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What Happens if Healthcare Reform Really Works


The economic consequences of shrinking over one sixth of the U.S. economy without an overall strategy could be disastrous.

Even modest achievement of the triple aim of decreasing costs, improving outcomes, and improving patient experience creates an uncomfortable economic conundrum.

Let’s set some real and doable goals over the next several years for the sake of argument: Cut just a quarter of the obvious waste in the system by eliminating duplication of tests and services by coordinating care, move the dial a little on the cost of treating chronic disease, modestly impact negative patient behavior and eliminate just half of the unnecessary ER visits, hospital admissions, and hospital readmissions.

In summary, we’re cutting a quarter of the waste in healthcare, or $190 billion per year, and getting a handle on chronic disease, cutting its cost by just 10 percent, saving another $210 billion a year after accounting for the eliminated waste, for a total of $400 billion per year.

Here’s what happens:

The overall healthcare spend would shrink by 13.3 percent. The entire U.S. economy would take a direct hit of 2.2 percent, and an indirect hit of nearly two percent. With growth at about one percent, that is a net 3.2 percent drop in the Gross National Product, far worse than the Great Recession.

Unemployment would soar by nearly two percent, or almost 2 million of the over 20 million direct healthcare providers plus million or so indirect workers. All told, that is about 1.9 percent of the entire workforce.

But, that’s only half of the story. As we saw with the federal budget sequester, the predicted apocalypse was more akin to a non-event. Two factors ameliorate the impact of shrinking the country’s total healthcare spend and one is a wild card:

The ACA puts somewhere north of ten million newly insured people into the system who, as happened with Medicare, will consume far more services than projected; and,

The savings, thanks to the ACA’s 85 percent rule forcing a return of unspent premiums to the private sector, are put back into the economy, offsetting much of the impact.

The wild card is the Federal and State governments, which must do two things:

Not tax the unspent premiums to allow the money to go directly into the economy and,

Apply its savings to reduce the deficit, taxes or both.

It will still negatively affect the economy in the short term, but it is likely to save it in the long term.

If the government commits to real reform and to what it will do with its windfall, the light at the end of the healthcare tunnel will be sunshine.

If not, it will be a train.

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