Decision Tree Scenarios for Health Reform

The Disease Management Care Blog has gone down countless "if-then" decision trees in its intellectual lifetime. For example, it calculated that if it pointed out to the DMCB spouse that the high-end four-way surround sound system will enhance the flat screen viewer experience for cowboy romance flicks, then there would be agreement on buying the high-end cable channels that feature space vixens blowing up planets.

The DMCB's bitter lesson is that it rarely works out that way. Take the same sort of "if-then" assumptions underlying the Affordable Care Act and apply it to how hundreds of millions of people of different backgrounds manage income, taxes, health insurance and consumption under a range of economic conditions and the result is an uncertain spread of possibilities that resemble early hurricane path predictions. The storm may or may not include landfall with or without catastrophic wind or flood damage in or outside metropolitan areas.

That's the downside to this intellectual gaming: it's malleable to any input and every bias. Honest libertarians, conservatives, progressives and liberals can use the myriad if-then decision trees to concoct any scenario that pleases them.

Yet, the DMCB still thinks they're a useful exercise, especially if it helps policymakers better understand where future problems may lay. That's why it paid attention to this July 22 Health Affairs article by Harvard's (John D. MacArthur Professor of Health Policy and Management in the Division of Health Policy Research) Joseph Newhouse. It's worth a review for yourself (read the article just like you should review the bill, view the whole videotape and check with a dictionary when necessary ['refudiate' is at the 2:35 point]).

Here are some of the points that caught the DMCB's attention.

Medicaid: while the Fed's financing of newly eligible beneficiaries certainly helps, administrative rules after 2014 ("if") impose a host of thresholds and income eligibility limits that could lead to State-Federal government appeals and beneficiary audits ("then"). In addition, the newly insureds are likely to end up in Medicaid managed care plans ("if"), which are already struggling with network capacity that could make access problems worse ("then").

Individual and small group insurance: assuming the combination of penalties and financing pushes most uninsured persons into an insurance plan (a big "if"), there are some other issues. One is that subsidies (looks like a pretty definite "if") could increase marginal tax rates ("then"). In addition, the IRS may be ill suited ("if") to adjudicating the income regulations for the various subsidies and penalties (suppose a person gets married halfway through a year.....). That means having use a federal bureaucracy ("then") to reconcile countless income "moving targets" that ultimately determine subsidy levels (including the possibility of clawbacks). In addition, health insurers will still be tempted ("if") and able to develop subtle benefit designs that deter enrollment ("then") of poor underwriting risks. It remains to be seen if risk adjusted payments will overcome this.

Medicare: the Center for Innovation may find that it's easier to find ways to provide better care at the same, not a lower, price. Combined with the historical and remarkably consistent unwillingness of Americans to give more than 18% of GDP to the government, the Feds will "then" have only three choices: continue to borrow, cut the benefit or cut payment rates. The latter is most expedient and could "then" lead to a second class status for Medicare. This may already be presaged by the arrival of concierge practices that are charging high non-Medicare rates in exchange for enhanced access.

The DMCB reads that this decision tree could be leading, under most scenarios, to a difficult administrative and fiscal outcome. Dr. Newhouse ends his article with a telling quote:

"In fairness to those who devoted many of their waking hours in 2009 and early 2010 to passing this legislation, doing more than was done about cost was not politically feasible. Nonetheless, the nation remains in a fiscal hole, and the digging continues."