THE BLOG
02/06/2012 07:39 pm ET Updated Apr 07, 2012

Health-Care Reform's Fate Won't Alter Health Care's Larger Problems

Health-care reform will not begin in earnest until 2014. However, 2012 will define whether it makes it that far.

The U.S. Supreme Court is expected to rule on reform's constitutionality before it adjourns in June. If the new law survives the court challenge, it will at least face a political gauntlet -- if not its demise -- if the Republicans capture the White House, Congress or both in this year's presidential election.

If health-care reform remains intact, the U.S. health-care landscape will change more in the next decade than it has in the last 50 years. However, health-care reform is mostly health-insurance reform. Its overarching goal was to attempt to ensure affordable access to health insurance and medical care for most Americans. It barely touches skyrocketing health-care costs and accelerates primary-care physician shortages.

Nationally, about 20 cents out of every U.S. dollar will be spent on health care in 2020. Medical inflation consistently has risen two percentage points higher than the consumer price index since the 1960s, and there is no indication that that will change.

There are two major drivers of U.S. health-care costs: the market power of U.S. health-care providers and the overuse of medical technology.

A health-care organization with a dominant market share and sturdy brand can raise prices well above what it needs to meet rising expenses. Insurers are willing to pay a premium to keep these "must-haves" in their networks.

After a wave of hospital mergers from 1990 to 2003, about 90 percent of metropolitan-area hospitals acquired what the Federal Trade Commission considered excessive market power. Health economists estimate that the mergers lifted prices by as much as 40 percent over what they would have otherwise been.

Medical technology is the engine that drives health-care costs. It accounts for an estimated one half to two thirds of spending growth. Technology expansion contributed mightily to the fact that Medicare Part B reimbursement, which covers doctor and outpatient services, more than doubled, to $14.1 billion, from 2000 to 2006. At best, the evidence is spotty that this creates better health outcomes -- or improved care.

At the household level, health-care costs in 2020 will be a budgetary albatross.

In 2009, the median annual household income for a family of four was $70,354, and household health-care costs were $16,771, or 24 percent of income, according to the annual Milliman Medical Index. Families paid $6,284 of that amount. Assuming current cost- and wage-increase trends continue, by 2020 median annual household income is projected to be $97,385 and annual health costs will be $37,181, or 38 percent of income. The employee share of that is expected to be 45 percent, or $16,731.

A common rule of thumb is that health-care costs become a financial burden when out-of-pocket costs reach 10 percent of household income. By 2020, those costs are expected on average to exceed 17 percent for a family of four.

The primary-care workload is expected to increase by nearly 30 percent between 2005 and 2025. Feeding this demand is a growing population, a flood of baby boomers becoming Medicare beneficiaries, and the newly insured because of health-care reform.

However, the supply of primary-care physicians is expected to rise by only 2 to 7 percent. Three out of four physicians say they already are at or over capacity. The math screams that there will be a health-care access crisis in the next 15 years. Expect longer waits for appointments, shorter physician visits, greater use of nonphysicians for routine care, and higher prices.

The Council on Graduate Medical Education (COGME) estimates there will be a shortage of 96,000 doctors by 2020.

The effect of the demand created by 32 million newly insured patients without a concurrent increase in provider supply is grossly underappreciated. It will be fully appreciated by 2020.