’re going to have to pay hospitals less and you’re going to have to pay doctors less — and that’s really the core of the matter. Insurance companies are a trivial component of healthcare spending, as their profit margins and CEO salaries comprise not even 1% of the cost of healthcare in this country.
Again, the biggest component of the costs of healthcare in this country is what people pay hospitals and doctors to take care of them. Studies show physicians in the United States get paid substantially more than their peers in other wealthy countries, and hospitals certainly charge far more in the US than in other countries. So, if you want to compare the US to other countries and determine why US healthcare is expensive, you have to start with healthcare providers, not insurance companies.
If you had to break it out, what percentage of healthcare costs is due to hospitals and what percentage is due to physicians?
About 32% of healthcare spending in the United States is hospital care; another 26% is professional services, including physician spending; and then the remaining 42% is made up of drugs, durable medical equipment, and everything else.
Do you think the quality of healthcare in the United States has declined?
The quality of healthcare in America is very high if you have private insurance or Medicare, but it really starts to drop off if you’re on Medicaid, and the uninsured have a bit of patchwork in the quality of their care. So, if you have private insurance in this country, then the quality of your care is very high, but the expense is far higher than is justified by the quality.
How does the United States compare to other countries in terms of quality measures?
It depends on how you look at it. A lot of people talk about life expectancy and infant mortality rates, but those 2 are very broad measures. Life expectancy is influenced by a lot of things besides healthcare, like the overall culture, social order, crime, and car accidents. If you adjust for auto fatalities and homicides, the US actually has the highest life expectancy in the industrialized world. So, there are a lot of problems with those statistics.
The same goes for infant mortality. In the US, we count infant mortality from premature birth as part of our statistics, meaning a 24-week-old baby that’s delivered and ends up dying is counted towards our infant mortality statistics. European countries don’t do that; in fact, they eliminate premature births from their infant mortality statistics. So, there’s massive bias in the way in which infant mortality statistics are compared between the US and other industrialized countries.
However, a lot of these statistics look facorable for the US. The CONCORD study published in The Lancet in 2008 looked at 5-year survival rates following diagnoses for different types of cancer, and on that metric, the US ranked number one in the world. In other words, if you’re diagnosed with prostate cancer or breast cancer in the aggregate in the US, then your probability of surviving 5 years after that diagnosis is substantially higher than it is in a lot of other European countries, particularly Britain and Denmark.
So, if you really want to measure the quality of a healthcare system, find out how it does at the point of intervention after a diagnosis. Because the US tends to do quite well, I think the overall quality of our care is good, but the major problem is that it costs too much.
It does cost too much, and everyone is to blame.
What’s really to blame is the system, which has incentivized indiscriminate spending and disincentivized individuals and consumers from being mindful of the value of the care they consume. That’s a long story that goes back to Medicare and Medicaid in the 1960s and the exemption or exclusion of health insurance from taxable income in World War II. Those events took us down this very wrong course, and we’ve got to reform those aspects of the system if we want to make a dent in these problems.
What needs to be done to make the system work?
For the last 18 months or so, I’ve been talking about an approach that would address all these problems by reforming the ACA exchanges and then gradually migrating the Medicare and Medicaid population — and, to some degree, the employer-responsible population — onto the exchanges. That means individuals would be shopping for their own health plans, instead of being handed them by their employers or the government. Once you’re shopping for your own plan, you could actually decide what kind of deductible you want to pay and start asking questions like “what kind of physician network do I want to have?” and “what kind of prescription drug coverage do I want to have?”
Consumers are also going to think, “Why should I pay $200 for an MRI when the guy down the street is charging $25 for it?” So, there’s going to be an opportunity through consumerism to really reveal who’s charging more than they need to be charging for these services, and it’s going to incentivize consumers to be more mindful of those costs and really seek out value. That’s a good thing, and it’s going to encourage physicians to really pay attention to the cost of the care they’re asking a patient to undergo, instead of simply saying, “I decided this is best for you. Here’s a script.”
That’s exactly why I think health savings accounts are great for people, because it gives them power and incentives to not spend a lot of money.
I think that’s where we have to go. We have to reform the ACA exchanges to be more compatible with health savings accounts, so that more people can be encouraged to save for their own healthcare, instead of spending money on insurance plans — the value of which they rarely receive.
The way to address the degree to which physicians are hassled by insurers is not to eliminate private insurers; it’s to reduce the degree to which insurance pays for things. Let’s make it so that insurance is actually paying for truly catastrophic medical bills, like if you get hit by a bus, have a stroke, or have cancer. But for expenses like check-ups, routine exams, and preventive care, there should be more space for people to shop around for the best deal, because that’s where patients can assign value to who they work with and who they pay for things like quality, service, and price.
What I see happening to doctors in my community is that more and more physicians are choosing to go into hospital practices and large groups, rather than private practice, which I think will make it easier to ultimately change the system. But, as a result of that, I don’t think people get the same care they would receive from a doctor in private practice.
This general trend is deeply concerning because it’s really more about cost. Hospitals are absorbing physician practices in order to have market power so they can charge higher prices to private insurers. That’s borderline unethical, and I think it’s something that the government needs to be more aggressive in addressing.
So, are hospitals just creating a monopoly?
Since they own all the practices, they control the flow of patients in and out of their facilities and, in that way, they can tell the insurers, “We’re going to charge 10% more next year and you’re going to have to deal with it because, otherwise, you’re not going to have any customers.”
I see patients come to the hospital and get treated by hospitalists, but no one is taking responsibility for them when they’re there. Their private doctor has no idea what’s happening to them, and I see a lot of problems that have occurred with this system and a lot less personable care.
And that’s why I think it’s attractive to have retainer-based medicine, which pays physicians for their time and rewards them for spending time with a patient, instead of having this fee-for-service procedure factory that we have today that’s driven entirely by the way Medicare set up the system.
I would like to see that evolve in a different direction, and I think through health savings accounts it can. If you have individuals controlling more of their own healthcare dollars, they will freely choose to be involved in physician practices where they know they’re going to have time with their physicians. Patients value that, and all you need to make it happen is to give them the option to spend their healthcare dollars the way they want. If they have that ability, that authority, and that power, then I think you will see an incredible resurgence in that type of medicine.