Paying For Preventative Strategies In Healthcare

The Affordable Care Act is intended to shift the balance in healthcare toward prevention. We’ll have to see if things go that way as the new law is implemented. Increasingly medicine has moved toward early diagnosis and treatment, and having nearly everyone within the healthcare system should improve the process still further.  Early diagnosis and treatment are always less expensive alternatives.

One of the problems, as we move forward to implementation, is that some states are not signing up for the new healthcare law. Unhappily while this is an option, it appears to be a political issue as all of the states remaining that are not signing up for implementation have Republican governors. With the rulings on the Affordable Care Act coming from the Supreme Court one would have thought the matter would have been settled by now, but it appears not. We may require the remainder of 2013 and perhaps 2014 to get these matters settled. Some in the Republican led House of Representatives still seems intent of repealing the law, but it is hard to see this happening.

Assuming these matters are settled by 2014, the process of implementation will still lead to near universal coverage of all citizens. The intention of setting up insurance exchanges and allowing the individual states to settle the matter of coverage available to individual citizens was fundamental to the plan. We expect things should settle down by 2015-2016–at least that is the hope. This outcome is contingent on establishing some adjustments in the Medicare/Medicade systems to assure its solvency at least into the short term future. Given the current state of the federal budget and the inability or at least the unwillingness of the Congress to create long term adjustments in budgets, we’ll need to wait to see what the solutions relevant to the Affordable Care Act will look like. It’s possible the Congress will continue to delay developing a fiscal solution into the future. Alternatively they may dump off some or much of healthcare funding onto the states.

Initially, as the Affordable Care Act is implemented a significant part of the expense was always intended to fall to the individual states, but in longer term about 90 percent of the costs will be handled by the federal government. Seeing this, many of the states did not initially want to adopt the program but the final outcome allowed them to change their positions. As I note above, there are still several states that are resisting (apparently for political reasons). This year the Congress will try to make adjustments in the Medicare/Medicade budget along with other expenditures that will help the federal budget deficit to come more into line over the next several years. Although some adjustments have been made in both federal budget income and expenditures, we are still running near trillion dollar annual deficits. If the solutions are still insufficient, reality should begin to set in in 2014-2015 as the Federal Reserve Bank begins to exit its Quantitative Easing Program. By that time something exceeding a trivial solution to the continuing build up of debt will be necessary.

Certainly there will be some effort on the part of the Congress to offload many of the expenses of the federal government onto the states. We can already see the pressure to do that building. Earlier this year the Congress nearly refused to pay out some of the disaster expenses built up the states on the east coast as a result of Super-Storm Sandy. While we are recovering from the 2008 economic disaster of the financial system, we are not there yet. Thus, there will be continuing financial pressures as we try to deal with unexpected but sizable expenses in other ways.  We also have major problems with our infrastructure and we can certainly expect additional major destructive storms that will not wait until we have completely recovered from the financial difficulties of 2008.

But, staying with the funding of the healthcare system for the moment, it’s clear that there will be both savings and new expenses associated with the implementation of the Affordable Care Act. It is not unreasonable in the short run to see more offloading of expenses onto the states than was originally anticipated especially if the Congress refuses to find solutions that improve the revenue part of the budget. If we are to reduce the build-up of debt in the absence of new revenues, expenditures may have to be cut excessively. The cuts will certainly focus on Defense and entitlements since these are the largest elements of the budget. The Congress can likely come closer to bringing the federal budget into balance by revising the tax code, eliminating loopholes and cutting out or cutting down the massive subsidies given to major corporations and others. Politically all of this will be difficult but not impossible.


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