Two new plans for covering the uninsured take divergent routes

Editor’s note: There is no shortage of proposals from experts on ways to expand coverage to the uninsured. Some say the problem is a shortage of political will and/or moral imperative. Others say the stall is related to a failure to gain a legislative consensus for any one plan. Two proposals that are attracting considerable attention — and it is hoped, one or both will gain political support — share some techniques but also move in very different directions. This month, State Health Watch profiles the Plan for a Healthy America and A New Deal for Health.

Plan for a Healthy America

The Plan for a Healthy America was developed by Jeanne Lambrew, senior fellow at the Center for American Progress and an assistant professor at George Washington University School of Public Health; John Podesta, Center for American Progress president and CEO; and Teresa Shaw, Center associate director of domestic policy.

The three said their plan would insure all Americans while improving the value and cost-effectiveness of health care by pulling together employer-sponsored insurance and Medicaid; promoting prevention, research, and information technology; and financing its needed investments through a new dedicated national value-added tax.

As laid out in a Health Affairs web exclusive, the Plan for a Healthy America has three major parts: affordable coverage for all, improving the value of coverage, and financing the investment.

Affordable coverage for all

Instead of creating a new health care system as some have proposed, this plan builds on two major existing sources of coverage — employer-based coverage and Medicaid, which together cover about 75% of Americans.

Ms. Lambrew and her colleagues would supplement the employer coverage with a system modeled on the Federal Employees Health Benefits Program (FEHBP) for those who lack private group insurance options. Medicaid, they said, would be simplified and strengthened to fulfill its role as a safety net for low-income people.

All those who lack job-based insurance would have access to the same private health plans offered to more than 8 million federal employees through FEHBP.

“The Plan for a Healthy America would build on this system,” the researchers wrote. “Private insurers offering coverage through the FEHBP would also offer group coverage through a new Healthy America national insurance pool. The pool would be open to anyone who lacks access to job-based insurance, a problem for about 80% of all uninsured people. The plan would also help the 6% of nonelderly Americans who purchase coverage in the individual market today.”

Employers also could have access to the Healthy America insurance pool, but none would be required to join it. Access to the pool is expected to be attractive to those employers, especially small businesses that want to streamline their efforts to provide a choice of health plans.

Employers could participate only if they enrolled all their workers, and not just the sicker ones. Individuals offered coverage through an employer would be free to decline the coverage and enroll in a pool plan instead. Reinsurance would be used to prevent unexpectedly high premiums resulting from enrollment of high-cost individuals.

To keep coverage affordable, the plan would ensure that no one pays more than a certain percentage of income (perhaps 5% to 7.5%) on health insurance premiums.

This protection would function as a refundable tax credit and would apply to employer-based insurance as well as private coverage obtained through the pool. Employer contributions would continue to be excluded from employees’ taxable income, whether employers retain their existing benefit plans or opted to join the pool. As a result, the authors said, employers’ voluntary contributions toward the cost of health benefits likely would not change substantially.

The plan would simplify and extend Medicaid to cover all below a certain income level and would increase the share of program costs paid for by the federal government so the state share would not increase.

“It is not enough to expand access to the current system,” Ms. Lambrew and her co-authors said. “Americans must also secure better value for their health care dollar through improvements in health care quality, outcomes, and efficiency.” The Plan for a Healthy America includes three key value improvements that the authors said would produce large returns on investment:

1. Creating a national focus on disease prevention and health promotion. Coverage for preventive services would be carved out of private health insurance and financed through a new nationwide preventive benefit. Covered core preventive services would be based on recommendations from the U.S. Preventive Services Task Force and other evidence-based guidelines. Physicians and other providers would continue to deliver preventive and other medical services as they do today, but they would be reimbursed for preventive services through the new benefit. The reimbursement would be based in part on their success at improving community-based health promotion and disease prevention measures. There also would be an aggressive community-based system to complement existing services through consolidated health promotion and prevention activities.

2. Developing better information on what is high-quality, high-value care. There would be increased funding for research on comparative effectiveness with strong conflict-of-interest protections to ensure the research’s credibility is beyond reproach.

3. Improving health care productivity through information technology. The authors said the U.S. health system is in the information “dark ages” and cutting-edge information technology, structured to safeguard patient privacy, has the potential to dramatically improve health care quality.

Financing the investment

Based on estimates for comparable plans, the authors said the Plan for a Healthy America would cost $100 billion to $160 billion per year.

Even though they anticipate long-run savings from reduced uncompensated care, better health, and improved efficiency, they have quantified those savings to present a fiscally conservative picture.

They say the level of funding needed cannot be achieved through health system efficiencies alone and also cannot be accomplished by redirecting existing public revenue toward health care.

“Because the plan’s health investment benefits all, we think it should be funded by all through a new, dedicated source,” the authors said.

“We proposed a small value-added tax [VAT] — a tax on the value of a good or service added in its various stages of production — effectively the difference between what a business sells and what it buys from other businesses. . . . A broad-based VAT in the range of 3%to 4% with targeted exemptions [for example, exempting small businesses, food, education, religion, or health care] would be sufficient to support the plan’s investment,” they continued.

The authors noted that the United States and Australia are the only major economies without a VAT. Revenue from this VAT would go to a trust fund and be restricted to exclusively financing the plan.

Making the plan a reality

The three researchers, who described themselves as veterans of previous policy battles, said they don’t underestimate the political challenge involved in making the U.S. health system accessible to all. Nor do they disagree that moral conviction has been lacking in past health policy debates.

“However,” they said, “we reject the claims that health reform is doomed by political paralysis and an incapacity for Americans to sacrifice for the greater good. At opportune points in U.S. history, pragmatic ideas have overcome seemingly impossible political odds and become policy. We also believe that the perceived disconnect between values and health reform reflects not a lack of conviction, but a failure to express that conviction in a policy environment.”

Ms. Lambrew said the three disagree with critics that the lack of health insurance is inevitable or a conundrum that defies solution.

They noted the problem has been eradicated in virtually all of the world’s leading countries, including many with considerably less wealth than the United States. This country already provides universal coverage to older Americans through Medicare. And public opinion research indicates that Americans want the same right to health care for their children and themselves, and they will make sacrifices to secure it.

“The challenge,” the authors said, “is to prove to policy-makers that the goal is both urgent and achievable — not an abstract ideal but a real and imminent possibility if anchored in vision, values, and a practical plan.”

The authors wrote that the part of the plan that is unavoidably controversial is its call for greater government involvement and investment in the nation’s health and health insurance system.

They said such involvement and investment is necessary because the risk and cost of health care must be spread across the population instead of being borne by individuals, small employers, and providers in the form of uncompensated care, as is the case today.

A New Deal for Health

A New Deal for Health is the plan proposed by Leif Wellington Haase through the Century Foundation. It proposes a new national health insurance system that is government-sponsored, but not government-run. Thus, the government would negotiate with private insurers, set minimum benefit packages for several levels of care, and make an annual contribution for each American toward purchase of a premium for a health care plan.

“This system would offer a basic and decent health care plan — a ‘floor’ — to all Americans while encouraging those who want more comprehensive coverage to join higher-end insurance plans,” Mr. Haase tells State Health Watch.

“The proposal tries to bring better-off Americans and the uninsured into the same insurance pools while retaining a strong element of consumer choice among health insurance plans. The expectation is that this approach will use the savings generated from lower administrative costs, higher participation levels, competition among health plans, and selective coverage of new technology to cover more services for more people, especially those previously without insurance,” he adds.

Under Mr. Haase’s proposal:

1. American families would be required to purchase their own health insurance, and government subsidies would be offered to make coverage affordable for everyone.

2. The existing federal tax subsidy for employer-based insurance would be phased out and the new revenues obtained from eliminating the subsidy would pay for a portion of the financing for the plan.

3. For every American household, the government would make a contribution to the purchase of a premium for a basic health insurance plan, with the level of support set to allow each household to enroll in a basic plan at a modest premium. Older Americans, the disabled, those with low incomes, and veterans would receive a larger subsidy to allow them to buy a midlevel plan.

4. Individuals would be required to purchase at least the basic level of coverage.

5. Medicaid would be phased out, along with all other government insurance plans based on categorical eligibility. Medicare would continue to function for current beneficiaries, but also would be phased out. Current Medicare beneficiaries would have the option of joining the new national health program.

6. Subject to federal approval, insurers would be allowed to offer different plan designs, such as restricted physician networks and copayments. At any level of coverage, insurers could offer a benefit package exceeding the federally mandated minimum.

7. An independent government board would be created to evaluate the cost-effectiveness of medical therapies and procedures, with a focus on assessing new technologies.

8. A large new investment in the public health system would be made to encourage Americans to practice healthier lifestyles. Each insurance program would have to offer generous coverage of preventive care, including vision and dental coverage.

9. Financing the plan would be done through a payroll tax, a dedicated corporate tax, general revenues, and the revenues from eliminating the employer-based tax subsidy.

Rationale for the approach

Mr. Haase says he has tried to appeal to all political segments. Thus, “liberals ought to like this plan’s universal coverage, insurance risk pooling, government sponsorship, and emphasis on public health.

“Conservatives ought to applaud the greater visibility of health care costs to consumers and the emphasis on choice and competition under this plan. Liberals will want much more equalized coverage, while conservatives will dislike this level of government involvement. But the true test is not whether this plan satisfies either ideological criteria or utopian dreams, but whether it would be superior to the existing system, workable in practice, better than the alternatives, and politically feasible,” he continues.

According to Mr. Haase, the flaws of the current U.S. health care system flow from its basis in employer-sponsored health insurance, which is unique among developed nations.

After tracing the history that led to our employer-based system, he finds that statistics suggest that it is collapsing in slow motion. He notes that 65% of companies with fewer than 200 employees offered health coverage at all in 2002, down from 68% the previous year. Less than half of firms with fewer than 20 employees offer any coverage at all.

While almost all large firms continue to offer health insurance coverage, increasing numbers of employees are unwilling or unable to participate in the plans because of rising premiums, increased cost-sharing, and eligibility restrictions.

In 2001, he says, almost 10 million uninsured Americans, more than 25% of the nation’s total uninsured, either worked for large companies or were dependents of those who did. Firms also are rapidly phasing out coverage for their retirees, putting an increasing strain on public programs.

Mr. Haase says that even if the job-based system could be salvaged, there are many structural reasons why it would be unwise to follow that course. First, the system discriminates against groups that are more likely to be unemployed or have tenuous connections to the labor market, such as young people and minorities.

Also, employer-based care distorts labor market decisions, forcing people to choose or stay with jobs because of the coverage. And since well-insured employees bear relatively little of the cost of their care directly, employer-based coverage contributes greatly to the overuse of medical care, as well as to the misunderstanding of the nature of insurance.

Flaws in the system could be forgiven, Mr. Haase says, if employers wanted to be in the health benefits business. But despite some perfunctory comments to the contrary, they do not.

“Employer coverage is not set in stone, though it may seem that way after having been in place for decades in the United States,” Mr. Haase writes. “Other than history and experience, there is no reason why the employer should be the basic sponsor of health coverage. But experience is overrated, and the arrangements on which the system has been constructed [the employer deduction and employee tax break] should not be sacrosanct.”

To keep medical costs under control, so that insurance premiums remain affordable, Mr. Haase proposes establishing an office to review the cost-effectiveness of medical procedures, therapies, and drugs. That agency would fix the basis for coverage decisions for different plan benefit levels, making the most promising treatments available to the largest number of Americans and distinguishing them from treatments that deserve lesser subsidies.

“Objections can and will be raised that basing coverage levels on determinations of cost-effectiveness amounts to rationing care and that this is unacceptable,” he says.

“What this overlooks is that the current system is based squarely on haphazard rationing. Leaving some 45 million Americans without insurance coverage is only the most obvious example, but rationing takes place in a thousand ways at the hands of doctors, hospital administrators, and insurers. The U.S. health care system resembles a lottery. Under the current regime, some will get care — mostly those who are sympathetic victims or who share an illness with a celebrity who has publicized it — but many will get substandard treatment or none at all.”

He says that with a basic universal plan in place, charging some Americans higher premiums for access to the most expensive and unproven procedures can be justified, much as we accept private education because the public school system exists. Requiring the purchase of at least a minimal level of insurance expresses the social contract element of the proposal — recognition that basic health care is a right for all and in everyone’s social interest, Mr. Haase explains.

He says the government premium contribution essentially could be financed through redirecting the payment streams currently paying for U.S. health care. He goes through some possible scenarios, while acknowledging that it is difficult to come up with firm figures at this stage in the planning process.

In arguing in favor of his approach, Mr. Haase points out why other recent proposals are unlikely either to result in a system that is as efficient or equitable as he believes his would be or to achieve political support:

• A plan based on employer mandates is unlikely to succeed because employers want to get out of the health benefits business.

• A single-payer plan would require restructuring the nation’s insurance industry, a prospect Mr. Haase finds “daunting,” and could squelch over time the medical innovation that is the principal advantage of the current system.

• Plans that propose tax credits and purchase of care by individuals are unlikely to be taken up by most Americans or to induce health plans to offer packages that are both affordable and comprehensive.

• Plans that rely on incremental expansion of public coverage such as Medicaid underestimate the vulnerability of such plans to changing fiscal circumstances.

• Reshaping the medical system by focusing on weeding out medical errors and bringing new standards of quality control to bear on hospitals and doctors cannot in and of itself provide a solution to the cost and access problems facing American health care.

Since publishing his proposal, Mr. Haase tells State Health Watch, he has heard from legislators in states such as New York and California more than from other stakeholders. “The idea is to get people thinking about alternatives,” he says, “and that takes time.”

While his proposal does not contain a recommended implementation strategy, he says it is clear that employers and governors are the ones who need to be catalysts for change. “My sense is that health care reform is no longer a ‘third rail’ of American politics,” he says. “But we’re not likely to get much political momentum before 2008.” He says big employers are “clearly fed up” with the current system, while small businesses are mixed. But they need to come together to be catalysts for change.

While some existing organizations, such as the Leapfrog Group, have done good work, they have not moved as fast as they would have liked, and Mr. Haase contends there may be a need for a new organization that could build a bridge between employers and policy-makers.

In calling for a radical restructuring of the system, Mr. Haase says it could come with a strong presidential commitment, especially since there clearly would need to be some type of transition period. Although Medicaid would end under his plan, he sees it remaining in force during a transition period. “It’s hard to move people out of programs they’re comfortable with,” he explains.

Asked what impact the Bush administration’s interest in Social Security reform might have on health care reform, Mr. Haase says looking at Social Security “correctly focuses attention on how big a problem health care is. It makes it more likely that in the medium term, there will be more action on this front.”

[Contact Ms. Lambrew by e-mail at jlambrew@gwu.edu. Contact Mr. Podesta and Ms. Shaw at (202) 682-1611, and Mr. Haase at (212) 452-7725.]