I was recently asked to blog for the alumni website of my alma mater, Stanford University, under the Living Well Blog. My role? I am focusing on how consumers should and can play a more engaged role in impacting the healthcare industry and therefore their own well-being, a topic I cover here as well. I wanted to share my post, which looks at what makes a savvy consumer.

I hope you are enjoying summer.

A few weeks after passage of the Patient Protection and Affordable Care Act (PPACA), I had a visit with my dermatologist and friend. She hadn’t gotten one foot in the door and said to me, “What does this all mean?” In reality, no one really quite knows for certain due to the size of the legislation.  The Department of Health and Human Services (HHS), responsible for implementing much of the legislation, is still studying and interpreting the 2,400 pages.

For those of you who are as questioning as my friend and doctor, I would like to share what I have gleaned about the legislation so far. For simplicity, I have broken the impact of legislation into four areas:

• Access to Insurance & Changes in Industry Practices
• Government’s Role
• The Costs of the Legislation
• The Impact on overall Healthcare Costs

1. Insurance Practice and Access to Healthcare

President Obama said “the legislation embraced the core principle that everybody should have some basic security when it comes to their health care.”  It puts in place significant changes around insurance practices and access to healthcare for those who did not have it or could face losing it.

Some of the most popular and straightforward provisions are enacted within a year or even sooner including:

• Preventing policies from excluding coverage for pre-existing conditions for children up to age 19.
• Prohibiting insurance companies from the practice of rescission which is when an insurance company cancels a policy after the fact because you had a pre-existing conditions that was undisclosed.
• Removing any payment burden on patients for immunization and preventive services.
• Requiring insurance companies to report medical loss ratio, which is the ratio of what they take in on premiums and pay out for medical care. The rest is left for administrative/operational costs and profit.
• Removing life time limits on benefits.

Even more immediate, states can create or expand their own high-risk pool or leave their residents to join a national one by June 23rd. This is for those who can’t get insurance right now due to pre-existing conditions. Access to this pool isn’t for certain. Some may not be able to join based on income levels and funding. Twenty states have notified the Department of Health and Human Services (HHS) that they are not going to set up one and will leave it to the federal government to handle.

An analysis by the Chief Actuary at the Centers for Medicare and Medicaid Services recently projected that money would run out for the state pools by 2012 versus 2014 when a permanent program is implemented, a serious issue for cash strapped states. As Governor Rendell of Pennsylvania shared recently, states would rather shift risk to the federal government and therefore the blame if it goes wrong.

The big news and one that has generated the legal challenges by twenty states is that starting in 2014, everyone must have health insurance. Both individuals and certain sized companies would face penalties for not having or providing insurance, which is why the IRS will be involved. Various levels of subsidies are planned if your income is four times poverty level or below to help offset that cost. The states have to 2014 to set up insurance exchanges for the individual and small group market (less than 100 employees).

In shopping for policies however there may not be as much variety, as the legislation sets a fairly aggressive minimum standards.

In total it is estimated about 32 million will have insurance who didn’t or about 10% of our population. Of those abut 15 million will be added to Medicaid. Medicaid is the health program for eligible individuals and families with low incomes and resources. It is a means tested program that is jointly funded by the state and federal governments, and is managed by the states.

2. Government’s Role:

Perhaps the biggest change is the federal government’s leverage and authority in managing the insurance market, a muscle they have already begun to flex. There was no public option created which many said would be the tool to keep the insurance market honest. Health Affairs founding editor John K. Iglehart wrote in the May issue that the Secretary of Health and Human Services is granted broad authority to launch an array of pilot projects to reform health care delivery and payment. He goes on to say that “thousands of pages of new federal regulations will have to be written, to govern everything from how the state insurance exchanges will operate to what must be in essential packages of benefits.”

In reading healthcare articles it becomes clear we will need to increase our vocabulary of new acronyms for public institutes and centers including:

O Independent Payment Advisory Board
O National Center for Workforce Analysis
O Patient Centered Outcomes Research Institute
O Office of Consumer Information and Insurance Oversight

These join other already established public entities such as the National Health Service (NHSC) Corps and the Office of the National Coordinator of Health Information Technology (ONC).

Of importance is the nomination of Dr. Donald Berwick to the Centers for Medicare and Medicaid Services (CMS), a post that has been vacant for several years. The government currently pays for more than half of health care in the US as of last year through Medicare/Medicaid. CMS is the largest single payer in the country by far.

Dr. Berwick is a well-respected advocate for patient safety and quality improvement and was the founder of the Institute for Healthcare Improvement. Dr. Berwick has played a key role of being a respected outsider, pushing the system to change, while actually having insider credentials.  His nomination is important as it underscores the administration’s belief in the power of enlightened leadership and more effective government intervention. It has also generated pushback, with detractors focusing on Dr. Berwick’s public support of UK health system.

Which leads us to the third area of focus, the costs of these new policies, laws, and institutions.

3. The Costs

The plan’s price tag is just over $1 trillion over 10 years (the CBO recently raised its cost estimate for the plan by $115 billion).  My back of the envelope calculation is that it will cost roughly $4500 to $5,000 per person per year to provide insurance for six years starting in 2014. There are other benefits such as support for community health centers, closing the Medicare Part D prescription drug coverage gap, and tax breaks for small employers who provide health insurance included in the bill.

This cost will be offset by a wide array of new taxes and cuts in Medicare spending in Medicare Advantage. The biggest tax will come from an increase in Medicare tax for couples earning more than $250,000. There is also new tax on unearned income such as dividends for the same earning bracket. There is a tax on almost all components of healthcare including pharmaceuticals, medical devices, and insurance policies. There is even a tanning tax.  Many expect these taxes to be passed on to consumers through higher costs.

I think of it as similar to my phone bill. While my basic package may be $29.99 there are four to five lines of additional taxes and while individually small, each one adds up to make my bill $43.99. Many are cynical that actual costs will not be as predicted. Adding to this worry was the debate whether the writers of the legislation were gaming the system to ensure the legislation was deficit neutral, for example, providing six years of benefits while initiating 10 years of taxes.

The sum total of the cost conversation is an American public leery of government legislation that isn’t funded and a perception that politicians have become experts at dispensing perks and favors. Spend now.  Pay later. A strong sign of this was the recent difficulty Congressional Democrats had in passing The American Jobs and Closing Tax Loopholes Act which extended unemployment benefits and offered the doctor fix of $65 billion to increase Medicare payments to physicians scheduled to be drastically reduced. This is something in years past that would have gotten little or no opposition.

4. The Impact on Overall Healthcare Costs

One goal of the legislation was to bend the cost curve of healthcare, on track to consume 20% of our GDP in less than 10 years. Proponents of the legislation say it will bring down the cost curve in general. How? The legislation funds the Patient-Centered Outcomes Research Institute to plan and help carry out comparative effectiveness research. The flip side is that the law actually states that its recommendations can’t be used to deny treatment. There are provisions for HHS to launch payment pilots for reimbursement for overall care of a patient or certain diseases. And finally there is a new Independent Payment Advisor Board with authority to recommend proposals to limit Medicare spending growth.

Interestingly, Dr. Atul Gawande, whose writings garner much attention, wrote a short commentary in the New Yorker in April saying, “The most interesting, under-discussed and potentially revolutionary aspect of the law is that it doesn’t pretend to have the answers.” I had a good chuckle when I read that line, as somehow I don’t think those were talking points many political leaders have been using.

A darker and more realistic picture is one painted in Michael Turpin’s excellent piece called Managed Care 2.0 which outlines what he envisions will be an environment of tense relationships as players try to deal with increasing costs.

My take is that the vast majority of Americans don’t expect to read headlines soon that healthcare costs are going down. I agree. Why? The fundamentals haven’t changed. Americans still by and large believe more healthcare is better. More now have access to it, we don’t pay the direct costs, and providers earn more the more they treat. This is a system destined for cost growth. It is incredibly complicated, and we just added more complexity. The government has shown equally disappointing job driving costs down in Medicare and Medicaid.  Past performance is the best indicator of future performance.

No mistake there will be intense “price” negotiations played out in the public such as those going on in Massachusetts and California between the states, insurance companies and providers. I see these more as power plays squeezing someone’s margin or costs but not changing the actual cost of service.  As a taxpayer, I glad to see the savings, but this will not get us where we need to be. It may force our best and brightest to leave healthcare and leave consumers actually at the mercy of negotiations and bureaucracy.

Which leads us to important question of participation and representation. If we are on a course for a future in which healthcare costs will consume the largest portion of government spending, we need to be vigilant as citizens. Warning signs of the future are the ones playing out in Europe. Government deficit spending has forced a very change in thinking about the cost of the financial and social safety net provided over the decades to its citizens.

Which brings us back to the statement from President Obama in heralding a new era of health security. In stepping back and reflecting on this statement, one has to wonder if we have purchased a false or short-lived security.

CBS Evening News shared results of a recent poll that one in two Americans say that life for the next generation will be worse than it is now, up from 32 percent last March. Just one in five expects it to be better. When I read this, I think we are talking about another country. Given our long national history of optimism, this is a sea change.

There is much at stake, and we need to be as engaged as possible. So next time you are at a summer barbeque and the conversation turns to healthcare, don’t look puzzled and go for the chips and dips, but offer what you know and see where the discussion goes. It is an important part of being a good citizen.