Flickr: Justin Saglio/BU News Service

Early last week the Obama Administration released the new prices for next year’s ACA Exchange-based health plans, with news that the average premium is expected to rise by 25%. In response to the public backlash as a result of the price hike, some have tried to focus on the fact that 85% of people buying health insurance on the exchanges will be covered by federal subsidies, and the premium increase is consistent with historical trends of rising healthcare costs. Although these are valid points, such views are missing the big picture: healthcare must not only be affordable for consumers, but also be affordable for the country. With annual healthcare expenditures exceeding $3 trillion and growing at more than $150 billion in new expenses per year, six-year-old “Obamacare” does not appear to be the answer for which we have hoped. Whether the costs are covered by individuals’ checkbooks or by federal subsidies, the current ACA will keep total healthcare costs on the rise.

In the wake of ACA’s glaring problems, such as limited cost burden on the elderly, the struggle to sign up the healthier and younger population, and private insurance companies fleeing the ACA Exchanges, possible solutions have been proposed, but they are legislative solutions that will likely take a long time to materialize. In fact, with most Republicans still calling for the repeal of the ACA, the chance of any legislative solution working out in the foreseeable future appears to be slim. Further, while both presidential candidates have commented on fixing the ACA, neither position seems to be addressing the fundamental issue of decreasing the cost burden for consumers and the country. Under Secretary Clinton’s proposal, a “public option” would become more available, such that more people with higher incomes could also be eligible for government-sponsored programs with subsidies. Although such policy would guarantee a subsidized government plan for everyone, it would merely shift the cost burden of the sickest population from private insurers to the government. Additionally, while such a plan might help with enrollment, lack of competition would likely limit any chance of cost reduction. On the other hand, Mr. Trump’s plan to repeal the ACA and introduce cross state competition also fails to solve the cost problem, as broader competition would drive out less competitive insurers and eventually allow the “winners” to raise prices. Many issues with the ACA cannot be solved exclusively through legislation or deregulation.

Then, how do we reduce healthcare costs for the entire country without compromising safety and quality of care? So far, Clayton Christensen, professor at the Harvard Business School and co-founder of the Christensen Institute, is one of the few with a workable theory to solve this puzzle. In his book The Innovator’s Prescription, Christensen points out that a new business model aided by technology can make a healthcare product or service simpler, more accessible, and affordable—for consumers, and the country. America’s healthcare cost problem is neither a legislation nor a regulatory problem. It is an economic problem that requires new business models to solve it.

Business models focused on risk and process management

The  majority of proposed solutions are focused on reducing insurance premiums with little consideration of how they grew in the first place. Instead, they should focus on the real problems in healthcare—namely that insurance companies are unable to manage risk and hospitals lack standardized processes. Because third party insurance companies are not involved in patient care, they have little access to individuals’ medical history and risk profiles, and this prevents them from properly pricing premiums.

At the same time, hospital resources are scarce, resulting in delayed care processes and increased associated costs. And, because most healthcare services do not have standardized processes, each patient care process becomes unique, causing hospitals to continuously reinvent the wheel. This then results in increased complexity in operations. Anyone who has been to the emergency department of a hospital will attest to long waits and complicated triage processes. Thus, accessing healthcare becomes more laborious and costs of care continue to increase as diseases become more chronic and complex. Cost increases without clear benefits are why millennials won’t sign up for the ACA Exchange insurance plans. However, when processes become standardized, delays and complications from increased complexity are mitigated by increased efficiency, resulting in lower costs to the consumer and the hospital.

New business models that will be successful at estimating individual risks are integrating the functions of healthcare services and reimbursement. Just like many emerging models, such as Iora Health, Caremore, and Oscar Health, proactively guiding members to regular diagnostics and preventative care, as well as coaching them on healthier lifestyles and behavioral changes, are needed. Further, standardized care facilities that are able to adhere to specific processes can significantly lower costs of care. There are several specialty hospitals like Shouldice Hospital in Toronto, Canada or Orthopedic & Sports Institute of the Fox Valley in Appleton, Wisconsin that have significantly reduced the cost of procedures by specializing in hernia repair and joint replacements, respectively. We need more of these process-oriented practices targeting the economically least viable population: those on Medicare and Medicaid.

Business model competition

Fixing the ACA is wishful thinking; it will cost the entire country precious time and energy that will likely lead to an inadequate compromise. Instead, the government would be better off holding a business model competition in which participants could provide their best ideas to create a sustainable care model for specific populations such as those enrolled in Medicaid or Medicare, or the young and healthy.

Interestingly, the Department of Health and Human Services is already conducting similar contests, offering millions of dollars for innovative technology or solutions that address  unsolved problems. In the same vein, a contest for a new delivery care model could achieve similar results. The only restriction would be that the business model needs to work within the current regulatory and legislative environment. In other words, the business solution would need to work with the current ACA for populations that traditional insurance would want to avoid at all cost. If such a model is discovered first, then it will help improving the ACA more effectively. Private insurance companies will clamor to copy the model. My expectation is that the newly proposed models will focus on managing individual health risks and creating standardized care processes, just as Clayton Christensen has advocated.


  • Spencer Nam
    Spencer Nam