Obamacare and Effective Government

BERKELEY – When historians look back on the United States’ Patient Protection and Affordable Care Act (ACA), President Barack Obama’s controversial 2010 health-care reform, we predict that they will not devote much attention to its regulations, its troubled insurance exchanges, or its website’s flawed launch. Instead, we think that they will focus on how “Obamacare” encouraged a wave of innovation that gradually tamed the spiraling costs of a dysfunctional system, even as millions of previously excluded Americans gained access to health insurance.

Innovation is probably the least discussed aspect of health-care reform. Yet it is crucial to “bending” the sector’s cost curve, because it enables the delivery of quality health care in cost-effective ways. Obamacare has provided powerful new incentives for such innovation.

From 1980 to 2010, US health-care spending grew almost twice as fast as the economy, rising from 9.2% to 17.4% of GDP. While many factors contributed to this surge, most experts agree that the single most important cause was a fee-for-service system that rewarded health-care providers for billing as many services as possible, rather than for keeping people healthy and treating their illnesses efficiently.

The ACA has been changing that, by establishing myriad new incentives to foster efficiency in health-care delivery – for example, by reducing costly and unnecessary hospital infections and readmissions, and by adopting electronic health records. Most important, the ACA is providing incentives for the creation of “affordable care organizations,” “bundled payment systems,” and other delivery innovations to encourage better coordination of care, especially for patients with numerous chronic conditions. Such patients are among the 10% who account for an estimated 64% of overall health care costs.