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The Health Reform We Need & Are Not Getting

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Ed Kashi/Corbis
A triage nurse treating a boy suffering from an asthma attack in the emergency room of San Francisco General Hospital

The President apparently wants to achieve nearly universal coverage now, hoping to deal with the cost problem later. That probably explains why he invited representatives of the health industry to the White House on May 11. According to the White House, the meeting was a “watershed” event that resulted in a pledge from industry officials to reduce costs by $2 trillion over the next decade. But leaders of the American Hospital Association and the private insurance industry told The New York Times a few days earlier that a specific amount of savings had not been promised, and that the savings would be more gradual. This episode is best described as part of the industry’s strategy to appear supportive, more by words than action, hoping thereby to fend off legislation that would seriously threaten its interests. To facilitate passage of health reform, the President solicits the health industry’s support, but he must know this will require making compromises with vested interests. He also must know that health care businesses cannot be much interested in reducing expenditures that are their income.

The President no longer insists that people under sixty-five whose income is too high for Medicaid should have the option of buying public insurance, although that was part of his campaign platform and Secretary of Health and Human Services Kathleen Sebelius says he still favors it. Representative Pete Stark, the California Democrat who chairs the House Ways and Means Health Subcommittee, strongly supports this idea. Such a public insurance option is strongly opposed by the private insurance industry and by some influential legislators like Iowa Republican Senator Charles Grassley, who see it as unfair competition and the opening wedge of a move toward the ultimate replacement of private plans with a government-operated insurance system. The industry and its allies have so far been emphatic that they will not agree to a reform plan that offers the choice of public insurance.

A compromise has been suggested by Senator Charles Schumer in which the public insurance option is supported entirely by premiums and co-payments and administered by an independent agency enforcing the same rules that regulate the private plans. Whether this, or any other, version of the public option would satisfy industry’s concerns is not clear. The private insurance industry has made clear its willingness to compromise on a proposal that subsidizes expanded coverage and improvements in medical care, provided that the legislation mandates private coverage for all those under sixty-five not already covered by a government program. The private insurance industry might even accept a requirement that private insurers offer insurance to all applicants without increasing premiums to those with preexisting illnesses, provided that insurers are allowed to set rates based on age and other demographic factors. The insurance industry’s conciliatory public position may be concealing what will ultimately be its usual resistance to any policy threatening its current stranglehold on the under-sixty-five health insurance system. It will be interesting to see how these issues are resolved. As the May 11 meeting at the White House suggests, the administration does not want a direct confrontation with vested interests and probably will settle for arrangements the insurance industry suggests.

In seeking a consensus, Obama’s health reform policies do not address the central causes of rising costs, and propose nothing likely to have much effect on them. He does not mention the ways that investor ownership and the fee-for-service payment system provide incentives for increasing costs. Nor do his policies recognize as a major problem the fragmented, entrepreneurial organization of a medical care system that is dominated by specialists and is deficient in primary care doctors. And yet reforms that do not address these problems cannot produce an affordable or sustainable system.

In many respects, Obama’s proposals resemble the widely acclaimed reforms enacted three years ago under Governor Mitt Romney in Massachusetts. That initiative has achieved wider insurance coverage in the state but has not challenged the private insurers or made any changes in the delivery of medical care, which is among the most expensive in the country. Consequently, while federal funds from the Recovery Act may keep the Massachusetts plan alive for the time being, the state is now confronting cost problems that could bankrupt the entire program. Like Obama, Massachusetts lawmakers decided to begin by expanding coverage, apparently hoping to control costs later on.

Five congressional committees, two in the Senate and three in the House, are working on health care proposals, but to judge from the advice they are getting and from comments in the media by members of these committees, the resulting legislation is unlikely to go beyond the expanded coverage and the marginal improvements in the existing medical care delivery system proposed by Obama. Max Baucus, Democrat from Montana, chairman of the influential Senate Finance Committee, released a white paper last November outlining a reform plan largely resembling the President’s. There is little evidence in this document of a strong determination to challenge the private insurance plans with a competing public plan, or to make basic changes in the organization and funding of medical practice. Timid legislative tinkering with the current medical care system and a focus on increasing coverage, rather than major reform, are not going to control costs or make much difference in the quality of care.

This is one of the main conclusions of Ezekiel Emanuel’s recent book, Healthcare, Guaranteed. Although its views stand apart from the current consensus, it will get attention from Washington’s policymakers, not least because the author, a physician with clinical training, is the older brother of Rahm Emanuel, Obama’s chief of staff. He is also chair of the Department of Bioethics at the National Institutes of Health and the medical adviser to Peter Orszag at the Office of Management and Budget.

Emanuel shares many of the criticisms of the current system that I have put forward here, including the problems of private insurance and fragmented, fee-for-service medical care. However, he says nothing about the role of investors and commercial behavior in creating these problems, and none of his suggested reforms addresses the lack of primary care doctors. Still, to his credit, he proposes comprehensive reforms in all parts of the system, arguing that incremental changes like those advocated by Obama and Baucus will be ineffective.

Emanuel proposes, first, that everyone be issued a government certificate guaranteeing access to a broad range of health care services, which would be provided through certified, competing private health insurance plans. These plans would be paid by a government agency, with premiums adjusted for the degree of risk estimated for each patient. The plans would be required to accept everyone regardless of preexisting medical conditions. They would then organize integrated teams of physicians and other health professionals to provide the guaranteed care. Hospitals, selected by the doctors and their patients, would be reimbursed by the plans. Employment-based insurance would disappear, to be replaced by increased wages for employees. Medicaid would also end and Medicare would be gradually phased out, to be replaced by membership in the new national system. Individuals would be free to buy alternative or supplemental services at their own expense, but these costs would not be tax-deductible.

Emanuel’s proposed system would be funded by a dedicated, VAT-type of consumption tax, the rate to be set by Congress. The amount collected would in effect limit total federal expenditures on health. Costs would also be moderated by a more rational use of expensive technology, based on the recommendations and research findings of a federally supported Institute for Technology Outcomes and Assessment. A National Health Board would oversee the operation of the entire system, monitor and report on the performance of the plans, and determine the risk-adjusted per capita payments to them.

Apart from the question of its political chances, how should this proposal be judged? In my view it has much to commend it, but is seriously flawed by its dependence on competing, for-profit private insurance plans to reorganize and manage the medical care delivery system, and to determine the reimbursement of physicians and hospitals. It recalls the “managed care” era of the 1990s, when, in an effort to control costs and maximize profits, the HMOs restricted access to specialists and hospitals and regulated physicians’ use of technical procedures, causing many patients and physicians to rebel against them. As that experience has shown, insurers should not make decisions about the use of medical resources, whether the insurers are private or public. Such decisions should be left to physicians and their patients—provided, of course, that there is appropriate accountability, and public mechanisms are in place for controlling total expenditures and the prices paid for services.

Emanuel is right in wanting to reform the present insurance system, but he is mistaken in thinking that it should be replaced by regulated competition among private, for-profit insurers. The experience of the last few decades with such insurers—Medicare Advantage plans are a case in point—shows that they add costs without commensurate benefit. Private, investor-owned insurance plans are a failed experiment and should be phased out or marginalized.

The logical alternative would be a universal insurance plan administered by the government and funded by taxes—some sort of “single-payer” arrangement, which would eliminate paying for the profits and administrative expenses of private insurance middlemen. Emanuel admits that a single- payer system would save a lot of money, probably at least $120 billion per year, but he fears single-payer plans, and argues against them. He says that they do little or nothing to improve the quality or efficiency of care, while exposing the system to the risks of government meddling, rationing, and unpredictable financial support.

The obvious response to those criticisms is that single-payer plans concern the method of insurance and not the delivery of medical care. Medicare, for example, is a single-payer system in which medical care is privately delivered, with a minimum of government interference. The medical care delivery system could be reformed and reorganized to control costs and improve quality while still being funded through a single payer plan.

That solution, in fact, is one that I proposed two years ago in A Second Opinion. It would include a single public payer that guaranteed comprehensive health care for all, funded by a progressive tax whose proceeds would be dedicated to medical care. This insurance and funding plan would be combined with a delivery system, overseen by a public agency but managed entirely on a not-for-profit basis by privately organized doctors and hospitals. The delivery of care and the use of health resources would be the responsibility of organized multispecialty groups of salaried physicians and other health professionals, which would include adequate numbers of primary care doctors.

Multispecialty group practice with salaried physicians has many advantages for the delivery of low-cost, high-quality care, in which the different medical services needed by a patient are effectively integrated. Evidence for these advantages, as well as the problems faced by group practice in the current system, are thoroughly discussed in a book edited by Alain C. Enthoven and Laura A. Tollen.5 Despite the problems, a few large multispecialty groups have managed to thrive—for example, the Mayo Clinic, Kaiser-Permanente, Marshfield, Geisinger, Scott-White, and Lahey. Patients at these groups are covered by a variety of insurance plans, public and private. They receive high-quality care by integrated teams of physicians, primary care doctors, and specialists, who are paid mainly by salaries.

The Mayo Clinic, for example, has been very successful as a large, private, not-for-profit, self-governing organization, in which the participating physicians elect medical leaders who set professional standards, hire and fire staff, and determine salaries. I envision a system that would encourage the development of many smaller community-based group practices of this kind, and would help them survive, with subsidies if needed. These groups would be certified by a new central health agency, which would set guidelines for salaries and administrative policies.

As in Emanuel’s plan, total costs would be limited by the amount of money collected through a health tax, but I favor a progressive, income-related tax rather than a VAT. Deci-sions on the use of available resources would be the responsibility of physicians, who would be helped, but not controlled, by clinical guidelines and assessments of technology. Hospitals and other facilities would be not-for-profit and would be paid through the central health agency, but the choice of these facilities would be a private decision made by doctors and their patients.

Congressman John Conyers of Michigan has introduced a single-payer proposal (HR 676) that would pro- vide universal health care through a Medicare-like public insurance system with private, nonprofit providers. Although his bill now has many cosponsors in the House, it remains held up in committee and is unlikely to be part of any legislation emerging from the 111th Congress. A single-payer system, despite its many advantages over the present insurance system, and despite its growing public acceptance, is clearly “off the table” in current legislative discussions. At the start of the public hearing of the Senate Finance Committee on May 5 and 12, Senator Baucus insisted that he was “open” to all views; but among the twenty-eight invited witnesses, no single-payer advocate was allowed to testify. In fact, Baucus has repeatedly said that the legislative debate would not consider a single-payer option.

Neither my proposal, nor Emanuel’s, nor Conyers’s, nor any other plan that starts with the elimination of private employment-based insurance and depends largely on public funding stands much of a chance of being enacted now. It would be too great a change, and it would threaten insurance companies and other powerful vested interests that influence Congress. The same is true of any major reorganization of medical care that phases out fee-for-service practice in favor of nonprofit multispecialty groups of salaried physicians and dampens the commercial fire that has converted US medical care into an ever-expanding profit-seeking industry.

As bad as they already are, things will have to get still worse before major reform becomes politically possible. The legislation likely to emerge from this Congress will not control—and will probably even exacerbate—the inflation of costs. But sometime in the not-too- distant future, health expenditures will become intolerable and fundamental change will at last be accepted as the only way to avoid disaster. When that time arrives, the opportunity to enact real health reform will finally be at hand.

—June 3, 2009

  1. 5

    Toward a 21st Century Health System: The Contributions and Promise of Prepaid Group Practice (Jossey-Bass, 2004).

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