Economics Professor Dhaval Dave led a session for parents focusing on the economics of healthcare reform.

1. Economics of
Healthcare Reform &
the Affordable Care Act
Dhaval M. Dave
Department of Economics
Bentley University
Parent Lecture Series, FALL 2014

2. A little about me…
 Rutgers University
◦ B.S. in Finance / Economics
 Rutgers University
◦ M.A. in Economics
 City University of New York
◦ Ph.D. in Economics
 Wharton, Univ. of Pennsylvania
◦ Post-doctoral Research Fellowship
 Bentley University
◦ Professor of Economics
 National Bureau of Economic Research (NBER)
◦ Research Associate

3. Current Research
 Rx advertising
 Effects of Medicaid expansions
 Substance abuse policies
◦ Alcohol, smoking, e-cigarettes
 Effects of the business cycle on health behaviors
 Broader effects of welfare reform on health and
human capital
 Juvenile crime & recidivism / human capital

4. Outline
 What ails the U.S. healthcare
system?
“Two-headed Beast”
Rising costs
Number of uninsured
 Affordable Care Act (ACA) as
the ‘remedy’ (?)

5. I. Rising Healthcare Costs
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
% GDP
NHE per capita
$9142
5.6%
$216
17.2%

6. Driving force behind rising costs is Technology
Source: Congressional Budget Office 2008

7. Rising Healthcare Costs
 Ultimately paid out of wages
◦ Stagnant wage growth over the past 40
years
 50% of costs borne by government
◦ Opportunity cost – funds diverted from other
services (education; infrastructure)

8. U.S. vs other OECD countries (2012) ?
US
86.0
84.0
82.0
80.0
78.0
76.0
74.0
72.0
0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000
Life Expectancy
HC Spending per capita
Source: Data from OECD Health Data

9. McAllen vs. El Paso, TX Redux?
New York Times, September 8, 2009

10. Rising Healthcare Costs
 Inefficiencies / Waste in the current
system
◦ Unnecessary procedures
◦ Excessive compensation
◦ Ineffective management

11. II. Rising Uninsured
 49 million (16%) in 2011
 20,000 die each year due to lack of
insurance
 Medical expenses largest cause of
individual bankruptcies

12. II. Rising Uninsured
But I am insured. Why should I care?
 Everyone is at risk of becoming uninsured
◦ Declining trend in employer-provided insurance
 Non-group insurance market is broken
 $50 billion in uncompensated care passed on to
the insured
 Insured come only into healthcare system at a
later stage when they need it, as opposed to
getting preventive care – no usual source of care

13. Affordable Care Act
Reduce Number of Uninsured
I. Fix ‘broken’ non-group market
 Guaranteed issue
 Community rating

14. Affordable Care Act
Reduce Number of Uninsured
II. Individual mandate
 Everyone required to obtain healthcare
coverage or pay a penalty
 Risk adjustment

15. Affordable Care Act
Reduce Number of Uninsured
III. Make insurance affordable
 Employer mandate (>50 FTEs)
 Expands Medicaid to cover all individuals/families <138% of
FPL
 Provides subsidies on a sliding scale for those between 138-
400% FPL
 Administers Exchanges giving consumers easy-to-understand,
one-stop shopping for insurance options

16. Affordable Care Act
Reduce Number of Uninsured
I. Fix ‘broken’ non-group market
II. Individual mandate
III. Make insurance affordable

17. Affordable Care Act
Taking on Cost Control
 Cadillac tax
◦ For many, insurance is far too generous due to tax
deductibility/subsidy
◦ Induces over-spending on healthcare
◦ Larger tax breaks for higher-income
 Health insurance exchanges
◦ Encourages price/quality competition across insurers to
reduce administrative costs & wastes
 Medicare IPAB
◦ Make recommendations on how to improve quality of medical
care & lower costs by improving the program’s efficiency

18. Affordable Care Act
Taking on Cost Control
 Comparative Effectiveness Research
◦ Head-to-head comparisons between alternate treatments/drugs
◦ Whether expensive treatments work better than cheaper alternatives
 Accountable Care Organizations (ACO)
◦ System where care is coordinated across providers
◦ Coordinated groups that provide all patient care for one global
reimbursement amount
◦ Doctors & hospitals have to figure out the best way to deliver care to make
ends meet under their fixed payment
 Expand access to preventive care
◦ Eliminates all cost-sharing / copays / deductibles
 Medicare reimburse providers based on services &
QUALITY
◦ Reward high-quality hospitals/doctors & penalize low-quality providers

19. What’s the solution?
 Insuring everyone requires money, but it
can be done
More complicated: how do we change
the way the health care delivery system
works so we get high quality care at
lower cost?

20. Verdict ?
 ACA addresses head-on the problem of uninsured
◦ 14 million newly insured
◦ 26 million by 2019
 ACA takes first “baby” steps towards cost control that might work and
could translate into a future plan to build on what works
 Reduces “job-lock”
 ACA is fiscally-responsible - may well result in a net reduction in the
deficit
 Potential labor supply effects (?)
◦ But likely small (?)
 Potential crowd-out (?)
 Question is do you do coverage first & cost-containment
second or vice versa (?)

21. THANK YOU
ddave@bentley.edu

22. BACK

23. Cyclicality of Medical-Loss Ratio
(Benefits Paid / Premiums)
0.92
0.91
0.9
0.89
0.88
0.87
0.86
0.85
0.84
0.83
0.82
0.81
Medical-Loss Ratio

24. Typical loading fees by group size
Number of workers Loading fee as % of
benefits
Individual policies 60-80
Small group (1-10) 30-40
Moderate group
(11-100)
20-30
Medium group (100-200) 15-20
Large group (201-1000) 8-15
Very large group (more than 1,000) 5-8
Overall for all plans 15-25

25. US vs. OECD Countries (1980)
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Life Expectancy
0 200 400 600 800 1000 1200
Life Expectancy
HC Spending per capita
us