Why the government is wrong on costs under ObamaCare

A new report in the journal Health Affairs from economists at the Centers for Medicare and Medicaid will have opponents of health reform smiling this morning.

It predicts no bending of the cost curve as a result of health reform. Medical inflation will average 6.3% per year over this decade, 0.2% more than without reform, the report suggests.

The report was done well.

The report is wrong.

A government actuary can't factor things that have not happened yet into their calculations. The private market is on the way to creating real change.

Want proof? In 2007 economist Andrea Sisko, who led the latest CMS study, was part of a team conducting the same sort of project. They predicted that in 2017 health care would consume 19.5% of GDP. Their new prediction for 2019 is 19.6% of GDP.

Progress has already begun.

Or look at the map above, from CalorieLab. The fattest states are those with the fewest reimbursements for wellness, where employers have been trying to save money by not covering people, where states have been trying to save money by waiting for diabetics to arrive at the emergency room before treating them.

The cost curve is already bending, and the private sector is leading the way.

Whether it's called capitation, the medical home, or an HMO, new business models are coming to health care, business models that encourage wellness, that actually pay doctors and hospitals when you don't get sick.

This, combined with Health 2.0 and new mHealth technology, should have us spending much less than 19.6% of GDP on health care by 2019, as the report says we will.

I don't say this because I'm drinking some liberal Kool-Aid. It's based on my coverage of what insurers, Internet entrepreneurs. and device makers, are doing right now, in the marketplace:

• HMOs like Kaiser Permanente cost less to operate, because the company providing the coverage has control over its costs. Some, like InterMountain Health, cost as much as one-fourth less. Insurers like UnitedHealth are buying technology that will let them operate more like Kaiser.
• Best practices, based on comparative effectiveness research, will be enforced through these networks. Advice on what to prescribe and how to proceed will be on your chart as data is entered into it. Doctors will no longer be freelancing decisions on what to do -- if they want to act differently they will be made to justify it.
• Instead of going ka-ching each time you visit the doctor, or go to the emergency room, care networks will be paid annual fees covering all patients. Their profit will depend on keeping you well.
• Mobile health (mHealth) technologies will be able to track patients in real time, dramatically cutting office and hospital visits for those with chronic conditions.
• Health 2.0 companies are building communities around chronic conditions that improve compliance and empower patients (and their families) to seek savings.

Right now, if your employer conducts regular health screens, or puts in a gym, or provides nutritional coaching to those with elevated blood sugar, that's a cost. It's paid on top of their health insurance bill. Under reform savings from such activities can lower those bills.

I'm not saying health care costs are going to decline. We are getting older. An aging population has greater needs for care.

But, in part thanks to immigration, America is not aging as fast as its economic competitors. Japan is much older than us -- 1 in 5 of them are over 65, against 1 in 8 Americans. They pay half what we do for health care, as a percentage of gross domestic product. They live longer, too.

Why? Japanese do what their doctors tell them, for one thing. Obesity is lower. If we can increase our compliance with what doctors tell us to do, we can save big money.

Before health reform there was no way to capture the savings. If a hospital CEO put in a wellness program, they might see fewer admissions, and the CEO would be fired.

No more. Now the hospital can get insurers and employers to pay for that program, sharing the savings.

Put it this way. If you lose the weight, if you stop smoking, if you exercise and cut down on the booze, if you take your medicine when you're told -- all of it -- you will be healthier. But under the old fee for service model, your employer will pay just as much to insure you, and you may pay more for wellness than your neighbor.

New business models let insurers, doctors, hospitals, and device companies -- as well as you -- capture those savings. Multiply that by 300 million, understand that our economic rivals won't be capturing these savings because their systems already let them do so, and you will bend the cost curve.

If an actuary assumed change in their calculations today they would be committing malpractice. But change is coming. Insurers, health researchers, and the health care industries all agree on that.

They just won't count their chickens until they're hatched.

This post was originally published on Smartplanet.com