Networks Financial Institute 2013 ACA Forum


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6: Keynote Speaker: Jonathan Gruber

Jonathan Gruber, Professor of Economics, Massachusetts Institute of Technology

Jonathan GruberJonathan Gruber is recognized as the architect behind Massachusetts’ landmark reforms, and a key adviser to the Obama administration during creation of the Affordable Care Act. Before delving into his remarks, Dr. Gruber noted, "The law is misunderstood," and advised that it is legislation that has been in progress for nearly a century. "How we got here has been a nearly hundred-year process with roots in the Teddy Roosevelt administration," he said.

Misunderstanding surrounding the law typically falls into two camps. One group views the law as politically unrealistic as previous initiatives have built on an imperfect system that served most Americans well enough. Secondly, the health care industry represents a daunting $850B industry.

Yet widespread public complacency with the pre-ACA model cannot continue according to Gruber. He noted that the system does not work for uninsured Americans outside of employer or government-based insurance, nor does it work for individuals with pre-existing conditions.

Gruber worked closely with Mitch Romney when he served as Governor of Massachusetts to develop landmark legislation for universal health care coverage in the state. The program served as the model for the ACA. "Obamacare is Romneycare," Gruber said.

The health care coverage developed under the Romney administration is referred to by Gruber as incremental universalism. He used the metaphor of a three-legged stool to describe the model. The first leg of the stool is focused on insurance market reform, using a community rating model to avoid discriminating against the sick. The second-leg of the stool focuses on the individual mandate, with an assumption that the system will work only when all participants are required to play. The third leg of the stool involves individual subsidies, defined in Massachusetts as three times the poverty line, and achieved through expanded Medicaid and tax credits to offset the cost.

Enacted in 2006, Gruber said the "Romneycare" model has worked well based on increased health care coverage for the population and a drop in premium costs of 50 percent.

Gruber upheld the universal coverage from a moral perspective. "Fundamentally, the U.S. is the only nation in the developed world that has allowed sick people to go bankrupt," he said. According to the Congressional Budget Office (CBO), 33 million Americans will get coverage as a result of the ACA.

From a budgeting perspective, how did Massachusetts pay for the program? Gruber credits a combination of spending reductions and tax increases for contributing to a $1B decline in health care costs over the program’s first decade.

Spending was slashed as overpayments for Medicare were cut and a revised reimbursement program for hospitals was instituted. An increase in excise taxes on sectors that benefitted, such as medical device manufacturers, helped generate revenue. Gruber compared business opposition to the ACA tax on medical device companies to, "a gift of a $100 bill with the request that $5 be returned." The ACA would also enact a tax increase on American households earning more than $250K annually. "All-together, the ACA is deficit reducing," Gruber said.

Despite being a society that considers itself somewhat charitable, Gruber noted it’s a "dirty secret" that American’s don’t care about the uninsured. Much of the complacency may have resulted from a system that has worked remarkably well for decades, particularly with regards to scientific innovation. The scientific advances have not come without cost. From 1950 to today, American spending on health care has quadrupled. Beyond technological and scientific innovation, the other key factor driving health care costs upward is waste, which Gruber identified as one-third of total health care spending.

Finally, runaway politics and rhetoric have also caused the ACA to be misunderstood. Discussions surrounding end of life patient-doctor conversations quickly morphed into media stories about "death panels." A 2009 Preventative Services Task Force recommendation that women in their 40’s no longer have regular mammograms resulted in ACA language being added that specifies, "preventive services recommended before 2009."

How can the ACA’s costs be managed? Gruber suggested five cost-cutting strategies:

  1. Impose a Cadillac tax on luxury health care plans. This will alleviate the unfair tax advantage enjoyed by individuals who receive "luxury" health plans, but are not taxed on the plan. It also would discourage individuals from having high-cost, but unnecessary services performed.
  2. Let the exchanges create a competitive marketplace, based on their success in Massachusetts. "It’s worth noting that in the U.S. we have never passed a law this big and run the experiment first," said Gruber, referring to Massachusetts as such an "experiment" for the ACA.
  3. An Independent Payment Advisory Board (IPAB) can provide an independent body to make decisions about service fees and provider compensation. This would take subjectivity out of the system and create a body where decisions are made in an objective manner by a collective body; similar to a military base closing.
  4. Consider comparative effectiveness. By encouraging the system to evaluate comparable care and associated pricing, the cost of health care can be reduced by the economics of a free market.
  5. Reimbursing health care through ACOs. While the ACOs are not problem-free, they provide a better alternative to other models. "The problem with health care is that there is too much pretended certainty," said Gruber. "To do nothing is to take a step backward."

Moving the health care model forward will require an attitude of humility and patience. Gruber was quick to point out that neither attribute is enjoyed in abundance by politicians. He concluded with some thoughts on how the American health system can move forward.

As the ACA has overcome numerous hurdles, it is now time to become serious about implementation. During this phasing-in time, there is an opportunity for states to leverage their power and participate in federal government reimbursement models. Gruber noted the states are positioned to operate the exchanges more efficiently than the federal government, although it will take time for states to ramp up. Gruber also echoed David Kendall’s remarks, comparing the popularity and widespread acceptance that Medicare Part D enjoys with what the ACA may expect in the future.

Finally, Gruber made the case that while imperfect, the ACA will leave 80 percent of American’s better off than without the Act, while 17 percent of Americans will be unaffected and three percent will be less well off as a result of the ACA. Noting that 97 percent of companies with more than 50 employees already offer health care insurance, he said the law will specifically benefit those who do not currently have access to health care coverage.

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