If Reform Fails

If conservatives manage to kill health care reform legislation, what will happen next?

I really don’t want to go there.

First, I’m convinced that conservatives won’t be able to repeal the Affordable Care Act (ACA). Democrats will hold onto the Senate, and President Obama still has a veto. If necessary, he will use it to protect the bill. Meanwhile, the majority of the public either favors the legislation or want to “wait and see” how well it works. Most voters would be utterly disgusted if Congress returns to the health care debate this fall. It was ugly the first time around; virtually no one wants to watch re-runs on C-Span. In the months ahead, Americans hope that their elected representatives will do just three things: create jobs, create jobs, and create jobs.

Secondly, if conservatives somehow succeed in crippling the reform bill, we will find ourselves back in a world of laissez-faire health care where medical spending continues to spiral by 4.5% to 9% a year (just as it has for the past ten years), thanks to a combination of climbing prices and rising utilization.

Here, I’m not talking about how much insurance premiums rose: reimbursements that private insurers, Medicare and Medicaid paid out to hospitals, doctors and patients over the past ten years have been climbing by 4.5% to over 9% annually.

In some years, Medicare reimbursements were growing faster; in other years, payouts by private insurers levitated. Over the same span, Kaiser reports that premiums for a family plan rose by an average of 13.1% a year.

Without the Affordable Care Act (ACA), payouts for drugs, devices, hospital services and physicians’ services are expected to accelerate over the next ten years, rising by an average of more than 6% a year. Without reform, roughly one-third of our health care dollars will still be squandered on unnecessary treatments, redundant tests, over-priced products, preventable hospitalizations and avoidable medical errors. Employers will continue to shift costs to employees (or just get out of the health benefits business altogether), and more and more Americans will find themselves priced out of the health care market.

Rather than joining the rest of the developed world by offering affordable, comprehensive care to all of our citizens, the U.S. will find itself becoming part of the “developing world”–where only the very wealthy have access to good care.

I don’t believe that will happen. We are on the path to reform. It will be a long, rocky road, but there is no turning back. The alternative is just too bleak.

The Liberal Dream

That said, why am I even addressing the possibility that conservatives will form a death panel and pull the plug on the ACA?

Because some irrepressibly optimistic progressives have begun to suggest that if reform’s opponents prevail, the story might have a happy ending. And I am worried that these liberals may encourage other progressives to step back, and let conservatives have their way. After all, many on the Left found the Affordable Care Act disappointing—a half measure, not what they hoped Obama would deliver. Some are willing to let it slip away.

Just a few days ago, in a piece in AolNews titled “Obamacare Critics: Be Careful What You Wish For,” New American Foundation fellow Micah Weinberg made the argument that a victory for the conservatives could lead us to what some liberals still yearn for: a single-payer system.

“If this round of reform fails . . . . we’ll have to do something entirely different. But don’t hold your breath waiting for a system that relies even more heavily on the private market for health insurance.

“In fact, the most likely thing that we will do is move toward a system like Medicare that is financed by the government.“It turns out that Medicare is extremely popular among seniors of all political persuasions, even tea partying ones. After all, the thing the town hall screamers were the most upset about was the idea that the program would be changed to institute ‘death panels.’ This was a vicious smear that could not have been further from the truth. But it shows just how little appetite there is for changing the Medicare program in any way, even among members of the conservative right.

“So people of all political stripes love to love Medicare, and they love to hate insurance companies. It stands to reason, therefore, that if we have to start over, we’ll build on what is popular rather than heading even further in an unpopular direction.

“Conservative Republicans are free to continue their quest to undermine health care reform. But they should be careful what they wish for, because through their actions they may be the very people who finally lead this country to . . . a single-payer health care system.”

Employer-Based Insurance vs. Medicare

What Weinberg forgets is that while seniors love Medicare, a great many Americans under 65 love—or at least like—their employer-based insurance, if for only one reason: their employer pays for it.

And when employers pick up most of the tab, this is good news for all taxpayers. When middle-class and low-income employees working at large companies have good insurance, we don’t have to worry about funding subsidies to help them buy coverage. (Granted, wages are lower because employers provide benefits—in that sense the employee pays for his health insurance. But as I explain below, if single-payer replaced employer-based insurance, salaries would not automatically rise to equal the value of the lost perks.)

Typically, employers pay 85% of health insurance premiums according to the Kaiser Family Foundation. In addition, as this Kaiser Issue Brief points out, the average large-employer PPO plan is more generous than Medicare.

Even when you include Medicare’s relatively new prescription drug benefit, Kaiser observes, the average value of Medicare benefits in 2007 ($10,610) lagged the value of the typical plan offered by a large employer ($12, 160). “Medicare is less generous, on average, than the comparison employer plans because it has higher cost-sharing for inpatient care under Part A (particularly for relatively short hospital stays), no out-of-pocket limit on services provided under Part B, and less generous drug coverage under the standard Part D benefits. . . .”

In 2010, for example, if a Medicare patient is hospitalized he must meet a deductible of $1,100 before Medicare kicks in to pay for the first 60 days of hospitalization. If he remains in the hospital longer than 60 days, the patient faces a co-pay of $275 per day—up into day 90—and $550 per day for days 91 through 150. After 150 days, the patient is responsible for all hospital charges, and there is no cap on how much he will be asked to pay, out of pocket, in a given year. Medicare part B covers physicians’ services, but seniors must pay premiums of $110.50 to $353.60 per month (depending on income), and Medicare pays only 80% of the approved costs for these services.

As Kaiser explains: “individual Medicare also pays a smaller share of total costs associated with covered benefits, on average, than either the typical large employer PPO or the Federal Employee Health Benefit Plan’s standard option). In 2007, Medicare paid 74 percent of costs associated with covered benefits for an individual with average health care costs ($14,270), while the typical large employer PPO paid 85 percent of total costs.

Indeed, when they turn 65, many Americans are surprised to discover that Medicare doesn’t reimburse for everything their employer-based insurance covered—routine eye exams, for example, are not included in the package. Many seniors are even more startled by co-pays and deductibles that can be hefty, particularly if they’re hospitalized.

To compare job-based insurance to Medicare, think of it this way: 60 percent of seniors lay out as much as $279 a month to pay for supplemental coverage such as MediGap in order to fill the cracks in Medicare. That’s $3,448 a year—just to bring Medicare up to the level of a good employer plan.

Make no mistake: I’m not suggesting that seniors don’t like Medicare; They do. At least the 60% who have supplemental coverage (because either they or their former employer can afford it) are pretty content.

But younger Americans who are lucky enough to work for a large company where they have employer-based insurance are fond of their coverage, too. They won’t want to give it up–especially if someone explains that insurance modeled on traditional Medicare would cover less, while costing them more.

Before Dreaming of Single-Payer . . .

If a single-payer plan set out to match the benefits that large employers now offer, it would cost taxpayers a bundle.

Granted, thanks to lower administrative costs, a public plan’s premiums should be at least 5 percent to 7 percent lower than premiums for a comparable private plan. (These numbers come from a Commonwealth Fund brief that offers a very positive assessment of how much a public plan could save.) When compared to a “public option,” that competes with private insurance, a single payer plan should yield even greater savings because hospital and doctors would be dealing with only one payer, slashing their paperwork and administrative costs.

But, over time, those administrative savings wouldn’t be enough to pay for the generous benefits that large companies offer. Don’t forget that the price of the services and products that hospitals, doctors, drug makers and device makers provide has been climbing by an average of nearly 5% to 11% a year, year after year, for two decades. The one-time savings in administrative costs (however big it is), won’t compensate for continuous, compounded increases in the underlying cost of medical products and services.

The only way that a single payer system could afford the level of coverage that large employers offer is if we rein in runaway health care inflation by wringing some of the waste out of our system. And, assuming that we’re going to eliminate waste in an intelligent way, using a scalpel, not a meat cleaver, this will take time. The Affordable Care Act set out to change how we reimburse for care by moving away from fee-for-service, paying health care providers for value (better outcomes at a lower price), not volume. This means persuading patients—and physicians—that more care is not necessarily better care.

Financial carrots and sticks also can encourage hospitals to take a closer look at the medical errors that, according to a recent study conducted by Millman, Inc. for the Society of Actuaries (SOA), added $19.5 billion to the nation’s health care bill in 2008. Not all errors are preventable, but many are. The most expensive error on the SOA list—pressure ulcers (a.k.a. bedsores) often can be avoided. Yet in 2008 374,964 ulcers, at a cost of $10,288 each, boosted the nation’s health care tab by $3.858 billion. (See the Institute for Health Care Improvement on prevention programs that have dramatically reduced the incidence of pressure ulcers in a number of hospitals.)

Who Would Make Up for the $$$ Employers Now Pour Into Health care?

Keep in mind that if we switched to a single-payer system, large companies would no longer pay 85% of their employee’s premium. Low-income and middle income families who now have job-based insurance would qualify for subsidies, but taxpayers would have to foot the bill. More affluent employees (individual earning over $43, 320 or a family of four taking home more than $88,200)–would not receive a government subsidy.

As noted, single-payer insurance would enjoy lower administrative costs, but even so, next year, comprehensive f family coverage that is comparable to what large employers now offer would cost more than $10,000. (By then, a private plan that offers good coverage for a family will fetch close to $14,000.)

But wait—if employers no longer provided benefits, wouldn’t Congress insist that they raise wages-, or pay higher taxes into an insurance pool to help fund the cost of universal coverage? Yes, but it’s doubtful that either wage hikes or taxes would equal what employers now lay out for insurance.

First, what an employer now spends on premiums is tax deductible as a business expense. The value of that tax deduction varies, but let’s say that a company contributes $9,000 to each employee’s insurance premiums (this was the average contribution in 2007), and that, after taking the deduction, insurance costs the company $9,000 minus “X” (with X equaling the value of the tax write-off) per employee).

If single-payer replaced employer-based insurance, would most employers be willing or able to raise each employee’s wages by $9,000—or contribute $9,000 to the pool? Probably not. Employers would argue, not unreasonably, that in the past they were spending only $9,000 minus X, and they were hard-pressed to do that. They cannot afford more.

Secondly, when an employer invests in his own employees’ insurance, he buys something that is of value to his business: employee loyalty. His workers are less likely to move to a competitor if he offers generous insurance. This saves him the time and money that it takes to train new workers. Turnover is expensive. Under a single-payer system, if a business pays taxes into a national insurance pool, it gets nothing in return. This is another reason why employers would be reluctant to toss even “$9,000 minus X” into a pool that would fund universal coverage. Many in Congress would sympathize with their reasoning.

As for raising wages –if the 1990s taught us anything about labor economics, it is that employers will not hike salaries for most workers unless they absolutely must. Even while earnings grew and productivity rose, in the 1990s the average worker did not see his wages climb. Corporations paid out dividends to shareholders, bought other companies, invested in their own business, bought back their stock and hiked executive salaries. They did everything—except share higher profits with workers—until the final years of the decade. Even then, workers’ wages did not begin to catch up with the gains corporations and their investors enjoyed.

Today, with real unemployment well over 10 percent, businesses are not worried about losing workers. In the past two years, when companies such as GM or Dow Jones cut back on insurance benefits, they did not hand out raises.

Under a single-payer system, I am sure Congress would expect businesses to make a contribution to the pool that funds government subsidies, but you can be quite certain that employers would not wind up paying 85% of the cost of coverage—not even 85% of the cost for the 133 million employees that large companies now insure.

Who will pick up the difference? Tax-payers and more affluent Americans who don’t qualify for government subsidies.

Why Medicare E (for Everyone) Just Isn’t Affordable Now

Do we want to try to drop the entire U.S. population into a single-payer system that resembles Medicare sometime over the next few years? No. Keep in mind that our entire health care system is broken. Medicare, like other payers, squanders roughly one-third of its dollars on treatments and products that provide little or no benefit to the patient. Our for-profit medical-industrial complex is set up to maximize the amount we spend on drugs, hospitals, tests and procedures. If we attempted to roll out a single-payer plan next year, the only way we could afford to cover everyone is if took an axe to the waste, rationing care, slashing physicians’ fees and closing hospitals. This is not rational reform.

As it stands, we’re planning on shepherding some 32 million uninsured Americans into what we euphemistically call our health care “system” in 2014. This is because we have no choice. Those Americans have been left out in the cold for too long. They need our help. And we have to start somewhere.

The good news is that the cost of covering the uninsured, along with the climbing cost of Medicare, will push policy-makers to start demanding value for our health care dollars. Already, Medicare has begun insisting on higher quality, lower cost, patient-centered care (refusing to pay for preventable hospital readmissions, for instance).

Medicare director Don Berwick will be setting an example that private insurers will follow. As president of the Institute for Health Care Improvement (IHI), Berwick has had great success in showing hospitals, doctors and nurses that they can make their own work environment more efficient, and their work more satisfying if they collaborate to provide better, safer care at a lower cost. Reform shouldn’t have to be imposed on caregivers. It can happen from the inside. Berwick understands this better than anyone. Between now and 2014, we can prepare for reform, but it will take more than three years to make the deep structural changes needed.

If Liberals Want a Public Option, They Should Protect Reform Legislation

Congress is not going to pass a single-payer bill at this point in time. For one, legislators know that the vast majority of the 133 million employees who work at large companies where their employer pays 85% of premiums are quite attached to that perk. Why wouldn’t they want to hold onto it? On average, benefits are better than Medicare’s, and cost sharing is lower.

Why should the rest of us care whether those 133 million hang on to a sweet deal? Because society as a whole benefits as long as those corporations continue funding 85% of the cost of insurance for their workers–including millions of middle-income and low-income Americans. (Under the rules of employer-based insurance, all employees must receive the same deal.) And according to a Kaiser survey, despite the economic downturn, employers remain surprisingly committed to providing benefits: 95 percent of those with 50 or more employees offer insurance. Although they are increasing co-pays, only 2% say they are very likely to drop benefits. This gives us some breathing room, time to bring down health care inflation, before Americans decide whether they want a single plan for everyone.

Make no mistake: I’m not disparaging the liberal dream. I’m just saying that it won’t happen in the next few years.

First, we need to realign the financial incentives in our health care system .The reform legislation lays out the blueprint for providing higher quality, more affordable care, but reform will be a process that takes place over time.

As I have suggested in the past, my guess is that sometime before 2014 a public option will be added to the current reform scheme. Under the new regulations, some for-profit insurers are bound to throw in the towel, and I suspect that we will need a public plan to take up the slack in the Exchanges. Ultimately, I expect that a public plan will be open to everyone. When reform legislation included that option beginning in 2014, legislators suggested that employees of large companies would be eligible to join a few years later. If a public plan manages to provide high quality coverage at a reasonable price, more and more families will pick the government plan.

This is the best route to a public health care : let Americans choose it.

But all of this will happen only if we press ahead with reform. Liberals must put their heads down, get behind the Affordable Care Act, and push—as hard as they can.

The alternative is not the status quo—it is something far worse. The situation is deteriorating as I write. Our health care system is heading for a wall. Without reform, even Medicare will run out of money, and you and I will just have to hope against hope that we and our loved ones don’t get sick.

Maggie Mahar is an award winning journalist and author. A frequent contributor to THCB, her work has appeared in the New York Times, Barron’s and Institutional Investor. She is the author of  “Money-Driven Medicine: The Real Reason Why Healthcare Costs So Much,” an examination of the economic forces driving the health care system. A fellow at the Century Foundation, Maggie is also the author the increasingly influential HealthBeat blog, one of our favorite health care reads, where this piece first appeared.

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