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An Alternative Path On Health Reform: A Reply To Tim Jost



February 12th, 2010

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.

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1 Trackback for “An Alternative Path On Health Reform: A Reply To Tim Jost”

  1. uberVU - social comments
    February 12th, 2010 at 8:49 pm

2 Responses to “An Alternative Path On Health Reform: A Reply To Tim Jost”

  1. Brad Kirkman-Liff Says:

    Every discussion of the Dutch system and their individual mandate leave out the fact that approximately 48% of health care costs in the Dutch system is covered by a seperate system for “catastrophic” medical expenses. This coverage is provided by a single regional payer, and is funded by a payroll taxes. It covers long-term care, maternal and child health care, public health, developmental disabilities and mental retardation, home health services and a variety of other services.

    The Dutch did not include those 48% costs in the individual mandate because it would make the cost of mandated individual coverage too high and because the private insurers did no want to manage the risk for those catastrophic cases. Unfortunately, the result is a lack of coordination between the “catastrophic” coverage and the acute medical care plans.

    The USA could adopt from the Netherlands the idea of national or regional exchanges with competition among private insurers and risk-adjusted vouchers or subsidies for those with chronic conditions or low-income. But the USA could improve on the Dutch system by taking the experience with programs such as the Program of All-Inclusive Care for the Elderly (PACE) or the Arizona Long-Term Care System (ALTCS) which combine Medicare and Medicaid funding for the dual-eligibiles with case managment and disease managment. The 8 million dual eligibles account for nearly half of Medicaid costs and nearly one-quarter of Medicare costs. It makes little sense to continue having the 50 states responsible for funding long-term care for the impoverished elderly and disabled persons, when the Federal government is funding their acute care, and the split in responsibilites results in poor coordination and quality. Add long-term care and home and community based services for the elderly and disabled to Medicare, with income, asset and ADL eligibility. Then leave Medicaid a shared state-Federal program focusing on acute care, or roll it into the exchanges, and provide adequate vouchers so former Medicaid recipents can choose their coverage.

  2. Timothy Jost Says:

    I thank Jeff for his thoughtful and thought provoking, response to my earlier post. My support for the pending legislation is not based in a belief that it is the best possible solution to the current problems of our health care system, but rather because it provides a feasible framework for moving forward with health reform and because it is the only legislation that stands a chance of getting through Congress in the foreseeable future. If this legislation fails to pass, I simply cannot believe that the Democrats will try to get meaningful legislation through again any time soon or that the Republicans will let them. With at least some Democratic losses probable in the mid-term elections, the Democrats will not soon be in a stronger position than they are in now to get something through, perhaps not for a decade or more.

    I understand that the current reform program lacks strong popular support. I believe, however, that this is primarily because of the misinformation that has been spread and confusion that has been created concerning what the reforms would do. When the public is polled with respect to the specific elements included in the reform, polls still show strong support. I also do not agree that the Senate bill, the only current vehicle for reform, will cause explosive premium increases in the group insurance market. The CBO projects that the bill will have little or no effect on the large group market, which makes sense as few of the bill’s provisions apply to this market. It will probably increase the cost of insurance in the small group market to some extent, primarily because it will increase the value of small group coverage, but these increases will be offset to some extent by federal subsidies.

    I agree that Medicaid is a deeply flawed program. Were we to do it over again, I would hope that we would not create a state-based program for the poor. We did so, of course, for historical and political reasons. At this point, however, provider payments in many states are simply not viable, and must be increased. It is unfortunate that the Senate bill does not include the House provisions for increasing Medicaid primary care payments to 100% of Medicare with 100% federal funding.

    Medicaid, however, takes care of many functions that private insurance simply does not and cannot efficiently handle, including coverage for nursing home care and habilitative care for the severely disabled, which consume a third or more of Medicaid expenditures. The remainder of Medicaid’s functions could be mainstreamed, and perhaps should be, but mainstreaming would dramatically increase the cost of the current system, both because of much higher provider payments and because of the increased administrative costs of private insurance coverage. I am not sure that this higher cost would be politically acceptable. It seems to me that, at least in the short term, increasing the federal match is a better approach than abandoning the program.

    I agree that in the long-term employment-based coverage is not the best way to go. A number of European health care systems began as employment-based systems but evolved into universal social insurance systems. Our system simply got stuck, and should move on. For all of its faults, however, group insurance has much lower administrative costs than the nongroup market and is less vulnerable to adverse and favorable selection. Also, terminating employment-based coverage for 175 million Americans would in the short term be tremendously disruptive. We need to build an efficient nongroup market before we transition employees into it, and then do so over a period of time to minimize disruption.

    I am very supportive of a hypothecated tax for health care but am not convinced that we should replace income tax funding with a consumption tax. I do not claim to be an expert on taxation, but it seems obvious that a consumption tax is going to be regressive. Income is very unequally distributed in our society—the bottom 40% of households receive about 12% of national income, the top 1% get 23%. The bottom 40% spend virtually all of their income on consumption, indeed many probably spend more than their total income. The top 1%, on the other hand, it would seem to me, spend only a fraction of their income on consumption, investing much of it. One of the primary reasons why we currently have a massive budget deficit instead of the budget surplus that we enjoyed at the end of the Clinton presidency is because of huge tax cuts from which the highest income groups have disproportionately benefited. The House bill would fund health reform by taxing this group, and the Senate bill would at least increase their payroll taxes. It seems to me that this is the group most capable of bearing the cost of health reform, though I would be open to hearing more about a progressive consumption tax.

    I am supportive of all of Jeff’s specific proposals. I am completely in favor of a single national exchange, as I have written elsewhere. http://www.commonwealthfund.org/~/media/Files/Publications/Fund%20Report/2009/Dec/1364_Jost_hlt_ins_exchanges.pdf. I also support the Medicare Commission concept, CMS innovation pilots, additional funding for community health centers, and primary care workforce support, all of which are found in the Senate bill. I also supported proposals for Medicare expansion for those over 55, an idea that was killed as soon as it became clear that it was popular with progressives. I think that a soft-drink and transfat tax is a great idea, but when the proposal was floated briefly last year it met overwhelming opposition from special interest lobbying. None of these ideas, however, individually or in total are a substitute for the comprehensive health care reform found in pending legislation.

    Finally, I see little hope for a bipartisan commission. We had one a decade ago and it went nowhere. The Republicans have no interest in bipartisanship at this point and the Democrats have nothing to gain from it. We do know a fair bit about the Dutch (2006) and Swiss (1996) reforms. See, e.g. http://prescriptions.blogs.nytimes.com/2009/09/18/health-care-abroad-switzerland/
    http://www.commonwealthfund.org/~/media/Files/Publications/Fund%20Report/2009/Jan/The%20Swiss%20and%20Dutch%20Health%20Insurance%20Systems%20%20Universal%20Coverage%20and%20Regulated%20Competitive%20Insurance/Leu_swissdutchhltinssystems_1220%20pdf.pdf;

    http://www.commonwealthfund.org/Content/Publications/Fund-Reports/2009/Dec/Harnessing-Health-Care-Markets-for-the-Public-Interest.aspx

    The Swiss have not been very successful at controlling costs, and it is too early to tell whether the Dutch will do better. The Dutch seem to be more successful at controlling risk selection than the Swiss. But both countries enjoyed nearly full insurance before the reforms, so they did not have to deal with the primary problem we face.

    Jeff and I are neighbors, we live on opposite sides of the Blue Ridge, and we have agreed to get together soon to talk more about this. Perhaps we will write a blog post together at some point. In the mean time, I am learning from the dialogue, and thank Jeff for it.

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