Perspective

Getting to the Real Issues in Health Care Reform

Paul B. Ginsburg, Ph.D.

N Engl J Med 2009; 361:2107-2109November 26, 2009

Article

No issue has dominated the health care reform debate as much as whether the U.S. government should offer a health insurance plan to compete with private insurers — the so-called public option. Congress has discussed two approaches to the public option, one of which would have the public plan pay providers at rates close to Medicare rates (generally, substantially below those of private insurers). Opposition by insurers, providers, and the business community, as well as fears that such a payment structure would lead to a single-payer system, has pushed this “robust” public option off the table. Instead, both the House bill and, presumably, a final Senate bill will call for the public plan to negotiate rates with providers. There is little reason to expect that such a plan would bring much, if any, competition to the market, since anticipated enrollment levels would give the public plan less negotiating clout than private insurers boasting many more enrollees. Clearly, whatever decision is made about a public option is much less important than decisions about the level of subsidies for expanding coverage, as well as details of the regulatory reform of the individual insurance market (including enforcement of an individual mandate), reform of the delivery system, and financing of reform.

Despite all the distracting rhetoric about the public option, congressional consideration of reform appeared to be nearing a climax until Senate Majority Leader Harry Reid (D-NV) recently signaled that the Senate may not vote on a bill until next year. As of early November, the full House had narrowly passed a reform bill, while Senate leaders had reportedly combined two committees' bills into a single proposal. Although details of the combined Senate bill were not yet public, the House and Senate proposals are likely to be broadly similar but to differ in important details. Each will have four major components: expansion of the number of people with insurance, reform of the individual and small-group insurance markets to provide more people with affordable options, changes to the health care delivery system to encourage high-value care and slow the rate of cost increases, and tax increases and spending reductions to finance reform.

The proposals have followed the Massachusetts approach to expanding coverage — a blend of Medicaid-eligibility expansion for the lowest-income people and subsidies for purchasing insurance for those with somewhat higher incomes. Medicaid expansion would have the largest effect on low-income people, such as young adults and the near-elderly, who do not qualify for Medicaid today because they have no dependent children or disability. The federal government would fund a much higher proportion of the costs for the newly eligible than for the currently eligible, but states, overwhelmed by existing fiscal responsibilities for Medicaid, are resisting. Subsidies for private insurance would be provided on a sliding scale, but the Senate bill is likely to be less generous than the House bill. And the desire to keep the cost of reform down has led to questions about whether insurance will really be affordable for those targeted for assistance.

Both proposals would revamp regulation of the individual and small-group insurance markets, with the House favoring a national insurance exchange and the Senate presumably supporting state exchanges in which at least those Americans receiving subsidies would have to purchase insurance. Carriers would offer a limited number of products standardized by actuarial value (a measure of the comprehensiveness of coverage), a step intended to increase competition by facilitating comparison and choice for consumers. Medical underwriting — denying coverage or varying the premium on the basis of the enrollee's medical history — would be banned, and insurers would have to accept all applicants. Rates could vary with the enrollee's age but only by a prescribed ratio that is less than the expected age-related variation in claims.

Individuals would be required to carry coverage. As compared with continuing the voluntary coverage system, mandating coverage will lead to an increased number of insured people — for any schedule of federal subsidies. But it is also essential to insurance-market reform. Without a mandate, many people would buy insurance only when they got sick, as they have in states that require insurers to sell to everyone at the same premium regardless of health status. Subsidies for low-income people will limit the magnitude of adverse selection, which will be influenced by the size of the subsidies — a factor that will also affect Congress's willingness to support strong enforcement of the mandate. The House bill probably has larger subsidies and stronger mandate enforcement than those that will be included in whatever bill emerges from the Senate. Both chambers would require that employers over a certain size offer employees coverage and pay a portion of their premiums. The House bill would require employers who do not offer such an option to pay taxes amounting to as much as 8% of their payroll; the final Senate bill is expected to require much smaller payments.

Policies that are designed to improve the efficiency of care delivery are related to expanding coverage and reforming the insurance market mainly in the sense that if spending continues to increase much faster than incomes, declining affordability of insurance will undo much of the gain in coverage, and costs will exceed the fiscal capacity of government. Many observers believe that the delivery system is inefficient enough that spending growth can be slowed without sacrificing quality. But it will not be easy.

Provider-payment reform and changing the tax treatment of health insurance probably hold the greatest potential for slowing cost trends. Proposed payment reforms would affect only Medicare directly — but with the expectation that other payers would follow — and would consist primarily of piloting broader reforms that would introduce elements of capitation and payment per episode. How much of a difference such changes would make depends on the degree to which Congress grants authority and resources to the executive branch or an independent board to implement successful approaches more broadly. But even with full support, success will also depend on whether the ideas for payment reform turn out to be worthy.

The reform bills include provisions for advancing health information technology and supporting comparative-effectiveness research. Many experts believe that both efforts will improve the quality of care, but it is hard to predict whether the gains will be substantial and whether costs will rise or fall as a result. The reform proposals would also expand prevention efforts, but Congress now recognizes that even though prevention may improve health outcomes, it is unlikely to reduce costs.

To avoid increasing the federal deficit, both chambers rely on a combination of tax increases and reductions in the growth of Medicare spending and other cuts — reductions in the growth of payments for providers other than physicians and payment cuts to Medicare Advantage plans. Although some observers have criticized these reductions for diminishing Medicare benefits, a more important criticism is that in the absence of reform, these policies would probably have been enacted to address the budget deficit but will no longer be available for that purpose. The House has emphasized tax increases for high-income families, and the Senate has emphasized taxing health insurance plans costing more than $21,000 per year for family coverage. The Senate approach is likely to have a powerful effect on health care costs by inducing people to shift to less-comprehensive insurance.

If combined House–Senate reform legislation makes it to the President's desk for signature, enactment would be only a start to the reform process. Regulations will need to be written, organizations (such as exchanges) will need to be built, and midcourse corrections will need to be legislated to deal with unforeseen consequences. And since only tentative steps will have been taken to reform care delivery, policymakers will inevitably have to return to battle on that front.

Financial and other disclosures provided by the author are available with the full text of this article at NEJM.org.

This article (10.1056/NEJMp0910678) was published on November 11, 2009, at NEJM.org.