Tim Jost’s thoughtful analysis of the state of health reform concluded that the only practical means of accomplishing health reform is to find a short parliamentary path to some melded version of the two bills that passed the respective Houses. In a comment in response to Jost’s Post, I argued that even if the bills were reconcilable politically, they are structurally flawed, fiscally reckless and have irrevocably lost public support.   So Jost rightly asks: What is the alternative?

The options are constrained not only by political circumstances, but fiscal circumstances as well. The recession has seriously diminished the fiscal capacity of the federal government and has damaged the corporate cash flow on which an employer mandate depends.   The true cost of universal coverage is probably somewhere north of $1.6 trillion over ten years, not counting the employer “contribution”.  Capping these bills at a trillion dollars forced Congress to postpone realization of coverage expansion until 2014, left close to 20 million people uncovered after ten years, and placed an unsustainable burden on states, on whom the incremental cost of a 30% expansion of Medicaid would eventually fall. No wonder there was so little public support.   

Even if there were broad popular support for health reform, we just don’t have the money to achieve universal coverage in the present fiscal situation.  Absent universal coverage, the reforms of private insurance underwriting practices contemplated in these bills cannot be achieved without risking an explosive increase in premiums for the 160 million people presently insured.

So what we should do now is:

  1. create the infrastructure to support universal coverage based on an individual, not corporate, mandate
  2. make a down payment on coverage expansion by targeting two groups, and
  3. begin the complex structural changes needed to have a fiscally defensible universal system.

The heavy reliance on Medicaid expansion and the preservation of employer-based insurance were twin conceptual flaws in the approach taken by Congress. Passing the legislation pending in either House means committing to continued use of employer-based payment for another thirty plus years, an unwise commitment to a broken and probably unfixable model.  The Nixon-vintage policy idea of an employer mandate is long past its sell-by date and needs to be discarded; the US economy has irrevocably changed in the ensuing forty years, and health policy must change with it.

For this reason, the approach taken in Wyden Bennett needs to get a fresh, or indeed first, look.  Wyden/Bennett relies on an individual mandate, federally regulated individual private health insurance, and a system of tax-based vouchers to achieve universal coverage.  Importantly, Wyden Bennett also dismantles Medicaid and folds it into the private system.   Medicaid has reached the end of its useful life, and needs to have its two key functions — “safety net” long term care funding and medical assistance to low income people — redistributed to a new, publicly financed mainstream system that does not segregate the poor from the rest of the population. 

Even as Congress debated dramatically expanding Medicaid, states across the country are gutting their provider payments to cope with their existing enrollments.  The very affordability of Medicaid coverage as a coverage expander depends on unsustainable provider payment levels and puts the safety net we are going to continue to need at unacceptable risk.  Medicaid is destroying our care system, and is almost as much of a problem as the large number of uncovered people.

The principal problem with Wyden Bennett is that it continues to fund coverage out of the wage base, by converting the employer’s present contributions, estimated by CMS at about $800 billion in 2009, into a payroll tax.  The funding for universal coverage should be lifted from the wage base and placed instead upon consumption.

The most compelling possible economic stimulus plan would rechannel that $800 billion into wages through a maintenance of effort provision for employers and rely, per Victor Fuchs and Zeke Emanuel, upon a value added tax to fund the vouchers (the “capped funding pool” alluded to in my initial comment to Jost). We would also have to rechannel the federal and state contribution to Medicaid, presently about $300 billion and  $143 billion respectively, into vouchers to enable the poor in their states to buy coverage through a regulated private market. 

The political controversy over creating a value added tax, how to dismantle Medicaid and redistribute Medicaid dollars and how to realize the economic benefits from the transition away from the wage base for employers is not something we can expect to manage in the present political climate.  This is why we need an extended bipartisan discussion, one that transcends the present political moment.

So Congress needs to: 

A) Create and Fund the Infrastructure for Coverage Expansion now.  That would include:

  1. A single, national, Internet-based, health insurance exchange targeted initially at individuals and employers smaller than 20 employees. It is senseless and needlessly complex to create 50 state exchanges, and to commit to a huge regulatory apparatus to manage employer benefits as the present bills do.  This is a six to nine month, not a three year, build, if done properly with contemporary IT advisors and tools, or with private sector contractors.  Todd Park, the new Chief Technology Officer of HHS and founding CTO of athenahealth, is the ideal person to lead this effort. 
  2. A Medicare Commission with teeth. However painful it may be, Congress needs to let go of the reins and permit an independent body to set fiscally sustainable Medicare policy, both coverage and payment policy.   The absurd restrictions on the scope of this Commission negotiated by Congress with the provider community need to be stripped away.  You cannot contain Medicare spending without changing how and how much you pay hospitals and doctors.
  3. CMS Innovation Center/Initiate Pilots. To accomplish meaningful delivery system reforms will require federal infrastructure to manage the pilot projects on medical home, accountable care organizations, post acute bundling and changes in physician compensation immediately, and both funding and legal authority for CMS to implement payment changes when there is evidence they work and can be sustained.
  4. Community Health Centers.  Despite stimulus funding, Medicaid funding reductions are devastating the FQHC infrastructure in many states.  Funding for this vital, community-based infrastructure needs to be doubled, and payment levels maintained through the present economic crisis and beyond for the substantial number of uninsured who will remain uninsured even after coverage expansion.  As LoSasso and Byck establish in the Feb issue of Health Affairs, this program is a bargain.
  5. Primary care expansion.  As Massachusetts’ experiment with health reform has clearly established, primary care capacity is a major bottleneck in any meaningful coverage expansion.  Substantial increases both in Medicare and Medicaid primary care compensation are needed immediately, or the baby boom primary care docs we presently rely upon will not be replaced, and hospital emergency rooms will be flooded with newly covered people.  Fiddling with the National Health Service Corps is not broad-based or aggressive enough to fix this problem, nor can we afford to wait three or four year for pilot projects.

As you can see from this list, there are controversies aplenty just in “laying the groundwork”, but they need to be addressed in order to have a sustainable coverage expansion in five years.

B) Make a Down Payment on Coverage Expansion through Voluntary Enrollment.  

Congress should aim for quickly expanding coverage by at least ten million people by targeting two populations of uninsured. One target group is young people between ages 18-34, who have been hammered by the recession (and many of who have moved home because they cannot find work). There are 19 million of these folks, and they are the least expensive to cover. (Political reminder:  this was also the army of supporters who put President Obama in office).   If one abandons community rating and simply focuses on what these young people need (primary care, prescription meds and a catastrophic program for the rare hospitalizations they experience), it should be possible to cover them for $60-70 a month, a level where many parents would gladly pay.  This should be the first project of the new National Exchange.  

And though a brief trial balloon to do this was shot down by the hospital lobby in October, the shortest path to covering some of the nearly 11 million baby-boom vintage uninsured is to let them buy into Medicare early.  Medicare pays substantially more generously that most Medicaid programs, and the program could be restricted to those presently unemployed to avoid cannibalizing the privately insured population.  This will require subsidies for the low-income folk in this age group, and resources to help cover both populations, old and young,  should come from a special funding pool (see below).

C) Fund the Down Payment on Coverage Expansion with a temporary Soft Drink/Transfat Tax.

The coverage expansions should be funded with a meaningful (e.g. much more than 5c a gallon) tax on soft drinks and transfats.   The tax should be large enough to reduce soft drink and transfat consumption.  Obvious, a value added tax, if achievable, would provide a far broader funding base for expanded subsidies, but until it can be put in place, subsidies to fund temporary coverage expansions should come from a place that also accomplishes important public health goals in reducing obesity and vulnerability to heart disease.

D) Create a Commission of Inquiry on Health Financing Options.

It has been four years since Massachusetts passed its health reforms.  The results of this bold experiment have become shrouded in a fog of politics.  Despite an interesting colloquy in the policy community between Cato and Urban Institutes, the facts are not yet clear.    Is Massachusetts’ reform actually viable fiscally, and manageable from the care system point of view. How many uninsured remain in the state, and what has been the impact on corporate cash flow and on economic growth?

Beyond the US, both Holland and Switzerland executed significant health reforms based in an individual coverage mandate in the very same year, 2006. These countries come up repeatedly in discussions of other countries from whom we might conceivably learn how to achieve universal coverage.  How are their reforms working?  Have they accomplished their policy goals?  What have been the fiscal and operational consequences? 

To answer all these questions, and frame a transition plan to an individual mandate based universal system, Congress should create a bipartisan Commission of Inquiry, with an eighteen month mandate, to report to Congress on the implementation constraints and fiscal consequences.  By this time, economic recovery and a path to balancing the federal budget should clear the way for revisiting universal coverage.