The Margins are Shrinking

The Affordable Care Act (“Obamacare”) is altering the face of American medicine. Perhaps it was the act that fomented the changes, but more likely it was a combination of vectors that pushed this reform forward. We have the most expensive per capita healthcare systems on earth and without the reform, we were spending about 31% of our healthcare dollar on administrative costs; that number is falling to almost half that percentage under the new legislation. And we have been slammed by a horrific recession with a snail’s-paced recovery and seemingly a permanent fall in the buying power of the average American.

The last big changes in the Affordable Care Act will be implemented in early 2014, just around the corner, when pre-existing conditions will no longer be a factor in how much a consumer can be charged by an insurance carrier or whether that carrier will have a right to reject an applicant or cap lifetime benefits. Anyone can go to any carrier licensed and operating in their home state and buy a policy at the same rates as charged to anyone else. These plans will fall within the regulations of the local exchanges which are being established, state-by-state, under the Act.

But for insurance companies, the landscape is totally changing. With universal coverage almost a mandate under the Act, plus opportunities in an expanded Medicare landscape, there are many more people out there who are going to seek coverage. But clearly, there is a countervailing pressure on cost-reduction. “Insurance companies across the country, whether national profit-making players like WellPoint and UnitedHealth Group or nonprofit Blue Cross plans in states like Arizona and Michigan, are undergoing radical change as a result. After years of focusing on selling plans to employers, rather than individual consumers, the insurers must alter course…  ‘It’s like Yugoslavia, and Tito just died,’ said Dr. Kent Bottles, a physician and former hospital executive who is now a consultant. ‘The A.C.A. disrupts their business model totally, and they’re scrambling around.’…

“[Patrick J. Geraghty, who runs Florida’s largest health insurance carrier, Florida Blue, noted:] ‘We’ve got to be smart and to be quick,’ he said in an interview in his office on the eighth floor of a sprawling headquarters complex. ‘In the past, we’ve been slow and hanging out.’ [Adding] ‘We know the margins in health care are shrinking,’ he said, referring to insurers’ projected profitability. ‘This is where we are.’” New York Times, February 5^th.

We are going to have to rethink healthcare from the ground up. Local pharmacies may be able to provide nurse practitioners, with the ability to issue prescriptions, to generate entry-level care in a system that just isn’t turning out enough doctors. And as we are placing pressures on reducing what doctors get paid for various services, we also need to address why there isn’t a parallel effort to reduce the costs associated with medical school, which leaves recent graduates saddled with six figure student loans that will take over a decade to pay off, facing very low-paying residencies to become qualified in their fields to enter a field where physicians (with eight years of college, two to eight years of residence and fellowship) are being paid less and less for all that effort and investment. This may explain why so many doctors have become Republicans, the party that has been committed to repeal the ACA. Unfortunately for that cause, the president was reelected.

Defensive medicine, with little benefit to the patient but plenty of benefits for doctors who don’t want to face lawsuits later, needs to be moderated and contained. We may brag about how we have the best doctors, most modern facilities and equipment and the highest level of medical research on earth… Now we need to take that excellence and made it available to as many people as well can on the most efficient basis possible. We are heading into a different era with differing expectations and different economics. For those who think the ACA will settle the issue for now, it is import to understand that one way or another, this is just the beginning of how radically our healthcare system will change in the coming years.

I’m Peter Dekom, and the changes to the system will only accelerate from here.