Analysis Of The Health Care Law

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WARNING:  The time required to read this post will violate my five-minute rule—by a wide margin. This isn’t so much to punish readers for my decision to read all 1,163 pages of the “Patient Protection and Affordable Care Act” (HR3590) and all 337 pages of the “Health Care and Education Reconciliation Act of 2010” (HR4872)—known collectively as the health care law—but rather because a shorter post couldn’t possibly do an analysis of it justice (not that a longer post will either, but here goes . . .).

SPECIAL NOTE: Claiming I read “all 1,163 + 337 pages of the health care law” requires some clarification. My eyes did indeed follow all the sentences (if you can call them that), but HR3590 and HR4872 both contain large parts that are largely indecipherable, referring, as they do, to other laws often by stating things like this: “(1) IN GENERAL—Section 1861(s)(2) of the Social Security Act (42 U.S.C. 1395x(s)(2)) is amended—(A) in subparagraph (DD), by striking ‘and’ at the end.” I was simply unable to carve out the time or summon the mental energy to refer back to all the other statutes the health care law amended. Further, the law is written backwards (a standard for lawmakers, I presume), by which I mean declarations are made that require an understanding of other declarations and terms that are described below them—and often far below them. This required a lot of re-reading and parsing of sentences that induced severe brain fatigue and more than a few headaches. Finally, though in several places the meaning of the law’s provisions was plain, the thinking and the intent behind them often (though not always) remained obscure. Lawmakers rarely include explanations for why their laws say what they do. This is all to sound a warning that what follows represents my sometimes uncertain understanding of the substance of the law and may actually contain errors of fact. Knowledgeable readers are encouraged to point out any they identify. The law is unbelievably complex and the one overriding impression with which I was left after reading it is this: I doubt anyone, even the law’s principal authors, fully understands the way it will change American health care.


The health care law certainly contains a number of controversial provisions, but among the most controversial (as evidenced by how many states want to test its constitutionality) is that all Americans are mandated to have health insurance beginning in 2014. If they don’t purchase it, the law says, they have to pay a tax penalty of no more than $750 per year (prorated by number of months they go without insurance) multiplied by a cost-of-living adjustment beginning in 2016. The rationale for mandating that every American be required to purchase health insurance is that “by significantly increasing health insurance coverage, requiring all Americans to purchase health insurance will minimize adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums.”

This reasoning seems logical at first glance: increase the number of (presumably healthy) people who pay insurance premiums but who are less likely as a group to need health care services (and thus who will require insurance companies to spend less money on them) and the profit margins of insurance companies should rise.

Yet to motivate people currently without health insurance to purchase it, the cost must be less than the penalty for failing to purchase it. And it’s not: who believes anyone will be able to find insurance for less than $750 per year?

But let’s put that problem aside for a moment and assume enough healthy people currently without health insurance will indeed purchase it. I agree that almost certainly then there will be an even distribution of these new healthy enrollees across most insurance plans—”spreading the wealth” so to speak—that will minimize adverse selection (where certain insurance companies get stuck with the sickest patients who cost the most). But the idea that this will lower premiums simply doesn’t follow. First, it ignores the actual cause of increased premiums—the continually increasing cost of providing health care. It costs doctors and hospitals more to provide care as time goes on so they charge more, so insurance companies have to pay more, so they raise premiums. The increased revenues insurance companies will enjoy from the huge influx of new (healthy) enrollees may widen their profit margins enough to enable them to hold off on increasing premiums for a while. But eventually they’ll have to start raising premiums again when health care costs rise above a certain threshold. Which they will, as nothing in the health care law directly addresses the true cause of increasing health care costs.

But even if the rise of our nation’s health care bill plateaued, why would higher profits lead insurance companies to reduce their premiums if no one can take away their customers? Everyone in America will now be required to have health insurance and large insurance companies (that might be able to afford reducing premiums) operate in relatively competition-free markets (residents of one state can’t buy insurance from companies that operate in another). The end result? Consumers currently have almost no ability to “vote with their feet.” Thus, no competitive pressure exists to motivate insurance companies to lower their premiums at all. Quite the opposite: they have every reason in the world to pocket that extra money they’ll get from all the new enrollees (for one thing, it makes their shareholders happy, which means you if your 401K happens to include a health insurance company or two). No wonder the stock market valuations of most large insurance companies surged when the health care law was first passed.

So why would Congress expect premiums to go down when they failed to create a system in which free market forces have a chance to operate? The answer is because of all the provisions they crafted into the health care law that regulate the health care insurance industry—and not just with respect to insurance company practices (a reasonable role for the government to play when market forces aren’t strong enough to safeguard consumers against abuses) but with respect to how much insurance companies can charge their customers. Even more than that, with respect to what insurance companies can do with their revenues. There is legitimate disagreement in our country about the role government should play in regulating any private business, but as I pored through the health care law I found myself astounded at the reach the government is taking into the private enterprise of health insurance. For example:

    1. Insurers must rebate enrollees for money they spend (with revenue generated from premiums) on non-claim costs above 20% (group market) and 25% (individual market). This essentially means 80% of the revenue that insurance companies make in the group insurance market and 75% of the revenue insurance companies make in the individual insurance market must be spent on benefits paid to health care providers for patient care. Any excess profit must be rebated to enrollees.
    2. The Secretary of Human Health and Services shall establish a process for review of unreasonable increases in premiums; insurers must submit a rationale to Secretary prior to implementing an unreasonable increase. What represents an “unreasonable” increase? The health care law provides no guidelines.
    3. The Federal government has given the states the power (and money—$250 million) to review rate increases and bar any insurance company from the states’ Exchanges (see below for a definition of an “Exchange”) if their premium increases are judged “unreasonable.” Further, justification for such “unreasonable” increases must be posted on the companies’ web sites.

I find it ironic that charges of socialism have been leveled against the Obama administration when these provisions in the health care law seem far more reminiscent of the principles of communism (in which market prices are set by a central body rather than the market). (Please note I’m not using this label to be pejorative—the only objection I have to communism is that it doesn’t work.) What will set the price insurance companies can charge isn’t the market but the judgment of specific individuals whose primary concern is the affordability of insurance to consumers. This last is, of course, critically important, but if the system that ensures premiums are affordable also creates a business model that’s unsustainable, the health care insurance industry will eventually collapse. Those who support the government single-payer model will perhaps be delighted to imagine this happening, but moving to a government single-payer model by itself won’t do anything to control rising health care costs. One way or another, we’ll still have to pay for it: if premiums aren’t higher under a government single-payer model, taxes certainly will be.

Truly, I don’t have a well-formed opinion about the wisdom of maintaining a private insurance/government payer model vs. a single government payer model. But if we want to give the private insurance model a fair chance to work (and I recognize that’s a big “if” for many), we need to create incentives where each participant in the system (health care providers, patients, and insurance companies) are internally motivated to act in a way that sustains it. Currently, none of the three has those incentives. Physicians are motivated to order more tests and perform more procedures because the advance of technology enables them to (and, in fact, in many cases brings real benefit we all want), because many of them make more money if they do, and because they fear malpractice suits if they don’t—all of which drives up the cost of health care by increasing utilization. Patients are motivated to want more tests and treatments because they perceive more intervention leads to better outcomes (even when studies suggest it often doesn’t), which makes them complicit in increasing health care resource utilization. Insurance companies are motivated to charge high premiums because of the high cost of health care and avoid paying out promised benefits because such payments subtract directly from their bottom line.


The law includes many provisions that protect the insured.  Insurance companies may no longer:

    1. Put lifetime limits on the dollar value of benefits (meaning no limit exists to how much money your insurance company is obligated to reimburse providers for your care over the course of your lifetime).
    2. Place unreasonable annual limits on dollar value of benefits (meaning no limit exists to how much money your insurance company is obligated to reimburse providers for your care over the course of any one year).
    3. Rescind health care insurance except in cases of fraud (meaning if unintentional mistakes are made in an insurance application, insurers are prohibited from canceling benefits).
    4. Impose any preexisting condition exclusions (meaning no insurer can refuse to cover medical expenses for conditions people develop prior to applying for insurance). In fact, no insurer may turn down any employer or individual in the state they provide coverage at all.
    5. Vary rates by any criteria other than age, tobacco use, and what’s defined as a rating area. Each state will establish rating areas “for the purpose of applying the requirements of fair health insurance premiums,” but nowhere in the law did I find mention of what criteria will be used to create them.
    6. Charge deductibles that exceed $2,000 for individuals.
    7. Make any applicant wait more than 90 days to be accepted into a plan.
    8. Prevent anyone from choosing any primary care physician or pediatrician in an insurer’s plan.

Points #1-#3 seem at first glance like basic protections consumers should be able to enjoy. And though I’m confident these provisions will indeed be of great benefit to hundreds of thousands of people, if not more, and should be included in our health care reform, I also feel bound to sound an alert that they simultaneously help sustain a moral hazard that currently contributes significantly to our country’s rising health care costs: patients in America no longer pay themselves for the tests or treatments they receive so have no incentive to think carefully about whether or not they should get them. Though cost shouldn’t be a limiting factor on one’s ability to get a test or receive a treatment, having to pay nothing for a service makes it hard psychologically to not want it, even when getting it may not actually be in one’s best interest, as I noted above.

Point #4 is tricky. As a physician I find myself enraged when I diagnose a patient with a disease whose treatment they can’t afford because they lost their previous insurance through no fault of their own and whose new insurance won’t pay for the treatment I want to give them until, for example, they’ve been on their books for a year. From an insurance company’s point of view, I understand the rationale: if they can’t refuse granting insurance or paying claims for patients with preexisting conditions, what’s to stop someone from waiting until they get something bad and then applying for insurance, essentially becoming a profit-drainer from the very first day they’re covered? While I hate preexisting condition clauses and agree they should be prohibited, how are insurance companies to guard against such abuses? If everyone in America buys health insurance as the health care law mandates, this won’t be a problem—but as I mentioned above, as the law is currently written, I’m skeptical this will happen.

I have no quarrel with the following provisions:

    1. Tax credits shall be provided against the cost of premiums for people with incomes from 100% to 400% of the poverty line. Cost-sharing shall be reduced for enrollees with incomes less than 400% of the poverty line. The Secretary of Health and Human Services shall reimburse qualified plans for the cost-sharing reductions they provide to such enrollees.
    2. All patients can visit an ER without prior authorization to any ER, whether it’s an ER that participates in the patient’s plan or not for any “emergency situation.” An “emergency situation” is defined as a patient contracting “acute symptoms of sufficient severity (including pain) that a prudent layperson, who possesses an average knowledge of health and medicine, could reasonably expect the absence of immediate medical attention to result in a condition described in clause (i),(ii), or (iii) of section 1867(e)(1)(A) of the Social Security Act.”
    3. Health care cost information shall be made readily available to the public via the Internet. All U.S. hospitals must list publicly their standard charges for items and services rendered.
    4. Children may remain on their parents’ policy until age 26.

All insurance companies must also cover preventive care interventions with evidence-based ratings of “A” or “B” according to the U.S. Preventive Services Task Force, as well as cover immunizations. Further, all insurance companies must cover “essential health benefits,” which are defined as:

    1. ER services
    2. Hospitalization
    3. Maternity and newborn care
    4. Mental health and substance use disorder services
    5. Prescription drugs
    6. Rehabilitation services
    7. Lab services (I saw nothing in the law that mentions outpatient scans like MRIs, CTs, PETs, or even exercise tests.)
    8. Preventive and wellness services and chronic disease management
    9. Pediatric services including oral and vision care

My take on the above: all reasonable protections that provide a baseline level of support we’ll all need at one point (or more) in our lives. And though I agree such consumer protections are required in our current system, the size of the new bureaucracy created to enforce them is simply staggering (the details of which are too elaborate to post here). To partially help offset this cost, insurance companies must pay a fee to the government beginning September 30, 2012 equal to $2/covered life per policy offered. Given that our current population is approximately 300 million, this will provide 600 million in revenue to the government.


The health care law requires each state to create an American Health Benefit Exchange (government entity or non-profit established by a state) that:

    1. Must be self-sustaining by Jan 1, 2015.
    2. Facilitates the purchase of qualified health plans.
    3. Establishes Small Business Health Options Programs (SHOP Exchanges) designed to assist qualified small employers in getting their employees enrolled in qualified health plans.
    4. Certifies health plans to ensure quality.
    5. Operates a toll-free number hotline for assistance.
    6. Maintains an Internet site to show comparisons of plans, rate health care plans with system developed by the Secretary of Health and Human Services, which enables enrollees to determine actual premium cost to them.
    7. Decides whether or not to make a health care plan available to enrollees.

My take on the above: In deciding to assign government watchdogs to the health insurance industry rather than create incentives for the industry to regulate itself, Congress is risking the same kind of failures that led to the economic meltdown of 2008 as well as the BP oil rig disaster. Though I’m not arguing for no regulation, no government watchdog can watch everyone and everything (even if it isn’t plagued by incompetence). Though far more difficult to legislate, strategies that link an industry’s survival directly to behaviors that best serve its customers are far more successful. I would have preferred the main force of regulatory control to come from the clever placement of these incentives (even at the cost of a major restructuring of the health care insurance industry) with governmental regulations sprinkled on top to provide adequate consumer protections. As it is, the cost of maintaining the bureaucracy the health care law creates will add significantly to our nation’s health bill. How effective this strategy will be remains to be seen.

Some further examples of insurance industry regulation:

    1. All plans will be divided into four levels of coverage based on percentage of cost sharing: Bronze (plan pays 60%), Silver (plan pays 70%), Gold (plan pays 80%), Platinum (plan pays 90%).
    2. Beginning Jan 1, 2015 a plan in the Exchanges can only contract with a hospital that meets safety criteria established by the Secretary of Health and Human Services.
    3. Health insurance companies can operate outside of Exchanges, and no one shall be compelled to enroll in an Exchange health plan; but members of Congress and their staff can only get health insurance through programs created under the health care law.
    4. The Secretary of Health and Human Services shall establish procedures by which a state may allow brokers to enroll individuals in health plans and to assist individuals in applying for premium tax credits and cost-sharing reductions for plans sold through an Exchange, including establishing rate schedules for commissions.
    5. Unlawful residents are not eligible to get insurance through an Exchange.
    6. The Secretary of Health and Human Services shall establish a Consumer Operated and Oriented Plan (CO-OP), whose purpose will be to foster the creation of qualified nonprofit health insurance issuers to offer qualified health plans in individual and small group markets. Secretary shall provide loans for anyone wanting to start up such a CO-OP for start-up costs and to meet solvency requirements
    7. An advisory board shall be created consisting of 15 members appointed by the Comptroller General of the U.S. who shall not receive pay other than for travel expenses for the purpose of advising the Secretary of Health and Human Services on granting loans for non-profit start-ups.

My take on the above: The intended benefit of the government’s Exchanges is that they provide an easy way for consumers to compare different insurance plans as well as confidence that all enrolled plans meet minimum quality standards. But in my view these measures create added levels of bureaucracy that seem to create little bang for their buck yet add significantly to the difficulty of navigating our health care system.


In order to cover the millions of Americans currently without insurance, by 90 days after the passage of the law, the Secretary of Health and Human Services shall establish a temporary high risk health insurance pool program that will remain in effect through January 1, 2014 and which will:

    1. Have no preexisting condition clause.
    2. Cover no less than 65% of health costs but with an out-of-pocket limit not to exceed amount described in section 223(c)(2) of Internal Revenue Code of 1986.

This high-risk pool will have funding of $5 billion to pay claims in excess funded by premiums. The Secretary of Health and Human Services will “make adjustments as are necessary” to eliminate any deficits in the program. He or she is empowered to stop taking applications to this pool to comply with this funding limitation. That this might mean barring the very people this pool is meant to help remains an open possibility. The program will end January 1, 2014, and all enrollees will be transitioned to a health care Exchange.

My take on the above: As a physician, I feel that the basic health care needs of every member of our society should be met. To argue otherwise—that we should deny people unable to afford care access to it—is morally unacceptable to me. The issue for me, then, isn’t should the rest of us subsidize the care of people unable to afford it themselves but how we do so most cost-effectively. Currently we allow people unable to pay for health care access to health care services mostly through our nation’s emergency rooms, which as a result are hopelessly overcrowded with non-emergent cases. This significantly impairs the quality of emergency care we all receive.

Yet as numerous studies demonstrate, significant health benefits and economic savings occur if we can prevent health problems rather than treat them once they’ve occurred. So to provide access to health care for people unable to afford it makes the best economic and medical sense when that access takes the form of visits to primary care providers who emphasize preventive health measures. In fact, we could make the argument (as of yet unproven) that preventing enough serious illnesses in the medically underserved might actually save money overall. Then again, even if we could bring to bear the resources necessary to provide appropriate preventive care services to most people in the country, that wouldn’t guarantee most people in the country would take advantage of them or alter their behaviors in ways that decreased their risk of future illness.

Finally, even if we found a better way to motivate people to adopt healthier behaviors, little in this law provides for an effective way to increase the number of primary care providers available to meet the health care needs of the population. Though provisions are included that increase funding for expanding primary care residency slots, as long as reimbursement for primary care services lags behind specialty services, there will remain a relative dearth of medical students who want to go into primary care and an excess of primary care physicians who want to get out of the field altogether (though the direct primary care model of care may combat this). This imbalance between supply (primary care providers) and demand (patients who want to see them) in my view explains most of the customer service failures that have dogged the health care industry for the last decade (increased waiting times to see providers, poor accessibility to providers, and too little time spent with providers during appointments, to name just a few).

    1. The Secretary of Health and Human Services shall adopt a single set of operating rules for health information transactions that everyone has to follow (to streamline clerical work).
    2. Hospitals must report quality measures. Performance information summarizing data on quality measures will be made available on Internet sites for providers of health care. Increased reimbursement will be provided for improving health outcomes; the Secretary of Health and Human Services will develop guidelines for awarding such increased reimbursements. My take: I like motivating health care institutions financially to care about the quality of the care they provide.  Health care providers are supposed to care about quality because we’re professionals, but big institutions, unlike individuals, aren’t as well motivated by a sense of professionalism.
    3. The Secretary of Health and Human Services shall establish a payment modifier that provides for differential payment to providers based upon quality of care furnished compared to cost. Costs shall be evaluated based on a composite of appropriate measures of costs taking into account that less healthy people may require more intensive interventions.  Payment modifier shall be implemented in a budget-neutral manner and be done in a way that promotes systems-based care. My take: Nothing wrong with adding a financial incentive to motivate individual providers to care about the quality of the care they provide and to reward those who are already positive outliers.The devil, however, is in the very details this law fails to make clear.
    4. Hospitals with excess readmissions shall have their reimbursement payments reduced. My take: Hospitals have enormous financial incentives to get patients discharged as quickly as possible. A counterbalancing incentive is sorely needed to return sound medical judgment to its position as the sole determinant of discharge decision-making.
    5. Secretary shall establish a process to validate RVUs. My take: RVU stands for “relative value unit” and is a means by which to determine the reimbursement level of medical services. For example, the RVU for open heart surgery is far higher than for office counseling on smoking cessation. The medical profession itself is responsible for the imbalance between RVU values for specialty services and RVU values for primary care. Why are so many medical students flocking away from primary care and toward specialties? Because reimbursement for specialty services is higher, all based on RVUs. Varying reimbursement levels is clearly driving an oversupply of specialists and an undersupply of primary care physicians. Here’s a lever that can be pulled to increase the supply of primary care physicians to meet the increased demand the health care law will create for medical services.
    6. The health care law establishes a Prevention and Public Health Fund to invest in prevention programs to improve public health and reduce health care costs. Secretary will award grants to states to develop initiatives that test approaches to encourage behavior modification to get people to adopt preventive health behaviors. My take: we honestly don’t know how best to motivate people to adopt preventive behaviors. What we need are funds with which to experiment and find out.
    7. Mental health and substance abuse are now considered “essential health services.” My taket’s a travesty that insurance coverage (or I should say, lack thereof) for mental health and substance abuse disorders has lagged so far behind our ability to treat them. If this actually turns out to enable all the people who need these services but can’t afford them to get them, that will represent a true victory for this legislation.

The health care law mandates a series of experiments it dubs “demonstration projects” that will be designed to examine different systems for paying for health care. I highly recommend Atul Gawande’s article, “Testing, Testing,” for an excellent analysis of the value of these pilot programs. Though I don’t entirely share his optimism, I am encouraged that the law has provisions for trying things out and measuring their outcomes. We need real data to figure out the best way to curb health care costs.

    1. No provisions were made for equalizing the reimbursement rates of different insurance plans, which tend to be negotiated differently with different health care providers. Medicaid will continue to pay pennies for every health care dollar charged by a health care entity while private insurers pay dimes or quarters. The end result: patients will continue to have differing degrees of desirability. Medicaid (and even Medicare) patients are already being disenfranchised as health care providers focus on marketing themselves to patients with “better” insurance and on making it harder for patients with less desirable insurance to gain access to their services.
    2. Tort reform remains unaddressed in the health care law. Physicians (especially emergency room physicians) consistently over-utilize health care resources because they’re afraid of missing something and being sued, even when the likelihood of that something being present remains minuscule. There must be a rational limit placed on the remuneration available to plaintiffs. Physicians must be freed from the excessive worry they have about making a mistake that so powerfully motivates them to over-utilize health care resources (though not from responsibility for gross incompetence and laziness that causes significant harm).

Just a few examples of the ways in which dollars will flow to support the provisions of the health care law:

    1. In 2014, 2015, and 2016, the Secretary of Health and Human Services shall reimburse insurance plans by 50% of the difference between premium revenues and reimbursements to providers if the plans spend more than they take in.
    2. Tax credits are given to small businesses that provide health insurance to employees in the amount the employer contributed for its employees premiums.
    3. States shall charge insurance plans whose actuarial risk is less than average and provide a payment to plans whose actuarial risk is higher than average.

How will the mammoth expense of our health care bill be paid?

    1. All taxpayers will pay an additional 0.5% tax on income in excess of $200,000 for individuals and more than $250,000 for couples.
    2. Cosmetic procedures will be taxed 5%.
    3. Indoor tanning services shall be taxed by 10% of fee.
    4. Beginning in 2018, insurance companies will have to pay a 40% excise tax on so-called “Cadillac plans”—plans that cost individual enrollees over $10, 200 and families over $27,500.
    5. A Medicare tax will be applied to investment income of 3.8%.

Because other than the “demonstration projects” mentioned above nothing in this law directly addresses the real cause of the majority of our increasing national health care costs (over-utilization of health care resources by both physicians and patients, and medical innovation), many more Americans than Congress anticipated will likely find themselves enrolled in a “Cadillac plan” without intending to be (as the cost of their premiums rises between now and 2018 in order to keep up with rising medical costs). Which means insurance companies will be paying far more in taxes on these plans in total than Congress expected. Which means they will almost certainly be forced to pass on that extra cost to enrollees, further raising premiums in 2018.


The health care law has begun some much-needed reform. Unfortunately, I find its funding approach flawed and strongly suspect it will prove itself unsustainable. I’m encouraged by the number of provisions in it for experimentation, however, as I believe the best way for us to create a viable health care system is by trial and error; the American medical system is simply too complex for anyone to accurately forecast all unintended consequences. I can only hope Congress and the American people retain their appetite for continued reform and aren’t afraid to throw out what doesn’t work.

As long and complicated as this post was, it failed, of course, to cover every provision of the new health care law or even to emphasize every issue I think is important in health care reform. I hope readers will feel free to bring up whatever issues interest them in the comments and that the discussion over this critically important topic can continue.

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  • […] This post was mentioned on Twitter by Robert McPherson, Alex Lickerman. Alex Lickerman said: What the new #healthcare law means for you: […]

  • When you say “In deciding to assign government watchdogs to the health insurance industry rather than create incentives for the industry to regulate itself, Congress is risking the same kind of failures that led to the economic meltdown of 2008 as well as the BP oil rig disaster,” you are in error. It was the DEREGULATION of the banking and finance industry that helped lead to the meltdown of the economy, not government oversight.

    And, the BP failure seems also to have been largely because the government regulation system in place became too chummy with the energy industry and did indeed encourage companies to regulate themselves. They won’t ever do that, in the real world.

    Otherwise, I am interested in your take on this.

    I do however, believe costs have gone up largely because they “could” go up. Greed has led us, in many areas. to charge what the market will bear, not what is a real and reasonable charge allowing for real and reasonable profit. General Practitioners make modest incomes, but specialists, even where I live, in an impoverished area, live like kings and potentates. Clearly, they are profiting very well.

    There are several physicians in my extended family, and have been for some generations, and I understand that there is a wide spectrum of incomes in the profession. That’s fine with me. But we do need to look at the greater good.

    Thanks for your effort in wading through the Bill.


    Kate: No question that government deregulation played the most major role in uncorking the greed and stupidity of banks, institutional investors, and borrowers, most notably in the form of the repeal of the Glass-Steagall Act of 1933. However, government watchdogs have been complicit in allowing banks to hide their bad debt rather than make it public. And that the BP failure was at least partially due to a government watchdog group getting too chummy with the entity it was supposed to be watching only makes my point. As for the major reasons medical costs have outpaced inflation, I’d refer you to my previous post, A Prescription For The Health Care Crisis.


  • Thank you very much for this concise (as it can be under the circumstances) summary of the health care reform act. I would like to only say that it really behooves SOMEBODY, and a Buddhist would be a good person to start this, to talk NOT so much about how for instance preventive care might be cheaper than post-illness care in the long run (which it might or might not be) but to emphasize the right and need for health education and preventive health care as well as decent basic medical treatment to improve quality of life and ability to function in society and at work, etc. The money angle should be confined to a search for the most cost-efficient ways to provide decent services.

  • You might find the following article, Global Justice and the Social Determinants of Health quite interesting. It is from the Carnegie Council and can be found here:

    Work such as this tends to focus on second and third world country issues, but this in particular seems quite pertinent to the US and the assumptions many in the US make about health care and well-being.

  • It makes me glad I gave up junk food and now feast on inspiring blogs—like yours—instead!

    Maureen: What a cool thing to say.


  • Under #2, reporting quality measures by hospitals, you say:

    “I like motivating health care institutions financially to care about the quality of the care they provide. Health care providers are supposed to care about quality because we’re professionals, but big institutions, unlike individuals, aren’t as well motivated by a sense of professionalism.”

    I would add “Nor by a sense of ethics.”

    I work for a VERY large health care org, and I KNOW in my gut that there is something about its large size that militates against doing the right thing for the right reason. My org does report about quality measures. My org goes after the accreditation, the Magnet status, etc. But to me, it has the flavor of Academy Awards night . . . a popularity event. I would like to see changes based on patient well-being (which is different from patient satisfaction), more than on accreditation by JCAHO or by some govt watchdog agency.

    I also work for a home care patient, where I feel my work is much more holistic, with family, patient and other nurses truly partnering for the sake of the patient; problem-solving together, etc. My hospital has posters up that say we want to partner with patients and their families, but it doesn’t happen in the hospital like it does at home.

    Small groups of nurses, docs, and the family can get their teamwork established, & achieve a high degree of professionalism, keeping the patient as #1 priority at home, much more effectively than my hidebound health care org. In order to achieve the same goals, my large health care org must micro-manage, adding what seems like infinite numbers of policies and procedures; relying heavily on technology to achieve safe care; spending exorbitantly on equipment to stay competitive . . .

    So, I agree that health care itself needs revision. For example, what is that basic degree of health care that we hope to achieve? Is “basic” enough for most Americans? Are we not entitled to the best? The “best,” then, leads to a driven system that is constantly upping the ante . . . and the price. And as soon as you mention price, then we have to have a business model, and someone has to profit more than someone else, because competition rules.

    Clearly, though I work in the system, I am deeply mistrustful of it. Ethical principles do not rule. Being a business, savvy and wily, is #1.

    I am impressed beyond belief that you undertook this analysis, Alex. Kudos! I strongly believe that the many senators and representatives who voted on the reform bill did NOT do what you did . . . For heavens sake, couldn’t we all just do the right thing? For the right reason? As in, mind our ethical behavior. To me, ethics is the road to salvation in health care.

    Chris: Thanks for you thoughtful comments. They make me think about one of the basic principles with which our government was designed: the principle of checks and balances. Our founding fathers were savvy enough to recognize people can’t be counted on to act ethically on their own when given power, so the powers of each of our three branches of government were granted in such a way that they could limit the power of the other two. It would be wonderful if we could count on everyone to act as they should without incentives in place to make that happen—but we know that won’t happen. People have within in them the capacity for both good an evil in equal measure and it sure does seem bringing out the good takes more work!


  • Great analysis, thanks for taking your time and energy to do this!

    My understanding with the significant increase in health care costs is directly related to the bloated, inefficient Medicare/Medicaid GOVERNMENT system. Over the years, they have REDUCED their payments to physicians and hospitals, and insurance companies have followed suit. This has forced health care providers and institutions to artificially raise their rates to compensate for the lower reimbursement.

    There are too many government mandates that also add to the cost of health care.

    Why can’t consumers buy health insurance like they buy automobile insurance? A basic set of coverage, even some “mandatory” coverage if need be (although the government mandating anything like that is unconsitutional—oh yeah, that little document), then “extras” as folks want to purchase. On the flip side, if someone is “obese” or smokes, they pay a surcharge.

    Health insurance, like all insurance, is to protect against catastrophic situations—we’re in a situation today like we’re insuring the gasoline in our cars. Of course that would drive up the costs.

    The BIGGEST thing I see is that health care has been FREE to people. They have NO idea how much things costs and physicians have NO concern at all at how much it costs—it’s all invisible. I moved to a high deductible/HSA arrangement 2 years ago, it’s shocking how little physicians know about how much things cost and are still so quick to just order everything under the sun without any thought or regard for the costs. I’ve had to use COMMON SENSE and challenge my health care providers on what’s really needed. If everyone moved to this type of system, and made routine things like ear infections, more like a commodity (invoking competition and keeping people out of the ER, which is a much more expensive proposition), we would see a dramatic change, in my opinion. And please don’t say we can’t have health care like that (i.e. Minute Clinics), they were distributing H1N1 flu shots in the AIRPORTS, which is totally irresponsible as far as I’m concerned.

    Denise: Thanks for your comments. I don’t believe the increase in our health care costs is significantly influenced by the bloated, inefficient government programs of Medicaid and Medicare (please see my previous post, A Prescription For The Health Care Crisis). They haven’t so much reduced payment to health care providers as frozen them due the the Balanced Budget Act of 1996.


  • I am so impressed that you had the stamina to do this, Alex. Most people bloviate based on second—or third—hand reports; we are lucky to have a few souls who are willing to walk the walk.

    That being said, I can’t help but note that the skepticism and reservations you express here can be traced to certain assumptions you do not seem to question. (And I hasten to add, I have my own skepticism and reservations about ANYthing Congress is likely to come up with). For example:

    1. You seem to write from an economic rather than a human rights vantage point. In other words, your presumption seems to be FIRST that people are entitled to make profits rather than people are first entitled to adequate health care.

    2. Your presumption is that the continually increasing cost of providing health care is driven by the price of necessary “improvements” rather than by the drive to create a product that will allow practitioners to charge more. If making a profit is the motivator, seeking ways to make greater profits will be the result. My internists office now has its own bone density machine, even though all the local radiologists do also (with no wait). This costs money and can be justified only by a financial model rather than a medical model.

    3. You presume that “market forces” lead to prices going down rather than up. See (2), above. Market forces lead people to come up with ever more “creative” ways to make profits, not ever more creative ways to deliver health care, just as on Wall St. demand for profits led to the development of CDOs, etc. We didn’t need these arcane securities except insofar as we “needed” new ways to make money.

    4. You make the argument that a system that ensures affordability creates a business model that is unsustainable. What makes a business model unsustainable is a mismatch between expectations and results. If you expect to be able to buy corporate jets with company profits (just an example), you will need to generate enough revenue to sustain that kind of corporation. Do I think that health care insurers should operate with that kind of corporate model? I do not. If you expect to operate on a break even basis, your business model will be sustainable any time you don’t lose money.

    5. Underlying all the foregoing is a presumption that what we in the U.S. represent is the leading edge of good health care by virtue of our high marks in certain high-skill/high stakes procedures. It seems to me we should look at what works really well elsewhere and, using those models, question the assumptions that lead us to dismiss them. I am inadequately informed as to the particulars, but I believe there are even some very highly regarded hospitals/clinics whose doctors are on salary and whose costs are lower than average (eg. Mayo) here in the U.S. What countries do the best job of delivering preventive health care? How do they do it? It seems to me we would be better served by analyzing specific cases—best and worst—and see what general conclusions we can draw from that analysis instead of making inferences from our current dysfunctional system.

    Thank you again for your hard work!

    rdp: I’ve responded below to each of your points:

    1. If I seem to be writing from an economic viewpoint rather than a human rights viewpoint it’s because my purpose in writing this post was to analyze the health care law as it was written, and most of it was written to address the challenge of paying for our nation’s health care.

    2. I discussed my views on what I think is driving the increasing costs of health care in my previous post, A Prescription For The Health Care Crisis. Certainly, practitioners will try to think of ways to make more money (as the example you give about your internist having an on-site bone mineral density machine suggests) but for most practitioners there aren’t many ways to do that besides ordering more tests and performing more procedures. Also, I don’t believe most practitioners have profit as their primary motive. Or, if they do, it remains coincident with helping their patients.

    3. When market forces lead to an increase in price in a capitalistic economy, it’s either because supply of a good or service has gone down, or demand has gone up. And increased profits don’t necessarily require increased prices.

    4. I’m not arguing that a system that ensures affordability creates a business model that’s unsustainable. I’m arguing it’s likely that the system this particular law creates will likely lead to a business model that’s unsustainable.

    5. I think I like the idea of putting doctors on a salary to eliminate the incentive we have to do more (to earn more money). This is the model at most academic institutions in internal medicine. I have no data to prove this reduces overutilization (patient expectations for having “everything done” must be factored in as well) but I suspect it would.

    Thanks so much for your thoughtful comments. They made me think and added greatly to the discussion.


  • P.S. Thanks especially to Esther, above, for the link to the Carnegie Council site. It’s information like this that never seems to make its way into the public discourse!

  • rdp, Thanks for bringing up the very thing that was underlying my discomfort with Alex’s post. It did seem that Alex was focusing more on the financial. Alex, thanks for clarifying your intent. Not so clear in the original posting.

    I believe the intent of Congress and the President was to focus on the humane and civilized model of the rest of the developed world. I sincerely hope that you are wrong, Alex, and that this won’t just facilitate more greed and more insane profits from illness and death. It is my belief that “what the patient wants” is not usually more tests, but just good basic health care—something that is not available to many many Americans. And quite commonly unavailable to most people where I live.

    The best part of the Bill is that it has built-in ways to adjust with time. Well, that and that we finally admit that health care should be available to all.

    I would like to see physicians such as yourself exhibit willingness to give this a try before condemning it.


    Kate: Just to clarify, I didn’t say, and don’t believe, this law will facilitate “more greed and more insane profits from illness and death.” I just don’t think economically it creates a sustainable system in the absence of a plan to curb unnecessary health care expenditures that happen mostly due to overutilization by doctors and patients (and I should note I don’t think in most cases this overutilization is driven by greed). I do applaud the legislation for its demonstration projects and hope a workable economic model can be constructed that hits the sweet spot—that is, a level of expenditure that reflects doctors and patients pursuing tests and treatments that are truly medically necessary (admittedly an enormously difficult culture change to effect, about which an entire book could—and probably should—be written). Of course, even if this was worked out, a large portion of the increase in health care costs would still come from innovation, which, of course, shouldn’t be stopped but encouraged.


  • Hey Alex,

    Thanks for the post. I also tried reading the bill, and found it completely unintelligible. I think I gave up at the point I realized I had opened 8 different PDFs while referencing other codes, laws and whatnot. Apparently “parsimony” doesn’t enter into the vocabulary of our legislators.

    Julia: Clearly not. 😉


  • I found your response to my first comment immensely helpful in understanding some of the talking at cross purposes that’s been going on with respect to this subject. Clearly, if some people believe the health care bill “was written to address the challenge of paying for our nation’s health care,” and others believe it was written to advance the notion that adequate health care should be part of basic human rights, they will not be focusing on the same issues. It never occurred to me that the bill was written to address the challenges of paying for what we’ve got. Instead, it seemed to me that it was conceived of as a way to transform the present health care delivery system. But the legislative process placated corporate and elitist interests by keeping profit centers intact and promising not to remove one inch of “care” from those who currently have it, so what we have is—at best—a codification of rules for the tug-o-war between institutions, private and governmental. And really a vague one, at that.

    You and I may disagree on the mechanism by which practitioners are induced to increase costs and thereby create profit centers. I’m sure most doctors want to provide good care, but they, like everyone else, are subject to peer pressure and “expert” opinions on the best way to handle office accounting, computer systems, lab work, personnel, and a score of other things they have little time to research themselves. Doctors are subject to being “sold” on the necessity for new technologies just as patients can be “sold” on the idea that a new drug for esophageal reflux is just what they need. I guess what I’m saying here is that the only voices most doctors will have the chance to hear are those of people trying to sell something new. Can you imagine a doctor taking time to listen to a nurse or a patient on what his practice needed most? But they will certainly listen to pharmaceutical reps or folks trying to sell a new operating system to run the office. I was reminded of a good example of this when I caught a bit of the Diane Rehm show today. For years, people were convinced that running shoes were necessary for foot health—a notion now revealed to be false. If you questioned this, you were a crank (I know, I did.) Little money could be made advocating for running barefooted, but a great deal was made by offering high-tech running shoes. Were all the people selling and endorsing these things motivated strictly by profit? No, I don’t think so; they were motivated by their belief system which happened to be primed by profit-making information or an inclination to think highly of equipment.

    We definitely disagree on how large-scale capitalist markets function. It’s been a long time since simple supply and demand determined prices, except in very limited circumstances. Loss leaders, drugs in Canada, fads, and many other things demonstrate the complexity of the markets. Moreover, people act against their own long term interests all the time because they are led to adopt belief systems, because they are lazy, or because they don’t want to submit to discomfort. I think I may have mentioned behavioral economics to you before, and I think it applies to this conversation, too. This link takes you to an article “Why banks are self-defeating…” which reviews just some of the impediments to perfectly functioning markets. I worked on Wall Street for nearly 10 years and saw first hand how routinely people went blind when their emotions were engaged. Even CEOs, it turns out, are not motivated to improve the profitability of the company they run so much as they are to enhance their own compensation. There is a crucial piece missing in the economic models we mostly rely on today and that needs to be borne in mind when thinking about health care.

    I don’t know what the answer is, but I think we have to get out of the paradigm we’re in and rely more on reality than on things we think we know. That’s why I want to urge looking at systems that work elsewhere. Apologies for hogging the floor and thanks again for tackling this monster!

    rdp: Great points, all, especially about how people have conceived of this legislation in different ways as well as the way people often act against their own long-term interests. I don’t know if we entirely disagree about how large-scale capitalist markets function but I very much appreciate your point that a more sophisticated understanding of human psychology and behavior needs to borne in mind when thinking about health care. Thanks so much for such substantive comments.


  • I agree this bill is unsustainable, but for a far simpler reason than you mentioned. Although you almost hit it in one of the first paragraphs and certainly hit all the elements of my claim within the text.

    If insurance companies are disallowed from rejecting people based on pre-existing conditions (a sentiment I agree with) AND the cost of insurance doesn’t come down below the penalty for not getting insurance at all, then the end result will be only sick people in the insurance pools.

    Who in their right mind will pay for insurance when they can just get it when they get sick? Heck, watch as deadman scripts are written so that if something happens to someone, insurance is automatically purchased, even if the insured person isn’t conscious, they just pre-approved the order.

    As I see it, this the the recipe for disaster for insurance companies. It’s so blatant, so destructive I can’t help but think that it was specifically designed to put an end to insurance companies and pave the way for a universal health care system (which is what I, for one, wanted in the first place).

    I am NOT one prone to conspiracy theories, but I have asked a lot of people about how this scenario could be avoided, and no one comes up with an answer. Perhaps you will.

    techskeptic: I have a hard time believing the legislators who wrote this law didn’t realize the truth of what you’re saying when they wrote it.


  • techskeptic:

    It’s possible that what you describe will be the unintended consequence. But for the vast majority of people with “preexisting conditions” we aren’t talking about getting a diagnosis of cancer, say, and walking into an insurance office the next day to buy a policy so you can be covered.

    Mostly, those who have been denied insurance for a preexisting condition have had a disease in the past (say you once had a basal cell carcinoma taken off at the dermatologist’s office), were treated by a psychotherapist for depression (for instance, after the death of a spouse or a child), are in good health but have a chronic disease such as Juvenile Diabetes and have been insured their entire life, but are now going off of their parents’ policy (as is the case with my youngest, who just ran out of his 3 years of COBRA coverage) and can’t get individual insurance. Luckily we live in CA, so he can get insurance under California’s HIPPA laws… at about 4 times the rate of another young person of his age, with enormous deductibles.

    But even supposing you believe that all of those people are pikers, lazy, and taking advantage of the system, where I live most people who do not have insurance would love to buy it. Why? Because they work for minimum wage, or only a bit more, and cannot afford to pay $75 for an office visit and full price for prescriptions. They are not poor enough for aid. So, most people go without medical care for years, or even decades, until they do have something terrible, in an advanced form, and are in the process of dying. It is the cost of BASIC CARE that is beyond their means.

    Catastrophic insurance will not help these folks, no matter when they get it. What many people just do not understand is that basic care has become too expensive for many many people.

    Universal single payer would have been best, true. And perhaps everyone will just forgo insurance until they are very ill. But I do not think so. Most people would like to be able to go to the doctor when they are ill with something treatable. Most people are aware that good consistent care is what will assure better health now and later.

    I do not see anything that will compel the insurance companies to insure someone who has a preexisting condition for the same premium that “healthy” people get. I foresee that those with asthma, Type I diabetes, former depression, (or just about anything that can get you denied now), will pay very high premiums.

    Thanks for bringing this up, Alex. This is an interesting, if very depressing, discussion.

  • Kate:

    But even supposing you believe that all of those people are pikers, lazy, and taking advantage of the system

    I said nothing of the sort. In fact, as I see it I am giving the minimum wage earner more credit for being financially responsible than you are. Why would they pay thousands, when they can pay hundreds and essentially get the same coverage. There is even a cap on how much a company can charge them when they do get sick, so once again, the best financial decision for everyone who is healthy is to pay the fee, and buy insurance when they get sick.

    Why not get insurance when they get ill, then when they get better, dump the insurance? The inconvenience of doing that will be far more worth it, especially to the healthy young and poor, than just paying 500-1000/month to stay on the insurance.

  • Another great post hon! What I don’t understand is how anyone in the government reviewing this bill didn’t think about how middle to upper class people might be financially incented to work around the law. What I mean by this is, as a family of four, with no preexisting medical conditions and no major health care needs, outside of routine, why wouldn’t one simply pay the fine not to have health care coverage, pay out of pocket for routine care and have a cheap catastrophe plan? The annual costs for this will be less than the estimated $22,000 – $24,000/annually that it will cost a family of 4 to purchase health insurance. The smart money will opt for this knowing that if anyone in their family is diagnosed with a horrible disease that will require care that costs over and above what it costs to buy health insurance on the exchanges you mention, they cannot be denied. My guess is the insurance companies will not see as many people signing up for care as they forecasted because there is a cheaper way to get the exact same coverage with no risk.

  • Alex,

    Can you answer how opening up insurance across borders is feasible? I wonder how it can be when providers contract with certain doctors/practices. How can insurance in X state cover providers in Z state? I know it IS possible, but it seems tremendously bureaucratic, etc…wouldn’t that drive up costs as well?

    I just feel I’m missing a piece of how that could work. Any clarifications would be appreciated.

    And, thank you for reading the whole bill.

    Renee: It seems to me this would be an administrative issue easily handled. Insurance claims, billing, etc. are handled electronically or over the phone, so I don’t think an insurance company in New York would have much trouble insuring an enrollee in California. Medical records are no less challenging to get when traveling from a doctor’s office in-state or across the country…


  • Techskeptic:

    My apologies. My use of “you” didn’t mean you in particular. I should have said, ” even if one considers…”

    But you still miss my point. People earning minimum wage need insurance for basic care. I am not underestimating their capabilities. I am astounded at how well they manage. But going to the doctor is far down on the list. First food, then shelter, then clothing, then transportation to work, and so on. For illnesses, take a couple of aspirin and go to work.

    I hope, that against all predictions to the contrary, this law succeeds, even if it takes some tweaking. But this discussion is very discouraging.

    I don’t see health care as a human right, but I see health care for all as a sign of a moral and/or ethical society. What I don’t understand is that we, as a nation, even now, seem to lack the will to change our ways.


  • Katie,

    And I of course am sorry for misunderstanding that your sentence was not directed at me.

    I am not sure if I consider health care a right. Its certainly not a constitutional one, but neither is food. Certainly access to food must be a right, no? I claim access to health care must be a right, too.

    I share your discouragement about health care in this country. For the life of me I can’t figure out why we couldn’t just look at the 50 countries doing health care better than us (as measured by longevity) for about 1/2 the cost. At least start there and then put some American flair to it. It’s ridiculous.

    The people you are talking about will be taken care of by this law. I’m not sure where it is, but over and over again, we heard that if you can’t afford health care, measures will be put in place to provide it.

    This condition is worse. That means that not only are the insurance pools filled with sick people, the tax funds must support the folks who can’t afford it.

    A single payer system will not fix all our health care costs overnight. But it would be a start, a good one. Every civilized country on the planet can do it cost effectively and with good care, but somehow we can’t. Pooling the health costs is one step. Making doctors not financially benefit from the tests they prescribe is another. Salarying doctors is another. Taxing crap food (i.e. low nutrition to calorie ratios) like cigarettes is another.

    Making health care universal is the only ethical way I can see to reforming tort law. Australia has this right (again, why can’t we borrow ideas?), universal health care for basic coverage, private insurance for supplemental, max tort award 750K.

  • Sorry, but I can’t agree with you on the “tort Reform” bogeyman. While “defensive medicine” and unnecessary tests have been bandied about extensively in the media, these haven’t been reflected in any economic study.

    To the contrary, while a number of states HAVE passed brutal tort reform measures (California being a prime and perhaps unexpected example), the only thing that resulted was a windfall for insurers.

    Wilson: There is data on the practice of defensive medicine (by which I mean specifically overutilization of health care resources) as the prime driver of skyrocketing health care costs, as I discussed in detail in my previous post, A Prescription For The Health Care Crisis. Like you, however, I don’t believe it’s driven mostly by fear of being sued but rather by a belief among both doctors and patients that more care is better care. To reduce that overutilization, far more than tort reform would need to occur, but I don’t think any of it would in the absence of effective tort reform. I’m not aware of the details of the tort reform passed in California to comment on its effectiveness, but clearly not all tort reform is created equal in its ability to have the effect we all want.


  • I also think that tort is largely misunderstood. The medical malpractice portion of the tort pie is but a tiny tiny sliver of tort awards. When a Republican report came out in 1999, it was 0.1% of all tort, even if it went up 10 fold since then we are still talking about a tiny portion of tort.

    Tort includes lawsuits that arise from faulty equipment, bad food, injury on property, and other things. That is why whenever I hear that tort reform will fix health care I laugh and cry a little inside. Health care reform must happen first if you want to cap tort awards, otherwise its simply unethical. If you get hurt due to a a bad design of a car, the medical costs could last a lifetime, and be severe. But with universal health care, you just need to award lost wages as the health care would automatically be taken care of and shouldn’t be billed twice.

  • And there have been studies concerning liability costs.

    Professional liability pressures encourage physicians and other providers to order unwarranted diagnostic tests and treatment. Studies suggest that between five and nine percent of medical expenditures can be tied to practicing “defensive medicine.”

    From here you have to log in with bogus info and download june 2010 report, page 25.

    It references these studies:

    S. Weinstein, “The Cost of Defensive Medicine”, American Academy of Orthopaedic Surgeons
    (AAOS), Now, November 2008.

    F. J. Hellinger, W. E. Encinosa; “The Impact of State Laws Limiting Malpractice Damage
    Awards on Healthcare Expenditures”; American Journal of Public Health, August 2006;
    96(8):1375-Epub 2006 Jun 29.

  • I’ve read the first 4 pages. I don’t understand this sentence on page 4: 1. Tax credits shall be provided against the cost of premiums for people with incomes from 100% to 400% of the poverty line. What does “of the poverty line” mean? Above the poverty line?

    Diana: Yes. 100% means at the poverty line. 400% means 4 times above the poverty line. At least, that’s how I read it.


  • […] two previous posts, A Prescription For The Health Care Crisis and Analysis Of The Health Care Law, I attempted to analyze the major cause of America’s skyrocketing health care costs and why I […]

  • Thanks for breaking down the information for us—I know if I tried to read the bill myself I would never be able to get through it!