Moving Toward Universal Healthcare Coverage: Principles, Political Rhetoric and Stakeholders’ Tug-of-War
Dr. Richard H. Bernstein’s platform address of Sunday 30 March 2008
Outlook Remains Bleak for 2 Programs
By ROBERT PEAR
Published: March 26, 2008
WASHINGTON – The Bush administration issued a grim report on Tuesday on the financial outlook for Medicare and Social Security, but said the condition of the programs had not significantly deteriorated since last spring.
The new report, like the one issued last April, said Medicare’s hospital insurance trust fund would be exhausted in 2019, while Social Security’s reserves would be depleted in 2041.
The report may put pressure on the presidential candidates to say what they would do to rein in health costs and to shore up the programs, which serve more than 50 million people. The candidates have largely avoided these questions, but the next president will not be able to escape them.
The trustees said Medicare’s hospital insurance trust fund would pay out more in benefits than it receives in taxes and other dedicated revenues this year. Social Security costs will exceed tax revenues starting in 2017, they said. The government will then have to draw on assets of the Social Security trust fund – special government bonds – to meet its obligations to retirees.
The first of the 76 million baby boomers began receiving Social Security retirement benefits this year. The number of beneficiaries will grow much faster than the number of workers paying taxes, creating financial difficulties for the program. …
The Democratic presidential candidates have set forth proposals to provide health insurance for all Americans, but have said less about how they would finance the costs of Medicare. Efforts to squeeze even modest savings from that program typically provoke a frenzy of lobbying on Capitol Hill.
Senator John McCain of Arizona, has described Medicare as a “fiscal train wreck.”
But the report, prepared by government actuaries and economists, said … projections [of no increase in Medicare Part B premiums] were unrealistic because they assumed that Medicare payments to doctors would be cut by more than 10 percent in July and by an additional 5 percent in January 2009 and in each of the next seven years, for a cumulative reduction of about 40 percent.
In fact, Congress usually intervenes to block such cuts and, in recent years, has approved small increases for doctors, thus increasing the costs of Part B and beneficiaries’ premiums.
In February, President Bush proposed Medicare savings of over $180 billion in five years. Congress rejected the proposal.
A pivotal question underlies today’s discussion: To achieve universal healthcare in the US, is it more important to focus on eliminating the uninsured or on reducing medical cost inflation?
To answer this question, I’ll be dividing this morning’s discussion into 4 parts:
* 1st, a critical analysis what each of the 3 major presidential candidates is proposing as his or her approach to reducing or eliminating the uninsured and reducing medical costs
* Next, a description of what universal coverage looks like in Britain and Canada
* 3rd, a review who the uninsured are
* Last, suggested changes to achieve universal healthcare in the US
Let’s start by reviewing the four ways the candidates are proposing to reduce or eliminate the uninsured and reduce costs
(1) Reduce the uninsured by mandate that require individuals to get insurance if they don’t have it
* Require all Americans to have health insurance coverage. Income related tax subsidies to make coverage affordable.
* Expand Medicaid and SCHIP (State Children’s Health Insurance Program that covers those at 1.5 to 3× federal poverty limit)
* Maintain employer based coverage and require large employers to provide an employee plan or contribute to the cost of coverage,
* Small employers are not required to provider insurance to employees but will have a tax incentive to do so (unless they have a high income).
* Ditto but
* Initially limit mandate to all children to have health insurance till costs of insurance are reasonable
* Help small businesses and individuals without access to other public or employer based coverage to enroll in a new public or approved private plan.
* Opposes all mandates
* Doesn’t propose expanding Medicaid and SCHIP (but does propose allowing veterans to us VA benefits to pay for private care
* Removes the favorable tax treatment of employer-sponsored insurance (essentially drastically reducing the incentive for employers to provide coverage
* Allow business associations and other qualified groups to offer small businesses affordable insurance
Critique of proposals
Clinton and Obama maintain employer-based system that has been in place since the 1940s when, as a result of a wage freeze, employers used tax-exempt health benefits as a way to attract employees and provide added benefits in lieu of wages. The problem with an employer-based system is the insecurity caused when employer goes bankrupt, if benefits are reduced and the possible lack of coverage when moving from job to job or if laid off for a long time. Employer-based coverage also creates dependence on a particular job in order to obtain health benefits.
Clinton and Obama want to expand Medicaid and SCHIP but don’t indicate how much (?3 or 4 times the federal poverty limit). Whatever the expansion, it will increase employer’s incentive to make non-employee (dependent) coverage financially unattractive by increasing the employee contribution disproportionately for dependents when the employer knows they have a public plan alternative. The result is the crowd-out phenomenon in which public insurance replaces private coverage. This increases the cost to taxpayers and threatens solvency of this joint federal-state program. Alternatively, it will create taxpayer backlash and force a reduction in benefits and eligibility.
Mandates might seem to be the only way to get to universal coverage, but they are not a panacea:
First, individual mandates are coercive and therefore rub against the American ethos. They generally require fines or garnishing paychecks and tax rebates. More importantly, they can be punitive if the required insurance is not affordable.
Second, they require individuals to do something, i.e., obtain coverage and overcome their inertia if currently uncovered. In Mass., only 50% of the 600,000 uninsured have signed up for insurance despite the fine ($219). Next year, non-coverage will be fined $912. In California, where auto liability coverage is required, 25% don’t have it.
Employer mandates may seem reasonable and fair, although in Obama’s case he is quite vague in stating that employers must provide “meaningful coverage.”
But employer mandates to provide health coverage will ultimately be paid for by employees in terms of lower wages and other benefits. This is called “compensating differentials.” Thus employer mandates should therefore be seen as an alternative form of individual mandates.
Clinton exempts small businesses from her mandate, a response to lobbying by this employer segment. By only providing tax incentives to encourage their participation, she is not fully addressing the core group of the uninsured: the working poor.
McCain is not directly focusing on the uninsured. His policy recommendations are more concerned with reducing medical costs first, although he indicates that his goal is to provide access to affordable health care for all.
McCain wants to eliminate employer-based insurance and its preferred tax treatment.
NOTE: currently employer-based health insurance is not subject to state or federal tax. This tax subsidy costs taxpayers over $200 billion annually. Those purchasing individual insurance policies (e.g. the self-employed or those without affordable group coverage) do not enjoy this tax exemption. As important, this tax exemption for employer-based insurance is benefiting the rich more than low-income wage earners, since they are in a higher tax bracket.
McCain wants everyone to have this exemption but not one tied to employer-sponsored insurance.
Clinton would continue to exclude employer-sponsored insurance from income taxes except for “the high-end portion of very generous plans for those making over $250,000.”
No candidate is addressing the 23% of the uninsured who are not citizens and the estimated 25% of these who are illegal aliens. Therefore, no one is going to achieve universal coverage in the near term without resolving this controversial issue.
(2) Reduce the uninsured by making insurance affordable
* Refundable tax credit to ensure that premiums will not exceed 5-10% of family income
* Employers could buy coverage through the new FEHBP-like set of choices on behalf of workers or early retirees or keep what they offer
* Limit premium variations to age, gender or occupation
* Provides a tax credit of $2500 for all individuals and $5000 for all families to purchase insurance
* Promote competition and individual choice of insurance by allowing insurance to be sold across state lines.
* Encourage innovative multi-year insurance products.
* Allow small businesses and self-employed to purchase insurance through any organization or association.
Critique of proposals
Refundable tax credits and subsidies that Clinton and Obama propose will work IF they are sufficient to make the cost of insurance affordable and if the proposed FEHBP options are low enough. Given how broad the FEHBP benefits are, this is not likely.
Limiting insurance costs to 5-10% of family income is unclear: does it include only the premium costs? What about out-of-pocket expenses (co-pays, deductibles)? According to the Kaiser Family Foundation, 17% of families 10% of income or >5% if lower income (<2× federal poverty level). 23% of families with members over age 65 would not be protected by Clinton’s intended premium + out-of-pocket cap. This affects 27 million families or about 50 million people.
Proposals to limit premium variation to age/sex/occupation discriminate against younger and healthier individuals since their premiums will be much higher than their expected costs and will make purchasing insurance much less likely, without a mandate.
McCain’s tax credit would be sufficient for insurance plans that have a high deductible before paying out benefits. According to the Kaiser Family Foundation, the average individual insurance policy is about $4000/yr and $12,000 for a family and so the credits would not be sufficient for conventional policies. On the other hand, it eliminates the bias toward wealthier individuals since generous and expensive policies would now have a limited tax advantage.
McCain’s proposal to allow insurance to be considered inter-state commerce is quite radical. Currently, individual policies and companies that obtain coverage from insurers are subject to state mandates, that is, required minimum benefits. Wigs for hair loss from chemotherapy, advanced reproductive technology for infertility, Viagra, unlimited chiropractor visits are the kinds of mandates that raise costs, and collectively there are over 1800 such mandates throughout the country. NJ has one of the highest mandate rates.
State mandates are estimated to cause 20-25% of the uninsured in the US by increasing all policies’ minimal costs, thereby making them unaffordable for the working poor. By allowing people to buy policies from low-mandate states, a new level of competition would be introduced to allow individuals to shop for policies that may be 50-60% lower than ones currently available in their state.
In addition, by allowing business associations and other groups to offer insurance (e.g. through the Chambers of Commerce), overhead costs and marketing cost savings can make insurance more affordable to small businesses that employ the majority of the working poor that make up the overwhelming majority of the uninsured.
(3) Reducing medical inflation to reduce costs
* Invest in health information technology system;
* Improve prevention and management of chronic conditions.
* Reduce payments to Medicare Advantage plans
* Promote generic drugs, allow drug reimportation, and repeal the ban on direct price negotiation between Medicare and drug companies.
* Reform medical malpractice.
* Support an independent institute to guide cost effectiveness reviews.
* Promote insurer competition through an alternative public insurer like the FEHBP
* Regulate health plan profits
* Invest in prevention and care of chronic illnesses.
* Adopt malpractice reforms
* Allow re-importation of drugs and encourage faster introduction of generics
* Promote use of alternative providers (e.g., nurse practitioners) and treatment settings (e.g., walk-in clinics in retail outlets).
* Increase competition and reduce administrative overhead costs of private insurance by permitting sale of nationwide insurance (i.e., not regulated by the states).
Critique of Proposals
There isn’t evidence that electronic health records and prevention reduce health costs. They may raise costs.
The impact of better chronic disease management varies by how well it’s implemented, and it isn’t clear how a government initiative in chronic disease management would work to reduce costs. It might even increase costs. This is also true of improving quality of care. It may cost more to improve quality. Therefore, while it is rhetorically and philosophically appealing, from a cost-saving perspective it is not necessarily a sure way to decrease costs.
Reducing payments to Medicare HMOs and regulating health plan profits has not decreased plan costs in the past. Since it is based on a percent of premium charged, by increasing premiums plans can maintain the same dollar profit while claiming a smaller percent of profit.
Reforming malpractice may have a minor impact on physician costs and will appeal to the AMA as a stakeholder, but this may not translate into lower insurance costs for individuals.
More government regulation of drug costs could impede new drug development as will drug re-importation. It and faster introduction of generics may reduce domestic drug costs but expect Big Pharma lobbyists to go berserk.
Encouraging non-MDs to compete with MDs for stable and relatively healthy individuals may increase or decrease costs. This hypothesis is untested as a cost saver.
Inter-state insurance availability is likely to significantly reduce costs.
(4) Reducing Benefits to Reduce Costs
* Benefits would be at least as good as an “FEHBP benchmark plan” your congressman has, including mental health parity and usually dental coverage.
* Charge a premium that is not rated on the basis of health status
* Require private insurers to provide coverage on a guaranteed issue basis without pre-existing illness exclusions
* Ditto (but can increased benefits reduce cost?)
* Provide insurance choices that are “diverse and responsive to individual needs”
* Use more high deductible plans that reduce medical premiums and make people more aware of the costs of their medical decisions (i.e., reduce benefits and pay more)
Critique of Proposals
FEHBP benefits are relatively expensive and more generous than the basic coverage found in the national systems in Britain or Canada. The “benchmark” plan is a below-average-priced plan offered to federal employees. These have deductibles and other cost-sharing features. Total costs in NJ would be about $4000 per year for an individual and $10,000 per year per family. For federal employees, the government pays 75% of these premiums. However, these premium costs don’t include out-of-pocket expenses and so the FEHBP model would appear to be a very pricey benchmark for universal coverage. It is too costly to be a sound foundation for universal coverage (although it sounds great to say “I guarantee coverage just like your congressman.”)
Not allowing insurers to charge premiums related to health status will force younger, healthier individuals to pay more and make insurance less affordable for them, thus contributing to the uninsured problem unless there is a mandate.
Guaranteed issue and no pre-existing illness waiting periods allows people to opt in when they need coverage and opt out when they don’t. It will raise costs of everyone’s insurance unless a mandate is in place.
McCain is vague about what he means about “diverse” and “responsive” choices
His idea of cost sharing with high deductibles can delay needed care and result in worse outcomes and higher costs
WHAT DO THE BRITISH AND CANADIAN SYSTEMS LOOK LIKE AS MODELS?
England and Canada
Basic services such as visits to primary care providers (PCPs), specialists, hospitals and radiology services are free.
Primary care doctors provide and arrange treatment by specialists and hospitals (gatekeeper model)
HOW MANY HAVE PLANS THAT REQUIRE A PCP TO SEE A SPECIALIST?
Prescriptions, dental treatment, optical services, travel for treatment, wigs or bras for chemotherapy effects and mastectomy are paid by the patient. These non-basic services may be partially paid for those that are poor, pregnant or are children
No deductibles, co-payments or dollar limits on basic covered services
Private insurance and employer-provided benefits pay for 25% of all health and social care spending. Consumers may choose private coverage to gain access to more providers and more timely delivery of care.
Waiting times for elective procedures and services are a major problem. 42% reported waiting 3 months between seeing specialist and receiving surgical care. There are also long waits for physical therapists.
Defined budgets for healthcare create concerns about outdated equipment
Survey: 42% were fairly or very dissatisfied with their healthcare system
The British Health Service funds a National Institute for Clinical Excellence (NICE) that performs cost effectiveness evaluations on new technologies. Its recommendations to the NHS about drug coverage are not immune to political pressure and public reactions in the case of life-limiting conditions.
2⁄3 of Canadians feel their families had to wait longer for medical services in the last year than they thought was reasonable (esp. specialists, employer, MRIs).
With currently limited health budgets, Canada has 25% fewer doctors than other average leading industrialized countries.
While costs are controlled in other universal systems by a pre-defined overall health care budget and a single approach to defining basic coverage, this has consequences that would be difficult for most of the 85% of Americans with insurance to tolerate in terms of access to care. Also, with basic coverage excluding dental, pharmacy, etc., it would mean forcing people to do without or paying a significant amount of out-of-pocket costs if they have serious chronic illnesses or injuries.
WHO MAKE UP THE UNINSURED?
* 1 in 5 adults <65 years old; 1 in 9 children (<19 years old)
* 1 in 3 Hispanics and Native Americans
* 1 in 5 Black non-Hispanics
* 1 in 2 non-citizens that make up almost ¼ of the uninsured
* >80% come from working families; 70% with one or more full-time workers
* 70% work where health coverage is not offered by employer or the spouse’s employer or where they are not eligible for coverage. Therefore the uninsured are largely the working poor in small businesses
80% of the 46 million uninsured are either eligible for public coverage or are >300% of the Federal Poverty Level (3× FPL ≥ $65,000 for a family of four).
Another 12 million may have insurance that does not protect them against catastrophic expenses (“under-insured”)
The bottom line is that only about 20% × 46 million, <10 million (3%) need to be addressed with affordable health insurance. Since catastrophic coverage is relatively inexpensive, it should be mandated. Question: Should we be proposing major system changes for the needs of ~3% of the population? CONCLUSION To achieve universal coverage there are several issues that need to be resolved which our presidential candidates are not addressing at all or at least not adequately. (1) Legal and Illegal Immigrants We cannot fulfill the moral imperative of universal coverage and not discuss immigrants. This is a politically divisive issue, especially in states bordering Mexico. We need to disseminate accurate information about the financial contribution of aliens, e.g., that they are relatively low users of health benefits and that they contribute much more in state and federal taxes than they receive in benefits. (The National Research Council estimated in 1997 that the average immigrant paid $1800 more in taxes than they used in government services. 75% pay federal and state payroll taxes, at times on false Social Security numbers and so will not collect any Medicare benefits. They also pay sales and even property taxes at times.) We should change immigration policy to allow working, illegal aliens to obtain medical coverage. For aliens (and insurers and even taxpayers) this would be a win and is consistent with the 2004 recommendations of the National Immigration Law Center’s Comprehensive Health Care for Immigrants: A Sound Strategy for Fiscal and Public Health. (2) Distinguish basic, medically necessary care from other benefits similar to other countries with universal coverage. This means dealing with advocacy groups and commercial interests that want to include unlimited chiropractic, dental, eye care and physical therapy in a basic care package along with extensive infertility services. It also will mean giving up what many of us take for granted as good, basic coverage. (3) Mandate catastrophic coverage to protect all families from bankruptcy due to serious medical illness and injury. (4) Because technologies such as new drugs, other therapeutic and diagnostic techniques are the key drivers of medical inflation, we need a financially disinterested and politically unbeholden group of scientists to evaluate the cost effectiveness of new and currently used expensive technologies. Those found to not meet a certain threshold of value should not be included in the basic medical benefits available to all. Those that want such technologies would need to find private ways to pay for them or go through some expeditious appeal process. (5) Foster inter-state competition among insurers to keep basic, supplemental (including drug) and catastrophic coverage affordable with a variety of options and levels of benefits (a market-based approach) rather than creating a one-size-fits-all, top-down government-run program. (6) Provide a graduated level of support for the working poor to obtain basic and supplemental coverage. (7) Require wealthier retirees to pay all or most of the cost of their Medicare policies. It is disappointing that the Democratic candidates are focused on which proposal is more universal. They aren’t discussing covering all aliens and so are being disingenuous in suggesting they can ever achieve universal coverage. They do not stress that the uninsured are a symptom of medical cost inflation since for every 1% increase in insurance premium, an estimated 160,000 join the ranks of the uninsured. They are supporting the current and problematic employer-based system along with its unfair tax advantages for the haves. Employers and insurers don’t and can’t be made to ultimately pay for care. They pass their costs to workers and taxpayers who ultimately bear the cost of their health benefits. Finally, they want everyone to have very broad benefits instead of distinguishing basic, medically necessary coverage from things that can be dealt with, with private supplemental coverage as other countries have done. McCain wants to end employer-based insurance and move to more competition in the insurance market. He wants more cost sharing, but his approach isn’t nuanced in that it does not account for the potential downsides of deductibles and significant cost-sharing measures in creating financial barriers and effectively limiting medically effective care for the working poor and others. He does not call for an independent body to evaluate cost effectiveness of new and existing technologies nor does he address the problem of immigrants’ healthcare. Our three candidates are bright and probably honorable and worthy individuals but ones in whom political and populist rhetoric trumps substance and confronting important and divisive issues. Let’s hope the chosen administration and our Congress can remove the barriers to reducing medical inflation. Let’s hope this will ultimately lead to a politically viable system to cover all those living in America. But part of this depends on us, as stakeholders and “haves” in terms of reasonable coverage, and our willingness to support the tough decisions and steps that will change the disastrous course we’re on. We also need to support the eventual elimination of employer-sponsored insurance. We only have about 10 years before Medicare begins involuting and causes such a financial burden on our children and grandchildren’s income that we will be remembered less as a generation of boomers but more as the generation of busters. This is not the legacy we should leave and so we need to be better informed and support politicians willing to make the difficult and unpopular decisions required to reduce medical cost inflation, avoid a national crisis in health benefits and form a fiscally responsible basis for moving toward universal coverage. CLOSING WORDS FROM THE CANDIDATES Mrs. Clinton: My plan will achieve affordable and high-quality universal coverage through a mix of private and public insurance (but are you going to avoid counting illegal aliens in your march to universal coverage?). It will cost $110 billion. $35 billion to be financed by savings from quality and modernization initiatives (although that may actually increase costs). Additional $21 billion in savings from Medicare private plans (which will encourage them to raise premiums), recapturing Medicare and Medicaid payments to hospitals for the uninsured (which won’t do anything to lower medical cost trends), and constraining prescription drug costs (which will cause Harry and Louise to come out of their pharmacy and cry about the loss of new drugs to cure their child’s fatal illness). Also $54 billion in revenue from limiting the tax exclusion for employer-paid health insurance and discontinuing tax cuts for those with incomes over $250,000 (which will be fine in year one, but won’t stop galloping medical inflation). Besides, the Democrats have already committed savings from the 2010 expiring Bush tax cuts for the rich several times over on their pet projects, like eliminating the Alternative Minimum Tax. Mr. Obama: Ditto, starting with the kids. When costs are controlled then cover everyone. It will cost $50-65 billion. But why should it cost more, if the US is already paying 50-100% more than other countries with universal coverage? Why not focus first on defining basic coverage instead of coverage like you have as a Congressman and then on getting the costs down? What about protecting the new cost-effectiveness institute from special interests and political influence? And why don’t you propose moves to get us off of employer-sponsored insurance eventually? Mr. McCain: Provide access to affordable health care for all by paying only for quality health care (but this is difficult when there is so much disagreement about what quality is), having insurance choices that are diverse and responsive to individual needs, and encouraging personal responsibility (that is, you’ll be paying more), but I won’t raise taxes to finance the changes in part because I’ll eliminate the tax incentives to maintain employer-sponsored insurance. (But what about defining a basic package and a way to evaluate new technologies to reduce dollars spent on expensive services that raise costs without improving outcomes?) In a recent JAMA article subtitled: “It’s Health Care Costs, Stupid,” Dr. Ezekiel J. Emanuel wrote: Because of self-interest, costs can motivate Americans in ways that covering the uninsured has not. In the strange calculus that is American Politics, the more politically salient issue of costs may provide a better way to achieve the comprehensive reforms necessary to cover the uninsured than the hitherto futile direct moral appeal. We all have a vested self-interest in cost control and so must support appropriate cost sharing and reduced benefits now, if we are going to avoid more draconian measures that will hurt us and our families’ financial and physical well being in the future. Only with effective cost constraints can we achieve the moral imperative of universal coverage in a sustainable way.