by Robin Tang
Sunday, March 22, 2010, marked the passage of the Health Care and Education Affordability Reconciliation Act (H.R. 4872) by the House by a narrow 219-212 margin, with no Republicans voting in favor. Whether you think the bill is good, bad, sustainable, or even constitutional, we can agree this was a historic day.
Putting politics aside, I want to highlight two parts of the bill that aren’t getting enough attention.
1. Tax Credits for Individuals. You don’t need a public option to stimulate competition and innovation among health insurance. All you need to do is change the fact that health insurance bought through employers is tax-free. Think about that – if you have a new idea for health insurance, it has to be 30-35% better than what’s out there to get people to agree to forgo their employer-based coverage.
Because of that nearly insurmountable hurdle, insurers sell not to individuals but to employers, and large ones at that. And few employers have the time or know-how to question the insurance business model. Insurance becomes a scale game – winning is based on having the largest contracts, not on creating health value or customer service.
Baucus proposed eliminating this tax exclusion, as did McCain, but union states didn’t like it (read: Pelosi, Rangel). What the Act does do is give individuals a tax credit for buying the Exchanges. That doesn’t level the playing field but it helps – it gives a fighting chance to start-ups who think they can provide you with a better way to pay for your care. And because the subsidies target Americans between 100-400% of the Federal Poverty Line, there’s ripe opportunity for truly low-end disruption.
2. New Patient Care Models. The Senate Act will create a Center for Medicare and Medicaid Innovation tasked with piloting Accountable Care Organizations, bundled payments, gainsharing, and other ideas. For innovators who seek to create new team-based, integrated care, with incentives properly aligned – the time to strike is now. A Medicare demonstration means free publicity, temporary freedom from the fee-for-service system, and sometimes a waiver of Stark, anti-gainsharing, and other laws that prevent integration and innovation. Global payment? Integrated practice units? Think big.
Also, I can’t overstate the importance of value-based purchasing. If hospitals and docs are getting paid for the quality you deliver, not the procedures they perform, suddenly innovations in healthcare become B2B sales. Instead of the doc being your enemy because you cannibalize his highest-margin procedures, you have him on your side. As VBP spreads, we’re going to see a wave of innovation follow. Hospital value-based purchasing will become a reality in 2013. The only thing we’re missing is physician value-based purchasing, which remains stalled in CMS.
For more on the tax exclusion for employer sponsored-insurance, see this Heritage Foundation piece , this Jonathan Gruber NBER article, or this more recent NBER piece.
Robin Tang is a medical student and MBA candidate who blogs at Healthcare Breakfast Club.
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