USA vs. USA: HEALTH REFORM’S UNDERLYING DIVISION

The recent debates on health care reform in Congress and in town hall meetings have exposed a dramatic fissure in America. On one side are many who see the benefits of health care and health insurance becoming accessible to the uninsured, as well as lowering costs for everyone. On the other side are insured people who are concerned that any changes to the system will adversely affect the health care and health insurance that they already have. The proponents are highly focused on its long-term benefits, and are willing to do what is needed to ensure sustainability of the system. The opponents are highly adverse to short-term changes, even though the status quo will put everyone at risk (families, businesses, government, providers) from increasingly steep cost increases (both for health insurance and health care), and make the entire system vulnerable.

The Roots of Division

This divide illuminates a classic philosophical tension in American culture that has deep roots and even transcends politics, going to the heart of the American psyche. Each of the two dominant viewpoints has key characteristics. One group seeks linkages to, and success for, the larger community, and is amenable to reform to achieve it. The other group gives priority to the individual (and family unit), and is oriented toward the status quo, with the notion that, on their own, people earn prosperity over time. The current divide is similar to the 1820s’ battle between elitism and populism, the 1890s’ conflicts between “laissez-faire” proponents and muckrakers, the 1910s’ and 1920s’ disagreements between isolationists and those who favored global engagement, the 1930s’ success of “New Deal” concepts, the 1980s’ “trickle-down economics”, and the 1990s’ and 2000s’ debates between big and small government. A notable recent example was in the 1990s, when Hillary Clinton’s book “It Takes A Village” was countered by Republicans at the national convention who claimed that “it takes a family”.

The Cultural Division on Health Care Reform

In the context of health reform, rather than the division being crudely defined as a dialectic between Democrats and Republicans, it is actually the underlying philosophies that are at issue. Health reform is a microcosm of the centuries-long debates on the community versus the individual, and reform versus the status quo. Advocates of comprehensive reform recognize that all payors and providers are inter-dependent, as evidenced by the uncompensated costs of health care pushing up costs for the insured and government programs, which again affect the insured down the line (e.g., lower reimbursement rates in government programs, to achieve cost savings, then result in higher health care costs for the insured). Those who oppose major health reform focus on their own coverage and care, believing that free market principles allow their needs to be fulfilled in isolation from the needs and payment mechanisms of others.

These two views are intertwined. Individuals’ satisfaction with their choices and costs require cohesive policies and structures that enable each person to access reliable and affordable health insurance; and the viability of the American community requires that policies and structures allow for all individuals and families to choose and afford services that meet their quality-of-life needs.

Health reform is a natural arena for this conflict in philosophies to play out. The intrinsic nature of insurance is based on the pooling of the resources of the many to pay for the needs of the few. The underlying principle is that people pay into a collective repository --- even though they may not need services --- in anticipation of that repository paying their own expenses somewhere down the line when needed. For most Americans, the central repository has been the private-sector insurance companies, whereas for senior citizens and persons with disabilities, the primary central repository has been the Federal government (via Medicare). Medicare itself is based on everyone paying into a collective fund while they are able to do so, and then becoming beneficiaries of that fund years later. So, in essence, whether health insurance is provided by private insurers or by the Federal government, the principles of communal pooling of funds are at the core.

Flashpoint: The Federal Option

The debate over the “Federal option” thus comes down to a question of how to pool and administer the collective risk. Insurance companies oppose it because it may draw away the premiums from some lower-risk, and therefore lower cost, sectors of society. Insurers appreciate Medicare, because older Americans are the most costly group to ensure, as they need the most health care services and pharmaceuticals. It is fine with them if the Federal government picks up the tab for them. Similarly, insurers do not mind Medicaid, because most recipients would not be able to afford health insurance on their own. But insurers want to maintain their flow of premiums from healthier groups. Insurance companies have mobilized many to oppose health reform, and especially the Federal option, because it is in their interests to do so. It is not because insurance companies would not be able to compete with the Federal option, but rather, that they would miss out on some of the premiums from people who are not expensive to insure.

It has been argued that private insurers, who need to generate profits, could not compete with an option that does not need to generate profits. But that argument is self-defeating. If profits account for disparity between the two, then insurers’ profits are unjustifiably high, and the amounts being paid for health services are irresponsibly low. For an insurer that structures their operations for profits at a reasonable level -- which can be achieved through smart investments of premium dollars before they are needed to pay for care -- competition would not be a problem, since they provide good value for premiums paid. But for insurers that manipulate coverage and care decisions to ensure high profits, competition will, indeed, be difficult. Why should anyone defend the right of private insurers to generate windfall profits at the expense of the families that they insure? These insurers have been escalating costs, and have caused great hardship for many Americans. They should not be rewarded. If the bad actors lose market share, the responsible insurers will benefit, along with the American people.

It is an illusion for any individual or family to believe that the cost of their health insurance or health care is isolated from other cost and coverage factors. This is the case for all risk pools, managed by insurers or by the government. Family premiums escalate according to the cost, underwriting, risk-spreading, and administrative expense decisions of their insurer. The premiums which are set by each insurer are also affected by the health care marketplace, and are thus impacted by the uninsured, other insurers, Medicare, Medicaid, and other payors. Whether or not they realize it, the ability of individuals, families, and businesses to maintain the level of coverage that they desire, and maintain some semblance of restraint on premium increases, is dependent upon competition and an overall system that affordably covers and serves everyone. Currently, neither exist. Anyone who thinks that they are insulated from the effects of the overall system needs only to be diagnosed with a serious illness or condition to learn otherwise.

If no one ever got sick, then everyone’s costs would be low. But, since people do get sick, insurers have a choice of paying for those costs in either of three ways: (a) to deny coverage or treatment; (b) to spread the costs via premiums among those who they insure; and (c) to minimize profits and administrative expenses to pay for those costs. All too often, private insurers opt for the first two choices, and skip the third. A Federal option would spread the costs via premiums, because it would not deny coverage or treatment, profits would be irrelevant, and administrative expenses would be kept low. Thus, when insurers complain that they would not be able to compete with a Federal option, they are really saying that they are not prepared to responsibly manage risk and costs as well as the Federal government would. However, private insurers who provide good value for premiums paid would attract more people, and in so doing, expand their pool of insured people amongst whom to spread their risk and costs.

How Does This Impact the Current Debate on Reform?

Lawmakers should recognize the underlying philosophies of both the proponents and opponents of reform, as well as how their views relate to the Federal option.

The first imperative is to raise awareness of the basic nature of health insurance: that it involves a communal sharing and spreading of the risk and costs, whether by private insurers, the government, or anyone else. The illusion of families and businesses being isolated and insulated from the overall health system must be dispelled. Much of the current opposition is based on this misunderstanding.

Second, it is not enough to explain that people will be able to keep their insurance despite reform. This approach perpetuates a misconception by suggesting that their health insurance is stable and reliable. It is not. It is vital to speak directly to the opponents by explaining that they are currently at risk of being denied coverage and treatment. It is also imperative to explain that, without reform, their premiums will escalate dramatically, pricing many of them out of the market and into the ranks of the uninsured. Since opponents are more likely to focus on their own status quo rather than the long-term needs of the broader American community, reform must be explained as essential for their sake, rather than for the uninsured or people already victimized by the system. Individual liberty to choose affordable, reliable health coverage is in jeopardy.

Third, the Federal option should be discussed as just an alternative pool for families, individuals, small businesses, and high-risk people. This would place the focus on those who would be served, rather than those who would be serving them. It would merely aggregate a pool of people, just like insurance companies do. Whereas the “Federal option” conjures images of a “big government” program, an alternative pool emphasizes that it is basically just another source of insurance. Since opponents of reform tend to focus on the rights and choices of individuals / families, an alternative pool that is designed to meet their needs would appeal directly to them. For those who are uninsured or facing very high premiums (especially if they are covered through the “individual market”, rather than the “group market”), they could join the alternative pool. If a small business cannot afford premiums charged by traditional insurers, they could more likely afford the alternative pool. The main distinction would be that it would not pursue profits. Although some opponents might object to any coverage that did not provide profits to a company, most people would not object to getting a bigger bang for their premium buck. The alternative pool could also offer a low-premium catastrophic care plan, to provide individuals, families, and small businesses with a less expensive “safety net” just in case of a major health need.

Fourth, since it is likely that any bill that reaches the President’s desk will include some compromises (e.g., narrowing the Federal option’s scope, enrollment eligibility, etc.), reform should be promoted to proponents in terms of the many gaps that it will fill. Since reform proponents are more likely to focus on the overall American community, the tightening of the overall fabric of the system should be embraced. Even without becoming airtight, the new system would prevent denials of coverage and care, greatly expand the pool of people who can afford coverage, increase competition, and decrease uncompensated care. These advances would lower costs for all payors of health insurance and health care services, including families, businesses, and the Federal government.

Conclusion

The heated debate on health care reform is an extension of a philosophical division about the role of government in our lives that can be traced back to the early days of our nation. Recognition of these views is vital to successful reform. By directly addressing these underlying principles, reform can appeal to many of their adherents, and concerns that have been raised can be alleviated.

FINDING COMMON GROUND ON HEALTH CARE REFORM

As health care reform progresses through the House and the Senate, certain issues remain the main points of contention, both between Democrats and Republicans, and between the majority of Democrats and their “Blue Dog” colleagues. Efforts are focused on finding ways to bridge the gap on the Federal option, financing for the initial years (before efficiencies generate major savings), the employer mandate, and medical malpractice claims and liability insurance. In the spirit of brainstorming, the following thoughts offer ways that the divide on these issues could be narrowed, to generate support from at least some of the lawmakers who have concerns.

THE FEDERAL OPTION

The Federal option has been hailed for serving two crucial objectives of reform: less expensive premiums and expanded coverage. Yet, opponents distort these assets into liabilities. While they recognize that the Federal option would be more efficient and less expensive – that it will be so good that most people will choose it – they then suggest that this competition hurts competition! Besides for being illogical, their argument suggests that insurance companies either cannot become efficient or should not be prompted to do so, and that insurers can only survive when their market share is protected from competition. It is akin to calling for a cure to cancer but refusing to fund cancer research on the grounds that cancer deaths would decrease, causing the population to swell out of control. Opponents claim to support consumer choice while, at the same time, denying them the choice!

Why do opponents want to restrict choice to the most expensive insurance alternatives, which are also notorious for denying care? Why do they want to protect market share for companies that they recognize would not be the choice of most consumers? Why do they condemn the Federal option for being too efficient at providing quality health care with higher consumer satisfaction? Senator DeMint (R-SC), for example, claims that he has proposed many health care reform alternatives. But each one just used a pretense of reform to promote business development initiatives for insurance companies, allowing insurers to sell to more people and accept premiums from more sources. Promoting and defending health insurers that charge high premiums for limited care that do not satisfy health needs is an affront to the public interest. True competition would and should force some of the “bad actors” in the health insurance market out of business -- which would be good for consumers and businesses -- while the “good actors” in the private insurance market would continue to thrive

Still, in the spirit of bipartisanship, concerns about the Federal option could be accommodated by imposing some limitations and terms on the Federal option. (1) Enrollment could be limited to individuals and families who are currently uninsured, as well as to those who are not insured under group coverage, and to small businesses (with up to 50 or 100 employees, or under a payroll threshold). (2) The Federal option could provide enrollees with a choice of comprehensive coverage or a catastrophic care plan, which would be a lower-cost alternative for those who seek coverage just for major illnesses, and would alleviate the strain on health care providers from uncompensated care for major treatment. The eligibility of small businesses would mute the objections of advocates who claim that small businesses cannot afford comprehensive coverage from private sector health insurers, since even the opponents of the Federal option acknowledge that it would be much cheaper. Insurance companies would benefit by high-risk persons enrolling in the Federal option (as their care is often more expensive), which would also limit the extent to which the Federal option’s premium pricing could decline below that of private insurers. The ineligibility of large and medium sized groups and employers to enroll in the Federal option would ensure that the private market would continue to play a fundamental role in health insurance coverage.

(3) Health care practitioners who wish to participate in the Federal option could be required to meet Health Information Technology (HIT) standards by a specified timetable that is sooner than that required for other providers. This might inhibit some providers from signing up to provide services through the Federal option, thus limiting its market share and maintaining balance with insurers. Yet, it would accelerate the adoption of HIT among many providers who participate in both the Federal option and private insurance. Insurance companies would benefit from this as their participating providers would become oriented toward the use of HIT --- resulting in administrative and cost efficiencies for both the providers and the insurers --- without the insurers applying early efforts toward that transformation.

FINANCING OPTIONS

Everyone agrees that new revenues must be found to pay for the reformed system. But views differ on how to make revenue generation as painless as possible.

The proposal by Senator Kerry (D-MA) to tax health insurers would provide a major source of funds. Some think it would restrain insurers’ ability to compete. But, a tax on insurers that is linked to their overhead and profits would increase quality, efficiency, and consumer satisfaction without impairing insurers’ vital operations. By tying it to insurers’ “expense to premium ratios” (similar to, yet more meaningful than, “loss ratios”), the tax would promote the use of premiums to pay for health care services and treatment, rather than administrative expenses, utilization review, advertising, agent fees, corporate retreats, and profits. Insurers could avoid paying this tax by having a low ratio (below a specified level), since a low ratio would mean that premiums are being used to pay for care, rather than disproportionately paying for overhead. If an insurer’s ratio is higher than the accepted standard, then that excess amount could generate a steep excise tax to recoup those amounts for use in the health care system. Insurers would be incentivized to minimize premiums and expend them on health care services. (“Expense to premium ratios” are a more accurate reflection of insurer behavior than “loss ratios” because “loss ratios” only include insurers’ revenues from premiums, not their major revenues from investment of premiums, which “expense to premium ratios” do take into account.)

Sizeable revenues could also be generated from the House Ways & Means proposal to tax very high-income people, and various efforts to tax “Cadillac health insurance coverage” (e.g., worth more than $15,000 to $25,000 for family coverage). Despite some opposition to these, this criticism could be muted. The tax could be applied only to “Cadillac coverage” over a specified level (e.g., $20,000 for family coverage), and then also be means-tested, to ensure against the tax being placed on a family earning, for example, $100,000. High income families (for example, earning over $250,000 or $350,000 annually) would be taxed at a basic rate for their “Cadillac coverage”, and very wealthy families (e.g., over $1 million) could be taxed at a much higher rate. In this way, “Cadillac coverage”, which is akin to compensation, would only be taxed in the case of those who are most able to afford it (rather than being subsidized by all taxpayers by being tax exempt).

Means testing of “Cadillac coverage” could still be coupled with a reasonable tax on annual incomes over $1 million. This additional tax could be tempered, however, by applying it for just a limited number of years, until the efficiencies of the reformed health care system generate anticipated savings which can be applied to the system.

EMPLOYER MANDATE

To some, an employer mandate is the key to universal coverage, affordability of coverage, and reducing uncompensated care. But to others, it’s just plain scary.

The employer mandate has been derided as unaffordable for small businesses, many of which allegedly would sacrifice business growth to avoid it. Scare tactics are intensifying, with Congressman John Shadegg (R-AZ) on July 30th implying that the mandate would apply to all businesses with two employees. While critics focus on the cost of insurance, they ignore the cost of NOT being insured. Employees in small businesses are not exempt from becoming sick, developing chronic illnesses, and wishing they had health insurance. If these employees do not have health coverage, then it adversely affects the business, for example, if illnesses spread among employees, decrease productivity, intensify due to a lack of treatment, cause skilled employees to quit their jobs, etc. If these realities are ignored, and measures to cushion the impact of a mandate are necessary, then there are some options.

As stated earlier, small businesses should be allowed to enroll in the Federal option to minimize their premiums and out-of-pocket costs, and provide reliable coverage. Additional meaningful incentives could be offered to non-exempt small businesses, especially to encourage their enrollment sooner rather than later. (1) A small tax credit or subsidy could be offered for the first few years if they enroll promptly, to defray a portion of the costs and ease the financial burden. (2) To bolster economic recovery and revitalization too, a tax credit for hiring employees could be made available to small businesses if they purchase health insurance prior to a specified date. (3) An investment tax credit for purchase of durable capital equipment could be available to small businesses if they purchase insurance by a specified date. Both of the latter two tax credits would serve as incentives for early participation in the employer mandate, and help stimulate the economy at the same time.

MEDICAL MALPRACTICE / LIABILITY INSURANCE REFORM

Despite the intrepid popularity ratings of lawyers and volumes of lawyer jokes, medical malpractice laws serve a vital role in ensuring appropriate health care and providing recourse for medical errors. Yet, they do add to the cost of health care. For years, Republicans’ calls for reform in this area have practically been a mantra, closely tied to their desires to limit lawsuits, and tort and product liability laws.

First, health care providers often engage in duplicative and unnecessary care and tests so as to insulate themselves from potential lawsuits if an undesirable health outcome should result. The key to eliminating these extraneous “defensive medicine” costs is not through legal reform, but rather, through the adoption of HIT. When electronic medical records and practice guidelines are fully implemented throughout our health care system, defensive medicine will be ameliorated by the access of providers to patient records of treatment, tests, and health history, as well as the guidance from aggregated data.

Second, there have been many instances in which patients have sued providers and insurers in response to an undesirable health outcome. Although even the best health care cannot guarantee successful health outcomes, some patient lawsuits fail to recognize this. To minimize the burden of frivolous lawsuits, one option would be to encourage (or require) patients to first pursue their claims through mediation or arbitration. Many claims will be able to be resolved through such channels, while others may result in the patient realizing that their claim should not be pursued further. Naturally, however, patients should still retain their full rights, following such a hearing, to escalate their claims through the courts.

Third, the rise in medical malpractice liability insurance premiums in recent years has been disproportionate to the incidence of medical errors, medical malpractice claims, and court settlements. It has been difficult to assess the justifiability of premium rates due to the lack of data from liability insurers. (1) Increased reporting from liability insurers is necessary, e.g., premium rates and revenues, claims paid, medical incidents defended, etc. (2) Greater scrutiny of liability insurers would enhance accountability through reasonable regulation of their premium rate structures, in order to alleviate the burden on doctors, hospitals, and others.

BOTTOM LINE

Health care reform in 2009 is absolutely essential. As the reform debate hones in on remaining critical and challenging issues, it is imperative that all stakeholders dedicate themselves toward finding common ground. Practical solutions can be developed on a bipartisan basis, to serve the needs of all constituents, whether they be those of moderate and conservative Republicans, or progressive and “Blue Dog” Democrats. The final bill will not have everything that any single lawmaker would want. But meaningful reform is in everyone’s best interests, and requires everyone’s whole-hearted commitment and willingness to support a package that meets core objectives for America’s urgent needs. Through creative solutions, the final result will be a key to a sustainable health care system for decades to come.