As surely as April showers bring May flowers, a robust national economy prompts lawmakers to conjure plans for universal health insurance. Sure enough, the Wall Street Journal reported recently that fourth quarter 2006 indicators were positive: GDP, consumer spending, productivity, new jobs, and exports were all up. Enter the universal coverage bandwagon. California’s Governor Arnold Schwarzenegger grabbed headlines with a plan to cover 6.5 million uninsured Californians via a 2% fee on physicians’ revenues, a 4% fee on hospitals, plus an employer tax. The Governator isn’t alone. Sages in Pennsylvania, Iowa, Kansas, Minnesota, New Mexico, and Washington, among others, have said that universal health care coverage for their states is attainable now.
Explore This IssueApril 2007
The Federal Role
Many argue that universal coverage needs federal intervention to succeed. President Bush has proposed addressing the country’s biggest distortion in health care spending, employer-sponsored health insurance. According to the Office of Management and Budget, such coverage cost the federal government $124 billion in 2004. This tax break dwarfs the home mortgage and state and local property tax deductions.
Because employer-provided health insurance is tax deductible to employers and tax-free to employees, economists have long argued that gold standard plans encourage employees’ excessive consumption of health care resources while disregarding cost. If you’re not paying for it, why not use all you can?
The Bush plan addresses this perverse incentive by taxing employer health benefits as income. Setting the bar low, families could deduct $15,000 and individuals $7500 for health insurance, regardless of their policy’s source, cost below $15,000, and their employment status. Benefits exceeding $15,000 would be taxed. CNN estimates that an average family would save $1410; the average self-insured person would save $3250.
Extending one or more of the federal government’s health care entitlements to the uninsured is another popular reform strategy. (See sidebar for federal entitlements’ salient features.)
Proponents of universal coverage often suggest extending Medicaid because federal money already covers at least one-half of a state’s Medicaid budget; or the Federal Employees Health Benefits Program (FEHBP), because of its wide plan choices and managed competition.
The State Children’s Health Insurance Program (SCHIP), passed by Congress in 1997, is intriguing because raising eligibility, as a multiple of federal poverty level (FPL), is a viable mechanism for expanding coverage. The federal government sets FPL at $20,650 for a family of four. Sixteen states cover children in families with incomes above 200% FPL. New York wants to expand the family income threshold to $82,600, and California to $61,950.
SCHIP appeals to lawmakers because the Center for Medicare and Medicaid Services (CMS) allows states to adjust eligibility requirements, change the benefits package, use managed care principles, and add cost controls. This flexibility matters during economic downturns. During budget squeezes states avoid cutting SCHIPs by raising premiums and copays, reducing outreach and marketing, tightening income verification, and closely managing care. In good times states expand SCHIPs by subsidizing employer coverage, raising upper income limits, covering prenatal care, and, through federal waivers, adding some adults.
Casting a Wider Net
Although SCHIP seems to make broadening access to health care possible, no less an authority than John Kitzhaber, MD, former Oregon governor and prime mover of the Oregon Health Plan (OHP), that state’s program to cover the uninsured, disputes such feasibility. I have come to believe that universal coverage by itself will not solve our health care crisis….Everyone over age 65 is already covered by Medicare, yet the result is an unfunded entitlement in excess of $65 trillion that casts a dark shadow over our nation’s fiscal future, said Dr. Kitzhaber on his Web site (www.archimedesmovement.org ).
In Oregon, initial talk about universal access brought fear that extending health coverage without controls would swamp the budget. Dr. Kitzhaber bravely forced public attention on cost control through rationing, a concept anathema to most Americans, who seem to want everything without having to pay for it. A protracted debate ensued. After heavy negotiations, OHP published a list of diagnoses and procedures; those above the line were paid for; those below the line were not covered.
Mark A. Richardson, MD, Chairman of the Otolaryngology Department of the Oregon Health and Sciences University School of Medicine, said OHP’s rationing successfully broadened access to care. A tonsillectomy for chronically inflamed tonsils wasn’t covered but we saw a lot of chronic ear diseases earlier and reimbursement was okay, nearly equivalent to Medicare, he explained.
In 1989 Oregon enacted legislation for universal access funded by an employer mandate, which was quickly rejected. So Oregon, led by Dr. Kitzhaber, focused on expanding Medicaid via a cigarette tax. OHP offered a benefits package leaner than Medicaid and with capitated managed care. In its halcyon days of 1994-1998, OHP covered more than 100,000 uninsured individuals per month and dropped the uninsured rate from 18% to 11%. In 2002 OHP Phase II added 46,000 more uninsured persons, with premium subsidies at 185% FPL.
But trouble was brewing; the dot-com bubble burst hard in Oregon, leaving the state scrambling to cover health care and other basic services. OHP’s rich benefits package became problematic. Oregon applied for a federal waiver to reduce benefits, which didn’t come through for a year. As state coffers shrank, Oregon couldn’t pay for its swelling number of OHP beneficiaries. It dropped those who didn’t pay premiums, raised premiums, and eliminated services. They cut reimbursement to doctors and hospitals and we tolerated that but gradually the program stopped working properly, says Dr. Richardson. Enrollment dropped from 104,000 in January 2003 to 49,000 in December 2003. In 2004 only 24,000 OHP beneficiaries remained.
Lessons from Tennessee
TennCare offers another cautionary tale. On January 1, 1994, Tennessee extended health care coverage to Medicaid eligibles, those uninsurable due to chronic illness or without access to employer-sponsored care, and catastrophic illness victims. By 1995 TennCare covered 1.2 million Tennesseans and contributed $99 million to a $225 million budget deficit. State officials collected only $11.1 million of $54.4 million in premiums owed by beneficiaries. In 1996 the state launched TennCare Partners, a $350 million program for mental health services for 1.17 million beneficiaries. In 1997 TennCare started enrolling uninsured children.
In 1998 TennCare’s national success story began its unhappy ending, done in by structural defects: Tennessee’s income tax revenue being limited to dividends and interest income only, and its failure to establish a separate SCHIP (the only state to do so). Advocates for the poor filed federal suits against TennCare for not covering children and for restrictions on adults’ benefits package. A federal judge ordered Tennessee to cover its 550,000 uninsured children in a separate program.
TennCare blithely soldiered on, with a $350 million budget boost in 2003. It added a formulary to curb pharmacy costs that had climbed to $1.8 billion annually. Its year of reckoning was 2004. Governor Phil Bredesen submitted a five-year plan to shrink benefits. The legislature approved it, but advocates for the poor sued to block the overhaul, which a federal judge upheld because of the state’s failure to fix its program for uninsured children.
Governor Bredesen tried desperately to save the $8.7 billion-a-year program but on January 1, 2006, 323,000 persons were dropped from TennCare; the remaining 396,000 got strict limits on doctor visits and prescription drugs. Jerome W. Thompson, MD, MBA, Chairman of the University of Tennessee’s Department of Otolaryngology, said that TennCare’s early reimbursement (80% of Medicare’s rate) was fair, and preapproval and disallowed services checked utilization. It was a good plan but it was bankrupting the state. Federal court actions made things worse, such as disallowing generic substitution for branded drugs, he said. The governor tried everything but Tennessee has no sales tax and low property taxes. It’s crazy to think you can offer a generous plan to the uninsured without sufficient tax revenues. When indigent patients disenrolled from TennCare became self-pay, and TennCare patients limited to three or four prescriptions a month, we knew it had failed, he concluded.
With state programs failing, a federal fix is tempting, but can also bomb, as Hillary Clinton discovered in 1993. Her plan, for consumers to buy coverage through HIPCs-government-sponsored purchasing coalitions-was dead on arrival.
Paul Ellwood Jr, MD, often cited as the father of managed care, explained: It is accurate to say that the revolution in health care started with us at the JHG, our health care leadership think tank. My intention was that health care organizations would compete on price and quality-managed competition. Instead, organizations were competing on price because consumers would change plans for five dollars a month.
The JHG’s plan was to ease into universal health care: cover seniors, then children, then everybody else. Mrs. Clinton’s arrogance in handling the process was astonishing. The JHG plan became the Clinton plan even before the president took office. Even though JHG developed the model for managed competition, the incoming administration acted with little input from us, said Dr. Ellwood.
Dr. Ellwood visited Mrs. Clinton, who wanted price controls to pay for universal coverage. I said that pushing controls would alienate the health care sector because prices were flattening, noted Dr. Ellwood. Mrs. Clinton said, ‘You’re wrong about this.’ Besides a certain incompetence on her part, she treated the health care sector as the enemy. Even though I spent my whole life working on this, she thought she had all the answers in a month of study. Her plan was dead and I knew it.
Dr. Ellwood continued: As to whether managed competition would ever lead to universal coverage, JHG was sharply divided. Had the Clinton administration not blown it, I believe that managed care, which already saved the country one trillion dollars, could fund health care for everyone. There would be even more money if the government eliminated corporate tax breaks for health benefits. (Piturro M. A healthcare conception. Managed Healthcare News 2000;16(8):1.)
State and federal plans to extend health care coverage need a hard push to achieve a combination of reliable revenues, cost controls, marketing, affordability, and an attractive benefits package. A key element in any attempt to achieve universal coverage is that not everyone wants health insurance. Universal coverage advocates argue that since drivers must buy car insurance, why shouldn’t everyone have health insurance? The National Center for Policy Analysis says that 14.6% of drivers are uninsured; 15.7% of Americans lack health insurance. Even 9.2% of Hawaiians, who’ve had universal access since 1977, go bare. Forcing consumers to buy health insurance with employers, taxpayers, or providers footing the bill, seems problematic.
Physicians have different solutions to this complex problem. Tennessee’s Dr. Thompson said that universal access should be state-based. The federal government can’t do it. Tennesseeans have diabetes and obesity from poor diet and lack of exercise that create massive problems. For example, I trach 300-pound 10-year olds. Wyoming must have different problems. Oregon’s Dr. Richardson said, For health care reform to be truly effective requires a national scope. This requires multiple elements to work together. If everyone has to buy it and everybody’s covered, universal coverage could work.
There’s no easy answer.
- 42 million beneficiaries
- $325 billion spent in 2005, 13% of federal budget; expected to grow to $444 billion in 2010
- 12% of beneficiaries consume 69% of budget
- 12% enrolled in managed care plans
- 51% of beneficiaries have incomes below 200% of federal poverty line (FPL)
- 54 million beneficiaries
- Two-thirds of beneficiaries are in low-wage working families
- The federal government pays 57% of Medicaid’s $288 billion budget; states pay the balance
- Average spending per child $1410, per senior $10,147
- Medicaid pays for 17% of hospital care, 17% of physician income, 50% of home care
- 26 million beneficiaries
- 9% uninsured, many of them homeless
- 14,000 in mental hospitals
- Seven priority classes for services
- Increase of 66% in outpatient services since 1999, as VA intentionally shifted from IP to OP services
Federal Employee Health Benefits Plan (FEHBP)
- 8 million beneficiaries
- Wide selection of plans-FFS, PPO, POS, HMO (all with gatekeeper)
- Managed competition-plans are rated by premium costs, provider quality, service, cost/benefit
- Federal government pays 72% of the average premium
©2007 The Triological Society