Physicians' and Medical Students
Proposal for National Health Insurance
Physicians for National Health
Plan newsletter, Fall 2002
The United States spends more than twice
as much on health care as the average of other developed nations,
all of which boast universal coverage. Yet over 39 million Americans
have no health insurance whatsoever, and most others are underinsured,
in the sense that they lack adequate coverage for all contingencies
(e.g., long-term care and prescription drug costs).
Why is the U. S. so different? The short
answer is that we alone treat health care as a commodity distributed
according to the ability to pay, rather than as a social service
to be distributed according to medical need. In our market-driven
system, investor-owned firms compete not so much by increasing
quality or lowering costs, but by avoiding unprofitable patients
and shifting costs back to patients or to other payers. This creates
the paradox of a health care system based on avoiding the sick.
It generates huge administrative costs, which, along with profits,
divert resources from clinical care to the demands of business.
In addition, burgeoning satellite businesses, such as consulting
firms and marketing companies, consume an increasing fraction
of the health care dollar.
We endorse a fundamental change in America's
health care - the creation of a comprehensive National Health
Insurance (NHI) Program. Such a program - which in essence would
be an expanded and improved version of Medicare - would cover
every American for all necessary medical care. Most hospitals
and clinics would remain privately owned and operated, receiving
a budget from the NHI to cover all operating costs. Investor-owned
facilities would be converted to not-for-profit status, and their
former owners compensated for past investments. Physicians could
continue to practice on a fee-for-service basis, or receive salaries
from group practices, hospitals or clinics.
A National Health Insurance Program would
save at least $150 billion annually by eliminating the high overhead
and profits of the private, investor-owned insurance industry
and reducing spending for marketing and other satellite services.
Doctors and hospitals would be freed from the concomitant burdens
and expenses of paperwork created by having to deal with multiple
insurers with different rules - often rules designed to avoid
payment. During the transition to an NHI, the savings on administration
and profits would fully offset the costs of expanded and improved
coverage. NHI would make it possible to set and enforce overall
spending limits for the health care system, slowing cost growth
over the long run.
A National Health Insurance Program is
the only affordable option for universal, comprehensive coverage.
Under the current system, expanding access to health care inevitably
means increasing costs, and reducing costs inevitably means limiting
access. But an NHI could both expand access and reduce costs.
It would squeeze out bureaucratic waste and eliminate the perverse
incentives that threaten the quality of care and the ethical foundations
For physicians, the gratifications of
healing give way to anger and alienation in a system that treats
sick people as commodities and doctors as investors' tools."
U.S. health care is rich in resources.
Hospitals and sophisticated equipment abound; even many rural
areas boast well-equipped facilities. Most physicians and nurses
are superbly trained; dedication to patients the norm. Our research
output is prodigious. And we fund health care far more generously
than any other nation.
Yet despite medical abundance, care is
too often meager because of the irrationality of the present health
care system. Over 39 million Americans have no health insurance
whatsoever, including 33% of Hispanics, 21% of African-Americans
and Asians, and 11% of non-Hispanic Whites. Many more - perhaps
most of us - are underinsured. The world's richest health care
system is unable to assure such basics as prenatal care and immunizations,
and we trail most of the developed world on such indicators as
infant mortality and life expectancy. Even the well-insured may
find care compromised when HMOs deny them expensive medications
and therapies. For patients, fear of financial ruin often amplifies
the misfortune of illness.
For physicians, the gratifications of
healing give way to anger and alienation in a system that treats
sick people as commodities and doctors as investors' tools. In
private practice we waste countless hours on billing and bureaucracy.
For the uninsured, we avoid procedures, consultations, and costly
medications. In HMOs we walk a tightrope between thrift and penuriousness,
under the surveillance of bureaucrats who prod us to abdicate
allegiance to patients, and to avoid the sickest, who may be unprofitable.
In academia, we watch as the scholarly traditions of openness
and collaboration give way to secrecy and assertions of private
ownership of vital ideas; the search for knowledge displaced by
a search for intellectual property.
For seven decades, opponents have blocked
proposals for national health insurance, touting private sector
solutions. Their reforms over the past quarter century have emphasized
market mechanisms, endorsed the central role of private insurers,
and nourished investor ownership of care. But vows of greater
efficiency, cost control, and consumer responsiveness are unfulfilled;
meanwhile the ranks of the uninsured have swelled. HMOs, launched
as health care's bright hope, have raised Medicare costs by billions,
and fallen to the basement of public esteem. Investor-owned hospital
chains, born of the promise of efficiency, have been wracked by
scandal; their costs high, their quality low. And drug firms,
which have secured the highest profits and lowest taxes of any
industry, price drugs out of reach of those who need them most.
Many in today's political climate propose
pushing on with the marketization of health care. They would shift
more public money to private insurers; funnel Medicare through
private managed care; and further fray the threadbare safety net
of Medicaid, public hospitals and community clinics. These steps
would fortify investors' control of care, squander additional
billions on useless paperwork, and raise barriers to care still
It is time to change fundamentally the
trajectory of America's health care - to develop a comprehensive
National Health Insurance (NHI) program for the United States.
Four principles shape our vision of reform.
1. Access to comprehensive health care
is a human right. It is the responsibility of society, through
its government, to assure this right. Coverage should not be tied
to employment. Private insurance firms' past record disqualifies
them from a central role in managing health care.
2. The right to choose and change one's
physician is fundamental to patient autonomy. Patients should
be free to seek care from any licensed health care professional.
3. Pursuit of corporate profit and personal
fortune have no place in caregiving and they create enormous waste.
The U.S. already spends enough to provide comprehensive health
care to all Americans with no increase in total costs. However,
the vast health care resources now squandered on bureaucracy (mostly
due to efforts to divert costs to other payers or onto patients
themselves), profits, marketing, and useless or even harmful medical
interventions must be shifted to needed care.
4. In a democracy, the public should set
overall health policies. Personal medical decisions must be made
by patients with their caregivers, not by corporate or government
We envision a national health insurance
program (NHI) that builds upon the strengths of the current Medicare
system. Coverage would be extended to all age groups, and expanded
to include prescription medications and long term care. Payment
mechanisms would be structured to improve efficiency and assure
prompt reimbursement, while reducing bureaucracy and cost shifting.
Health planning would be enhanced to improve the availability
of resources and minimize wasteful duplication. Finally, investor-owned
facilities would be phased out. In each section we present a key
feature of the proposal followed by the rationale for our approach.
A single public plan would cover every
American for all medically-necessary services including: acute,
rehabilitative, long term and home care, mental health, dental
services, occupational health care, prescription drugs and supplies,
and preventive and public health measures. Boards of expert and
community representatives would assess which services are unnecessary
or ineffective, and exclude them from coverage. As in the Medicare
program, private insurance duplicating the public coverage would
be proscribed. Patient co-payments and deductibles would also
Abolishing financial barriers to care
is the sine qua non of reform. Only a single comprehensive program,
covering rich and poor alike, can end disparities based on race,
ethnicity, social class and region that compromise the health
care of the American people. A single payer program is also key
to minimizing the complexity and expense of billing and administration.
Private insurance that duplicates the
NHI coverage would undermine the public system in several ways.
(1) The market for private coverage would disappear if the public
coverage were fully adequate. Hence, private insurers would continually
lobby for underfunding of the public system. (2) If the wealthy
could turn to private coverage, their support for adequate funding
of NHI would also wane. Why pay taxes for coverage they don't
use? (3) Private
coverage would encourage doctors and hospitals
to provide two classes of care. (4) A fractured payment system,
preserving the chaos of multiple claims data bases, would subvert
quality improvement efforts, e.g. the monitoring of surgical death
rates and other patterns of care. (5) Eliminating multiple payers
is essential to cost containment. Public administration of insurance
funds would save tens of billions of dollars each year. Our private
health insurers and HMOs now consume 13.6 percent of premiums
for overhead, while both the Medicare program and Canadian NHI
have overhead costs below 3 percent. Our multiplicity of insurers
forces U.S. hospitals to spend more than twice as much as Canadian
hospitals on billing and administration, and U.S. physicians to
spend about 10 percent of their gross incomes on excess billing
costs. Only a true single payer system would realize large administrative
savings. Perpetuating multiple payers - even two - would force
hospitals to maintain expensive cost accounting systems to attribute
costs and charges to individual patients and payers. In the U.K.,
market-based reforms that fractured hospital payment have swollen
Co-payments and deductibles endanger the
health of the sick poor, decrease use of vital inpatient medical
services as much as unnecessary ones, discourage preventive care,
and are unwieldy and expensive to administers. Canada has few
such charges, yet health costs are lower than in the U.S. and
have risen more slowly.
Instead of the confused and often unjust
dictates of insurance companies, a greatly expanded program of
clinical effectiveness research would guide decisions on covered
services and drugs, as well as on capital allocation.
PAYMENT FOR HOSPITAL SERVICES
The NHI would pay each hospital a monthly
lump sum to cover all operating expenses - that is, a global budget.
The hospital and the NHI would negotiate the amount of this payment
annually, based on past expenditures, previous financial and clinical
performance, projected changes in levels of services, wages and
input costs, and proposed new and innovative programs. Hospitals
would not bill for services covered by the NHI. Hospitals could
not use any of their operating budget for expansion, profit, excessive
executives' incomes, marketing, or major capital purchases or
leases. Major capital expenditures would come from the NHI fund,
but would be appropriated separately based upon community needs.
Investor-owned hospitals would be converted to not-for-profit
status, and their owners compensated for past investment.
Global budgeting would simplify hospital
administration and virtually eliminate billing, freeing up substantial
resources for enhanced clinical care. Prohibiting the use of operating
funds for major capital purchases or profit would eliminate the
main financial incentive for both ,./ excessive interventions
(under fee-for-service payment) and skimping on care (under capitated
or DRG systems), since neither inflating revenues nor limiting
care could result in institutional gain. Separate and explicit
appropriation of capital funds would facilitate rational health
care planning. These methods of hospital payment would shift the
focus of hospital administration away from lucrative services
that enhance the "bottom line" and toward providing
optimal clinical services in accord with patients' needs.
PAYMENT FOR PHYSICIANS AND OUTPATIENT
The NHI would include three payment options
for physicians and other practitioners: fee-for-service; salaried
positions in institutions receiving global budgets; and salaried
positions within group practices or HMOs receiving capitation
payments. Investor-owned HMOs and group practices would be converted
to not-for-profit status. Only institutions that actually deliver
care could receive NHI payments, excluding most current HMOs and
some practice management firms that contract for services but
don't own or operate any clinical facilities.
1) Fee-for-service: The NHI and representatives
of the fee-for-service practitioners (perhaps state medical societies)
would negotiate a simplified, binding fee schedule. Physicians
would submit bills to the NHI on a simple form, or via computer,
and would receive extra payment for any bill not paid within 30
days. Physician payment would cover only the work of physicians
and their support staff, and would exclude reimbursement for costly
office-based capital expenditures for such items as MRI scanners.
Physicians accepting payment from the NHI could bill patients
directly only for uncovered services (e.g. for cosmetic surgery).
2) Salaries within institutions receiving
global budgets: Institutions such as hospitals, health centers,
group practices, migrant clinics, and home care agencies could
elect to be paid a global budget for the delivery of care as well
as for education and prevention programs. The negotiation process
and regulations regarding capital payment and profits would be
similar to those for inpatient hospital services. Physicians employed
in such institutions would be salaried.
3) Salaries within capitated groups: HMOs,
group practices, and other institutions could elect to be paid
capitation premiums to cover all outpatient, physician, and medical
home care. Regulation of payment for capital and profits would
be similar to that for hospitals. The capitation premium would
not cover inpatient services (except physician care) which would
be included in hospital global budgets. Selective enrollment policies
would be prohibited and patients would be permitted to disenroll
with appropriate notice. HMOs would pay physicians a salary, and
financial incentives based on the utilization or expense of care
would be prohibited.
The proposed pluralistic approach to delivery
would avoid unnecessary disruption of current practice arrangements.
All three proposed options would uncouple capital purchases and
institutional profits from physician payment and other operating
costs, a feature essential for minimizing entrepreneurial incentives,
containing costs and facilitating health planning.
The fee-for-service option would greatly
reduce physicians' office overhead by simplifying billing. Canada,
and several European nations have developed successful mechanisms
for reconciling the inflationary potential of fee-for-service
practice with cost containment. These include: limiting the supply
of physicians; monitoring for extreme practice patterns; setting
overall limits on regional spending for physicians' services (thus
relying on the profession to "police" itself; and even
capping individual physicians' reimbursement. These regulatory
options are not difficult (and have not required extensive bureaucracy)
when all payment comes from a single source. Similar measures
might be needed in the U.S. There might also be a concomitant
cap on spending for the regulatory apparatus - eg. expenditures
for program administration and reimbursement bureaucracy might
be restricted to three percent of total costs.
Global budgets for institutional providers
would eliminate billing, while providing a predictable and stable
financial support. Such funding could also stimulate the development
of community prevention (eg. school-based smoking prevention programs)
whose costs are difficult to attribute (and bill) to individual
Continuity of care would no longer be
disrupted as patients' insurance coverage changes due to retirement
or job change. Incentives for capitated providers to skimp on
care would be minimized since unused operating funds could not
be diverted to profits or capital investments.
LONG TERM CARE
The NHI would cover disabled Americans
of all ages for all necessary home and nursing home care. Anyone
unable to perform activities of daily living (ADLs or IADLs) would
be eligible for services. A local public agency in each community
would determine eligibility and coordinate care. Each agency would
receive a single budgetary allotment to cover the full array of
long term care services in its district. The agency would contract
with long term care providers for the full range of needed services,
eliminating the perverse incentives in the current system that
often pays for expensive institutional care but not the home-based
services that most patients would prefer.
NHI would pay long term care facilities
and home care agencies a global (lump sum) budget to cover all
operating expenses. For-profit nursing homes and home care agencies
would be transformed to not-for profit status. Doctors, nurses,
therapists, and other individual long term care providers would
be paid on either a fee-for-service or salaried basis.
Since most disabled and elderly people
would prefer to remain in their homes, the program would encourage
home and community based services. The 7 million unpaid care-givers
such as family and friends who currently provide 70% of all long
term care would be assisted through training, respite services,
and in some cases financial support. Nurses and social workers,
as well as an expanded cadre of trained geriatric physicians,
would assume leadership of the system.
[*Activities of daily living (ADLs) include:
bathing, dressing, going to the toilet, getting outside, walking,
transferring from bed to chair, or eating. Instrumental activities
of daily living (IADLs) include: cooking, cleaning, shopping,
taking medications, doing laundry, making phone calls, and managing
Only a handful of Americans have private
coverage for long term care. For the rest, only virtual bankruptcy
brings entitlement to public coverage under Medicaid. Universal
coverage must be combined with local flexibility to match services
to needs, overall budgetary limits, and simplified regulations
that minimize bureaucracy and assure that payments benefit patients,
not executives or investors.
Our proposal borrows features from successful
programs in some Canadian provinces and in Germany. The German
program, in particular, demonstrates the fiscal and human advantages
of encouraging rather than displacing family caregivers - offering
them recompense, training and other supports.
CAPITAL ALLOCATION, HEALTH PLANNING, AND
Funds for the construction or renovation
of health facilities, and for major equipment purchases would
be appropriated from the NHI budget. Regional health planning
boards of both experts and community representatives would allocate
these capital funds. Major capital projects funded from private
donations would require approval by the health planning board
if they entailed an increase in future operating expenses.
The NHI would pay owners of for-profit
hospitals, nursing homes and clinics a reasonable fixed rate of
return on existing equity. Since most new capital investment would
be funded by the NHI, it would not be included in calculating
return on equity. For-profit HMOs would receive similar compensation
for their clinical facilities and for computers and other administrative
facilities needed to manage NHI. They would not be reimbursed
for loss of business opportunities or for administrative capacity
not used by the NHI.
Current capital spending greatly affects
future operating costs, as well as the distribution of resources.
Effective health planning requires that funds go to high quality,
efficient programs in areas of greatest need. Under the existing
reimbursement system which combines operating and capital payments,
prosperous hospitals can expand and modernize while impoverished
ones cannot, regardless of community health needs or quality of
care. NHI would replace this implicit mechanism for distributing
capital with an explicit one, facilitating allocation based on
need and quality. Insulating these crucial decisions from distortion
by special interests will require rigorous technology evaluation
and needs assessment, as well as active involvement of providers
The consistently poor performance of investor-owned
facilities precludes their participation in NHI. Investor ownership
has been shown to compromise quality of care in hospitals, nursing
homes, dialysis facilities, and HMOs; for-profit hospitals are
particularly costly. A wide array of investor-owned firms have
defrauded Medicare and been implicated in other illegal activities.
For-profit providers would be phased out and compensated for past
investments in clinical facilities.
PRESCRIPTION DRUGS AND SUPPLIES
NHI would pay for all medically necessary
prescription drugs and medical supplies, based on a national formulary.
An expert panel would establish and regularly update the formulary.
The NHI would negotiate drug and equipment prices with manufacturers,
based on their costs (excluding marketing or lobbying). Where
therapeutically equivalent drugs are available, the formulary
would specify use of the lowest cost medication, with exceptions
available in case of medical necessity. Suppliers would bill the
NHI directly (for the negotiated wholesale price plus a reasonable
dispensing fee) for any item in the formulary that is prescribed
by a licensed practitioner.
NHI could simultaneously address two pressing
needs: (1) providing all Americans with full coverage for necessary
drugs and supplies; and (2) containing drug costs. As a monopoly
purchaser, the NHI could exert substantial pressure on pharmaceutical
companies to lower prices. Similar programs in the U.S. and in
other nations (e.g. Australia) have resulted in substantial savings.
Additional reforms are urgently needed
to: improve prescribing practices; minimize medication errors;
upgrade monitoring of drug safety; curtail pharmaceutical marketing;
assure that the fruits of publicly funded drug research are not
appropriated for private profit; and ameliorate financial pressures
that skew drug development.
NHI would disburse virtually all payments
for health services. Total expenditures would be set at approximately
the same proportion of the Gross National Product as in the year
preceding the establishment of NHI.
Funds for the NHI could be raised through
a variety of mechanisms. In the long run, funding based on an
income or other progressive tax is the fairest and most efficient
solution, since tax-based funding is the least cumbersome and
least expensive mechanism for collecting money.
It is critical that the vast majority
of funds flow through the NHI. Such single source (monopoly) payment
has been the cornerstone of cost containment and health planning
in Canada and other nations with universal coverage. Government
expenditures, including payments for public employees' private
health coverage and tax subsidies to private insurance, already
account for nearly two-thirds of total health spending in the
U.S. This figure would rise modestly under NHI, to perhaps 85%
of health costs, and the public money now routed through private
insurers would instead be used to fund public coverage. The mechanism
for raising the additional funds for NHI is a matter of tax policy,
largely separate from the organization of health care per se.
Federal funding would attenuate inequalities among the states
in financial and medical resources.
The Patient's View - NHI would establish
a right to comprehensive health care. Each person would receive
an NHI card entitling him or her to care without co-payments or
deductibles. The card could be used at any fee-for-service practitioner
and at any institution receiving a global budget. HMO members
could receive non-emergency care only through their HMO, though
they could readily transfer to the non-HMO option.
Thus patients would have a free choice
of providers and delivery systems, and the financial threat of
illness would be eliminated. Taxes would increase, but would be
more than offset by the elimination of insurance premiums and
The Practitioner's View - Physicians would
have a free choice of practice settings. Treatment would no longer
be constrained by the patient's insurance status, nor by bureaucratic
Fee-for-service practitioners would be
paid promptly. The entrepreneurial aspects of medicine - the problems
as well as the possibilities - would be limited. Physicians could
concentrate on medicine; every patient would be fully insured,
but physicians could increase their incomes only by working harder.
Billing would involve imprinting the patient's NHI card onto a
slip, checking a box indicating the complexity of the encounter,
and sending the slip (or electronic equivalent) to the physician
payment board. This simplification of billing would save each
practitioner thousands of dollars annually in office expense.
Bureaucratic interference in clinical
decision making would sharply diminish. Costs would be contained
by controlling overall spending and limiting entrepreneurial incentives,
obviating the need for the kind of detailed administrative oversight
characteristic of current practice.
Salaried practitioners would be insulated
from the financial consequences of clinical decisions. Since savings
on patient care could no longer be used for institutional expansion
or profits, pressure to skimp on care would be minimized.
The Effect on Other Health Workers - Nurses
and other personnel would enjoy a more humane and efficient clinical
milieu. The burdens of paperwork associated with billing would
be lightened. The jobs of many administrative and insurance employees
would disappear, necessitating a major effort at job placement
and retraining. Many of these displaced workers might be deployed
in expanded programs of public health, health promotion and education,
home care, and as support personnel to free up nurses for clinical
The Effect on Hospitals - Hospitals' revenues
would become stabile and predictable. More than half of the current
hospital bureaucracy would be eliminated, and the remaining administrators
could focus on facilitating clinical care and planning for future
The capital budget requests of hospitals
would be weighed against other priorities for health care investment.
Hospitals would neither grow because they were profitable nor
fail because of unpaid bills - though regional health planning
would undoubtedly mandate that some expand and others close or
be put to other uses.
Responsiveness to community needs, quality
of care, efficiency and innovation would replace financial performance
as the "bottom line." Proprietary hospitals would be
converted to not-for-profit status.
The Effect on the Insurance/HMO Industry
- The insurance/HMO industry would have virtually no role in health
care financing, since public insurance administration is more
efficient, and single source payment is the key to both equal
access and cost control. Indeed, most of the extra funds needed
to finance the expansion of care would come from eliminating insurance
company overhead and profits, and abolishing the billing apparatus
necessary to apportion costs among the various plans.
The Effect on Corporate America - Firms
now providing generous employee health benefits would probably
realize savings because their tax contribution to NHI would likely
be less than current health insurance costs. Since most firms
competing on international markets would save money, the competitiveness
of U.S. products would be enhanced. Tax-based NHI funding might,
however increase costs for companies not now providing health
Health Benefits and Financial Costs -
Ample evidence indicates that removing financial barriers encourages
timely care and improves health.
Independent estimates by several government
agencies and private sector experts indicate that NHI could cover
all of the uninsured and eliminate copayments and deductibles
for the insured, without increasing total health care costs. Savings
on administration and billing (which would drop from the current
25% of total health spending to under 15%) would approximately
offset the costs of expanded services. However, the expansion
of long term care (under any system) would increase costs. Experience
in Canada suggests that the increased demand for acute care would
be modest (after an initial surge), and improvements in health
planning and cost containment made possible by single source payment
would slow health care cost escalation. Vigilance would be needed
to stem the regrowth of costly and intrusive bureaucracy.
Unsolved Problems - This brief proposal
leaves many vexing problems unsolved. Careful planning will be
needed to ease dislocations during the implementation of the program.
The encouragement of prevention and healthy life styles, and improvements
in occupational and environmental health will not automatically
follow from the institution of NHI. Similarly, the abolition of
racial, linguistic, geographic and other non-financial barriers
to access will require continuing efforts. The need for quality
improvement will remain urgent. High medical school tuitions that
discourage low income applicants, the underrepresentation of minorities,
the role of foreign medical graduates, and other problems in medical
education will remain. Some patients will still seek inappropriate
care, and some physicians will still succumb to the temptation
to increase their incomes by encouraging unneeded services. Assuring
adequate research funding, engendering collegiality and excellence
in academia, and minimizing the commercial skew of current research
priorities will remain challenging. Though NHI will not eliminate
these problems, it will establish a framework for addressing many
ALTERNATIVES TO NHI
President Bush and others have proposed
a variety of health reforms aimed at slowing cost growth, shoring
up Medicare, expanding coverage, and improving efficiency. These
proposals share several common themes.
1 - "Defined contribution schemes"
and other mechanisms to increase patients' price sensitivity.
Some prominent economists and corporate leaders favor limiting
employers' premium contributions to a fixed amount, pressuring
employees to choose lower-cost insurance options. Many cite the
Federal Employees Health Benefit Program (FEHBP) as a model for
Unfortunately, costs in the FEHBP have
risen as rapidly as in Medicare or for private employers, providing
little evidence that the defined contribution approach contains
costs. Moreover, this approach assures a multi-tiered insurance
system, with lower-income workers forced into skimpier plans.
In the long run, such programs are more likely to shift costs
from firms to employees than to slow overall cost growth.
2 - Tax subsidies and vouchers for coverage
for the uninsured. President Bush, as well as some Democrats,
would offer tax credits to low income families who purchase private
The $2000 per family subsidy ($1000 per
single person) that the President has proposed falls far short
of the cost of adequate insurance; in Massachusetts, HMO family
premiums average about $6000 annually. Hence, few of the uninsured
could afford adequate coverage even with the subsidy. This problem
would increase over time; premiums would surely rise more rapidly
than subsidies. Most of the tax credits would subsidize premium
payments for people who already have coverage, since employers
would be tempted to drop insurance for employees eligible for
subsidies. As a result, large outlays for tax subsidies would
buy little new coverage; $13 billion annually would cover only
4 million (less than 10%) of the uninsured.
Moreover, tax credits would amplify administrative
inefficiency. If the IRS paid the year's subsidy when tax returns
were filed (i.e. the following April), it would come too late
to provide the cash flow that low income families need to purchase
coverage. Paying the credit with each paycheck would create an
administrative nightmare; it would require ongoing monitoring
of household income, qualification for the subsidy, etc.
In addition, the new coverage would be
purchased from private insurers whose average overhead/profits
consumes 13.6% of premiums - six times that of Medicare. Not surprisingly,
the health insurance industry supports the tax credit approach;
additional tax dollars would end up in their coffers, with little
3- Expansion of Medicaid, CHIP and other
public programs. Some Democrats favor expanding Medicaid eligibility
by raising income limits for families, or by including poor, childless
adults. Recently, the National Governors' Association (NGA) proposed
that states be allowed to buy stripped down HMO coverage for Medicaid
recipients, and use the savings to expand coverage.
Several problems bedevil these strategies.
First, Medicaid already offers second-class coverage. Programs
like Medicaid that segregate the poor virtually assure poor care,
and are more vulnerable to funding cuts than public programs that
also serve affluent constituencies. In most states, Medicaid payment
rates are low and many doctors resist caring for Medicaid patients.
As a result, access to care for Medicaid enrollees is often little
better than for the uninsured. Further cuts to benefits, as the
NGA suggests, would leave Medicaid recipients with coverage in
Second, even large Medicaid expansions
in the past have failed to keep pace with the erosion of private
coverage. Between 1987 and 1993, Medicaid enrollment grew from
20.2 million to 31.7 million, yet the number of uninsured rose
by 8.7 million. Only the unprecedented economic boom of the late
1990s interrupted this trend. An economic downturn would quickly
deplete states' tax revenues, reducing funds for Medicaid at the
same time as rising unemployment would deprive many of private
Turning Medicaid dollars over to private
HMOs assures that scarce funds will be diverted to overhead and
profit, and places vulnerable patients at risk. In the first Medicaid
HMO experiment in California a quarter of a century ago private
plans routinely exploited poor patients, an experience repeated
in Florida, Tennessee and other states. Past promises (e.g. in
Oregon and Tennessee) that savings from Medicaid coverage cuts
would lead to universal coverage have proven empty.
Finally, the complexity of enrollment
procedures, the need for repeated eligibility determination, and
the stigma attached to Medicaid and similar programs for the poor
assures that many of those who are eligible will not be enrolled.
While few can argue with proposals to
cover more of the poor and near-poor, Medicaid expansion without
systemwide reform is a stopgap measure unlikely to stem future
increases in the number of uninsured. It does not lead to universal
4- The Medicare HMO program and Medicare
voucher schemes. Under Medicare's HMO program, private HMOs have
already enrolled millions of seniors. Medicare has paid these
plans a set fee - 95% of the average cost of a Medicare fee-for
service enrollee in the region - for each enrollee. Several states
have also pushed Medicaid recipients into privately-run HMOs.
Many Republicans and a few Democrats hope to expand Medicare's
use of private insurers by offering seniors a voucher to purchase
private coverage in lieu of traditional Medicare.
These strategies assume that private plans
are more efficient than Medicare; that seniors can make informed
choices among health plan options; and that private insurers'
risk avoidance can be thwarted. All three assumptions are ill-founded.
Medicare is more efficient than commercial
insurers; costs per beneficiary have risen more slowly and overhead
is far lower.
An AARP survey of seniors found that few
had adequate knowledge to make informed choices among plans.
Despite regulations prohibiting risk selection
in the current Medicare HMO program, plans have successfully recruited
healthier than average seniors. Hence HMOs have collected high
premiums for patients who would have cost Medicare little had
they remained in fee-for service Medicare. Moreover, HMOs have
dumped more than a million seniors in counties where profits are
low, while continuing to enroll Medicare patients in profitable
areas. As a result, HMOs have increased Medicare costs by $2 billion
to $3 billion each year, and disrupted the continuity of care
for many patients.
A voucher (so-called "premium support")
program for Medicare would also push low income seniors into skimpy
plans - similar to the "defined contribution" approach
to employee coverage discussed above. Moreover, Congress is unlikely
to increase the value of the voucher to keep pace with the rising
costs of private plans. Over time, seniors' out-of-pocket costs
for coverage would likely rise.
Health care reform is again near the top
of the political agenda. Health care costs have turned sharply
upward. The number of Americans without insurance or with inadequate
coverage rose even in the boom years of the 1990s. Medicare and
Medicaid are threatened by ill-conceived reform schemes. And middle
class voters are fed up with the abuses of managed care.
Incremental changes cannot solve these
problems; further reliance on market-based strategies will exacerbate
them. What needs to be changed is the system itself.
National Health Insurance is an essential
safeguard for our patients; its advocacy is an ethical responsibility
of our profession.