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By Mark J. Warshawsky
In his book, “Critical,” published in 2008, Tom Daschle, former Senate majority leader, describes his views on the problems of the U.S. health care system and how they can be fixed. One of the co-authors of the book is Jeanne Lambrew, deputy director of the White House Office of Health Reform. The incoming Obama administration and the Democratic leadership in Congress have indicated strongly that health care reform is one of their top legislative priorities in the next year or so. The book sets out key analytical conclusions and proposals that might emerge during the upcoming health care reform debates.
The book is divided into five parts: the crisis, the political history of health reform, political approaches to reform, a proposed Federal Health Board and current prospects for reform. While this review summarizes briefly all five parts of the book, it focuses on the Federal Health Board, arguably the main unique element of Daschle’s proposal and the one likely to be most controversial.1 We conclude with some thoughts about additional approaches that could stimulate more competitive pressures in the health care sector and thereby reduce costs.
The review
In the crisis section, Daschle emphasizes the widespread lack of health insurance, the extent of underinsurance and the ephemeral nature of existing insurance coverage, particularly among low- and middle-income workers in the United States. He also describes the skyrocketing costs of health care. He contends that much health care spending is driven by “supply-side” forces, that is, the creation and propagation of new and expensive products and services by the health care industry and its professionals, even when their medical efficacy and cost-effectiveness are uncertain. He particularly attributes escalating health care costs and diminishing returns on investments in health care to the American cultural bias toward high-tech medical innovation, and new equipment, procedures and medicines. Finally, Daschle identifies what he believes to be the numerous failings of American health care: poor overall quality, an unacceptable number of serious medical errors, fragmented and uncoordinated treatment of most serious chronic conditions, racial and ethnic inequality, and an archaic technological infrastructure for medical records, billing, communication, reporting and analysis.
In the political history section, Daschle recounts various and several attempts at national health insurance over the last century, the development of commercial insurance and employer-provided health benefits, and the creation of the Medicare and Medicaid programs, whose costs have ballooned substantially past initial projections. He describes the runaway health spending through the early 1990s caused by a “medical-industrial complex” in the United States rife with conflicts of interest. Employers attempted to slow these higher costs by turning to managed care and health maintenance organizations (HMOs) in the 1980s and 1990s, and, in turn, workers and health care providers in the late 1990s reacted adversely to the perceived excesses of managed care. Daschle then focuses on the policies, strategies and tactics of the Clinton administration in 1993 and 1994 for advancing a large, complex, detailed and comprehensive health care reform proposal, including universal coverage, and the organized opposition to it from small businesses and medium-size insurers.
The Clinton administration effort failed, as is well-known. In the third section of the book, Daschle gives his views on why. While he criticizes the substance of the Clinton proposal, Daschle believes the bigger mistake was to wait too long after the presidential election; time spent developing the plan should have been spent negotiating it with Congress. But he believes the real problem with the “top-down” Clinton approach is that health care reform is inherently too complex, personal, life-and-death, and political for elected lawmakers to handle it effectively.
Daschle then argues that this complexity and politicization points to the solution: “the delegation of power to quasi-independent entities comprised of credible experts who are immune from political pressure” (page 115). He cites as successful examples the Base Realignment and Closure Commission, for closing unnecessary military bases in the United States, and the Federal Reserve Board, for monetary and financial regulatory policy. Daschle also cites the Massachusetts Commonwealth Health Insurance Connector Authority, which is charged with determining which benefits insurance companies must provide and the amount of the insurance premium subsidy given to lower-income people in that state to assist in the fulfillment of the mandate on individuals to have health insurance. He also points to the British National Institute for Health and Clinical Excellence (NICE) — the single entity in the United Kingdom that provides guidance on using new and existing drugs, treatments and procedures. NICE weighs medical and economic evidence on the efficacy and cost of medicines and treatments. Similar systems exist in Germany and Switzerland.
So, patterned after the Federal Reserve Board and the Securities and Exchange Commission, Daschle recommends, in the fourth section of the book, the establishment of the Federal Health Board.2 This would allow legislators pushing reform to defer tough decisions to the board. He contends that the board would lower overall spending by identifying treatments that do not justify their high costs. It would ensure that the public has accurate information and would oversee the marketing of drugs to physicians and consumers. The board’s standards would apply directly to Medicare, Medicaid, the State Children’s Health Insurance Program, the Veterans Health Administration, the Civilian Health and Medical Program of the Uniformed Services, the Federal Employees Health Benefits (FEHB) Program, the Indian Health Service and other direct federal health programs representing roughly half of U.S. health care spending. But the rest of the sector, including employer-provided health benefit plans, would be expected to follow along.
Daschle states that in choosing what the federal government will cover and how much it will pay, “it could steer providers to the services that are the most clinically valuable and cost-effective, and dissuade them from wasting time and money on those that are neither” (page 158). He believes that only the federal government has the clout to improve quality and control costs; it would set the standard for prevention, chronic care, electronic health records and linking pay to performance in the health care sector.
The Federal Health Board of Governors would be composed of experts (clinicians, health benefit managers and economists) appointed by the president to Senate-confirmed, 10-year terms. Regional councils would focus on best practices and quality of care locally, and a staff of analysts would produce rigorous and transparent reports. Under Daschle’s proposal, the board would promote “high-value” medical care; it would also suggest research priorities for the National Institutes of Health. Most important, it would take a “harder look at the real costs and benefits of new drugs and procedures” (page 172). Daschle believes that determining which treatments work best is possible and would reduce costs significantly. The board would also develop guidelines on premiums and insurer marketing practices to align incentives of providers with good health outcomes (rather than on services delivered), provide transparency about costs and outcomes, and even rationalize the health care infrastructure, in terms of directing physical and human resources to where needs are greatest.
What are the prospects for health reform? According to Daschle, there is significant public concern about the uninsured, high interest in reform and deep anxiety about costs, all in the current context of a recession and job insecurity. He anticipates powerful leadership from the new president. Daschle particularly thinks that the Federal Health Board idea will cut the Gordian knot preventing reform. He recognizes the potential opposition from health care providers, disease advocacy groups, insurers, and pharmaceutical and device manufacturers, along with the general fear of a new powerful federal bureaucracy, but believes they can be overcome.
Some comments and an additional approach
It is difficult to say whether Daschle’s Federal Health Board would work, either politically or economically. It is unknown whether such a board would be set up, whether it would be given the necessary powers to cut spending directly or would be able to reduce costs through more indirect means. For example, as a political matter, we do not know whether the American public would accept the board’s denial of expensive treatments that generally realize only marginal improvements over much cheaper treatments, but might extend a bit the life spans of, say, some elderly recipients.
The immediate cause of the board would receive a big boost if, in the scoring process for any reform legislation, the Obama administration and Democratic legislators received “credit” in the cost score produced by the Congressional Budget Office for federal spending reductions achieved by the board. Such scored reductions would, of course, help offset — without raising taxes or increasing the federal budget deficit — the large direct costs of subsidizing coverage for low- and middle-income workers and families, which is necessary to achieve universal coverage.
The frustration and economic damage from the high costs of health care in the United States (representing more than 16 percent of our gross domestic product in 2007) is high. Many feel it is time for the federal government to take a fairly direct approach to this key issue, at the same time we move to universal coverage. Others, however, believe that individual incentives and market competition have not been given an adequate try to reduce the rate of growth in health care spending. In particular, while quickly gaining in numbers in the last few years among private-sector workers, consumer-directed health plans still represent the minority of coverage there. These plans shift more responsibility to individuals and use incentives to encourage people to better maintain their own health and better manage their health care spending.
Even more fundamentally, a competitive market model in which private insurers compete for public program beneficiaries in government health programs has not been extensively employed. This model could be combined with a defined contribution approach where the sponsor (for example, a state or the federal government) would pay a fixed amount to beneficiaries. Public program beneficiaries would then “shop” among competing private plans. The marketplace would operate within the following parameters:
- It would have a well-established, transparent and regulated framework.
- All plans would provide basic benefits.
- There could be some subsidization at the plan level for high-cost beneficiaries.
- The sponsor would provide helpful and timely information to health care consumers.
It is expected in such an approach that plans, working with providers, would have strong incentives to lower costs and improve health outcomes in order to attract and retain customers.
It is true that good and fair competition exists among stand-alone prescription drug plans under Medicare. Indeed, costs have fallen significantly below initial projections, owing to Medicare’s excellent provision of relevant information on plan prices and features, which in turn induces the powerful cost-reducing effects of competition. By contrast, for Medicare’s more comprehensive health care plans, there is controversy about whether Medicare Advantage plans are overpaid compared with the traditional fee-for-service Medicare program. Similarly, although the FEHB program is often cited as an example of a purchasing collaborative in which private plans compete for subscribers, there is less incentive for federal workers and retirees to select the most economical plan (consistent with their preferences for various styles of health care and benefit options), due to the current structure of payments and guarantees by the federal government to plans. In particular, more expensive plans (up to certain limits) get higher reimbursement than lower-cost plans. Rather, the FEHB structure induces a “race to the middle” and offers only subdued direct market incentives and signals for plans to manage the quality, style and cost of care or to compete in terms of premiums.
Similarly, there was discussion in 2003 leading up to passage of the Medicare Modernization Act to turn Medicare to a competitive market approach, whereby retirees and disabled workers would select from among competing, but federally approved, comprehensive plans on an even playing field. More recently, however, such talk and efforts seem to have taken a backseat to other initiatives and ideas. Perhaps the new Obama administration and Democratic legislative leadership will be open to restructuring the approaches used in federal government-sponsored programs.
What are the implications for employer sponsors of health plans? These sponsors will likely support system-wide reforms that lower overall health care costs and improve quality. Specific policy changes that improve the health care delivery system and expand access to affordable insurance must be balanced, however, against the need for employers to remain cost-competitive, attract and retain employees, and administer benefit programs that are flexible and efficient. Companies need to retain the ability to control their own costs through decisions about issues such as eligibility, plan design and cost sharing. That suggests the need for an open debate about policy proposals for an employer mandate, preemption and other changes to the Employee Retirement Income Security Act (ERISA), and other reforms that would affect companies’ costs and their relationship with their employees.
1 Daschle also discusses broad coverage and provision proposals (but not financing), including a mandate on the individual, “pay or play” for employers, a purchasing pool like the Federal Employee Health Benefits Program and a competing government plan like Medicare; in this area he follows other Democratic proposals such as that of Hillary Clinton in her recent presidential campaign.
2 Daschle praises the Federal Reserve Board as an exemplar of technical expertise, achieving public policy goals with little political interference. Some academics and others, however, are less positive about the Fed, claiming that it actually induces market volatility and economic fluctuations rather than reduces them.
February 2009
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