Obamacare Won’t Transform America — Yet

.photo.right{display:none;} Right now, it doesn’t look like the most dramatic overhaul ever. After a few years, though, that could change.

Figures stand on a large stack of paper. 
National Journal
Catherine Hollander
Sept. 26, 2013, 4:20 p.m.

On a steamy Tues­day this Septem­ber, Re­pub­lic­ans and tea-party groups, eager to drum up sup­port for killing the 2010 health care law now that Con­gress had re­turned from its Au­gust re­cess, gathered for a noon rally on the Cap­it­ol’s West Lawn. Crowds ar­rived by bus from neigh­bor­ing states for the “Ex­empt Amer­ica From Obama­care” protest, and a parade of Re­pub­lic­an mem­bers of Con­gress be­strode the dais.

Demo­crats had held their own event, a 10:15 a.m. press con­fer­ence on the Sen­ate side of the Cap­it­ol Vis­it­ors Cen­ter, to de­nounce the GOP’s ef­forts to “sab­ot­age” the law. Re­pub­lic­an law­makers Dav­id Vit­ter, a sen­at­or from Louisi­ana, and Rep. Ron De­S­antis of Flor­ida ri­pos­ted with a 3:30 p.m. press con­fer­ence in the “Sen­ate Swamp” on the north­east side of the Cap­it­ol to in­tro­duce le­gis­la­tion re­quir­ing Wash­ing­ton of­fi­cials to pur­chase their health in­sur­ance through the law’s new on­line mar­ket­places and deny them cer­tain fed­er­al sub­sidies. It was a press­er-rally-press­er sand­wich — enough to dizzy a Wash­ing­ton health care re­port­er.

The polit­ic­al war ra­ging over the Af­ford­able Care Act is un­pre­ced­en­ted — and un­likely to abate soon. The GOP has spoken out against what it says is a costly, pri­vacy-in­vad­ing, job-killing law, even be­fore its cent­ral pro­vi­sions have been im­ple­men­ted. Demo­crats de­fend the ACA, ar­guing that the na­tion’s in­ef­fi­cient, un­fair, and costly health care sys­tem had to be changed. Come Oc­to­ber, as the law is im­ple­men­ted, du­el­ing an­ec­dotes of tri­umphs and tribu­la­tions will no doubt feed both parties’ mes­sage ma­chines.

The real­ity on the ground will be more nu­anced. Yes, the Af­ford­able Care Act is a big-bang mo­ment for the na­tion’s health care sys­tem, and it has few his­tor­ic­al pre­ced­ents. Everything will look a little dif­fer­ent after the law’s core pro­vi­sion — the in­di­vidu­al man­date for health in­sur­ance — goes in­to ef­fect on Jan. 1, 2014. But des­pite the apo­ca­lyptic rhet­or­ic, the law is hardly the most dis­rupt­ive health care makeover Amer­ica has seen. At least not yet. It comes with a big ques­tion mark that, over time, could al­ter the na­tion’s health care sys­tem — and cul­ture — forever.



When the clock strikes mid­night on Dec. 31, nearly all Amer­ic­ans will be re­quired to have health in­sur­ance or pay a pen­alty. New rules will shape how and where people buy their cov­er­age. Sev­en mil­lion are ex­pec­ted to pur­chase in­sur­ance plans through the ex­changes next year. Em­ploy­ers have a 12-month re­prieve be­fore they must en­sure that the cov­er­age they of­fer their em­ploy­ees meets min­im­um af­ford­ab­il­ity and value stand­ards. The law’s over­all goal is to ex­pand the pub­lic’s ac­cess to health care without sac­ri­fi­cing qual­ity. It’s a lofty, trans­form­at­ive aim.

But hardly the first, or even the biggest, trans­form­a­tion. From the early days of doc­tors mak­ing house calls, to the first co­oper­at­ives of­fer­ing in­sur­ance, to the rise of em­ploy­er-sponsored health be­ne­fits, fol­lowed by the in­tro­duc­tion of Medi­care and Medi­caid, the dec­ade of health main­ten­ance or­gan­iz­a­tions, and the Medi­care Part D pre­scrip­tion-drug be­ne­fit of 2003 — the U.S. health care sys­tem has been in a near-con­stant state of flux. Two over­hauls were more rad­ic­al than Obama­care will be next year: the dra­mat­ic rise of em­ploy­er-sponsored in­sur­ance dur­ing the World War II era, and the ad­op­tion of Medi­care and Medi­caid in 1965.

In the 1930s, busi­ness own­ers began of­fer­ing a form of in­sur­ance to their work­ers, sign­ing pre­paid con­tracts with phys­i­cian groups to care for their em­ploy­ees. The war’s wage-and-price con­trols ac­cel­er­ated the trend; fringe be­ne­fits such as health in­sur­ance, which wer­en’t lim­ited by law, could be used to at­tract work­ers when salary could not. After WWII, uni­ons’ col­lect­ive bar­gain­ing for health cov­er­age — as well as an In­tern­al Rev­en­ue Ser­vice rul­ing in 1954 cla­ri­fy­ing that premi­ums paid by em­ploy­ers were ex­empt from in­come taxes — con­trib­uted to the surge in the num­ber of em­ploy­ees who re­ceived health cov­er­age through the work­place.

This trans­form­a­tion had sev­er­al im­port­ant con­sequences. Dav­id Blu­menth­al, then a Har­vard Med­ic­al School pro­fess­or, wrote in 2006 that em­ploy­er-sponsored in­sur­ance “has provided the es­sen­tial un­der­pin­ning of an in­sur­ance sys­tem by cre­at­ing work-based risk pools, in which healthy, low-risk par­ti­cipants sub­sid­ize the health costs of sick, high-risk par­ti­cipants.” But it also had the ef­fect of shield­ing people from the cost of their care. People no longer had to re­duce spend­ing for med­ic­al care dur­ing tight fin­an­cial times, be­cause the money that paid for their cov­er­age didn’t come dir­ectly from their pock­ets — premi­ums were just de­duc­ted from their paychecks. “The biggest con­sequence is the ob­scur­ing of the true cost of health care from those who ul­ti­mately pay it,” says Paul Starr, a so­ci­olo­gist at Prin­ceton Uni­versity whose 1982 book chron­ic­ling the his­tory of Amer­ic­an medi­cine won the Pulitzer Prize. “I think that cre­ated the single largest source of pres­sure for rising health care costs.”

The dec­ade fol­low­ing the IRS cla­ri­fic­a­tion on the tax status of em­ploy­er-sponsored in­sur­ance brought two even more dra­mat­ic forces: Medi­care and Medi­caid. The in­tro­duc­tion of Medi­care in 1966, which overnight guar­an­teed health care for people age 65 and up, came with dooms­day rhet­or­ic (Medi­caid was ad­op­ted more slowly). Some wor­ried that a huge in­flux of newly covered pa­tients would over­tax hos­pit­als. “Medi­care May Res­ult in Severe Hard­ships” the New York Her­ald Tribune warned in a head­line be­fore the bill passed. The news­pa­per (not un­reas­on­ably) fret­ted about a ser­i­ous short­age of doc­tors and hos­pit­als: When Pres­id­ent John­son signed the So­cial Se­cur­ity Amend­ments of 1965 in­to law, 18 mil­lion seni­ors be­came eli­gible for Medi­care cov­er­age overnight, with be­ne­fits be­gin­ning Ju­ly 1, 1966.

The As­so­ci­ated Press un­leashed a herd of re­port­ers to hos­pit­als across the coun­try to doc­u­ment the law’s first day in ef­fect; they found that im­ple­ment­a­tion went smoothly, with pa­per­work be­ing the biggest chal­lenge. (Among the few ad­di­tion­al prob­lems noted was “one wo­man who got mad and swung her purse at a hos­pit­al work­er,” ap­par­ently upon be­ing in­formed that Medi­care wouldn’t cov­er all of her health ex­penses. An­oth­er wo­man re­fused to pro­duce her Medi­care card un­til she could un­pin it from her un­der­wear in the pri­vacy of the re­stroom.) In 1965, only about half of the eld­erly pop­u­la­tion was covered by health in­sur­ance; by 1967, nearly 100 per­cent had in­sur­ance. Bang.

It was the volume of pa­tients rather than the sub­stance of the cov­er­age that made Medi­care such a rad­ic­al change for the health care sys­tem. Medi­care plans were de­signed to mim­ic the pop­u­lar Blue Cross Blue Shield in­sur­ance of the 1960s, not to tell doc­tors what to do. Even the stat­ute made this clear: “Noth­ing in this title shall be con­strued to au­thor­ize any Fed­er­al of­ficer or em­ploy­ee to ex­er­cise any su­per­vi­sion or con­trol over the prac­tice of medi­cine or the man­ner in which med­ic­al ser­vices are provided.”

Nev­er­the­less, the im­pact was massive. Phys­i­cians saw more de­mand and few­er non­pay­ing cases. Amy Finkel­stein, an MIT eco­nom­ist, found that the in­tro­duc­tion of Medi­care led to high­er “treat­ment in­tens­ity” — more money spent per pa­tient, per day — great­er hos­pit­al spend­ing, and faster ad­op­tion of new tech­no­logy in­side hos­pit­als. “The es­tim­ated ef­fects are large,” Finkel­stein wrote in 2005.

The law’s greatest un­in­ten­ded con­sequence was its soar­ing price tag. Joseph Cal­i­fano Jr., who was John­son’s ad­viser and later be­came sec­ret­ary of Health, Edu­ca­tion, and Wel­fare, re­called that at the time, the fo­cus was on ac­cess rather than cost. “In or­der to neut­ral­ize phys­i­cian op­pos­i­tion, we agreed to pay doc­tors their “˜reas­on­able, cus­tom­ary, and pre­vail­ing fees,’ “ he wrote in 2009. It was akin to hav­ing doc­tors write their own paychecks. In the first 10 years alone, spend­ing on the pro­gram climbed from $4.9 bil­lion to $22.9 bil­lion. Last year’s bot­tom line was $574 bil­lion to cov­er the coun­try’s 50 mil­lion Medi­care en­rollees.

The health re­forms of the en­su­ing dec­ades were more in­cre­ment­al. Pres­id­ent Re­agan changed the way Medi­care re­im­bursed hos­pit­als with the in­tro­duc­tion of a “dia­gnos­is re­lated group.” Pres­id­ent Clin­ton at­temp­ted to in­stall uni­ver­sal health cov­er­age early in his first term, but the ef­fort col­lapsed, and the biggest change wrought in the 1990s was the surge in health main­ten­ance or­gan­iz­a­tions, which were de­vised as a means of main­tain­ing qual­ity health care while con­trolling costs. They did have a large im­pact on the sys­tem at the time, but man­aged care fell out of fa­vor dra­mat­ic­ally at the end of the dec­ade. In 2003, Con­gress passed the Medi­care Pre­scrip­tion Drug, Im­prove­ment, and Mod­ern­iz­a­tion Act, which al­lowed seni­ors to buy drug cov­er­age on top of their oth­er care, be­gin­ning in 2006. As with ori­gin­al Medi­care, mil­lions gained cov­er­age vir­tu­ally overnight in 2006, when the be­ne­fit went in­to ef­fect.


Pres­id­ent Obama signed the Pa­tient Pro­tec­tion and Af­ford­able Care Act in­to law on March 23, 2010. It sits some­where near the in­tro­duc­tion of em­ploy­er in­sur­ance be­ne­fits and the pas­sage of Medi­care in the scheme of massive policy changes that have re­shaped health care: a big-bang mo­ment fol­lowed by a ques­tion mark. “This is go­ing to have a more gradu­al im­pact on care, on care de­liv­ery, and on cov­er­age,” Mark Mc­Cle­l­lan, who was head of the Cen­ters for Medi­care and Medi­caid Ser­vices dur­ing the Part D rol­lout, says of Obama­care. “It’s not go­ing to be the case like it was in Medi­care in 1965 or Part D in 2006 that, you know, at the end of the first year, you’re ba­sic­ally done…. This is go­ing to be a sev­er­al-year pro­cess.” The Con­gres­sion­al Budget Of­fice es­tim­ates that 7 mil­lion Amer­ic­ans will sign up for cov­er­age on the ex­changes in 2014, and 25 mil­lion will do so by 2019.

The heart of the Af­ford­able Care Act is a “three-legged stool,” but the Su­preme Court par­tially kicked one out leg in June 2012. The three legs are in­sur­ance-mar­ket re­forms, such as the pro­hib­i­tion against deny­ing cov­er­age to people with preex­ist­ing con­di­tions; the in­di­vidu­al in­sur­ance man­date; and the sub­sidies and Medi­caid ex­pan­sion in­ten­ded to make health cov­er­age af­ford­able. Last sum­mer, the Su­preme Court ruled that Wash­ing­ton can­not re­quire states to ex­pand their Medi­caid pro­grams for low-in­come res­id­ents. This has muted the “bang” nature of the cov­er­age ex­pan­sion, be­cause an es­tim­ated 7 mil­lion people will re­main un­in­sured in the 25 states that have cur­rently de­clined to widen their pro­grams.

For the ma­jor­ity of the coun­try (roughly 316 mil­lion Amer­ic­ans), little will change Jan. 1. “This is something which is com­ing in and hav­ing a pro­found in­flu­ence on the lives of a small minor­ity of Amer­ic­ans, and leav­ing most Amer­ic­ans un­af­fected,” says Jonath­an Gruber, an MIT eco­nom­ist who ad­vised both Obama on the ACA, as well as then-Gov. Mitt Rom­ney on Mas­sachu­setts’ health re­form in 2006. Life won’t feel very dif­fer­ent for the per­son who con­tin­ues to get her in­sur­ance through her em­ploy­er. Un­doc­u­mented im­mig­rants will con­tin­ue to live without cov­er­age. Some folks will get caught in a cov­er­age gap, thanks to the Su­preme Court de­cision. The law as­sumed that states would cov­er res­id­ents earn­ing up to 133 per­cent of the fed­er­al poverty level un­der the Medi­caid ex­pan­sion, and it of­fers sub­sidies on the ex­changes for people who earn between 100 per­cent and 400 per­cent of the poverty level. But Texas, for ex­ample, op­ted not to ex­pand its Medi­caid pro­gram, and it cov­ers work­ing par­ents earn­ing up to only 25 per­cent of the poverty line. So some res­id­ents will be too rich for Medi­caid and too poor for sub­sidies, even if their an­nu­al salary just barely tops $5,000 a year for a fam­ily of three.

The in­sur­ance re­forms and cov­er­age ex­pan­sion will ripple through the sys­tem in some sig­ni­fic­ant ways. In­sur­ance com­pan­ies will be work­ing un­der a whole new set of rules; they will now have to of­fer plans with a min­im­um level of be­ne­fits, and some plans of­fer­ing just a few be­ne­fits will go away. In­sur­ance com­pan­ies have gained mil­lions of new cus­tom­ers, but in­sur­ance brokers fear that the new ex­changes jeop­ard­ize their jobs, in the same way that web­sites like Ex­pe­dia threaten travel agents, Starr says.

Doc­tors will also have new pa­tients — and pay­ing ones, at that. This is both good and bad. As with Medi­care, the cov­er­age ex­pan­sion has ex­acer­bated con­cerns over a na­tion­al phys­i­cian short­age. The As­so­ci­ation of Amer­ic­an Med­ic­al Col­leges es­tim­ates the na­tion will be short 91,500 phys­i­cians by 2020, partly be­cause of the Af­ford­able Care Act. To ad­dress this de­fi­cit, a de­bate is tak­ing place in the med­ic­al com­munity over the scope of du­ties that nurses should be per­mit­ted to per­form. But even as more Amer­ic­ans seek care, hos­pit­als will also lose re­im­burse­ments for treat­ing un­in­sured pa­tients, whose num­bers will dwindle un­der the law, al­though not as much as ori­gin­ally ex­pec­ted, and this loss will counter some of the be­ne­fits for hos­pit­als of treat­ing a more broadly in­sured pop­u­la­tion.

Al­ex­an­der Li, the CEO of the am­bu­lat­ory care net­work for the Health Ser­vices De­part­ment in Los Angeles County, says his staff isn’t pre­par­ing for huge changes come Oct. 1, when the rol­lout of the in­sur­ance ex­changes be­gins. The ACA won’t solve his staff’s biggest head­ache — the pa­per­work as­so­ci­ated with pa­tients who re­ceive in­sur­ance from a large range of pro­viders. But his net­work, which man­ages the county’s out­pa­tient clin­ics, among oth­er ser­vices, is pre­par­ing its staff to be more pa­tient-cent­ric as health care con­sumers gain free­dom un­der the law. “I think, for us as a safety net, it means that just like every­one else, we now have to work hard to be cus­tom­er-friendly and re­tain our pa­tients, be­cause now they have a choice to leave,” Li says. His staff is be­ing trained to nur­ture re­la­tion­ships with pa­tients, who may more reg­u­larly seek care once they have cov­er­age but who can now seek care out­side of the safety-net hos­pit­als that spe­cial­ize in caring for the un­in­sured.

Des­pite these ef­fects, Gail Wi­lensky, who dir­ec­ted the Medi­care and Medi­caid pro­grams from 1990 to 1992, says that with pas­sage of the ACA, “we took on the easy part.” “It’s not polit­ic­ally easy, but it’s the tech­nic­ally easy part of health re­form. It’s not health care re­form at all. It’s cov­er­age ex­pan­sion,” she says. In oth­er words, it changed who was in­sured, not how much their care costs.

The law, however, opens the door to tack­ling some of those tech­nic­al care-based chal­lenges through a num­ber of ex­per­i­ment­al pro­vi­sions. The Af­ford­able Care Act has no Medi­care-style pre­amble de­clar­ing that it won’t change the prac­tice of medi­cine. “There are seeds with­in the ACA of a re­struc­tured de­liv­ery sys­tem that could — and I em­phas­ize “˜could’ — over time really change the way we get care, and that would af­fect every­body,” says Stu­art Alt­man, a pro­fess­or of na­tion­al health policy at Bran­de­is Uni­versity. Those are the at­tempts to “bend the cost curve.” And it’s a steep curve: Health care spend­ing cur­rently makes up 18 per­cent of the na­tion’s gross do­mest­ic product.

The law cre­ated an “In­nov­a­tion Cen­ter” at CMS to test and as­sess new pay­ment struc­tures and meth­od­o­lo­gies for Medi­care, Medi­caid, and the fed­er­al Chil­dren’s Health In­sur­ance Pro­gram. It es­tab­lished a Medi­care pi­lot pro­gram that will be ex­pan­ded in 2016 if it demon­strates that bundled pay­ments to pro­viders can im­prove the qual­ity of care while bring­ing down costs; the law also es­tab­lished sim­il­ar bundled-pay­ment demon­stra­tion pro­grams for Medi­caid. Doc­tors can par­ti­cip­ate in new, vol­un­tary “ac­count­able care or­gan­iz­a­tions,” or ACOs, and be re­war­ded for meet­ing cer­tain stand­ards of care for their pa­tients while co­ordin­at­ing with their oth­er health care pro­viders. States can re­ceive “in­nov­a­tion waivers” in 2017 if they demon­strate new ways of provid­ing cov­er­age that’s as good as that un­der the ACA.

How these ex­per­i­ments fare will de­term­ine just how trans­form­at­ive Obama­care will be. “It’s one thing to have a lot of pi­lot pro­jects, and it’s an­oth­er thing to have that ac­tu­ally be­come the law of the land and change the way things are done,” says Wi­lensky, who is now a seni­or fel­low at Pro­ject HOPE, a non­profit that works to make health care ac­cess­ible for people around the world.

Per­cep­tion mat­ters, too. “The mere fact that in­di­vidu­als are not go­ing to be rated on the basis of their health — that is a very fun­da­ment­al change,” Starr says, re­fer­ring to the law’s ban on turn­ing away people with preex­ist­ing or oth­er con­di­tions that pre­vi­ously made in­sur­ance cov­er­age un­af­ford­able or un­avail­able. “If the Af­ford­able Care Act af­fects the way Amer­ic­ans think about health in­sur­ance, then it will have brought about a very big change.” That is, of course, a big “if.”


If a pres­id­en­tial can­did­ate ran on a plat­form of elim­in­at­ing Medi­care and So­cial Se­cur­ity, “they’d be seen as crazy,” Starr says. “It would so destabil­ize the in­sti­tu­tions of Amer­ic­an so­ci­ety that it, you know, it’s just not pos­sible. But I don’t see the Af­ford­able Care Act as get­ting en­trenched to that de­gree. It doesn’t cov­er enough people, and it’s be­ing im­ple­men­ted un­der dif­fer­ent names in dif­fer­ent states.” The in­sur­ance ex­change in Ken­tucky, for ex­ample, is called kynect; Ore­gon’s is dubbed Cov­er Ore­gon. Neither bears gov­ern­ment brand­ing. “There’s reas­on to be skep­tic­al as to wheth­er it will have that kind of stay­ing power that oth­er policies have had,” Starr says.

Obama­care is unique in that re­gard. Al­though the health care sys­tem has ten­ded to ini­tially shun rather than em­brace policy changes, ex­per­i­ence shows that par­ti­cipants tend to come around be­fore too long. The Amer­ic­an Med­ic­al As­so­ci­ation has a long his­tory of res­ist­ing just about every ma­jor health care shift, in­clud­ing pre­paid group plans like the ones ad­op­ted by em­ploy­ers early on. The phys­i­cians’ or­gan­iz­a­tion op­posed Medi­care un­til a clev­er trap set by Pres­id­ent John­son forced AMA Pres­id­ent James Ap­pel to sup­port the law in front of the White House press corps. The group’s fierce op­pos­i­tion — which it said was based on con­cern that doc­tor-pa­tient re­la­tion­ships would suf­fer, but which also seemed to in­clude con­cerns the gov­ern­ment would in­ter­fere with doc­tors’ abil­ity to charge their cus­tom­ary rates — was un­foun­ded. Phys­i­cians no longer had to treat as many pa­tients who couldn’t pay their bills, and Medi­care al­lowed them to set their own rates. The AMA has long since em­braced the pro­gram.

With the Af­ford­able Care Act, the AMA didn’t put up that ini­tial res­ist­ance, de­clar­ing its sup­port for the Sen­ate bill in Decem­ber 2009, three months be­fore Con­gress passed the le­gis­la­tion. The group has since stated that the law “in­cludes many ma­jor pro­vi­sions that are con­sist­ent with long-stand­ing policy ad­op­ted by the AMA House of Del­eg­ates.”

The pro­vider com­munity has been more re­cept­ive to the ACA than to pre­vi­ous changes, which speaks to the law’s non­rad­ic­al core. Res­ist­ance has in­stead come largely from the polit­ic­al and busi­ness com­munit­ies. The push­back — and its con­tin­ued in­tens­ity three years after the law’s pas­sage — is un­pre­ced­en­ted. “I don’t think we’ve seen any­thing like it since “˜massive res­ist­ance’ to school de­seg­reg­a­tion in the South years ago,” says Henry Aaron, a Brook­ings In­sti­tu­tion eco­nom­ist and health care ex­pert.

Aaron wor­ries that if the op­pos­i­tion suc­ceeds, it could hinder would-be re­formers for years to come. More than 15 years passed between Clin­ton’s fail­ure to achieve health re­form and Obama’s suc­cess — but his suc­cess may have con­trib­uted to a midterm elec­tion beat­ing for his party in 2010. “If [the ACA] ends up not suc­ceed­ing, you will have had two pres­id­ents who paid really steep prices for fight­ing for a trans­form­a­tion of the health sys­tem. It’s hard to see when the next pres­id­ent says, “˜Hey, I want to run that risk again for my ad­min­is­tra­tion,’ “ Aaron says.

Suc­cess, however, of­fers a sweet re­ward. “The na­tion’s health policy tra­ject­ory will be per­man­ently altered, and that’s af­fect­ing something push­ing 20 per­cent of the whole eco­nomy,” Aaron con­tin­ues. “So it’s a big bet.”

There’s a lot we don’t know — and can’t know yet — about the Af­ford­able Care Act. How many states will ex­pand their Medi­caid pro­grams? How many of the cost-sav­ing re­forms will work and be im­ple­men­ted widely? We do know that the law will be life-al­ter­ing for a hand­ful of people and un­re­mark­able, at least at first, for most oth­ers. But down the line, per­haps Obama’s re­form plan could shift the en­tire sys­tem for every­one. It may even be the most rad­ic­al change the health care sys­tem has ever seen.