I'd like to start by getting a broad understanding of health-care trends under the Affordable Care Act. The United States is the largest spender on health care in the world, but we often don't get much bang for our buck. Will the new law change that dynamic?
The United States spends a much higher percentage of its GDP on health care than do all other industrialized nations for arguably equal outcomes. The goal of the Affordable Care Act was to expand access to health care rather than trying to bring down costs. There are elements in the bill that try to get at bending the cost curve a little bit, but they don't have a lot of teeth and it really wasn't the key piece of the reform initiative.
So, going forward, we'll still see a large percentage of U.S. GDP going to health care. Firms and industries that have their profitability tied to volume are going to be the beneficiaries.
How much does the United States spend relative to other nations?
The United States is in the high teens as a percentage of GDP. Most industrialized nations spend between 9% and 12% of GDP. Emerging markets spend in the mid- to high-single digits. But relative to the developed markets, the United States spends close to double, and it doesn't have better mortality rates, or better core outcomes.
One of the reasons why it's so expensive in the United States relative to the other nations is that there is more choice in the United States. There's a choice of drugs, choice of hospital, choice of doctor. Those are elements that if you don't control cause prices to go up.
Vishnu, how many uninsured people will the ACA bring into the system?
The Congressional Budget Office says that there are about 30 million folks that are uninsured within the United States who could qualify under the ACA guidelines.
Damien touched on a good point. The ACA was mostly about access. That is key. When you look at the uninsured coming into the fold, most are getting subsidized access. In addition to that, you have a lot of folks moving into Medicaid versus going in the private market.
So, most of this new insurance is going to be subsidized, but at the same time, the government recognizes that in order to make sure that everyone has good health insurance and has access to it, the costs and the outcomes have to be there. Payers, especially, and government, being the biggest payer in terms of premium growth, will have a say on what insurance companies can charge.
In addition to that, there will be a focus on patient outcomes. Our tradition in the United States is that you pay somebody a fee for a medical procedure or product, and you're done. Now, long-term outcomes will be measured. How well did this hospital system with a program such as Medicare do in terms of making their constituencies healthier? How well did they prevent some causative diseases down the line?
What do the new exchanges mean for the industry?
A key cog of the ACA is going to be the public exchanges. The federally run exchanges got off to a rocky start, but the state exchanges have fared much better. The efficiencies of these exchanges vary, but overall, they are here to stay. The managed-care companies, or MCOs, that we cover have geared up for the exchanges and invested accordingly. We might see some cautiousness by them for a year or two until the kinks in the system get worked out, but they're invested in the exchanges. They're putting out well-priced, robust offerings across different exchanges.
The exchanges have brought transparency to the insurance market. Can you talk about how you foresee the managed-care industry evolving now that consumers are able to shop around?
One thing you have to keep in mind is how liquid and robust these exchanges are going to be, because what you need is a pool of diverse individuals within the exchange in order to avoid what the industry calls adverse selection, meaning that you don't want your pool of constituents within your plan or within the exchange to be all old and sick. You want some younger, healthier folks.
That definitely is a key thing to watch over the next several years, but at the same time, when you look at the competitiveness, it ties back to pricing. Pricing definitely is going to be pressured for MCOs and for the major insurers. Because you have more transparency, you have more comparability. Consumers themselves can look at the market and not be overwhelmed by all the ins and outs. Things have been made a lot simpler for consumers.
And that may be a good thing for the consumer, but that's not necessarily the best thing for the insurance companies because pricing is pressured. On top of that, you go back to the mandates that have been written into the law in terms of capping profits and how you can underwrite. That definitely is going to be a pressured situation moving forward.
Now, where a lot of the growth is going to come from is not necessarily from the exchanges. At first, you're going to get some uninsured coming into the market, but the government programs will be growing over the next several decades--Medicaid, Medicare--and many of the services insurances companies provide these programs tend to be a lot less profitable than a commercial or an individual private plan.