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Is a government takeover of healthcare underway?

The normally sage CEO of the Kaiser Family Foundation, Drew Altman, isn’t as persuasive in his latest Pulling it Together column (Are We Headed for a Government Takeover of Health Care?). His essential argument is that since the government’s share of health care spending is projected to rise only modestly –from 45 percent to 49 percent– from 2010 to 2020, that no such takeover is occurring. As he puts it, "our health care system has been, and will remain, a mixed public-private one.”

In my view, this mixed system of financing is one reason the US health care system is in a tough spot. Since the government is the single biggest customer for most provider organizations, that’s where providers place the bulk of their attention. Add on all the regulatory requirements and opportunities for harsh civil and criminal punishments the government imposes, and the focus becomes even more central. It’s hard, even for a big national or regional commercial health plan, such as Aetna or a Blue Cross, to get a provider’s attention for an innovative quality program or payment model. It’s also true that health plans tend to follow government (especially Medicare) coverage decisions, whether because Medicare is perceived as doing the right thing or because it’s just the easiest way to go. Commercial health plans’ reimbursement rates are also influenced by Medicare and Medicaid, either because they use those rates as the basis for their own or because key provider organizations tell commercial plans the amount needed to make up for their losses on government programs.

The Patient Protection and Affordable Care Act (PPACA) does certain things to make innovation from commercial health plans even less likely. In particular minimum medical loss ratio (MLR) rules limit the profit potential of innovations that hold down medical costs.

So while I would not say that PPACA represents a “government takeover of health care,” it is fair to say that government already weighs heavily on the sector and that PPACA takes that a step further.

The dynamic I describe would probably still hold even if government spending were cut to half of its current level, something that seems very unlikely. (Notably the latest debt ceiling deal avoids a hard look at the root causes of Medicare spending). Even with such a dramatic change Medicare would still be the biggest customer of most hospitals. Government rules would still dictate compliance priorities. And health plans would continue to follow the government’s lead.

So what, practically speaking,  is to be done? I see a couple of opportunities, both of which are likely to take a while to play out given the dysfunctional dynamic in today’s Washington and anger and confusion among the public:

  • Encourage the entry of new health plans by eliminating the MLR requirement for them and waiving regulations such as mandated benefits. There are some intrepid players such as Averde Health that are ready to try new ideas. But setting up safe harbors for innovation and providing some advantages against established rivals will bring a lot more new, exciting ideas out of the woodwork. The MLR requirement itself actually discourages new entrants, because it’s hard for health plans to reach the required level until they have a lot of members
  • Stop pretending/hoping that commercial plans are ever going to add much net value to a system dominated by government payers, and outlaw them altogether, moving to a single-payer system. Then focus on allowing providers to innovate in the face of restrictive budgets. I know this one seems particularly farfetched based on the current mood of the country, but I think there’s a good chance we are headed in that direction over the next 20 years

David Williams blogs regularly at the Health Business Blog.

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