Can we just get rid of Obamacare?

ObamaCare does not bring any real improvement in health care to the USA - Interview with Prof. Uwe Reinhardt, Princeton University [1]

When the US health economist Prof. Dr. Uwe E. Reinhardt, Princeton University, last spoke at an annual congress of the Federal Managed Care Association, he mainly criticized the fact that in the health policy debate in Germany everything revolves around income distribution, not patients. That was in September 2000. In January 2014 he was back and called Obamacare at the BMC congress as "a disgusting patch for a disgusting system". “Monitor Health Services Research” spoke to the controversial economist, who did not mince his words: “The President and his people failed as project managers.”

>> Professor Reinhardt, why does the health system - regardless of the country - usually not work as it should?

There are several reasons. First, there may be a lack of political consensus on how a country's health system should function at all. The liberals in Germany have completely different ideas than the members of the SPD, for example. In America, opinion is even wider in this regard. Second, even when there is consensus on how the health system should ideally function, the real system is often thrown off course by perverse incentives. And that doesn't just happen in the health system. That happens in some branches of the economy.


Which ones do you have in mind?

Let's take a look at the banking industry. In principle, banks have two economic tasks: to channel money from savers efficiently into productive investments and to create a market for risk transfers through which, for example, Mercedes Benz shifts the risk of a change in the dollar-euro exchange rate to other people or institutions through currency options can. In addition, however, the banks have had great financial incentives in the last two decades to build up a huge, worldwide casino and to play in it themselves; with the money of savers. And in doing so, they almost brought the world's economies to collapse. No country's health system has ever caused such nonsense. If you look at a bank's balance sheet prior to 2007 and find that it only has three percent equity, then - assuming a bit of common sense - it would be better not to do business with such a bank. But that's exactly what happened. And why? Because everyone hoped and actually knew that if everything went wrong, the taxpayer would be asked to pay in order to get the hot potatoes out of the fire for the banks. This so-called “moral hazard” gave the heads of the banks completely wrong incentives. In short: it is useful to criticize health systems constructively, which we do again and again, but compared to the banking industry, health systems everywhere are actually very good fellows.

In Germany, a lot of what comes from the USA is often seen as an innovative step forward. You, on the other hand, are quite critical of the health system in America, which has been improved by Obama. What were the reasons for this major healthcare reform, the Affordable Care Act, which is often referred to as "Obamacare"?

For many years, America’s health care providers have had the dominant influence on health care spending. That has only changed a bit recently. The provider side determined the volume of services and often also the prices. This was due to the fact that the market force in the USA gradually shifted to the supply side, because the demand side was fragmented and weakened by thousands of large and small insurers. In contrast, in Europe the demand side had grown stronger over the same period. What economists call “countervailing power” is missing in America. With many problems resulting from this, which in the end resulted in a drastic increase in the cost of the entire healthcare system within just a few years.

Basically, is the cost of the American healthcare system completely out of control?

America spends twice as much on health care per capita as other countries; even though we have a much younger population. In addition, there are 50 million uninsured people who normally have to pay a fairly high deductible out of their own pocket and therefore only receive half as much health care as similar patients with insurance. However, in the 1970s, 1980s, and even 1990s Americans didn't care at all because the economy was booming and there was enough money to buy this bottomless model
somehow could afford. In the 2000s there was suddenly lower growth, and in 2001 there was even a recession - but the costs continued to rise.

And it came as it had to come.

The health system crashed head-on against the economic wall. In order to be able to offer health care at all to the usual extent, in some US states savings were made on the infrastructure, for example in the education of children and investments in universities were cut; oh what: actually everything has been shortened. It is sometimes joked that America will be home to millions of over-medicalized but under-educated citizens in about 30 years.

The fact that so many fellow citizens were left without health insurance, however, does not seem to bother the American population very much.

This is American fatalism. The system can no longer take anything away from a beggar who has to receive basic care free of charge from hospitals through “uncompensated care” (note: unpaid services); It is completely different with medium-sized companies. If a middle-class citizen gets sick or someone from his family, he can be ruined overnight if he has no or the wrong insurance. Such people were financially ruined and psychologically shattered by the US health care system before Obamacare, which I find very cruel. And this problem is not unknown, because the media have repeatedly reported such sad cases.

But there was another reason for this healthcare reform.

Surprisingly, these were major quality deficits. In 2000 the Institute of Medicine published a report entitled “To Err Is
Human: Building a Safer Health System ”. It found that 50,000 to 100,000 Americans die in hospital each year in the United States; but not because they have simply reached the end of their lives, but because of avoidable mistakes! The next study came in 2005. And lo and behold: Nothing had changed in this grievance.

For whatever reasons?

Because the US health system is absolutely fragmented and uncoordinated. Lots of information technology is being invented, but it is not being applied consistently because every hospital and every doctor has its own system, most of which are still paper-based. Worst of all, the hospitals couldn't communicate with each other at all. That is why President Obama has invested $ 20 billion in this communications infrastructure alone.

The image of the American health system in the eyes of the Germans is primarily due to its high medical and structural level
Quality and top systems like that of Mayo or Kaiser.

These are a few flagship models, but the average quality was simply too low. If you look for the world's best examples in health care, you can often find them in America. But the average is a whole different matter. The average in America is not that impressive, according to health services research.

These were the problems that Obama wants to cure with his reform.

Exactly. All of this often makes the American healthcare system an even gross system in need of so much improvement.
Something just had to be done. It was just a matter of time. And as a presidential candidate in 2008, Obama saw it as an opportunity to make a name for himself. But I also believe that this problem was actually on his mind.

What is Obamacare doing better now?

First of all, it has to be said that this reform, which is written on more than 3,000 pages, affects less than ten percent of the insured, and mostly the previously uninsured. These can now either be taken care of in the Medicaid system, as before, or they can buy subsidized, private insurance through a kind of electronic insurance broker (Health Insurance Exchanges); or through insurance brokers who make 7-10% of the premium, which is quite a lot of money for these poor people.

So where is the real problem?

That is hidden in the small print. Obamacare no longer allows the insurer to calculate premiums based on the individual's state of health. He must offer the same premium for sick and healthy people of the same age. If you want that, of course, everyone has to make sure whether the individual is sick or healthy. That is nothing other than the solidarity that exists in Germany, in Europe, actually everywhere.

Just not so far with the Americans, for whom freedom is paramount.

I would say: “Freedom when you are healthy and solidarity when you are sick.” I personally like to express the motto of the so-called American “rugged individualists” as follows: “When the going gets tough, the tough run to the government “Americans think that no one has a right to force them to take out health insurance, even though every citizen has a moral right to the best health care when they are seriously ill, even if they have no money, out-of-pocket treatment to pay. You could say it's the teenage mentality, but that might be unfair to the teenagers.

Are there any other ingredients in Obamacare?

There is actually no major structural reform of the American health system, because the problem of power pooling on the provider side is not even tackled. However, there is at least a systemic approach that aims to promote integrated care through so-called Accountable Care Organizations (ACO). But I believe that something like this will only work in this system if the providers find it profitable.

ACO are the big new idea?

Not really. It's an old new idea. Old because it was tried in the 1990s but failed back then.

Why did the idea fail?

At that time, the general practitioners in particular were still too trapped in a traditional, previously quite successful structure in which doctors did not have to manage, collaborate and communicate. Second, there was no financial pressure as it exists today. Once a system is hit the wall, it changes more easily. I believe that this point was reached with the recession in 2008 and 2009, which we still haven't overcome.

The concept of managed care also originated from this time.

The managed care approach of the 1990s was invented by economists and driven by insurance chiefs with MBAs, but it has treated doctors almost like slaves. That was wrong. Managed Care only works when the doctors are in the driver's seat. The ACO concept will also only succeed if doctors not only have a say in decision-making, but also sit behind the wheel. That is actually quite logical. Health care is not the same as building cars.

Kaiser does managed care par excellence!

There are doctors in top management, as well as at Mayo. In both systems, the doctor always has the last word. Economists at the top need such systems last. However, this also means that the training should also provide doctors with the skills needed to run companies and organizations. That is why more and more doctors with us also have an MBA degree.

In addition, there was the payment reform.

This was necessary to make accountable care organizations possible at all. They don't work so well with the previous individual benefit system, which is unfortunately also common in Germany, actually not at all. For ACO you need flat rates per capita for the chronically ill or flat rate per case. But building up flat rates per case takes time. It is not easy, both technically and politically.

Does the Obama reform solve the problems it wants to solve?

At least some of the problems, especially those of the uninsured, will be solved or, better yet, should be solved. Because so far only 800,000 uninsured have taken out insurance.

Why so few?

Firstly, the introduction of the new system, the roll-out of the “electronic health insurance exchanges”, was very poorly managed.
President Obama himself bears personal responsibility for this. Second, many Americans are simply not used to making provisions or even thinking in solidarity. Young Europeans believe that they will all live to be 80, 90 or even 100 years old. And statistically speaking, children born after 2000 actually have a pretty good chance of making it.

And Americans?

For the most part, they seem to believe that the third world war is just around the corner and that tomorrow you can be dead as soon as possible. That is why in America people like to live and consume in the here and now; but what is tomorrow does not matter at first. Perhaps you have taken the motto of Louis XIV “After me the flood” to heart. That is why Americans have the lowest or one of the lowest savings rates in the OECD.

And that's only because nobody likes to think about tomorrow.