The University of Texas at Austin
  • The good and the bad of the new health care act

    By Ronen Avraham
    Ronen Avraham
    Published: Oct. 7, 2010
    The

    Ronen Avraham is Thomas Shelton Maxey Professor in Law at the School of Law. His primary research interests are the economic analysis of torts and medical malpractice law, specifically how liability reform can influence health care reform. Avraham also writes about contract theory and theories of justice. He is the author of “Private Regulation,” an article about a new approach to the delivery of health care.

    In the upcoming mid-term elections, one of the Republicans’ favorite issues is the unpopularity of the Patient Protection and Affordable Care Act (PPACA) — the historic health care reform bill signed by President Obama on March 23, 2010. Shouts of repeal and replace have been heard across the land. Yet, it is impossible to tell from the political discourse whether the PPACA is actually a bad thing.

    When it comes to health care reform, regardless of one’s politics, it is easy to agree that any reform should 1) increase access for the uninsured, 2) control rising costs and 3) improve patient safety by improving quality of care. In order to really understand how these goals can be achieved, we must first look at the reasons for the current high cost and less than sufficient quality of health care.

    The PPACA focuses primarily on addressing access to care for the uninsured. It does so by attempting to increase access to care by providing insurance to 32 million uninsured Americans. Texans should be happy because Texas has the largest rate of uninsured Americans.

    Even most Republicans will admit this is an important goal. Those Republicans would be quick to add that the way to increase access is by lowering costs, and the way to lower costs is through tort reform. Tort reform has been a hot-button issue for years, with strong Republican support and an entrenched Democratic resistance. In fact, tort reform is neither a miracle cure nor mere snake oil, but that is an issue for another post.

    Staying focused on the PPACA, most Republicans would say it has completely failed to achieve its aims while greatly increasing costs. Indeed, the PPACA does come at a high cost, an estimated $940 billion over 10 years.

    Costs of health care are comprised of three different types: overuse, misuse and underuse. Let’s focus on the latter. Underuse emerges when patients receive too little care. How can that be a cost driver of the health care system?

    The answer is that underuse reflects a structural problem in the American health care system: that for decades it so rarely covered preventative care.

    Preventative care is generally considered to be efficient: spend a dollar now to save two dollars later. The private and segmented insurance system America has is why preventative care is not covered. Insurers do not want to spend a dollar now if their patient will switch insurers later, letting another insurance company save the two dollars down the road.

    In fact, because insureds switch insurers on average once every three years, insurers try to choose only to cover treatments that manifest their benefits within three years. This is inefficient and socially irrational, but it is one price we pay for being afraid of the “public option,” which did not make it into the final reform.

    In sum, the PPACA attempts to address an important failing in the health care system: the lack of access to care. It does so, however, in an expensive way because it does not seriously attempt to control costs. In an ideal world, reform would include efforts to address — in addition to patient access — rising costs and quality of care.

    This does not mean the PPACA is inherently bad, but going forward both parties should focus on a way to address all of the issues, not merely single out the politically palatable one.

    Visit the mid-term elections blog series home page for a complete lineup of faculty experts’ analyses.

    • Quote 2
      Ricky said on July 27, 2011 at 11:52 a.m.
      Hello, I realize that this is kind of a touch topic, but it is a very important one, because it affects us all. This affects everyone, from businesses all the way down to the lady down the street on unemployment, because she cannot find a job. Sure, there are going to be people who take advantage of things, but that is why we should make sure that does not happen. I also think government should start at the bottom and move up. They take long enough to do anything as it is. It would not take as long if everyone worked together with specific rules in place.
    • Quote 2
      E. Salinas said on June 23, 2011 at 10:32 p.m.
      so when it was required to get vehicular insurance didn't we all have to get it? and were we able to survive? everyones getting there car fixed mostly everyone right?
    • Quote 2
      Kirrabilli said on Feb. 5, 2011 at 6:00 p.m.
      It's a topic that's dividing the nation. I hope we can find the middle ground. For examaple in Australia, healthcare is affordable even for unemployed. We need to be able to support more people and cost less.
    • Quote 2
      Ronen Avraham said on Nov. 1, 2010 at 5:06 p.m.
      I do not disagree. I discuss the problem of overuse of health care resources in another post: Controlling the rising costs of health care.
    • Quote 2
      J Hayes said on Oct. 14, 2010 at 6:38 p.m.
      I come to a different conclusion about what's wrong with "healthcare" in America. The system has little to do with "health" and everything to do with "profit." The "for-profit medical business" has turned patients into consumers, with drug companies, insurers, doctors and for-profit hospitals trying to maximize their profit instead of trying to make patients healthier. Per person, America spends twice as much on medicine yet our healthcare is the worst among developed nations. A recent study by Columbia University (http://www.reuters.com/article/idUSTRE69609H20101007?pageNumber=1) blamed the quality of healthcare in America for our problems. At the current time, healthcare represents over 1/6 of the US GNP and at current growth rates is projected to be 1/3 of the GNP in another decade. That is unsustainable for our economy. The "for-profit medical business" is headed for a meltdown just like housing, where unscrupulous profiteers drove prices up until the market collapsed.
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