Obamacare’s threat to healthcare innovation

By Reihan Salam
September 27, 2013

Next week, the new state-based health insurance exchanges established under the Affordable Care Act, better known as Obamacare, will be open for business. Or rather — some of them will be sort of open for business, as the exchanges have been plagued by a series of technical glitches and delays. The Obama administration is now characterizing October 1st as the beginning of a “soft launch,” during which federal and state officials will work out various kinks. And though this might sound like just another bureaucratic foul-up, the success of the exchanges in these first few months will have enormous implications for the ultimate success of Obamacare.

The exchanges are online marketplaces that will allow individuals and small firms to compare the coverage options and pricing of various health insurance plans. They are also the platform through which people will apply for income-based subsidies for purchasing health insurance. One of the biggest challenges facing the officials setting up the exchanges is that applications for subsidies are meant to be processed in real time, to make the experience as easy and accessible as possible. This is much easier said than done. In Massachusetts, which has been operating an exchange of its own since 2007, applying for subsidies is a time-consuming process that involves filling out a 15-page form and providing proof that one is eligible for subsidies in the first place, and then waiting for state officials to get back to you. While Massachusetts’ approach is slow-moving, it has the advantage of being tried and true, as it is very similar to the way the states have been determining Medicaid eligibility for years. Real-time verification, in contrast, represents a break with established practice, and it would be a miracle if it didn’t involve major hiccups.

If the exchanges work smoothly, they have a decent shot at enrolling large numbers of the young, healthy Americans the Obama administration is counting on to make its new coverage expansion effort economically viable. If the exchanges don’t work smoothly, however, they might deter all but the sickest, most vulnerable healthcare consumers from enrolling, and this in turn would make the new insurance pools far more expensive to cover.

But even if the exchanges work smoothly, it’s worth asking whether the exchange model as it’s currently conceived is the best way forward for the American health system. Recently, the Christensen Institute, a small think tank devoted to applying the concept of “disruptive innovation” to solving major public policy challenges, released “Seizing the ACA: The Innovator’s Guide to the Affordable Care Act,” a paper that analyzes the various ways Obamacare helps and hinders new business models that might make medical care more accessible and affordable. The idea behind disruptive innovation, first devised by Clayton Christensen, a management theorist at Harvard Business School, is that in many industries, incumbent firms will focus on the needs and interests of their best customers, which is to say their most profitable customers. When these incumbents innovate, it will generally be to better meet the needs of their existing customer base, or to cut costs. This focus on existing customers means that many less-affluent or less-sophisticated customers are left out, as they can neither afford nor understand the product in question. Disruptive innovations aim to serve this market of non-consumers by offering cheap, easy-to-understand alternatives that might at first be inferior to the highest-quality products offered by incumbents, but which tend to get better and better over time. One classic example of a disruptive innovation is the personal computer, which was much cheaper and easier to use than the mainframes that were once the only game in town, and which spread like wildfire as the market for computers expanded from a handful of big companies to a large majority of U.S. households.

Ben Wanamaker and Devin Bean, the authors of “Seizing the ACA,” argue that while some provisions of the law will make it easier for entrepreneurs to introduce disruptive innovation in medical care, others will make it much harder. For example, they observe that the individual mandate promises to increase the demand for expensive primary care. This in turn will create an opportunity for new care delivery models, like low-cost retail health clinics that use nurse practitioners rather than doctors to treat common ailments. The employer mandate, similarly, will spur firms to offer “good enough” health coverage that meets the basic needs of workers without offering more care, and more expensive care, than what they really need.

There are a number of other provisions, however, that will inhibit disruptive innovation, including the new health insurance exchanges. The problem with the exchanges, according to Wanamaker and Bean, is that the insurance plans sold on the exchanges are heavily regulated to ensure that they offer a wide range of “essential health benefits,” including benefits that many customers won’t need. Moreover, all plans will have to offer not just cheap Bronze-level insurance coverage, but also more generous Silver and Gold options as well. Low-end entrants that only want to focus on low-cost, limited-network Bronze-level plans won’t have that option. The exchanges tilt the playing field to more generous plans in other ways as well; for example, by offering special subsidies to Silver-level plans. Rather than build in a bias towards Silver-level plans, Wanamaker and Bean suggest that patients could be allowed to purchase Bronze-level plans while also receiving a government-subsidized deposit into their health savings accounts, an approach that would be much friendlier to disruptive innovation.

Obamacare includes many other incumbent-friendly provisions, which lock healthcare providers into existing business models. That’s a shame, as there is nothing about the goal of achieving universal coverage that necessitates making it harder for innovative new business models to take hold. Even if the new health insurance exchanges work without a hitch, they will do precious little to reduce the underlying cost of high-quality medical care. Would-be reformers should take heed.

PHOTO: Get Covered America buttons are seen during a training session in Chicago, Illinois September 7, 2013 before volunteers canvas a Chicago neighborhood to talk with residents about the Affordable Care Act – also known as Obamacare. Picture taken September 7, 2013. REUTERS/John Gress 

22 comments

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You’re a HACK Raihan. You’re bought and paid for.

Every single thing Obama does is “wrong”, evil, boneheaded, anti-American, Communist, etc. etc. etc.

When you and your fellow boneheaded employees of the un-named Bircher organization for which you work are exposed you should be tarred and feathered.

Someone who spews stupefying propaganda such as W. was a “great” president should read Dexter Filkins’ New Yorker article covering how Bush dropped his pants and bent over re: Iran. W was a puppet, pure and simple. I’d relate true stories of his good ol’ boy days as guv in Texas but you’re too partisan to even care.

I’m way past sick about how you and your demented propagandists paint every Obama decision as “evil.” Case in point: Syria. You repeatedly regurgitated the GOP line that we ought to bomb Assad and Obama is a milktoast in this extremely complex situation. Then when Obama takes action and garners support you all change your stance and say he should do the opposite. (How safe and simplistic from your vantage point. Especially considering your livelihood depends on squirting out stories hyper critical of Obama. Hey, we all know what side of your bread gets the butter.)

He’s stupid, inept, etc. yet, – although the game continues to play out – it appears the West may get: the destruction of Assad’s chemical and biologicals, the end of Assad, the end of any threat of Al-Qaeda in Syrian politics as well as progress on a number of issues with the Iranians and possibly with the Egyptian snafu. Oh, and major relief for your GOP Israeli ‘friends’/$$$$.

Like many you seem to always be stating flat out that this president can do nothing right. But that he also has the levers of all outcomes in his hands: he can make the world perfect if only he would do what “we know is right.” Such as privatizing Social Security, giving people the option to speculate on Wall St. no less. That would’ve worked out just great, huh?

The reason the dems passed ACA was because the GOP are totally in the pocket of the vested interests that want to continue to bankrupt hard working Americans with medical bills. They know the status quo couldn’t continue, ruining and yes, killing some citizens. But big Med, like big Pharma, puts more $$ in their pockets than just about anybody. So they stonewalled. Wouldn’t play ball. So the dems pulled a fast one to get it passed.

Now because the public option was not included, the same thieving corporations get rewarded with new customers. That’s the irony. They will however have to change some of their practices and that will save lives.

You and your cronies just keep on serving the kool-aid and we’ll see what happens cost wise. In the meantime I suggest you break out of your echo chamber and educate yourself about what’s real in the world. Your fantasies and lies bore me. I won’t even READ your “articles”.

Posted by Mac20nine | Report as abusive

Good and well reasoned article.

I suspect the “Mac” commenter did not even read the article, because the rant contains no comments that are relevant to the information it contained.

I believe that time will show that the ACA is the worst thing that has ever happened to American health care, mostly because it fails to cover costs, and will increase premiums for the middle class who are self insured. Letters are already being sent out to middle class folks, like the report I read yesterday in which a single father and two sons was officially notified that they will see their premiums increase from $333 to almost $1000 per month – and the plan still includes a high deductible.

However, the worst part is that it inserts government into health care. They don’t do a particularly good job of managing anything else, so why should health care be different?

Posted by stevedebi | Report as abusive

In reality, the health care industry has had the past fifty years to use ‘disruptive innovations’ to bring down the cost of health care. It has not happened – costs are continuing to go up faster than inflation.

Now we are told that if we just get rid of Obamacare, ‘disruptive innovations’ will suddenly start doing what they have not done for 50 years. Truly, that is the triumph of blind hope over experience.

The ACA is not good public policy. But Never-Neverland economics is not going to make health care available to people with pre-existing conditions or the working poor. That is theater of the absurd.

Posted by alwayspuzzled | Report as abusive

Canada has had socialized health care for half a century and unlike in America ordinary citizens are not regularly bankrupted by health costs, nor has the government gone broke ; the same applies to other Western countries – the innovation thing is a side issue since what most people need is not a bigger MRI machine because those do b__ all to improve public health – a look at an even more socialized system , that of Cuba , would prove the point even further – they have one of the least expensive systems on the planet yet excellent access medical care and lots of preventive medical care .

Posted by JohnOfOnt | Report as abusive

One of the many reasons that people (liberals) like MAC are always so angry is that, not so deep down inside, they know they are wrong. The image that I have of you is one of a sweating, crazy-haired, red-eyed, semi-demented individual typing away as your veins pulse and bulge from your neck. I would also venture to say that you get a twitch every time you hear the word “bush” or even read a word that contains the letter “w”.

You have to admit that O is a pretty crappy President. At least as crappy as W. I’m not a fan of either.

Corporations are evil, government is good. How absolute. You Moron.

Mr. Salam is probably the most neutral of all the regular Reuters contributors. Sometimes his writing makes me angry, sometimes I agree. I read his articles because they can challenge my opinions and give me food for thought.

It is also quite apparent that your last line is true, that you never even read his articles. Your rant has absolutely nothing to do with the article.

Posted by urukhai2 | Report as abusive

idk, when u say say obamacare slows down medical advancement , it kinda makes countries with free medicine look barbaric and piggy backing on your broad American shoulders. not the whole article, just the head line

Posted by barenski | Report as abusive

it could be the case, I don’t know much about where medical advancements happen

Posted by barenski | Report as abusive

To be a informed consumer of medical care and insurance requires information and skills people do not have. Insurance profits go go up by not paying out. Both things mean medical care and medical insurance must be heavy regulated. I know there is government corruption but it more likely to do the right thing than unregulated insurance company.

If the family of a sick person knew how treat himself or judge the effect of treatments there is not need to see a doctor. Each family should be enabled to treat themselves. Complex or concealable things that can endanger people require regulation. Medicine and insurance tops the list after nuclear power, multistory building construction.

Posted by Samrch | Report as abusive

This article is pretty good and does not warrant @mac20nine’s rant.

I think the answer to “it’s worth asking whether the exchange model as it’s currently conceived is the best way forward for the American health system.” has been asked and answered. No, it is not. No one disputes that. The supporters of ObamaCare would much rather have a single payer, socialized medicine as the rest of the civilized world does. but this is the best and only change that could be compromised on.
I think the Exchanges will, fairly quickly, improve insurance plans by garnering much more competition. As stated above, the “needs and interests of their best customers, which is to say their most profitable customers.” will drive the insurance providers. This new model will change who their best customers are. Instead of it being a large corporation that brings say 30k people to them, they may get 100k people form the exchange. The corporation has different needs and wants (cost, delivery & maintenance, overhead)than the person receiving the actual product ( quality, availability, broad coverage). Though many decry the fact that many companies are moving employees to the exchanges instead of offering it themselves, I think it a great thing in the long run. It will change the competitive environment by removing employers from the equation. I don’t see why they were put in the equation in the first place.

Posted by tmc | Report as abusive

Obamacare is going to quickly morph into an EPIC illustration of the old adage “Be careful what you wish for, you may get it”.

NO ONE really knows what this “Affordable Health Care” program is going to lead to because of the considerable distance between political illusions and economic realities. While today’s “system” providing productive citizens “health care” is not perfect, it has provided a majority of productive Americans more timely and modern treatments than any “single payer system” or other alternative.

“Health care” was much simpler and less expensive considering the options available before heart (and other organ) transplants, knee and hip replacements, etc.
Everything today medically possible is increasingly assumed “on the table” for insurance to pay for.

This is a false assumption. Why? Medicare and the VA don’t provide everyone hearing aids, eyeglasses or dental services because EVERYBODY needs them and they coat A LOT! Making EVERYONE pay for their own is the way to keep such expenses “in line” with real-world resources.

At some point our so-called “leaders” are going to have to be honest with us. Obamacare will give many companies that once paid rather generous health care benefits to their workers a “way out” of such obligations. Those people have been lied to by the President.

People promised they could “keep their present insurance coverage” if they were “happy with” will lose that option once and for all time after their employer “pulls the plug” (and they WILL). Where are the doctors to come from to “handle” an additional 33% (plus or minus) increase in case load?

EVERY doctor’s office will be as jammed as “community clinics” are today. A “day-care gone insane” setting with every germ on earth covering the magazines, chairs, and counters filled to overflowing with third world poor people coughing, hacking and touching everything is NOT the place for older, immune-compromised individuals requiring blood thinner monitoring, etc. that depend on Medicare (which won’t cover one of the “boutique practices” that might offer relief.

America can’t afford to offer every homeless person a new liver when they ruin the one they were born with with drugs or booze. You don’t put a new engine in an ordinary, unexceptional old car with over 100,000 miles on the odometer because you will never get back the value thus expended.

Somehow America is medically “supposed” to provide subsidized dialysis and extensive coverage for the many medical ailments associated with people who overeat and are overweight much of their lives? Are we to provide new hips, knees, hearts, and organs for every person physically within our borders, no questions asked?

Where will all that money come from? To date, the Fed has been just printing it; but no one has yet demonstrated a self-sustaining “Star Trek economy. Should our expectations be limited by our national “ability to pay”, with “due consideration” given to “reasonable return” to our economy from those requiring “greater than normal restoration”?

Just because the medical community comes up with more and more “miracles” of great expense to “make life better” does NOT mean that America can or should offer them to one and all. Sooner or later, when you can’t “pay the piper”, the music stops.

Posted by OneOfTheSheep | Report as abusive

The dumbest thing about this criticism of Obamacare is this glaring piece of misunderstanding how the world actually works in real life: The writer moans about Obamacare making you fill out a 15 page form— guess what dude, this happens NOW when you apply for insurance. I’m guessing you never actually has to go apply for it because it’s just given to you by your employer. But in the real world the health insurance applications are at least 15 pages, and I’ve filled out some that are closer to 30.
You clearly do not know what you are talking about.

Posted by LBCityGIrl | Report as abusive

Aren’t you a few years behind in this debate, just like so many in the GOP now? In another way, aren’t you getting ahead of reality since the Patient Protection and Affordable Care Act (“Americare” nicknamed Obamacare when it’s actually Romneycare) hasn’t even had a chance to be implemented?
What is this obsession with not trying new ways to provide more and better health care, especially when we see it working so well in other venues? Who are the people who stand to lose with such changes? Could it be the Plutocracy that gets rich off of the current unbalanced system?

Posted by ptiffany | Report as abusive

@ptiffany,

How consistently immature to consider it important HOW TO PAY for Obamacare and to question what is actually new in it (which NO ONE seems to KNOW) that is better for the productive in America (who pay for EVERYTHING).

You don’t “try a new car” unless you can AFFORD TO BUY ONE!

Posted by OneOfTheSheep | Report as abusive

Correction: Should have read “How consistently immature to NOT consider it important…”

Posted by OneOfTheSheep | Report as abusive

Every single thing Obama does is boneheaded, counter productive, and unpopular. The exception is that until recently most of us kinda liked him personally. Oh well.

The GOOD thing about Obamacare is that it was forced down the people’s throats in a manner only equaled once before in US history, and Abraham Lincoln had to field an army at war for four years to do it. Seriously.

Health care is right up there with education as a totally dysfunctional and corrupt part of the economy and for the same reason: because the people care about their health and their kids, the government got involved. Perhaps with everyone screwed by Obamacare, State regulation of health and of insurance might get abolished so that competition and patient empowerment might come to be.

Posted by johnwerneken | Report as abusive

@OOTS, we were already paying for the car, as you put it. We knew that the payments were going to bankrupt us in the near future. We alos couldn’t take the kids for a ride in that car, nor the large dog we already had. So a dealer offered us another car that could do those things for the same price. Now, yes, he’s a slimey car dealer and is probably lying to us, just like the one that sold us the first car (republican congress and Hilary care). I’m thinking it’s a good idea to take the new car that more meets our needs and worry about the financing as the second part of the battle.
How can you not see this? You will stubbornly hold onto that old car until it bankrupts you, your kids leave you cause you can’t take care of then, and your dog starves. But you didn’t fall for it again did you! Or did you? Be smarter than the salesman, take the deal and change the financing.

Posted by tmc | Report as abusive

“If the exchanges don’t work smoothly, however, they might deter all but the sickest, most vulnerable healthcare consumers from enrolling…”

All?!?! ALL?!?! What an irresponsible thing to say! Anybody with 2 brain cells to rub together knows that big new computer systems always have glitches. Look at the Microsoft operating systems. Every single new version of Windows has always had glitches. With 50 million people with no health insurance in this country I would bet there will be a great many healthy people that will let nothing deter them from enrolling, even in spite of the $400 million negative ad campaign by Republicans, especially by Charles & David Koch, corporate billionaire brothers and Tea Party kings.

Posted by Des3Maisons | Report as abusive

Mr. Salam forgot to mention that perhaps the new health care law would have been much better without the influence of lobbyists from the healthcare industry spreading around millions in corporate money in the U.S. Congress. Advocates for single payer were not even allowed at the negotiating table. Single payer is coming though. It’s only a matter of time.

Posted by Des3Maisons | Report as abusive

@tmc,

My choice to continue driving an older car (which I do, and really like) is, in reality, a choice of “the devil I know” over one I don’t. My old car is long paid for.
America today “pays” for those who can not or will not pay for themselves (insurance or otherwise) by counterfeiting…which I would define as printing bills with NO “full faith of the worth and word of the government behind them”. Our government has long ago squandered whatever “faith and worth” was there by merely shoveling much of this money out such that NOTHING of value is pufrchased or returns (even in the long term).

“We have proof it can be paid for by reducing cost and going to a single payer system like Canada, Britain, Australia, etc.” I respectfully disagree. If you have aggressive cancer you can die. Such patients routinely find treatment elusive. Administrators deny and delay necessary approvals such that the progression of the disease is faster than receipt of effective treatment.

And don’t think the ordinary person on such “single payer systems” is going to get the “latest and greatest” available non-generic treatment or medicine. Only “tried and true” treatments and medicines that have been around long enough to have gone generic (and be relatively cheap) are approved. How many offer digital mammograms?

I have long said that “We, the people” must, at some point, come to consensus as to what “needs” available revenue can sustainably support. So long as we do not do this, there is NO limit to the size of our government and it’s hoards of bureacrats and no limit to the percentage of “our” income it will demand to feed itself.

With such consensus, all our “representatives” then need do is prioritize said available revenue and disburse it…that’s the “budget” and the bureaucrat’s responsibility. This process will never be “easy”, but our ancestors managed to do it with MUCH less money, education and gross national product.

How? They understood the difference between aspiration and reality. We have utterly failed in our obligation to teach recent “I WANT IT NOW” generations how to do that.

Posted by OneOfTheSheep | Report as abusive

@OOTS, Please, please, please learn the proper use of quotation marks. I might be inclined to read your posts (I’ve stopped completely) if I thought you had taken a minute to figure out some simple punctuation.

I understand that Reuters doesn’t allow the use of italics, bold, etc., but most readers can, and will, put the emphasis where you want it, if you’ve written it well.

Now getting us to agree with you is another matter entirely.

Posted by JL4 | Report as abusive

Romneycare=Obamacare is the “disruptive innovation” Salam, Wanamaker, and Bean have it backwards. The health plan offered to the nation by the Republicans for the years that they controlled both houses and the presidency was to do nothing (except protect profiteers) and watch record increase after record increase in costs.

To those who think that they have the best healthcare in the world. You are completely wrong, we rank 51st in life expectancy according to the CIA Factbook. Our healthcare is not the best, just the most expensive.

Posted by QuietThinker | Report as abusive

It isn’t until the sixth paragraph that Salam gets around to actually mentioning the “threat” promised in the headline, and it doesn’t turn out to be anything of substance at all. But hey, if you want to hate Obamacare, keep trying.

Posted by orangutan | Report as abusive