Since Congress passed the Affordable Care Act (ACA) in 2009, opponents of the law have been calling for its repeal and replacement. Now, with a new administration in the White House and Republicans in charge of both the House and the Senate, the debate about the future of health care reform in the United States has intensified. In May 2017, the House passed the American Health Care Act (AHCA)1; as of this writing, the Senate has yet to vote on a health care bill. Given that the recent Congressional Budget Office score of the AHCA predicts it would, among other things, “increase the number of people who are uninsured by 23 million by 2026 relative to current law,”2 it seems certain that any bill the Senate brings to a vote will differ considerably from the House version. By the time this Invited Commentary is published, the story may be entirely different; however, the saga, I suspect, will continue.
What is clear is that we are no closer to universal coverage. In fact, regardless of the fate of the AHCA, some individuals who gained access to insurance through the ACA may lose their coverage as states grapple with and respond to the financial pressures of Medicaid expansion. While some are likely to lose coverage, others may have to pay more for their insurance, and even more individuals will fret about health care security. We have not made any progress in addressing the fiscal unsustainability of our health care system, and the situation is only likely to get worse. The howls about the excessive cost of health care will again become deafeningly loud when Congress once again has to address budget deficits and debt ceilings. Let us get real and proactively address the root cause of this crisis in health care finance before we have a catastrophic collapse and have to resurrect the system out of chaos.
We still have more than 28 million uninsured and approximately 30 million underinsured individuals in this country, and those numbers are likely to grow.3,4 This is morally and ethically unacceptable. Moreover, because their health care needs are often not addressed timely, effectively, and appropriately, these un- and underinsured individuals may become a public health burden.5 We can, should, and must insist on universal coverage in a responsible way.
Even with our gaps in coverage, the United States still spends more than twice the average of other industrialized countries on health care coverage.6 Medicaid is financially unsustainable, both at the state and federal levels.7 Medicaid expansion under the ACA will likely impose overwhelming financial pressure on those states that undertook it. Medicare is also financially insecure for the future in its present form; as baby boomers age into the program, projections suggest that the Medicare Hospital Insurance Trust Fund will be broke by 2028.8
Now that the federal approach to Medicaid reform has essentially failed, the states that expanded Medicaid under the ACA are facing daunting economic challenges and will, most probably, become the drivers of reform because of the financial burdens that expansion imposes. As an example, Kentucky, which was the poster child for the success of Medicaid expansion, is anticipating needing an additional $1.2 billion over the next five years to cover the state’s portion of costs associated with expansion.9 The 1115 waiver10 that Kentucky anticipates will not substantially deal with this deficit; consequently, the governor and legislature will need to devise other solutions to resolve the Medicaid fiscal crisis.
So why do we spend so much for inadequate societal coverage? Our fee-for-service reimbursement system encourages and drives volume rather than rewarding quality and efficiency, which results in medical utilization far beyond any other industrialized country.11 In fact, there are instances where hospitals and providers have been fined millions of dollars because of unreasonable and in some circumstances unethical or even criminal exploitation of the fee-for-service system.12
To contain health care costs, our country must replace the open-ended, fee-for-service reimbursement system with fixed budgets that demand efficiency, responsibility, and accountability. Having served 8 years leading the clinical enterprise at the University of California, Los Angeles (an advanced marketplace with high health maintenance organization [HMO] penetration) and almost 14 years leading UK HealthCare in Kentucky (a less mature marketplace in terms of managed care and still heavily steeped in fee-for-service medicine), I am truly convinced that only fixed budgets will demand the rigor, discipline, and accountability to get health care costs under control. This does not mean we must or will move to a single-federal-payer or -provider system. A single-government-provider system, resembling the Department of Veterans Affairs, will probably never be acceptable to a very large segment of the U.S. population.
I firmly believe that the United States will achieve better quality and efficiency through a competitive market-based health care system working within fixed budgets. Alain Enthoven,13 a Stanford health economist in the 1980s and 1990s, advocated for “managed competition.” In this model, large organized delivery systems using standardized benefits packages compete for enrollees on the basis of quality and cost. The best and most efficient systems are rewarded by attracting the most enrollees.
Is this type of system merely an academic pipe dream? Definitely not. Kaiser Permanente in California is an example of an organized health care system with a commitment to quality, efficiency, and exemplary employee and patient satisfaction. At present, Kaiser spends approximately 85 cents out of every dollar on direct patient services and obtains outstanding outcomes and patient satisfaction ratings.14 In many ways, Kaiser, because it is less expensive and gets outcomes that are as good as or better than other commercial providers, is overwhelming its competition in the private health care marketplace in California, boasting around 41% market share.15
In another example, in 2014, Maryland implemented an all-payer global payment system for its hospitals, thereby imposing fixed hospital budgets.16 Maryland has saved Medicare an estimated $429 million over three and a half years, exceeding the initial five-year goal of $330 million in savings. To date, Maryland has also exceeded key quality goals. It seems that the imposition of a fixed budget has, in fact, been successful in controlling hospital costs and improving outcomes.
Although the architects of the ACA were principally focused on achieving expansion of coverage, they did understand the need for health care reimbursement reform. Their efforts at cost containment focused on eradicating fraud and abuse and experimenting with alternative payment methods (APMs). These APMs, which include bundled payments, payments for episodic care, pay for performance, and risk-sharing accountable health care organizations, were primarily demonstration programs sponsored through the Centers for Medicare and Medicaid Services (CMS) to emphasize and reward value—best outcomes delivered most efficiently—and encouraged some limited risk sharing.
Without question, the introduction of APMs represents an attempt to modify the fee-for-service model by introducing an emphasis on value-based reimbursement. However, because the authors of the ACA were never aggressively explicit about the need to replace the fee-for-service reimbursement model, and most of these APMs were voluntary, their efforts essentially amounted to gently modifying fee-for-service models rather than aggressively driving the process of reimbursement change.
CMS has also encouraged the migration of Medicare recipients into Medicare Advantage Plus—a predominately, but not exclusively, capitated (fixed budget) product.17 Presently, approximately 31% of Medicare beneficiaries are enrolled in Medicare Advantage. By encouraging the movement to Medicare Plus, CMS is incentivizing providers to develop the infrastructure to move from fee-for-service to risk-based or capitated systems of reimbursement.
Since policy makers certainly understood the need to move from a fee-for-service to a fixed-budget methodology of health care reimbursement, why were they somewhat hesitant and not more explicit and publicly aggressive in pursuing this transition? The answer is simple: politics. Both political parties have consistently promised their constituents “complete free choice in health care.” They have repeatedly stated that individuals could keep their doctor; they could keep their health plan if that is what they wanted. However, it is impossible to have universal coverage and absolute free choice and maintain reasonable budgets. “That dog don’t hunt,” as they say in Kentucky.
Choice is centrally important; the choice that can and must be preserved is choice of plan. Individuals should have the option of choosing from competing provider systems and plans to ensure aggressive competition and should have the option of using their own resources to purchase more services than the standard benefits package offered. Once individuals make their choice, they must live within the limits of their plan, which most likely will mean restricted networks of providers and organized systems and protocols of care. Without question, for a fixed-budget, capitated system to be successful, providers must know who their patients are, where they are being cared for, and how they are being treated.
As purchasers become more concerned about health care costs, in my opinion, their demand for choice at any expense will yield to their desire for coverage at a reasonable price. The continued movement to Medicare Advantage Plus is a manifestation of patients opting for coverage over choice because of cost. Likewise, the selection of coverage over choice is playing out as more and more individuals who are receiving their insurance through the ACA are opting for managed care products involving narrow networks.18 In the private sector, at the University of Kentucky, a very substantial number of individuals have chosen an HMO versus a preferred provider organization (PPO) product as a reflection of their opting for cost over choice. Broader coverage is often delivered by HMO products over more expensive, broader-choice products like PPOs. Traditional full indemnity insurance, the ultimate in choice, has essentially disappeared.
Migrating to a “managed-competition model of health care” (i.e., capitation) will require a vigorous public debate, considerable sacrifice, compromise, and ultimately recognition of several principles and tenets. First, we must recognize that we have to get control over health care costs if we have any hope of ever coming close to universal coverage or even long-term health system security. Second, to get control over costs, we will need to recognize that total free choice and efficiency are not compatible and that free choice of plan is the only choice that can actually be protected and advocated for. Once individuals become part of the organized system, free choice of facility, provider, and/or treatment modality will necessarily and appropriately have to be limited. Third, standardized coverage packages are necessary, and individuals who receive their insurance through their employers may have to have limits on the tax benefits of their coverage (pretax dollars should only cover standardized packages). They should have the opportunity to purchase more coverage if they so desire. Fourth, we are already, in reality, moving to a voucher system in terms of Medicare Advantage Plus and per capita caps as advocated for Medicaid patients by the AHCA. At least if costs per enrollee are defined, a global budget can then be developed and managed.
Moving to a managed-competition system/fixed budgets (i.e., capitation) will, without question, be disruptive and difficult; however, if we do so in an organized, systematic, and programmed way, we will be able to anticipate, analyze, address, and thereby mitigate some of the disruption. If we do not face the inherent conflict between cost, coverage, and choice, we are putting the health care system at risk. Procrastination at addressing this issue will cause us to wait until our system is devastated and left in shambles, to be resurrected.
Let us have a real debate about choice, cost, and coverage so that we can evolve in a sustainable manner to a functional health care system rather than wait until our system financially collapses and we have to resurrect it out of chaos. Let us demand and develop a market-based approach to health care that clearly competes based on quality and cost.
The academic community must be engaged in this debate because it has a strong vested interest in the outcome. The academic community has always been a strong advocate for fair and equitable care for all. AMCs care for a disproportionate share of un- and underinsured individuals, which imposes a significant financial burden on them. AMCs must also understand and adapt to a new role in a rapidly evolving health care system to continue to provide the public good that they deliver. Being engaged in change and being proactive in responding will be essential for the long-term vitality and viability of academic medical centers.
4. Collins SR, Rasmussen PW, Beutel S, Doty MM. The Problem of Underinsurance and How Rising Deductibles Will Make It Worse—Findings From the Commonwealth Fund Biennial Health Insurance Survey. May 2015.New York, NY: Commonwealth Fund.
13. Enthoven AC. The history and principles of managed competition. Health Aff (Millwood). 1993;12(suppl):24–48.