Health Care Reform’s Greatest Challenges Ahead

Policy expert Joseph Newhouse discusses the hard problems that remain unsolved

Following the historic U.S. Supreme Court decision upholding the constitutionality of the Affordable Care Act, Joseph Newhouse, John D. MacArthur Professor of Health Policy and Management at Harvard University, shared his thoughts on the future of health care reform in America.

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Now that the U.S. Supreme Court has ruled that it can go forward, does the Affordable Care Act hold the solution to our national health care crisis?

I always tell my students not to use the words “solution” and “health policy” in the same sentence, except this one. No single solution will ever work for all the players. The ACA makes important steps in improving access to health care. But that’s the easy part.

So what do we still need to fix?

We still need to fix the cost problem.

The ACA has a variety of pilot and demonstration programs on cost containment as part of Medicare and Medicaid reform, and we’ll see how that sorts out. There is $17 billion set aside for experiments in reforming the health care delivery system, creating, for example, patient-centered medical homes, accountable care organizations and other forms of bundled payment, as opposed to the old fee-for-service payment system.

Boston is one of the most advanced places in the country for these experiments, and legislation now in the Massachusetts legislature is pushing further in this direction of bundled payments. It is likely that in the future, providers—hospitals and physicians—will be at some risk for medical spending, on a per-person basis. They’ll have a fixed budget to spend per person, per month. If they go over, they’ll lose money. These fixed amounts will vary according to a person’s expected spending.

This evolution of the delivery system is a long-term process, and will unfold differently across the country. Some organizations that try to do this will fail, with real consequences, but I think it's the direction to head in.

Outside of Medicare and Medicaid, and outside the context of the ACA, commercial insurers are working with providers to get costs under control. So when patients go to their primary care doctor at one of these providers, that organization would receive either all or some of its money at a per- person, per-month rate, and maybe some fee-for-service payment above that in certain cases.

American health care has gotten sufficiently expensive that if it were to keep up its rate of cost growth, fewer and fewer people would buy insurance, and the number of uninsured would grow.

The remaining patients who are insured would then have to support care for the uninsured, which would, in turn, increase costs and drive still more people off insurance.

I’m reminded of Herb Stein’s famous line, “Unsustainable trends will not be sustained.”


Joseph Newhouse. Photo by Jake Miller

It's true. Nothing grows to the sky.

The real problem is the rate of growth of cost, which largely reflects the fact that we've been willing to pay for everything the medical profession and industry has come up with that seemed to be a promising innovation.

If one projects out—just in a spreadsheet exercise—at historical rates of growth of cost, in about 30 years the increase in health care spending each year would be more than the increase in annual income. That means that at that point, the absolute amount of money we would be spending on everything else would start to go down.

There’s no question that there’s waste in the system, that we could do what we do now cheaper, but the nub of the cost problem isn’t waste—it’s the rate of growth.

The growth rate is partly driven by the fact that as we become richer we want to spend some of our money on things that improve our health, and the medical establishment has come up with all kinds of ways to do that, ways that have improved quality of life and life expectancy tremendously. But it may be that we'll reach the point that we say we can’t afford all of this.

When will we start to see savings from delivery system reform?

I think we’ll start to see those savings later rather than sooner. Reforming the delivery system is a complicated, long-term process.

What do you see as the areas of greatest uncertainty in the rollout and implementation of the ACA?

The two large uncertainties are fiscal and political.

Fiscally, we don’t know what kind of shape the economy will be in in 2014 when the expansion is supposed to kick in, which means we don’t know whether we will be able to afford all that the law promises, since we don’t know what the tax revenues will be.

The political uncertainty reflects how heterogeneous the country is. Our version of the ACA here in Massachusetts is very popular locally, but I don’t know how popular the ACA will ever be in some parts of the country.

Won’t it be popular if it works? 

The question is: What kind of taxes do you have to impose to make it work?

Health care is so big in terms of dollars that it’s impossible to have any significant change without a lot of redistribution, not just from high income to low income, but also from healthy to sick, from young to old, and across geographies. Our political system tends to resist redistribution—that's an issue that will be chronic.

President Obama once said that he wanted to be the last president who ever had to grapple with health care, but I think that may have been a bit too optimistic. I think all future presidents will be trying to roll rocks up the hill like Sisyphus, and a few will come rolling back down on them.

Newhouse is a member of the faculty at HMS, the John F. Kennedy School of Government, the Harvard School of Public Health and the Faculty of Arts and Sciences, as well as a Faculty Research Associate of the National Bureau of Economic Research. He is on the board of directors of Aetna, and previously served for 11 years on the Medicare Payment Advisory Commission and its predecessors.