Health Care Reform, the “Constitutional Hazard” and Innovation

It would be entertaining to hear health-care experts debate whether health-care reform has been a catalyst or deer edterrent to innovation within the health care market.  On the one hand, tremendous uncertainty exists as to whether or not the health-care reform law, in part or in the whole, will withstand the constitutional challenges now working their way through the lower courts.

On the other hand, there’s no denying that the reform act and the escalating cost of care in general have spawned a tremendous surge of activity as market participants seek to cash in on the stated – and perceived  – changes that will take place over the next three to five years.

The events of the past week further underscored the dynamic nature of health care in 2011. The 11^th Circuit Court of Appeals affirmed an earlier decision striking down the individual mandate as unconstitutional.  Admittedly, the ruling was a divided one. And though other courts have affirmed the constitutionality of the mandate, the 11^th Circuit’s decision reminded us once again that we really won’t know for certain whether the Affordable Care Act will stand until the U.S. Supreme Court issues a final ruling.

In the meantime, the regulatory machinery tasked with implementing the Act churns forward.  Almost simultaneously with the 11^th Circuit’s decision, The Department of Health and Human Services announced that it was awarding more than $185 million in “Exchange Establishment Grants” to 13 states and the District of Columbia to support state-level implementation of health insurance exchanges, that  must be operational by January 1, 2013.  Dozens of other major initiatives either have been or are being implemented.

All of which presents a real policy dilemma and what I call a “constitutional hazard.”  Should policymakers take a go-slow approach with implementation until the Supreme Court provides a final ruling?  Don’t look for the Obama administration to do so anytime soon.  Or should the Supreme Court hasten its review of the legal issues?  The Court has already settled this question, having already denied a request for an expedited review. 

All of this introduces the possibility that the Supreme Court judges may be asked to factor into their deliberation the fact that so much has already been done to implement the law. They could decide that a full and outright repeal, while perhaps the legally correct outcome, would be so disruptive as to be unwise.  This is the “constitutional hazard” confronting us today.

If ever there were a reason for health-care decision makers to take a wait-and-see approach, this is it.  Except that underneath the storm cloud of uncertainty hovering over the health-care market, a high level of innovation is taking place.

Consider, for example, the announcement last week by Walgreens that this fall, the company would begin marketing health insurance to its customers through its own version of a health-insurance exchange. Walgreens will partner with selected health-insurance partners and attempt to use its enormous retail footprint to become a one-stop shop for all health-care needs. 

To understand the potential significance of this, ask yourself: When driving down a busy street, what am I more likely to observe – an insurance brokerage, or a Walgreens store?  If consumers show a willingness to buy insurance from the same retailer that sells them prescriptions, we may soon see insurance brokers working for Walgreens.

Other companies are also putting their toes in the health-insurance exchange waters.  Aon, the large national insurance consultancy, announced earlier this year that it would create a health-insurance exchange for employers with more than 1,000 employees.  The value Aon seeks to create lets large employers exit the business of administering health-benefit programs.  In the Aon model, a large employer simply decides how much to spend on health benefits and lets Aon do the rest.  For their part, employees presumably get more choices to select from, and avail themselves of more professional, simplified administrative support.

Within the broad uncertainty of health care reform implementation, there are then, at least two significant trends emerging.

The first is the growth of the retail, health-benefit consumer.  Whether through state-sponsored exchanges, a Walgreens exchange, or an Aon model, consumers are likely to take on greater decision making authority for their health-care benefits and the costs associated with them.  This will occur as employers take steps to cap their exposure for health-benefit programs.

Second, market participants are aggressively re-examining their traditional business models and markets and are looking to grow into adjacent markets that expand their footprint.  This is the case with Walgreens, but they’re not alone.  Hospitals are becoming health systems, and many will also become insurers within their local markets.

Whether driven by reform or the pressures of the market, change is afoot in health care.  I will leave it to others to decide whether all this change represents true innovation.