Understanding Obamacare–
Will There Be Limits on
Medical Treatment?
Burke J. Balch, J.D.
Robert Powell Center for
Medical Ethics
October 19, 2013
Two Questions

1. Should the federal government




limit what private citizens
are allowed to spend on health care
to save the lives of their family?
2. Should the federal government


limit how much life-saving medical
treatment
doctors are allowed to give their patients?
Fundamental Issue


Obamacare based on erroneous
assumption: that in order to provide an
adequate health care safety net,
especially for previously uninsured
Government must enforce limits on all
health care spending/ including what
private citizens and their employers
spend to save lives and foster health
This talk will



1. Describe 4 ways Obamacare limits
what we’re allowed to spend to save
the lives of our family members and
what treatment doctors can provide
2. Argue that America can afford
unrationed health care
3. Show how we can both provide an
adequate health safety net and avoid
government-imposed rationing
1. 40% Tax on “Excess
Benefit” Health Insurance


If health insurance employers provide
has a value of more than $8500 for an
individual or $23,000 for a family, the
“excess” value is taxed at 40%
The limits increase by general but not
medical inflation
Understanding Inflation


CPI is an AVERAGE
Price rise/decline of individual
categories of goods & services varies
Understanding Inflation



Compare classroom grades: if average
is C+, some get A’s and some get D’s
Primarily because HC is laborintensive, medical inflation consistently
higher than average inflation across all
sectors
Since 1990, on average, annual
Medical Inflation 3.3% higher than CPI
Medical vs. Average Inflation
Compounding annually, gap
grows wider and wider
Politico article
(September 30, 2013 )

“[The level at which taxes kick in will]
be linked to the increase in the
consumer price index, but medical
inflation pretty much always rises
faster than that . . . .

David Nather, “How Obamacare affects businesses—large
and small” (September 30, 2013),
http://www.politico.com/story/2013/09/how-obamacareaffects-businesses-large-and-small-97460.html
Politico article
(September 30, 2013 )

“Think of the Cadillac tax as the slowmoving car in the right lane, chugging
along at 45 miles per hour. It may be
pretty far in the distance, but if you’re .
. . moving along at a reasonable clip
in the same lane – say, 60 miles an
hour—and you don’t slow down, you’re
going to run smack into it.”
Politico article
(September 30, 2013 )

Although the excess benefits tax does
not apply until 2018, the Politico article
reports, “Towers Watson found that
more than six out of 10 employers said
the fear of triggering [it] would
influence their health care benefit
strategies in 2014 and 2015. . . .
Politico article
(September 30, 2013 )

“For one thing, the thresholds were set
in 2010, and even though the law has
a method for raising them if there’s a
lot of growth in health care spending,
employers are still concerned that
they’ll get busted for offering fairly
standard plans.”
2. Medicare Limits


$ 555 billion cut from Medicare over 10
years
But will the government allow senior
citizens to make up the difference from
their own funds?
2. Medicare Limits

BEFORE:


Older Americans permitted to add their
own money, if they chose, on top of the
governmental payment, in order to get
insurance plans less likely to ration.
(Known as Medicare Advantage privatefee-for-service plans.)
2. Medicare Limits

UNDER NEW HEALTH LAW:


HHS given standardless discretion to
reject any Medicare Advantage plan.
HHS can limit or eliminate ability to add
own money to obtain health insurance
less likely to ration seniors’ health care.
3. Exchange Limits on What
People Can Pay for Insurance



New state-based insurance
“exchanges”
At first, individuals & small business
employees
Later, all employees
3. Exchange Limits on What
People Can Pay for Insurance



Government officials will exclude
health insurers
Whose plans inside or outside the
exchange
Allow private citizens to spend
whatever gov’t officials think is an
“excessive or unjustified” amount on
their own health insurance
4. Independent Payment
Advisory Board

Present public focus is on impact on
Medicare
4. Independent Payment
Advisory Board

LITTLE ATTENTION TO MUCH
MORE FAR-REACHING ROLE IN
RATIONING:
4. Independent Payment
Advisory Board



IPAB directed to make
recommendations every 2 years,
starting in 2015
“to slow the growth in national health
expenditures” – i.e., nongovernmental
spending
Below the rate of medical inflation
IPAB Must Limit HC Spending
Growth to the LESSER OF:
Year
Limit
Year
% below projected spending
2015
Halfway between medical
and general inflation
2015
.5 %
2016
Same
2016
1%
2017
Same
2017
1.25%
Later
Years
Nominal GDP per capita +
1% [President Obama has
proposed lowering to
Nominal GDP per capita +
.5%]
2018
1.5%
Later 1.5%
Years
5. Independent Payment
Advisory Board

The recommendations are to include
those that federal Department of
Health and Human Services “can
implement administratively”
How will HHS enforce limits?


HHS empowered to impose “quality
measures” on hospitals, doctors, &
other health care providers
One uniform standard of care
specifying under what circumstances
treatment can – and cannot – be given
Enforcement

Physicians who give treatment not
permitted by “quality” measures
disqualified from contracting with
“qualified” insurance plans
What if IPAB members not
named?


Republican leaders have said will not
name members they’re authorized to;
may resist confirmation of Presidential
appointees
BUT law provides that HHS given duty
and authority to substitute if IPAB
doesn’t
4. Independent Payment
Advisory Board

IPAB



HHS




Push private HC spending below med. inflation
Recommendations every 2 years
Imposes “quality” standards
Doctors must comply or lose insurance
contracts
Patients

Can’t get HC exceeding standards
New Health Care Law’s
Routes to Rationing





1. 40% Tax on “Excess Benefits”
2. Medicare Limits
3. Exchange Limits on What People
Can Choose to Pay for Insurance
4. Independent Payment Advisory
Board & “quality and efficiency”
standards
CAN America AFFORD
Unrationed Health Care?
The Paradox




Appearance:
HC spending eats up ability to pay
for other goods and services
(ultimately unsustainable)
Reality:
Rising productivity in other goods
and services is freeing up resources to
use to save lives and preserve health
**The HC, food, clothing & shoes, housing, and combination charts are versions, derived from updated
data, based on Figure 4.3 in Sherry Glied, Chronic Condition: Why Health Reform Fails (Cambridge MA
& London: Harvard Univ. Press, 1997), p.103.
Data Source: (CEA 1991, 2011.) Available at http://origin.www.gpoaccess.gov/eop/tables09.html
Clothing and Shoes as a % of Personal
Consumption Expenditures
12
10
8
6
4
2
0
1940 1950 1960 1970 1980 1990 2000 2010
Food, Clothing & Shelter Combined
as a % of the Family Budget
What the Family Spends on 1. Essentials and 2.
Essentials & Healthcare Combined
American Health Expenditures and
Per Capita Gross Domestic Product
2040
2009
1960
30%
17.6%
82.4%
5.3%
70%
94.7%
76 % Increase for NonHealth Expenditures
279 % Increase for NonHealth Expenditures
Health Expenditures
Non-Health Expenditures
Sources: available on request to bbalch@nrlc.org
Sherry Glied
• Former Assistant Secretary for Planning and Evaluation
• Department of Health and Human Services in Obama
Administration
• Chronic Condition: Why Health Care Reform Fails (1997)
Glied Is Not Alone . . .
• William J. Baumol, “Do Health Care Costs Matter?” The
•
•
•
•
New Republic, Nov. 22, 1993, Professor of Economics at
New York and Princeton Universities
David F. Bradford, Professor of Economics and Public
Affairs, Princeton University Woodrow Wilson School of
Public and International Affairs
Edward Wolff, Professor of Economics, New York
University
Eli Ginzberg, A. Barton Hepburn Professor of Economics,
Columbia University
Joseph P. Newhouse, John D. MacArthur Professor of
Health Policy and Management, Harvard University
Conclusions


NOT that American health care system
is ideally efficient and can’t be
improved
BUT if improvements are made in
cost-effectiveness, we shouldn’t
necessarily expect growth in health
care spending to abate – we might just
get more and better health care
Bottom Line:
• As long as American productivity keeps increasing (in the
long term), America can afford to continue to increase the
resources used to save lives and preserve health
• Real problem: providing safety net for those whose
incomes are not average, and its implications for
government budgets
The Real Problems
• REAL: Distribution of income increases not equal
• Those with less-than-average income increases have genuine
difficulty coping with health care cost increases
• Number of uninsured rises among low income
• GOVERNMENT ACTS TO HELP: Medicaid, CHIP, now PPACA
But government does not benefit equally with private sector
from productivity increases in areas other than health care – the
productivity increases that reduce the resources needed and free up
resources for health care
What the Family Spends on 1. Essentials and 2.
Healthcare Combined
PRIVATE SECTOR SPENDING- GDP
17.6 % (spent on H.C) 2011
GOVT. SPENDING- FEDERAL BUDGET
23% (spent on H.C) 2011
15.1% tax rate to fund the
Federal Budget
51% growth in economy
by 2040
30% (spent on H.C) 2040
51% growth in
government 2040
30% (spent on H.C.) 2040
H.C. Deficit – 7%
Understanding Private Sector CostShifting
• Faced with unsustainable health care cost increases,
government actors tend to avoid unpopular benefit cuts,
and focus on limiting the reimbursement rate for health
care providers
• Many health care providers assert they are then forced to
charge higher rates to privately insured patients to make
up for what they lose on governmentally insured patients
(and on the uninsured EMTALA requires hospital
emergency rooms to serve)
Hospital Cost Shifting- The Hidden Tax (as of 2009)
140
Cost= Payments
Payment to Cost Ratio
120
134.1%
13130
100
90.1%
89.0%
80
60
40
20
Private Payers
36.6%
0
0
10
20
Medicare
39.4%
30
40
50
Percent of Hospital Costs
60
Medicaid
15.9%
70
80
90
Uncompensated Care
6.1%
Source: American Hospital Association and Avalere Health, Avalere Health analysis of 2009 American Hospital Association Annual
Survey data, for community hospitals, Trendwatch Chartbook 2011, Trends Affecting Hospitals and Health Systems, March 2011,
Tables 4.5-4.6 at http://www.aha.org/research/reports/tw/chartbook/ch4.shtml
100
Hospital Cost Shifting- The Hidden Tax (as of 2009)
140
Payment to Cost Ratio
120
130.3%
13130
100
91.3%
85.8%
80
60
40
20
Private Payers
36.6%
0
0
10
20
Medicare
39.4%
30
40
50
Percent of Hospital Costs
60
Medicaid
15.9%
70
80
90
Uncompensated
Care 6.1%
Source: American Hospital Association and Avalere Health, Avalere Health analysis of 2009 American Hospital Association Annual
Survey data, for community hospitals, Trendwatch Chartbook 2011, Trends Affecting Hospitals and Health Systems, March 2011,
Tables 4.5-4.6 at http://www.aha.org/research/reports/tw/chartbook/ch4.shtml
100
Private Sector Cost-Shifting as a Solution
• Key advantage of private sector cost-shifting is that it can
grow proportionately with the resources the private
sector allocates to health care
• I.e., yields a % of what is actually spent on health care
Private Sector Cost-Shifting as a Solution
• Regardless of extent to which it presently occurs
• Provides a basis for understanding feasibility of providing
for those with low incomes without governmentally
imposed restraints on growing allocation of private
resources to health care
PROPOSED SOLUTION:
COST-SHIFTING AT THE
LEVEL OF THE INSURER
To make easier to understand
• Begin with abstract, but unrealistic, approach --- to make
the concept clear
• Move to more complex, but practical, concrete plan
Problem with Cost-Shifting by Providers
• Suburban hospital with low number of uninsured,
Medicaid patients
• Inner city hospital with low number of privately insured,
high number of uninsured and Medicaid patients
• SOLUTION: cost-shifting among insurers instead of
providers
Proposed Solution:
Cost-Shifting at the Level of the Insurer
• Analogy of high-risk pools for automobile insurance in
many states
• Could require health insurers to offer (sliding scale)
discounted health insurance to those unable to afford in
proportion to insurer’s market share
• Insurers pass along costs of subsidizing insurance in
premiums for all -- private sector cost-shifting
PRIVATE SECTOR SPENDING- GDP
17.6 % (spent on H.C) 2011
GOVT. SPENDING- FEDERAL BUDGET
23% (spent on H.C) 2011
15.1% tax rate to fund the
Federal Budget
51% growth in economy
by 2040
30% (spent on H.C) 2040
51% growth in
government 2040
30% (spent on H.C.) 2040
H.C. Deficit – 7%
17.6 % (spent on H.C) 2011
15.1 % Taxes
Amount for
Health Care
Private Sector
Spending GDP
30% (spent on H.C) 2040
Government Expenses
15.1% tax rate to fund the
Federal Budget
15.1% Taxes
Private Sector
Spending GDP
Government Expenses
Amount for
Health Care
MORE REALISTIC
APPROACH
Proposed Solution:
Cost-Shifting at the Level of the Insurer
• Require health insurers to offer (sliding-scale) discounted
health insurance to those unable to afford in proportion to
share of market
• Provide sliding-scale vouchers based on existing levels of
government funding for health care (e.g., Medicaid, CHIP)
• Insurers pass along additional costs in premiums for all
17.6 % (spent on H.C) 2011
X dollar Amount for HC 
15.5% Taxes
Government
Expenses
Private Sector
Spending GDP
30% (spent on H.C) 2040
Total Amount
for Health Care
Same X dollar Amount for HC 
15.5% Taxes
Private Sector
Spending GDP
Government
Expenses
Total Amount for
Health Care
How Employers Decide
• Health insurance too costly – can go bankrupt
• Health insurance too meager – can lose workers to
competitors
• Balance costs and benefits
The Virtuous Use of the Free Market
• When cost of insuring those who cannot afford it passed
on to those who can
• Employers unconsiously factor in their share of
subsidizing those who can’t afford insurance in their
cost/benefit balancing
ADVANTAGES
• Funding is tied to what people who can afford to
do so themselves choose to pay for health
insurance rather than being tied to government
budgets. This:
• Keeps health care costs to what people collectively,
through individual decisions, decide they can afford to
pay
• Does not limit health care below what people, through
such decisions, are willing and able to pay
Consequence
• America wouldn’t spend more than it can afford on health
care
• America WOULD spend AS MUCH as it COULD afford on
health care
• Physicians would not be artificially constrained by
government limits on what treatment they, in their medical
judgment, provide their patients
CONCLUSION
• We CAN afford health care without
rationing!
• We CAN provide help for those
who themselves cannot afford to
pay for adequate health insurance
without rationing care for all!
• There IS an alternative to
Obamacare
For Documentation & Further Info:
• FOR COPY OF SLIDES
• Send email with subject “NY Health Care PowerPoint”
• To: bbalch@nrlc.org
• For documentation :
• 1. www.nrlc.org
• 2. Click on Issues
• 3. On drop-down list:
• 4. Click on “Euthanasia/Assisting Suicide” for:
• Healthcare rationing [Obamacare]
• Involuntary euthanasia by providers
Conclusion
• Soberly face reality of government limits on what
treatment you will be allowed, especially from about 2016
on
• Challenge for both those on the political left and political
right
• On the right –
• Emphasis is on using more competition to reduce HC spending
• How does this square with allowing free market to allocate
resources where people choose to put them?
• On the left –
• Emphasis is on government limits on what people spend on HC
• How does this square with better HC for all, including those with
low income?
CAN HEALTH CARE
SPENDING BE LIMITED
WITHOUT RATIONING?
The Claim that Greater
Efficiency Will Avert Rationing


“Dartmouth Atlas” – compares what
different hospitals spend per patient on
those in last months or years of life
Claim: some hospitals spend much
less with same outcome (death), so we
can limit payments to the level of the
most efficient hospitals without harm
The Claim that Greater
Efficiency Will Avert Rationing


“Dartmouth Atlas” – compares what
different hospitals spend per patient on
those in last months or years of life
Claim: some hospitals spend much
less with same outcome (death), so we
can limit payments to the level of the
most efficient hospitals without harm
NY Times article 12/22/09

The Obama Administration’s former
director of the Office of Management
and Budget, Peter Orzag, attacked the
fact that the Ronald Reagan University
of California at Los Angelos [UCLA]
Medical Center spends more than
Rochester, Minnesota's Mayo Clinic.
NY Times article 12/22/09

Orzag: "One of them costs twice as
much as the other, and I can tell you
that we have no idea what we’re
getting in exchange for the extra
$25,000 a year at U.C.L.A. Medical.
We can no longer afford an overall
health care system in which the
thought is more is always better,
because it’s not."
NY Times article 12/22/09


BUT: “[T]he hospital that spent the
most on heart failure patients had onethird fewer deaths after six months of
an initial hospital stay.”
Difference between looking forward
and looking back
ANOTHER N.Y. Times article
6/14/2010

“The atlas’s hospital rankings do not
take into account care that prolongs or
improves lives. If one hospital spends
a lot on five patients and manages to
keep four of them alive, while another
spends less on each but all five die,
the hospital that saved patients could
rank lower because Dartmouth
compares only costs before death.”
Are We Getting More for Our
Money?
Life Expectancy
The 2012 CDC report (relying on the latest data from 2010) says Americans
are living longer than ever now – 78.7 years.
80
78
76
74
72
70
68
66
64
62
Ave. Life Expectancy
1950
1960
1970
1980
1990
2000
2010
Are We Getting More for Our $?
Cancer Survival Rates
According to the American Cancer Society in
a 2009 report the number of cancer
deaths has steadily declined in the
United States over the past 15 years,
saving a possible 650,000 lives.
The cancer death rate (the #2 cause of
death) fell by 19.2 percent for men and
11.4 percent for women between 1990
and 2005.