The rest of the spectrum: alternatives to managed competition.

Although the notion of managed competition has dominated the debate on health reform options over the past year, other options are under consideration by Congress. Previous issues of Physician Executive detailed the essential elements of the Clinton plan and of proposals offered by Republican legislators.[1,2] The supporters of other options at either end of the spectrum, however, are adamant that the managed competition approach is either insufficient or too much, depending on political perspective.

The Single Payer Plan

Sen. Paul Wellstone (D-Minn.) is the leading advocate for passage of a new single-payer program, the American Health Security Act of 1993 (S. 491). Senator Wellstone has enlisted the support of other leading, liberal Democrats for his proposal. Representative James McDermott (D-Wash.), a physician, has offered companion legislation for the House of Representatives along with John Conyers (D-Mich.). The legislators advocate the need for adopting a single-payer system on the basis of the following arguments:

* A single-payer system will achieve universal access without regard to work status or health history. All other proposals under active consideration by Congress are tied to use of employer-based health insurance as a foundation for obtaining universal coverage for all American citizens. Wellstone and others argue that, by disengaging the discussion from employer mandates, the nation can achieve universal access without an extensive labyrinth of rules, regulations and oversight bodies.

* The approach is simple. Simplicity is an important element of the Wellstone plan. There are no "alliances" or other groups providing oversight of the health care system, except for a National Health Board.

* A single-payer system extracts inefficiencies from the current system. Supporters of single-payer systems point to the "vast and redundant insurance bureaucracy" that could be eliminated if such a system were adopted. They point to a General Accounting Office (GAO) study completed in 1991 that estimated that a 10 percent savings over the current national health budget could be gamered through adoption of a single-payer approach (i.e., approximately $100 billion for FY94).

* Freedom of choice is preserved for all patients. The Wellstone plan will permit every citizen to choose his or her doctor, and it eliminates copayments and deductibles. Furthermore, employers would no longer be allowed to limit choice of provider or plan to their employees. Freedom of choice is preserved through a national fee schedule paid to providers on a fee-for-service basis and through the use of a global budget for hospitals. The payments are negotiated on an annual basis with a state agency.

Administration of the Single-Payer Program

The act will create the American Health Security Standards Board, consisting of six presidential appointees. The structure of the Board is similar to Clinton's National Health Board, with one important exception. The Security Standards Board is vested with considerably more power and leverage in its oversight role of the nation's health care system. Specific Board responsibilities under the Wellstone plan will include: developing policies and procedures for eligibility, enrollment, benefits, provider participation, national and state funding levels, quality assurance, state planning for capital expenditures, and planning for health professional education; establishing uniform reporting standards; and publishing an annual report on the program. Several technical and advisory councils will be formed under the Board to advise on plan implementation, benefits structure, quality assurance, and other more technical elements of plan administration.

Each state will be required to submit a plan to the Security Standards Board for approval. Neighboring states will be allowed to join in establishing regional health programs, and the Board is empowered to encourage the states to consider regional planning to allocate resources optimally. Each state will establish a Health Advisory Council to oversee all elements of plan implementation at the state level. These state entities are vested with considerably more power and control of the health system than the designated state agencies of the Clinton plan. The State Council will use one fiscal agent to handle all claims processing of the state health plan under a competitive bidding process. The Council is also the direct link to providers and facilities at the local level through the payment mechanism.

At the local or regional level, a District Health Advisory Council will be established to act on complaints regarding program implementation, provide advice to the State Council on restructuring of the health care system, and review local funding needs and priorities.

Financing the Plan

Unlike the more complex employer-mandated approach, the Wellstone adopts a simple, straightforward financing structure through the use of taxation. The financing mechanism involves four basic approaches:

* First, the national insurance program will be financed through a 7.9 percent payroll tax on employers. A tax of this magnitude increases the Medicare payroll tax of 1.45 percent by an additional 6.45 percent.

* Second, the corporate income rate will increase from 34 to 38 percent for businesses with more than $75,000 in profits.

* Third, the personal income tax level for all American citizens will increase from 15-28-31 percent to 15-30-34 percent, with a top rate of 38 percent for families with incomes over $200,000. It is unclear, based on available information, how this portion of the financing structure will be altered in view of the tax increases that went into effect on Jan. 1, 1994. It is anticipated that some modification of the Wellstone tax structure will be required.

* Fourth, a health premium payment equal to 0.5 percent of income will also be paid. The quid pro quo for increased taxes on the American public is universal access to high-quality health care for all American citizens, with a control on increases in health expenditures. It is estimated that Americans will pay less in the long run through such a system than through the current system, where no controls on health expenditures exist.

All revenues collected for the Wellstone system will be paid into an American Health Security Trust Fund and can only be used for health care expenses. Furthermore, all revenue collections will occur at the federal level, i.e., the single payer. The State Council will be responsible for submitting a state budget to the Board for approval. By federal statute, the claims processing and billing portion of the budget is restricted to a maximum of 3 percent of the entire budget.

The incentive for active state involvement in controlling costs is included in the federal payment mechanism to the states. Essentially, the state program will be funded at a level equal to a weighted average of 86 percent of the total funding under the national budget. Some variation in payments to the states will be allowed, in a range of 81-91 percent, based on the state's economic condition. However, if a state exceeds its budget, it will be required to make up the difference through funds generated at the state level. Furthermore, if a state spends less than the budgeted amount (i. e., an excess federal payment is made), the state is allowed to retain the difference for other uses. As with the Medicare Prospective Payment System, which created a marked change in behavior through such a payment mechanism, we can anticipate that the states will become much more proactive, which is the intent, in controlling health care costs.

Payments to Providers

Payments to providers and institutions is relatively straightforward and simple. Each hospital and nursing home will negotiate an operating budget at the beginning of each year with the State Council. A variety of formulae are included in the methodology that must be considered in negotiating the budgets (e.g., past expenditures, inflation, compensation, occupancy levels, utilization data, etc.).

Considerable flexibility is given to the states in establishing payment methodologies for other facility-based services. Home health services, hospice care, home and community-based long-term care, and facility-based outpatient care payments can be based on a number of different approaches. States will be allowed to use global budgets, capitation, fee schedules, or alternative prospective payment mechanisms. As a result, whichever mechanism provides the most efficiency will most likely be the method selected by the states in payment for these services. (It is anticipated that capitation will be such a mechanism).

Providers will be paid on a negotiated fee schedule based on the Medicare national relative value scale. The states will negotiate fee schedules with practitioner representatives (e.g., state medical associations are used in Canada). Once again, the states will be encouraged to consider global payment methodologies in payments to providers. Finally, states will also be encouraged to work with Comprehensive Health Service Organizations (CHSOs) on a global budget or a risk-adjusted capitation basis. For all intents and purposes, the CHSOS are the same as the Accountable Health Plans defined under the Clinton plan.

Like the other comprehensive proposals pending before Congress, the Wellstone bill also addresses other elements of health reform, including medical education, use of alternative health providers, quality review and oversight. use of electronic databases, and other similar issues. For a complete review of these additional reform elements, the reader is encouraged to contact Senator Wellstone's office (202/224-5641).

The House Republican Proposal

Several other proposals have been placed on the congressional agenda. These proposals are clearly incremental and not intended to achieve universal access, a point that President Clinton has vowed is the basis for any discussions or negotiations on his health reform initiative. As a result, these proposals have received less attention from the public and the media.

House Republicans have led the counter proposals with the introduction of the Action Now Health Care Reform Act. Rep. Newt Gingrich (R-Ga.) and Sen. Phil Gramm (R-Tex.) are the principal architects and leading advocates for a less comprehensive, less expensive approach to health reform. The essential elements of the conservative Republican proposal are as follows:

* Access and insurance coverage. No employer mandate is provided in the legislation. Rather, each employer is required to offer a health insurance package to employees, although the cost of the package can be passed on to the employee. In addition, individuals who participate in a "MedAccess" or "MedSave" account (see below) will not be excluded from participation because of pre-existing conditions.

* Insurance reform. Employers are encouraged, but not required, to join health insurance purchasing cooperatives. A MedAccess account will be available to all American citizens as a method for paying the costs of catastrophic health care costs and for covering out-of-pocket medical expenses. Insurers will be required to offer two alternative MedAccess plans: a basic plan for essential medical and preventive benefits, and a standard plan that provides comprehensive benefits. Individuals will have the right to select the option they desire.

* Financing. The subsidy provided to senior citizens for Medicare will be abolished for those earning more than $100,000 per year. Tax deductions are provided to citizens who purchase health insurance, either as individuals or as employers. Both of these proposals have been advocated by Enthoven as essential elements in any health reform initiative that is intended to enhance buyer awareness of health care costs.[3]

* Cost control. Minimal intervention in the current system is provided, except for the establishment of stronger penalties for fraud in the provision of health care services.

* State roles and responsibilities. States are encouraged to modify their existing Medicaid participation to include individuals up to 200 percent of the poverty level. The legislation also encourages the use of managed care options for Medicaid recipients through pre-emption of state restrictions.

* Liability reform. The strength of the House Republican proposal from a provider perspective lies in its medical malpractice liability reform provisions:

* All medical liability disputes will be required to

pass through a state-sanctioned dispute resolution

process prior to entering the state court system.

* A cap on noneconomic damages is established.

* The legislation directs that punitive damages 

awarded by the courts be paid to the states to assist

in funding state programs designed to reduce medical

malpractice.

* A structured period payment schedule for compensatory

awards is allowed.

* A limit on attorney's fees is established.

* Joint and several liability is eliminated.

* Statues of limitations are set to more reasonable

levels.

* The use of practice guidelines is allowed by

providers as an affirmative defense in malpractice

actions.

Summary

Over the past three issues of Physician Executive, we have attempted to highlight the major health reform proposals pending before Congress. On the left, with a single-payer system, Senator Paul Wellstone is the champion. The plan basically is a Canadian-style, single-payer, universal access, comprehensive health plan for all American citizens. Clustered in the middle are managed competition models in their various renditions. Clinton just left of center, Congressman Cooper and Senators Durenberger R-Minn.) and Breaux (D-La.) at the center, and the moderate Senate Republicans (i.e. Dole, Chafee, and others) just right of center. On the right are the conservative Republicans, with incremental changes embodied in the proposals of Sen. Gramm and Rep. Gingrich.

The breadth of proposals indicates that Congress will be giving health care reform a serious review in 1994. In the final analysis, however, the broad base of support that exists for some type of managed competition approach makes proposals at either end of the spectrum unlikely prospects as the centerpiece for reform legislation actively considered by Congress this year.

As Chancellor Otto von Bismarck of Germany said in the late 1800s relative to the political process: "There are two things people should not see being made: sausage and legislation." Health reform will require a coalition of support if legislation is to be passed in 1994. The result will be a legislative package that considers multiple vantage points, both health care and political in nature. To the extent that the center represents the greatest number of bipartisan constituents is the extent to which legislation will of necessity embody the centrist perspective.

References

[1] Fickenscher, K., and Kindig, D. "Elements of the American Health Security Act of 1993." Physician Executive 19(6):4-16, Nov.-Dec. 1993. [2] Fickenscher, K. "The Republican Task Force Health Reform Proposal: Loyal Opposition or Bipartisan Collaboration?" Physician Executive 20(1):37-40, Jan. 1994. [3] Enthoven, A., and Kronick, R. "A Consumer Choice Health Plan for the 1990s. Universal Health Insurance in a System Designed to Promote Quality and Economy." New England Journal of Medicine 320(1):29-37, Jan. 5, 1989.