Compassionate, Efficient, Health
Reform
Introduction
One can hardly say that there’s been too little discussion
of health reform recently. However, much of the discussion is focused on the
ACA and its details. That’s fine, but we’ve gotten very far away from thinking
about overarching principles that we think should guide the design of a health
system, and what that implies for what it would look like.[1]
What follows are some thoughts on what such a health reform might look like. They
are informed by my read of the research evidence, and my observations of the
U.S. health care system over a long period of time, but should be understood as
representing only my personal opinions.
This is not intended as a criticism of the ACA. While the
ACA certainly isn’t perfect, in my opinion we’re better off as a country with
it than without it. However, there will be modifications to the ACA and other
changes to the health system as we move forward, so having a framework to
structure our thinking will be useful as we consider these inevitable changes.
Guiding Principles
What I propose below is guided by the following. First,
economic efficiency is a goal. This simply means avoiding waste, i.e, trying to
generate the maximum benefits net of costs. The second goal is that no American
is exposed to excessive risk to their health or finances due to medical
expenses. Last, the overarching design principle is to create basic ground
rules for the system and then let the system run, avoiding heavy handed
regulation or micro management. The key objective of these ground rules is to
give participants the right incentives insofar as possible, while achieving
insurance objectives. With that in mind, compassionate, efficient health reform
would do the following.
Health Insurance
Reform
·
First, eliminate the tax exclusion of
employer sponsored health insurance. The exclusion of employer sponsored
health insurance from income taxation distorts the demand for insurance. This
leads to people with employer sponsored health insurance holding excessive
coverage, which drives up medical spending and thus insurance premiums.
Ironically, not taxing health insurance ends up making both health care and
health insurance less affordable. Eliminating the tax exclusion of employer
sponsored health insurance will eliminate a major distortion in health
insurance, health care, and labor markets. It can generate substantial tax
revenues (it’s estimated that the value of the state and federal income tax
exclusion for 2009 was $260 billion[2]),
while potentially allowing for lower income tax rates. It’s also worth pointing
out that the subsidy is biggest for those who face the highest marginal tax
rates, i.e., it’s regressive.
· Second,
automatically enroll every U.S. citizen in a standard, basic health
insurance plan. Everyone will be enrolled – there will be universal
coverage. Individuals will be randomly assigned to insurance companies, who
will be required to cover them. Individuals can opt out of this initial
assignment into a different plan, so long as that plan offers at least the
standard, basic coverage (it can be more generous, but not less).
· Third, the
plan will provide protection against medical expenses that are catastrophic for
the individual or household, given their finances. The function of the plan
is to provide insurance against large expenses associated with treating
episodes of ill health. It will therefore have a high deductible, and fairly
high coinsurance or co-pays, but will have a stop-loss to prevent financial
ruin. Preventive care that’s been shown to be effective can be “carved out” and
have lower cost-sharing. Cost-sharing features will be on a sliding scale
according to income, so individuals only face risk that they can reasonably
bear. Low-income individuals will have lower deductibles, coinsurance or
co-pays and stop-losses than will high-income individuals. In addition, premiums
will be subsidized on a sliding scale according to income, so insurance is
affordable for everyone. Insurer premiums will be risk-adjusted, and there will
be a high-risk pool. No denials of coverage or coverage rescissions will be
allowed. Under this plan ultimately Medicare and Medicaid will be phased out so
that everyone will obtain coverage as indicated above.
Financing
·
The government subsidies for insurance coverage above
will be entirely financed via a dedicated consumption (sales or value added)
tax, e.g., a la Fuchs and Shoven[3],
with as few loopholes as possible. All government funding must only be from
this source – no other sources of revenues may be applied. This way the cost
and financing of government spending on health care will be as clear and
transparent as possible. All other funds will be privately financed.
Supply Side Reform
The main goal of reforms here is enable competition, and to
eliminate barriers to entry to providing health services. Lack of competition
leads to poor service, poor quality, and high prices, and impedes innovation
(especially organizational innovation).[4]
·
First,
strongly enforce the antitrust laws in health care. There has been a great
deal of consolidation in health care markets in recent years, especially in
hospital and insurance markets, but also in physician markets and between the
different kinds of market participants (e.g., insurers-hospitals,
hospitals-physicians, etc.). Consolidation has resulted if few, if any
documented benefits, and has harmed competition and led to increased prices,
reduced quality, and impeded the emergence of new, innovative forms of health
care delivery. Antitrust enforcement
can help solve problems in specific markets. It can also have a deterrent
effect on those considering anticompetitive actions.
·
Second,
ease barriers on new forms of health care organizations entering the market,
such as retail clinics, freestanding surgery centers, specialty hospitals,
telemedicine, etc. In contrast with much of the rest of the U.S. economy,
the health care industry has been rigid and unresponsive. New organizational
forms that are responsive to patients’ needs are long overdue.
·
Third, free
up entry into the medical profession. Twice as many people apply to medical
school as get accepted, and this has been true for many years. Quite a few more
applicants can be accepted without diminishing the quality of medical students.
Therefore, artificial barriers to creating new medical schools or expanding the
number of slots in existing medical schools need to be eliminated. There has
been some recent progress in this domain.[5]
·
Fourth, free
up entry into specialties. Specialty societies have a great deal of
influence on residency training. This creates crazy distortions such as
dermatology being the hardest specialty to enter, while primary care
specialties have excess training capacity. Artificial barriers to entry into
residency training programs should be eliminated.
·
Fifth, reduce
or eliminate public subsidies to medical education. These only add to the
crazy quilt of distortions in this area. With twice as many applicants as
accepted students, there is clearly excess demand for medical education. Public
subsidies are not only unnecessary, they overwhelmingly go to children from
upper middle class or upper class families. Certainly medical training should
receive no more in subsidies than training in science or engineering.
·
Sixth, allow
non-physician medical personnel, such as nurses, nurse practitioners,
psychologists, pharmacists, etc. much greater freedom to treat patients
independent of physicians. Nurse practitioners and pharmacists (for
example) are highly trained medical professionals who can do more than they are
currently allowed due to restrictions on scope of practice in many states. Not
only can these practitioners substitute for physicians in some cases, they can
complement them and thereby enhance productivity.
·
Seventh,
regulate health insurers nationally, rather than on a state-by-state basis. Insurers
currently must operate separate risk pools in every state in which they operate
and are regulated differently in every state. This is clearly inefficient.
Insurers should be allowed to pool risk nationally and should face one set of nationally
agreed upon rules and regulations. This will require a national regulatory body
to replace state regulatory agencies.
Conclusion
These ground rules are intended to provide a general
framework for the health care system. They are deliberately intended to be
general, not specific, in particular so there are incentives for innovative and
efficient new arrangements and so such arrangements can spontaneously emerge. While
I believe these are sensible changes that would move our health care system in the
right direction, there are and will be alternative proposals that are worthy of
consideration as paths towards a more efficient, compassionate health care
system.
[1] There have been some
excellent discussions at a high level, some of which overlap with what I
propose here. E.g., Antos, J. Pauly, M.V. and G. Wilensky. (2012) “Bending the
Cost Curve through Market-Based Incentives.” New England Journal of Medicine.
367(10): 954-958. http://www.nejm.org/doi/full/10.1056/NEJMsb1207996;
Emanuel, E. et al. (2012) “A Systemic Approach to Containing Health Care
Spending.” New England Journal of Medicine. 367(10): 949-954. http://www.nejm.org/doi/full/10.1056/NEJMsb120590;
Kotlikoff, L. “The Healthcare Fix: Universal Insurance for All Americans.” (2007)
Cambridge, MA: MIT Press; Goldhill, D. “The Health Benefits that Cut Your Pay.”
New York Times,February 16, 2013. http://www.nytimes.com/2013/02/17/opinion/sunday/the-health-benefits-that-cut-your-pay.html;
Christensen, C., Flier, J. and Vijayaraghavan, V. “The Coming Failure of
Accountable Care.” The Wall Street Journal, February 18, 2013; Bhattacharya,
J., Chandra, A., Chernew, M., Goldman, D., Jena, A., Lakdawalla, D., Malani,
A., and T. Philipson (2013). “Best of Both Worlds: Uniting Universal Coverage
and Personal Choice in Health Care,” Washington, DC: American Enterprise
Institute, http://www.aei.org/files/2013/08/02/-best-of-both-worlds-uniting-universal-coverage-and-personal-choice-in-health-care_105214167938.pdf.
[2] Gruber, J. (2010) The Tax
Exclusion for Employer-Sponsored Health Insurance,” National Bureau of Economic
Research, Working Paper 15766, http://www.nber.org/papers/w15766.
[3] Fuchs, V.R. and J.B.
Shoven (2010). “The Dedicated VAT Solution, SIEPR Policy Brief, http://siepr.stanford.edu/www.stanford.edu/group/siepr/cgi-bin/siepr/?q=system/files/shared/pubs/papers/briefs/PolicyBrief08_2010v2.pdf.
[4] E.g., Gaynor, M. and Town,
R.J. (2012). “The Impact of Hospital Consolidation – Update,” The Synthesis
Project, Policy Brief No. 9, Princeton, NJ: The Robert Wood Johnson Foundation,
http://www.rwjf.org/content/dam/farm/reports/issue_briefs/2012/rwjf73261;
Richman, B.D., Mitchell, W. and Schulman, K.A. (2013). “Organizational
Innovation in Health Care,” Health
Management, Policy and Innovation, 1(3): 36-44, http://www.hmpi.org/pdf/HMPI%20-%20Richman,%20Mitchell,%20Schulman,%20Organizational%20Innovation%20in%20Healthcare.pdf
