How the ACA reduces medical costs

Posted by: NW Ponderer

How the ACA reduces medical costs - 07/08/12 04:29 PM

This is going to be a wonky post, but there has been a lot of mis- and dis-information spread about the Affordable Care Act, so I wanted to summarize a few points about how it will reduce medical care cost when it is fully implemented. Most people assume that it only affects health insurance costs, but that is that tail, the dog is medical costs - and it does that too.

Medical costs are going up at an alarming rate, there is no question about that. A major reason for that is that much of that is in the realm of emergency medicine usage by people without insurance. Emergency rooms are required to see people even without insurance - Uninsured Put a Strain on Hospitals. Uncompensated Care is borne by all of us, because eventually those costs are shifted to paying customers - for most of us, that means insurance, and insurance premiums.

So, how does the ACA reduce medical costs? 3 ways (oh stop that!): First, it increases the insurance pool. Second, it shifts the kind of care people will seek (reducing emergency room visits, and increasing preventative care). Third, it changes the for-profit collection method (capping overhead).

First, "the pool." The private insurance pool is smaller than most people think. Assuming a population of 330 million: 40 million (for argument's sake) are uninsured; an additional 8 million get care through the VA. So, the "insurance pool" is just about half of the population: 174 million.

Now, just for argument sake, I am going to make up numbers. Assume that the total insurance health care bill is $100 billion (that includes shifted costs for uncompensated care). That would mean that everyone in the pool pays $575 to cover the cost of losses plus the insurance overhead cost, which is $125, for a premium of $700 (I wish!).

Here's how the ACA will reduce your bill: First, the pool will be enlarged by 40 million people. That brings the average cost down to $467. Second, the overhead is maxed out, say at say $50. Each person’s premium drops to $517.00. Already you’ve saved $183 – But wait! There’s MORE! Because we’ve shifted people from emergency rooms to preventative care, those shifted costs will be cheaper – say, 30%. So, that first number drops from $467 to $327, and the second number also drops 30%, to $35, so now your premium is only $362… almost half what it was before.

Sound about right?
Posted by: NW Ponderer

Re: How the ACA reduces medical costs - 07/08/12 04:56 PM

I realized something after I posted this, mixing apples and oranges again - hard not to do. In the above example, 30% of that reduction was lower health care costs. The rest is reduced premium costs. There are other variables, of course, that also affect prices, and some of those costs will be borne by taxation in other ways (to pay for those who cannot afford insurance on their own), but the process is about right, and will result in a net reduction in health care costs.
Posted by: Scoutgal

Re: How the ACA reduces medical costs - 07/08/12 09:17 PM

Thanks for the explanation, NWP! It is well worth the read! ThumbsUp
Posted by: NW Ponderer

Re: How the ACA reduces medical costs - 07/08/12 10:21 PM

Oops... apparently in my "edit" of my figures in the original post, I deleted more than I intended. The paragraph with the figures should have said:
First, "the pool." The private insurance pool is smaller than most people think. Assuming a population of 330 million: 40 million (for argument's sake) are uninsured; 108 million get medical care through Medicare/Medicaid; and an additional 8 million get care through the VA. So, the "insurance pool" is just about half of the population: 174 million.
Posted by: Scoutgal

Re: How the ACA reduces medical costs - 07/08/12 11:29 PM

Thanks for the correction!
Posted by: rporter314

Re: How the ACA reduces medical costs - 07/09/12 12:45 AM

Quote:
Sound about right?

well ... ahh ... no

Quote:
how does the ACA reduce medical costs?

you said medical costs i.e. cost drivers

1. insurance pool
2. emergency room visits
3. capping overhead

Insurance is a result of provided care ... if that cost rises, premiums rise ... no one is in the business to sell below cost so they can go broke ... i.e. insurance is a passive cost

fascinating article but it had few facts worth noting ... here are some from 2008:
The uninsured accounted for <1% of GDP or in another way health care costs were 15.4% of GDP. Estimates of costs for uninsured ranged from $34B to $130B, which is consistent with the 1% number.

Remember that about 25% of uninsured are illegal so would continue using services.

Now some crazy stuff. Emergency room services have notoriously inconsistent costs. An uninsured person may be charged $500 for a service and an insured person would be charged $5000 for same service. Unless and until we have reliable sources for costs which are passed through to the insured, all we are doing is speculating in an area which has little impact on overall health care costs.

Capping administrative overhead has some we are looking at something or the order of 6% change in costs of insurance, or if we are looking at insurance cost capping, all that happens is the costs are shifted directly to premiums. These folks can not remain in business if they are nor making money.

So of your medical reductions, 2 are simply insurance related and the other has sketchy data.

Let's back up and consider a couple of ideas. You mentioned preventative health care. I think it is clear to everyone that Americans are a relatively unhealthy lot. When costs are prorated we far outstrip other industrialized countries. One possible way of looking at that fact is the difference is embedded in unhealthy people who obviously require more medical attention. Now suppose that we had healthy people so the difference is erased. It should now be evident that even with reduced total cost the per capita costs (of people who needed medical attention) remain the same. All that has happened is the insurance costs have been reduced immediately but since the remaining costs are still high and will continue to rise, those cost increases would still be passed on to consumers. So we are still caught in the conundrum that we can reduce costs temporarily but if those costs continue to rise we will continue to be faced with increased insurance premiums.

The key words are "continue to rise." At some point we must discuss the goals we have in mind. We can not survive economically if the current costs are 15.4% GDP and by 2017 it is estimated to be 19.5% GDP, for a whopping 25% increase.

I think you can see where I am going with this, but then, these are only passing thoughts on a complex issue.
Posted by: Ted Remington

Re: How the ACA reduces medical costs - 07/09/12 12:51 AM

The real immediate concern is actually the strain on our medical services delivery system. Demand is going to skyrocket as all those people who were either uninsured or underinsured begin making full use of the med structure.

The costs have to rise dramatically to try to allocate and control the demand. My personal physician is terrified. He cannot cope with a twenty-percent increase in workload and still provide quality care.
Posted by: Ken Condon

Re: How the ACA reduces medical costs - 07/09/12 01:05 AM

And then there is this idea:
Quote:
Here is a health-care reform that is notable for never being proposed by the people who ought to be for it, namely conservatives: repeal the Emergency Medical Treatment and Active Labor Act, the 1986 law that requires hospitals to treat urgent-care patients regardless of their ability to pay.

Conservatives say the government cannot and should not require people to buy health insurance. The trouble is that the government can and does require hospitals to treat people who don’t have health insurance and who can’t pay. The result is a free-rider problem that runs to tens of billions of dollars a year and, worse, destabilizes the whole system.

According to conservatives, the government should not make people buy insurance; it certainly should not provide coverage for them. That would seem to eliminate the two main ways to deal with free riders. One obvious possibility remains. If you can’t pay for medical treatment, you can’t expect to receive it. Period.

Oddly, proponents of small government and personal responsibility do not propound that idea. It was hinted at, however, in a Republican presidential debate last September. The moderator asked Representative (and physician) Ron Paul, a hard-liner on the subject of individual responsibility, whether an uninsured person in need of urgent care should be left untreated, possibly to die. Answer (of course): “No.”

As Paul spoke, Tea Party types in the audience could be heard shouting “Yes!” They, at least, were being intellectually honest. If conservative politicians were as forthright, we might be able to have the debate we need.


From a recent Atlantic Monthly article on “Big Ideas."
Posted by: NW Ponderer

Re: How the ACA reduces medical costs - 07/09/12 03:25 AM

rp, you make some good points, but let me just focus on one particular element: emergency services, because that is one element that has the most bang for the buck.

I have personally been in the emergency care realm (I was an EMT for a county EMS), and I have close friends who still are. One would think that a visit to a doc would be the same in an emergency room as it is in a doctor's office - since the same service is rendered - but it is not. Because of the ancillary requirements for an emergency service (e.g., standby ORs, equipment, etc.) these costs are borne by the emergency department and passed on to users. It is true that "costs" vary wildly between departments, and even depending on the billed party. Also, often the (uninsured) person seeking treatment has waited until a chronic condition becomes acute (e.g., diabetes). The services then required in an emergency room (e.g., amputation) are much more expensive than treatment of the underlying chronic condition might have been (e.g., insulin). That was my point with regard to preventative services being less expensive than emergency services. Also, with less pressure on the emergency department, the emergency department can be more closely aligned with its purpose, and fewer costs will be passed on to other payers (e.g. insurance carriers). The cost of emergency services themselves will thus go down.
Posted by: NW Ponderer

Re: How the ACA reduces medical costs - 07/09/12 03:42 AM

Originally Posted By: Ted Remington
The real immediate concern is actually the strain on our medical services delivery system.
I would simply amend that to say "a real concern..." It is a legitimate concern that "demand is going to skyrocket as all those people who were either uninsured or underinsured begin making full use of the med structure." It is something that needs to be addressed and one of the broader issues that needs to be addressed for overall health care reform, but... I think a rise, but not a skyrocket. Many of those people have already been getting services, just on an emergency, rather than preventative, basis. There will be a need to reallocate resources to family and primary care services, but the reduced load on emergency departments will help that process. In my area we have seen a significant increase in "urgent care" and similar clinics (e.g., zoomcare; Multicare; Nextcare). One of the reasons such clinics can be cost efficient is that they rely heavily on Nurse Practitioners and Physician Assistants to provide primary care services, and do not have to maintain all of the ancillary services a full-fledged emergency room would require (trauma centers).

Your personal physician should not worry overmuch, Ted, as he will not personally have to bear the load, and is not required to see any patient that wanders in.
Posted by: rporter314

Re: How the ACA reduces medical costs - 07/09/12 01:21 PM

Quote:
emergency services

i think the salient features are ... services & emergency

while any reductions are helpful consider the following ...
emergency rooms must maintain equipment & personnel regardless of the number of people seeking service ... it is simply the cost of providing a beneficial and necessary service for the community which i suspect no one would be against

2 days of the week and 16 hours of any other day are not on my doctors office hours ... i, therefore, in case of an "emergency" must seek help in an emergency room, and I am fairly sure my doctor, depending on severity of emergency, would probably send me to a hospital anyway. There is a baseline for which there is probably very little which can be done regarding cost reduction.

I don;t have a feel for other possible ER uses, so won;t speculate. (Apparently there are some people who think of an ER as their family doctor's office.)

All of this is not meant to minimize the impact of preventative medicine. If we assume the reason other industrialized countries have a significantly lower health care cost per capita is they are more healthy than Americans, then using one statistic we are paying at least 50% or more than other countries on that care. WOW!!! But that is only a wow if the assumption is valid.

But you raised another issue which I don;t understand. You said that ER service costs would decrease if certain conditions are met, among which are reduced pressure from non-emergency care, etc. So my question is suppose we did all we could do to immediately reduce the costs of health care, why would a hospital charge any less for their service? why would a doctor charge less for his service? why would a pharmaceutical co charge less for drugs? so while insurance costs were reduced the underlying cost drivers are alive and well and still rising.

The current national point of discussion is the health care industry costs have been rising at higher than inflation and with that rapid rise will impact not only personal finances but our federal budgets. It would appear from this discussion the real enemy are the people who abuse health care through a variety of reasons but mostly from poor health which could have been prevented.

From this I should conclude that it is in the national interest that people should maintain a regimen of healthy preventative care. You can see I have arrived at a political position which many would consider unacceptable.

I think the whole point of all the posts is we got problems ... and there are no easy solutions
Posted by: keysersoze

Re: How the ACA reduces medical costs - 07/09/12 05:24 PM

Here in Massachusetts the major reason for Romneycare was the 1B being spent on hospital care for the uninsured. That worked out fairly well. As far as costs of any new program I'll have to wait on it,

Will the current $96 my wife and I each spend on Medicare expand rapidly?

Will our coverage for C & D under GIC remain relatively low? The GIC also gives exceptional coverage but since it is rated via negotiations anything can happen especially now that health care can be excluded from the bargaining process in Massachusetts.

But the most important consideration is highly personal. I have had great coverage with GIC. Really blue plate. So will I be lowered to the standards of the Hoi Polli or will they be raised to mine?
Posted by: Spag-hetti

Re: How the ACA reduces medical costs - 07/10/12 02:24 AM

Using logic is really an unfair tactic. Logic is like kryptonite to Republicans.

"Logic ... growing weaker ... can't think ... not fair ...
Posted by: logtroll

Re: How the ACA reduces medical costs - 07/10/12 03:00 AM

Ahem. Using logic in countering NonCon fantasies doesn't make them weaker. It just ups the crazy ante.
Posted by: Spag-hetti

Re: How the ACA reduces medical costs - 07/10/12 03:18 AM

Well, Ok, there's THAT. Think we could get crazy? Bet we could if we practiced. Maybe we could raise the stakes. There's a lot of us.
Posted by: logtroll

Re: How the ACA reduces medical costs - 07/10/12 12:18 PM

There is a brand new anti-Obama TV ad airing around here that has a core message saying "Obamacare is a $1.7 trillion new tax on Americans". Of course, this has not enough information or context to have any meaning, but I am assuming that the $1.7 trillion is the estimated total for U.S. healthcare costs under ACA, which is supposed to include services for an additional 30,000,000 folks.

My first thought was, what does it cost now? From wikipedia: "The Office of the Actuary (OACT) of the Centers for Medicare and Medicaid Services publishes data on total health care spending in the United States, including both historical levels and future projections.[29] In 2007, the U.S. spent $2.26 trillion on health care, or $7,439 per person, up from $2.1 trillion, or $7,026 per capita, the previous year."

Healthcare in the U.S.

Seems that ACA is cheaper.

Since most existing healthcare insurance would remain in place, it also seems like a baldfaced lie that the entire cost of healthcare would be paid for by a "new tax".

In any case, I fail to see the difference between paying for something using taxes or having me write the check directly to a corporation, except that it is apparently much cheaper to do it through taxes.

Are the Republicans just crazy-stupid, or are they liars? Or both?
Posted by: logtroll

Re: How the ACA reduces medical costs - 07/10/12 12:56 PM

Seems we can dance together, why can't we do healthcare together?

Astronomy picture of the day
Posted by: Spag-hetti

Re: How the ACA reduces medical costs - 07/10/12 03:52 PM

Thanks for the dance, LT. I watched with a smile on my mouth and a tear in my eye.
Posted by: jgw

Re: How the ACA reduces medical costs - 07/10/12 10:09 PM

If I remember correctly there were some other provisions to goto work on our healthcare. They are, right now, in theory collecting data on all procedures. If not they will be. This will allow go to determine what procedures actually work (this is, I think, a pretty good idea?). They are also supposed to collect a slew of stats; which procedures work, which doctors have success, which hospitals do it best, which hospitals do it better, etc. This is all stuff we do not have now although there are some private providers who have been gathering such information. Then there is the thing about paying for outcome instead of paying for procedures which, in theory will also reduce costs. All this kind of stuff, when put into place is supposed to help with costs. I can't remember all of it but, in theory there is a lot of stuff like that which will eventually kick in.
Posted by: rporter314

Re: How the ACA reduces medical costs - 07/11/12 12:21 AM

You basically have it right

It is a medical board of physicians etc who analyze all manner of medical stuff and promote the use of the most cost effective stuff. This was the original death panel but was later changed to another feature when the anti ACA people realized insurance companies did essentially the same thing by denying coverage for anything but standard procedures etc. But keep in mind that even with the board, if a patient wants the more expensive test, that would be done.

This is one of the ways ACA attempts to address one of the rising cost drivers. This tack should really help stabilize these costs as most have long term histories of effective prognosis and as such those rising costs should be modest.
Posted by: jgw

Re: How the ACA reduces medical costs - 07/11/12 10:50 PM

I believe there are also provisions for targeting groups, and individuals, that tend to demand more services than most (if not there should be). I suspect, hope and pray, that if Obama gets re-elected the ACA get revisited and, this time, seriously studied and fixed rather than making it a political football for the congress to kick down the road.