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The Affordable Care Act, the Deficit, and the Recovery of the U.S. Economy

Deloitte Insights video

A discussion of health care today is fundamentally a discussion of the US economy. What is the relationship between overall economic recovery and health care? The Affordable Care Act legislates fundamental changes in the financing and delivery of care. How those changes impact and are impacted by U.S. economic recovery and deficit reduction efforts are discussed. Demand for health services could soar as a result of consumer expectations and the aging population and the ability to meet that demand may be challenged by the cuts necessitated by deficit reduction. How might job recovery be impacted by operating cost reduction measures in health care?  How all of these forces interact is a dynamic discussion of cause and effect.


Julie Barnes, Director, Health Policy at the Washington D.C.-based Bipartisan Policy Center

Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions


The Affordable Care Act, the Deficit, and the Recovery of the U.S. EconomySean: The Affordable Care Act, the deficit, and the recovery of the U.S. economy – how are these linked and what might their relationship mean to the future of your health care? These are the topics for this episode of Insights. Here in New York for the discussion we have Julie Barnes, director of health policy at the Washington D.C.-based Bipartisan Policy Center; beside Julie is Paul Keckley, executive director of the Deloitte Center for Health Solutions. Julie, I would like to begin with you: How do you characterize the relationship between overall economic recovery and health care?

Julie Barnes (Julie): I think they are intertwined, to say the very least. I think this administration has shown with its passage of the Patient Protection and Affordable Care Act that you really cannot address economic recovery without addressing the health care system costs, really delivering system change, and making health insurance affordable for everyone. So, I think you cannot do one without the other.

Sean: Give me your ten-thousand-foot view on this, Paul.

Paul Keckley (Paul): It is simple. It’s a fourth of the federal budget. It’s a fourth of the states’ budget. It’s 20 percent of the average household’s budget. So, unless your economy is growing robustly, you cannot keep feeding the health care engine. So, that is the problem: Can you recover the economy without reducing health costs? That is a tough political question; it is tough economic question.

Sean: Well, let us answer the question a little bit. Can you recover the GDP economy without reducing health care costs?

Paul: Yes, but you cannot do it without disappointing people whose expectations are, in many ways, not realistic. You cannot say that everything everybody wants can be done; that the system’s incentives are fee-for-service or volume-based instead of outcomes-based; that coordination of care is not maximized; that safety is not maximized. It means you have got to change this system, and we kind of like the system. We like the status quo; at least we do not want to disrupt it. So, Sean, that is the tough part of this thing. Everyone would love for someone else to make a change, but leave me alone.

Julie: Well, I disagree with Paul. I do not think it is possible to address the economy and the economic woes we have right now without addressing the key to economic growth, which is really job creation, and what the primary issue is for employers right now – health care benefits. It really is: Just ask Detroit and a lot of our economic sectors what has brought the house down; it is because they are trying hard to provide affordable insurance to their employees and failing miserably. And it is not just large employers;  small employers are impacted, and they are the mainstay of who employs consumers/people in America.

Paul: Well, let me connect the dots here because this is interesting. This is always the difference between an industry view and an “inside the Beltway” view. Our economy is built around consumption. Seventy percent of our GDP is directly the result of people using money in their pocket to spend on things. So, jobs is something we want to talk about in Washington because it is what hits the news in an election cycle; however, the economy is driven by consumption and we know that when the economy is not performing well, it is because consumers stop spending. That is the issue we really have to address, and to the extent that certain industries, because consumers spend more, will actually see employment growth, that is great. But we found in some industries that companies can actually deliver a lot of value to consumers and not have to hire additional people. So, we have got a different economy to deal with today, and that is what makes this topic not as prone to sound bites. So Julie is right; jobs are what people talk about. But what drives our economy, 70 percent of our GDP, is consumers spending money.

Julie: I love it when Paul agrees with me, but I have two other points I want to make: One: How do  consumers get to buy the next iPad and iPhone and i-whatever? It is because they have jobs. And who employs most people? You ask any member of Congress and they will tell you, the biggest employer in their state or in their district is a hospital. So, health care really is part of the overall economy, whether you look at it from a medical industry side or whether you look at it as an employer benefit side. I agree it is really about how you are measuring what people are spending their money on and a large part of this economy is about health care spending, but in a way that is not helpful to the economy. It is wasteful spending, it is inefficient, it is unproductive, and it is not helping our competitiveness, certainly not on a global scale.

Sean: Let’s see if you can agree on this: Let’s talk about opportunities in the health system to reduce cost without compromising the quality of care. What opportunities do the two of you see?

Paul: Well, there are some short-term opportunities that are not as hotly contested, such as we eliminate the redundant paperwork – that is called administrative simplification. We ought to optimize weeding-out fraud in the system – that is not a real hot debate. We ought to use technology to create more coordination of care, so that doctor A and doctor B know what each other is doing, hospital records are shared with doctors, and so on. Those are important, near-term opportunities. The longer-term stuff is the hard stuff. So, you hear a lot about lifestyle, obesity as a driver of health care costs; how do we turn the tide, which has been increasing for 30 years? How do we change what we eat? How do we get more physical education in curricula? Do we penalize people that are overweight? That is one area; how are you going to do that? How do you eliminate unnecessary care — all the surgery that is done that is not necessary, the diagnostic tests that are not necessary – that is the second area. And the third one – this one is tough – is that a lot of money is spent in the last years of a person’s life; it’s a fourth of the Medicare spend. How we are going to deal with that issue, which in August 2009 was termed “death panels.” Julie and I probably agree on this; you have to start with some of these things that are a little less controversial and nail them and show you can actually improve the system, and then you have to deal with those other issues too. I think that is the real debate right now. The Bipartisan Policy Center, I think appropriately, is leading this charge of “well, let's just really get serious about cost.”

Julie: Thank you for that. We are working with former Senate majority leader Senator Tom Daschle, former Senate majority leader Senator Bill Frist, Senator Pete Domenici, and Alice Rivlin, who used to run the Congressional Budget Office. We have gotten this group together – Republicans, Democrats, people that speak budget, people that speak health – to try to come up with some of the short-term and long-term cost containment strategies that Paul talked about. And I think Paul would agree with me, that we will see it probably can be drilled down to basically one main solution, moving away from fee-for-service. So, everything that Paul just discussed, it comes down to this: How are we paying for our medical services? What we are doing right now is paying for quantity, paying for volume, and paying on the basis of service, procedure, and office visits; we are not paying on the basis of quality, we are not paying on whether or not the patient gets better, we are not holding facilities and hospitals and health care professionals accountable for whether or not somebody went from sick to well, whether they stayed well when they had a difficult chronic disease to manage, and whether we kept them out of an acute care situation, which is the expensive stuff. There are a lot of other different things you can say, but I think that moving away from fee-for-service payments is probably a lot of the solution to our problems.

Paul: Well if we do not do that we cannot do anything else, so that is central to a solution. But you cannot stop there. If you think about it, cost is the result of volume times price, and in our system, as Julie just said, there has been no governor on volume. So, if we ratchet down the price of a visit or a test, what most in the delivery system would do is a few more visits or tests. So, we have to address volume and price. But what is also important is, at some point, we have to address appropriateness. We have to determine that things are done because they should be done based on the evidence, instead of what can be done based on the ability to get paid. And that will be the hottest cost containment debate we have because everybody thinks that every test they do, every surgery they do needed to be done, and that is not something that the U.S. public understands. We think everything that somebody tells you to do must be necessary and the data says that is just not the case.

Julie: Well, we do rely an awful lot on our health care professionals to tell us what is necessary, although I think people are questioning it more than ever before. It is a generational thing. My mom never questions the doctor. My kids question everything they say. So, I think we have a real new dynamic going on. The hot term is patient-centered care.  I think what we call it, it does not matter. “Kids these days”, especially 20-somethings, they are used to having an extreme amount of information at their fingertips. They usually know more about what is ailing them when they walk into the doctor’s office than ever before and I think, in general, we trust less that sort of Norman Rockwell version of the physician. So, I think things are actually starting to turn because of a generational feed of information. The same is true on the doctors’ side. So, that is a consumer truth, but I think also what is happening as these “kids” are becoming our medical residents and our doctors they are absolutely used to rapid-fire information at the point of an office visit. They do not think of it as a professional autonomy issue to have a laptop full of the latest and greatest drug treatment and procedure information in front of them while they are talking to someone and having that electronic information in front of them ready to go. That is not something that they are avoiding like the older generation of health care professionals. So, I think we have informational infusion that is driving some of this consumer-based change.

Sean: Two questions for you, as we are limited on time. Quality checkpoints: It sounds like it would take a lot of money just to get to the point of deciding what the quality level of care is for each individual test or each individual practice. That cost and that decision, where does that lie?

Julie: It is an excellent question. There is no national strategy on quality standards. I mean, you basically asked a million dollar question, which is: How are we going to hold people accountable when we don’t have an agreed-upon standard of care in this country? But we are getting there. There are different entities trying to lay the ground work that have objective measurements by which they are supposed to do population-based health care – if you have this population, you got women 45 and over, you are giving them systematic mammograms every two years or whatever the standard is. So, there are objective tests like that, but then there is a whole lot that is subjective and that is also personal care. So, there is a sort of a new moment of, the care that matters to you is based on your genetic makeup and what conditions you come with and what family history you bring to your office visit. So, it is a whole new land and we are not finished with this yet. This is going to take a while to transpire, don’t you think Paul?

Paul: Yes, it will. There is an exciting middleware that gets us there faster, and that is really powerful information technologies. We can use all kinds of predictive models that allow me and my mobile device to look at my data, my genotype, and the recommendation that doctors are making and, at that moment, say to me, “Probably, you need to look at something else or the relative risk reduction of this versus that recommendation is nominal, but the cost is astronomically more.” The difference in then and now is these information technologies do a lot of knowledge management for us. There is even a term in medicine called “white coat anxiety,” which is that people are afraid to talk to doctors, afraid to ask questions. So, technology is the great neutralizer and the epicenter of clinical knowledge shifts from the doctor to the individual with the device, and now the model is not paternal; it is not doctor telling a patient something, it is a medical professional coaching an individual to make judgments for themselves. That is a huge shift, I think. It is definitely where we are headed. It is the way to save money.

Sean: A massive paradigm shift and one that has the customized and entitled nature of it all the way to the model T that we are kind of talking about here. Speaking of where we are headed, there are some realities – it’s an election year, the constitutionality of the health care reform law is being debated. What’s realistic; where is this going in the next, say 12, months?

Julie: Well you know, I think we are, at least by and large, finished with the constitutionality debate. So we do have some certainty from that Supreme Court decision to move forward with. It was, you know, part surprising, part not as surprising. If you are really paying attention, the fact that they upheld the individual mandate for people to purchase private insurance and at tax time say, “Yes, I have health insurance, I proved it,” or they pay a tax penalty is well within Congress’ tax and spend authority and not a big deal; but the Medicaid expansion piece is a surprise. The whole point of the Affordable Care Act was to expand the access to affordable insurance and institute some delivery system reforms to make sure we are dealing with cost and changing that fee-for-service system we have talked about and now we have kind of a three-million-person question about who is going to be covered and who is not. There is a whole new “donut hole” in America of people who are not going to be insured because of that decision to make it voluntary for states to expand the eligibility of their Medicaid programs. I also think we are going to see a lot of litigation, not only over the Affordable Care Act moving forward in its various provisions but because the insurance markets are going to have trouble with a lot of these regulations that have been put upon them. There is a new rate review process; there is a medical loss ratio measurement that they are having trouble abiding by; and I think the individual payment advisory board is going to have some shots taken at it, along with a bunch of taxes and fees that are going to make the industry more and more angry over time. I think we are going to see a lot of litigation before the dust settles on this thing.

Paul: So, 12 months?

Sean: 12 months, Paul.

Paul: Three quickies: One, we have to implement these health insurance exchanges between now and October 1, 2013. So, every state is going to come up with an exchange or let the federal government do it for them – that is a big deal. Two, you have a budget that we have to figure out for FY13, and we have a sequester, we have the Bush tax cuts, we perhaps have the fiscal cliff again that everybody is talking about. So, somehow, the budget for our federal government and health reform bump into each other. We are going to have that discussion. And three, we have an election, and if the results were that the senate had 50 Republican senators in it – that means a net gain of three – you could see some bits and pieces of the Affordable Care Act modified through some maneuvers using reconciliation. So, no one inside this discussion says that health reform is done. We have just kind of closed the book on chapter one; chapter two is pre-2014 when the exchanges are up and operating and the mandates start; and chapter three is after 2016 when the exchanges are open to anybody and when most of these tests, like bundled payments, accountable care, et cetera, have kind of run their course and we see if reform has saved any money. So, you need to imagine that we are going to hear about health reform for the next five years, at a minimum.

Sean: Sounds like some pretty big tectonics. I am sure we will probably be seeing you back here soon. Thank you both for your time today.

Julie: Thank you.

Sean: Good having you back, Paul.

Sean: We have been talking about the relationship between health care and the overall U.S. economic recovery with Julie Barnes, director of health policy at the Bipartisan Policy Center and Paul Keckley, executive director of the Deloitte Center for Health Solutions. If you would like to learn more about Julie, Paul, or any of the topics we discussed on today’s broadcast, you can find that information on our website, For all the good folks here at Insights, I am Sean O’Grady. We will see you next time.

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