On Practical Reforms – Brian Klepper

Now that health care reform is once again an active, visible issue in state governments and the presidential campaigns, the ideas are flying fast and furious. Predictably, some ideas are better than others.

Over at Health Care Policy and Marketplace Review, Bob Laszewski asks an important, practical but vexing question for universal coverage advocates: Can you really mandate people to buy health insurance?

Mandated health insurance is a plank in the Clinton campaign’s health
care reform plan and is a key way that Ms. Clinton and Mr. Obama differ on that issue. (I don’t know why Presidential candidates should
provide this level of operational specificity at this point in the game
– there are lots of different ways to skin the universal coverage cat –
but they have.) Under Ms. Clinton’s plan, all citizens would be
required to prove that health coverage has been provided to them or
that they have purchased it.

To illustrate the difficulties in actually using a mandate, Bob points us to the penalties
being developed by the Massachusetts Department of Revenue for citizens
who fail to buy health insurance. The 2008 proposal would tie the
penalty to the lowest coverage cost offered through that state’s health care
program, and would be $912/year for a person older than 26 years. As he
points out, the burden would fall most heavily on the group that makes just too much money to receive subsidies.

I recently described nearly the same problem in California’s health care reform
proposal, where a couple with a household income of $54,000 would have
to fork over $12,000 for coverage. It’s difficult to see how this can

There are two issues here. First, most
of these state efforts assume that whatever universal health coverage is achieved must be
comprehensive, an extremely expensive proposition. (Yesterday’s news
that US health care in 2006 had crossed three different annual
financial thresholds – $2 trillion, 16% of Gross Domestic Product and
$7,000 per person – ought to be sufficient evidence of that.)

But as a practical matter in getting a program underway, it may make far
more sense to shoot for universal coverage of basic care services. Of
course, defining "basic" is the trick here, for several reasons. (This is a terrifically complicated problem. Does basic include three liver transplants? Is it the same for a healthy person and one with spina bifida, or does it change with health status? How can we define it?) While social justice is an undeniably compelling reason to implement universal coverage, there’s a lot more to the universal coverage issue than simply that. Without universal coverage for at least basic health services that associate dollars for every patient who presents, the nation’s safety net hospitals will gradually be overwhelmed by the demand for uncompensated care. (Today’s NY Times article on Atlanta’s Grady Hospital’s financial dilemma does a pretty good job describing the reality of this problem throughout the country. A few weeks ago, I also wrote about Grady’s problems and how they’re at the edge of the much larger looming health care crisis.)  A "basic" program would be far less expensive and easier to finance than a comprehensive program. And it should be possible to create a basic program for all Americans, and then let insurance companies build market-based supplemental programs on top of them.

Second, a mandate effectively caters to the insurance industry, suggesting that the only way that universal coverage can be achieved is for people to buy coverage (and let the insurance companies take a profit). But universal coverage could be built in other ways as well. For example, there is no reason why we couldn’t establish next generation community care clinics around the country, and designate a range of primary care providers who would "take assignment" for any care delivered through the program. Anyone in America could show up at a clinic or a designated provider and receive the basic care they need without paying much or anything. The care would be detailed in the EHR and a bill submitted to the Feds or their intermediary.

A mandate would also create extremely complex and expensive administrative issues. If we required everyone to buy coverage – including all those who aren’t subsidized but who would have trouble affording it – then we’d have to establish a monitoring/tracking function that could make sure that everyone did what they were supposed to do, and then punish the offenders.

But the deeper problem with the state and national reform efforts currently on the table is that they finance reform upfront by requiring a lot more money from the people paying the bills, while talking in vague platitudes about cost containment. All the real concessions come from the purchasers, and virtually none come from a health care sector where we KNOW that care and cost are extraordinarily variable between providers, and that between a third and half of all care and cost are unnecessary or inappropriate.

After 25 years of managing the care process, its not like there’s any mystery about what health care actions save money and get better outcomes.

We know, for example, that paying doctors salaries and not letting them make money on the procedures they prescribe, drives down cost significantly.

We know that, in any market, if you compare the resource consumption of all doctors within a given specialty for a particular condition, and hold the outcomes constant, that there will be a 6x-8x difference between the least and most expensive practitioners. You can save a lot of money if you look for the physicians who consistently get the best outcomes at the lowest costs, and steer your patients to them. And if you make your findings known publicly, it creates a competitive market for the doctors, and the quality and cost of the care will likely improve across the market.

We know that, for routine conditions, doctors who have modern tools and
follow evidence-based best practice guidelines generally have lower
costs and better outcomes.

We know that generic drugs perform just as well, in most cases, as brand drugs, and are a lot cheaper.

We know that, to the degree you can open up access with zero or very low co-pays, particularly for low-income populations, that you’ll nip exacerbated care in the bud.

We know that, if you can identify patients with chronic diseases, and
then intervene with face-to-face lifestyle, education and behavioral
counseling, you have the best chance of lowering that population’s
costs, which typically account for half or more of any credible

We know that, if you can tie payment to outcomes, you’ll change reimbursement incentives from rewarding more care to rewarding only the right care, and the total use of services and cost will be reduced.

We know that team-based medicine, where doctors collaborate, is more effective and efficient than siloed medicine.

We know that if we can obtain pricing/performance transparency information, we can identify the top vendors, and then we can use that information to make better purchasing decisions. We also know that, at this point, the information that’s become available is mostly too complicated and arcane for most consumers to use. But in the future analytical results will flow into decision support tools that will make objective purchasing decisions much easier.

We know that, until the pricing and performance of ALL health care players, services and products – doctors, hospitals, health plans, suppliers, particular treatments, drugs, devices – are made transparent, it will be impossible to really get costs under control. For example, I’m a big proponent of carefully constructed Pay-for-Performance programs, but until health plan performance is just as transparent as the plans have demanded that providers be, the gains would simply accrue to the plans. In other words, change the incentives and you’ll likely change the way care is delivered. But if the health plans aren’t transparent, how will we know how much waste and money was actually eliminated, and what happened to it. Was it shared with the providers who produced the efficiencies? Was it returned to purchasers in the form of reduced premiums? Or did it simply bolster the earnings of the health plans.

The real issues of health care reform have to do with universal coverage and cost. Universal coverage can only be achieved through policy change, because at a societal level, there must be a governmental assurance of payment for the services.

But its unlikely that real cost-containment can take place through policy reforms, because the most powerful lobby, the health care industry, has the advantage of a Congressional system that is highly susceptible to influence. Facing the possibility that their revenues could drop dramatically, the industry would use all its sway to prevent meaningful reforms. Even so, there are tremendous changes afoot in the marketplace – Health 2.0 is the best example – that will over the next few years infuse unprecedented levels of transparency and decision support into health care, and begin to rationalize the waste that has had a grip on the throat of purchasers and patients for decades.

Unless we can convince America’s non-health care business community to come together and roll over the health industry’s lobby, in terms of the policy-based reforms, we should resign ourselves to these realities and shoot more modestly, for universal coverage of basic care. That would be a critical foothold to build on, and would pave the way for much more progress.

We need to abandon lofty and impractical approaches that are constructed by dreamers, and develop practical solutions that are based on actions we already know work. Any other approach will almost certainly produce coverage at an unsustainable cost, and simply postpone and intensify the crisis.

About a year ago, the Executive Director of a very prominent national business association asked me to define the list of changes that any reform proposal must include if it hopes to be effective. That list is up on my site under the Reform section. Before it was posted it was reviewed and found acceptable by about 30 colleagues. Please feel free to take a look and offer comments.

11 replies »

  1. And who knows what happened in Hawaii and Minnesota when they tried for universal coverage?

  2. Halvorson’s book, “Health Care Reform Now!” advocates the introduction of a new class of health administrators, called Infrastructure Vendors. They act for payers, foster the generation of the electronic medical record, and focus on outcomes per megabuck, ie health. They are to supply the transparency now lacking and create incentives for care givers to act more like teams and less like isolated actors operating in ignorance of each other. They have a primary interest in getting patient compliance with measures like noticing the signs of impending crises and taking immediate action to avoid a hospital visit.
    He identifies so many places where better coordinated care saves money that he suggests that the universal coverage will be effectively free after three years. You still need to pay for it, but the system can be improved over the cost shifing that the insured pay now to cover uncompensated but required emergency care in our present non-system.
    He doesn’t seem to offer the path to political success, but the rest seems pretty well handled by appropriate systems thinking paired with extensive knowledge of where the money actually goes.

  3. Peter,
    You mention the increasing penalties in MA. What about the increasing penalties in Medicare? They very quickly amount to a much larger figure than the MA penalties. Is that unfair? The penalty is not what makes it unfair, the fact that health care costs so much and a person making around $30K a year cannot easily afford it without subsidy is what makes it unfair. MA should increase the subsidies a bit and keep the penalties. There is no other way to remove free riders or spread the risk sufficiently for the low-risk people who would make a rational calculation not to purchase insurance.
    You either “mandate” their participation by making them pay taxes for health coverage, or you make them buy insurance or pay a penalty if they don’t (which amounts to a tax with some choice about how you pay it, and how much you pay).

  4. jd, I only see a mandate for the presently unisured/unsubsidized. I could agree with your argument if that minority sector had the political and financial cloat to force system/policy reforms to bring down their mandate cost. But that won’t happen, they’re just not a political force, if they were we’d already have the reforms we need. I understand that the Mass. mandate went from $200-$300/mth during it’s presentation stage and now will go to $800/mth. Not really the reform direction you’d expect when people are forced to pay their “fair” share. Now if we went to a full universal single-pay system where everybody paid a mandate to cover the present 16% of GDP healthcosts, then you’d see pitchforks and torches at the castle gate forcing reform.

  5. I guess I disagree with everyone here. Mandates are not only justifiable on policy grounds, they are smart politics.
    First, regarding the specter of health care industry resistance to mandates, where do you imagine it coming from? Not the insurance industry, the AHA, AMA or a number of other lobbying organizations which are either in favor of mandates or neutral.
    Second, I totally agree that a mandate system could not be enacted simultaneously with deep reforms to the delivery and cost of care. I’m even pessimistic that deep reforms could be enacted rapidly regardless of whether access to care improves. But a universal health care system with mandates is really the best lever we could make to accelerate the reform agenda. Once currently uninsured individuals have to pay for coverage (even if there are tiered subsidies) and more taxes are raised to pay for the expanded programs and subsidies, the pressure to improve the value of the system (quality of outcomes as a function of cost) will dramatically increase.
    I cannot imagine a better way to move the health care delivery reform agenda forward in the next 10 years than to enact truly universal health care in the next 2-3 years.

  6. Public access to healthcare is extremely important. However the system is so complicated, especially for older adults, it is nearly impossible to navigate. Ever called an insurance company and had to go through so many prompts to get to speak to someone. Older adults, especially those with hearing loss, cannot figure out how to successfully move through these phone trees. I provide care navigation services to older adults and spend a great deal of time contacting insurance companies, pulling medical records, researching payments, etc. because my clients cannot do this themselves. I find that it’s not only difficult to do this for my clients but for myself personally. Consumers need to be more proactive in taking care of their own medical needs and maintaining medical records. If records are not kept, they are often destroyed after years and important medical history is lost. The trend toward electronic medical records will help this. The bottom line is that health care consumers must be more proactive in not only taking care of themselves but evaluating options and educating themseles about preventative healthcare.

  7. Brain clearly illuminates a host of thoughtful points. The basic coverage concept is one we should be able to accomplish in some form.
    For purposes of discussion, the average direct cost of uninsured can with conservatism roughly be extrapolated to $1,088 annually per-capita. (41 billion in uncompensated care in 2004, – Kaiser Family Foundation 2007) (adjusted for 9.2%,7.7%, 6.1% respectively as measured by group health increases for 2005-2007,- Kaiser Family Foundation 2007) (divided by the current 47,000,000 uninsured, Census Bureau 2007) Obviously the group health increases don’t track exactly to indigent care but should be within reason to make the point. Perhaps someone else is aware of an actual 2007 figure.
    The $1,088 per-capita expense or about 24% (average single member group premium annualized $4,479, Kaiser Family Foundation 2007) of the current average group rated single member plan cost, is a logical “least common denominator” from which to build a universal plan, as Brian suggest.
    Universal coverage at a minimum value of approximately $1,080 at least reduces expense and disruption from much unnecessary episodic care initiated in ED’s as well as other uncompensated care included in the Kaiser calculation.
    To Michael’s point, our elective system currently provides ample incentives to assure that any legislated “basic plan” would be crafted around the industry representatives that financially support our current system of government. As Mathew and Peter allude, whether or not a bond crises is required, short of clear voter mandates that trump the industry resources dedicated to maintaining the system in place, diffident steps will carry the day. To that end, perhaps a clinic system as Brian describes but one that allows insurance industry participation in exchange for their providing enough transparency to share the savings.
    It also appears possible that some industry practices, such as competition based on underwriting skills, relative to screening preexisting conditions in the individual market have already become adequately transparent to make it increasingly difficult to continue without reaching a public tipping point.

  8. Matthew, if the Chinese wait to only want their money back in 2015-20 then they’ll have learned nothing about our recent mortgage fiasco. As a landlord and lender I’ve learned that a willingness to wait only gets you deeper in trouble. Where will the asset value be when you won’t face the truth now and think waiting will put you in a better position? I wonder if the same political rush for the presnt government bailout of the lending industry will be there to bail us out of loans being recalled by China. Think there’ll be anything left in the cupboard?

  9. I think Brian is right in that IF anything is to be done in the next 4- 6 years, it will be a modest add on getting us to semi-universal coverage that will be messy and incomplete. But realistically even that will be blasted apart by the health lobby.
    To deal with the issues Brian wants to deal with will take
    much more desperate circumstances…..they’ll come, but only when the Chinese want their money back circa 2015-20

  10. Personally I won’t buy into a mandate that only feeds the beast. Why should individuals support mandates when it is only they that have to pay the piper and not any of the providers, least of all the insurance industry. Is this any way to run a country when politicians attack a symptom and not the cause, because the cause feeds their campaigns and personal career aspirations.
    Interestingly the Province of Ontario has a “mandated” healthcare premium for its universal single-pay system. Here is the link to the then proposal (2004), now law: http://www.fin.gov.on.ca/english/media/2004/bk-ohp.html The premium is about $800 per year per family. But Canada actually has a COST CONTAINMENT SYSTEM in place, unlike here where the industry is like pigs at the trough and our political leaders only serving as the farmer with the feed bucket.

  11. The key word in my friend Brian’s column is “practical.”
    As in:
    “Health care” is one of the top issues for the Democratic presidential primary voters, but not for Republican ones. What is the practical impact of that difference if a Republican wins the presidency this year?
    If a Democrat wins, what will be the practical political mandate a Democrat takes into the White House? Does anyone believe that in the current Democratic primary the difference between advocating “mandated” and “non-mandated” insurance purchase has made the difference between victory and defeat for Hillary Clinton and Barack Obama in Iowa or New Hampshire?
    Since any “reform” legislation must make it through Congress, and the U.S. Senate has regularly blocked any legislation that cannot get 60 votes to stop a filibuster, how will any “practical” reform package actually be shaped? How will that shape be affected by the seeming lack of urgency on the part of Republican voters about this issue?
    The answer to these questions may come from the example of the Medicare Part D legislation, stirringly called “Medicare Modernization.” Politicians may well decide to give the uninsured basic coverage — but also make sure to add on even greater benefits for the already insured middle class, with a healthy dollop for vendors and providers. “Impractical,” perhaps, from a policy viewpoint, but quite practical from the viewpoint of folks who keep their eyes closely on bottom line of getting themselves re-elected.