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There are some immediate changes in health care plans for 2012. As you might imagine, the changes won’t end next year. While the new plans roll out, there are other things you want to keep in mind for the future.Barring the gutting or repeal of Obamacare, we can look forward to more restrictions beginning in 2014. While there are some benefits to the Patient Affordability and Care Act, the down side skews the equation in favor of problems for business owners, difficult decisions for people without health care insurance and the self-employed.On the positive side, insurance companies cannot consider a person’s health status when insuring them. Kaching…that was the sound of your premiums going up to begin paying for coverage of more unhealthy people. Now, for the record, I am all in favor of insuring everyone, regardless of health status. None of us want our families to live without health care coverage. The financial consequences can be devastating for families if someone becomes very ill. But we need a better plan for paying for all this coverage than what we see today and in the near future. In two years almost everyone will be required to have some form of health insurance. In order to force this on people, health insurance “exchanges” will be created to accommodate the varying income levels of people. It is not entirely clear today how these exchanges will actually work to the benefit of the insureds or the insurance companies.One of the criticisms of Obamacare is that it is a thinly disguised plan to force everyone out of private insurance and choice into these exchanges, which will be managed by some federal agency. Trying to understand the deluge of verbiage on this topic is like trying to nail Jello to the wall. The truth is no one seems to know how this would really work. In the breach, we already see companies adhering to new law to be by offering coverage extensions to children up to age 26 who are living at home with their parents. This raises more problems for companies who are trying to peer into the crystal ball to see what they’ll be on the hook for in two years.Many companies admit they might just drop health insurance benefits for their employees. Rising costs, more liability, and confusing laws and rules, guarantee more owners will throw up their hands in disgust and opt out of the system. The owners are also looking at options that help them force more accountability and self-care on their employees. These options include Accountable-care organizations, reference-based pricing and defined contributions.Accountable-care organization reward health providers who cut expenses while maintaining good performance. These organizations can be physician owned, physician and insurance company owned, or some other combination. Reference-based pricing lets the company declare what it is willing to pay for services. Employees are then responsible for finding health care providers willing to work for the amount offered. This price shopping still allows employees to choose a higher-priced provider, but the employee must pay the difference in prices. Defined contributions means the company gives employees a set amount of money to purchase plans where they wish. Any difference in prices must be absorbed by the employee. These plans are available on an exchange, so employees will have more choices in this plan.All this presumes employees will see the benefit in these changes. Most people have gotten used to some form of HMO, PPO, or other network system with predictable premiums, co-pays, deductibles and so forth. This future is the wild west of health care and insurance exchanges. We will have to actually read the information from different companies, plans, and exchanges to decide where and how to best protect our families with health care. Unfortunately, most of us are ill-equipped to do this.We need more information and education in order to make this complicated plan work. Or, better yet, we could scrap the plan before it fully vests and find a better way to insure Americans that allows doctors to practice medicine and keeps us all honest. Can someone please invent a better mousetrap soon?Have a terrific day!Patricia

In trying to think about the future of health care, thoughtful, intelligent people often ask, “Why can’t we just let the free market operate in health care? That would drive down costs and drive up quality.” They point to the successes of competition in other industries. But their faith is misplaced, for economic reasons that are peculiar to health care.More “free market” competition could definitely improve the future of health care in certain areas. But the problems of the sector as a whole will not yield to “free market” ideas – never will, never can – for reasons that are ineluctable, that derive from the core nature of the market. We might parse them out into three:1. True medical demand is wildly variable, random, and absolute. Some people get cancer, others don’t. Some keel over from a heart attack, get shot, or fall off a cliff, others are in and out of hospitals for years before they die.Aggregate risk varies by socioeconomic class and age – the older you are, the more likely you are to need medical attention; poor and uneducated people are more likely to get diabetes. Individual risk varies somewhat by lifestyle – people who eat better and exercise have lower risk of some diseases; people who sky dive, ski, or hang out in certain bars have higher risk of trauma.But crucially, risk has no relation to ability to pay. A poor person does not suddenly discover an absolute need to buy a new Jaguar, but may well suddenly discover an absolute need for the services of a neurosurgeon, an oncologist, a cancer center, and everything that goes with it. And the need is truly absolute. The demand is literally, “You obtain this or you die.”2. All demand apes this absolute demand. Medicine is a matter of high skill and enormous knowledge. So doctors, by necessity, act as sellers, and agents of other sellers (hospitals, labs, pharmaceutical companies). Buyers must depend on the judgment of sellers as to what is necessary, or even prudent. The phrase “Doctor’s orders” has a peremptory and absolute flavor.For the most part, people do not access health care for fun. Recreational colonoscopies are not big drivers of health care costs. In some cases, such as cosmetic surgery or laser eye corrections, the decision is clearly one the buyer can make. It’s a classic economic decision: “Do I like this enough to pay for it?” But for the most part, people only access health care because they feel they have to. And in most situations, it is difficult for the buyer to differentiate the truly absolute demand (“Do this or you die”) from the optional.Often it is difficult even for the doctor to tell the difference. The doctor may be able truthfully to say, “Get this mitral valve replaced or you will die. Soon.” More often, it’s a judgment call, a matter of probabilities, and a matter of quality of life: “You will likely live longer, and suffer less, if you get a new mitral valve, get a new hip, take this statin.At the same time the doctor, operating both as seller and effectively as agent for the buyer, is often rewarded for selling more (directly through fees and indirectly through ownership of labs and other services), and is not only not rewarded, but actually punished, for doing less (through the loss of business, the threat of malpractice suits, and punishment for insufficiently justifying coding).So the seller is agent for the buyer, the seller is rewarded for doing more and punished for doing less, and neither the buyer nor the seller can easily tell the difference between what is really necessary and what is optional.This is especially true because the consequences of the decision are so often separated from the decision. “Eat your broccoli” may actually be a life-or-death demand; maybe you need to eat more vegetables to avoid a heart attack. But you’re not going to die tonight because you pushed the broccoli around the plate and then hid it under the bread.So, because it is complex and difficult, and because its consequences are often not immediate and obvious, the buy decision is effectively transferred to the seller. We depend on the seller (the doctor) to tell us what we need. Whether we buy or not usually depends almost solely on whether we trust the doctor and believe what the doctor says.3. The benefit of medical capacity accrues even to those who do not use it. Imagine a society with no police. Having police benefits you even if you never are the victim of a crime. You benefit from that new bridge even if you never drive over it, because it eases the traffic jams on the roads you do travel, because your customers and employees and co-workers use it, and because development in the whole region benefits from the new bridge.This is the infrastructure argument. Every part of health care, from ambulances and emergency room capacity to public health education to mass vaccinations to cutting-edge medical research, benefits the society as a whole, even those who do not use that particular piece. This is true even of those who do not realize that they benefit from it, even of those who deny that they benefit from it. They benefit from having a healthier work force, from keeping epidemics in check, from the increased development that accrues to a region that has good medical capacity – even from the reduction in medical costs brought about by some medical spending, as when a good diabetes program keeps people from having to use the Emergency Room.All three of these core factors show why health care is not responsive to classic economic supply-and-demand theory, and why the “free market” is not a satisfactory economic model for health care, even if you are otherwise a believer in it.Answers for the future of health care?The answer to the first problem, the variability and absolute nature of risk, is clearly to spread the risk over all who share it, even if it is invisible to them. If you drive a car, you must have car insurance, and your gas taxes contribute to maintaining the infrastructure of roads and bridges; if you own a home, you must have fire insurance, and your property taxes pay for the fire department. Because of your ownership and use of these things, you not only must insure yourself against loss, you also must pay part of the infrastructure costs that your use of them occasions. Similarly, all owners and operators of human bodies need to insure against problems that may accrue to their own body, and pay some of the infrastructure costs that their use of that body occasions. However the insurance is structured and paid for, somehow everyone who has a body needs to be insured for it – the cost of the risk must be spread across the population.Skipping to the third problem, the infrastructure argument, its answer is somewhat similar: To the extent to which health care capacity is infrastructure, like police, fire, ports, highways, and public education, the costs are properly assigned to the society as a whole; they are the type of costs that we normally assign to government, and pay for through taxes, rather than per transaction. In every developed country, including the United States, health care gets large subsidies from government, because it is seen as an infrastructure capacity.That leaves the second problem, the way in which all demand apes the absolute nature of true demand in health care (“Get this or die”). The answer to this problem is more nuanced, because it is not possible to stop depending on the judgment of physicians. Medical judgment is, in the end, why we have doctors at all. But we can demand that doctors apply not just their own judgment in the moment, but the research and judgment of their profession. This is the argument for evidence-based medicine and comparative effectiveness research. If a knee surgeon wishes to argue that you should have your arthritic knee replaced when, according to the judgment of the profession as a whole, the better answer in your situation is a cortisone shot and gentle daily yoga, the surgeon should have to justify somehow, even if just for the record, why your case is different and special. The physician’s capacity to make a buy decision on your behalf must be restrained at least by the profession’s medical judgment. If the best minds in the profession, publishing in the peer-reviewed literature, have come to the conclusion that a particular procedure is ineffective, unwarranted, or even dangerous, it is reasonable for insurers, public or private, to follow that best medical judgment and stop paying for it.These three core factors – the absolute and variable nature of health care demand, the complexity of medicine, and the infrastructure-like nature of health care capacity – are all endemic to health care and cannot be separated from it. And all three dictate that health care cannot work as a classic economic response to market demands. Failure to acknowledge these three core factors and structure health care payments around them account for much of the current market’s inability to deliver value. Paying “fee for service,” when the doctor is both the seller and acting as agent for the buyer, and when the doctor is punished for doing less, is a prescription for always doing more, whether “more” delivers more value or not. Paying “fee for service,” unrestrained by any way to make classic value judgments, means that hospitals and medical centers respond to competition by adding capacity and offering more services, whether or not those services are really needed or add value.For all these reasons, it is vastly more complex to structure a health care market rationally, in a way that delivers real value, than it is to structure any other sector, and simply fostering “free market” competition will not solve the problem.