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In the wake of the White House Health Care Summit, pundits and policymakers are weighing whether political opponents and ideological opposites can find common ground on strategies for reforming our nation’s broken health care system. Legislation pending in Congress would, according to the Congressional Budget Office, expand coverage to 31 million Americans, reduce the growth of health care spending, and reduce the federal deficit over the coming decade. But would conservative proposals have a similar effect?
A careful look makes clear they would not. If all health reform efforts are simply stopped in their tracks by conservatives in Congress, as many seem to advocate, then their “solution” is for today’s myriad health care problems to continue to fester and grow, saddling future generations of Americans with unsustainable federal budget deficits and leaving the American people paying more each year for health insurance—if they are fortunate enough to have health insurance at all.
What’s worse, though, is conservatives’ actual reform proposals—whether small or large in scope—would exacerbate already existing problems in our health care system while failing to rein in ever-rising health care costs. The American people will soon learn just how costly these specific conservative “solutions” would be to millions of families and to those left out of our health care system altogether. But let’s look at both of these conservative options—do nothing or do more harm—in more detail. Neither approach offers the health care prescription our nation needs.
Preserving the status quo
The overarching importance of Thursday’s discussion at the White House and the legislative work done over the past year rests on the fact that the U.S. health care system is broken. More than 46 million people in our country do not have health care coverage, while health care premiums are growing three times faster than wages and four times faster than inflation. Quality of care varies widely, and many Americans either receive too little care or care inappropriate to their needs. And the nation’s public health insurance programs—primarily Medicare, Medicaid, and the Children’s Health Insurance Program, which provide coverage to more than 90 million people—cannot, with their current eligibility rules, serve as safety nets for millions of low-income, uninsured Americans.
98,000 people die each year due to medical errors—more than the number of people who die in motor vehicle accidents, or from breast cancer, or AIDS.
This status quo, in short, is untenable. Escalating health care costs put health insurance out of reach for many Americans without health coverage. Four out of five people without health insurance live in working families, but these families earn too little to purchase coverage on their own. Employers, who provide coverage to 163 million workers and their dependents, struggle to absorb rising health insurance premiums, which have grown 131 percent in the last decade. And individuals who purchase coverage on their own often experience unpredictable jumps in their health insurance premiums. The latest example—Wellpoint’s Anthem Blue Cross company in California, which recently tried to increase premiums by up to 39 percent for individual policyholders—has emerged in only the past few weeks.
Nationwide, we spend more than 17 percent of gross domestic product on health care, and health care costs account for nearly 20 percent of household consumption. Among Americans with below-average incomes, more than half have unmet health care needs due to the high cost of care.
In addition, many individuals and families are unable to purchase health insurance because of insurance company practices. In most states, insurers can deny coverage to people with pre-existing conditions or rescind insurance from policy holders who become sick. A recent survey reveals that over the course of three years, insurance companies denied coverage to 12.6 million Americans who sought health insurance in individual market. And for those who are able to get coverage on the individual market, policies can be very costly, particularly for people with health problems. In many instances, these policies do not cover certain services, and they commonly impose annual or lifetime limits on how much policyholders can spend on care.
The U.S. health care system also is riddled with inefficiency and poor quality care. The Institute of Medicine, part of the National Academies of Science, estimates that up to 98,000 people die each year due to medical errors—more than the number of people who die in motor vehicle accidents, or from breast cancer, or AIDS. One in five Medicare beneficiaries have unplanned rehospitalizations within 30 days of a discharge. Others receive more care than they need—a costly inefficiency the nation can ill afford.
Overutilization of health care services in our country is driven in part by a payment system that rewards the volume and complexity of services rendered rather than the suitability and quality of those services. At the same time, doctors and patients have little information on which treatment, drug, or medical device is best suited for a given condition. Taken together, the prevailing payment system and this dearth of comparative information fuel an inclination to provide the most expensive service or treatment, even if it’s no better than an older, cheaper one.
Finally, looming health workforce shortages in nursing and certain physician specialties, such as primary care and general surgery, also threaten future access to basic care. The Health Resources and Services Administration estimates that by 2020 there will be a shortfall of 49,000 physicians and more than 800,000 nurses. Those Americans who lack access to providers—especially primary care providers—often do not receive treatment for preventable conditions. Limited access to primary care providers, in addition to lack of insurance, is a leading cause of nonurgent emergency room utilization.
As bleak as the status quo looks today, the picture only gets darker if we look to the future. If we fail to reform our health care system, researchers estimate that by 2019, many employers would see their health premiums more than double, thus limiting their ability to provide coverage and add workers. Health care benefits would represent 17 percent of total worker compensation, up from roughly 10 percent today, and families would face out-of-pocket costs that grow by 35 percent or more. And the ranks of Americans without health insurance would swell to more than 65 million. The nation’s employers, families, and taxpayers simply can’t afford the cost of failure.
Conservatives’ solutions
Conservative policymakers and health policy experts that do offer up policy solutions are often criticized for proposing only “small ideas” in response to our nation’s serious health care crisis. These criticisms correctly identify a grab bag of ideas, common to virtually all conservatives engaged health care reform, which are intended to make coverage more affordable for small segments of the population. These proposals do nothing to tackle the large, interconnected problems that plague our current health care system.
Consider conservatives’ most cherished reforms, enabling health insurance companies to sell coverage outside of their licensing state, medical malpractice reform, and enabling small businesses to purchase coverage through business or professional associations, commonly referred to as Association Health Plans. All three proposals are unlikely to make a significant difference in health care costs for the average American family with health insurance or make a meaningful dent in the numbers of Americans without health insurance. And they carry significant risks for patients, small businesses with older and sicker workers, and others.
But these small ideas are not the only ideas advanced by conservative policymakers. Conservative health policy proposals also include some clearly radical ideas, such as transforming the tax treatment of health insurance and significantly altering the public health insurance programs that provide coverage today for nearly 90 million people. Taken together, conservative ideas fall into several big themes:
- Promoting the individual health insurance market, where Americans seek coverage on their own instead of benefiting from the buying power of employers and other large groups
- Undermining the nation’s public health insurance programs so that millions of Americans lose guaranteed health care coverage
- Shifting responsibility for health care cost containment to individuals and families, which means paying more for less health care
Let’s unpack each of these radical ideas in turn.
Promoting the individual market
A major emphasis of conservative health reform proposals is to move Americans from group coverage—typically employer-sponsored health insurance but also public health insurance programs such as Medicaid—to the individual health insurance market. Conservatives argue that Americans would have greater ability to maintain coverage through changes in employment and work status if individuals and families purchased insurance on their own rather than through an employer.
Critics of this idea note that unpredictable costs, limited benefits, and the discriminatory practices characteristic of the individual insurance market would undermine any advantages related to insurance portability. Millions of Americans would face loss of health insurance coverage through pre-existing condition exclusions or lose coverage after falling ill as conservative reform proposals shift Americans to individual coverage through a combination of discrete policy changes.
Conservative health policy proposals include some radical ideas, such as transforming the tax treatment of health insurance and significantly altering the public health insurance programs that provide coverage today for nearly 90 million people.
First of all, conservative policymakers propose to unravel employer-based coverage by eliminating current tax preferences for employer-sponsored health insurance. Today, approximately 163 million workers and their dependents receive health insurance coverage as a tax-free benefit. Some conservative proposals would eliminate this tax benefit, subjecting workers whose employers contribute to their coverage to income and payroll taxes on employer-paid health insurance premiums. Yet significant research concludes that treating employer-covered premiums as taxable income would result in the erosion of employer-sponsored coverage because employers’ and employees’ incentives for participating in an employer-based system are reduced.
Undeterred, Rep. Paul Ryan (R-WI) and Sen. Tom Coburn (R-OK) introduced this proposal last year, while former Speaker of the House Newt Gingrich, with conservative health policy analyst John Goodman, and Minnesota Governor Tim Pawlenty recently floated the idea in the national op-ed pages. In addition, Sen. John McCain (R-AZ) made a similar proposal during the 2008 presidential campaign.
A related concept—often offered as a replacement for the current tax benefit for employer-paid premiums—is a new tax break for individually purchased health insurance policies. This approach would enable individuals and families who purchase coverage on their own to either receive a refundable tax credit or claim an itemized deduction on their individual income taxes. The value of the credit typically ranges from approximately $2,300 for individuals to $5,700 for families, with some variation across plans, while Sen. Gregg’s proposal for a tax deduction would limit the deduction to the lower of the actual premium, or $11,500 per family and $5,000 per individual.
The actual value of the deduction when translated into reduced tax liability, however, would be significantly smaller. Higher-income families would reduce their taxes by $4,025 if they took the maximum possible deduction of $11,500, while families in lower tax brackets would receive a smaller benefit. Both the proposed tax credits and the Gregg deduction fall short when compared to the cost of comprehensive coverage through a group plan, which averaged $13,375 in 2009. So these proposed credits and deductions do not come close to covering the full cost of comprehensive coverage.
In addition, the buying power of these credits and deductions would diminish over time, as conservative policymakers typically propose using a growth index that falls well below average growth in health care costs. Sen. Coburn and Rep. Ryan, for example, propose growing their tax credits more than 2 percentage points more slowly than expected growth in health care costs.
Policymakers in some cases propose these new tax benefits as an addition to the tax exclusion for employer-provided coverage, rather than as a replacement. But this approach also has inherent risks. Economists argue that equalizing the tax treatment of employer-sponsored and individually-purchased coverage will ultimately unravel the employer-based system. Younger and healthier workers are likely to choose to purchase coverage on their own, using this new tax benefit, thereby driving up costs—and ultimately threatening coverage—in the residual employer market.
Finally, a number of conservative policymakers—notably Sens. Gregg and Coburn and Rep. Ryan—propose to move low-income families from Medicaid coverage to the individual market. Under this approach, low-income families would, like other Americans, receive tax credits or other help with purchasing health coverage. This coverage is unlikely to be as comprehensive as the Medicaid benefit package and would entail significant out-of-pocket costs through deductibles, copayments, and uncovered services. These proposals include additional subsidies to these families to help with these costs, but even with this supplement low-income families will face higher health care costs.
Moving millions of people out of group coverage and into the individual market raises a number of thorny issues. First, coverage in the individual market is hard to obtain. Except for insurance companies that operate in the handful of states with comprehensive insurance reform, most insurers subject applicants to underwriting tests, examining their health histories in an effort to determine whether they have pre-existing conditions and should therefore be denied coverage. In other cases, the insurance company may offer applicants with health problems coverage that excludes particular treatments or body parts, or the insurer may significantly increase the premium cost.
Between 2004 and 2007, nearly three-quarters of all individuals who sought coverage in this market did not end up purchasing a policy—many could not afford the coverage they were offered, while others were denied coverage altogether due to a pre-existing condition. 21 Insurers in many states may also “rescind” coverage once they have sold a policy and collected premium payments. Insurers in the individual market also charge highly differentiated premiums based on age or gender.
Moving millions of people out of group coverage and into the individual market raises a number of thorny issues.
These problems go largely unaddressed by conservative policymakers. And some of their other proposals, such as allowing insurers to sell policies in any state, would undermine strong insurance industry regulations and other consumer protection laws in the states that have made insurance market reforms.
Some conservative policymakers are divided on the extent to which they seek to reform insurance markets. House Minority Leader John Boehner (R-OH), for example, recently released a health reform proposal that would expand so-called high-risk pools rather than ban pre-existing condition exclusions. High-risk pools are arrangements that make some degree of coverage available to individuals with pre-existing conditions who cannot purchase coverage in the individual market. These pools currently cover 200,000 individuals, and often refuse to cover the health problem that makes the enrollee eligible for the high-risk pool in the first place. Boehner also would prohibit annual or lifetime limits on health benefits and would limit insurers’ ability to rescind coverage once the policy is in force. Rep. Tom Price (R-GA) of the Republican Study Committee employs a similar strategy.
In contrast, Sen. Coburn and Rep. Ryan would enable health plans to continue using annual and lifetime limits, and continue policy rescissions, but would limit exclusions for pre-existing conditions. Sen. Gregg would also end those exclusions and annual and lifetime benefit limits, but he does not address rescissions. None of the conservative proposals restrict rate-setting practices, which means that insurers can charge people with chronic illnesses and other pre-existing conditions exorbitant rates.
In sum, none of these proposals takes a comprehensive approach to reforming the individual insurance market, which means Americans who must turn to this market for health insurance will face some combination of limited access to coverage, inadequate coverage, and unaffordable premiums. Finally, this move to the individual market would shift a significant portion of health care costs to individuals and families. Insurance policies in the individual market typically carry higher deductibles and co-payments, while covering fewer health care services compared to comprehensive employer-based coverage. Families covered by these skimpier policies must often pay out-of-pocket for uncovered services, and be prepared to lay down significant resources to meet their annual deductible and cost-sharing requirements.
Undermining the nation’s public health insurance programs
Consistent with (and part of) this push toward the individual market, conservative policymakers also propose dismantling critical public health insurance programs, including Medicaid, the Children’s Health Insurance Program, and Medicare. These programs provide publicly funded insurance to a range of individuals and families who cannot access affordable, market-based coverage, including senior citizens, people with disabilities, children living in low-income families, low-income pregnant women, and people with long-term care needs.
As noted earlier, the Ryan and Coburn bills would end Medicaid eligibility for low-income children and families, pregnant women, and low-income seniors, offering a tax credit for use in the individual insurance market in place of Medicaid coverage. In both proposals the standard tax credit would be supplemented by additional income-based subsidies for lower-income populations.
Conservative policymakers also propose dismantling critical public health insurance programs, including Medicaid, the Children’s Health Insurance Program, and Medicare.
The Ryan and Coburn bills would also convert the remaining Medicaid program—essentially long-term care services and coverage for low-income people with disabilities—to a block grant program. Under this structure, the federal government would make fixed, formula-driven payments to states, which would then be responsible for providing services to individuals with disabilities and people with long-term care needs. But the states could not rely on federal payments that increase with enrollment or service costs. Individuals who currently rely on Medicaid to provide this coverage would no longer have a guaranteed source of payment for their health care needs
In his “roadmap plan,” Rep. Ryan also envisions transforming Medicare coverage into a voucher payment, which people eligible for Medicare can use to purchase an individual health insurance policy. Individuals who become eligible for Medicare after January 1, 2021, would receive vouchers, including those who acquire Medicare eligibility by qualifying for Social Security disability benefits (currently 16 percent of individuals with Medicare coverage), individuals with end-stage renal disease, and those who reach the Medicare eligibility age.
These vouchers, according to the Congressional Budget Office, would have a value equivalent to $5,900 in 2009 dollars—far short of the cost of age-rated insurance policies in the individual market. And Rep. Ryan’s legislative language clearly indicates that the disability population would receive vouchers like everyone else, even though the CBO estimate (based on consultation with his staff) assumed otherwise.
These proposals raise a number of serious issues. Low-income individuals who rely on the Medicaid program for comprehensive health insurance coverage would be forced to move to private plans with more limited coverage and higher out-of-pocket costs. And while the Ryan budget roadmap, for example, would provide current Medicaid enrollees with a higher-than-average subsidy to cover premium costs, the total subsidy, $11,000 per year, still falls short of the average premium for comprehensive coverage purchased in the group market. In some cases, these low-income families may not have the ability to make up the difference between the premium and cost-sharing obligations they would face in the individual market and the help offered to them under this proposal. In addition, the buying-power of these subsidies will diminish over time, as the subsidy amount typically grows more slowly than expected growth in health care costs.
In addition, without meaningful insurance market reforms, many people who currently qualify for Medicaid, CHIP, and Medicare coverage may experience real difficulty finding a health insurance policy. In 2006, for example, Medicare covered 6.9 million people with disabilities so severe that they cannot work. Unless insurance companies are required to sell a policy to all who seek coverage, and are prohibited from pricing policies based on health status, these individuals are unlikely to find affordable coverage in the individual market. And, as discussed earlier, conservatives typically do not propose such reforms of insurance industry practices.
Finally, proposals to protect the federal government from financial risk related to population growth, economic downturns, and growing health care costs would leave the states extremely vulnerable to unanticipated health care costs. Transforming Medicaid coverage for people with disabilities and Medicaid payment for long-term care costs into a block grant program would leave the states on their own and at financial risk. Medicaid enrollment, for example, grew by 3.3 million individuals from June 2008 to June 2009. The overall Medicaid population would look considerably different under these conservative proposals, but even with enrollment limited to low-income people with disabilities and people with long-term care needs, states could still expect enrollment to grow during economic downturns.
Shifting cost-cutting responsibilities to patients
Conservatives also promote strategies for shifting responsibility for controlling health care costs from insurance companies, public insurance administrators, and health care providers, the latter of whom drive the majority of health care spending through referrals, recommendations, and treatment plans, to patients themselves. In this way, conservatives believe individual patients will be able to make sophisticated and complex decisions about the costs of their own health care by themselves while also lowering overall health care costs in the United States. They are wrong on both counts.
Consider first conservatives’ favorite idea for controlling costs—health savings accounts. For many years, conservatives have touted high-deductible health insurance plans in combination with health savings accounts as a strategy for reducing health care spending. These arrangements require patients to pay out of their own pocket, or out of their health savings account, until they reach their deductible and full coverage kicks in. This approach will, proponents argue, encourage patients to spend their health care dollars frugally and effectively.
Advocates for health savings accounts believe that paying a greater proportion of their health care spending will drive patients to seek higher-quality providers and shop for lower prices on a given procedure. Today, various conservative policymakers and health policy experts, including Reps. Boehner and Ryan propose raising the contribution limits for the savings account component of these arrangements or making other changes to make HSAs more attractive to potential enrollees.
The conservative approach simply asks very sick people to pay for a larger proportion of their care themselves.
Yet to the degree that health savings accounts induce enrollees to reduce their health care spending, these incentives are focused on the health care people use before they meet their deductible. Because 80 percent of all health care spending is dedicated to only 20 percent of the population, this approach will have modest impact on total health care spending. The patients who consume most of our nation’s health care dollars—people with catastrophic problems or chronic illnesses—use health care services at levels that far exceed a deductible, including the high deductibles featured in health savings account plans.
And nearly half of our national spending on health care services is dedicated to institutional payments to hospitals, nursing homes, and other facilities. When individual consumers need these levels of care, they generally have very little ability to control the intensity or cost of the services they receive. Their needs are simply too acute or too complex.
So instead of addressing the factors that drive the vast majority of health care spending in the United States, such as poor coordination and poor quality of care for people with chronic disease, this approach simply asks very sick people to pay for a larger proportion of their care themselves.
Finally, this emphasis on HSAs assumes that patients can shop for health care just as consumers shop for other goods and services. To be savvy health care consumers, patients would need quality and cost information on providers, comparative research on competing treatment plans, and other information that simply does not exist today. This emphasis on “consumerism” to control health care costs also assumes that people are indifferent to any factor other than price—when in fact patients choose physicians based on long-standing relationships, trusted referrals, location and convenience, and intangible attributes such as personality and compassion.
Comparing two approaches to health reform
The true challenge of health care reform is to address the all-too-real problems of cost, coverage, and quality in our health care system. Improving the availability and affordability of coverage, reining in the growth of health care costs, and making the infrastructure investments necessary to modernize heath care delivery and address developing health care need must be top priorities. To be successful, reforms must offer pragmatic solutions that achieve these goals.
The conservative approach—which promotes the individual insurance market, undermines public health insurance programs, and requires individuals and families to take responsibility for controlling health care costs—fails to meet this standard. Here are the likely outcomes of conservative proposals.
Likely outcomes of conservative proposals
Given the very real problems in our nation’s health care system, how would these conservative proposals address our systemic problems, and what would the U.S. health care system look like if they were implemented? It is impossible to develop precise cost and coverage estimates when considering a range of proposals, but existing research points to some clear probabilities.
Families facing high out-of-pocket costs, or carrying poor insurance, are more likely to face medical bankruptcy, even though they have health insurance.
Providing tax credits or tax deductions in the place of employer-sponsored insurance and public health insurance coverage will result in millions of Americans moving into the individual insurance market—and millions more who will not be able to find affordable coverage in this market. Recent cost and coverage estimates of these approaches are elusive, but an analysis of Sen. McCain’s 2008 health reform proposal, which featured new tax credits for the purchase of health insurance, and the elimination of the tax exclusion for employer-provided health coverage, estimated that 20 million people would lose employer-sponsored coverage.
Because policies in the individual market are less likely to include comprehensive benefits, more families will face high out-of-pocket costs for cost sharing and uncovered services. At the extreme, families may be duped into buying junk insurance, which offers virtually no financial protection but nevertheless proliferates in some poorly regulated markets. Families facing high out-of-pocket costs, or carrying poor insurance, are more likely to face medical bankruptcy, even though they have health insurance.
These conservative proposals also are likely to result in larger numbers of uninsured Americans. Families who previously held coverage through an employer or through the Medicaid and CHIP programs will find that the new tax credits or deductions do not provide enough help for them to purchase coverage on their own. Some small business owners and their employees also are likely to find coverage less affordable because association health plans—which create group purchasing options for small businesses—enable businesses with younger, healthier employees to find advantageous employer-provided health insurance plans, leaving those with older, sicker workers in the current small group market where their premiums will spiral up once the good risks and healthy workers have been siphoned off.
Finally, health care costs overall will continue growing at unsustainable rates, since individual patients will have little ability to induce doctors, hospitals, and other providers to improve efficiency, improve coordination for people with chronic illnesses, and upgrade the quality of care they deliver. Nor could individual patients, largely through the dollars they would spend on services they consume before they meet their deductible, create the kind of financial incentives that would induce providers to develop the new types of health care organizations most experts think are needed to truly improve health care delivery and control the growth of health care costs.
These outcomes—higher costs and reduced coverage for millions of families and continuing, unsustainable growth of health care costs—mirror the likely results of conservatives’ other preferred option, maintaining the status quo. The paths diverge, but both approaches lead to the same destination.
Progressive proposals: A better approach
In contrast, legislation pending in Congress, and President Obama’s recently released health care plan, will deliver the reduced costs, increased coverage, and improved quality necessary for transforming our nation’s health care system. Specifically, these proposals improve the availability of health coverage by reforming the national health insurance market because:
- Health plans will no longer be allowed to deny coverage or charge higher premiums to people with health problems, or to rescind coverage when policyholders get sick.
- Individuals and families who do not have coverage through an employer and do not qualify for public health insurance will be able to find high quality, comprehensive coverage within a trusted marketplace, such as a health insurance exchange, where they can comparison shop across policies, making apples-to-apples comparisons of benefits, likely out-of-pocket costs, and other important variables.
These proposals would ensure that health coverage is affordable for all Americans. They strengthen and expand the Medicaid program, which today provides a health care safety net for many, but not nearly all, low-income Americans. In addition to expanding Medicaid, they provide real help with premiums and copayments for individuals and families who do not have employer coverage and can’t afford the full cost on their own.
These progressive plans also invest in our healthcare workforce to ensure our nation has enough primary care doctors and nurse-practitioners and the tools these providers need, such as research on which treatments work best and technology that can help them manage care. They ensure that all Americans enjoy easy access to preventive care, and can develop the knowledge and skills they need to manage their own health.
Finally, these pending proposals bring a new focus to cost containment, creating real financial incentives for health care providers to improve care for people with chronic conditions by improving the quality and efficiency of care. They combine the market muscle of the Medicare program with the innovation capacity of private payers to prompt greater changes than either sector could manage on its own, and ensure that successful payment reforms and delivery system strategies are duplicated across the country.
Through a Medicare innovation center, and a public-private commission dedicated to reducing growth in health care costs, these proposals ensure that innovation will take root and grow. The president’s plan and the Senate bill also take steps to reduce the prevalence of high-end insurance plans and the overuse of services that they encourage through very generous coverage, further enhancing these proposals’ cost-control efforts.
Conclusion
The U.S. health care system is in dire need of reform. Obama administration officials, members of Congress, and health care advocacy groups of all political stripes have wrestled with specific proposals and broad approaches designed to address the serious problems of access and affordability, cost, and quality. The White House Health Care Summit provided a new opportunity to evaluate whether conservative approaches offer a meaningful solution to these problems or instead pose a serious risk for all Americans. A close look at conservative “solutions” indicates that they will exacerbate, rather than fix these persistent problems.
The legislation pending before Congress and reflected in the president’s recent proposal while imperfect offers the best path forward to reform.
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Karen Davenport is Director of Health Policy.