Archive for April, 2009

The New Landscape of the Health Reform Debate

April 30, 2009

[Note: an earlier version of this appeared on The Health Care Blog (http://www.thehealthcareblog.com) in March 2009]

In the commentary about President Obama’s budget and health reform initiative, an important issue has not received enough attention.  Most reporters, analysts, editorial writers and bloggers have focused on the proposed $634 billion reserve fund, the aim for universal coverage, the reduction in Medicare Advantage payments, the tax on families with incomes over $250,000, and other key features.   In the view of many Republicans and others opposed to this approach, the proposal looks like just another version of a “tax and spend” strategy to fix our health care system.  There is something different, however, and the health reform battle is moving into new terrain.

In the past, advocates of health reform focused on need to provide access to care for the uninsured.  This was (and is) a moral issue – “How can the richest nation on earth let millions of people go without access to decent health care?”  To provide universal access, however, required a lot more government spending.  This set up a conflict, because every reform proposal had a big price tag, and few politicians were willing to support a program that dramatically enlarged the federal deficit.   Many advocates believed that expanding coverage was worth it, but it faced very difficult obstacles due to concerns about the rising government debt load.

In the current debate, many people have been repeating the mantra that “we must expand access and contain costs”, but this often seems to be simply a convenient way to broaden the goals and make it look like they are being more fiscally responsible.  The Obama administration is taking a different path, however, and it is changing the debate in a fundamental way.  The President has stated that rising health care costs are the most important problem for future federal deficits. Peter Orszag, the OMB Director, makes a convincing case that we face an unsustainable trend in government spending for Medicare and Medicaid in the absence of health reform.   As a December 2008 CBO report stated:

The rising costs of health care and health insurance pose a serious threat to the future fiscal condition of the United States. Under current policies, CBO projects that federal spending on Medicare and Medicaid will increase from about 4 percent of gross domestic product (GDP) in 2009 to nearly 6 percent in 2019 and 12 percent by 2050.

This means that health reform – if done right – won’t make the deficit problem worse; in fact, we need health reform in order to tame the long-term deficit.  This has transformed the debate about health reform.  It’s not just a desirable social policy; it’s a necessary tool for fiscal discipline.  Traditionally, “entitlement reform” has meant cutting benefits or shrinking eligibility for Medicare and Medicaid in order to hold down costs.   The new approach, however, looks at expanding health coverage as a key element of reducing the deficits.

Is this really a new approach, or is it simply clever re-framing or wishful thinking?  There are three key elements that make it worthy of serious consideration.
•    First, the OMB and CBO are taking a long-term view of the federal deficit.  While expansion of coverage and investment in electronic health records and research will cost more in the short-run, comprehensive reform has the potential to “bend the cost curve” over ten years, thus putting the federal budget on a more sustainable course.
•    Second, the President’s recent budget proposal includes specific revenue sources, e.g., the tax on families with incomes over $250,000, which offset the increased expenses.  In the budget proposal, the net cost of the health reform reserve fund is zero.
•    Third, and perhaps most importantly, there is a much broader view of what is needed to contain health care costs.  Instead of relying on politically unpopular cost reductions such as moving Medicare eligibility to age 68 or slashing payments to physicians, the plan recognizes that system changes can drive lower costs.  For example, giving employees of small businesses a choice of health plans through an insurance exchange would introduce healthy competition, which should spur insurers to improve efficiency.  Similarly, prohibiting the use of medical screening to deny coverage would also create incentives for insurers to find more appropriate ways to reduce costs.

As the health reform debate heats up during the next few months, there will be some who attack health reform as “too expensive”.  In the past, this might have been sufficient to stop any plan to expand access to care.  The landscape has changed, however, and the battle will now be fought on different grounds. Politically, the new approach allows fiscal conservatives to line up with social liberals to support health reform.  Quietly but powerfully, this change has improved the prospects for health reform.

Welcome to “Now’s the Time”

April 30, 2009

It’s time for health reform. Many of us have been laboring for years on health policy issues and working to improve the current health system. We all know the problems — unsustainable costs, inconsistent quality, and too many people unable to get the care they need. I’m personally committed to doing whatever I can to fix the system and improve the health of all Americans, and I know all of you share that commitment. I have some ideas about solutions, but I also know that there are many paths to the mountain-top. I hope you find the ideas you read here to be helpful and provocative, and I welcome your comments. We have an historic opportunity to make our health care system work better, and I hope that you’ll join the effort — now’s the time!

“Skinny or Rich?” — Benefit Design in National Health Reform

April 20, 2009

As the debate on national health reform develops, we will face a series of challenging issues.  One of these is the design of an affordable basic benefit plan.  A “skinny” plan is more affordable, but this might exclude important health services and impose an unaffordable cost-sharing burden on people.  How do we balance these concerns?

A comprehensive national reform plan should include a definition of basic benefits, but the task of designing the package faces serious policy dilemmas and political obstacles.  Historically, the debate has been framed as affordability vs. comprehensiveness.  There are legitimate concerns on all sides on these issues:

•    Affordability – The benefit plan should be affordable for people and employers to encourage them to buy insurance.  It also needs to be affordable to minimize government subsidies for those who do not have adequate resources to buy coverage on their own.  A more expensive package will discourage people and employers from buying, and it won’t allow government subsidies to be spread as widely as possible.

•    Cost sharing – Traditionally, insurers have created more affordable plans by increasing consumer cost sharing at the point of service, i.e., deductibles and coinsurance.  This creates barriers to necessary care, however, and it can cause a serious financial burden on low-income people – especially those who are sick and need medical services.  As a result, many believe that we have already “pulled the lever” of increased cost sharing as far as we can go.

•    Benefit exclusions and limitations – Another traditional approach has been to exclude certain services from coverage. Prescription drugs, dental services, and mental health services have been considered “optional” benefits in many commercial plans.  These limitations have been overcome to some degree by legislation to require coverage of specific services, but  benefit mandates have been attacked by critics who believe that they increase costs without a significant improvement in health.

If the traditional approaches to designing affordable benefits have reached a dead end, what can we do?  Fortunately, a new benefit design strategy has emerged in recent years.  In contrast to the traditional approaches, the new strategy uses a more targeted approach to design affordable plans – using a “scalpel” rather than a “meat-axe”.   The new approach is often called “value-based benefit design”, reflecting the goal that people should have access to services that improve health.  As the science of evidence-based medicine using comparative effectiveness research has advanced, it allows us to link clinical information and targeted financial incentives to create more affordable benefit plans.

Value-based benefit designs have been piloted by a number of private insurers, but these new insurance products have not yet become widespread.  Although we are in an early stage of innovation in this area, several basic principles and common frameworks have emerged:

•    People should be protected from the catastrophic costs of serious medical problems.

•    There should be no financial barriers to important preventive services and disease screening.  For example, women over 40 should have mammograms every 1-2 years; this should be a covered benefit with minimal cost sharing.

•    Patients with serious chronic conditions should have access to services that enable them to manage their conditions and avoid medical crises.  For example, diabetics should have access to a certain number of outpatient visits, regular testing and dietary counseling with minimal cost sharing.

•    People should have financial incentives to use cost effective treatments.  For many conditions, there is a range of clinically equivalent treatments that have very different costs.  For these “preference sensitive” treatments, the patient should pay a significant amount of the additional cost for the more expensive options.

•    People should take personal responsibility for keeping themselves healthy.  For example, there should be financial incentives for smokers to stop smoking (and similar incentives to not smoke at all).

•    People should have the option of “buying up” from the basic minimum benefit.

The political obstacles to designing a minimum benefit plan – even using a “value-based benefit” approach – are daunting.  In the process of creating a comprehensive national reform plan, the following approach may be the most likely to succeed:

•    Congress needs to address benefit design as it develops health reform legislation, but it is probably wise to avoid specifying exactly what is covered and the levels of cost sharing. It should develop the principles rather than the details of benefit design.  It should avoid being trapped into the traditional debate between affordability and comprehensiveness.  This is a zero-sum game, and there are ferocious advocates on all sides.

•    An example of a productive legislative approach is used in the Obama campaign proposal and the Wyden-Bennett bill, which in effect establishes an overall financial level for the standard plan and sets guidelines for the benefit design.  (In the Wyden-Bennett bill, the benefit plans must be similar or actuarially equivalent to the Blue Cross Blue Shield Standard Plan provided under FEHBP.  In addition, plans must provide benefits for wellness programs; provide coverage for catastrophic medical events; provide for comprehensive disease prevention, early detection and management; provide for “personal responsibility contributions” at the time services are provided; and meet other guidelines.)

•    The legislation should create an independent administrative board to develop the detailed benefit design within the guidelines established by Congress.  This board would establish standards and approve benefit plans offered in the proposed insurance exchange.  This approach would allow innovation in benefit design and be adaptive to new findings from comparative effectiveness research.  It would also move the debate about the specifics of benefit design out of the overly political environment of Congress, which would still retain an oversight role.

The wider use of value-based benefit design could have significant impacts on cost containment.

  1. It reduces financial barriers to preventive services and screening, thereby increasing the likelihood that serious illnesses will be caught earlier before they become more severe and expensive to treat.
  2. It creates the incentive for the appropriate management of chronic conditions, reducing the likelihood of serious and expensive medical complications.
  3. It introduces cost sharing and a sense of personal financial responsibility where it can have the most impact on costs — when treatments with similar outcomes have very different costs, i.e., “last dollar” rather than “first dollar” cost sharing.
  4. The use of value-based benefit design can have the maximum impact if employer-based programs as well as public programs use it consistently.