Looking Down the Road at Obamacare

Optimists point to recent slower growth of health care costs as a hopeful sign.

The first Obamacare health insurance exchanges opened Oct. 1. We saw stories of website crashes, accusations that federal funds have been misused, rumors of taxpayer-subsidized health insurance for millionaires, and more.

But the most important news will be about millions of individual Americans, including self-employed people, who will muddle through a new array of insurance choices and find out if Obamacare might live up to its promise of lower premiums.

Obamacare optimists point to recent slower growth of health care costs as a hopeful sign. They may be right if economic growth continues to be anemic. But there are long-range trends that will push costs much higher in coming years.

The number of Americans age 65 or older will double in the next 25 years. Most of them will enroll in Medicare with at least two chronic health problems (e.g., hypertension and diabetes). These conditions can be managed by good physician-patient partnerships, medications and healthier lifestyles. Unfortunately, this isn’t reality. Medicare pays tens of billions of dollars annually for ineffective care that puts patients at high risk of repeated emergency room visits and hospitalizations — even permanent disability. Up to one-fifth of those discharged from the hospital after being treated for complications of common chronic diseases are readmitted within 30 days. The reason is simple: No one is managing the patient – no one is helping them to remain independent.

Also looming is a tripling of the number of Americans over the age of 85. This mostly frail group will need significant long-term care services. Few will have private long-term care insurance or personal savings to cover the costs. By law, Medicaid is the payer of last resort. Medicaid (i.e., taxpayers) is already No. 1 in long-term care spending, and it will be shelling out hundreds of billions more in coming years.

Why should exploding Medicare and Medicaid costs matter to businesses? Putting aside the threat of higher payroll taxes, government “manages” rising health care costs by shifting costs. Congress regularly directs Medicare to pay less for services — currently 15 percent to 20 percent less than actual costs for hospital care. For hospitals to survive, for them to grow health care employment, Congress, governors, and state legislators need to a plan, a strategy — not simply more rhetoric.

The Obamacare law will make cost-shifting easier. Rather than waiting for Congress to act (an increasingly unreliable thing these days), Medicare will simply be able to implement a new appointed board’s annual recommendations to cut provider reimbursements.

Federal and state antitrust regulators have looked the other way as regionally dominant systems grew. The challenge — the opportunity — is whether local and state legislators have the courage to change the status quo.