What Health Care Reform Should Look Like
Health care reforms need to control costs, cover everyone and improve health outcomes; at least that’s my opinion. The single payer (supported by Senators Warren and Sanders) does the best job, but falls down on producing a well-organized system to improve health outcomes (essentially it’s fragmented and unaccountable care). Moreover, it is very expensive to finance and is quite disruptive of existing coverage that many may prefer to retain.
Senator Harris’ hybrid proposal might produce better health outcomes and better-organized systems of care by allowing those who prefer Medicare Advantage (Medicare’s Part C, which permits private insurance). This could also generate less political blowback from those who viscerally love their private insurance. However the Harris plan is just as expensive to finance as the Sanders/Warren plan, and there is no clear evidence I’m aware of that private insurers are actually improving their subscribers’ health outcomes to a greater degree than public programs.
The Medicare for All Who Want It proposal (espoused by Biden and Buttigieg) comes in second best on controlling costs, but is immensely more affordable because it does not shoulder the costs of eliminating private coverage and financing and patient copays, deductibles and shares of premiums. Senator Warren has just announced that she too will begin with the public option approach, then seek to pass Medicare for All in the third year of her Presidency. All of the Democratic proposals would be significant improvements on the status quo.
The status quo is immensely preferable to the Trump/GOP proposals. Trump and Congressional GOP proposals would eliminate coverage for well over 20 million Americans, who got coverage under the Affordable Care Act, and they would weaken important consumer protections for all Americans – protection for those with pre-existing conditions is just one example. They would take away funding for those states who have expanded their Medicaid programs under the ACA, and they take away the funding to improve affordability in the private individual insurance market and many of the protections for all those covered by private insurance in all 50 states. The Trump Administration is doing whatever is in their powers to weaken the ACA, discourage immigrants and US citizens from using the program, and abet state efforts to curtail public coverage under the ACA.
Can we design a better system that is affordable and politically viable? These are my thoughts and recommendations.
Who’s covered?
Let’s start with eligibility and the uninsured. Ninety percent of Americans are already covered with Medicare, Medicaid or private insurance; about 10% are uninsured. That’s about 27 million uninsured and 300 million insured.
· Ninety three percent of Californians are covered, with more to come due to recent state reforms (expanded premium assistance for the middle class in Covered California, expanded coverage for young undocumented adults through MediCal, and restoration of the individual mandate).
· Ninety-eight percent of Massachusetts’s residents have coverage (Massachusetts was the first and is the most advanced in implementing the health expansion reforms later enacted as the Affordable Care Act).
· Ninety-seven percent of Hawaiians have coverage. Hawaii has an employer mandate requiring all employers to offer coverage.
· By comparison, 20% of Texan adults lack coverage, and 11% of Texas children have no coverage. It has the largest and highest percent of uninsured in the nation. Texas and many other deep Southern states have refused to accept the 90/10 Medicaid match to cover their low income citizens.
The biggest reasons American citizens lack of coverage are the 14 states (hold out states), primarily populous Southern states like Texas, Georgia and Florida, which decided not to implement the Medicaid expansion component of the Affordable Care Act. They typically have large percentages of low income uninsured citizens who would be eligible for the Affordable Care Act, but for the inaction/opposition of their state’s Governors and elected state legislatures. In Texas for example, parents are eligible for Medicaid only if their household income doesn’t exceed approximately 15 percent of poverty level. This amounts to $2,760 a year for a single parent with two minor children. Source: https://www.healthinsurance.org/texas-medicaid/
Individuals under the age of 65 in Texas and the other hold out states cannot be eligible unless they are blind or disabled. Under the ACA, a family of three with annual income up to $29,436 is eligible for Medicaid – over ten times the Texas Medicaid eligibility standard.
These states’ voters could readily elect different Governors and different state representatives who are committed to fix this particular problem of coverage for the low-income parents and individuals in the hold out states; Virginia has already done this. That could take quite a long time. Arizona, for example, was the very last state to adopt Medicaid in 1983, 18 years after Medicaid was enacted. Voters could take matters in their own hands by enacting state referendums directing their states to expand Medicaid as three states did in the last election cycle; the voters did not expect that their state’s elected leaders would be so adamantly recalcitrant in implementing the voter’s will; Maine was a key example, and it replaced its Republican Governor with a Democrat willing to implement the people’s will. On the other hand, once a state expands coverage under the ACA, succeeding Governors are finding it difficult to dismantle the now popular Medicaid coverage expansion; Kentucky is a case in point, and Louisiana just re-elected its Democratic Governor who was committed to retaining his Medicaid expansion. Gerrymandering has enshrined Republican control of some state legislatures, but state court rulings on partisan gerrymandering and the election of Democratic Governors (see North Carolina) may provide the opportunity to elect individuals more supportive of health coverage for their state’s citizenry
Congress could simply extend Medicare coverage to low income individuals and families in the hold out states. Or Congress could extend Exchange coverage (private insurance) with no premiums and nominal copays and no deductibles to those with low incomes in the hold out states. These are the approaches championed by candidates Biden and Buttigieg. Republicans in Congress have as yet shown no willingness to extend coverage to the low-income citizens in the 14 hold out states, which are mostly governed by local Republicans. This could change only if President Trump and his loyalist right wing allies are routed from Congress in 2020 — an uncertain outcome. One would hope their losses in the 2018 and 2019 elections might lead to a change in their implacable opposition to the ACA, as Republican Governors who have supported the ACA and Medicaid expansion have won easy victories in blue states like Massachusetts, Vermont and Maryland. The Medicaid expansion really does not have to be a divisive partisan issue, and the sooner voters speak unmistakably in support of coverage, the sooner we can move on together.
The second biggest reason is that many undocumented workers and their families working and residing in the US lack insurance. There are about 10-11 million undocumented workers and undocumented family members living in the US, of whom 6.6 million are uninsured. Many live in California, Texas, Arizona – all border states with Mexico, but increasingly they work throughout our nation in the lowest wage jobs with some of the toughest working conditions. Sixty percent of California’s uninsured are undocumented — about 1.8 million people; many work in agriculture, food preparation, hospitality, and home construction and repair; in other words they grow and prepare and serve your food, make your hotel bed, build and repair your home and take care of your children. Some are covered through their employers, but many are not. The Affordable Care Act does not cover them in the comprehensive Medicaid (Medi-Cal) program nor in the Exchanges, nor would the Biden/Buttigieg plans do so. California has begun to cover undocumented children and young adults through Medicaid expansion, but it took 15 years of unstinting advocacy before California covered undocumented children, and recently under Governor Newsom it included coverage for young adults up to age 26 taking effect in January 2020. Covering the undocumented workers through Covered California (or other state Exchanges), but without premium assistance, as California once proposed and as Vice President Biden now proposes, is in my opinion a very poor idea (whether using a §1332 waiver or not); the undocumented can already buy the same coverage on the individual market at the same price without any fears of government deportation, but their incomes for the most part are so low they cannot afford it.
Covering the undocumented through their employers could be a good option (e.g. an employer mandate), as it does not encounter the intense hostility some voters and their representatives have to extending government benefits for the undocumented. Congress could in theory expand the “employer mandate” component of the ACA to cover more employees; however many small business associations strenuously oppose extending the mandate. Many undocumented workers work for low wages in the shadow or informal economy where they would not get coverage even with a mandate.
Covering the undocumented by giving them a path to legal residency and eventually to citizenship is another good (but long-term) option. Significant elements of Congressional Republicans and President Trump are still unalterably opposed – labeling this “amnesty for law breakers”. This could change, but only with a new President and a change in the composition of Congress. A potential Supreme Court decision stripping the DACA protections from the young Dreamers may be a stimulus for action, but the Trump Administration has shown no ability to compromise with Congressional Democrats due to their need to appease the far right wing in the House. The Sanders/Warren plan does cover the undocumented just as it covers everyone else. This is the ideal solution for the undocumented. However gaining the ability to normalize their residency status through immigration reform is their highest priority, not health reform, and they also cannot vote.
The third biggest reason for uninsurance is “affordability” of health coverage. This particularly refers to individual coverage in the Exchanges, but includes some forms of employment-based coverage as well. About one million uninsured Californians are eligible for Covered California but not enrolled; half are subsidy eligible, half are not. Affordability is particularly significant for those with incomes just over the cut-off for premium assistance and cost sharing reductions under the Affordable Care Act. Affordability has two elements – affordability of coverage (premiums), and affordability of care (i.e. copays and deductibles). To put this in context, family coverage costs more a minimum wage worker’s entire annual salary. And the cost to an older subscriber can double just above the income cut-off.
For those with employment-based coverage, employers pay on average 75% of the premiums, the employee pays the rest. Moreover government subsidizes employment-based purchasing by over 30% through the little understood tax advantage of “pre-tax purchasing”. The ACA sets a floor so that large and mid sized employers pay at least 60% of the premium for a bronze plan, which covers on average 60% of expected medical costs. In other words employers must pay 36% of expected medical expenses, leaving employees financially exposed to the rest. The minimum employer contribution should be raised to at least 70% of the cost of the premium for a gold plan, and the employees’ share of premiums should be linked to a percentage of their wages, an approach that is already required under Hawaii law (1.5 % of wages) and works well there.
For those with individual coverage, the individual must pay 100% of the premium, apart from the ACA. There is no government help other than a self employed tax deduction that can be significant primarily for the higher income. The ACA helps moderate-income individuals and families with both their premiums and the copays and deductibles for individual coverage. But it has sharp income cut-offs (cliffs) at 400% of FPL ($103,000 for a family of four) for premium assistance, and at 250% of FPL ($63,275 for a family of four) for reduced copays and deductibles. Those families and individuals with incomes above these income cut-offs can experience severe financial hardship in paying their premiums and/or their copays and deductibles out of pocket. The financial burden of the cut-offs is particularly onerous for those over 50 and for those with larger families who pay much higher premiums, and for those patients needing care for a serious or chronic medical condition, thus incurring high out of pocket expenditures for their copays and deductibles.
The Biden/Buttigieg plans would help the moderate and middle income individuals purchasing on the Exchanges by ending the income cut offs (cliffs), capping the amount of income that must be spent on premiums with additional premium assistance, increasing the subsidies, and by upgrading the reference plan for subsidize.coverage from silver to gold. That means that those choosing the reference plan will have coverage roughly equal to Medicare and to many employment based coverage plans. For those with incomes above the cut-off, premium contributions are capped at 8% of income, and they would now be eligible for premium assistance to make up the difference. This will attract more middle and moderate income individuals into the Exchanges to purchase their coverage. Some moderate Republicans in Congress could be supportive of this approach under a new moderate Democratic President,
The ACA set two floors for coverage: first, minimum coverage must cover at least 60% of average expected medical expenses, and second, large and medium sized businesses must pay at least 60% of the premiums for their employees. Putting those two together, an employee could be responsible for as much as 64% of their medical costs and health insurance premiums. Moderate and middle-income employees with a serious medical condition can therefore face a very large financial risk; this is called "underinsurance”. The Buttigieg plan would allow such an employee and their family to drop their employment-based coverage and use the premium assistance and cost sharing components of the Exchanges to get coverage that better meets their families’ medical and financial needs. The additional premium assistance would help some employees working for businesses that offer bare bones coverage and minimum employer contributions. I’m not convinced that the Buttigieg and Biden plans go far enough to protect moderate and middle income subscribers from the high out of pocket exposure in bronze plans in the Exchanges and bare bones coverage in the employer markets.
The Warren/Sanders plan eliminates all premiums and all copays and deductibles for everyone. No one would be uninsured or under-insured. This assures affordability for all, but there are concerns that this encourages over-utilization/inappropriate use of scarce and costly medical resources. Sanders requires all to pay an income tax of about 4% for their care; Warren exempts all from any requirement to contribute towards their health care. Many, including me, question why consumers and patients should pay nothing towards their own health care – no taxes, no copays and no premiums. Of the two, I would prefer the Sanders approach of a 4% income tax. I would prefer sliding scale copays based on one’s income for all elective services; I would prefer targeted copays – for example, higher copays on brand name drugs when there is a generic alternative, as opposed to the blunderbuss copays and deductibles that simply shift risk to the individual or family. There should be a cap or ceiling on an individual or family’s exposure to copays based on their income to give financial and medical security for all. Deductibles really should be eliminated entirely; they transfer too much risk to people who cannot afford them. Some policy makers design premium contributions and copays and deductibles as if all the participants have ample discretionary income; they are either unaware (or simply don’t care) that more than half of all Americans live on very limited paycheck to paycheck budgets with little if any savings and too much debt. These high deductible, high copays plans are a poor and often cruel substitute for the serious work on reimbursement reforms that plans should be achieving.
The fourth is the lack of awareness, reluctance or simple unwillingness of some to enroll. Some immigrants to America are concerned about the Trump Administration’s amended public charge rules and worried that they may not be able to adjust their immigration status. Some Americans believe they don’t need coverage because they are healthy, preferring to wait ‘til they are sick or injured to enroll. Some Americans just simply don’t want to pay for it, especially if it’s labeled as Obamacare and reviled by Republican leaders. Some are unaware of their eligibility for the program and the rules governing their eligibility.
The Warren/Sanders Plan auto enrolls everyone, and any who fail to enroll are then enrolled at the point of service. The Buttigieg plan also has an auto-enrollment provision in either Medicaid or the public option, depending on one’s eligibility, plus a retroactive enrollment provision for those who do not enroll. Premiums, as applicable, would be collected through the tax system (a tax surcharge) for those who fail to enroll.
The Warren/Sanders Medicare for All plan addresses all four groups of the uninsured and simply specifies that all residents of the US are eligible; it does not limit eligibility to only US citizens and legal permanent residents, it includes the undocumented. But it costs $2.7 trillion annually, not because it covers the uninsured but because it replaces all private coverage and all consumers’ out of pocket and moves to a more costly reimbursement and delivery system.
The Biden/Buttigieg plans cover all citizens and legal permanent residents; they do not cover the undocumented. Their costs are closer to $150 billion annually because they do not eliminate private coverage, and they do not eliminate copays and deductibles. I would estimate that half of their cost is covering the low income uninsured, primarily in the South, but a substantial part is devoted to improving affordability for moderate and middle income citizens and legal permanent residents in the individual market through the Exchanges,
It would be least costly to include coverage for the undocumented uninsured workers and their families in existing federal/state programs (as California has been doing) because they are a young, healthy population that even when covered uses far fewer services than US citizens and the legal permanent residents. Adding them to the Exchanges would likely bring down per capita costs and premiums, but that approach will only succeed if accompanied with premium assistance and cost sharing reductions. Voters and policy makers in California may be somewhat more receptive to these ideas than their counterparts in Arizona and Texas, but it is a good policy that has really difficult politics.
What’s covered?
Under existing law (the Affordable Care Act), ten essential health benefits are covered: including hospitals, doctors, prescription drugs, prevention, behavioral heath, emergency care, maternity care, habilitative and rehabilitative services. This was an upgrade for many in the individual market, for those with Medicare, for some with Medicaid, and for some with employer coverage; the upgrades were for coverage of prescriptions, prevention, and behavioral health, and for some in the individual market maternity care.
Only 50% of all Americans have dental and vision coverage. Dental and vision and most long-term care services are not part of the minimum required package under the ACA. Most state Medicaid programs already cover those extra services although some do not cover adult vision and dental. Medicare does not cover dental and vision and hearing although some Medicare Advantage Plans do so (Part C of Medicare). An estimated ninety percent of large employers cover dental and vision for their employees; many small employer plans do not. Covered California (California’s Exchange) offers dental and vision as an option, but there are no federal or state subsidies which would make these services affordable to moderate income individuals and families.
Medicare covers limited long term care services (numerically limited home care visits and short term rehabilitative stays in nursing homes after a hospitalization) for seniors and the disabled. For the most part these long term care services are covered by Medicaid programs, which typically covers both institutional and in home long-term care for the poor. Many middle class seniors become impoverished by the costs of long term care and end up qualifying for Medicaid.
The Buttigieg/Biden plans do not cover these services. The Warren/Sanders plan does cover dental, vision and long term care services at home. The Warren/Sanders plan does not cover long-term institutional care (i.e. most long term nursing home care); it leaves this to state Medicaid programs for the poor.
Long-term care for seniors at home or in nursing homes is their major cause of financial distress; it is enormously expensive for those who can no longer live independently at home in their later years. I would suggest that this is (or at least should be) a far higher priority for the Presidential candidates than dental or vision care, which are comparatively inexpensive, as contrasted with the “break the bank” expenses of long term care. The lack of long term care coverage other than through Medicaid impacts not only the seniors and disabled individuals needing this service, but their entire family as well; as those of you who have cared for aging parents know far too well.
Under existing law (the Affordable Care Act), every American should have at least the bronze level of coverage, meaning their insurer pays 60% and individuals pay 40% of the costs of the ten essential health benefits through copays and deductibles. Young adults and those experiencing financial hardships can purchase catastrophic coverage (50% of expected medical expenses/actuarial value). The Exchanges offer silver plans with greater protections from excessive copays and deductibles; these are known as cost sharing reductions. Bronze and catastrophic have low premiums but pretty scanty coverage and should be very substantially upgraded for moderate and middle income subscribers. This is the circumstance the candidates refer to as “under-insurance". It is primarily a problem in the individual market, but not exclusively so, and more and more employer plans are shifting costs to patients with ever higher deductibles, copayments and co-insurance.
Medicare covers about 80% of expected medical costs (actuarial value). https://www.kff.org/wp-content/uploads/2013/01/7768-02.pdf Most large employer plans exceed the actuarial value of Medicare coverage. Medicaid has only nominal copays, making its actuarial value (AV) close to 100%.
Coverage typically purchased in the individual market is far less than Medicare, Medicaid or private employment-based markets. In Covered California, most subsidy eligible individuals are purchasing silver (70% AV) or bronze (60% AV) plans. Only about 12% of subsidy eligible individuals buy gold (80% AV) or platinum (90% AV). About half of all subsidy eligible subscribers are using the cost sharing reductions linked to the silver reference plans to upgrade their coverage, which give them much lower copays and deductibles -- equivalent to coverage in a platinum plan. Those who are subsidy eligible in Covered California are on average buying coverage valued at $602 per month, and they are paying on average $127 a month due to the features of premium assistance and cost sharing reductions under the ACA.
For those who are not subsidy eligible (those with incomes over 400% of FPL) in Covered California, over half purchase bronze or catastrophic coverage, and over a quarter purchase gold or platinum coverage, so only a quarter are getting the level of financial protection and health care access that are typical in Medicare, the private employer plans or Medicaid. They are buying, on average, coverage valued at $488 per month, and they are paying 100% of the premium costs.
California’s Governor and the state legislature this year authorized state subsidies to make Covered California’s coverage much more affordable for individuals with incomes over 400% of FPL (the middle class) through state funded premium assistance. The Buttigieg and Biden plans follow a similar model of extending premium assistance to the middle class with incomes over 400% of FPL. They expand eligibility for and increase the levels of cost sharing reductions and link them to the reference prices of the gold plans, as opposed to silver plans. This makes better coverage more affordable and would be highly beneficial to moderate and middle class individuals and families purchasing individual coverage. The Buttigieg version of the plan would allow employees with employer coverage that is inferior to the subsidized coverage in the Exchanges to drop/cash in their employer plan and use the savings to access less costly, more extensive coverage in the Exchange. This would help those moderate and middle class employees with sub par coverage through their employers to get better coverage in the Exchanges. In my opinion, Buttigieg and Biden need to go further in insulating moderate and middle income patients and plan subscribers from the excessive cost sharing burdens in Exchange plans and bare bones employer plans.
The Warren/Sanders plan eliminates all copays, deductibles and premiums for everyone. This would be an enormous upgrade in coverage and a reduction in out of pocket for nearly every American, except the poor who already have equivalent Medicaid coverage. And it would exceed the benefits covered by nearly every other industrialized nation. The Warren/Sanders plan increases coverage for the Medicare beneficiary, the individual or family with Exchange or other individual coverage, and the individual or family with employment-based coverage. This does, however, come with a large price tag in the form of increased taxes in lieu of premiums, copays and deductibles – that’s the trade-off that voters have to consider and will be making decisions in the ballot boxes in the coming year.
How are costs controlled/reduced?
The US has far and away the highest health costs per capita in the world, and it has been growing faster than wages or GDP so that an ever-increasing share of the national wealth is being directed to the health industry. Our high costs are not because we see the doctors more, go to the hospital more or use prescriptions at higher rates, it is due to higher prices for our medical care, for hospital care, for prescription drugs, for specialists and indeed for the entire panoply of health services. Included in there also are the high administrative costs of private insurance, the high salaries of some health plan executives and hospital administrators, and the obscene profits of some components of the health industry.
It is a delusion that we can control costs purely through the two favorite bogeymen of private insurance and drug manufacturers; high costs are not limited to or caused only by those two. It is an illusion that we can finance the costs of single payer simply by eliminating administrative waste; there are not nearly enough savings there to finance single payer. We have to take on overpriced and under-performing health care. We have startling bad health outcomes from birth to death for our nation’s citizens, which is very surprising given our excellent and highly trained doctors, our world-class hospitals and academic medicine institutions. This is due to a poorly designed system for patients, and for providers as well, not to ill-intentioned institutions or greedy individuals, though we do have a number of those in the health care industry.
Our current system is a hybrid of public and private payers. Private insurance pays the highest prices for care; it is the weakest payer. Medicaid pays providers the least; it is the strongest payer. Medicare is somewhere in the middle, but it struggles with a fee for service, reasonable and necessary cost reimbursement model designed in the mid 6o’s, which has been difficult to update due to the entrenched and very powerful interests of organized medicine.
Medicaid and Medicare rely on provider rate setting to control the price of care, but Medicare in particular suffers from the deep conflict between the volume of services and their value (patient outcomes); Medicaid programs have a much tighter rein on utilization than does Medicare. Private insurance relies on competitive contracting between the insurer and the providers; it is a lot quicker to renegotiate a contract than to change federal and/or law. Contracting can work well in highly competitive markets like Los Angeles; it works poorly in markets controlled by provider oligopolies or monopolies like the Bay Area and many rural communities. Private insurance also relies on blunderbuss copays and deductibles, which simply shift costs to consumers, causing serious financial hardships to those already facing medical hardships, as opposed to designing carefully targeted copays on elective or inappropriately used services. These excessive copays, deductibles and co-insurance are most prevalent in the bronze and un-subsidized silver plans on the Exchanges and the bare bones plans offered by some employers, but they are becoming more prevalent in employer plans generally. We need a process that is quickly responsive to advances in medical care and to changes in medical technology. We need a process that is driven scientifically rather than responding to political exigencies. Finally we need a process to set rates that can go both up and down as efficiency improves or outcomes improve or deteriorate.
It’s a misnomer and misunderstanding to differentiate these as “public vs. private”; most of our systems are a mix. Medicaid and Medicare both use private insurance plans. For example, nearly 90% of MediCal subscribers are enrolled in public and private managed care plans. Nearly 40% of Medicare subscribers in California have chosen to enroll in private insurance plans, known as Medicare Advantage or Medicare Part C. Part D of Medicare is the prescription drug benefit for seniors and the disabled; it is sub-contracted out to insurance companies who in turn contract with the drug manufacturers. Some of these arrangements work reasonably well, others do not.
The Warren/Sanders approach is to return to fee for service medicine with no copays or deductibles and to eliminate private insurance. Fee for service and no out of pocket are both highly inflationary features and do not improve medical outcomes. The two major cost control mechanisms in the Warren/Sanders plan would be a fixed national budget that only grows with the overall growth in the economy, and the primary mechanism to control costs within the national budget would be federal rate setting for all providers and all services.
Senator Warren has recently identified several excellent ideas to reform provider rates. Senator Warren’s experts recommend expanding the successful Medicare reimbursement pilots such as bundled rates and ACOs (Accountable Care Organizations), which would create incentives for better-organized systems of patient care. The experts also recommend moving to value based purchasing, global hospital budgets, and population based reimbursement rates (i.e. capitation). These are the types of reimbursement reforms which should be embraced.
Warren and Sanders perceive the big advantages and central virtues of their plan are central public control and consistent financial and medical incentives for all providers and all patients. However that aspect could also be a major weakness in a diverse, far-flung nation of 330 million. Imagine in California the very different circumstance of delivering health care between Los Angeles and Crescent City, and then magnify those divergences across 50 states. Congress has proven startlingly inept in bridging their partisan differences on health care and putting the American citizen first, and US providers have proven their mettle over the long term in defeating efforts to rein in health spending from both parties. Hospitals, doctors and nurses are skilled lobbyists in addition to being life saving practitioners. It is certainly true that we need stronger controls over rising costs and better incentives to improve patient outcomes and deliver care more cost effectively.
Canada, with a population about the size of California and a successful single payer system, apportions a health budget and the operational and governing responsibilities to each of its ten provinces, which range in population from 154,000 to 14 million. The Canadian system is not run and governed from the nation’s capital, Ottawa, but rather from and in each of the ten provinces. I’m not so sure that state governments are the right vehicle in the US, but I’ve been impressed with the performances of some of California’s local public health plans. At any rate, we need accountable local entities with some operational flexibility to improve patient outcomes.
The Biden and Buttigieg plans take on some of the most egregious high profile examples of why our health system is so expensive to consumers, such as surprise medical bills and prescription drug pricing. They each include the public option in the Exchanges, which could put some downward pressure on excessive provider prices. Their proposals do not encompass a wide-ranging effort to reduce prices or improve quality. They do not do enough to rein in the excessive risk being shifted to moderate and middle income in the form of high deductible, high copay and high co-insurance plans. And we should ask ourselves whether the public option in the form of Medicare is really the best vehicle to transform health care in the ways needed, as distinct from its great popular appeal. I find myself more and more intrigued with the idea of a Medicare back-stop as opposed to the “public option”. As I understand the concept of the public option, its a Medicare fee for service system; it is both hospital and doctor centric and siloed; we need instead integrated delivery systems focused on improving health outcomes. As far as the Medicare back-stop; it requires plans to not spend more for services than Medicare would. This already applies to state Medicaid programs and Medicare Advantage plans. It could allow for much greater innovation in reimbursement and delivery systems, more appropriate use of mid level practitioners, and better trade-offs to achieve greater health outcomes and reinvestment of the program savings.
My thoughts are as follows: 1) you need a budget cap(s) on the growth in health spending; 2) you need a Medicare backstop to control rising prices; 3) you need well organized integrated delivery systems like the Kaiser model, Geisinger, Intermountain or the VA; 4) you need sliding scale, income linked copays but only on elective services, and you need income linked caps on transferring excessive risk to sick patients; 5) you need some level of local control to assure accountability and flexibility; 6) you need to reform provider reimbursement rates and mechanisms to focus on value/patient outcomes and greater cost efficiency; 7) you need robust transparency, broad and informed patient choice and accountability for patient outcomes; 8) where possible and viable, we need to encourage both better collaboration and more appropriate competition among providers to reduce costs and improve accountability to American patients/subscribers/beneficiaries, and lastly, we must use our national excellence in electronic technology far more effectively to deliver patient care and to simplify and reduce administrative costs and complexity. Personally I’d far rather e-mail with a doctor or nurse than go to the doctor’s office. I don’t know how we outpost scarce specialty care in rural regions unless we make better use of tele-medecine. I cannot believe that electronic medical records can’t be designed with effective inter-connectivity. If financial institutions can do it, so can health care.
Financing.
Currently, we finance half our health care spending publicly through taxes and half our health system privately through premiums and out of pocket -- $3.5 trillion in total. Much of the financing is invisible and many of our complaints are about what we personally pay as opposed to the over-all system costs. Our reliance on others (employer, the government) to pay insulates our health system from financial accountability. In my view financing should be used both to pay for coverage and to create the right incentives in the system.
Medicare for seniors and the disabled for example is financed primarily through taxes, and additionally through senior’s premiums for Parts B and D. Seniors also pay out of pocket for copays and deductibles and uncovered services and their premiums for Medigap (Medicare Supplement) policies; seniors thus have a lot of financial exposure. Medicare creates some competitive incentives by offering the choice of Medicare Advantage plans on the condition they actually offer better coverage.
Private employment based coverage is financed through employer premiums (75% on average), employee premiums (25% on average), and through the federal and state tax breaks of pre-tax purchasing (1/3rd of the costs). Public taxes pay for the insurance premiums of public employees, yet this is often characterized as private coverage and financing. Employees pay out of pocket for their copays, deductibles and coinsurance, which can be very onerous for those who become seriously ill. The pre-tax purchasing feature that undergirds the system of employment based coverage is very regressive (i.e. it helps the higher income more than the lower income) and distorts the proper balance between wages and coverage and may be a partial cause of wage stagnation.
Private individual coverage in the Exchanges is financed partly by subscriber premiums, and partly by federal taxes for those who qualify for the subsidies. Patients’ pay out of pocket through copays and deductibles when they use the health care system. Higher income (over 400% of FPL) subscribers get no help with their premiums. There is far too much financial exposure for moderate income and middle class subscribers.
Care to the uninsured is paid for partly by federal, state and local taxes, partly by patients out of pocket, and partly by the “cost shift” to private insurance for uncompensated care. The uninsured get much less care than do the insured, and they often get it too late to have the good health outcomes we should all expect. The incentives are all wrong for care to the uninsured; they create incentives to delay care until emergency room care is required. The uninsured have enormous financial exposure for medical costs, and too many providers charge them excessive bills because they are uninsured.
The Warren/Sanders plan would replace all private spending with equivalent new taxes in the amount of $2.7 trillion annually. The basics of the Sanders plan’s financing would be a payroll tax of 7.5% for employers and an income tax surcharge of 4% for individuals. The overall financial impacts would be mildly progressive in that high-wage employers and high-income individuals would pay more than they do now, while low and moderate income individuals and low wage employers would pay somewhat less. Some unions are concerned that their members would pay more since the unions negotiated good benefits with low or no employee contribution for union members.
The Warren plan’s financing is different; employers who now offer coverage would pay 98% of what they now spend; states would pay what they now spend, and individuals would pay nothing. There would be taxes on the wealthy and large corporations in place of the premiums and out of pocket that individuals now pay. The net effects of Warren’s proposed financing are very positive for individuals, although some (including me) question why individuals should not be helping to pay at all, in the form of taxes, for their health coverage. The net effects of the Warren plan are pretty cost neutral for employers — a slight decrease. The small businesses who now offer no coverage are not required to contribute, creating a sharp job creation cliff at 50 employees.
The Biden/Buttigieg plans are financed by repealing the Trump tax cuts to the wealthy and corporations. The Buttigieg plan costs about $150 billion annually over the next ten years. The Biden plan costs a bit less. Moderate and middle-income individuals buying coverage through the Exchanges would be the prime beneficiaries; they would pay less in premiums and get more coverage. Low-income uninsured individuals and families in the 14 hold out states would also benefit greatly by getting coverage. Unlike the Warren and Sanders plans, Biden and Buttigieg do not eliminate (nor do they reform) excessive copays and deductibles for employment based coverage or Medicare although Buttigieg would institute an out of pocket cap for seniors.
The Biden/Buttigieg plans reduce over-all American health spending somewhat due to their public option feature, Medicare for All Who Want It. The Sanders/Warren plans increase over-all American health spending due to the no copays, no deductibles, fee for service features of their Medicare for All plans.
Personally, I would prefer a financing system where employers and employees each pay shares of the premiums, but the contributions are income linked so that low and moderate wage employees are paying less in premiums (or taxes). In this respect I like Sanders plan best. I prefer to see systemic incentives to improve the quality and efficiency and effectiveness of care, which the Sanders/Warren plans lack.
I would prefer that we use the Exchange (Covered California) models to aggressively negotiate premiums (and distribute premium assistance) for individuals, small employers, the flex workers (the gig economy), start up businesses, and those mid-sized employers who need this service. I would like to see the Exchange plans do a far better job of insulating moderate and middle income subscribers from excessive risk in the form of patient cost sharing. This could allow Exchanges and Exchange plans to be a bigger catalyst in reforming plan and provider financial incentives to improve health outcomes. I like the Medicare backstop in order to control the prices and premiums being charged by providers and plans in monopoly and oligopoly markets. I would like to see all the public payers aggressively lead on value based reimbursement reforms so we get better health outcomes for the seniors, disabled, veterans, the poor and other vulnerable populations, and I don’t see this in any of the plans.
Prepared by: Lucien Wulsin
Dated: 11/17/19