How to Change Health Insurance Markets and Secure Value for Health Care Dollars
KEY ELEMENTS OF FUNCTIONING HEALTH CARE MARKET:
- Individuals and families make all the key financial decisions.
- Health plans compete directly for patients’ dollars on a level playing field.
- Health insurance policies are personally owned and controlled and are fully portable.
- Health plans and providers are directly accountable to the patients.
- Health care information on quality and outcomes is widely available.
- Health care prices are transparent.
- Health care professionals compete to deliver quality services, resulting in cures and better medical outcomes.
- Health care plans and providers respect and accommodate the ethical, moral and religious convictions of individuals and patients in matters of medical ethics (e.g.. beginning and end of life care.)
POLICY IMPLICATION: Big changes in federal and state law and regulation would be required to create such a market.
BIG CHANGE? A CONSISTENTLY CONFLICTED PUBLIC SINCE CLINTON’S PLAN
HISTORICALLY, MAJORITIES SAY THEY FAVOR MAJOR REFORM.
54 percent of Americans say they want ‘fundamental “changes.
The New York Times/ CBS Poll, March 1, 2007
7 in 10 say the system is in a “state of crisis.”
Gallup News Service, November 2006
43 percent of Americans said that the health care system requires major changes, and another 17 percent say it needs a major overhaul.
Wirthlin Quorum Survey, April 1998
56 percent said the health care system needed a complete overhaul, and another 29 percent said it needed major changes to work better.
RWJ-Harvard School of Public Health Survey, March 1993
BUT… HIGH LEVELS OF PERSONAL SATISFACTION
87 percent say they get good medical care at an affordable cost.
The New York Times/ CBS Poll, March, 1 2007.
65 percent describe their personal coverage as either “excellent or good.
Gallup News Service, November 2006
7 in 10 American workers are “completely” or “somewhat” satisfied with their health insurance benefits.
Gallup Poll, August 2003
83 percent of white respondents rate the “quality of care” they get as “excellent or good;” 68 percent of non-whites rate the quality of care they get as “excellent or good;” only 2 percent of whites rate quality poor, and only 6 percent of non-whites rate the quality as poor.
Gallup Poll Briefing, September 30, 2003
81 percent of Americans rate their physicians as excellent or good; 85 percent rate nurses excellent or good; 60 percent rate hospitals as excellent or good.
Gallup Briefing, December 23, 2003
THE CONFLICT OF VALUES: REALTRADE-OFFS UNDERMINE MAJOR REFORMS
(From Cogent Research Corporation surveys
on Massachusetts proposals, 2003)
e.g. Universal Coverage Proposal (The “Michael Moore Option”). Initial support was 50 percent favorability. When those favoring the plan were told that it might mean that they would have to “wait longer for some hospital and specialty care,” 34 percent of those initially favoring the proposal then opposed it.
e.g. Employer Mandate Proposal (AFL/CIO Option). Initial support was 76 percent. When those favoring that plan were told that it would raise costs for businesses and consumers and force layoffs, 46 percent of those previously supporting it then opposed it.
e.g. Tax Credit Proposal (Moderate Democrats/Conservative Republicans). Initial support was 70 percent. When those favoring the proposal were told that amount of the credit would not be enough to cover the cost of an individual health insurance plan, 39 percent of those previously supporting it then opposed it.
A recurrent theme: Cost Anxieties. When asked whether they were worried about not being able to pay medical costs if they got sick, 24 percent of Americans said that they were “very worried” and 22 percent said that they were “moderately worried.” Cost worries are a constant in every survey.
POLICY ADVICE: Think big, but act carefully. Let folks keep what they have and what they like.
NO ESCAPE FROM HIGH HEALTH COSTS
The total cost of health care today is $2.1 trillion, or 16 percent of Gross Domestic Product (GDP). By 2016, based on current assumptions, CMS projects it will reach almost $4.1 trillion, or 20 percent of GDP. One out of every $5.
- The Health Care Sector is a Classic Example of a Mixed Economy. Third Party payment dominates spending in this sector of the economy. CMS programs (Medicare, Medicaid and S-CHIP) and other public spending, accounts for roughly 45 percent of all spending; private insurance accounts for 40 percent, and personal out-of-pocket spending is roughly 15 percent of the total. Third party Payment dominates financing.
- No consumer control over dollars. Only 13 cents out of each health care dollar is spent directly by individuals. Only 9 percent of Americans personally buy coverage.
- Hospitalization ($652 billion) Still Dwarfs All Other Medical Spending in 2006. Physicians’ services account for $447 billion; prescription drugs, 213.7 billion; nursing home care, $126.1 billion.
- More People are Living Longer. The American population is growing in absolute terms, but it is also getting progressively older. The Medicare population, now at 40 million, will reach 80 million over the next three decades. Medicare today costs $417 billion; it will cost $862.7 billion in 2016, after the initial waves of the baby boomers retire.
- The Medical Revolution. The American people are the beneficiaries of newer and more effective and expensive medicines, improvement in diagnostic technology and surgical techniques. Modern research has revolutionized the treatment of disease, including chronic and infectious diseases, arthritis, depression, cardiovascular disease. Intensive research is underway on AIDs, Alzheimer’s, and cancer. Pharmaceutical research is testing on over 800 medicines for diseases associated with aging.
- The Biomedical Revolution. Stem Cell research has already provided treatments for 58 diseases. The Human Genome project will open up new opportunities to treat and cure disease, including isolating the genetic pre-disposition toward disease and the development of designer drugs.
POLICY ADVICE: Avoid cost shifting, focus less on cost and more on value for money. But How? Empowering patients as key decision-makers.
NATIONAL PROFILE OF THE UNINSURED: A DIVERSE AND DYNAMIC POPULATION
Roughly 84 percent of Americans have public or private insurance coverage. The minority of the uninsured are a heterogeneous population, and their coverage options are affected by a variety of social, economic, geographical and political factors.
- 8 out of 10 uninsured Americans are members of working families. Health insurance coverage—and the lack thereof—is predominantly a function of employment. CBO reports that more than 3 out of 4 uninsured Americans do not get coverage through their place of work.
- The uninsured are heavily concentrated in small businesses, and the service and retail trade industries. They also work on a contract basis and are part-time employees. Meanwhile, employers now cover only 59.7 percent of Americans.
- The uninsured, as a group, are relatively young, between 19 and 39; and they are adults with children, who work in small businesses.
- The uninsured population is mainly composed of low-income working people; most of the uninsured families have family incomes below 200 percent of poverty ($41,300). But you also find the uninsured in middle and even upper income categories. Almost 10 million have incomes higher than $62,000.
- The uninsured are disproportionately found among minority workers and their families. The highest incidence of un-insurance is found among Hispanics, followed by African Americans. Over one third of Hispanic workers and their families are uninsured.
- The uninsured are in and out of insurance coverage. CBO estimates that 45 percent of the uninsured are in a spell of un-insurance that lasts 4 months or less; 26 percent are uninsured 5 to 12 months; 16 percent are uninsured more than 24 months; 13 percent are uninsured 13 to 24 months.
POLICY ADVICE: Focus on expanding coverage for uninsured workers in small businesses.
OBSTACLE #1 TO A FUNCTIONING PRIVATE MARKET: THE FEDERAL TAX CODE
The Congressional Budget Office (1994) and the President’s Commission on Tax Reform (2005) studied the tax treatment of health care and found four fundamental problems with today’s tax policy:
- It undermines the portability of health insurance and restricts a person’s choice of health insurance because the insured individual’s employer owns the policy;
- It hides the true cost of health care as well as the identity of the person paying for the care. Average premium for group coverage is $12,106, of which only $3,281 is paid by the worker directly. The false impression: health care is a free fringe benefit, not a service purchased with money that otherwise would be spent on wages or other employment benefits.
TAX POLICY DISTORTS PERSONAL CHOICE
- It fuels higher health costs, because it encourages employees to seek more comprehensive and expensive benefits—the more expensive the benefits, the greater the amount of money excluded from taxable income; the higher the premium costs, the higher the level of un-insurance.
- It favors those who have higher incomes, while low-income workers who are least able to afford coverage on their own enjoy very few benefits. It is one of the most regressive features of the federal tax code.
- It favors group coverage only. Average annual premium for single individual coverage is $1,776 and family premium is $4,128 (2006 dollars).
HEALTH SAVINGS ACCOUNTS
Enacted as part of the Medicare Modernization Act of 2003, roughly 250 million Americans are eligible to participate in Health Savings Accounts; 4 percent of the workforce.
- Under law, accounts are combined with a high deductible insurance plan. The annual deductible must be at least $1100 for an individual and $2200 for family coverage, adjusted for inflation. Contributions to the HSA are deductible for employers and employees. Accounts are tax favored up to $2850 for an individual and $5,650 for a family. Persons over age 55 can make extra contributions to the accounts. Interest and earnings generated by the accounts are tax-free.
- The Accounts are portable. Individuals can take the accounts with them from job to job. Roughly one-third of workers don’t change jobs because of fear of losing job-based health coverage.
- Use of Account Funds. Funds can be used for “any qualified medical expense” under current law; COBRA coverage or unemployment coverage; and qualified long-term care insurance. For seniors, accumulated account funds can be used for Medicare premiums and out-of-pocket expenses, or enrollees share of retiree coverage.
HEALTH SAVINGS ACCOUTS: POTENTIAL TO TRANSFORM THE MARKET?
- They appeal to diverse age and income groups. Almost half of new policy holders are 40 years of age or older, a majority have families. 27 percent had been previously uninsured.
- They have a strong appeal to both large and small businesses. Hewitt Associates reports that most large employers are considering Health Savings Accounts for their employees; the National Federation of Independent Businesses (NFIB) are reporting favorable experience with these products. Firms offering high-deductible plans increased by nearly 30 percent this past year. They have a strong future. Treasury Department projects continued growth: 25 to 30 million enrollees by 2010.
- Most companies offering HSAs have plans that cover preventive care before the deductible. Most plan networks are PPOs.
- They are likely to expand as offerings in government employee health programs. The Federal Employees Health Benefit Program (FEHBP), the largest group health insurance program in the world, includes several such health plans. In 2006, Arkansas, Colorado, Florida, Oklahoma, South Carolina, and Utah offered such plans for their employees.
- They are broadly affordable. In the individual market, the average monthly premiums (varying by age) ranged from $116 to $291 for singles; and $266 to $542 for families. In the small group, the average monthly premiums were $233 and $583 respectively.
FEDERAL REFORM PROPOSALS
- The Universal Standard Health Care Deduction. All health insurance would be tax free up to $15,000 for family coverage; and $7500 for individual coverage (Bush Proposal, 2007). 80 percent of families would see tax savings.
- Refundable Health Care Tax Credits to Cover The Uninsured. A refundable and advance-able, income-based health care tax credit of $2000 per person and $4000 per family, phased out at family income of $60,000 or more. (Martinez Proposal 2005,) Similar refundable tax credit proposals: the Wyden Proposal of 2007 and the Coburn Proposal of 2007)
- A Roll Over of Existing Flexible Spending Accounts. Eliminate the “use it or lose it” provisions of the Section 125 plans, and allow the funds to roll over tax free from year to year ( Passed the House of Representatives in 2004; blocked in the Senate).
- Health Savings Accounts Expansion. Low-income families would have $1,000 deposited directly into their HSAs and a $2,000 refundable, advance-able health care tax credit for purchasing a high deductible health plan. Plus a new tax deduction for health insurance premiums connected with high deductible health plans. (Bush 2006 Proposal)
- Interstate Commerce in Health Plans. Allow individuals and families in one state to purchase health insurance coverage from companies incorporated in another state. (Bush 2006 proposal, Rep. John Shadegg of AZ.)
- Expansion of SCHIP eligibility. From less than 200 % FPL ($41,300) to 300% FPL( $62,000). (Facing a Bush Veto.)
OBSTACLE #2 TO A FUNCTIONING PRIVATE MARKET: STATE INSURANCE LAWS
- Employer, not Employee, Ownership of Policies.
- No Ease of Access in Balkanized State Markets.
- Insurance Companies Pick Their Customers; their customers don’t pick their insurance companies.
- Market Consolidation and Reduced Competition.
- Overregulation of Insurance (1900+state benefit mandates nationwide).
HOW MASSACHUSETTS ADDRESSED 4 KEY PROBLEMS
- Ease of Access for employees of small business to affordable coverage of choice.
- The provision of private health insurance coverage to low-income persons.
- The lack of transparency in price and quality of hospitalization and other medical services.
- The “free-rider” problem: encouraging personal responsibility for payment of health care bills.
SOLUTION TO PROBLEM #1: EASING ACCESS TO COVERAGE
- A single market for health insurance: a health insurance exchange( “the connector”).
- Purchases by Individuals and Families, Not Employers.
- Premiums Paid with Pre-Tax Dollars, Just like Employer-Based Insurance (Section 125 Accounts).
- Full Portability of Coverage.
WHAT TO AVOID: Government Benefit Setting.
SOLUTION #2: USE EXISTING GOVERNMENT SUBSIDIES FOR THE UNINSURED
- Massachusetts’ total Uncompensated Care Equaled $1.3 Billion in 2005.
- Recipients of government subsidies: Massachusetts Hospitals and Health Care Facilities. Sources of Government Funding: State uncompensated care funds, Medicare and Medicaid DSH Payments.
THE MASSACHUSETTS “VOUCHER” PLAN
- Administered by “The Connector”
- Premium Assistance- on a sliding scale- up to 300 Percent of the Federal Poverty Line ($30,480 for singles, $60,432 for families).
- Eligibility for assistance broadly similar to the Bush Administration’s proposed refundable Health Care Tax credit (2004).
WHAT TO AVOID: Don’t embed assistance in the insurance premiums of standardized plans, but transmit set amounts directly to different plans chosen by the beneficiaries.
SOLUTION #3: PROMOTE TRANSPARENCY IN QUALITY AND PRICING
- Massachusetts Hospitals demonstrated wide variation in hospital pricing for the same procedures. (E.g. Cost of newborn delivery ranged from $1800 at Mt. Auburn to $5300 at Massachusetts General).
- Likewise, there are major national pricing disparities in Medicare and other programs ( John Wennberg, Dartmouth Medical School).
WHAT TO WATCH: How the new Massachusetts’ “Cost and Quality Council” generates and distributes price and quality data and engages patients.
SOLUTION #4: ENDING THE “FREE RIDER” PROBLEM
- Federal Law Requires hospital care for any American regardless of their ability to pay (Hill Burton Act of 1946, EMTALA): Annual cost of the uninsured $41 billion (in 2004 dollars).• On July 1, 2007, all Massachusetts residents will be required to have health insurance , and report it on state tax returns.• Non-compliance will result in an initial loss of personal tax exemption, and a monthly fine equal to 50 percent of the annual cost of an affordable insurance product.WHAT TO AVOID: The prohibition against the personal right of self-insurance.
STATE-BASED MARKET REFORM A STATEWIDE HEALTH REFORM PROPOSAL
- A Broad Choice of Plan and Benefit Options: Any willing health insurers would offer a variety of plan types (e.g., indemnity, HMO’s, PPO’s, and consumer directed or HSA plans). Ideally, associations, ethnic and fraternal organizations and church and faith-based organizations could sponsor health plans.
- Defined Contributions from Employers: Any business could determine whatever pre-tax contributions it wishes to make to help its workers and/or their dependents pay for coverage. Businesses would set up Section 125 accounts, so employees could make tax free premium contributions.
- An Exchange to Facilitate Administrative Functions: The Exchange would help enroll individuals and families, collect and disburse premium payments, adjust for any government subsidies or vouchers, and process any related paperwork. This would be done through a TPA contractor or a legal entity sponsored by the state. Brokers would get a fee for bringing any individual or firm to the exchange. It processes paperwork; it is not a regulatory agency.
- Create a “Risk Transfer” Pool: A “back-end reinsurance pool” would be industry-run, and carriers would transfer claims for high cost enrollees to the Pool. The Pool would be self-governing and financed by assessments on all health insurance carriers selling health insurance in the state private health insurance market.
- Fold in State Government Employees: The state government would participate and enroll state employees, and the statewide single market would start off with a large group of covered lives.
- Low Income and Medicaid Beneficiaries: Federal waivers could be used to enroll poor families now covered by Medicaid into the private market , with the appropriate federal and state subsidies, vouchers or tax credits.
REFORMING THE PRIVATE HEALTH CARE SYSTEM – 10 STEPS
- Respect What Individuals Value – allow Americans to keep what they have and like.
- Focus on Value – not simply cost.
- Focus on Using Existing Resources to Expand Coverage – this should be targeted for workers and their families in small businesses.
- Use Direct Subsidies or Tax Credits – this should apply to individuals and families to assist them with private coverage and care.
- Introduce HSA’s into Government Employee Health Programs.
- End tax discrimination against any person’s choice of health plan. This includes all health plans purchased outside of the place of work, or in any state, that meet basic licensure and solvency requirements.
- Insist that any formal standard for medical performance be set by the medical profession; not government officials or insurance executives.
- Promote easily accessible consumer information from public and private sources. This should include health plans (quality and benefit and service), health care outcomes, the performance of doctors, hospitals, and clinics.
- Promote ease of access to health plans through defined contributions in a state-based exchange. Build on the strengths and avoid the weaknesses of the new Massachusetts “connector”.
- Promote price transparency. This should include both the public and private health care sectors.