With the first 100 days of the Obama administration well behind us, it appears the majority of focus has been on the economic recovery and the stimulus package. However, don’t think for a second that President Obama has overlooked one of his primary campaign promises — healthcare reform and universal health care. In fact, during a recent speech, he opined that any reform effort is only meaningful for the future to the extent that it’s part of a successful effort to move the country toward universal healthcare coverage. He stated that the country “can, will, and must” achieve this goal by the end of the year.
What will this mean for employers and individuals? While our crystal ball is not without clouds, here’s our two cents regarding what’s on the horizon as the reform effort begins.
A Few Facts About Healthcare Costs
- In total, for 2007, we spent more than $2.2 trillion on health care. That means we spent about $6,700/year for every man, woman, and child in the U.S.
- The costs are doubling every seven to 10 years.
- Health care accounts for more than 16 percent of the GDP and is expected to be $1 of every $5 by 2020.
- Government promises in the form of Medicare coverage would require a $100 trillion funding to cover healthcare promises made for the current population. That’s about 6.5 times our entire economy!
The Great Prognostication
Universal coverage vs. universal access.
Technically, we already have a form of universal access; you’re free to access care anytime you wish. The issue is, who will pay for the care? You as an individual? The government? Your insurance provider?
Improvements in universal access will likely be the first step. The leap, and associated expense, to universal coverage likely won’t come for some time because of cost issues.
The Bush administration introduced the idea of limiting the deductibility of healthcare insurance premiums in 2006, while the Obama administration directly opposes such limits.
Defined by the National Library of Medicine as, “an approach to health care financing with only one source of money for paying health care providers,” the scope may be national (Canadian system), state-wide, or community based. The payer may be a governmental unit such as an insurance company or other appointed payers. While the single-payer system may be viewed as having a better chance than universal coverage, we don’t believe such a system will make it into the United States for years to come.
Wellness and population health management.
Given some level of preventive intervention at a low or nominal cost, the costlier expenses associated with acute care can be avoided/reduced. Any new system will absolutely include preventive care that’s often heretofore excluded or limited from many benefit plans. Right now, our total preventive care investment of the $2.2 trillion annual spend is less than 2 percent. Expect greater emphasis going forward.
Tax policy change.
Our entire health system is predicated on employer-based plans that provide for deductibility of insurance premiums. At the individual level, unless self-employed, there is no way to purchase health insurance with “pre-tax” dollars. As a result, the individual insurance industry, while large, is underdeveloped and nowhere near a mature, competitive market that’s reached economic equilibrium. A balanced tax policy is one critical outcome and the cornerstone of the emergence of competition between an employer-based system and individual systems.
Free market reform.
By way of example, look at the cosmetic surgery industry. In the last 15 years, the real price of cosmetic surgery has actually been reduced while all other health care increased at two to four times the consumer price index. Why? Because cosmetic surgery isn’t covered by most insurance plans. At the same time, cosmetic surgeries have increased almost sixfold. This is an example of free market working to achieve market equilibrium. Look for more forms of consumer-based spending. Evidence shows that when given the responsibility for spending, consumers find ways to be more prudent with consumption, and cost control is one byproduct of a free enterprise system.
Other things to look and listen for in any reform effort include improvements in provider quality initiatives, play or pay, rationing of care, transparency with respect to consumer information on provider quality, consumer-driven health plans/account-based plans, pay for performance at the provider level, and personal responsibilities.
The “T” Word
One thing that you undoubtedly won’t hear is any discussion regarding increased taxes. While the time is right for reform and cost control, no one wants to admit that in order to provide universal coverage/access and fix many of the problems associated with the current system, the overall cost will rise before it comes under control. Therefore the “T” word will be avoided to the extent possible. One other thing to remember: when you hear talks about saving $2 trillion over the next 10 years, what’s really meant is the cost over the next 10 to 30 years will increase by $2 trillion less than projected. In real terms, that’s really not cost savings; its cost avoidance.
The list of things to discuss is long and complex. At the end of the day, we suggest a first round that will involve a multidisciplined approach, including input from providers, insurance companies, pharmaceutical manufactures, employers, and retirees, all trying to collaborate on integrated solutions focused on reducing the current cost and cost escalation. The rhetoric has already shifted to a mantra of “cost reduction.” More importantly lack of progress or a stalemate over the next six to 12 months will be met with a shift to government mandates and administrative takeover. As such, there’s a great deal riding on this effort, and those with a stake in the game must produce or risk being “out of business” as we know it today.