Archive for October, 2009

A “Third School” of Cost Containment?

October 28, 2009

Is there a “Third School” of reformers that could help us resolve the long debate about how to contain health care spending?  Drew Altman’s recent column describes the history of the debate between the “Regulators” and the “Marketeers”, and he suggests that a new school of thought – the “System Reformers” – is in the ascendance.  According this Altman:

The Systems Reformers believe that the best way to bend the cost curve is not through external market incentives or regulatory controls, but from the inside out, by creating a smarter health care system with the information base, new delivery models and payment incentives that will improve quality and lower costs. . . .

The Systems Reformers’ paradigm is reflected in the “bending the curve” elements of the health reform legislation currently in Congress, which mostly come in the form of pilot projects and experiments. These include tests of ideas like Accountable Care Organizations, “pay for performance” and “bundled payments,” as well as efforts to create a smarter, evidence-based health delivery system through comparative effectiveness research.

He describes the Systems Reformers’ approach as a  “third leg of the stool of cost containment strategies”.

While Altman is right about the importance of the Systems Reformers’ ideas, I don’t consider this to be a new paradigm.  We’re really talking about two different things.  The debate between the Regulators and the Marketeers is a philosophical disagreement about the fundamental political economy of the health care sector.  The use of System Reforms, however, is simply an issue of how deep we go into the health care system in order to bring about reforms.  The former issue is about which fork in the road we should take; the latter is about how far we can go down that road.

The debate about the merits of regulation and markets is very important, and we do need to make a choice.  This issue is not unique to health care; it’s been raging in other sectors as well – for example, regulatory limits vs. cap and trade mechanisms to reduce air pollution.  In health care, the Regulators point to the failure of markets to contain costs, and they advocate regulation of supply and prices.  In the U.S. political debate, the ultimate model of the Regulators’ approach is a single payer plan.  Marketeers, on the other hand, point to the failure of past regulatory approaches (e.g., price controls, certificate of need) and the fact that health care markets haven’t been structured in a way to provide incentives for cost containment.  Intelligent and well-intentioned people can find good reasons to support either approach.

In the current national debate, we’ve largely made the choice to go down the Marketeer path.  Despite the protests of disappointed single payer advocates, all five major bills in Congress are based on a market-based approach.  If we did a word count of Congressional speeches on health reform during the past six months, it’s likely that “competition” and “choice” would be near the top.  And even wonky phrases like “cost conscious consumers”, “financial incentives”, and “transparency” have leaked into Congressional speeches, demonstrating that the Marketeers are in ascendance.

How does the “System Reform” approach fit into this?  As Altman says, it looks at the health care system from the “inside out”, and the System Reformers deserve credit for helping us understand how the health insurance and medical care markets really work.  But the solutions that Altman points to are tools, not systemic solutions.  These tools, such as electronic health records, comparative effectiveness research, and alternative payment mechanisms, have been around for a long time.  The problem is that they haven’t been used widely within the health insurance and medical delivery system. For example, most physicians have not been quick to adopt electronic health records, since there is little reward for making improvements in efficiency and quality in the current system.  The solution to this lies outside, i.e., with the purchasers, consumers and/or regulators.  In order for the system reform tools to be used by health insurers and providers, there needs to be pressure from the outside.  One way to do this is a Regulatory approach, e.g., establishing a single payer plan and requiring all physicians to accept salaries or capitation rates set by the government.  Another way is with a Market approach, e.g., establishing health insurance exchanges and reforming the individual and small group market to encourage healthy competition and provide incentives for improved cost, quality and customer service.

The Congressional bills have used the work of the System Reformers to turn the Marketeer approach from a guiding principle into something meaningful and practical in the health care system.  For example, using the information that John Wennberg, Elliott Fisher and their colleagues have documented in their enormously important Dartmouth Atlas, the bills in Congress include pilots for Medicare payment reforms, such as bundling and pay-for-quality, which should reduce the geographic variation in costs and the inflationary effects of the current fee-for-service payment system.  Another example: System Reformers have pointed out that much of the medical care provided is not supported by evidence-based research; many physicians rely instead on simple protocols, community norms and what they were taught in medical school decades ago.  The lack of good clinical information has led to overuse as well as underuse of medical services, creating high costs and inconsistent quality of care.  Based on this finding, the bills in Congress include funding for comparative effectiveness research.  In a well-functioning market, good information is essential; CER will nudge the system toward more efficiency and higher value.

The work of the System Reformers is tremendously valuable, since it shows us what specifically needs to be done to improve our health insurance and medical care system.  This doesn’t, however, make it a “third school” of cost containment.  The current direction for health reform in Congress can be best understood as a Marketeer approach that is more likely to be effective in containing costs because it incorporates the System Reformers’ deep understanding of health markets.

Last Chance to Fix the Exchanges

October 17, 2009

Last Chance to Fix the Exchanges

We all know that well-designed health insurance exchanges are a critical element for good health reform, right?  And we also hear that exchanges are part of all five reform bills in Congress, so we should be satisfied, right?  Wrong.  There are some good design elements in the various bills, but the best components from each need to be pulled together as the bills are merged, amended, and worked over in conference.

Health insurance exchanges are arguably the key to successful reform, but most of the recent health reform debate has focused on other issues – subsidies for low-income people, the penalty for noncompliance with the individual mandate, taxes on high cost insurance plans, cost containment measures, protections against high out-of-pocket expenses, etc.  Many of the other elements can be tweaked if we don’t get them quite right in the first version of reform, but it’s critical to establish the right design framework for exchanges at the beginning.

The exchanges are needed to address three critical problems that most small employers and individuals face in the current health insurance market:

COSTS — Individuals and small employers pay much higher premiums than large employers for similar health benefit plans, due primarily to high insurance administrative and selling costs for this segment and a lack of bargaining power.

CHOICE — Very few employees of small employers are offered a choice of health plans; most insurers will offer coverage to small employers only on a “sole source” basis.  This also makes coverage less “portable when people change jobs.

CONVENIENCE – It’s a tremendous administrative burden for small employers to manage health benefits for their employees.

There are three design elements that are crucial to achieving these goals:

How big? Who’s in? Size is important; as Sen. Olympia Snowe put it, “The more the merrier.”  Sufficient size will attract more insurers and offer wider choice to consumers in the exchange.  It will also enable the insurers to achieve economies of scale and reduce administrative costs and premiums.  And allowing more categories of groups into the exchange will allow more people to get the benefits of expanded choice, reduced hassle for administering health benefits, and improved portability of health coverage.

How to avoid the “death spiral”. Many exchanges in the past have collapsed when high cost people joined and stayed in the exchange while low cost people purchased coverage outside the exchange.  Ideally, the exchange would be the sole market for individuals and small groups.  Since this is probably unrealistic politically, it is necessary to put in place mechanisms to minimize the danger of the death spiral.  For example

  • The same insurance regulations (e.g., guaranteed issue, rating, benefit design, etc.) should apply inside and outside the exchange.
  • Insurers should be required to set their premiums based on the entire pool of the combined markets (inside and outside the exchange).
  • Insurers should be prohibited from advantaging their comparable non-exchange products in any way (e.g., through the use of different marketing, application processes, etc.)
  • If an insurer participates in the individual and small group markets outside of the exchange, it must also participate inside the exchange.

What role for the exchange? An exchange can play a variety roles ranging from passive provider of consumer information to active purchaser of health benefits on behalf of consumers.  A narrower role would leave the consumers to deal directly with the insurers.  (If this is the case, there won’t be any savings in administrative or marketing expenses.)  But the exchange could play a broader role by managing the enrollment process, determining eligibility for subsidies, collecting premium contributions from multiple sources, administering a risk equalization mechanism to protect insurers from adverse selection, contracting selectively with insurers, and even negotiating rates.

I’ve put together a simple chart comparing the key design elements from the three bills.

Senate Finance Senate HELP House TriCommittee
How Big?Who’s In? Reasonably inclusive.Individuals + small employers (<100) in 2015; state option to add large employers (>100) in 2017 Somewhat inclusive.Individuals + small employers (<50); state option to add large employers (>50) Somewhat restrictive.Individuals + very small employers (<20) phased in by 2014; option to add large employers (>20) in 2015.
Avoiding the “Death Spiral” Some features to reduce danger of death spiral Reasonably strong features to reduce danger of death spiral Unclear or weak features to reduce danger of death spiral
Role Limited role.  All insurers must be made available in the exchange Substantive role, but does not include negotiating rates with insurers Active role, including accepting bids and negotiating with insurers

Here is my recipe for the best policy blend to address these problems.  (It’s basically one from column A, one from column B, and one from column C.)

How big/Who’s in — Use the Senate Finance Committee bill as a starting point, but consider expanding further.  (Sen. Wyden’s proposed amendment would accomplish this by allowing employees of larger groups to join the exchange, but there would need to be stronger protections against a “death spiral” for the exchange.)

Avoiding the death spiral – Use the Senate HELP bill as a starting point, but add language to (a) prohibit insurers from advantaging their comparable non-exchange products in any way, and (b) require insurers that participate in the individual and small group markets outside of the exchange to also participate inside the exchange.

Role Use the language in the House bills, which allow a more active role for the exchanges, including selective contracting.  (The proposed Kerry amendment would achieve this in the Senate bills as they are merged.)

Other commentators have made the point about the importance of designing insurance exchanges right.  Jon Cohn included it in his recent list of “The Top Ten Things Worth Fighting For”.  (Just to show how important it is, it’s on his list twice: #5 – Strengthen the Exchanges, and #10 – Open up the Exchanges.)  Elliot Wickes posted a new blog at Health Affairs on the essential characteristics of exchanges in health reform.  Earlier this summer, Alain Enthoven, Peter Lee/John Grgurina, Joe Minarik, David Riemer and Ezra Klein posted excellent commentaries on exchange design.

The design of health insurance exchanges is too important to be brushed aside or used as simple political bargaining chip.  If we don’t get it right in the bill this year, it will be very difficult to fix it in future years.  If we get it right, however, exchanges will address the problems of cost, choice and convenience faced by small employers and individuals, and it will help to bring healthy competition and drive down overall costs in the health insurance market.

Note: Revised slightly 10/28/09 after helpful conversation with Alain Enthoven.

Let’s Not Lose Sight of the Goals

October 3, 2009

I love Daniel Schorr.  I’ve never met him in person, but I love his voice and his insights about politics on NPR’s Weekend Edition.  But this morning I was disappointed.  After listening to his comments on the Olympics and Iran, I looked forward with anticipation to his thoughts about the Senate Finance Committee’s accomplishments earlier this week on health reform legislation.  When asked whether a “real health care bill” is likely to pass later this year, he said, “Well, it begins to look more [likely] . . . that there will be a bill.  The question is not whether there will be a bill . . . but what will be left in the bill, because so many things have been taken out.”  I could almost hear him sigh.  He went on to talk about the fact that the public option is not a part of the Senate Finance bill, although it might be restored in full or part (through a trigger mechanism or health cooperatives) as the bill moves through Congress.

Let’s step back for a minute.  (This is what I usually rely on Schorr to do for us.)  Where were we a year ago?  Although advocates of health reform were encouraged that the health care crisis was getting a lot of attention in the Presidential election campaign, the outlook was not rosy.  Obama and McCain were neck and neck, and McCain’s reform proposal was so weak as to be laughable.  The pundits and pollsters were predicting that the Democrats would get about 56 seats in the Senate – not enough to overcome a filibuster.  And there was serious concern that even if Obama were elected, health reform would be crowded out by other major crises – the threat of a serious economic depression, the banking collapse, Iraq/Afghanistan/Iran, energy and global climate change, and who knows what else.  In October 2008 the likelihood of serious comprehensive health reform was probably about 25%.

What has happened during the last 12 months?  Well, Obama was elected with a clear mandate to do something about health reform, and his proposal was pretty solid.  The Democrats surprisingly won 60 seats in the Senate, although it took months for the Minnesota recount to be completed.  The President and the Democratic leaders in Congress have made health reform a top priority and haven’t let other critical issues get in the way.  Obama selected a top-flight team of policy experts and – more importantly – politically savvy professionals to push health reform.  (Sen. Baucus and others on the Hill had started doing this a year earlier.)  Using the lessons from the defeat of the Clinton plan in the 1990s, Obama set the overall goals and framework for reform but let Congress take the lead in creating the specific legislation.  The administration worked closely with health care industry groups to get their support for reform, or at least reduce the likelihood they would torpedo it.  A strong consensus emerged about the basic shape of the reform package, and five Congressional Committees have passed very similar bills.  We’re on the verge of actually getting something done.

What’s in the bills? Is it real reform or something watered down?  As the President reminded us in his September 9, we need to stay focused on the goals and not get tangled up in arguments about the ways we achieve those goals.  Reform advocates have been working for decades to improve access to health care for all Americans, improve the quality of health care, and reform the system in a financially responsible and sustainable way.  The bills in Congress would make major progress on all three of these goals, and we shouldn’t lose sight of that.  The bills can be improved, of course, but we must not let the perfect be the enemy of the good.  The inclusion of a public plan option should not be the litmus test of a good bill, despite what Howard Dean says; it’s only a means to an end, and there are other ways to get there.  We should focus instead on whether the final reform plan would make real progress on the three critical goals of access, quality and affordability.  In the end, it seems increasingly likely that we will pass the most important and far-reaching domestic legislation in many years – one that will help millions of people who cannot afford decent health care – and we should not lose sight of that.

But I still love you, Daniel Schorr.  We all need a healthy perspective on the major issues of our day, and I’ll listen in again next weekend.