by Peter Kennedy
It already seems like ages ago that the healthcare reform legislation was the centerpiece of the nation’s political conversation. While the most vocal opponents of the Obama administration continue to call for a repeal of healthcare reform, most of the nation (based on the results of a May Wall Street Journal poll) favor giving the new law a chance to work. The Obama administration is hoping as much, with the oil spill crisis in the Gulf of Mexico alone absorbing an extraordinary amount of executive time and attention.
Meanwhile, the real substance of healthcare reform is playing out behind the scenes and mostly out of sight of the news media and the public.
To start, the actual implementing regulations are now being written. Some analysts believe the effects of these will make healthcare a de facto public utility, with increasingly aggressive government control over pricing and delivery of services. In the extreme case, some insurance companies would likely exit the market, an undesirable development from the government’s point of view, perhaps, but one that cannot be ruled out. It all depends on whether profitable new business models can be developed for what will undoubtedly be a more restricted marketplace, albeit bulging with millions of new customers.
The Medicare front is also fraught with uncertainty. The government recently announced that the Medicare fund for hospital care will be depleted in 2017, which is two years earlier than government actuaries predicted just a year ago. Moreover, 2009 was the first year that Medicare ran a deficit, paying out more in benefits than it generates from taxes and other revenue. There is as yet no long-term, sustainable physician reimbursement formula. To hold down costs, target levels for per capita Medicare spending will be instituted starting in 2015. Administration planners are counting on a range of cost-savings measures (e.g., encouraging primary care) to keep the system afloat, but if these do not materialize, the inevitable result will be some combination of real cuts in physician reimbursement, higher patient co-pays and increases in Medicare premiums.
The economic context for healthcare reform will continue to be a very powerful factor in how the system evolves. Many private employers will struggle with worker coverage requirements so long as economic growth is sluggish and profits are modest. According to one recent study, about one-third of businesses subject to new healthcare rules could face tax penalties because they currently offer health insurance that new rules might considered unaffordable. In a year or two, we might well be enjoying stronger growth and brighter economic prospects. And all of that would certainly make incipient employer health-coverage burdens easier to bear. But, absent strong growth and healthier balance sheets, employers will struggle with compliance and they’ll doubtless look to the government for relief.
The only given – change
The one thing that healthcare reform backers and critics agree on is this – whatever one’s current image is of the system’s future, it is bound to be wrong in several key respects. There will be many course corrections along the way, some planned and expected, but many not even considered today. The New York Times’ Paul Krugman, who backed healthcare reform enthusiastically, put it this way: “We’ll spend years if not decades fixing this thing.”
So who can predict where healthcare reform will lead in 5, 10 years?
No one – which is why we do scenarios. Stay tuned for some exciting news about an emerging FSG collaboration on healthcare reform scenarios.
Peter Kennedy is an FSG principal.