Obamacare – The Potential Hidden Benefits


We hear a lot about:

  • Universal coverage;
  • Nobody can be refused insurance because of pre-existing conditions;
  • Children cover under parents’ insurance until 26;
  • Insurance companies cannot drop you because you get sick.

But there is a lot more in the 2,409-page Patient Protection and Affordable Care Act than these benefits. To appreciate what else is in the bill, a short primer on what is wrong with US health care is in order.

US Health Care: What Is Wrong?

 The US spends far more than any other developed nation on health care, and its health outcomes are the worst of any developed nation. Why? I covered most of the reasons in some detail in my 5-article series posted earlier this year. In a nutshell, the major reasons are:

  • supply-driven care and price-fixing by hospitals;
  • back-office paperwork resulting from so many insurance providers;
  • keeping old people alive too long in hospitals;
  • the US overweight/obesity epidemic;
  • manpower issues;
  • medical malpractice and fraud;
  • uninformed patients.

Supply-Driven Care and Hospital Price-Fixing

Dr. John Wennberg is the leading researcher and thinker on needed reforms to the US health care system. His ideas are set forth in his latest book[1]. Wennberg and colleagues at The Dartmouth Institute for Health Policy and Clinical Practice collected data on the health care patients with chronic illness received in their last two years of life. This is a significant health care sample inasmuch as their treatment accounts for about 32% of total Medicare spending, or approximately $150 billion annually. Their findings:

  • Remarkably little correlation between the prevalence of severe chronic illness and per capita Medicare spending across regions.
  • A near threefold variation across hospitals in dollar spending, average hospital days, and physician visits.

Why would such variations occur? Wennberg concluded: the supply of doctors, hospitals, diagnostic machines, etc. explains variations in use. Whether from the patient’s perspective (satisfaction, technical quality, health outcomes) or from physicians’ perspective (quality of communication among physicians, continuity of care), higher spending and greater use of supply-sensitive care is not associated with better care. Greater per capita use of supply-sensitive care and more spending do not result in lower mortality or improved quality of life; nor do they lead to improvement in the quality of care. Various estimates for the amount the US wastes on overtreatment in this country range between 20 to 30 cents on every health care dollar spent.

Hospitals are expensive – 31% of the US health bill in 2008. And like all private businesses, hospitals look for ways to reduce competition so they can increase prices. A study done by the Urban Institute found that: “hospital prices are, at a minimum, 5% higher [in less concentrated markets] than in less concentrated markets…. When consolidation occurs among hospitals geographically close to one another, price increases have been substantially larger, as much as 40% or more.”[2] Such oligopolistic pricing is not surprising, and the Feds are aware of it. However, since 1994, the Federal Trade Commission and the Justice Department has lost seven consecutive litigated cases. As a result, consolidations and even more price fixings are taking place.

So how will the new legislation try to change this? From supply-driven care to payment for outcomes. The government has real control over Medicare payments. Title III of the legislation is: “Improving the Quality and Efficiency of Health Care” Part I of that Title is “Linking Payment to Quality Outcomes Under the Medicare Program”. Increasingly, Medicare payments are intended to be based on the results of the supply-driven research by Wennberg and others.

Back Office Paperwork

Because there are so many insurance companies, both public and private, a large number of health care workers do nothing but interact with their insurance company counterparts. Blumenthal, Cutler and Liebman estimate that the administrative costs in private insurance average 14 percent of benefits or approximately $108 billion[3]. Holahan and Blumberg quote a study by the Congressional Budget Office that found Medicare administrative costs at 2% and private insurance at 11%[4]. I conclude that if private insurance companies used the same reimbursement forms and standardized what they paid for, administrative savings should be at least 5% or more than $100 billion annually.

Sadly, I do not see anything in the new legislation that squarely addresses this issue.

Keeping Old People Too Long in Hospitals

One “benefit” of new health technologies is ability to keep people alive almost indefinitely in hospitals. Persons 65 and up made up 12.4% of the US population in 2004 and they “consumed” 34% of all medical expenditures; persons 85 and older were 1.7% of the population and “consumed” 8.1% of medical outlays.

The new legislation places a primary emphasis on getting older people out of hospitals and nursing centers back into their homes. The legislation addresses this issue in Title VIII – Community Living Assistance Services and Supports Act.


In a recent article, I concluded that the most dangerous addition globally and in the US most particularly is overeating. In 2007, US health care spending per adult was:

  • Normal – $4,030;
  • Overweight – $4,260;
  • Obese – $5,560.

Using data on how many of each there are, we can determine that the extra health costs for persons overweight are $14.1 billion and for persons obese are $93.7 billion. This means we spend $107.8 billion, or 4.7% of all health costs/ for people who are overweight and obese.

Title IV of the new legislation should help. “It directs the creation of a national prevention and health promotion strategy that incorporates the most effective and achievable methods to improve the health status of Americans and reduce the incidence of preventable illness and disability in the United States. The Act empowers families by giving them tools to find the best science-based nutrition information….”

Manpower Issues

Doctors are expensive: doctors’ meetings and resulting clinical work constituted 21% of all US health care expenses in 2008. And general practitioners make 3.7 times the average US wage while specialists make nearly 6 times the average wage. Wennberg argues that the role of primary care physicians should be enhanced. Rather than being “ticket providers” to specialists, he wants the primary care provider to be the manager of the team dedicated to taking care of America’s chronically ill over time.  Wennberg believes unnecessary referrals to specialists are an important reason for why health costs are so high—and why quality is often low.

But there is more to it than this. Following medical school, US doctor candidates must do residencies at teaching hospitals. This is a big business and is heavily subsidized by the Federal government. Mullan and Wiley report that in 2007, Medicare paid hospitals almost $9 billion for residency training. Teaching hospitals love this support. They also love the 80 hours a week these students put in working at the hospitals. Teaching hospitals have a lot of clout in getting funding for the students/workers they need. If the manpower needs of the teaching hospitals reflected overall US needs, there would not be a problem. But there is a problem. 99% of people that see doctors are not in hospitals. Training in teaching hospitals reflects their needs: intensive hospital care and more lucrative care associated with specialization.

And if we should be training more primary care physicians and fewer specialists, things are getting worse. Mullan and Wiley: “…the pattern of residencies offered by hospitals has become more and more specialized at the expense of primary care. Between 2002 and 2007, hospitals opened 7754 more new residency positions, 88.3% of which were in specialty care…. During the last decade, 20 family medicine residency programs have been closed and 645 less residents are being trained in family medicine today than 10 years ago. In 1998, 54% of internal medicine residents planned careers in primary care, whereas only 23% did in 2007.”

Some doctor friends of mine believe general practitioners will have disappeared in less than a decade. It will be part of a transformation in the US health care system to one based on neighborhood clinics run by nurses. I think this is wishful thinking.

A major part of the new legislation focuses on manpower. Title V of the Act “…funds scholarships and loan repayment programs to increase the number of primary care physicians, nurses, physician assistants, mental health providers, and dentists in the areas of the country that need them most.”

Fraud and Medical Malpractice

It has been estimated that between 44,000 and 98,000 people die in hospitals annually due to preventable medical errors[5]. Another estimate: 119,000 deaths annually: 12,000 from unnecessary surgery, 7,000 from medication errors, 20,000 from various other errors in hospitals, and 80,000 from nosocomial infections acquired in hospitals[6]. On malpractice claims, one estimate is that the medical liability system costs $6.7 billion annually[7]. But that is probably peanuts relative to the cost of doctors prescribing an excessive amount of health services out of fear of being sued for malpractice.

Title VI of the new legislation: “the Act reins in waste, fraud and abuse by imposing tough new disclosure requirements to identify high-risk providers who have defrauded the American taxpayer.  It gives states new authority to prevent providers who have been penalized in one state from setting up in another.  And it gives states flexibility to propose and test tort reforms that address several criteria, including reducing health care errors, enhancing patient safety, encouraging efficient resolution of disputes, and improving access to liability insurance.”

Uninformed Patients

People know more about how they feel than any doctor ever will. But 20 years back, only doctors knew what to do about our ailments so we took their advice. Today, with all the medical information available on the Internet, there is no excuse for a literate person not being their own best doctor. And if they see a doctor, they should have read up on what the doctor is likely to suggest and the trade-offs involved. The new legislation should help with patient information. Both Titles IV and VI call for new actions to provide more and better education to parents.


  1. Granted that the US health care system is complex. Even so, the President has done a bad job explaining Obamacare to the American public. And it does not help that many of its most important sections will not kick in until 2014. However, the government web site on the bill is good. It gives you the complete text and a detailed summary and breakdown on all provisions of the legislation.
  2. The bill is very long and not perfect. But it has some good stuff in it. We should give it a chance and watch its evolution with care.
  3. In the meantime, try to stay out of hospitals and doctors’ offices.

Keep in mind, the American governance system is broken. The major “stakeholders” in supplying US health will be involved in every phase of the bill’s implementation. The only “major stakeholder” that will not be included are the American people.

Table 1 gives a listing of the “health care stakeholders” and their Federal lobbying outlays.

Table 1. – US Lobbying Expenditures (mil. US$)

Source: Open Secrets

[1] John E. Wennberg, Tracking Medicine: A Researcher’s Quest to Understand Health Care, Oxford University Press, 2010.

[2] Holahan and Blumberg, op. cit.

[3] http://www.nytimes.com/packages/pdf/politics/finalcostsmemo.pdf.

[4] John Holahan and Linda Blumberg, “Can a Public Insurance Plan Increase Competition and Lower the Costs of Health Reform?” The Urban Institute Health Policy Center, 2008.

[5] http://www.medicalmalpractice.com/National-Medical-Malpractice-Facts.cfm

[6] http://www.resource4surgicalaccidents.com/malpracticestats.html

[7] http://www.medicalmalpractice.com/National-Medical-Malpractice-Facts.cfm

The content above was saved on the old Morss Global Finance website, just in case anyone was looking for it (with the help of archive.org):
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