Nearly two years ago, I offered two predictions.
1. Reform sets the table for employers to shed that pesky health insurance benefit.
Marketwatch reported 30% of employers will drop health insurance as a benefit when health reform is enacted in 2014. The Congressional Budget Office's projections for health reform already indicated a seismic shift in responsibility for health care coverage. How long can safety net hospitals survive in this dire environment, where employers pull back from the table? That leaves a tapped out Uncle Sam and individual citizens, the likely bag holder..
2. Incentive pay will make things worse
Medicare Chief Dr. Don Berwick once called pay for performance a "toxic daisy chain." The same poison that infects executive suites and board rooms will suboptimize health care delivery. Ironically, nearly 30% of executives cheated or by backdating stock options, supposedly the most pure form of pay for performance. This mendacious leadership behavior occurred over a twelve year period. Surely, a sizable chunk of doctors and nurses will take the unethical executive route to pay maximization
Customer satisfaction surveys are the means for incentivizing providers to do a good job. Extrinsic motivators may improve performance in simple tasks under the control of one person, but they do great damage to complex systems requiring collaboration. It's bad management, in concept as well as application.
Medicare revealed Rube Goldberg complexification in it proposed rules for accountable care organizations (ACO's). Providers don't know who their ACO patients are until the plan year is up. Think of the wooden board with lots of pins. A ball falls, striking the first pin and bouncing in various directions as it makes it way to the bottom. Which ACO bucket will it land in? Who will garner the prize?
Managed care had to reach 40% of a doctors practice to shift provider behavior. Under that system, they clearly knew who their patients were. ACO's will have a list of maybe patients, free to go anywhere that accepts Medicare. The plinking ball will retrospectively assign them to a health care system, rewarding or punishing that provider for their ability to generate savings.
The rules say providers will continue to be paid "fee for service," only Medicare pays by DRG, not discounted, much less full charges. DRG payment was implemented to address incentive problems with fee for service.
Providers must save Medicare 2% to be eligible for cost sharing money. Since Medicare continues paying "fee for service," savings must come from reduced utilization or from allowable costs in the Medicare cost report. One of those costs is health insurance, which averages 13%,of payroll, but can be as high as-20%.. Health care salaries and benefits run 45% of total costs.
Thus, an ACO could save 5.85% by doing one thing, eliminating the employee health insurance benefit. Adjusting for the 8% payroll tax for employers dropping their health insurance plans, savings stand at 2.25%, enough to meet Medicare's ACO savings target.
ACO's also have to submit data to Medicare on 65 quality parameters. One rule states providers must be in the top 30% on all 65 measures. While process outcomes are not probability and many of the measures are interdependent, a con toss came to mind. What's the likelihood of tossing 65 heads or tails in a row? The same probability that Medicare's extrinsic motivation schemes will make things better. Find a coin and start tossing.
Lucky citizens will have their safety net hospital survive until 2014. I wish good health to the rest.
Update 6-8-11: McKinsey came to the same conclusion I did, only two years later. McKinsey stated "Our survey found, however, that 45 to 50 percent of employers say they will definitely or probably pursue alternatives to ESI in the years after 2014. Those alternatives include dropping coverage, offering it through a defined-contribution model, or in effect offering it only to certain employees." What role will their study have in the second wave of the great health insurance tsunami? Mayor Alvin New of San Angelo told me he wanted to move to a defined contribution model for health insurance. It remains to be seen how that interest expresses in budget reality.
Update 9-3-11: DeParle wrote a stinging defense of her health care plan. She failed to mention her residual private equity, health care stakes, which continued paying off in public office.
Update 2-10-14: Obama delayed the employer mandate until 2016 for firms with 50-99 employees.
Update 11-20-14: Incentive pay making things worse is the subject of a NYT op-ed.