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Health September 2013

Financial Fortitude

The New Medicine Paradigm: Lessons Learned from ‘Romneycare’

By Karen Telleen-Lawton

Buying insurance independently will likely be cheaper, using the online insurance exchanges. Bonus for older buyers: they can’t be charged more than three times younger buyers, versus the current 5-1 or 7-1 cost differential.

Health care is both a heart-stopping and heart-warming topic. There are patients who have to fight for covered reimbursement and uninsureds who free-ride on payers when their health turns south. There are doctors and nurses who provide care no matter their patients’ ability to pay, and those who order tests and procedures with hidden financial incentives.

That’s now. What comes after January 1, 2014, when the Affordable Care Act kicks in? The pessimist in me wants to quote John Bridgeland and Peter Orszag, former policy and budget wonks under George W. Bush and Obama. In their recent Atlantic article called, “Can Government Play Moneyball?” they estimate that “less than $1 out of every $100 of government spending is backed by even the most basic evidence that the money is being spent wisely.” In health care particularly, which accounts for about one-quarter of federal government spending, decisions are based on “good intentions, inertia, hunches, partisan politics, and personal relationships.” That doesn’t sound like a recipe for effective health-care decisions.

On the other hand, there are now six years’ worth of evidence from Massachusetts’s Romneycare – the model for Obamacare – in place since 2006. June’s Money Magazine laid out the most significant results of the Massachusetts experiment, offering clues to what we can expect. Among them:

  • More of us will be insured. The proportion of uninsured shrank from 8% to 3% under Romneycare. The U.S. estimate is that 10% will go without, versus 16% now. More insureds mean fewer free-riders and more people who get preventative treatment instead of costly emergency procedures.

  • Most employers won’t drop coverage, as was feared. Only 5% of Massachusetts private firms are paying the fine rather than covering employees. Premiums have risen one-third less since 2006 than in 2000-2006. Small businesses have found coverage more expensive, but in the next year or two employers will be able to provide a budget so employees can pick from policies on a state exchange, which should abate costs in the long run.

  • Buying insurance independently will likely be cheaper, using the online insurance exchanges. Bonus for older buyers: they can’t be charged more than three times younger buyers, versus the current 5-1 or 7-1 cost differential.

  • There will be more “advanced practitioners” like physician assistants and nurse practitioners, reserving physician involvement for diagnoses and complications. 
        
  • Providing care for good health will be emphasized instead of expensive tests. For instance, over 250 hospitals and physician groups have signed up to join Obamacare’s Accountable Care Organization (ACO). Under this agreement, hospitals and insurers share the financial risk of keeping patients healthy. For example, insurers can give doctors a budget for a group of patients. If the medical organization meets certain standards of care and health, and the treatment costs less than budgeted, doctors can earn a share of savings.

ACOs are among the programs gaining popularity and showing particular promise. One of the ways some reduce costs is to mine patients’ medical claims data, identifying those at highest risk to be admitted to the hospital. Once these patients are identified, nurses and other practitioners manage their care closely. This improves health and reduces hospitalizations for this costliest group, which have a dramatic effect on healthcare’s overall cost.

Organizational change is hard, so when hospitals join an accountable care organization, they are offered two alternatives to incentivize their doctors. They can accept the budget immediately and reap 60% of any savings. They would also be responsible if costs increased. Alternatively, they can opt out of the risk of increased cost for the first three years. In this case they receive only 50% of any savings.

One final lesson from Romneycare. Health care costs are still increasing, albeit more slowly. Federal costs will continue to be a concern for the foreseeable future. Starting in 2018, there will be a tax on high-end health plans, designed to slow spending by paring costly benefits. But the focus will remain on costs savings while improving health care.

It might be harder to talk about cost reduction programs if patient care was excellent. But the Institute of Medicine estimates that more than half of treatments provided to patients lack clear evidence of being effective. The ACO and other programs like it show promise in improving effectiveness by shining a light on overall health instead of treatment.

The good news for all of us is, there is plenty of low-hanging fruit to pick on the medical cost reduction tree.

 

Karen Telleen-Lawton, CFP®, is grateful to serve seniors  and pre-seniors as the Principal of Decisive Path Fee-Only Financial Advisory in Santa Barbara, California (http://www.DecisivePath.com). You can reach her with your financial planning questions or Gratitudes comments at  This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

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