This News Is Bound to Give Obamacare a Big Boost

The Patient Protection and Affordable Care Act, perhaps better known as Obamacare, is certainly one of the most controversial pieces of legislation to come out of the Obama administration. Designed to reform our current health-care system by mandating individuals carry health insurance, and capping insurers medical loss ratios at 80% to ensure patients get the quality of care they expect when they need it, Obamacare's favorable ratings fell in a Kaiser Family Foundation poll last month to their second-lowest level since the bill passed in 2010.

The bill is polarizing, without question. But, with its implementation less than seven months away, Obamacare received a big boost earlier this week with the release of a study on hospital costs by the Centers for Medicare and Medicaid Services, or CMS. In this study, the CMS looked at more than 3,000 hospitals nationwide that accept government-sponsored Medicare and examined the cost for the 100 most frequently billed treatments and procedures. The results of the study were downright frightening and would definitely support the need for accountability, transparency, and some form of regulation with regard to hospital costs.

Obamacare's big boost
Without going into too much detail behind the figures, the cost of many of the procedures -- surprisingly even within the same town -- often varied by a wide margin in the CMS' study. The Washington Post fittingly covered hospitals in the Washington D.C. area, noting that the cost for a permanent pacemaker implant at two hospitals that are less than 1,000 feet apart varied by an astounding and disappointing $61,000 -- or practically 100% for the same procedure! Admittedly, not all of these costs are covered by insurance, which requires the patient to kick in a significant portion in certain cases, but this is a big, big problem any way you look at it -- and all the more reason why Obamacare's reforms could be a much needed knock-out punch for runaway health care costs.


Source: White House on Flickr.

One of the main goals of the PPACA is to curb the rising costs of health care premiums, and one of the easiest ways to accomplish this is by creating as much transparency as possible. Most people have focused on the health insurance exchanges as the easiest way to accomplish this by making premiums visible and requiring insurers to compete against one another in a public venue to inspire competitive pricing, which is ultimately good for the consumer. Yet a more immediate and effective impact to patient premiums could be felt from the exposure of hospital pricing practices to the public eye.

Price transparency could be welcome news for hospitals and insurers
Believe it or not, price transparency among hospitals wouldn't actually be all bad news.

The nation's largest hospital providers, HCA Holdings (NYSE: HCA  ) and Tenet Healthcare (NYSE: THC  ) already expected to benefit in a big way because the individual mandate will help reduce a good chunk of their annual bad debt expenses. In 2012, HCA Holdings wrote off $3.77 billion, or 10.25%, of its revenue to doubtful accounts, with Tenet chiming in with $785 million of writedowns of its own -- nearly 8% of its annual revenue. Adding pricing transparency on top of the benefits to come from the individual mandate could help these two large hospitals improve their public image with patients and shareholders by making elective procedure costs accessible at the click of a button.

Pricing transparency would also be good news for the consumer because it would make costs visible and allow hospitals to compete with one another in order to gain procedures. While you're not likely to drive 400 miles to treat a broken arm, you may be willing to do so if it means saving $10,000 or more on another elective treatment or procedure.

This would also be a big, big gain for insurers! Most insurers understand that hospital pricing across the country can vary widely and currently have a sort of one-size-fits-all pricing policy to cover those variances (beyond individual qualifying factors). By making prices more transparent and holding hospitals accountable for those prices, insurers would have good recourse to lower premiums for individuals and businesses with much of that pricing uncertainty removed.

Aetna (NYSE: AET  ) is one of the few insurers currently helping its members out by providing payment estimates on more than 550 services with its proprietary Member Payment Estimator. This tool helps patients determine the often-confusing out-of-pocket costs associated with hospital fees and professional fees. Last year, UnitedHealth Group (NYSE: UNH  ) , the nation's largest health-benefits provider, followed suit by launching myHealthcare Cost Estimator to ballpark the costs of more than 100 common treatments for its 14 million-plus members.

Before you get too excited...
Remember to keep in mind that there's another side to this story.

For one, hospitals' public image may be greatly improved, and, if they happen to be the low-cost leader in their town, they could see a big boost in business from greater pricing visibility. Then again, a lack of transparency is what makes hospitals so incredibly profitable at the moment. Without an easily accessible database that allows consumers to price and compare procedures from multiple hospitals at once, most patients in need of medical care simply choose the hospital closest to them. Hospitals might be dissuaded from changing what is now a perfectly profitable practice.

It's also not a slam-dunk win for insurers, either. Transparent pricing would eliminate a lot of the uncertainty they now deal with across the U.S. with regard to pricing, but there's absolutely no way these insurers can take into account the ongoing difficulty in predicting the future care needs of their members with any real accuracy. The medical uncertainty of their members alone could prevent premiums from dropping in any meaningful manner even if transparent pricing were introduced.

Finally, there's the question of whether consumers would use pricing transparency to their benefit. Sure, there are plenty of coupon clippers in our society looking for a good deal, but in the Kaiser Family Foundation's March poll we learned that 48% of the Americans who were polled has heard "nothing at all" about the status of whether an insurance exchange was being set up in their respective state. The information might be out there, but it's either difficult to get or consumers are too indifferent to seek it out.

The push for reform
Just as we've seen from the beginning with Obamacare, it's filled with a mish-mosh of positives and negatives. While I wouldn't discard the negatives discussed above by any means, consumer sentiment surrounding outrageous medical care costs has existed for decades; so, if anything, the CMS' report is only bound to give supporters of the PPACA, and those who demand health-care reform, a big boost. It still remains to be seen if this bill has all the necessary tools capable of keeping health-care inflation costs under control, but it appears that the CMS' cost report has firmly lit a fire under the need for ongoing health-care reform and has given Obamacare added momentum as we track closer to implementation on Jan. 1.

Obamacare will undoubtedly have far-reaching effects beyond hospitals and insurers. The Motley Fool's new free report, "Everything You Need to Know About Obamacare," lets you know how your health insurance, your taxes, and your portfolio will be impacted. Click here to read more.


Read/Post Comments (14) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 12, 2013, at 1:25 PM, TerryConklin wrote:

    This was a perfect article for a webpage named "Fool" because that's what one would have to be to believe such drivel. That 80% "medical loss ratio" translates as the patient will pay 20% more than the real cost of the procedure he gets.

  • Report this Comment On May 12, 2013, at 3:28 PM, motleyanimal wrote:

    You might want to fix that symbol for Tenet Healthcare. THC not TNH.

  • Report this Comment On May 13, 2013, at 1:16 PM, XXF wrote:

    No one pays gross hospital charges. Not MCR, not MCD, not Private Insurers, not Private Pay individuals. Gross charges at a hospital are like a grocery that charge $1,000,000 for a bottle of Coke except to anyone who pays via cash, check, or plastic, to them they grocery store charges $1.59. This is another TMF article that takes information and intentionally misinterprets it.

    If you go to the source data you should be looking at column K, not column J.

    Terrible, terrible reporting. COLUMN K.

  • Report this Comment On May 13, 2013, at 1:19 PM, MsAbby wrote:

    What a crock. My local hospital, in a county of 52,000, is going bankrupt trying to treat all the illegals and indigents in their emergency room. There is nothing in the bill that would help hospitals or limit cost increases on drugs, insurance or hospital costs. It's totally about government control of the health care in this country and it will pile up debt more than Medicare and Medicaid did.

    In fact, my employee health care premiums have already increased 24% and my own family plan has increased 12% with the anticipation of all the mandated coverage provisions in Obamacare.

    I have 122 employees and I am shutting my doors end of this year. I no longer feel it's to my benefit to work while others live off what I make and the government calls me greedy and selfish.

  • Report this Comment On May 13, 2013, at 1:21 PM, fredAmericaqn wrote:

    Since I am retired and forced to be on medicare, I was HIT With the effects of obamacare last week. For a couple of years I have received blood sugar test strips from LIBERTY MEDICAL, YOU HAVE SEEN THE TV ADS. LIBERTY MEDICAL no longer accepts medicare and even though I have Blue Cross supplement I am out. It is due to extended payment time and reduced payment amount allowed. Thanks obama the incompetent.

  • Report this Comment On May 13, 2013, at 1:23 PM, fredAmericaqn wrote:

    This article was written by obama or one of his minions.

  • Report this Comment On May 13, 2013, at 1:57 PM, yrag01 wrote:

    Republicans leaders had EIGHT YEARS UNDER BUSH TO ADDRESS HEALTHCARE, AND UTTERLY NEGLECTED the Americans were suffering at the behest of price gouging big HMOs, drug companies and medical insurance companies who were donating/bribing the GOP WITH MANY TENS OF MILLIONS OF DOLLARS—LET THE GOUGING OF THE AMERICAN PEOPLE CONTINUE—right Repubs?

    Even now as they attacking and claim they'll repeal 'Obamacare', Republicans STILL have ABSOLUTELY NO PLAN ON HOW TO FIX OUR OUT OF CONTROL HEALTHCARE MESS, except to supposedly 'request' big HMOs to discuss the issue. WHAT, DO YOU TAKE US ALL FOR IDIOTS? Average sensible people KNOW Republican views are 100% financed by HMOs, drug companies and medical insurance companies—and they LOVE the status quo because it makes them RICH.

    btw when Romney (remember him?) put the same conditions for health care in effect in Massachusetts he called it a 'mandate', but when Obama does it Repubs NOW claim it's a 'tax'—what two-faced hypocrites!

    The line Republican leaders have been feeding to their followers is basically that Democrats haven't cleaned up the mess created by Bush Jr. and themselves fast enough.

    The the premise behind Republican calls to repeal "Obamacare," is: "Healthcare reform will cost $1 trillion". Yet it's an extrapolation of an extrapolation, and only half the story at that. The Congressional Budget Office, the best source of data on the cost of healthcare reform, estimates that new government costs associated with reform between 2010 and 2020 will add up to about $1.2 trillion. That's the figure cited by critics of the plan. But CBO also says those costs will be offset by more than $1.3 trillion in cost savings and new revenue, which will lower the national debt by about $170 billion over that time period--not raise it. Accounting for just the costs, and not the offsets, is like calculating your household finances by adding up all your bills but leaving out the income used to pay for them.

  • Report this Comment On May 13, 2013, at 2:42 PM, kathy02001 wrote:

    seem to me the obama care should have waited when so many people are out of work like myself i was layed of 2008 and still canioter and a citzennce my right as a vt find a job nor can i affort insrances i want to know why are you askking insrance companies for money ohyes donation to keep them in business what that about i say repeal it all it has fr

  • Report this Comment On May 13, 2013, at 3:19 PM, garyegray wrote:

    Very deceiving article and title. The ACA is not the answer to rising costs, in fact, it is more likely the ACA will contribute to rising costs over time.

  • Report this Comment On May 13, 2013, at 4:14 PM, doco177 wrote:

    1. Millions are and will lose the insurance Obama promised they could keep. Because ObamaCare forces employers to offer expensive Cadillac plans but also offers the option of paying a fine for not providing health insurance that can be cheaper than providing it, between seven and twenty million Americans are likely to lose their health insurance coverage according to the Congressional Budget Office. The original estimate was closer to four million.

    2. The cost of healthcare premiums is about to further skyrocket. Premium costs have already exploded, but that is a slow-motion explosion. In the near future, we could see costs double or worse. Naturally, these costs will hit an already burdened middle class hardest.

    3. Lost jobs. Lost jobs.

    The Federal Reserve's March beige book on economic activity noted that businesses "cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff."

    Meanwhile, human resources consulting firm Adecco found that half of the small businesses it surveyed in January either plan to cut their workforce, not hire new workers, or shift to part-time or temporary help because of ObamaCare.

    4. Potential doctor shortages that will mean rationing: The healthcare industry is already a bureaucratic quagmire. ObamaCare is about to add steroids. As the profession becomes tyrannized by government, the talented people currently practicing medicine plan to get out sooner than expected. Who knows how many will choose not to get in.

    Doctor shortages are what lead to the nightmare known as rationed care. Here's an unsettling example already being practiced.

    5. Somewhere around $800 billion in tax increases will hit America's middle class. This added burden will not only further oppress a middle class already reeling from a drop in wages over the last few years, but could damage the overall economy.

    6. Inflation, the cruelest tax on the poor. When businesses get socked with added costs brought about by higher taxes and burdensome government mandates, they pass those cost along to the consumer in the form of higher prices.

    7. Added bureaucracy. Even those Obama lapdogs over at the Washington Post's Wonk Blog are admitting that applying for health care is about to get more burdensome than the byzantine paperwork involved in buying a home.

    8. To cut costs or to avoid having to provide insurance, workers on the economic margins are already losing hours, which means a lower paycheck. There are a million sad stories in ObamaVille; here are just a few of them.

    9. ObamaCare is projected to add $6.2 TRILLION to a deficit the GAO has already declared "unsustainable." That's "trillion" with a "t".

    10. More taxes than currently estimated are likely to hit because of situations like this one.

    Three years ago, Obama, Democrats, and his media lied to us about cutting the cost of health care, being able to keep our insurance, and not taxing the middle class.

    Today, those lies and what ObamaCare is and will do to the working and middle class are the biggest untold story in America.

    The govt becoming more involved in health care is the reason the costs have increased. So...Govt creates a crisis, then provides a solution that comes at the expense of liberty and freedom, costs trillions, and by most accounts won't solve the problem but in fact make it far worse.Corruption, incompetence, disregard of the Constitution, and above all lying are integral to the way that this country is being run.

  • Report this Comment On May 13, 2013, at 4:20 PM, altmd71 wrote:

    Please do some research before you print such a misleading article. It would be more meaningful if you told us what Blue Cross, Aetna or United Health paid for that pacemaker implant not what the hospital charges. You also might throw in how much Medicare pays too. You'll probably find the reimbursement is similar if not identical for commercial insurers and less for Medicare. Insurers negotiate a rate with each hospital and it has nothing to do with what the hospital charges. In addition, your 20% copay is based on negotiated rates not what the hospital charges.

  • Report this Comment On May 13, 2013, at 4:34 PM, XXF wrote:

    @ altmd71

    If you go to the source data an average reimbursement for procedure number is available, although in no greater detail. The article wasn't misleading because TMF failed to research, it was misleading intentionally because the amount paid for these procedures is perfectly reasonable but that doesn't drive traffic or get your article picked up on Yahoo.

  • Report this Comment On May 13, 2013, at 4:47 PM, LENDOG2 wrote:

    Has no one at Motley Fool read Steven Brill's Time Magazine March 4th Special Report cover article "Why Medical Bills Are Killing Us"?

    If you had, the recent "news" about wildly differing hospital bills would actually not have been news to you, and your whole article would have been written in a different way. I don't understand you guys.

  • Report this Comment On May 13, 2013, at 5:54 PM, EdHamox wrote:

    @yraq01

    btw when Romney (remember him?) put the same conditions for health care in effect in Massachusetts he called it a 'mandate', but when Obama does it Repubs NOW claim it's a 'tax'—what two-faced hypocrites!

    Chief Justice John Roberts of our Royal Supreme Court proclaimed it to be a tax.

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