The U.S. stands poised to enact dramatic and far-reaching
changes to health-insurance markets in the name of expanding
insurance coverage to the more than 45 million uninsured
and controlling rapidly rising health-care costs in both
the public and private sectors.
Early signals from Congress and the administration indicate
that many of these changes will involve expansions of existing
government programs like Medicare and Medicaid, massive
new regulation of private insurance providers, and trillions
of dollars in new federal spending that will have to be
financed through new taxes or substantial rationing of patient
access to health-care goods and services.
In this paper, former CBO director Douglas Holtz-Eakin
makes the fiscal and political case for bipartisan health-care
reform that: addresses dysfunctions in the existing health-care-delivery
system; expands access to affordable private health insurance
in an incremental and fiscally responsible manner; and improves
market-based options for consumer access to information
on health-care quality.
Principles and their matching reforms:
Principle 1: It’s about value (stupid). Any
reform that does not address low-value care and cost growth
will fail. Suppose, for example, that the “reform”
consisted of a mandate to purchase insurance, thereby achieving
“universal” health insurance. In the absence of
changes to the growth in health-care spending, this insurance
would become increasingly expensive and ultimately force
families to evade the mandate as a matter of economic necessity.
At the same time, those dollars that were devoted to health
care would purchase care that was of no greater overall
effectiveness than at present. In short, the reform would
fail to address the policy problems.
Anticipated reform: Medicare and Medicaid payment
reforms to pay for prevention, bundle payments to accountable
care organizations, reduce payment for readmissions and
other low-quality care, and reduce the subsidy in Medicare
for high-income individuals; medical malpractice reform;
and the development of a pathway for follow-on biologics.
The reforms recognize that the federal government has a
powerful lever to reform the practice of medicine in the
United States: Medicare payment policies. Recent reports
also suggest that Medicare fraud may be approaching $60
billion per year—roughly 10 percent of total Medicare
expenditures—and a similar situation exists with Medicaid.
This fraud is unacceptable, and stopping it should be a
top priority that will help finance targeted private insurance
coverage expansions.
Principle 2: A rising tide of quality insurance.
Health insurance is a valuable financial product that protects
families against the financial devastation of costly medical
expenses. A steady rise in insurance is very different,
however, from an immediate move to universal coverage or
other massive expansion. Assuming a round number of 50 million
uninsured for simplicity, providing coverage at the typical
level (say, $7,000) would cost $350 billion per year. Reforms
to the delivery system could generate system-wide savings
that could be funneled to expanding coverage, and opportunities
within government programs could generate savings as well.
But it is implausible that these savings would be sufficient
for an immediate, large-scale coverage expansion. Instead,
the focus should be on a process that leads to increasing
insurance.
Principle 3: Private money, private insurance. Increasing
coverage does not mean larger government programs. Instead,
it should mean better and broader private health insurance
for the U.S. population. Accordingly, there should be a
firewall that does not permit new taxes or other private
resources (fees, costs of complying with mandates, etc.)
to be devoted to a “tax and spend” government-centric
health-care reform.
Anticipated reforms for Principles 2 and 3: The
federal government should reform the subsidy for private
health insurance. In a policy dating back to World War II,
the value of insurance that employers provide to employees
is not treated as taxable income for the employee. (In contrast,
if the employee were given cash to buy health insurance,
the cash would be taxed.)
This subsidy—referred to as the employer exclusion—has
several defects. It is fundamentally unfair because it provides
a subsidy to those who receive their insurance from their
employer but no subsidy to those who purchase their own
health insurance. Moreover, the subsidy is of greater value
to the more affluent (who have a higher tax rate and thus
avoid more taxes) than to the less affluent. It also distorts
decisions about health insurance and, by implication, health
care. Subsidizing additional coverage can lead to overuse
of insurance and medical services.
With appropriate attention to phasing in the policy to
avoid disruptions, the exclusion should be eliminated and
replaced with a flat credit of $4,500 (indexed for CPI inflation)
for those who have private health insurance, regardless
of its source. This credit will preserve existing health
insurance for those in the employer system and provide incentives
for coverage to those outside it.
However, it will not be a panacea. In particular, the credit
would not be refundable, so those with no tax liability
would require other sources of assistance. As detailed in
this paper, for states that sign “Health Insurance
for All” (HIA) agreements, the federal government would
provide the income-tax resources to each state that was
meeting its coverage objectives in proportion to the uninsured
population, using sliding-scale, income-based subsidies
for private insurance. This would provide additional resources
to meet coverage objectives. Also, states should be permitted
to allow Medicaid funds to be used for enrollment in private
health insurance. Many eligible individuals do not participate
in Medicaid because of the personal stigma, an outcome that
could be avoided by including private health insurance as
an option.
Principle 4: No more blind leading the sick. Families,
providers, device manufacturers, hospitals, drug companies,
and other participants in the U.S. health-care system interact
in a complex and often baffling fashion. We must ensure
that all participants understand their options, the cost
implications of their options, and the likely health or
economic consequences of their decisions.
Anticipated reform: Information should flow more
smoothly and inexpensively through the system. There is
now a wide appreciation of the potential to increase the
penetration of health information technologies throughout
the system. Indeed, the recently passed “stimulus”
bill contained funding for such an initiative. However,
unless there is a business model that supports the use of
such technologies, no amount of funding (and the amount
to date is modest) will succeed. Transforming the payment
system to reward coordination, quality, and low cost will
create a business model for health information technology,
for private-sector incentives to invest in these technologies,
and for greater diffusion of information throughout the
system.
These reforms will gradually expand access to affordable,
private health insurance; reduce waste and improve access
to high-quality health care; and commit policymakers to
fiscally sustainable health-care reforms.
MESSAGE FROM THE DIRECTOR
The conservative case for health-care reform begins with
the recognition that health care is heavily regulated by
both state and federal authorities and that many current
health-care challenges can be traced to arbitrary or expedient
political decisions rather than true market failures—such
as the tax deduction for employer-provided health insurance,
the result of WWII-era wage and price controls.
Employment-based insurance has many benefits, but it also
disadvantages the self-employed and workers at small firms,
who may not be able to afford to buy insurance. State insurance
mandates also require insurers in the small-group and individual
markets to cover many benefits—such as infertility
treatments and chiropractic care—that drive up the
cost of insurance. At the same time, one-size-fits-all coverage
expansions that depend on expensive new federal entitlements
modeled on Medicare or Medicaid will run into the same problems
that are leading those programs to slowly implode, along
with state and federal budgets.
Still, health-care “reform” and insurance coverage
expansions are often thought of as synonymous; some advocates
even argue that universal coverage will pay for itself by
adding more young, healthy (and formerly uninsured) individuals
to insurance pools.
In his proposal for the Manhattan Institute, Douglas Holtz-Eakin,
distinguished scholar and former director of the Congressional
Budget Office, makes clear that reform of our dysfunctional
health-care-delivery system—particularly, the byzantine
payment system for Medicare providers—must be the first
priority; without reforms that provide incentives for better
health outcomes and coordinated patient care, expanding
coverage will merely add to our fiscal woes. Expanding coverage
is a valuable goal, but it should build on these reforms,
not precede them.
It should also be clear that Holtz-Eakin’s proposal
recognizes the vital necessity of health-care reform and
that he shares President Obama’s analysis of the problems
facing the system. Thanks to his tenure at CBO, Holtz-Eakin
is intimately familiar with the crushing burdens that rising
health-care costs can impose on American families and employers.
He is also acutely aware of the political realities that
have led policymakers from both parties to delay needed
reforms and to rely on fiscal gimmicks—IOUs for the
Medicare “trust fund” and annual votes to delay
cuts to Medicare physician payments—to keep a floundering
entitlement system afloat until it becomes someone else’s
problem.
Where Holtz-Eakin emphatically differs with the administration
is in his prescriptions for reform, and here he outlines
a plan that builds on the conservative principles of limited
government, federalist experimentation, market-based innovation,
and patient-centered care to expand coverage incrementally
in a fiscally responsible manner.
There are many things about which fair-minded people are
allowed to disagree, and the right prescription for health-insurance
expansion is one of them. Even critics who may not agree
with Holtz-Eakin’s approach should recall that our
uninsured are not a homogenous group and that state-based
approaches—whether “blue-state” reforms as
in Massachusetts or “red-state” reforms as in
Utah—are better and more accountable laboratories for
experiment than new bureaucracies based in Washington, D.C.
As in the case of welfare reform, sustainable approaches
are more likely to emerge over time from the bottom up than
from the top down.
Finally, we hope that Holtz-Eakin’s call for bipartisanship
is taken seriously. For the first time, as Holtz-Eakin explains,
the Republican Party has pressing political and institutional
reasons to embrace health-care reform at the national level.
Democrats should also welcome a robust and serious debate
and be open to compromise because a truly bipartisan process
is more likely to produce durable reforms than a partisan
process that marginalizes the opposition.
Unique—one is tempted to say exceptional—qualities
of the American polity have long included its commitment
to pragmatism over ideology; a prudent federalism that recognizes
the validity of state and regional differences; and optimism
regarding the powers of well-run markets to produce medical
innovations that improve the quality of life and extend
longevity for all Americans. Holtz-Eakin’s vision for
health-care reform embodies these qualities, and we hope
it is a vision that will galvanize productive policy discussions
in the days and months to come.
Paul Howard
Director, Center for Medical Progress
ABOUT THE AUTHOR
Douglas Holtz-Eakin is president of DHE Consulting,
LLC. He served most recently as director of domestic and
economic policy for the John McCain presidential campaign.
He has also recently been a senior fellow at the Peter G.
Peterson Institute for International Economics, the director
of the Maurice R. Greenberg Center for Geoeconomic Studies,
and the Paul A. Volcker Chair in International Economics
at the Council on Foreign Relations. Previously, Dr. Holtz-Eakin
was the sixth director of the Congressional Budget Office,
where he was appointed for a four-year term beginning February
4, 2003.
Dr. Holtz-Eakin served for eighteen months as chief economist
for the President’s Council of Economic Advisers. Prior
to that, he was a trustee professor of economics at the
Maxwell School, Syracuse University, where he served as
chairman of the Department of Economics and associate director
of the Center for Policy Research.
ACKNOWLEDGEMENTS
The views expressed in this paper are my own. I thank David
Gratzer, Paul Howard, Howard Husock, and Jay Khosla for
comments on an earlier draft. I also benefited greatly from
my conversations on this topic with Joe Antos, Stuart Butler,
David Cavicke, Regina Herzlinger, Stacey Hughes, Talal Mir,
Steve Parente, Beth Robinson, Sonya Sotak, and Grace-Marie
Turner (but I absolve all the aforementioned from responsibility
for this product).
I. INTRODUCTION
The president has called upon Congress to enact health-care
reform this year. And he has correctly identified the problems:
we spend too much, cover too few people, and do not get
enough for our money. Unfortunately, his reforms reflect
the problems with American health care: the right diagnosis
is not leading to effective treatment.
The Democrats support massive new spending, draconian regulation,
and a new entitlement that is likely to hamstring the private
insurance market, threaten employer-sponsored insurance,
and diminish the choices that the president has promised
to Americans.
Effective health-care reform will be bipartisan; Republicans
have an equal stake in effective reform. Health-care reform
emerged as a potent issue in the 2008 Republican primaries:
for the first time, every candidate had to have a plan for
health-care reform. Republican constituencies are eager
for new ideas. Health-care reform can contribute to their
political revitalization. The 2008 election cycle disclosed
a party that was unable to win outside of the South and
unable to win in large cities. It is unable to poll majorities
among all minorities—notably, Hispanics—and loses
across the educational spectrum. It has now lost the youth
vote in three successive elections, threatening the loss
of this generation for its lifetime.
Most significant, the Republican Party was unable to generate
an effective message on how it would help the middle class.
Traditionally, it has relied on a tax-cut message to generate
this support, but it now requires proactive solutions to
the problems facing the middle class: education; energy
and the environment; and, especially, health care and insurance.
The party can appeal to a broader spectrum of Americans
by actively seeking conservative solutions to these problems.
Health-care reform is more than a political imperative;
health-care spending now accounts for over one-sixth of
the economy, and it is badly underperforming. Republicans
are the party of economic growth, and policies that reduce
the bloated and inefficient health-care sector will support
stronger growth.
Health-care reform is a budgetary imperative. Under current
trends and policies, the nonpartisan Congressional Budget
Office projects that by 2050 federal spending on Medicare
and Medicaid could exceed 12 percent of GDP, and the combined
cost of Social Security, Medicare, and Medicaid will be
as large (20 percent of GDP) as the entire federal budget.
Health-care reform that moves in the wrong direction—namely,
increased government insurance with no reforms of cost growth—will
transform this threat into a crisis that no advocate of
small, contained government could endure.
There are compelling reasons for Republicans to do more
than simply obstruct the Democrats on health-care reform.
Debating new approaches in the legislative arena is the
route to genuine, bipartisan reform that will be more effective.
It begins with the recognition that the tax code distorts
the private insurance market; that state regulation of health-insurance
markets often handicaps competition; and that the existing
“public options” of Medicare and Medicaid are
fiscally unsustainable and rely heavily on unsustainable
price controls. Worse yet, Medicare’s reliance on fee-for-service
payments distorts the entire health-care system by fragmenting
care. Until and unless we prioritize reforms that incentivize
competition and pay for quality, we will be left with the
same dysfunctional, expensive system we have today.
II. POLICY PROBLEMS
One of the most important issues facing the United States
is its underperforming health-care sector. There are three
major problems. First, it costs too much. In 1970, national
health expenditures were $1,300 per person and consumed
7 cents of every national dollar—7 percent of GDP.
For the past three decades, health-care spending per person
has grown roughly 2 percentage points faster every year
than income per capita. That is, in the race between costs
and resources, costs have been winning. The result is that
health-care spending now exceeds 17 cents of every national
dollar—and will rise to 20 percent by the end of next
decade. Within the federal budget, the rising cost of Medicare
and Medicaid threatens a tsunami of red ink in the decades
to come.
A dominant characteristic of health care in the United
States is its fragmentation and focus on acute-care episodes.
This system feeds the growth in spending per capita outlined
above. The Medicare program itself is illustrative in this
regard. It has programs for “hospital” (Part A),
for “doctors” (Part B), for “insurance companies”
(Part C), and for “drug companies” (Part D). These
compartmentalized programs are dedicated to ensuring that
various providers receive their payments in a fee-for-service
system. Doctors and hospitals are paid for doing things
to patients; and the more they do, the more they are paid.
This system is focused on payments to providers, not on
the health of families. This system is not centered on quality
of care and gives scant regard to coordinating the decisions
of the various medical providers, and it does not reward
preventive care.
It is hardly surprising that a medical system focused on
paying for acute-care episodes has rewarded the innovation,
adoption, diffusion, and utilization of new technologies
for these episodes. Because the system is not oriented toward
quality outcomes—particularly, paying for quality outcomes—a
key feature of rising health-care spending is that it has
not generated improved outcomes: the U.S. spends a greater
fraction of its income on health care but does not have
comparably superior longevity or health quality. The trends
are most pronounced in Medicare, but the same broad characteristics
prevail for the private system serving those younger than
sixty-five. Also, in both cases (but again larger for Medicare)
in the United States, there are large regional differences
in spending that do not lead to apparent differences in
the quality of outcomes.
Second, because health care is becoming more expensive,
the cost of health insurance is skyrocketing. Over the last
decade, insurance costs have increased by 120 percent—three
times the growth of inflation and four times the growth
of wages. With higher costs has come reduced insurance coverage:
over 45 million people are uninsured. It is important to
solve the first problem—rising costs—before committing
to large-scale coverage expansions. Dealing with the problems
in the wrong order will be prohibitively expensive and will
likely cause the reform effort to unwind.
Finally, health insurance and health-care systems underperform.
A job loss typically also means loss of health insurance.
High spending has not yielded comparably high outcomes for
infant mortality, longevity, or treatment of chronic disease.
III. PRINCIPLES AND POLICIES FOR HEALTH-CARE
REFORM
Numerous proposals will address the policy problems of
spending growth, subpar coverage, and low-value care and
insurance. What criteria will permit policymakers to distinguish
between desirable and undesirable proposals? Four principles
should guide the debate:
Principle 1: It’s about value (stupid).
Any reform that does not address low-value care and cost
growth will fail. Suppose, for example, that the “reform”
consisted of a mandate to purchase insurance, thereby achieving
“universal” health insurance. In the absence of
changes to the growth in health-care spending, this insurance
would become increasingly expensive and ultimately force
families to evade the mandate as a matter of economic necessity.
At the same time, those dollars that were devoted to health
care would purchase care that was of no greater overall
effectiveness than at present. In short, the reform would
fail to address the policy problems.
The reforms in this area are: Medicare and Medicaid fraud
efforts; Medicare and Medicaid payment reforms to pay for
prevention, bundle payments to accountable care organizations,
reduce payment for readmissions and other low-quality care,
and reduce the subsidy in Medicare for high-income individuals;
medical malpractice reform; and the development of a pathway
for follow-on biologics.
These reforms can produce concrete improvements that can
be augmented by strong public information efforts and the
bully pulpit to encourage people to take care of themselves
and prevent chronic diseases when possible. Childhood obesity,
diabetes, and high blood pressure are increasing in their
prevalence and severity; it is important to teach children
about health, nutrition, and exercise. This is a financially
cheap, but potentially valuable, effort.
The reforms recognize that the federal government has a
powerful lever to reform the practice of medicine in the
United States: Medicare payment policies. The fraction of
the nation’s bills that Medicare and Medicaid are paying
is rapidly approaching 40 percent. The Medicare payment
mechanism supports—indeed, produces—the flaws
of fee-for-service medicine in the United States.
To begin, the federal government should institute a zero-tolerance
policy toward fraud. Recent reports suggest that Medicare
fraud may be approaching $60 billion per year—roughly
10 percent of total Medicare spending—and a similar
situation exists with Medicaid. This fraud is unacceptable,
and stopping it should be a top priority.
Medicare payment policy must be oriented away from paying
for anything that is done to a patient and toward paying
for cost-effective, coordinated care that yields high-quality
outcomes. The first step is: Do not pay for bad care. Already,
the federal government has taken steps in not paying for
events that should “never” happen; a more aggressive
approach would include not paying for treatment if readmission
occurs too soon—say, within a month—for the same
problem.
Next, payment policy should explicitly incentivize the
use of low-cost care and coordination of care among providers,
leading Medicare to become a more accountable health-care
system that rewards efficiency and good clinical outcomes.
Medicare reimbursement now rewards institutions and clinicians
who do more and provide more complex services. We need to
fundamentally change how physicians are paid and to focus
more on chronic diseases and managing their treatment, as
this is where the money goes for an aging population.
In the short term, Medicare can start paying physicians
on an annual basis for treating patients with chronic disease
or multiple chronic diseases rather than on a per-service
basis. Medicare could also make a single payment for all
the care of the most complex types of cases. As reporting
of quality information continues, these measures should
become part of the payment process.
These supply-side approaches to changing the use of medical
services can be complemented by legal reforms to eliminate
frivolous lawsuits and excessive damage awards and to provide
a safe harbor for doctors who follow clinical guidelines
and adhere to patient-safety protocols. Focusing on the
patient provides a business model for much-needed improvements
in electronic medical records and twenty-first-century information
systems. Until all providers have financial incentives to
lower the cost of care via coordination and to produce quality
outcomes, there will be no natural incentive for health
information technology and its productivity-enhancing benefits.
Finally, reform should include a process for follow-on,
or “generic,” versions of biologics. Optimal policy
recognizes the importance of incentives to innovate but
recognizes that without widespread utilization, there is
insufficient social benefit. Greater penetration of these
therapies will improve value in the health-care system.
Principle 2: A rising tide of quality insurance.
Health insurance is a valuable financial product that protects
families against the financial devastation of costly medical
expenses. It is desirable to have it more broadly utilized
and to provide many quality options. It is a political reality
that Democrats seek to reduce the ranks of the uninsured;
so Republicans must be committed to sensible policies that
expand coverage over time.
A steady rise in insurance is very different, however, from
an immediate move to universal coverage or other massive
expansion. Assuming a round number of 50 million uninsured
for simplicity, providing coverage at the typical level
(say, $7,000) would cost $350 billion per year. Reforms
to the delivery system could generate system-wide savings
that could be funneled to expanding coverage, and opportunities
within government programs could generate savings as well.
But it is implausible that these savings would be sufficient
for an immediate, large-scale coverage expansion. Instead,
the focus should be on a process that leads to increasing
insurance coverage.
Principle 3: Private money, private insurance. Increasing
coverage does not mean larger government programs. Instead,
it should mean better and broader private health insurance
for the U.S. population. Accordingly, there should be a
firewall that does not permit new taxes or other private
resources (fees, costs of complying with mandates, etc.)
to be devoted to a “tax and spend” government-centric
health-care reform.
The policy strategy that matches Principle 2 and Principle
3 involves a partnership that encompasses federal efforts,
state-level reforms, and employer participation. At the
heart of this approach is the recognition that states differ
greatly in their rates of uninsurance, their demography,
existing mandates to provide benefits (ranging from nineteen
in Alabama to more than sixty in Minnesota), rates of participation
in Medicaid, and previous efforts at reform. Thus it makes
sense to assign roles so that the federal government provides
a base of uniform national support, states tailor assistance
to the conditions of their populations, and employers continue
as a mainstay of the U.S. health-insurance system.
Federal government steps. The federal government
should reform the subsidy for private health insurance.
In a policy dating back to World War II, the value of insurance
that employers provide to employees is not treated as taxable
income for the employee. (In contrast, if the employee were
given cash to buy health insurance, the cash would be taxed.)
This subsidy—referred to as the employer exclusion—has
several defects. It is fundamentally unfair because it provides
a subsidy to those who receive their insurance from their
employer but no subsidy to those who purchase their own
health insurance. Moreover, the subsidy is of greater value
to the more affluent (who have a higher tax rate and thus
avoid more taxes) than to the less affluent. It also distorts
decisions about health insurance and, by implication, health
care. Subsidizing additional coverage can lead to overuse
of insurance and medical services.
With appropriate attention to phasing in the policy to
avoid disruptions, the exclusion should be eliminated and
replaced with a flat credit of $4,500 (indexed for CPI inflation)
for those who have private health insurance, regardless
of its source. By transforming the tax subsidy to private
insurance from the form of an exclusion to the form of a
credit, two objectives are accomplished. First, the subsidy
is fairer, as the same amount is available regardless of
income or the source of private insurance. Second, the subsidy
is fixed and capped, eliminating the reward to excessive
use of insurance and care. Notice that a $4,500 credit is
a generous subsidy, equivalent to an exclusion of $45,000
of health insurance for an individual in the 10 percent
tax bracket and over $12,800 for a family in the top bracket
of 35 percent.
This credit will preserve existing health insurance for
those in the employer system and provide incentives for
coverage to those outside it. However, it will not be a
panacea. In particular, the credit would not be refundable,
so those with no tax liability would require other sources
of assistance. As detailed below, for states that sign “Health
Insurance for All” (HIA) agreements, the federal government
would provide the income-tax resources to each state that
was meeting its coverage objectives in proportion to the
uninsured population. This would provide additional resources
to meet the coverage objectives.
As a final contribution to reform, the federal government
should make two changes to Medicaid. First, it should incorporate
Medicaid expenses for long-term care into Medicare. Many
services required for long-term care are best provided in
the home, and many are close complements to the care of
chronic disease among elderly patients. Medicare is due
for a massive overhaul—steps that will improve care
and save money are outlined above—and it makes sense
to develop an effective and cohesive, all-round policy toward
elderly needs. It will also free up some state-level resources
to meet the coverage objectives.
Second, states should be permitted to allow Medicaid funds
to be used for enrollment in private health insurance. Many
eligible individuals do not participate in Medicaid because
of the personal stigma, an outcome that could be avoided
by including private health insurance as an option. For
those who do participate, states can reduce the risk of
losing insurance when individuals leave Medicaid; and states
can provide greater choice and competition and improve overall
coverage. Finally, if individuals choose the private option,
they will be able to keep their insurance in the future
and not return to the Medicaid rolls. Of course, some states
may choose not to pursue this option.
State government steps. States will be given the
opportunity to sign HIA agreements with federal government,
setting specific timelines and targets on the path to universal
coverage. As noted above, in exchange they will receive
budget resources to provide sliding-scale, income-based
subsidies for private insurance, have additional resources
for costly patients, and have the option of using Medicaid
funds for private insurance.
Deploying resources at the state level enables states to
“risk-adjust” the basic tax credit so that higher-cost
individuals or individuals in high-cost states receive greater
resources. Money alone, however, will not be enough. Some
states have already chosen to mandate coverage, and others
may follow. States will need to enact insurance reforms
to provide coverage options for costly patients.
HIA states will also establish state-level insurance exchanges
to simplify insurance shopping for individuals and small
businesses by providing comparison of insurance options,
enrollment, and real-time price quotes. Individuals and
small businesses would have the option of purchasing private
products through the exchange, thereby providing a readily
available, portable form of insurance. The insurance needs
of employees of small businesses is among the most pressing
issues, and these exchanges can fulfill this need.
These exchanges will encourage greater competition in the
market through greater price and product transparency as
well as provide a market-driven alternative to simply creating
another federal bureaucracy. If desired, states could partner
with like-minded states to create regional and contiguous-state
health-insurance exchanges.
Employer contribution. An important element of any
plan must be a mechanism to ensure that coverage goals are
met. Democrats have featured the creation of a national-level
insurance plan that competes with private insurance—a
step that Republicans must reject. Instead, I propose a
“private-sector fallback” approach. Specifically,
in HIA states that are failing to meet their coverage objectives,
employees would be permitted to demand 40 percent of their
salary in a health-insurance match. This roughly corresponds
to the average contribution paid by employers for those
with employer coverage.
Why this approach? First, and most important, it engages
private employers in every state in the effort to meet coverage
goals—the best fallback plan is one that is never used.
Second, it makes a contingent commitment of private resources
to solve the private insurance failure and puts control
into the hands of employees.
Principle 4: No more blind leading the sick.
Families, providers, device manufacturers, hospitals, drug
companies, and other participants in the U.S. health-care
system interact in a complex and often baffling fashion.
We must ensure that all participants understand their options,
the cost implications of their options, and the likely health
or economic consequences of their decisions.
A central flaw of the current health-care system is the
inability of providers or patients to make value judgments
regarding alternative drugs and therapies. One reason for
this flaw has been the absence of efforts to identify high-quality
care, a void rapidly being filled by a plethora of private-sector-driven
efforts to identify best practices and to set quality benchmarks.
Any reform should embrace—not replace—these efforts.
In addition, information should flow more smoothly and
inexpensively through the system. There is now a wide appreciation
of the potential to increase the penetration of health information
technologies throughout the system. Indeed, the recently
passed “stimulus” bill contained funding for such
an initiative. However, unless there is a business model
that supports the use of such technologies, no amount of
funding (and the amount to date is modest) will succeed
in adoption and use of health information technologies.
Transforming the payment system to reward coordination,
quality, and low cost will create a business model for health
information technology, for private-sector incentives to
invest in these technologies, and for greater diffusion
of information throughout the system.
We need to be able to compare the relative effectiveness
of alternative approaches. Comparative effectiveness (CE)
is now seen as a centerpiece of reform. But how should it
be implemented? I suggest that the federal government has
a clear role in certifying which studies and trials meet
the standards of science and operational integrity. The
government also has a clear role in summarizing and disseminating
the results of research that is conducted according to high
standards. These roles could be met by a small research
agency devoted to the certification, analysis, and dissemination
tasks. Importantly, it would not be necessary for the agency
to conduct intramural research or to make coverage decisions.
The goal is to establish standards and disseminate information.
IV. CONCLUSION
The U.S. health-care system is a global leader in medical
science and innovation of medical technologies. But the
foundation of the system—the tax exemption for employer
insurance, the quality of state health-insurance markets,
and the fragmentation supported by federal payment policies—encourages
a system of low value and poor performance. Fixing those
problems without crippling medical innovation should be
our first priority.
Fiscally responsible and durable reform must be a genuinely
bipartisan process. The U.S. would be well served by a robust
health-care debate that covers the areas of broad bipartisan
consensus (largely, the delivery-system reforms) as well
as the areas of sharp disagreement (notably, the strategy
for coverage expansions).
Democrats and Republicans alike should develop strategies
to support bipartisanship. The president and Democrats must
not overreach and muscle through expensive coverage expansions—in
particular, using the legislative protections provided by
the “reconciliation” process that would permit
Democrats to pass major reform on essentially a party-line
vote—that will ultimately fall under their own fiscal
weight.
Worse, the quick and easy way to achieve expansion would
be through larger government programs—a Medicare buy-in
at younger ages, Medicaid expansions, or a new public insurance
program. That approach would exacerbate, not solve, the
worst problems of the health-care system. First, it would
inevitably be a budgetary drain as politicians fall victim
to the pressures to charge too little and cover too much.
Second, it would centralize power in Washington, which is
surely at odds with providing competitive, low-cost, quality
care in flexible treatment models for Americans. Finally,
it would lead to the poor provider-payment policies that
plague the system today.
Perhaps my most depressing moment as director of the Congressional
Budget Office was being asked during congressional Medicare
testimony, “Mr. Director, what is the right price for
inhalation therapy in [name of senator’s state]?”
That question reflects everything that is wrong with Medicare:
it is riddled with price-fixing on a political basis that
determines the therapies available to beneficiaries and
the incomes of doctors and other providers. Reform must
move away from those approaches.
Republicans should work with Democrats to demonstrate bipartisanship
of the outcome at every stage. When a bill is considered
in committee, at least one prominent Republican should be
willing to vouch that the bill, while perhaps not perfect,
represents the kind of compromise that bipartisan efforts
require. If not, Republicans should depart the process.
The strategy should involve engagement with all stakeholders,
especially the states. States have made numerous efforts
at significant reform. “Blue” states such as Massachusetts
and “red” states like Utah have passed bipartisan
reform. The agreement of these stakeholders will raise the
legitimacy of any federal reform as well as avoid undercutting
their own efforts.
Each side should be permitted a key objective at the outset.
Republicans should veto any new federal government insurance
plan and demand fiscally responsible reforms to existing
programs. In return, they should acknowledge the need to
expand coverage in the near term and include a path to broad
coverage.
The United States is in need of deep reforms to the health-care
sector of its economy: it spends too much, covers too few
people, and gets too little for the money. Bipartisan reforms
that stress a reformed delivery system, better value in
care, respect for state-level reform efforts, more efficient
insurance markets, and better tools can address the deep
problems of our health-care system in a fiscally responsible
way. These reforms should be in the interest of Democrats
and Republicans alike.
