The summer months leading up to September have seen the debate on health reform become more heated as it moves beyond the Washington DC beltway into town hall meeting around the country. One clear result of this activity is that both the media and the public are now engaged. Looking beyond the attention grabbing protesters, there are people asking questions about how proposed changes will affect their cost and access to health services. At its core health care is both personal and local. Nothing could demonstrate that more clearly than the outpouring of concerns at town hall meetings.
By James D. Chesney, Policy Initiatives Consulting Group
August 26, 2006
The summer months leading up to September have seen the debate on health reform become more heated as it moves beyond the Washington DC beltway into town hall meeting around the country. One clear result of this activity is that both the media and the public are now engaged. Looking beyond the attention grabbing protesters, there are people asking questions about how proposed changes will affect their cost and access to health services. At its core health care is both personal and local. Nothing could demonstrate that more clearly than the outpouring of concerns at town hall meetings.
The two major concerns that have dominated town hall meetings are access and cost. People are worried that the current system is not sustainable because costs are rising too fast AND that the only way to correct for increasing costs is to restrict access. People with pre-existing conditions worry that they will be dropped or excluded if they change jobs. One town hall participant reported that his family health insurance premiums had increased 15% a year for the past several years and that his deductibles had quadrupled during that time. Since his wife is a breast cancer survivor, he worries that his family would lose his health insurance if he changed jobs.
Fears about restricted access and increased costs are exacerbated by the goal of covering the 47 million people who are uninsured. These concerns are based on a simple equation: cost equals price times volume (C=PxV). In order to build public support, and a sustainable program, health reform proposals should both control cost and improve access. Lets consider price and volume proposals separately.
Price can be controlled three ways: regulation, competition and payment reform. Regulation allows the government to set a price for specific services and mandate that all providers accept the price. None of the current health reform proposals suggest this approach. A second approach is to reduce price by creating more competition in the health insurance market. Most states have a dominant insurer that controls most of the market. Health reform efforts focus on building more competitive environment by creating health insurance purchasing exchanges modeled after the Federal Employees Health Benefits Program. The exchange mechanism allows covered individuals to choose among health insurers that agree to provide an array of services at a specific cost. An insurance exchange would operate like managed Medicaid in Michigan, where people are qualified for the program and then choose among health plans that have negotiated rates with the state. In the national proposals individual payments would be subsidized for families that cannot afford coverage. One aspect of the exchange has received attention is whether it should include a public option. The public option would allow a government run health plan to compete with the private plans in the insurance exchange. Another variation is to allow insurance cooperatives (non-profit, member-owned organizations) into the exchange. Since many states already have Blue Cross/Blue Shield plans that are non-profit, it is not clear how this proposal would change insurance markets enough to reduce price. Health reform plans also differ in who would be eligible to participate in the exchange. This issue is critical since a larger exchange will be more effective.
A third approach to reducing price is payment reform. This is the heart of the health reform effort. Without payment reform families businesses and governments (state, local and national) become economically insecure. A starting point for payment reform is reducing payments for uncompensated care as the pool of uninsured people shrinks. This reform can save $264 Billion over ten years. Another reform is to establish a competitive bidding program for the Medicare Advantage program (in contrast to the current system of setting area rates), which would save $133 Billion over ten years. Reducing payments for overpriced services and reducing annual update payment factors that compensate for inflation could save another $225 Billion over ten years. Many analysts believe that past update factors have been too generous thereby contributing to medical care inflation. All together these three efforts could save more that $600 billion in ten years. Payment reforms should also aim at making health care more cost-effective. The Urban Institute estimates that reforms such as chronic disease management for dual eligibles, improved preventive services and improvements in end of life care could save another $624.8 Billion over ten years.
The volume part of the equation is going to grow. Reform proposals seek to cover 47 million people who are currently uninsured. Reform proposals have not clarified how many of these people will be covered by government programs and how many will be covered by employer mandates. Regulatory proposals seek to limit insurance exclusions based on pre-existing conditions and make insurance more portable with changes in employment. Subsidy programs are aimed at those who cannot afford health insurance.
One clear point of consensus in the health reform discussions is that covering more people will require a more cost-effective system of care.
