President George W. Bush and the 107th Congress
inherited a problem from their predecessors that they will be
unable to ignore: how to fix America's troubled health care system
so that every American gains access to quality health insurance
coverage. Today, an estimated 42 million people go without
insurance coverage at some point during the year, and experts
predict that--without policy changes and reforms in today's
employment-based system of coverage--this number will continue to
rise.
Surprisingly, policymakers have one
advantage in finding a solution soon: Fixing America's health care
system is not a partisan concern. A number of bills introduced in
the 106th Congress by Members of both parties sought to improve
health insurance for all Americans. To the extent that those bills
merely build on the current system, however, they are unlikely to
succeed. If legislators and policymakers want to greatly expand
access to health insurance and drastically reduce the number of
Americans who go without private coverage, they must begin to think
"outside the box."
The
current system--a product of the World War II era--is badly
fraying. It needs an injection of innovation to stimulate market
forces like choice, flexibility, and accountability that will lift
the quality of care and the availability of coverage. Such
solutions must, therefore, be rooted in these principles:
-
Tax Fairness. Rather than relying
on today's tax-biased system that ties coverage to employers,
policymakers should make fully refundable, pre-payable tax credits
also available so that all Americans have access to health
coverage.
-
Market Expansion. Rather than
limiting people to the plan(s) their employers select, policymakers
should stimulate the market by amending current law to allow
alternative pooling arrangements, permitting people to buy coverage
from groups with which they associate and identify, such as trade
associations, church groups, and fraternal organizations.
-
Deregulation of Medical Savings
Accounts. Rather than crippling medical savings accounts (MSAs)
with statutory and regulatory restrictions, policymakers should
find ways to lift the cap on MSAs and enable more Americans to use
them to purchase the health care they need.
-
Personal Choice. Rather than
relying on defined benefits, policymakers should craft a system
based on tax credits and defined contributions to increase consumer
choice in the health market. They also should reduce the regulatory
burdens imposed on consumers that limit their ability to buy health
insurance. Such a system would allow consumers to choose a plan
that fits their needs in the same way they buy auto, homeowners,
and life insurance.
- New Rules of the Game. Rather than
perpetuating a health insurance market that is a complex maze of
federal and state regulations, with confusing overlap and
duplication that drives up health care costs, Congress should
examine the feasibility of creating a new federal charter that sets
limited solvency requirements and underwriting standards for the
industry without encroaching on the ability of insurers to create
benefit packages or of consumers to buy the plans of their
choice.
For
a variety of reasons, increasing numbers of Americans must go
without coverage or try to buy coverage independent of their
employment. This trend will persist, largely because of changes in
the dynamic information-driven economy that puts a premium on
mobility. But it will accelerate if the economy enters a recession
and employers are forced to drop coverage, or if Congress passes
so-called patients' rights legislation that imposes a new level of
detailed regulation and mandates on the market, raising costs and
expanding liability for employers.
Washington should restore some semblance
of equity to the tax code so that lower-income workers receive the
same tax treatment higher-income workers now enjoy. Providing
resources alone, however, will not be enough. Congress must pave
the regulatory way in order to empower individuals, families, and
groups other than employers to make health care decisions and
purchase insurance that fits their needs. Congress will also need
to amend the Employee Retirement Income Security Act of 1974
(ERISA) to create another
category of health plans called "association health plans."
Policymakers who want to make sound improvements in the current
system should adopt a blueprint for reform that includes changes
that reflect both an understanding of the root causes of
uninsurance and an appreciation of market forces that increase
accessibility, coverage, and choice of health coverage.
THE GROWING PROBLEM OF THE UNINSURED
According to the U.S. Bureau of the
Census, 42.6 million Americans under the age of 65 had no health
insurance at some point during 1999. There is some
disagreement as to the exact size of this population of uninsured,
but virtually all experts forecast that the number will rise in the
coming years.
In a
recent study conducted for the Health Insurance Association of
America (HIAA), for example, William S. Custer and Pat Ketsche of
the Center for Risk Management and Insurance Research at Georgia
State University estimated that the number of uninsured will rise
to 48 million by 2009. Assuming rapid economic growth combined with
rapid health care cost inflation, that number could reach 55
million by 2009. In the event of a recession, 61 million Americans
could be without coverage at the end of this decade.
Estimates differ, but other major studies
also point generally to a rising number of uninsured. For example,
the National Coalition on Health Care estimated in May 1999 that
the number of uninsured Americans could climb to 61.4 million by
2009, while the
Virginia-based Lewin Group, a leading econometrics consulting firm,
projected in June 1999 that the number of uninsured would reach 54
million by 2007.
Rising Costs
The reason for the high number of uninsured and the projected
increase in the number of uninsured is, quite simply, ever-higher
costs. As health insurance becomes more expensive, fewer employers
are willing and able to provide coverage for their employees.
Indeed, "cost" was cited by small employers as the number one
reason they do not offer coverage to their employees.
Small businesses (with one to 49
employees) account for 94.7 percent of all businesses in the United
States and employ 41.5 percent of the workforce. In 1999, 40 percent
of these businesses did not offer health insurance coverage to
their employees. As premium costs
continue to rise well beyond the rate of inflation, more
Americans--and particularly those who work for small
businesses--will become uninsured. A summer 2000 survey of 500
employers with fewer than 150 employees found that 11 percent said
they would no longer offer health insurance if premiums rose 5
percent to 9 percent in the coming year. A recent analysis
performed by C. T. Hellmuth and Associates, based on an examination
of 2,000 health plans in 139 markets across the United States,
projects average premium increases of 10 percent to 13 percent in
2001. Research conducted
by the actuarial firm of Milliman & Robertson has led to
similar predictions.
Continued rising costs are driven by many
factors, but most especially by:
In a
third-party payer system, an insurance company (or any payer who is
not the patient, such as the government, an employer, or an
insurance company) covers most of the cost of medical services.
This is the prevailing payment system in America. Such a structure
encourages inefficient use of health care services by patients,
because they are shielded from the true costs of those services. If
an insurer will pay for 10 physical therapy sessions that include a
nice massage, it is small wonder that patients will go for all 10
sessions, even if they are significantly healed after five or
seven. The cost of this excess use must necessarily be spread out
among everyone in that insurance plan.
The
tendency to over-consume services in the third-party payer system
was confirmed in a large social science study conducted by the RAND
Corporation from 1974 to 1982. RAND studied the medical spending
habits of 2,757 families (a total of 7,703 persons) in six U.S.
cities. The families were placed in four different insurance plans,
the most generous covering all medical expenses. The least generous
required 95 percent co-insurance up to a $1,000 maximum. The RAND
researchers concluded from the findings that:
The
other major driver of costs is the number of mandates placed on
health insurers--a particular coverage benefit that either state or
federal law requires them to include in plans. Examples of common
mandates include forcing insurers to offer coverage for
chiropractic services, in vitro fertilization, mental health
parity, and treatment for drug and alcohol abuse.
Mandates represent nothing more than
politicians compelling employers and health care consumers to
purchase particular benefits. If the same mindset were applied to
the construction of new homes, it would be like lawmakers mandating
that all houses be built with 12-foot ceilings and a swimming pool.
Of course, not everyone can afford such features, and more
important, not everyone wants them.
A
typical mandate dispute concerns the length of hospital stay for
mothers and newborns after delivery. Some states recently have
mandated that all plans guarantee a 48-hour hospital stay, even
though a 48-hour stay is not necessary in all cases and providing
it to everyone when it is sometimes not needed raises costs for
everyone. In 1980, the average length of stay in the hospital for
American mothers and their newborns was three days. If the 1980
average of three days were mandated back in 1980, any attempt to
reduce or eliminate it today would meet intense opposition from
hospitals specializing in maternity care. Yet a general
decline in the length of hospital stay after childbirth has been
occurring in all 29 countries of the Organisation for Economic
Co-operation and Development (see Chart 1).