Chapter 16

Conclusion: All Those Levers and No Fulcrum

The pragmatic method is primarily a method of settling metaphysical disputes that otherwise might be interminable. … What difference would it practically make to any one if this notion rather than that notion were true? If no practical difference whatever can be traced, then the alternatives mean practically the same thing, and all dispute is idle. Whenever a dispute is serious, we (need to) be able to show some practical difference that must follow from one side or the other’s being right.

Source: Reproduced from: What is Pragmatism (1904), from series of eight lectures dedicated to the memory of John Stuart Mill, A New Name for Some Old Ways of Thinking, in December 1904, from William James, Writings 1902–1920, The Library of America; Lecture II




A variety of levers can be used to try to move health care delivery in one direction or the other. All levers, however, require a strong fulcrum, a solid base against which the lever can operate when sufficient force is applied. In the United States, there is a clear absence of a reliable fulcrum. The passage of the Affordable Care Act (ACA) provides a fulcrum, albeit a sometimes shaky one, but its future is uncertain and there has been little stomach for movement since then.


Federal government bureaucrats know that the efforts of lobbyists, senior White House staffers, or chairs of congressional committees can undermine in a few days what has taken months of study and consensus building to achieve. At worst, one’s program, or even one’s agency, can disappear from the budget overnight. State offices are subject to the same risks, although governors sometimes stand more firmly because a state must meet its financial obligations, rather than print money or borrow more heavily.


Other potential fulcrums are likewise unreliable. Insurers continue to take their cut and pass on any added costs. Providers continue to maximize revenue. Employers continue to opt out of defined benefit programs. More and more of the costs of providing coverage and care accrue to state and federal governments through Medicare, Medicaid, and other programs. A 2013 survey of more than 200 key health care industry executives showed deep pessimism about our ability to improve both quality and inflation-adjusted costs, thus improving value. Only 1% were strongly positive, and 22% were strongly negative. To a parallel question about the current quality of U.S. health care, 16% were strongly positive, and 22% were strongly negative (Chin et al., 2013).


Fitting into Our Culture of Individualism


There are practical reasons for the on-the-one-hand and on-the-other-hand approach Harry Truman objected to when he called for a “one-handed” economist. Each of us brings a value system to any policy analysis, and those values inevitably get mixed up with the objective information that a scholarly approach offers decision makers. We are therefore understandably reluctant to declare one approach, one solution, or one system to be absolutely and unequivocally superior.


It is clear, however, that there are some things that fit well into the culture of the United States, and others that do not. One of our current cultural problems is that loud sets of voices are calling for one extreme or another with almost religious zeal. Reagan (1999) pointed to the horns of one health care dilemma. On the one hand, some would prefer that the federal government be the single purveyor of health care, but in a country that has long valued individualism and a free-market economic system it seems that there has to be some acceptance somewhere of some market forces in the process. On the other hand, it is clear that health care has been and will continue to be a highly imperfect marketplace. No matter how much information U.S. consumers receive, it is unlikely to be sufficient for them to make good decisions about all aspects of personal health care. Furthermore, it is clear that many segments of U.S. society cannot generate sufficient income to participate in that marketplace, whereas others may lack the skills or attributes necessary to participate fully and effectively in an unfettered health care market. Advocates of a single-payer system, who have been fond of saying that the United States is the only developed country without a national health system, are unlikely to see the United States fall in line with other nations anytime soon. Yet the current dependence on employers as the basic source of funding for care for workers and their families, while working and especially during retirement, is collapsing in the face of increasing international competition.


Limits of the Free-Market Approach


Those who argue that insurance, because it insulates health care consumers from any economic consequences, has been responsible for waste and overutilization have a strong point. Their efforts to shift more costs to the consumer will pay off some in terms of reduced utilization. There are three issues with that approach, however, in addition to the risk that for lower income individuals it will likely lead to underutilization with negative long-term consequences. The first is that much of its impact of cost-shifting may already have been achieved with the increases in deductibles and copays already in force, and the marginal effect may be much smaller than anticipated. The second is that information on quality and price is so opaque that the market cannot function very effectively until major changes take place to put realistic and relevant information into the hands of the consuming public. Those changes seem to be underway with respect to hospital prices and quality outcomes for specific institutions. Interpreting the data is still difficult in many cases.


The third constraint on the free-market approach is that some purchasers are quite capable of researching a medical condition and some are not. Educated individuals may be able to make an informed market decision because they:


• Have the technical information and the background to interpret it


• Have the market information on price and quality of providers of care for this medical condition


• Have the mental acuity to interpret it and make an appropriate decision


• Feel confident enough in their knowledge to act on it


• Have access to a primary care provider to test out their conclusions.


Six months later, however, they may have a set of symptoms that leaves them completely baffled and having to rely on the recommendations of their primary care provider or a local specialist, or are in pain and sedated at that moment. Yes, one may be capable of independent rational consumer decision-making behavior in the first instance, but not in the latter. In the second situation, one has to rely on one’s agents, one’s physicians, and, to a lesser extent, one’s insurer.


If you have lived with gout for years, for example, you may be about as knowledgeable about the condition as most providers, but what if you have intestinal polyps and your personal physician sends you to a specialist who says, “I have this new technology that is less invasive than what is usually done and insurance will pay for it and you are a perfect candidate for it”?


Are you going to demur and go out and do a survey of methods and the market? Probably not. More likely, you say yes and then possibly look it up when you get home. But, if you cannot find out much about what it will cost and how effective it is and they tell you it is safe, then you are likely to keep your appointment and let your insurer cover it—especially if you have other things to worry about, like a paper due for your health policy class. The impact on health care costs of the market approach will be felt, but it will also be limited.




What would likely changes do to the status of U.S. physicians? Many of the changes would clearly contribute to the industrialization of the health care sector and further weaken physician bargaining power. For example, if most medical centers were required to quote a single price up front for treating a medical condition and that single price bundles the professional, technical, and inpatient and aftercare components of that treatment, the physicians would have to bargain for their share, and they would likely be in a relatively weak position. In fact, it seems likely that more specialists will be on salary in community settings, just as they currently are in many academic medical centers. Some physicians might counter this development by setting up their own specialty hospitals, but one might anticipate further constraints on referrals if that response became very widespread.


More information on process, price, and quality; more bundling of pricing; more evidence-based protocols; requirements for reduced waste; and more intense case management would all, in part, constrain physician autonomy. At some point, health system policy makers will have to reconsider the patient–physician relationship and its attendant agency issues and try to reach an appropriate balance between industrialization and professionalism. One answer is for physicians to provide more assertive leadership when it comes to defining and maintaining the physician’s role, especially the role of the primary provider, without trying to get back to the monopolistic mind-set that once tainted state and local American Medical Association efforts.




Trying to make rational sense out of the health care system is difficult enough, but effectively having three complete sets of regulatory requirements, one under state insurance laws, one under the ACA, and one under the Employee Retirement Income Security Act of 1974 (ERISA), does not make sense, especially because the current responsibility for health and welfare in the United States rests principally with the states. At the time ERISA was passed, it was necessary as an enabler of nationwide collective bargaining by large employers and large industrial unions, but in an era when we have so many “model uniform codes” for so many types of commercial and personal business transactions, it would not seem to be an insurmountable obstacle to adopt a model uniform code for employer-based health insurance. The likely fly in the ointment is the health insurance industry itself, because the dual system for employer-provided health insurance blunts the ability of the states to mandate coverage requirements; however, the benefits of a uniform system are so great that legislatures, unions, and major corporations might be persuaded to fall in behind it and move it ahead. The requirement for a defined essential health benefit within the ACA-based exchanges is an initial step in that direction of establishing coverage mandates.




The ACA will continue to be disruptive given continuing attempts to repeal it or roll it back and the high-stakes and often vicious political battles around its implementation. Conservatives have been focused on “repeal and replace,” whereas liberals have been reluctant to start tinkering with it for fear of opening it up to major, undesired changes. Few analysts and policy makers, however, deny that some revisions will be necessary even if it is successful overall. Significant failure could force a reversion to earlier policies; major course adjustments; or further, far more extensive reforms. A small number of heath care advocates have openly stated that they see the ACA as a stepping stone to a single-payer system. That assessment assumes that the ACA will be a failed strategy, and that its failure will lead to greater government intervention rather than retrenchment.


Further major change is unlikely until the U.S. economy is threatened by other events and health care is seen as a part of the total package of changes that includes revisions in our tax code and is part of a compromise designed to deal with bigger overall problems. Short of that, we are likely to see incremental changes with an increase in the proportion of the gross domestic product devoted to health care. Regardless of the party in power, health care will compete for attention with other agenda items, such as national security, immigration reform, and inflationary pressures, due to overall lack of savings and the rising cost of interest necessary to attract foreign capital. Along the way, we will probably experience some positive effects from prevention programs, witness increased implementation of pay-for-performance, and see some offsetting federal efforts to strip out of Medicare and Medicaid some services that are not essential to health and safety in the short run. The pressure on both low-income working families and older people to pay a higher percentage of their income for health care will continue, despite the offsets from individual subsidies under the ACA.




In January 2006, in advance of President Bush’s State of the Union speech, The Economist published a scathing review of the U.S. health care system, including a forecast of a great unraveling. If true, such a disaster is still a number of years away for the following reasons:


• Measures undertaken will have some effect. In particular, the individual and employer mandates of the ACA will add to the revenue stream available.


• Efficiency improvement in other sectors, such as energy production, will enable consumers to allocate a larger proportion of the gross domestic product to their health care with somewhat less pain.


• Inflation in other sectors, such as food and shelter, could divert interest and support.


• Increasing employment in the health sector is seen by many as economically healthy given the absence of growth in other sectors.


• The increased use of modern information technology may ultimately reduce administrative costs in some segments of the industry.


• Increased patient participation in making choices about such things as purchasing policies from the exchanges and shopping among high-deductible plans has been making patients increasingly conscious of costs and interested in containing them.


• Additional actions may be taken to constrain the exploding costs of post-discharged care and biological drugs including those now used to treat wet macular degeneration, hepatitis, hemophilia, and many forms of cancer and autoimmune disease.


Measures Already Undertaken Will Have Some Effect


Although measures such as consumer-driven health care and the growth of integrated health systems are unlikely to solve the problems of the health sector, they will, like other measures before them, have some effect in slowing the rate of growth. Efforts to improve quality of care and introduce evidence-based medicine will have some impact, and so will efforts to get comparative price and quality information to consumers and payers. Reductions in provider incomes, although personally painful, are unlikely to reduce the care available and may increase productivity. Continued, accelerated deployment of health information technology may do the same. Given enough time, these many small improvements will have some cumulative effect, especially if institutions increase their focus on internal efficiency.


Inflation Could Offset Impact of Health Care Growth


Despite the longstanding opposition of the Federal Reserve, politicians may find it advantageous to allow a higher level of inflation in the overall economy, bringing growth to the rest of the economy and to tax revenues. Recently, more and more economists, including Federal Reserve insiders, have come to believe the national inflation rate in the late 1990s and early 2000s has been too low (Applebaum, 2013). If there are constraints on health care expenditures at the same time, the inflation rate in the overall economy might approach or surpass that of the health care sector and reduce the burden of added costs. International lenders may require more repayment of loans and force more favorable exchange rates, raising the costs of foreign goods, so that health care does not seem quite so exorbitant in comparison.


Employment in the Health Sector


As the proportion of national income devoted to health care increases, we see more and more employment in that sector. Like most other service sectors, health care employs a large number of individuals of moderate and low income. Continuing industrialization will mean that some higher-income workers will be displaced by lower-income workers as some tasks become rationalized and can be handled routinely. One risk to the country of having health care get so big is that a large proportion of the population will have their aspirations tied to the growth of that sector. Major cutbacks in expenditures, whether caused by improved quality and productivity or taken arbitrarily, will trigger a pushback by the affected employees. The growth of the health care sector is not a negative event from an employment point of view, especially as manufacturing and information-related service jobs continue to move out of the country.


Some economists argue that health care expansion is a key to maintaining employment and that a substantial proportion of the population will be willing to spend a greater proportion of their income on health care because they attach a high subjective utility to their own longevity and care (Cutler, Rosen, & Vijan, 2006; Hall & Jones, 2007). The problem with such growth is that it continues to force the transfer of wealth away from the young, the healthy, and the poor and toward the older population, the sick, and the professionals. At some point, those footing the bill will begin to object strongly to these transfers, and we will see much more stringent measures to control expenditures and reduce those transfer rates (Kolata, 2006). This is especially likely to create a political backlash if the income gap between low-wage service workers and higher-income knowledge workers and managers continues to expand.


From the perspective of cost control, one would hope that the rapid introduction of health information technology would lead to a reduction in employment of support staff in clinics and hospitals. Increased insurance coverage could also reduce the need for as many financial counselors and debt collectors.


Consumer Awareness and Participation in Purchasing Decisions


With some 20% of enrollees choosing high-deductable plans and with even more individuals having to buy their own insurance as employers pull back their contributions, we are seeing a more price-sensitive insurance market. Much of the slower inflation over the last year or two has been attributed to such consumer participation. The trends supporting this phenomenon are likely to continue and are supported by a number of transparency efforts visualized in the ACA.


Efforts to Constrain Growth in Areas Such as Aftercare and Costs of Biologicals


It is evident to most observers that there is an upper limit on the proportion of the national income that can be devoted to health care. It was that recognition that led many groups, such as hospitals, drug companies, and insurers, not to oppose the ACA the way they had opposed the Clinton health plan (Starr, 2011). If health care’s share of the economy does not top out, high-growth sectors are likely to receive a heavy dose of regulation. In the aftercare market there is likely to be a further crackdown on fraud and abuse followed by price controls or special excise taxes like the one on durable medical equipment. Biological drugs are also likely to be subject to constraints on gross margins and limitations on use. An example of the latter would be restricting the newer, very expensive hepatitis C drugs to those patients for whom they are the only way to avoid death prior to availability of a liver transplant, those for whom comorbidities make transplantation impractical, or those who cannot tolerate the older treatments. Although, allowing people to sicken dramatically before treating them with readily available drugs (in many areas of this country, such as the San Francisco Bay Area, one must be nearly dead before qualifying for a liver) would be a scenario similar to the April 16, 2014, recommendation of NHS England’s Clinical Priorities Advisory Group (NHS England, 2014), which would cover only about 500 patients if implemented.


A number of mergers and restructurings of pharmaceutical and biotech companies in early 2014 were attributed by various analysts to market recognition of the handwriting on the wall about drug margins. Constraints on health care expenditures are apparently much better accepted in corporate circles than in political ones.





The United States is unlikely to undertake major health care reforms at the federal level beyond those in the ACA in the near future. The states, however, will continue to lead the reform effort. A number of tweaking changes will move forward, but major reforms will not take place when the states are in financial trouble. Only dramatic problems financing the national debt are likely to lead to radical changes beyond the ACA. Employers may support the notions of value-based care, especially transparency in pricing, and an end to price discrimination. We are likely, however, to see limited excise taxes on specific health care goods and services and gainsharing incentive schemes added to programs like Medicare Advantage.


The position of specialists is likely to weaken as primary care providers are asked to reduce waste and improve efficiency, and capital-intensive, rare, and complex procedures will be concentrated at selected sites, often outside traditional market areas. Available measures and expected revenue adjustments are likely to delay the anticipated “unraveling” of the health care system. As the health sector grows, people may become increasingly concerned about upsetting the economy with radical measures. The issue that will have to be faced is not the size of the sector, but the distributional effects of its growth, the equity concerns of transfers of income from the young on behalf of the old and from the poor and middle class toward the wealthy. These will also generate pressures to reduce waste and overall cost in the health sector as employers, patients, and taxpayers resist further premiums or taxation.

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