What will the passage of the Affordable Care Act (Obamacare) mean for households and employers? Over the coming months, there should be stories about how the final regulations will be determined. Also many states will start setting up their insurance exchanges. What will these changes mean for individuals and employers? Will companies start changing incentives for their employees and health care providers?
Affordable Care Act (Obamacare) brings competition in healthcare insurance market and provide consumers with more options to shop for their insurance. Healthcare spend in US 17.3% of GDP where as it is 10.4 in Canada and 8.7 in UK. McKinsey & Co argued in its 2007 report that US paid more for care than any other developed country in the world (http://www.mckinsey.com/mgi/reports/pdfs/healthcare/MGI_US_HC_fullreport.pdf). There is a system wide failure of healthcare in US and the reform would certainly help fixing the gaps in healthcare delivery.
The article mentions that this law will "lower health care costs".... What exactly does this law do to lower health care costs? For who? I've taken a pretty close look at this law and considered several perspectives....I'm not seeing it....someone help me see the light.
Well, the healthcare cost is just not the cost the consumer pays for getting the service. It is the overall cost of healthcare delivery that include cost of patient care, drugs/medications, ancillary services like X-Rays/MRIs, hospital stays and other dependent services like homecare/hospice stay etc. Even today, can you believe, there are places in US where is there no competition for private insurance companies in the healthcare. The market is dominated by one or two insurance companies in these places. In otherwords, the insurance companies can get to define a price with no regulation, which could have a significant impact on the consumers/patients. For ex, in the state of Maine, Wellpoint Inc. accounts for 71% of the Maine insurance market, followed by Aetna.. In otherwords, the consumers have no choice other than going to either Wellpoint or Aetna for their health insurance in the state of Maine. This is not right. Studies show that Maine is one of the highest cost states when it comes to healthcare. The affect of this is big insurer companies are gettting much bigger. In my opinion, the Affordable care act law, creates a very competitive market when it comes to consumer choice on their insurance, that would lead to lower healthcare costs. The law enables creating a statelevel Insurance Exchange, which acts as insurance purchasing pool. All the insurance companies in the state will be mandated to join the pool. As the pool will be open, the insurance companies will have to compete with each other inorder for them to stay in business. The consumers will get an opportunity to compare benifits and premiums between different plans in the pool and shop for a plan that fits their need and budget. I think, Obamacare certainly would help creating competition in the market and reduce healthcare costs.
I think the essential premise is not "lowered costs", but to lower projected costs for the future.
Essentially it comes down to the question, will this legislation lower the marginal costs of healthcare enough in the long run in a significant way compared to the costs of doing nothing, to overcome the short run expenses?
Additionally, is this the most cost-efficient manner to affect long-term healthcare costs, and what are the economic winners and losers in this process? But, more on those topics later.
First, I want to point out that insurance companies aren’t the only ones involved in the increase in price for healthcare. In fact, insurance companies don’t even provide healthcare. Insurance companies work with the providers to negotiate the best possible prices on services on behalf of their members. As an example, if the insurance companies had it their way, an MRI would cost ten dollars. It’s the providers that want to be paid over a thousand dollars for that service. The insurance company wants the price to go down so they can lower premiums and attract more members. The providers have the incentive for the price to go up because they know that the members will only pay a fraction of the price anyway – so it won’t be hard to sell them on the service when the time comes. The more members that the insurance company can drive to the provider as customers, the better they are able to bargain with the provider for the best possible pricing. So it’s a double edged sword. Small insurance companies don’t have much bargaining power with providers and can’t get very good rates for services. Big insurance companies become a monopoly and no longer need to have much bargaining power. The key is to have large enough insurance companies to exert pressure on the providers to lower prices, but not so big that they lose their incentive for doing so. The second item you bring up here is competition. That is an important point of contention for the law and I’ll discuss that more in my next post related to the Linguistics portion of the law. Stay tuned.
Very true and interesting points, Brett, as there are principle-agent issues on each level. Providers want to maximize profits. Insurers want to maximize profits. And what does the principle, the patients want? High level quality and affordable care. Clearly, there is a conflict...particularly as patient also value freedom of choice in the health care as well.
Before we can align their interest, we have to define what is most important to the principle: Quality or Cost.
Brett, I agree that Insurance Companies are not the only problem, they are PART of the problem. Insurance companies certainly play big role in the overall delivery of healthcare, including denial of insurance for pre-existing conditions. As Dan mentioned, there are issues at each level. Providers/corporate hospitals want their own share as their ROI is very long and Insurance companies tries to please their share holders by maximizing their profits. Consumer is the one who is getting caught up in the middle. As there are very limited options for the consumer to pick from, they are always at a disadvantage, paying high price.
Affordable Care Act (Obamacare) brings competition in healthcare insurance market and provide consumers with more options to shop for their insurance. Healthcare spend in US 17.3% of GDP where as it is 10.4 in Canada and 8.7 in UK. McKinsey & Co argued in its 2007 report that US paid more for care than any other developed country in the world (http://www.mckinsey.com/mgi/reports/pdfs/healthcare/MGI_US_HC_fullreport.pdf). There is a system wide failure of healthcare in US and the reform would certainly help fixing the gaps in healthcare delivery.
ReplyDeleteThe article mentions that this law will "lower health care costs".... What exactly does this law do to lower health care costs? For who? I've taken a pretty close look at this law and considered several perspectives....I'm not seeing it....someone help me see the light.
ReplyDeleteWell, the healthcare cost is just not the cost the consumer pays for getting the service. It is the overall cost of healthcare delivery that include cost of patient care, drugs/medications, ancillary services like X-Rays/MRIs, hospital stays and other dependent services like homecare/hospice stay etc. Even today, can you believe, there are places in US where is there no competition for private insurance companies in the healthcare. The market is dominated by one or two insurance companies in these places. In otherwords, the insurance companies can get to define a price with no regulation, which could have a significant impact on the consumers/patients. For ex, in the state of Maine, Wellpoint Inc. accounts for 71% of the Maine insurance market, followed by Aetna.. In otherwords, the consumers have no choice other than going to either Wellpoint or Aetna for their health insurance in the state of Maine. This is not right. Studies show that Maine is one of the highest cost states when it comes to healthcare. The affect of this is big insurer companies are gettting much bigger. In my opinion, the Affordable care act law, creates a very competitive market when it comes to consumer choice on their insurance, that would lead to lower healthcare costs. The law enables creating a statelevel Insurance Exchange, which acts as insurance purchasing pool. All the insurance companies in the state will be mandated to join the pool. As the pool will be open, the insurance companies will have to compete with each other inorder for them to stay in business. The consumers will get an opportunity to compare benifits and premiums between different plans in the pool and shop for a plan that fits their need and budget. I think, Obamacare certainly would help creating competition in the market and reduce healthcare costs.
ReplyDeleteI think the essential premise is not "lowered costs", but to lower projected costs for the future.
ReplyDeleteEssentially it comes down to the question, will this legislation lower the marginal costs of healthcare enough in the long run in a significant way compared to the costs of doing nothing, to overcome the short run expenses?
Additionally, is this the most cost-efficient manner to affect long-term healthcare costs, and what are the economic winners and losers in this process? But, more on those topics later.
First, I want to point out that insurance companies aren’t the only ones involved in the increase in price for healthcare. In fact, insurance companies don’t even provide healthcare. Insurance companies work with the providers to negotiate the best possible prices on services on behalf of their members.
ReplyDeleteAs an example, if the insurance companies had it their way, an MRI would cost ten dollars. It’s the providers that want to be paid over a thousand dollars for that service. The insurance company wants the price to go down so they can lower premiums and attract more members. The providers have the incentive for the price to go up because they know that the members will only pay a fraction of the price anyway – so it won’t be hard to sell them on the service when the time comes. The more members that the insurance company can drive to the provider as customers, the better they are able to bargain with the provider for the best possible pricing.
So it’s a double edged sword. Small insurance companies don’t have much bargaining power with providers and can’t get very good rates for services. Big insurance companies become a monopoly and no longer need to have much bargaining power. The key is to have large enough insurance companies to exert pressure on the providers to lower prices, but not so big that they lose their incentive for doing so.
The second item you bring up here is competition. That is an important point of contention for the law and I’ll discuss that more in my next post related to the Linguistics portion of the law. Stay tuned.
Very true and interesting points, Brett, as there are principle-agent issues on each level.
ReplyDeleteProviders want to maximize profits.
Insurers want to maximize profits.
And what does the principle, the patients want? High level quality and affordable care. Clearly, there is a conflict...particularly as patient also value freedom of choice in the health care as well.
Before we can align their interest, we have to define what is most important to the principle: Quality or Cost.
Brett, I agree that Insurance Companies are not the only problem, they are PART of the problem. Insurance companies certainly play big role in the overall delivery of healthcare, including denial of insurance for pre-existing conditions. As Dan mentioned, there are issues at each level. Providers/corporate hospitals want their own share as their ROI is very long and Insurance companies tries to please their share holders by maximizing their profits. Consumer is the one who is getting caught up in the middle. As there are very limited options for the consumer to pick from, they are always at a disadvantage, paying high price.
ReplyDelete