Laura Tyson: What Obamacare Tells Us About Achieving Social Impact

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At the Institute, we consider it axiomatic that the most difficult public challenges require innovation across many sectors – government, for-profit business, nonprofit organizations, and philanthropists.

In a new column for Project Syndicate, our own Laura D. Tyson argues that we now have a template for such innovation from an unlikely source: the Patient Protection and Affordable Care Act, President Obama’s controversial health care reform.

“Innovation is probably the least discussed aspect of health-care reform,” writes Tyson, in collaboration with Lenny Mendonca, a former director of McKinsey & Co.  But when historians look back 25 years from now, they predict, “we think they will focus on how ‘Obamacare’ encouraged a wave of innovation that gradually tamed the spiraling costs of a dysfunctional system.”

The Affordable Care Act provided myriad new incentives to reduce costs, from reducing costly hospital infections and re-admissions to expanding the use of electronic medical records. More important, the ACA funded pilot projects in cities and states around the country in “accountable care organizations,” “bundled payment” systems and other innovations.

A central goal of these pilot projects has been to shift incentives so that health care providers are rewarded for better outcomes rather than for the number of procedures they perform. Many of the pilot projects aim to provide better coordination of care, especially for patients with numerous chronic problems. Such patients are among the 10% of patients who account for about 64% of health care spending.

These efforts appear to be having an impact. From 1980 to 2010, health care spending grew twice as fast as the economy. But from 2010 through 2013, that spending slowed to roughly the same pace as the U.S. gross domestic product. “Indeed,” write Tyson and Mendonca, “this period was characterized by the slowest growth in real per capita spending on record.”

The ACA, they write, “is an example of how government can promote innovation to address major societal challenges by providing goals, directions, and incentives, rather than dictating solutions.” They cite bold statewide experiments in Arkansas and Oregon, as well as a pioneering local program in Camden, N.J., that is now being widely replicated.

The lesson here is not simply about health care, say Tyson and Mendonca.  The broader point is that the government, working with private business, state and local communities, and nonprofit organizations, can tackle society’s most difficult problems in part by playing a role similar to that of a venture capitalist.

“Health care reform is just one example in which government can deliver what the public wants by setting goals, encouraging creativity, and providing the resources to scale up what works,” they write.

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