Archive for January, 2010

House of Straw or House of Bricks?

January 24, 2010

A week ago, before the Massachusetts special election, health reformers felt that their house was almost finished.  The edifice of health reform had been built painstakingly using blueprints designed by policy and political experts during the past 10 years.  It wasn’t a perfect building — like many construction projects, there were concerns that it would cost too much and wouldn’t be aesthetically pleasing — but most agreed that it would provide shelter for those who had been excluded from health coverage: the uninsured and the medically uninsurable.  The imperfections could be fixed later.  As many said, this would be the foundation and framework on which an even better health system for the U.S. could be built.  And the wolves who had ruthlessly blown down health reform houses in the 1990s and before had been kept at bay.

As the reformers stood on the top floor last week, deciding on the final touch-ups and planning for the housewarming, someone pulled the rug out from under them. The upset election of Scott Brown to fill the late Sen. Kennedy’s seat changed the political calculus. It would not be possible for the Senate to pass a bill including the final modifications, since a unified Republican minority of 41 would be able to block consideration of the bill. It turned out that under the rug was a hole in the floor, and suddenly the reformers were on the next floor down.  The reformers might have to leave the top floor unfinished (the modifications that were needed to get House approval), but they could still have a pretty solid building if they could reach agreement.

But the Democrats haven’t been able to find a way to finish it off.  The idea for the Senate to quickly pass the modified bill before Brown was seated was rejected as politically unseemly.  The plan for the House to simply pass the Senate bill and send it to the President for signature has apparently been rejected by House members.  The idea of a two-step process – the House would pass the Senate bill in exchange for a promise that the desired modifications would be included in a separate budget reconciliation bill – seems like a pragmatic if inelegant solution, but it is apparently stalled for lack of clear direction.  Some have suggested that a “pared-down” bill – incorporating some insurance reforms, small business subsidies and Medicaid expansion – might be the only feasible option.  Others are skeptical that any reform could pass the Senate and said that the Democrats should “pivot” to other issues like job growth. Suddenly the reform effort seems to be in free fall.  The reformers have fallen through a hole in the top floor, and now it seems that every floor has a hole.  It’s a panicky, sickening feeling – not knowing where the bottom might be.  The memory the recent earthquake in Haiti is fresh in everyone’s mind, and we all know that the death and damage was immensely compounded by the poor construction standards in that impoverished country.  Is the health reform house built of bricks or straw? Is it so easy to tear down a house that was so carefully constructed?  And if the building were to totally collapse – surrounded by a new generation of gleeful howling wolves — how many decades would it be before a new house could be built?  How many more uninsured people would die because there was no shelter from the storms of catastrophic injuries and chronic disease?

I think the health reform proposal is much stronger than most people think.  The conceptual framework was built during decades of thoughtful policy analysis that incorporated the best of liberal and conservative thinking.  The legislative details have been carefully crafted to fix the most serious problems in the current system without creating a political backlash from the health industry’s economic interests.  The bill still has political momentum from the 2006 and 2008 elections, in which Democrats ran and were elected on a promise to reform our health system.  The problems of our current situation haven’t gone away, and anyone that can build a better health system will deserve a lot of credit.

In the last few days, there have been signs of hope.  Forty-seven distinguished health economists sent a strong letter of support for reform to Congress, and many political analysts pushed the Democrats to complete the bill.  The President reasserted his commitment to comprehensive reform at a town hall meeting in Ohio, and the Democratic leaders in Congress are reportedly working on a two-step process that could pass the House and Senate.  It may be that the health reform house will be completed with nearly all the floors intact.  What happens in the next few days will determine the life and death of hundreds of thousands of uninsured, and it will shape the political landscape for decades.


State vs. National Exchanges – Why it Matters

January 12, 2010

Does it matter whether health insurance exchanges are state-level or national?  I used to think that it wasn’t a major issue, but my opinion has changed.

During the health reform debate early in 2009, I thought that other exchange design issues were more important than whether they are organized at the state or national level.  In my view, who is eligible to join (all small business employees or just those who receive subsidies?), whether the exchange is the exclusive market for individuals and small groups, and how the exchange will be protected from an adverse selection “death spiral” are critical design features and will determine whether the exchanges are successful.

It seemed to me that the arguments put forward by advocates of a national exchange were not compelling.  The most common argument was that a national exchange was needed in order to gain sufficient size, which would supposedly give the exchange more bargaining power with health insurers.  But I always thought that size was more important at the local level.  Health insurers negotiate provider contracts locally, not nationally, and they gain leverage based on their size locally regardless of how big they are nationwide.  In addition, the “bargaining power” argument is relevant only if the exchange is negotiating rates with insurers.  In an “all comers” model, the exchange isn’t negotiating rates; it relies on healthy competition among insurers to drive down premiums.

There is another argument, however, for a national-level exchange. A problem with state-level exchanges is the likelihood that they would be different from each other in variety of ways: participation rules, quality standards, enrollment processing, payment coordination, management effectiveness, etc.  In other words, they would be non-standardized, and this would create a serious barrier for participation by large, multi-state employers.  This isn’t an immediate problem, since the current health reform bills permit only individuals and employees of small employers to use the exchange in the near term.  But the lack of standardization would effectively limit the exchanges to these groups for the long term.  Most large, multi-state employers would look at the patchwork of state-level exchanges and decide that it wouldn’t be worth the hassle.  (One of the reasons that these employers fiercely defend ERISA’s federal preemption of state insurance regulations is the administrative complexity caused by the differences in state laws.)  If the exchanges were administered nationally, however, some large employers might seriously consider participating.

One of the major goals of the current reform bills is to put in place the framework for an effective health insurance system.  If the framework is robust and flexible, we can make improvements and allow the system to evolve.  If we get it wrong, however, a flawed framework can block the evolution.  We don’t have to decide right now if we want the exchanges to completely replace the employer-based system in the long run, but shouldn’t we at least give large employers the option to use the exchange if it makes sense to them?  We can do that with a nationally administered exchange; it won’t work with a 50 state approach.

(Note: I should be clear about definitions.  This is not a single nationwide exchange including only insurers who have provider contracts throughout the U.S.  It is a nationally administered exchange, with insurers choosing to participate in selected locations.  There could be local administrative organizations to which the national exchange administrator could delegate certain tasks, e.g., health plan certification, coordination with state Medicaid programs, etc.  There would be some national insurers in the exchange, of course, but it would also include insurers who have only a local or regional presence.  People would have a choice among several national insurers as well as the local insurers that participate in their area.  This is the model used successfully by FEHBP and nearly all large, multi-state employers.)