INTRODUCTION
MR. PAUL HOWARD: The Manhattan Institute’s
Center for Medical Progress encourages the development
of market-based public policies that promote medical
innovation and improve public health. In addition
to hosting conferences like this one, the Center
for Medical Progress publishes original and periodical
reports, books, and op-eds that remind policymakers
of the connection between healthy, well-functioning
markets and high-quality, affordable health care.
Our published material can be found at the Manhattan
Institute’s website: www.manhattan-institute.org.
Our title today, “Looking Back and Moving
Forward,” was meant to convey that current
New York policymakers have to look backward before
they move forward with comprehensive or universal
health-care reform. Today’s health-care markets
have been constrained in many ways, for better
and for worse, by the decisions of previous regulators,
governors, and legislators. Gridlock in Washington
over health-care reform has thrust states back
into their time-honored role as laboratories for
new social policies. This is, in many ways, a
welcome development. Just as Wisconsin led the
way in welfare reform, states like Massachusetts
and perhaps even New York can help guide the nation
toward a workable consensus on issues such as
covering the uninsured.
Our intention today is twofold. Our first panel
will explore the history of insurance reform in
New York, discuss the demographics of New York’s
uninsured, explore why insurance remains so expensive
in the individual and small-group markets, and
consider how various reform proposals can create
more affordable access to health care. Our second
panel will discuss reform experiments in other
states and explore the lessons that those efforts
hold for New York policymakers.
Douglas Holtz-Eakin, our luncheon keynote speaker,
is a former Congressional Budget Office director.
He will discuss whether health-care reform should
include an individual mandate to obtain health
insurance. Democratic presidential candidates
have proposed it, Republican governors have imposed
it, and health analysts have debated it. I’ll
let Doug decide where he stands.
It is now my honor to introduce Dr. James R.
Knickman, the first president and CEO of the New
York State Health Foundation. Dr. Knickman comes
to New York State Health with tremendous experience
and expertise in health-care analysis and policy
development. Prior to joining the foundation,
Dr. Knickman was vice president of research and
evaluation at the Robert Wood Johnson Foundation,
where he was responsible for external evaluation
of national initiatives. Throughout his fourteen-year
tenure there, he led grant-making teams in the
areas of clinical care for the chronically ill,
long-term care services, and population health.
From 1976 to 1992, Dr. Knickman served on the
faculty of New York University’s Robert F.
Wagner Graduate School of Public Service, where
he was active in community service directed at
improving health-care delivery to vulnerable populations.
He also served on a wide range of advisory boards
and published extensive research on issues related
to improving health services for homeless families,
frail elders, and individuals with HIV. Today
he serves as chairman of the Robert Wood Johnson
Health System and is a member of the editorial
boards of the Milbank Quarterly and Inquiry.
DR. JAMES KNICKMAN: We are pleased today
to formally announce and kick off the New York
State Health Insurance Consortium. An important
element of our foundation’s mission is to
assist efforts to expand insurance coverage in
New York State. Another element of our mission
is to increase public awareness among New Yorkers
about pressing health-care issues. Our support
for this six-institution consortium is motivated
by our interest in expanding insurance coverage
and in improving public awareness about health
issues. The consortium will focus on options for
insurance-coverage expansion.
In the book Good to Great, Jim Collins says that
the first step to being an effective organization
or bringing about positive change is to get the
right people on the bus. We have engaged five
excellent institutions to help us in this task:
the Manhattan Institute, the United Hospital Fund,
the Rockefeller Institute in Albany, Cornell University,
and Columbia University. We are pleased to build
on what has happened in Massachusetts, Maine,
California, and Colorado, and we hope that these
organizations can make a difference in our state.
Much misunderstanding exists about what will
happen if one approach to coverage is taken rather
than another. There are also many disagreements.
A reporter who called me yesterday asked if our
consortium was for universal coverage. I almost
didn’t want to answer because the question
of whether you are for universal coverage is politically
charged. I said that what we’re interested
in is expanding coverage; we’re interested
in universal coverage. We also want to look at
the downsides if every last person is covered.
We have to begin to build a consensus that will
take us from ideas to policy that actually helps
people get coverage.
We also hope that this group will do a fair amount
of convening, as we are doing today. Our consortium
will work closely with state decision makers:
analysis that is not tied to the policy debates
in Albany is probably worthless.
What types of work will we do? First, the group
needs to model the implications of alternative
options. We need to consider what makes New York
different from other states. Many models are based
on national data sets that you massage to look
a bit like your home state. In fact, New York
doesn’t have an average health-care system.
But it’s important to learn from other states.
We’re not the first state to think about
all this.
We also need to develop market incentives to
ensure that people use health care efficiently
and that providers deliver health care efficiently.
We need to work on understanding the market for
individual and small-group coverage. A fundamental
part of the problem is making that market work.
We will be launching a website that will present
many of our findings to a broad audience.
PANEL 1: NEW YORK’S UNINSURED: A HISTORY
OF GOOD INTENTIONS AND UNINTENDED CONSEQUENCES
MR. HOWARD HUSOCK: I’m vice president
for policy research at the Manhattan Institute.
We are pleased to be part of this new consortium
with the New York State Health Foundation. We
are glad that the foundation has gotten the consortium
under way.
The current presidential campaign has, more than
any other in recent years, highlighted the federal
government’s approach to health-insurance
policy. But as Dr. Knickman pointed out, for years
to come many key health-insurance policy decisions
and innovations will probably occur at the state
level. We’ve already seen Massachusetts implement
a very ambitious reform program based on a mandate
for all citizens to purchase state-negotiated
insurance plans. We hear that California may be
considering a similar plan, and we know that Governor
Spitzer is interested in this option as he ponders
how to address the challenging combination of
very high Medicaid costs and a significant pool
of the uninsured, each of which is pulling in
a different direction.
How should we think about the role that states
play in health insurance? More specifically, what
are the choices that New York faces? What are
the key factors that will influence those choices?
We’re very fortunate to have for our first
panel a group that can provide just this sort
of informed analysis. We see Jim Tallon, Tarren
Bragdon, and Mark Scherzer as a team complementing
one another.
Jim is going to provide historical context. Tarren
will offer some creative solutions focused in
part on the individual small-group plans that
Jim will discuss. Mark will critique both of them
and address the question of how their proposals
affect the most vulnerable, the group that we
always have to keep in mind when we go forward
with any health policy.
We’ll begin with Jim Tallon, president of
the United Hospital Fund in New York. Jim is the
former majority leader of the New York State Assembly
and former chair of the Assembly’s Standing
Committee on Health. He also headed Governor Spitzer’s
transition team, Healthcare Policy Advisory Committee.
He chairs the board of the Commonwealth Fund as
well as the Kaiser Commission on Medicaid and
the Uninsured.
MR. JAMES TALLON: I served for nineteen
years as an elected official in New York and for
the last fifteen years at the United Hospital
Fund, an independent organization focused in New
York City. It is a small analytic organization
that looks at health-policy questions. We are
not the trade association representing the hospital
community. A very active and effective trade association—the
great New York Hospital Association—represents
hospitals in New York City; Pat Wang, its senior
vice president, is here today.
Many people in our discussion today would like
to see the balance between government and markets
shift more in the direction of markets. Philosophically,
I don’t necessarily start there, but I always
enjoy a conversation with people who have a different
point of view. I’m representing a mixed market
and government system in this conversation. I’ve
just done six public hearings around the state.
Mark Scherzer has been with me, at the request
of the governor. On health-insurance questions,
there is a strongly held point of view that government
should take on this responsibility. This point
of view is rooted in the experience of sitting
through hearings and listening to testimony from
patients who get caught up in the complexities
of our current payment system.
Also testifying are health-care providers, hospitals,
and particularly physicians, who say that the
bargaining relationship between insurance and
health care is balanced in favor of the insurance
industry. Some physicians argue that the insurance
industry varies administrative procedures and
practice standards not to achieve efficiency but
to systematically be able to deny claims. We’re
not going to spend a lot of time on that subject
today.
Upstate New York—outside New York City—has
a fairly traditionally organized health-care system
of community-based physicians, community-oriented
hospitals, and referral centers. It has a traditional
pyramid structure, which serves 9–10 million
New Yorkers who are outside the New York City
metropolitan area.
Downstate New York is very different. The downstate
system did not emerge from 1965 with Medicare
and Medicaid. There has been a societal presence
and sense of obligation for the provision of health-care
services in the New York metropolitan area, whether
manifested by a tradition of public hospitals—which
in 1970 became the Health and Hospitals Corporation,
still operating the largest public hospital system
in the country—or the voluntary, not-for-profit
hospital system, which has its roots in the ethnic
and religious communities of the nineteenth and
early twentieth century. This not-for-profit system
developed an academic orientation and significant
teaching focus. Upstate, I may be looking at community-based
physicians and providers of care; downstate, I’m
looking at access points largely in hospital clinics
and community health centers with staff physicians,
faculty practice physicians, and a residual community
physician structure.
In the principal orientation of health care,
the insurance side in New York developed from
the 1930s. The United Hospital Fund actually incorporated
Associated Health Services of New York, which
became Empire Blue Cross Blue Shield in 1934.
From the 1930s through the mid-1980s, we had a
dominant not-for-profit insurance structure. State
law includes a prohibition on ownership of health-care
facilities by publicly traded corporations. Interestingly,
that prohibition did not extend to the financial
side. While there was a tradition of not-for-profit
provision of health-insurance services, the commercial
insurance industry developed as an adjunct to
the life-insurance industry in the 1950s through
the 1970s. Therefore we’ve had a mixed for-profit
and not-for-profit orientation in health insurance.
Another trend line is state oversight growing
from this social welfare tradition of responsibility
for community services. We see increasing activism
by state government. In 1965, New York adopted
health planning and the nation’s first certificate
of need law. In 1969, it required Medicaid rates
and Blue Cross payment rates to be set off a common
pool to guarantee Medicaid beneficiaries access
to city hospitals. In the early 1980s, when I
was in a leadership role in the State Assembly,
we adopted a rate-setting system in which government
sets the overall payments for all insurers from
Medicare to city hospitals.
The final trend line is based on Nelson Rockefeller’s
guidance on the state of New York’s responsibility
to take an active role in health care. If one
wants to go back to Rockefeller and Reagan as
the governors representing the left and the right
coast, moving forward from the 1960s, they develop
different visions. Medicaid came along, and Nelson
Rockefeller said to a former governor of New York—and
this is a gross oversimplification—“We
have a tradition of doing all these things in
New York. Do you mean that the federal government
is going to pay for half of them?” We took
that opportunity and that vision from Nelson Rockefeller
and carried it through on a bipartisan basis to
this very day.
We have a significantly developed Medicaid program.
Forty-three percent of the state’s expenditures
go for long-term care services, while 7 percent
are direct subsidies into the health-care system
to enable it to care for large numbers of uninsured
patients. In the long-term care side of about
$20 billion in expenditures, about $10 billion
is what might be called “traditional long-term
care,” for the elderly and the younger disabled.
The other $10 billion is for the severely mentally
ill, the mentally retarded, the developmentally
disabled, and former substance abusers, who, in
an earlier time, were the direct responsibility
of the state.
The state’s decisions on insurance laws
in the early 1990s were well intended, but an
unintended consequence occurred in 1987, on my
watch. We had an all-payer rate-setting system.
Medicare had withdrawn after some initial years,
but the state was responsible for setting Medicaid,
Blue Cross, and HMO rates. The system that made
Blue Cross the dominant carrier was about to expire.
Blue Cross was writing 77 percent of hospital
insurance in New York City in 1987. The HMOs came
to us and argued that managed care is more efficient,
using services paid on a diagnosis-related group
(DRG) per episode admission rate. They noted that
they were actively reducing the length of stays
and needed the ability to gain that value back
in the market for themselves. They wanted to negotiate
rates with the hospitals, and we decided to allow
them to do so. To build protection, we put into
law a provision stating that those rates as negotiated
had to represent the totality of costs for caring
for the population for which they were responsible.
The unintended outcome was that the state government
never enforced that provision. The state essentially
said that if two consenting adults—that is,
the hospital and the insurance company—agree
that it is a fair deal, who are we to second guess
them? In the following four to five years, two
aggressive HMOs—one focusing on a good doctors’
market, the other on a tight cost-control strategy—in
effect ate Empire’s lunch and significantly
diminished the number of Empire’s enrollees.
In the early 1990s, a large number of the state’s
residual enrollees in Empire Blue Cross Blue Shield
were almost trapped, because as they looked for
other opportunities they met the commercial health-insurance
industry. Our state legislature also met the industry.
But as we looked at this challenge, the practices
that we found surprised members of the legislature,
who had been living in this New York pooled environment.
Women pay more; even in current assigned high-risk
pools, women pay double what men pay. Occupations
were blacklisted. I’ll never forget the combination
of construction work and interior design that
was on the list. We found the exclusion of body
parts. We also found that insurance companies
used lengthy questionnaires where an applicant’s
mistakes became the basis for denial of subsequent
claims. Part of the question in today’s debate
is whether a private health-insurance industry
that doesn’t serve sick people is still relevant.
The first rule of “health-insurance school”
is to cover healthy people. Those who are chronically
ill and at higher risk should go somewhere else.
In 1995, the legislature did its first round of
community rating, a guaranteed-issue open enrollment,
and a subsequent round of insurance reform leading
to the current law. The legislature wrote the
law in response to the large number of enrollees
facing huge rate increases under their residual
Empire plan, while the health-insurance industry
was not welcoming those who fell into any of the
disadvantaged categories.
Based on testimony from the carriers and brokers,
my sense is that, even if the small-group market
in New York tends to be more costly than it is
in other places, it is an open and competitive
market. People have said: Don’t touch the
small-group market in New York; you have a competitive
environment now. The direct-pay market is clearly
broken. Whether that is because we have not executed
on our own subsidy strategy, or whether that market
ought to be pooled into larger markets, will be
debated in the remainder of this conversation.
MR. HUSOCK: Our next speaker, Tarren Bragdon,
is a health-policy analyst at the Manhattan Institute’s
Empire Center for New York State Policy in Albany.
He is the author of a publication being released
this very day: Rx New York: A Prescription for
More Accessible Health Care. He is also a former
member of the House of Representatives of the
state of Maine—the youngest person ever elected
to that body, where he served on the Joint Standing
Committee on Health and Human Services and subsequently
played a role in the development and enactment
of the Maine Consumer Choice Health Plan, a state-administered
consumer-choice exchange. In addition to his ongoing
role at the Empire Center, Tarren will become
the chief executive of the Maine Heritage Policy
Center.
MR. TARREN BRAGDON: I want to talk about
the uninsured in New York and discuss some characteristics
that are too often overlooked. What are some characteristics
of states that are doing a better job of covering
the uninsured, and how can we expand private insurance
options for individuals in New York?
There are two approaches to reaching the uninsured.
One is to expand public programs to higher income
levels. The second approach is to maximize private
coverage, reserving scarce public dollars for
very select populations who most need subsidy
or assistance. These two approaches are not always
mutually exclusive, although they appear to be
in New York, particularly as of late. I had the
opportunity to attend some of New York State’s
Partnership for Coverage hearings and testified
at the Rochester hearing. I was surprised at how
much emphasis was placed on public program expansion,
with very little discussion on how to make private
insurance options more affordable and accessible.
When we look at the reality of public program
expansions, we need to remind ourselves of how
large New York’s Medicaid program already
is: it costs $48 billion—as much as the Medicaid
program in Texas, Florida, and Pennsylvania combined.
I’m not sure how much larger you can go,
in theory and in practice, in an attempt to cover
the uninsured. In fact, many states have a lower
portion of their population uninsured compared
with New York. Those states have more people with
private coverage, not more individuals on public
coverage. If you look at top-performing states
at covering their populations, they are top-performing
because they maximize private opportunities, not
because they have larger public programs than
New York has.
If you look at just one population—children—you
can see this even more dramatically. Eleven states
have a lower rate of uninsured kids than New York
has. Nine of these states had SCHIP or Child Health
Plus eligibility levels below New York’s
before the expansions. Nine states with a lower
rate of uninsured have SCHIP income-eligibility
levels below 250 percent of poverty. The strategy
to maximize coverage of individuals is to maximize
private coverage opportunities so that you can
target scarce public dollars to populations that
particularly need assistance.
It’s important to understand that the uninsured
are a diverse population. There is a notion that
all the uninsured work for one particular small
business and that if we could only find that small
business and cover them, we could pat ourselves
on the back and go home. But in reality, it is
a diverse and dynamic population.
What we’ve seen in New York over the last
seven years is not an erosion of employer-based
coverage. We’ve seen the uninsured rate hold
fairly steady: about 17 percent of New Yorkers
under 65 were uninsured in 1999, and today it’s
about 16 percent. That’s different from what
other states are experiencing. As we’ve shrunk
options for people who don’t get coverage
through their employer, and made it more difficult
for people to find private coverage opportunities,
we’ve had to expand public programs but have
really just shifted people from private to public
without getting a significant portion of that
uninsured population.
I want to go through the statistics that pertain
to the uninsured population, because they’re
often overlooked when we try to simplify solutions
to covering the uninsured. About half of the uninsured
are young adults, aged 18 to 34. About one-third
are aged 35 to 49, and only one in six is near
retirement—aged 50 to 64. The average age
of the uninsured adult is 36 in New York—that’s
five years younger than the average person with
private coverage.
Almost a third of all the uninsured in New York
are noncitizens—legal as well as illegal
immigrants. If you look at public program expansions,
many of the federal Medicaid rules and regulations
do not allow you to capture this population, and
this is a significant uninsured population at
all income levels. Almost one in three noncitizens
earning over $75,000 a year in New York State
is uninsured. These are individuals who, for whatever
reason, don’t have access to employer-based
coverage and have no place else to go.
Some 90 percent of the uninsured are in good
health. Jim talked about how past legislative
efforts have focused on protecting the sick and
those most in need of health insurance to pay
claims. That’s critical. You need to have
a functioning safety net that takes care of those
populations, but you don’t want to penalize
everyone else with a nonfunctioning private-sector
safety net so that these healthy, young individuals
have no place to go but their employer to get
coverage.
Two-thirds of the uninsured have no dependent
children. About two-thirds of the uninsured are
single. If you have no dependent children, the
consequences of not having health-insurance coverage
are less significant. We need to understand that
because the coverage options that are attractive
to single individuals who are not parents may
be very different from the coverage options that
are attractive to individuals who are older, have
dependent children, and are in different life
circumstances. We also need to recognize that
health-coverage options change over time. The
health insurance that you are interested in at
age 25 might be very different at age 35, 45,
or 55. We need to recognize that this one-size-fits-all
approach may be very simple and equitable, but
it’s not effective or realistic for what
people actually need and what they can afford.
Sixty-one percent of the uninsured have incomes
of over $25,000 a year. One-third earn over $50,000
a year, and this is household income. Again, the
vast majority of the uninsured are single and
are not parents.
The majority of the uninsured lack coverage for
a very short period of time; seven out of ten
adults who become uninsured will become reinsured
within a year. This is a temporary situation for
a large number of people who find themselves uninsured
on any given day or month. What people need temporarily,
when they are between jobs or when they are working
through a waiting period before they can get health
insurance through an employer, is very different
from what they might be interested in having as
their permanent health-insurance plan.
Jim highlighted the death spiral of New York’s
individual market. The individual direct-pay market
is where those who don’t have access to insurance
through their employer can go to buy coverage.
Indeed, it is the only place where one can go
to buy private, nonsubsidized coverage.
In 1993, there were 750,000 people in this market
in New York. Today there are 57,000: that’s
a [92.4] percent drop. If you look nationally,
the individual direct-pay insurance market is
the only growing private insurance market. A functioning,
affordable, private-sector safety net is critical
if you’re going to give people affordable
unsubsidized insurance options so that states
can direct scarce public dollars to those individuals
most in need.
About 2.2 million New Yorkers don’t have
access to health insurance through their employer.
They are working, but either their employer does
not offer coverage, they’re in a waiting
period so they cannot sign up for coverage, or
they choose not to sign up for coverage.
Sometimes I think that as policymakers, we too
often try to be innovative when we need to be
effective by learning what other people are doing
well and replicating it.
My Rx New York report provides seven policy recommendations.
One, we need to have more flexibility and allow
more competition and innovation in New York’s
small-group and direct-pay markets. Large companies
in New York pay premiums at the same rate as large
companies in the other 49 states. However, the
small-group and direct-pay markets are paying
a much higher premium.
Two, we need to provide people with temporary
insurance opportunities. Seven out of ten uninsured
adults are uninsured for less than a year. New
York is one of five states that does not allow
temporary health-insurance plans.
Three, we need to ensure that people have access
to tax-free health insurance through a Section
125 plan through their employer and encourage
as many employers as possible to offer health
insurance. If you look at employers who simply
offer and pay a very small share of the premium,
the vast majority of employees do enroll. It’s
a very efficient way for them to get health insurance.
Four, we need to ensure that we have incentives
that encourage employers, particularly small employers,
to offer health insurance.
Five, we need specific strategies to reach out
to noncitizens with targeted private insurance
plans that respond to their unique needs, which
may be very different from those of other uninsured
populations.
Six, we need to look at Medicaid eligibility.
For example, we have an odd formula driven by
the federal government offering a fertility bonus.
The more kids you have, the more you can make
and still qualify for the program, which is ridiculous.
It doesn’t reflect cost-of-living differences
or account for who is truly poor versus who is
middle-income but has a lot of kids.
Finally, we need to take a new approach when
we look at Medicaid eligibility and move to fixed-income
levels that may even vary by region.
MR. HUSOCK: Our final speaker is Mark
Scherzer, an attorney in New York and the legislative
counsel for New Yorkers for Accessible Health
Coverage, which is a coalition that has advocated
for health-insurance reform at the state level
for the past fifteen years. He serves as cochair
of the Consumer and Patient Rights Committee of
the New York State Bar Association’s Health
Law section. Mark has been awarded Lambda’s
Liberty Award for his work on insurance cases
involving HIV/AIDS patients.
MR. MARK SCHERZER: New Yorkers for Accessible
Health Coverage is a coalition of voluntary health
organizations serving the seriously and chronically
ill and disabled in the insurance system. It was
organized in 1991, when we faced a crisis in New
York with Empire Blue Cross. It was formed because
we had many high-cost consumers—our constituents—who
are a small minority of the overall population
but spend a very large majority of our health-care
dollars. They are the bane of any insurance system,
of public policy, and the Medicaid system. While
many of these constituents are covered through
public programs such as Medicaid or Medicare,
many of them also rely on private insurance. They
are people who worked for 20, 30, and 40 years
and suddenly found themselves ill but were able
to enter the marketplace through their employers
or on their own.
Our concern has been very closely tied to the
individual market that Tarren spoke about. Tarren,
to some extent, was comparing apples with oranges
when he talked about shrinkage in the individual
market. I don’t think we had 750,000 people
in that market at any given time. That’s
based on census figures, and if you looked at
the same census figures today, you would find
that they still think that we have several hundred
thousand people in that market. We know how many
people are in the market based on assessments
from insurance companies in our insurance pools.
There has been significant shrinkage, and it’s
a very broken market, which is a great concern;
but it hasn’t been of quite that dimension.
The individual market—for people who don’t
get coverage through their employers—is a
residual market. It tends to go down in size,
for example, when the economy is better and more
people are getting jobs. It increases when people
lose their jobs and have to get coverage on their
own. It’s a market in which people have to
buy coverage without getting it through an employer
at those favorable group rates and usually without
any subsidy.
If you have a voluntary market and you have one
with easy access—as New York does, which
we think is a good thing—it’s clear
that the people who are going to buy insurance
under those circumstances tend to think they’re
going to need it; and the young, “invincible”
people who may think they’re never going
to get sick are not going to purchase it. It’s
what the insurance industry calls a situation
of adverse selection. You’re going to attract
sick people to that market.
I agree that we had good intentions and unintended
consequences, but this framework connotes a certain
narrative. It says that we thought we were going
to solve the problem through regulation, but we
didn’t, so we need to go back to market-based
approaches. There are a lot of nuances in this
situation, and I want to go into the particulars
of the evolution of the market because there are
important questions. Is it a problem with the
basic architecture? Did the architect screw up
the design? Is it a problem of how the builder
built the design and whether the builder followed
the architect’s plans? Is it a problem with
maintenance? There are different ways a system
can go awry, and all those elements have some
role to play, but I would probably differ with
Tarren on the source of the problem.
I’m not sure that there were good intentions
underlying every decision. Just after 2000, there
was an ideologically driven devotion to the idea
that an insurance market with very generous benefits
open to sick people, instead of one where people
took personal responsibility for their own health-care
costs, was not a good thing.
Let’s pick up the chain where Jim left off
in 1991. At the time, the state had an underwritten
health-insurance market. Many other states now
have a system in which insurance companies can
turn down people based on their health, can exclude
body parts, or insure the family but exclude a
kid with asthma. We had a variation in premiums
based on health. Empire Blue Cross proposed as
a remedy for that situation that it was going
to act more like a commercial insurer. This is
where my constituents really became activated.
Empire Blue Cross decided to resolve the problem
by accounting for the population of insured people
at the time—people who may have been paying
premiums for the last 30 years but had recently
become sick—and telling them that if they
were now unhealthy, their premiums would increase
dramatically, and if they were healthy, their
premiums would be reduced. That way, Empire Blue
Cross could continue to compete for business with
commercial insurers without taking the financial
hit it had been taking.
Our people—driven largely by AIDS activists
in coalition with people with multiple sclerosis,
cancer, and other serious and chronic illnesses—said
that that was not fair. The whole idea in the
insurance system is that you pay in when you’re
healthy, and then, when you need the benefit,
it’s there for you. You don’t get punished
down the road by an increase in your premiums
because you happened to have become sick. Why
not make the commercial companies look more like
Empire? That’s where we came up with the
idea that in New York, everyone would pay in the
small-group and individual markets and pay the
same rate, regardless of age or sex. Everyone
would have an opportunity to enroll, and that’s
how we’d resolve the problem.
The policy seemed to work fairly well in the
small-group market. Admittedly, New York has problems
in the small-group market, and we can discuss
some of the ways that those problems can be addressed.
In the individual market, the solution was very
market-based—everyone plays by the same rules
in the same market. Every insurance company other
than Empire left the individual market so that
they wouldn’t have to take on all this adverse
risk.
By 1995, Empire was losing $10 million a month
on its individual consumers and felt in financial
jeopardy. We debated whether we could take care
of sick people through high-risk pools, which
many other states have, and which Tarren recommends
we think about again for New York. Consumer groups
like ours looked at the high-risk pools in other
states. We found that states like Florida had
basically closed their pools—if you were
a sick individual, you could not purchase a policy.
States like Illinois had very long waiting lists,
while South Carolina excluded coverage of HIV/AIDS
in its high-risk pool. Other states made people
in those high-risk pools pay premiums of up to
five times the standard average premium.
We found that, based on what we saw in these
states, high-risk pools would be at the mercy
of political decisions, instead of being a market
where the welfare of a much larger group would
be at play. We rejected that notion strongly and
advocated trying something else. We suggested
distributing that social function of covering
the sick across the whole marketplace, and asking
every HMO to give everyone a standardized policy
and deal with the problems of adverse risk through
risk adjustment. We are still largely trusting
in the marketplace. There was a trade-off for
industry, which was that we deregulated rate-setting.
We allowed the industry to bypass rate hearings
if it wanted to increase rates. But even that
was not enough to control costs in the individual
market, which still had about twice the incidence
of very high-cost diseases as in group markets,
and twice the expense to be covered.
By 2000, when we were seeing rate increases of
60 and 70 percent a year in the individual market,
we decided to do something else in New York, which
was to subsidize through a broadly based scheme
a stop-loss system. The idea of the stop-loss
was to remove the financial effect of the sick
people from the market by covering the high-cost
claims. When you got to a certain point of expenditure,
the system would cover a good portion of high-cost
claims using publicly financed pools generated
by assessments on insurers. The Healthcare Reform
Act of 2000 ratcheted up the subsidy for the high-cost
pool over a period of three years. Then we stopped
with the Healthcare Reform Act of 2003.
The market remained relatively stable in size
from 2000 to 2003. The dramatic drop-off, from
more than 110,000 people in the individual market
down to the 57,000 in that market today, took
place in the last four years.
In the last four years, though health-care costs
increased at the rate of 14–15 percent a
year or more, we stopped increasing the subsidy
for the stop-loss pools. Insurance markets are
fairly precarious, and that market then fell apart.
I think that Tarren and I both assume that the
voluntary market cannot sustain the presence of
a whole lot of sick people on its own and requires
a subsidy from a very broad source of financing.
In other words, you can’t ask a market of
sick people to subsidize one another’s costs
effectively and continue to operate as a market.
Tarren and I would differ on where a stop-loss
system should be used to fund the high-cost claims.
In New York, we’re funding only about 40
percent of the claims that are eligible for subsidies
now. How can we think we have an effective system
if we’re only financing 40 percent of the
costs that might be eligible?
And there are questions about whether the design
is sufficient in what we consider eligible costs.
Do you remove the people, or do you remove the
financial effect of those people? Do you want
to reintroduce to New York something that we’ve
eliminated, which is the administrative cost of
underwriting people? After all, we hear about
administrative costs being a big part of the problem
of the cost of insurance. Are we going to provide
enough to finance it? The assessment that Tarren
reported of $54 million is barely more than we’re
providing now, which is an ineffective subsidy
for the high-cost claims. Would you do it through
an adequate benefit structure, or are you going
to do it through a comprehensive one?
If you want an effective insurance system, you’re
going to need to deal with the problems of the
sick people who drive the cost in that system.
Sick populations are not going away, and we need
to have a solution that provides them with adequate
care in a way that allows them to continue to
contribute to the cost through their premiums
and not rely entirely on the public system. You
can’t have it both ways. You can’t attack
a public system and then force people into it
by removing the possibility of continuing to participate
in the private one.
MR. HUSOCK: With regard to how we deal
with the high costs of the present system: in
last week’s Washington Post, Robert Samuelson,
in a provocative column titled “Rx for Health
Care: Pain,” said that we have no incentives
in the present system for containing cost. Jim
referred to this wink-and-nod relationship between
insurers and providers, with government not taking
an active role. Mark is saying that we have to
find a broad-based way of supporting these costs.
Tarren is implicitly saying, “No, we have
to find a way to give people incentives to control
costs.” But Samuelson makes the very broad
point that the absolute level of cost is so high
that, as he put it, “it’s crowding out
a tremendous number of very important other public
needs that government should be investing in.”
How can we think about controlling costs in a
humane way?
MR. TALLON: Obviously, whether we are
at 16 percent GDP, or move to 17 or 18 percent,
there are trade-offs. But in an aging society,
with the technological promise that health care
offers us, it is not wholly clear that spending
less money on health care is an absolute value
to be sought. I understand the dilemma. All our
mechanisms—whether they’re government
taxation or market mechanisms—are strained
by that growth.
America works on the cost-controlling model,
which is based on a belief that the physician
asks himself each day how he can reduce health-care
costs. Maybe some doctors do decide to go into
primary care and not one of the specialties that
attract them. Along comes the patient, who is
forced to spend a lot of money on health care.
Going forward, the tough issue is whether in this
environment market competition can control cost
growth, or whether we need the aggregate power
of society exercised through government to take
out those excesses that, at least when you compare
us with the other OECD countries, seem to stand
out.
My sense is that the debate going forward is
about throwing more risk at the patients. Doing
so essentially discriminates against sick and
lower-income people, and we as a society choose
not to confront that systematically, sector by
sector, in health care.
MR. HUSOCK: To paraphrase Jefferson, we’re
getting the health care we deserve or that we’re
implicitly asking for. Mark, should we care about
controlling costs?
MR. SCHERZER: There are ways to do so,
although some involve spending money on public
health preventive-care and primary-care initiatives
that could bring down the incidence of chronic
and serious illness or avoid their complications,
recognizing that preventive care and primary care
are important elements in the system. But those
are very difficult decisions to influence and
control in a system that relies solely on individual
decisions in the marketplace and that is hesitant
to use governmental mechanisms. There are ways
to reduce costs. Other countries reduce costs
much better; their ways don’t involve shifting
a lot of cost to the sick people, although they
may avoid creating the sick people to begin with
through prevention.
MR. HUSOCK: Can we reduce costs, Tarren,
without shifting costs to very sick people?
MR. BRAGDON: Absolutely, but what you
need is, on both the provider and the insurance
side, a functioning market. We have the same dilemma
in every other aspect of the economy, where there
is a push-pull between what consumers are willing
to pay and the cost of providing a particular
service. Other services are just as life-sustaining—whether
it’s food, shelter, clothing, or having a
job—and for some reason, we trust the free
market and the economy to function in a way that
creates balance between the two and allows innovation.
But in the health-care world, we lose our basic
understanding of economics and say that only government
can wring out these savings under a command-and-control
structure. We’ve tried that here in New York.
Jim has articulated a multi-decade strategy. Maybe
we need to try a more rational approach and at
the same time recognize that we need to give people
more options. Sometimes, whether it comes down
to health-care providers or to health insurance,
people will make choices that are different from
the choices you and I might make. That’s
what happens in a free society.
MS. ELIZABETH BENJAMIN: I’m from
the Community Service Society of New York. I thought
you began your statement by saying that the states
with lower rates of uninsured tend to have large
privately insured populations and very small Medicaid
populations. But it seems to me that Maine has
the largest Medicaid population, according to
your chart. Rhode Island, also on your list of
low uninsured states, also has a large Medicaid
population. Is there a disconnect in your analysis?
More important, I want to know more about Maine’s
Dirigo health plan. Maine is often talked about
as one of the three New England states that first
moved forward on universal coverage, and I thought
you might have insights on that, since you’re
from the state.
MR. BRAGDON: The consequence for Maine
of not having a functioning private market is
that it has had to expand Medicaid, because people
don’t have any kind of affordable private-sector
safety net.
The best-selling plan in Maine’s individual
market is a $5,000-deductible plan available for
$260 a month for an individual in any state of
health who is under age 30. The odds of their
using that plan are less than 5 percent, so only
very sick people are in that market. Medicaid
has been expanded to provide them with coverage.
Maine, like New York, is dysfunctional. It’s
one of five states with guarantee issue and community
rating in this private-sector safety-net market.
We need to become more functional in both New
York and Maine. Dirigo tried to correct this by
subsidizing the current insurance regulations.
It has a tiered subsidy formula, up to 300 percent
of poverty. Some 60 percent of people are in the
highest subsidy category, and 80 percent of people
are in the highest two subsidy categories. Maine
has spent $45 million a year and reduced the uninsured
population in Maine by less than 10 percent.
MR. STEVE ELKIN: I’d like to know
why I cannot get a high-deductible health-insurance
policy or a medical savings plan in New York State.
MR. TALLON: You can buy one if you are
in any of the group markets in New York. You cannot
buy it in the direct-pay market in New York. We
fully concede that the direct-pay market needs
to be broadened. One proposal is to blend the
small-group and direct-pay market into a broader
pool—put 60 thousand people into 2.2 million.
You’d have to have some subsidies.
Another proposal is to pool the direct-pay market
and run it as a separate, adjunct pool administered
on a statewide basis. There are several other
proposals. But clearly, in New York you cannot
get a high-deductible health-insurance policy
or a medical savings plan now.
If I sell you that high-deductible product directly
in New York, then by definition my public policy
is going to be that those who are older or have
a higher health risk and don’t benefit from
that policy are going to end up paying more. The
arithmetic from a public-policy point of view
leads me to question that solution.
MR. SCHERZER: The idea behind New York’s
requiring uniformity of policies in that market
was to avoid segmentation, in which healthier
people would peel off. We’ve allowed segmentation
in other ways. We’ve allowed sole proprietors
of businesses to peel off into their own separate
pool so that they’re no longer supporting
individuals who are not sole proprietors of business.
I don’t think that the population of seriously
and chronically ill people particularly cares
whether people are allowed to have these high-deductible
plans. Our concern is that every time more people
are allowed to peel off into some other product—and
it’s the healthier people who are going to
do so—the sicker people are going to be left
without other cross-subsidies that they need.
It’s perfectly fine and justifiable if that
subsidy is coming from a much broader financing
base—for example, the tax system—but
it should be coming from somewhere. It is our
inability to state that this will be a private
market system because it involves individual insurance—versus
stating that this is where government has a role—that
has inhibited us in allowing more variation in
the marketplace. We’re insisting that the
marketplace solve the problem and not saying that
it is a broad governmental responsibility to solve
the problem of how to pay the cost of sick people.
PANEL 2: PUBLIC SECTOR EXPERIMENTS: MANDATES,
MEDICAID, AND MARKETS
MR. PAUL HOWARD: States have taken the
lead on health-care reform, and none in a more
prominent or interesting way than Massachusetts.
We have with us today as our first speaker Jon
Kingsdale, the executive director of the Commonwealth
Health Insurance Connector Authority. Jon will
be discussing the Connector Authority. He will
be followed by Ed Haislmaier of the Heritage Foundation,
who will discuss what aspects of the Massachusetts
experiment may be applicable to other states.
Len Nichols of the New America Foundation will
follow on the politics of health-care reform initiatives
in other states, particularly California, Utah
and Colorado. David Gratzer, a senior fellow at
the Manhattan Institute’s Center for Medical
Progress, will conclude the panel by talking about
market-oriented reforms and private-sector initiatives.
Please join me in welcoming Jon Kingsdale.
MR. JON KINGSDALE: Thank you, it’s
a pleasure to be here. About three years before
the Massachusetts legislature passed its second
health insurance reform proposal, in 2006, the
Massachusetts Blue Cross Foundation sponsored
a similar set of conversations and initiatives
[to today’s]. Maybe that’s a propitious
sign for you.
I’m the executive director of a new, independent
authority which we refer to as the Health Connector.
I’ll briefly describe its several functions
and focus on the more innovative ones, particularly
our function as a commercial exchange or marketplace.
People often ask me how reform is going in Massachusetts.
I usually say about as well as can be expected.
We’re doing fantastically well, yet we have
huge bumps in the immediate road ahead. Number
one, we have reached a lot of people. We thought
there were somewhere between 372,000 to more than
600,000 uninsured people in the state when reform
started. We’ve now revised the lower estimate
to about 400,000 people. We believe that, as of
January 1, we will have newly enrolled over 300,000
of them. That’s a big dent over the last
eighteen months. And of that group we estimate
about 100,000 are in private commercial insurance—net
new enrollment —and a substantial amount
in partially subsidized insurance.
The program has been successful in terms of reforming
the non-group [insurance] market. The prior panel
on the uninsured in New York (See New York’s
Uninsured: A History of Good Intentions and Unintended
Consequences) addressed the issues of shifting
dollars around between insurance companies with
reinsurance pools and all the dysfunctions of
the non-group market. I’m going to make a
bold claim, which is that we have the only functioning
non-group market in the country now, as a consequence
of reform; that it is an absolute necessity for
making an individual mandate work. What I mean
by “functioning” is you can get a choice
of products, ease of purchase, and the value of
benefits comparable to what you can get in the
group insurance market. Let me give you a couple
of numbers on this. Pre-reform, the group market
in Massachusetts had guaranteed issue, guaranteed
renewal, and offered very few products. It was
hard to shop and a terrible value; you had to
call and hope you could find somebody at an insurance
company willing to answer your phone call.
The typical uninsured individual in Massachusetts
on April 1, 2007, before reform of the non-group
market, was a 37-year-old male Bostonian. We don’t
rate on gender, but uninsurance is definitely
gender-linked. We’ve done a lot of focus
groups, and clearly there is a bunch of guys who
think chronic illness only happens to women. And
they don’t want to be spending $4,000 a year
for a high-deductible health plan with no drug
coverage. They get that something could fall on
them, but they don’t really believe in chronic
illness.
After July 1, 2007, that same 37-year-old could
buy a policy for $184 a month. It’s still
a lot of money, but just over 50 percent of $335,
with a $2,000 deductible, full drug coverage,
and coverage of ER and office visits before the
deductible kicks in. So people pay literally half
the price and receive twice the benefits—a
very concrete demonstration of the success of
reform.
Third, and this is very important, public and
political support for reform was high when we
passed it. Every representative but two and every
senator voted for it. They’re virtually all
Democrats. A Republican governor championed it,
and it’s being funded by a Republican administration
in Washington. I maintain you do not want to reform
the financing of 16 percent of our GNP on a 51
to 49 vote. Since then, support has grown: a September
2006 Kaiser poll found a three 3 to 1 margin of
support among likely voters—61 percent for,
20 percent against, with the remaining undecided.
Redone in June 2007, 67 percent were for, 16 percent
against—four 4 to 1. Over 90 percent of the
public is aware of reform, and even a majority
of employers, according to a poll released in
November, support it.
I would also point to the fact that we have a
very diverse board at the Connector, to which
the legislature passed the buck, addressing questions
like what’s minimum credible coverage, and
what’s affordable insurance, and things that
they just didn’t want to be torn asunder
over. And we span the entire political spectrum
in Massachusetts, from center to far left, and
have had unanimous votes of that board on all
those contentious issues, which I take as real
political capital. We’re dealing with things
that you know cost huge amounts of money and are
very personal.
We have a bunch of different roles at the Connector.
We’re a policymaker and a regulator. If you’re
going to mandate coverage, what’s the minimum
credible coverage somebody has to have? If you
have to have it, as long as you can afford it,
what does affordability mean? If we’re going
to make employers offer this tax dodge through
pretax, payroll-deduction contributions to fund
premiums, what are the rules and regulations?
We’re a big insurance purchaser, so we decide
on behalf of hundreds of thousands of people what
the benefits are and what their contributions
are, and we negotiate that with MCOs [managed
care organizations] and do the enrollment rules.
We’re a cheerleader. We have grants to do
outreach with community-based organizations. We
partner with the Red Sox, Bank of America, CVS,
Comcast, the MBTA and the Greater Boston Interfaith
Organization, and anybody we can find to go out
and find the uninsured because, frankly, they’re
not always easy to find. You don’t find a
lot of them on the train reading the New York
Times. They might have multiple jobs, and health
care is number seventeen on their list of priorities.
We also serve as the Travelocity of health insurance.
We’re a commercial exchange for the subsidized
insurance program that we run, but also, for the
non-subsidized commercial insurance. So we have
specific target markets: non-group and a subset—somebody
called it direct pay here—of that non-group
market, which is lower-priced, somewhat lower-benefit
plans for young adults who we’re trying to
lure. This is largely about getting them to help
support the rest of us.
Another target market is voluntary benefits.
It’s one thing to make employers offer a
Section 125 pretax payroll deduction plan. These
part-time workers, and others who have been left
out of the contributory scheme, aren’t necessarily
highest on employers’ priority list. They’re
not necessarily plugged into the media. It’s
a retail battle to find them and get them to take
advantage of what is actually an over 40 percent
government subsidy. With an average, marginal
federal tax rate of 28 percent, the tax subsidy
for employee provided insurance, as the Manhattan
Institute people know, is huge in Massachusetts.
The total tax subsidy on average for the individual
who shifts a dollar from wages to premium is 41
percent, plus the employer makes 7.65 percent
on that deal as well. So that’s another target.
The small-group market is the third target.
We make shopping easy, and I have lots of grandiose
visions of fancy things we can do. We have a very
pedestrian website, yet it is virtually universally
applauded as a breakthrough. It’s really
a commentary on how badly the market functions
in health care, where people don’t have information
on the products and the prices available to them.
You put in three pieces of information—age,
size of household, and zip code—and we have
forty-two options for you, approved by a competitive
bidding process. We make it easier for you as
a shopper. You may want no cost sharing and the
highest premiums, or more cost sharing and a lower
premium. People can see the three lowest-priced
options side by side and a comparison of network
benefits.
We have an estimated commercial enrollment for
January 1 of 100,000. Twenty thousand are coming
through us, but we’re also moving the rest
of the market. The health plans themselves are
now trying to imitate us by offering more options.
The biggest health plan virtually copies our website,
which I just said was pretty pedestrian.
I think we’ve had some impact, and we’re
doing about as well as you could expect. There
are tough problems coming our way, so wish me
well. Thank you.
MR. EDMUND HAISLMAIER: Thank you very
much. This conference applies the typical formula
for addressing the topic of health reform. It
is focused on the problem of the uninsured and
the subsidiary issues of cost and access. However,
those are really symptoms of the larger problem
we must address if we are to significantly improve
the health system.
I would argue that the better starting point,
not only for developing an effective set of policies
and reforms, but also for reaching broad agreement
on both goals and methods, is to ask the question,
“How do we improve the value proposition
in health care?” “Value” is the
expression of the relation between cost and benefit.
I think we can all agree that at both the societal
and the individual level we don’t seem to
be getting good value in our health system.
When we consider not only the number of the uninsured
but also the wide variations in treatment costs
and outcomes and the resulting escalation in health-care
spending, we get the sense that we are either
spending too much for what we are getting out
of the system or we’re not getting what we
should be for all the money we’re spending.
Viewed from this perspective, we can quickly see
that seeking and providing better value—
that is, more and better for less—seems to
be well down on the list of factors motivating
decisions in our current health-care system. Rather,
both current market competition, as was discussed
in the previous panel, and government regulation,
as was also discussed, seem focused on doing more
at higher cost, and simultaneously constraining
costs by doing less. The single most effective
way to control health-care cost is to not treat
people. We’ve mastered that not only in the
public but also in the private sector, as has
everyone else. And if you must treat them, don’t
pay the provider. That too we seem to have mastered.
Where all this leads us then is to what is now
a growing debate about how to ration or allocate
the benefits of new medical technologies to keep
the total cost under control. Now if this strikes
you as similar to the dynamics of government-administered
single-payer systems, you’re right. The reason
is that both our system and their systems are
payer-centered. We just have more payers than
they do. The result is to produce what Michael
Porter and Regina Herzlinger of Harvard Business
School talk about as zero-sum competition. That
is competition centered on finding ways to shift
cost onto somebody else—government, insurers,
providers, consumers, employers.
In short, the health-care system is a trillion-dollar
game of hot potato. In a recent visit to Anchorage,
I encountered a slogan of a local business that
summarizes a common practice in our health-care
system. The slogan was, “We cheat the other
guy and pass the savings on to you.” In contrast,
what would we think of as a slogan for a value-maximizing
system? Let me suggest, “We do the best job,
at the best price, of keeping you healthy, and,
if you are sick, of getting you the best treatment.”
A value-maximizing system creates competition
at the individual patient and disease level. This
is Michael Porter’s point. Who does the best
job of treating this condition? Who will do the
best job for me, given who I am and my preferences,
not just my illnesses?
The key to getting that result is to shift from
a payer-centered system to a consumer-centered
system. The key characteristic of a consumer-centered
system is that it is the consumer, not the employer
or the government, who controls the dollars and
picks the plan that best suits him. Consumers
also have a regular opportunity to choose a plan
without medical underwriting, and thus transform
what is a seller’s market into a buyer’s
market. In this kind of system, the role of the
government and employers becomes assisting the
consumer with financing that arrangement. The
government has a role in setting the basic rules
and organization for the system, but the plans
and providers must compete on value in order to
get the consumer’s dollars.
Do we have experience with this? The answer is
yes. Professor Herzlinger points to the Swiss
system, which works very much like this. We often
point to the Federal Employee Health Benefits
Program, covering 9 million Americans, including
300,000 retirees who have no Medicare because
they’re in the old federal civil service
system. Every year they get a chance to pick the
plan, and the employer doesn’t. In this case
the federal government doesn’t even go so
far as the Massachusetts Connector in determining
which plans are allowed in. It’s pretty much
any willing plan that meets basic standards. As
the president of the National Association of Retired
Federal Employees says, “There are no bad
plans. There are just plans for different people.”
What are the results? Despite a much older workforce,
it turns in a consistently better record in cost
control and patient satisfaction than private
coverage in the employer market. When you adjust
for differences in benefits, it does a better
job than Medicare in controlling costs. They had
drug coverage for decades at FEHBP, because you
wouldn’t be able to sell a plan without it,
but nobody told them to put it in there. It took
an act of Congress and three attempts over twenty
years to get it in Medicare. Two years ago, the
average premium increase was 1.8 percent; it was
just about 2 percent this past fall. So we have
some successful models.
Can a state engineer such a transformation in
its markets? Here are four ways a state could
do it:
One, the state, using its powers to regulate
insurance, creates a consumer-choice insurance
market for as much of the state’s population
as possible, with a level playing field for insurers
and as much latitude as possible for insurers
to vary the design of benefits.
Two, the state transforms as much of its existing
spending on health-care services as possible from
a provider-centered system, where the relationship
is between Medicaid and the doctor or hospital,
to a consumer-centered or patient-centered premium-support
system, where public dollars are used to buy the
disadvantaged into the system.
Third, the state needs to create and apply a
market-wide risk-adjustment mechanism to address
some of the issues that were mentioned on the
previous panel, such as the disparities between
sick and healthy. In this case, New York is a
little closer, because it’s an inclusive
mechanism; you don’t put the sick people
off in a corner and say, “That’s all
you get.” [Insurers] would have to compete
for the sick people as well, and the sick people
would have choices leading to more specialized
coverage and the best treatment for diabetics
or for cancer patients. Right now, if you’re
good at that, you don’t want to tell anybody,
because [the sick people would] all come to you.
But for all of this to work, you have to have
a backdoor mechanism that transfers money from
people who are healthy and are buying cheaper
premiums, based on some other factor like age.
Where New York goes wrong is expecting that the
money should come from the taxpayer, rather than
a pool throughout the whole state—a back-end
risk-transfer reinsurance pool.
Once you’ve done these first three things,
remove any remaining regulations or subsidies
that protect providers or plans that fail to deliver
better value to patients. Congress solved the
problem of the uninsured in this country by mandating
that hospitals treat them. But the hospital goes
broke doing it, so we subsidize them, and we then
prevent competition. We [get in the way of], as
Regina Herzlinger says, the people who focus on
doing the best job at the best price. In other
words, we take the only people who are focusing
on value and we cut them out of the market to
prop up the other people. Isn’t that kind
of backward? First you have to fix the market.
Once you’ve done it, there ought to be some
hospitals and doctors that go out of business.
The significance of Massachusetts is that it was
the first state to do the first two of these four
things, and they did so in a limited fashion.
Any other state can apply these basic concepts
and principles, but they will have to tailor them
to their own unique circumstances. States can
also learn from some of the details in Massachusetts
because it was a prototype, and with any prototype,
you learn to do things better in the second or
third version.
One thing we discovered in moving away from a
payer-centered system to a consumer-centered system
is that when you look at the data on the uninsured
and coverage patterns, the vast majority of people
who experience uninsurance are in and out of coverage.
Let me leave you with the thought that the data
suggests that nationally—and this will vary
by state—about 40 percent of the people who
experience uninsurance are most of the time insured
and above 200 percent of poverty. If we move to
a system with the insurance attached to the person,
instead of the job, about 40 percent of your problem
might simply go away with no new spending. That
is a message that attracts a great deal of interest
in bipartisan state legislators around the country.
Thank you very much for your time.
MR. LEN NICHOLS: I’m going to discuss
markets, mandates, and Medicaid. I’ll start
with markets because I might be the token member
of the center left on the panel. I’ll just
say I’ve come not to bury markets, but to
praise them. In fact I’m a big fan of markets.
I spend most of my day job actually trying to
make markets work better.
And I will point out a couple of optimistic things.
One, if you look at all the presidential candidates’
proposals, only one is actually anti-market, and
that is Kucinich’s. I don’t know if
this will pass as news in this group, but Kucinich
is not going to win the nomination. And so, from
the point of view of those of us with scar tissue
from various state and federal struggles, it is
heartening to see how many Democratic candidates
have embraced some form of market competition
as the centerpiece of their proposal.
The key here is: How do you make markets work
for everybody? How do you make markets for all?
And I would certainly bow to Massachusetts as
a catalyst. There’s no question in my mind
that we wouldn’t be having the conversations
we’re having in Colorado, California, Utah,
and even Washington D.C. without Massachusetts,
where you had two very interesting factors come
together. You had a Republican presidential aspirant
willing to use the word “all” —it
hasn’t been since Richard Nixon that this
was true—and a Democratic legislature, with
the exception of California, willing to accept
the word “limit.” That was an appropriations
bill, not an entitlement. With this we can work
out a bipartisan compromise, and that’s what
everybody else on this stage thinks. But I couldn’t
agree with Jon more that this cannot be done,
and should not be done, on a 51 to 49 [basis].
In making markets work for everybody there are
always going to be tradeoffs and winners and losers.
But what’s interesting to me, as I look in
California, Colorado, and Utah, is that they’ve
all come to basically the same conclusion: You’ve
got to make the individual market and the small-group
market function far better, and you have to have
mandates. Yes, mandates are going to be what make
markets work better.
Let me just say a little about the differences
in these states and then we’ll get into why
I think the mandate case makes sense. California
is the bluest legislature on the planet. It’s
actually not correct to call their legislature
rank and file Democrats; they’re more like
Trotskyites—they take the unions’ talking
points and go off and make their speeches. There
is leadership there, thank God, and it is at the
top. They do have power and wisdom and a few sticks
and carrots of their own. I think there will be
a deal. California has also elected Republicans
to the legislature, and anything Grover Norquist
puts forward they will sign. You could have a
million Al-Qaeda lined up on the Oregon border
and they would not raise their own taxes to defend
themselves. They would send public school teachers
out to do the battle. They will not raise taxes.
It turns out that in California the only elected
moderate in the whole state sleeps in Arnold’s
bedroom, and this turns out to be useful because
Arnold is a big guy and he’s hard to ignore.
In fact, he is smart and, believe it or not, he
gets it. It was hard for him to get to the philosophical
place of crossing the Rubicon and saying, “You
mean a mandate is necessary?” But he got
there, and in a way that makes a lot of sense.
What’s going on in Colorado? There you have
an almost perfect purple state—very slight
[Republican] R majorities before, very slight
[Democratic] D majorities now. It has the full
human family in the legislature—they are
all represented—and they have an awareness
that to do something serious about health-care
reform they’re going to have to go to the
people and ask permission to raise taxes. I’m
not sure what’s wrong with their constitution,
but the legislature doesn’t have the authority
to do that. In my simple, scar-tissue ridden view
it’s useful because it means their entire
process of talking about what they might do has
been done in the public eye, with the intention
of making sure all major stakeholders are at the
table and both parties are indeed deeply involved.
What they have right now is a commission made
up of folks across the spectrum who say you’ve
got to have mandates to make these markets work.
And finally, on Utah, I got a call from them
in mid-May, and they said we’re coming to
Washington and would you meet with us. I said
sure. I told them that when I do these sorts of
conversations I usually insist on its being bipartisan.
They said they had some Democrats in Utah, but
they tend not to bring them to Washington; there’s
no real reason to because they don’t really
have any power. And so I met with them. Utah has
now been working for four or five months. Utah
won’t have a public process. It’ll all
be behind closed doors. Jon joked about Massachusetts
being center-left. Utah is right of center to
far right, but those guys get that the business
community is paying for the uninsured right now.
You may not know it, but Utah has exactly the
same uninsured rate as the nation as a whole.
And to be blunt, the chairman of the United Way
board, who happens to be the owner of the biggest
bank in Utah, is not happy about paying for the
insured right now. He wants to figure out how
to buy smarter. To make those markets work in
Utah, as in California, Colorado, and the nation,
you’ve got to have mandates.
I submit to you—and this is extremely important
politically—mandates are required to make
everyone pay their fair share. The panel this
morning made clear the uninsured are quite a diverse
