Health insurance

“If you think health care is expensive now, wait until you see what it costs when it’s free. ” PRES. BARACK OBAMA has made it clear that reforming the American health care system will be one of his top priorities. In response, congressional leaders have promised to introduce legislation before summer’s end, and they hope for an initial vote in the Senate prior to the Labor Day recess.

While the Administration has not, and does not seem likely to, put forward a specific reform plan, it is possible to discern the key components of any plan likely to emerge from Congress: • At a time of rising unemployment, the government would raise the cost of hiring workers by requiring employers to provide health insurance to their employees or pay a fee (tax) to subsidize government coverage. • Every American would be required to buy an insurance policy that meets certain government requirements.

Even individuals who currently are insured–and happy with their insurance–will have to switch to a plan that meets the government’s definition of “acceptable insurance. ” • A government-run plan similar to Medicare would be set up in competition with private insurance, with people able to choose either private insurance or the taxpayer-subsidized public plan. Subsidies and cost-shifting would encourage Americans to shift to the government plan.

• The government would undertake comparative-effectiveness research and cost-effectiveness research, and use the results to impose practice guidelines on providers–at least initially, in government programs such as Medicare and Medicaid. Eventually, though, those guidelines likely would become mandates extending to private insurance plans, resulting in more rationing of the nation’s medical care. • Private insurance would face a host of new regulations, including a requirement to insure all applicants and a prohibition on pricing premiums on the basis of risk.

• Subsidies would be available to help middle-income people purchase insurance, while government programs such as Medicare and Medicaid would be expanded. • Finally, the government would subsidize and manage the development of a national system of electronic medical records. Taken individually, each of these proposals would be a bad idea. Taken collectively, they dramatically transform the American health care system in a way that would harm taxpayers, health care providers, and–most importantly–the quality and range of care given to patients.

Administration officials repeatedly have referred to health care reform as Pres. Obama’s “top fiscal priority” and called the need to restrain the growth in health care costs “the single most important thing we can do to improve the long-term fiscal health of our nation. ” In his first address to Congress, the President declared, “Health care reform cannot wait, it must not wait, and it will not wait another year. ” At a February 2009 White House Summit on health care reform that included many of the congressional and industry stakeholders, Pres.

Obama insisted that health care reform must be passed “this year. ” Obama’s proposed 2009 budget included $634,-000,000,000 as a “down payment” for health care reform, although it contains no details about how that money would be spent. The President apparently does not plan to put forward a specific plan foil reform. Rather, the Administration is offering general guidance and direction, while leaving the details up to Congress. This strategy stems from the belief of many Administration analysts that one reason for the failure of Pres.

Bill Clinton’s attempt at health care reform was that his Administration developed a specific plan in secret, without congressional input, then attempted to force Congress to accept it. Still, it is possible to discern the outlines of what a health care reform proposal acceptable to the White House will look like. Pres. Obama outlined his ideas in considerable detail during the campaign. His first choice for secretary of health and human services, former South Dakota senator Tom Daschle, wrote a book on health care reform last year.

While Daschle’s nomination had to be withdrawn due to his failure to pay income taxes, his coauthor, Jeanne Lam brew, remains as deputy director of the White House Office of Health Reform, ensuring that Daschle’s views remain prominent–and Obama’s second choice for secretary of Health and Human Services, Kathleen Sebelius, pushed several health initiatives during her time as governor of Kansas. In Congress Sen. Max Baucus (D. -Mont. ), chairman of the Senate Finance Committee, has released the outlines of a proposal. Since any health care legislation will have to pass through his committee, Baucus will help shape any final bill.

Baucus has been working closely with Sen. Edward Kennedy (D. -Mass. ), who sees health care reform as his final legacy. Kennedy has been meeting with industry stakeholders and is preparing to draft legislation. While the meetings have been held in secret, some conceptual outlines have leaked out. In addition, a bipartisan bill, sponsored by Sens. Ron Wyden (D. -Ore. ) and Robert Bennett (R. -Utah), has drawn White House attention. Finally, the 1. 3 trillion-dollar stimulus bill, officially known as the American Recovery and Reinvestment Act, contained a number of provisions laying the groundwork for Pres.

Obama’s vision of health care reform. If one looks at these various proposals, outlines, and statements, the broad parameters of the final proposal begin to emerge. It initially would not create a government-run, singlepayer system such as in Canada or Britain. Private insurance still would exist, at least for a time, but it would be reduced to little more than a public utility, operating much like, for example, the electric company, with the government regulating and controlling every aspect of its operation.

The net result would be aft unprecedented level of government control over one-sixth of the U.S. economy and some of the most important, personal, and private decisions that Americans make. This approach sets the stage for the eventual evolution into a single-payer system As a candidate, Sen. Obama of Illinois stud he would require all employers to provide their workers with insurance through a “play or pay” mandate. Employers who do not provide “meaningful coverage” for their workers would be required to pay a penalty equal to some percentage of their payroll into a national fund that would provide insurance to those uncovered workers.

However, there are several problems with an employer mandate. First, such a mandate simply is a disguised tax on employment. As Princeton University professor Uwe Reinhardt (the “dean of health care economists”) points out, “Because the fiscal flows triggered by mandate would not flow directly through the public budgets does not detract from the measure’s status of a bona fide tax. ”

Although it might be politically appealing to claim that business will bear the new tax burden, nearly all economists see it quite differently. The amount of compensation that a worker receives is a function of his or her productivity. The employer generally is indifferent to the composition of that compensation: it can be in the form of wages, benefits, or taxes. What really matters is the total cost of hiring that worker. Mandating an increase in the cost of hiring a worker by adding a new payroll tax does nothing to increase that worker’s productivity.

Employers therefore will seek ways to offset the added costs by: raising prices (the most unlikely solution in a competitive market); lowering wages; reducing future wage increases; reducing other benefits (such as pensions); cutting back on hiring; laying off current workers; shifting workers from full time to part time; or outsourcing. Insuring the insured Moreover, not all of those who would be covered under an employer mandate were uninsured previously. To cite just one example, they currently might be covered under a spouse’s policy.

The mandate also would fall on firms that were providing insurance, but whose employer contribution fell below the minimum required amount, or who provided benefits that differed from the minimum benefit package specified by the government. For instance, high-deductible policies or health savings accounts might be prohibited–and it is not just the direct cost of insurance that would be imposed on employers: business also would incur significant administrative costs. Low-skilled and -wage workers particularly would be at risk.

Roughly 43% of uninsured employees are working within three dollars of the minimum wage. The mandated insurance costs will represent a proportionately significant increase in the cost of employing those workers. At the same time, since their wages already are low, and those workers receive few other employment benefits, employers’ ability to shift costs will be constrained. The most likely outcome will be greater unemployment for workers whose lack of skills does not justify the increased cost.

In a study for the National Federation of Independent Business, Michael Chow and Brace Phillips estimate that as many as 1,600,000 jobs could be lost in the first five years after an employer mandate was imposed, of which two-thirds would be from small businesses with fewer than 500 employees. Of those small businesses, 55% are companies with fewer than 100 employees, and 28. 9% are companies with 20 employees or less. A second problem with an employer mandate is that it would further lock us into our current employer-based health care system.

Employer-based health insurance is a historical accident, stemming from a combination of labor shortages and wage-price controls initiated during World War II. It limits consumer choice by giving decisions over insurance coverage to employers rather than workers. It means that workers who lose their jobs lose their insurance. According to a study by Georgetown University’s Center for Children and Families, 4,100,000 people lost their employer-sponsored health insurance in 2008.

We should be moving away from an employment-based system toward one where workers have personal and portable insurance that is not linked to their employer’s preference or their employment status. Therefore, an employer mandate actually would represent a step backwards in terms of a more effective and compassionate health policy. During the presidential campaign, Sen. Obama opposed a requirement that every American buy health insurance. Indeed, Obama’s opposition to an individual mandate was a principal area of disagreement with Hillary Clinton during the Democratic primaries.

However, Administration sources now are indicating that, while Pres. Obama will not propose such a mandate, he will accept one if Congress includes it. As is the case with an employer mandate, an individual mandate simply is a disguised tax. After all, if the government takes money directly from person A and gives it to person B, everyone would agree that it is a tax. It is no different if the government mandates that person A simply pay the money directly to person B. At the end of the day, Person A has less money to spend as he chooses. The most obvious question about an individual mandate is how it would be enforced.

The government would need some way to determine whether Americans are insured or not and to penalize those who have not complied with the mandate. It seems likely that a mandate which has been suggested by Sen. Baucus “would be enforced possibly through the tax system or some other point of contact between individuals and the U. S. government. ” Yet, about 18,000,000 Americans are not required to file income taxes, mostly because their incomes are too low. Another 9,000,000 Americans who are required to file tax returns nonetheless: fail to do so; that potentially is 27,000,000 Americans who would not be providing proof of insurance.

Remember, too, that only about 30% of uninsured Americans have been uninsured for a full year. In fact, nearly 45% will regain insurance within four months. Therefore, many people who lack health insurance at some point throughout the year, will, in fact, be insured at the time they file their taxes. Presumably, the “proof of insurance” could include the length of time that the person was insured, but that would raise the complexity of compliance procedures quite considerably. It also would increase the incentive to lie.

If the government were able to determine that someone has not purchased health insurance, what penalty would apply? Some sort of tax penalty is the most likely approach, but that is much easier said than done. Eugene Steuerle of the Peterson Foundation has pointed out that the administrative and enforcement costs of collecting the penalty would be enormous. The IRS relies largely on voluntary compliance backed up by a slow and cumbersome legal process to collect taxes, and it does not require those with very small amounts of income to file. Even so, as noted above, millions of Americans cheat or fail to file.

Collecting a penalty for failure to insure would be much more difficult. “The [Internal Revenue Service] is simply incapable of going to millions of households, many of modest means, and collecting significant penalties at the end of the year,” Steuerle warns. Many of those who fail to comply with the mandate indeed will be low-income Americans. Of those without health insurance today, nearly one-quarter have household incomes of less than $25,000 per year. These individuals will almost certainly lack the resources to pay any penalty, particularly a lump-sum penalty assessed at year’s end.

While implementation of an individual mandate creates a number of practical difficulties, an even more significant issue is that it represents the fast in a series of dominoes that inevitably will lead to greater government control of the health care system. An individual mandate would be an unprecedented expansion of government power and intrusion into the lives of every American. While it is unlikely to achieve the desired goal of universal coverage, it sets the stage for increased regulation of the health cam system in a way that ultimately will harm health cam consumers.

Perhaps one of the most contentious issues in health care reform is whether the government should establish a government-run health care plan, similar to Medicare, which would compete with private insurance. The inclusion of such a government-run plan has become a line in the sand for many liberal health care reformers, especially those who actually would prefer a single-payer system. What exactly such a “public option” would be remains unsettled. Some proponents envision an expansion of the current Medicare program to those younger than 65.

Others argue that an entirely new government program should be created, while still others would allow a buy-in to the Federal Employee Health Benefit Program. The program might be administered directly by the government, or claims management and other functions might be bid out to private insurers on a contractual basis. Regardless of how it was structured or administered, such a government-run plan would have an inherent advantage in the marketplace became it ultimately would be subsidized by American taxpayers.

The government plan could, for instance, keep its premiums artificially low or offer extra benefits since it can turn to the U. S. Treasury to cover any shortfalls. Consumers naturally would be attracted to the lower-cost, higher-benefit government program, which would undercut the private market A government program also would have an advantage since its enormous market presence would allow it to impose much lower reimbursement rates on doctors and hospitals.

Government plans such as Medicare and Medicaid traditionally reimburse providers at rates considerably below those of private insurance. Providers recoup the lost income by shifting costs onto those with private insurance. Indeed, it is estimated that privately insured patients pay $89,000,000,000 annually in additional insurance costs because of cost-shifting from government programs. If one assumes that the new public option would have similar reimbursement policies, it would result in additional cost-shifting as much as $36,400,000,000 annually.

Such cost-shifting would force insurers to raise their premiums, making them even less competitive with the taxpayer-subsidized public plan. The result would be a death spiral for private insurance. From private to public Medicaid provides a useful example of how public programs “crowd our” private coverage. As income eligibility levels for Medicaid are raised, many of the newly eligible already am covered by employer-provided or individually purchased insurance. Many of these individuals shift from the private to the public systems.

In fact, a Robert Wood Johnson Foundation survey of 22 studies of the relationship between government insurance programs and private coverage concluded that substitution of government for private coverage “seems inevitable. ” The Congressional Budget Office estimates that between one-third and one-half of children who were added to the State Children’s Health Insurance Program under its recent expansion already were covered by private health insurance. Companies, in particular, would have an incentive to try to shift workers into the public market.

Even with an employer mandate in place, companies could do so by maximizing employee contributions or moving to plans that restrict employee options–and, if, as the Obama Administration has discussed, limits are placed on the deductibility of employer-provided health insurance, there will be an even greater incentive for companies to dump workers into the public plan. That means tens of millions of workers who would rather stay with their current job-based plan no longer would have that as a choice. They effectively would be forced into the government plan.

The actuarial firm Lewin Associates estimates that, depending on how premiums, benefits, reimbursement rates, and subsidies were structured, as many as 118,500,000 people would shift from private to public coverage. That would mean a nearly 60% reduction in the number of Americans with private insurance. Moreover, how long could a Congress that is busy bailing out banks and automobile companies because they are “too big to fail” resist subsidizing the government’s insurance plan if it began to lose money? Could a Congress that has been unable to control the unsustainable cost of Medicare set and keep premiums at market levels?

It seems unlikely. Whatever roles the public plan started with, they soon would be changed to ensure its advantage over private insurance. Indeed, to gauge the attitude that public option supporters have toward private sector competition, we need look no further than Medicare Advantage. Democrats have raged against competition from those private plans, and Pres. Obama even has suggested eliminating Medicare Advantage outright. Most congressional Democrats also strongly opposed the inclusion of private insurance plans under the Medicare prescription drag benefit.

Given that many of the most outspoken advocates of the “public option” have, in the past, supported a government-run single-payer system, it is reasonable to assume that they support a public option precisely because it would squeeze out private insurance and eventually lead to a government-run single-payer system. Pres. Obama himself has said that if he were designing a health care system from scratch, his preference would be for a single-payer system “managed like Canada’s. ” He also has suggested that, while he has proposed a less radical approach, “it may be that we end up transitioning to such a system.

” Buried in the giant 1. 3 trillion-dollar stimulus bill was a provision authorizing $1,100,-000,000 for the Federal Agency for Healthcare Research and Quality. to conduct a “comparative-effectiveness research program. ” The bill also created a Federal Coordinating Council for Comparative Effectiveness Research to coordinate comparative-effectiveness research throughout various Federal departments and agencies. These provisions, seemingly inconsequential in themselves, represent the first building blocks in what almost is certain to be a key component of any comprehensive health cam reform proposal.

Many health cam reform advocates believe that much of U. S. health cam spending is wasteful or unnecessary. Certainly it is impossible to draw any sort of direct correlation between the amount of health care spending and outcomes. In fact, by some estimates, as much as 30% of all U. S. health spending produces no discernable value.

Medicare spending, for instance, varies wildly from region to region, without any evidence that the variation is reflected in the health of patients or procedural outcomes. The CBO suggests that we could save as much as $700,-000,000,000 annually if we could avoid treatments that do not result in the best outcomes.

It makes sense, therefore, to test and develop information on the effectiveness of various treatments and technology, but there are a number of problems with having the government undertake this research. First, “quality” and “value” are not unidimensional terms. In fact, such concepts are highly idiosyncratic with every individual having different ideas of what quality and value mean to them, based on such things as a person’s pain tolerance, lifestyle, feelings about hospitalization, desire to return to work, and so forth.

For example, a surgeon may tell you that the only way to ensure a cure for prostate cancer is a radical prostectomy, but that procedure’s side effects can impact quality of life severely–so some people prefer a procedure with a lower survival rate but fewer side effects. Who is better suited to determine which of those procedures represents quality and value, a government board or the person directly affected? Second, comparative-effectiveness research too often has a tendency to gear its results toward the average patient.

Yet, many patients are outliers, whose response to any particular treatment, for either good or ill, can vary significantly from the average. This matters little when the research simply is informative. However, if the research becomes the basis for more prescriptive requirements, for example, prohibiting reimbursements for some types of treatment, the impact on patient outliers could be severe. Third, comparative-effectiveness research can create a time lag for the in introduction of new technologies, drugs, and procedures.

The Food and Drug Administration, for example, already has caused delays m introducing drugs, which have resulted in unnecessary deaths. Depending on how the final program is structured, comparative-effectiveness research could create another layer of bureaucracy and testing between the development of a new drag and its introduction into the health care system. One only has to look at the difficulty in expanding Medicaid drug formularies to see how this could become a problem.

Finally, and perhaps most importantly there is the question of whether quality or value includes consideration of the relative cost of a treatment. There is reason to believe that that sort of cost-benefit analysis is exactly what some advocates of comparative-effectiveness research and practice guidelines support. After all, if a less expensive treatment provided the same results as a more expensive one, shouldn’t doctors–and consumers–know about it?

However a much more serious question arises when the question of cost-effectiveness bumps up against moral or value-based questions, when the positive nature of science and the normative nature of value and political systems are mixed. For instance, should there be a presumption that saving the life of a person in danger of dying automatically takes precedence over improving the quality of life for someone whose life is not in immediate danger? What about immediately saving a real life versus saving some number of hypothetical future lives?

To put it more practically–and bluntly–what is the value of performing an expensive procedure such as, say, hip-replacement surgery on an elderly patient who might only survive for a few more years anyway? Should we use extraordinary means to extend the life of a cancer patient by a few months? Such questions are, by definition, values-based, and cannot be answered through the scientific process. As John Kraemer and Lawrence Gostin of Georgetown.

University wrote in a recent issue of the Journal of the American Medical Association, when people say that the cost of treating a condition is too expensive and therefore should not be used, they actually are making three separate assertions based on a mix of scientific and values-based claims: the cost of treatment equals a certain amount (a positive or scientific claim); treatments costing more than a certain amount are not cost-effective (both a positive claim and a normative or values-based claim); and cost-effectiveness should be the basis for allocating health care resources (a normative claim). Government impositions.

This inevitably leads to the question of whether comparative-effectiveness research will be used simply to provide information, or whether it will be used to impose a government-dictated way to practice medicine. For those seeking to use comparative-effectiveness research as a means to reduce overall health care spending, there is a good reason for making the use of such information the basis for mandatory practice guidelines.

As the CBO notes, “To affect medical treatment and reduce health care spending in a meaningful way, the results of comparative-effectiveness analyses would not only have to be persuasive but also would have to be used in ways that changed the behavior of doctors, other health professionals, and patients. ” America’s Health Insurance Plans estimates that, if implemented on a purely voluntary basis, comparative-effectiveness research would produce a savings of only 0. 3% in national health expenditures over 10 years.

The CBO estimates that the voluntary implementation of comparative-effectiveness research would reduce Federal health spending by a mere “one one-hundredth of one percent” over the next 10 years. Therefore, if there is to be any significant cost savings, the results of the research would have to be imposed on a mandatory basis in a way that proscribes treatments deemed not cost-effective. Logically, the restrictions would start with government programs such as Medicare and Medicaid.

However, it is noteworthy that Sen. Daschle has suggested that Congress should “link the tax exclusion for health insurance to insurance that complies with [comparative-effectiveness] recommendations. ” It seems unlikely that most Americans are willing to accept the idea that government should make decisions about what types of treatments their doctor can provide–and even if such rationing were desirable, there is no evidence that the government would be able to make those decisions on a scientific basis.

A government body deciding on the comparative-effectiveness or cost-effectiveness of medical treatments inevitably will base its decisions as much on politics as on science. As Reinhardt warns, government comparative-effectiveness research would be “vulnerable to lobbying by interest groups, because one or a few members of Congress could easily imperil [the research agency’s] existence through the appropriations process.

” At the Federal level, agencies like the Council on Health Technology, Agency for Health Care Policy and Research, and the Agency for Health Care Research and Quality have had their funding cut when their research conflicted with the desires of powerful interest groups. The government even interferes with private sector attempts to make comparative-effectiveness decisions when those decisions impact powerful interest groups or voting blocks.

For example, the Connecticut attorney general has attacked the Infectious Disease Society of America for recommending against the use of long-term antibiotics to treat chronic Lyme disease. Although IDSA based its nonbinding recommendation on overwhelming scientific evidence, the International Lyme and Associated Diseases Society, a well-connected and media-savvy advocacy group for those with Lyme disease, protested by taking its case to the Connecticut political establishment.

As a result, Connecticut Attorney General Richard Blumenthal sued IDSA under the state’s anti-trust laws. Already, special-interest groups are maneuvering to influence the outcome of comparative-effectiveness research. To cite just one example, the Partnership to Improve Patient Care is funded by groups such as Easter Seals, Friends of Cancer Research, the Alliance for Aging Research, the Advanced Medical Technology Association, and the pharmaceutical and biotech industry lobbies.

It seeks to “refocus” the comparative-research debate to ensure that its members’ interests are protected. To argue against government involvement in comparative-effectiveness research is not to argue against comparative-effectiveness research. Private sector research is occurring and should continue. Providers should make greater use of the information provided by such research, but government-directed research is unlikely to be effective, and it poses a distinct threat that it will evolve into government-imposed rationing of care.

In fact, it is liable to yield the worst of all possible worlds–not only rationing, but rationing that is based on special-interest lobbying rather than science. It almost seems a certainty that any health insurance reform plan to emerge from Congress will contain a host of new insurance regulations. Among the likeliest is a requirement that insurers accept all applicants regardless of their health (guaranteed issue), and a stipulation that forbids insurers from basing premiums on risk factors such as health or age (community rating).

The regulations would be an attempt to deal with the problem of preexisting conditions. That is, people today who are uninsured, and who are suffering from expensive medical conditions, have great difficulty finding affordable health insurance, if they can get coverage at all. Congress, therefore, seeks to prohibit the practice of excluding people with preexisting conditions or charging them more money. Most big insurance companies, more concerned with other threats, seem willing to go along, especially if such a requirement were combined with an individual mandate.

Nonetheless, imposing community rating and guaranteed issue would create far more problems than it would solve. As the CBO has noted, community rating and guaranteed issue make it more likely that people will choose to go without health insurance. For example, in the year after New York imposed community rating in 1993, an estimated 500,000 people cancelled their insurance. This happens because community rating raises premiums for young and healthy individuals, whereas both community rating and guaranteed issue reduce or eliminate the penalty for waiting to purchase insurance until a person is older or sicker.

As a result, the young and healthy make the very logical choice to forgo health insurance, assuming that they can always purchase insurance later when they need it. It is as if you could buy retroactive auto insurance after you have had an accident. As the healthy leave the insurance pool, the proportion of sick in the pool grows ever greater leading to higher premiums, which, in turn, cause the healthiest remaining individuals to leave in what amounts to an insurance death spiral.

Of course, an individual mandate theoretically will prevent the young and healthy from dropping out of the insurance market. On the other hand, combining community rating-guaranteed issue with a mandate will force young healthy individuals to purchase insurance with much higher premiums than otherwise would be the case. In addition, by prohibiting insurers from pricing care on the basis of risk, the community rating-guaranteed issue creates an incentive to overprovide care for the healthy, while underproviding it to the sick.

That is because under community rating, insurance premiums are based not on the expected cost of caring for a specific individual, but on the average cost of care for all patients. Because of the way health care costs are distributed, most of the insured under that plan will have actual costs that are lower than their premiums, while a few will have costs in excess of their premiums, and some far in excess. (About five percent of the populatio.

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