October 2014

FIXING OBAMACARE

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REGINA E. HERZLINGERNancy R. McPherson Professor of Business Administration, Harvard Business School, rherzlinger@hbs.edu

No health care system is perfect. All systems must make tradeoffs and balance cost-containment, universality and equality of access and, and quality concerns, while ensuring a sufficient supply of physicians, and accepting different degrees of limitations on the freedom choice of both consumers and providers.

Different systems make these tradeoffs in different ways. Many countries have achieved better outcomes than has the U.S., so there are likely lessons to be learned, even if we cannot adopt another country’s model in toto.

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HOW DOES THE U.S. HEALTHCARE SYSTEM COMPARE TO THOSE OF OTHER NATIONS? (Statistical comparisons and rankings)

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1. Healthcare outcomes [what measures do we want to use?] and Patient/consumer/citizen satisfaction measures

2. Cost (% of GDP, per capita expenditures, growth rates relative to GDP growth]

3. Extent and depth of universal coverage and how achieved

DIFFERENT SYSTEMS BALANCE THESE PRIORITIES IN

DIFFERENT WAYS, BUT THERE ARE A NUMBER OF COMMON PATTERNS

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A. CULTURAL AND POLITICAL FACTORS HAVE SHAPED VARIOUS COUNTRIES’ HEALTH-CARE SYSTEMS

For some commitment to universal coverage based on notions of solidarity or health care as a human right, e,g. health-care policies are embedded in a larger commitment to a robust welfare state in many European countries, rooted in commitment to social solidarity

In Singapore, for example, the governing party has long emphasized individual responsibility and the need to discourage “dependency” on government welfare; reflected in the policies such as compulsory medical savings accounts, policies that encourage insurance plans with high deductibles and co-payments, discouraging plans that offer “first-dollar” coverage

America’s culture of individualism is well-known, see for example Robert Bellah’s expressive and utilitarian individualism and as Americans’ “first language”

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B. ACHIEVING UNIVERSAL (OR NEAR UNIVERSAL) ACCESS IN A VARIETY OF WAYS

1. Single payer system in the UK

2. Public sickness funds funded by payroll taxes in Germany

3. Private insurance purchase by individuals -with subsidies for those too poor to purchase their own -- in Switzerland

4. And Singapore in mixture of compulsory savings accounts, public and private insurance, in the government’s safety net for the poorest

5. In Turkey, the recent expansion of the Green Card program (akin to Medicaid) has significantly expanded coverage especially for the poorest

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C. MARKET-BASED REFORMS – CAN INCLUDE A MIX OF PRIVATIZATION AND EFFORTS TO CREATE COMPETITION AMONG PUBLIC SECTOR INSTITUTIONS – IN HOPES OF ACHIEVING EFFICIENCIES AND CUTTING COSTS

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1.COMPETITION AMONG INSURERS/PAYERS,a.private insurers in

Switzerland b.public sickness funds in

Germany

2. COMPETITION AMONG PROVIDERS INTRODUCED

a. UK has recently allowed NHS patients to choose among hospitals; Cooper, et. al studies by Cooper et. al. suggest that competition has resulted in positive results, although they stress the importance of competition based on elements other than price

b. Sweden allowing patients to go outside their county to seek healthcare, money “follows the patient”

c. In Singapore public hospitals were restructured in the 1980s, granted significant autonomy in management, introduced competition among them

d. In Turkey, the rapid expansion of the private sector has been an important component of health care reforms over the last decade

e. The percentage of private for profit hospitals in Germany has risen from 15% to 32% over last 20 years

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3. COMPETITION, WHETHER AMONG INSURERS OR PROVIDERS, REQUIRES ONGOING GOVERNMENT REGULATION TO ENSURE TRANSPARENCY THAT ALLOWS CONSUMERS TO MAKE INFORMED CHOICES AND IN THE NAME OF EQUITY a. In the UK, the government’s he maintains websites with

information about various providers and hospitals; Germany; mandates online posting of quality data

b. The Swiss government maintains online exchanges to provide consumers with information about insurers

c. In Sweden, only a small number of individuals exercise their choices, despite reforms encouraging consumers to choose providers in order to induce competition; partly because lack of information prevents them from comparing care

d. In both Switzerland and Germany, the government closely regulates the insurance markets. Insurance is compulsory, the government prescribes them benefit packages, forbids insurers from risk selecting, and provides risk equalization.

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4. PRIVATIZATION IS NOT PANACEA, HOWEVER. PRIVATE PLAYERS STRUGGLE TO ACHIEVE A REASONABLE RATE OF RETURN WHILE STILL MAINTAINING HIGH QUALITY AND EQUITABLE ACCESS MANDATED BY GOVERNMENTS.

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D. MANY COUNTRIES DEVOLVE MUCH OF THE RESPONSIBILITY FOR MANAGEMENT AND REGULATION OF HEALTH CARE SYSTEM TO LOCAL/REGIONAL GOVERNMENTS,

1. in Sweden, for example, local governments provide most day to day management of health care System and 70% of funding comes from local taxes

2. Swiss cantons and German Lander similarly provide administrative oversight

3. the central government establishes overall framework and regulations,

4. Can lead to different levels of provision and services as different regions make different choices

5. Also makes Health Care System more responsive to see citizen concerns and political considerations

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E. EVEN WITH RECENT TRENDS TOWARD PRIVATIZATION, GOVERNMENT MAINTAINS A STRONG ROLE – TO ENSURE MINIMAL QUALITY STANDARDS ARE MEANT AND IN AN EFFORT TO PRESERVE SOME LEVEL OF EQUITY AND UNIVERSALITY IN ACCESS

1. Plays a role in setting prices, capping out-of-pocket expenditures

2. Provide overall regulatory framework3. Regulate supply , i.e. number of physicians in a given

specialty, number of beds in order to ensure equality of accessa. German Physician Associations set quotas for each for

speciality in each region, b. the government of Singapore determines the number

of each speciality that can practice in the country, subsidizing hospitals and clinics, determining number of beds and distribution in public hospitals, funding medical schools and regulating admissions

c. the Turkish government mandates that new doctors practice in underserved regions for a certain amount of time, in order to overcome significant regional divergences in health care provision

4. Help to maintain markets, i.e. government websites that allow individuals to research and choose providers or insurers;

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F. OTHER PATTERNS

1. There is considerable variation as to the relative size of overall public vs. private spending on healthcare,

2. Variation on out-of-pocket expenditures

3. means of funding public (general tax

revenues (UK, Sweden) vs. specific payroll taxes (Germany, Singapore)15

FINAL ASSIGNMENT

Prepare a 1,500 word document with a maximum of five Exhibits on the public policies that could improve the cost control, quality, and access in the U.S. health care system or in one of the BRIC nations which draws on the examples discussed in the Study Group