President Barack Obama, Vice President Joe Biden and senior staff react in the Roosevelt Room of the White House as the House passes the Patient Protection and Affordable Care Act on March 21, 2010. Official White House Photo by Pete Souza
Health care costs as a percent of GDP in the United States have been rising steadily and, by 2009, accounted for more than 17 percent of GDP. If health insurance premiums continue to rise, employers could pass costs on to workers as lower wages, or not offer health insurance to low-wage workers. If employers bear some cost, they will likely cut back on employment.
Under the 2010 Patient Protection and Affordable Care Act (ACA), there are several provisions that might help reduce the cost of medical care – and save jobs in the process. For instance, Medicare’s current fee-for-service system rewards doctors and hospitals for doing more tests and procedures, driving costs up. ACA provisions will reduce these incentives and may be able to switch the focus from quantity to quality of healthcare.
Hospitals in the current inpatient prospective payment system are reimbursed for Medicare patients on a flat rate basis determined by the patient’s diagnosis. Beginning in fiscal year 2013, hospitals whose Medicare patients are readmitted at higher-than-expected rates will experience decreased Medicare payments for all Medicare discharges. The intent is to encourage a higher quality of care in initial hospital visits and thus have fewer readmissions.
A second provision imposes payment penalties on the 25 percent of hospitals whose rates of hospital- acquired conditions like bedsores, complications from extended use of catheters, and injuries caused by falls, are the highest.
Another provision is bundling payments for renal disease. In this case there would be a set reimbursement for patients with a particular stage of renal disease. Instead of reimbursing for each individual treatment, this reimbursement would be for all care given to a patient for renal disease.
A fourth provision is the implementation of accountable care organizations (ACO). An ACO is a network of doctors and hospitals that shares responsibility for providing care to patients. The network would receive $5,000 to manage all of a given patient’s care for three years. The network retains any portion of this amount not spent for the patient’s care; if care exceeds this amount, the network must cover the costs. Thus, ACOs pay providers more for keeping their patients healthy and out of the hospital. Also, the Centers for Medicare and Medicaid Services will offer bonuses to providers for keeping costs down and meeting quality benchmarks. In essence, ACOs will get paid based on how healthy you stay, rather than the number of medical tests or treatments are performed on you.
The Congressional Budget Office predicts that under the ACA there will be $50 billion less spent on Medicare in 2015 than without reform, and a savings of $100 billion in spending by 2019. The changes to Medicare by the ACA that result in reduced Medicare spending influence hospital behavior, which, in turn, will also slow private sector spending.
Under the ACA, employers will be required to “Pay or Play,” meaning they must either provide employee-sponsored health insurance (ESI) or pay a fine. Small firms of 50 or fewer full-time employees (FTE) are exempt, but large firms will be fined if no affordable coverage is offered to FTE and one or more workers buy subsidized exchange coverage. The fine would be equal to $2,000/FTE, exempting the first 30 workers. Health insurance exchanges will be available to workers whose employer doesn’t offer insurance, or where insurance is “unaffordable”.
The Urban Institute’s Health Insurance Policy Simulation Model predicts similar levels of ESI with or without the ACA reform regardless of firm size, as well as higher spending on ESI by employers with fewer than 100 workers with the ACA.
Rising health care costs are detrimental to United States businesses. The ACA devotes substantial resources to improving insurance coverage while restraining cost growth. Under this plan costs per- person will fall, but costs as a percentage of GDP remain the same. Therefore, we must be more aggressive in cost control. Providers must be rewarded for better quality, not quantity.
Marah Short is the senior staff researcher for the Health Economics Program at the Baker Institute for Public Policy. Her previous work includes research on children and health insurance and the economics of acute care and cancer. She is currently studying the correlation between smoking bans and disease rates.