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Beyond Band-Aids.

Why incremental reform can't solve our health-care crisis

IN EARLY 1998, WHITNEY ADDINGTON, the president of the main lobbying group for doctors of internal medicine, went to Capitol Hill for a meeting with Ted Kennedy's health care staffers. Before he could say anything, David Nexon, Kennedy's top health adviser, gave him a cold dose of reality: "If you're here to talk about universal coverage, don't waste your time."

That's what happens when your party tries to do health care reform and it blows up in your face. But these days, just five years after the death of the Clinton health care reform plan, universal coverage is back on the table. It's not hard to see why. In 1994, the year the Clinton plan crashed and burned, there were 40 million Americans with no health insurance. By 1998, there were 44.3 million. The problem actually got worse as the economy boomed.

So it's back to the drawing board: The American Medical Association and a coalition of other groups claim they're putting together a plan for getting to universal coverage. House Majority Leader Dick Armey, one of Congress' most conservative Republicans, and Rep. Pete Stark, one of its most liberal Democrats, have floated an expansive tax credit program for reaching the uninsured. And in December, the Health Insurance Association of America, which brought us the "Harry and Louise" ads that helped kill the Clinton plan, and the consumer group Families USA will take their hands off each other's throats for a day and co-host a conference on how to help the uninsured.

That all sounds great, but there's a catch: Most politicians and interest groups still talk about getting to universal coverage in baby steps. After being burned in 1994, President Clinton and Congressional Democrats have pushed politically safe, bite-sized reforms--like the State Children's Health Insurance Program and the new law to help people with disabilities keep their health coverage when they go to work. Hillary Rodham Clinton, the architect of the administration's 1994 plan, is now saying she belongs to the "school of smaller steps." And Al Gore's Campaign 2000 proposal casts him firmly in the incremental mold (although his advisers concede that universal coverage is not their objective).

There's just one problem. Experts pretty much agree that step-by-step health care reform won't do the job. At least, not the way we're doing it. Sure, it picks up a few million uninsured people here and a few million there. There are some ideas that haven't been tried yet that could pick up a few million more. But they don't lead anywhere. None of the step-by-steppers has the "road map" that shows how we're going to get from here to covering all of the 44 million uninsured Americans, or even most of them.

There is a way to fix this, but it's tough medicine: mandates. According to the experts, if we really want to make sure that every single American has affordable health coverage, the country will have to accept some kind of requirements for employers to cover their workers, for individuals to get health coverage for themselves, or both. Other countries have gotten everybody covered in steps rather than all at once, but none of them has done it on a totally voluntary basis.

The Third Rail of Health-care Reform

It's hard for politicians to talk about mandates: Ask Bill Clinton, who tried to require employers to pay for health insurance in 1994, and got creamed. As Gore policy adviser Elaine Kamarck explains, they seem "a little Big Brother-ish." People don't like being told to buy things they don't think they can afford. Sen. John Chafee's proposed alternative to the Clinton healthcare proposal would have required individuals to buy their own insurance (with subsidies for people who couldn't afford it). It didn't fly.

Now, a few brave souls have come back to the idea of individual mandates--but with some new twists. Bill Bradley's campaign proposal would require all parents to get health coverage for their kids and subsidize the ones who can't afford it. Bradley's mandate proposal is part of a broader campaign focus on children. Adults can take care of themselves, but children should be signed up in the hospitals at birth "to make absolutely sure that there is nobody left behind," according to a Bradley adviser.

On the other end of the political spectrum, Rep. Bill Thomas, a California Republican, has been talking about a health care plan that would give everyone a tax credit--and require them to buy at least basic health coverage for themselves a kind of personal mandate. His idea is to make people more cost-conscious by putting them in charge of their own coverage, and stop treating different groups of people differently. "Just call them Americans and set up an insurance pool for Americans," he said in an October speech.

Both ideas have a couple of kinks to be worked out. Both have to explain what they would do to people who don't buy coverage. (Bradley's advisers are putting out the word that he has no immediate plans to throw bad parents in jail.) And Thomas has to figure out how to fix the individual health insurance market so people aren't just fending for themselves. The market charges premiums that vary wildly depending on how old people are, where they live, and whether they have any health risk factors.

But what's interesting is that Bradley and Thomas have both concluded that voluntary steps alone can't achieve their objective. You have to think bigger. And health care experts of all ideological stripes tend to agree.

"All you have to do is look at history," said Henry E. Simmons, who served in the Department of Health, Education and Welfare under Presidents Nixon and Ford and now runs the National Coalition on Health Care. If you want a voluntary system to take care of the growing number of uninsured people, he said, "we're heading the wrong way very fast."

Uwe Reinhardt, the Princeton University health economist, says it is "technically impossible to proceed incrementally."

Mark A. Goldberg, a distinguished faculty fellow at the Yale School of Management, says it is "pretty clear that you can't get all the way to universal coverage through purely incremental, voluntary reforms."

And even Gail Shearer, the health policy director at Consumers Union, who recently put out a paper that stressed incremental health care reforms, admits it was written that way out of "political reality" and that "it's certainly not what we want."

Why Steps Don't Work

Still, most reformers are still talking about incremental reforms and that's where the whole effort is in danger of sputtering out. Why? Because incremental health care reform is like squeezing down on a balloon; squeeze down here, and something else pops out over there. All of the voluntary steps we've been trying for the last five years run into three problems: "crowd-out," where you pick up people who already had insurance but think they'll get a better deal with your program; "risk selection," where you split all of the healthy people and stick people into separate groups and the sick people's premiums go through the roof; and large numbers of people you simply don't reach, for a variety of reasons. Every incremental idea presented since 1994 runs into at least one of these walls.

Take the Democratic approach. They want to bring in targeted groups of uninsured people, one at a time. The State Children's Health Insurance Program (CHID was the first step. It was never intended to cover all 11 million uninsured children--just the five million in the poorest families. But so far, it hasn't even stopped the bleeding. As of June, it had picked up 1.3 million children. And yet, we still have 11 million uninsured kids. According to the Census Bureau's figures, there were actually 330,000 more in 1998 than there were in 1997, the year CHIP was created.

No one is calling CHIP a failure. Most think it needs more time, and the Department of Health and Human Services says the program could have 2.7 million kids enrolled by September 2000. But no one is calling it a blazing success story either. Too many kids are slipping through the cracks. Between Medicaid and CHIP, two-thirds of all uninsured children are already eligible for health insurance, according to the Kaiser Commission on Medicaid and the Uninsured. But they're not enrolled, thanks to poor outreach and states that make it nearly impossible to apply for Medicaid. CHIP should have another 2.6 million children under its wing. Medicaid's track record is even worse--4.7 million uninsured kids are eligible for the program but aren't in it.

Some incremental reforms are big deals in their own right. Adding prescription drug coverage to Medicare would be a huge change, and the Patients' Bill of Rights would affect millions of people in managed care plans. But after CHIP, the group-by-group reform ideas are getting smaller. Letting early retirees buy into Medicare, by the Democrats' own estimates, would help about 400,000 people. Not bad, but not much compared to 44.3 million.

And there's a bigger problem: These are all groups that poll well. How far can you go before you run out of sympathetic groups to cover? The kids were easy. Everybody likes kids. And old people. Low-income adults have a shot (that's the next group in the Gore plan), as long as they're working and have kids. But what about after that? We know who's most likely to be uninsured--the "working poor," part-time workers, young adults, Hispanics, people with little education, and noncitizens--but you can't design these programs by demographic groups. Even if you could figure out how to target the 18-to-24-year-olds, you might have a tough job building political support for it, since they're the group that's most likely to be healthy.

And then there are the people between jobs. Clinton tried to sell Congress a couple of years ago on a pilot program to cover the temporarily unemployed, but he had to drop it because there was no political support for covering people who aren't working. "You can come up with categories, but they're not nearly as politically attractive as the kids," says Henry J. Aaron, an economist at the Brookings Institution.

The Republicans have ideas too. They're not into government programs, so they're pushing tax incentives and small-business pools instead--the idea being that you can help the uninsured just as easily by bringing costs down and making it easier for them or their employers to buy health insurance. But nearly all of their ideas bring the danger of "risk selection," Democrats and other critics say, because they'd work best for people without a lot of health problems.

One Republican idea is "association health plans," a pet project the National Federation of Independent Business has been pushing for years. The idea is to let small businesses pool together and bargain for better health coverage deals. There's "HealthMarts," which would purchase cooperatives and let small businesses offer a menu of health plans to their workers, just as the Federal Employees Health Benefits Program does for federal employees. But both would cut costs by blocking the state laws that spell out all of the benefits a health plan has to offer. If they can escape those state laws and offer fewer benefits, the critics say, they can shut out all of the people who would have needed the other benefits. That goes against the whole idea of insurance, they say, which is to keep all of the healthy and sick people in one pool so the risks average out and the premiums are affordable for everyone.

That's also the knock against medical savings accounts, another big Republican idea that is being tried in a demonstration program. People get to sock away a lot of money, tax-free, and use it to pay for medical care under a catastrophic health insurance policy. The problem with that, the Democrats say, is that the out-of-pocket costs are so high--the minimum deductible is $1,500 for single coverage, $3,000 for families--that the only people who will buy them are people with lots of money or healthy people who don't expect big medical bills.

At the moment, that hasn't been a problem because people aren't exactly breaking down the doors to buy medical savings accounts. As of 1998, only 42,000 people had them, including 10,000 who used to be uninsured. But Republicans say that's because the demonstration program has so many restrictions that nobody would want them.

Tax Credits: A Way Forward?

There is one idea that could, in theory, draw support from both parties. Both sides have been looking at tax credits as an easy way of helping people buy health insurance by putting more money into their hands. Republicans like it because it uses the tax code, not a new government program; Democrats like it because it's a way to subsidize low-income people. Make it a refundable credit, like the Earned Income Tax Credit, and anyone who doesn't owe taxes gets the money as a payment. Work out the administrative kinks, like how to get the money to low-income people when they need it (one solution is to pay the credit to the health insurance carrier instead of the individual), and you've got a way to help the uninsured.

But health insurance is expensive, and researchers say the tax credits won't be very useful to low-income people unless they're big enough to pay for pretty much the whole premium. And they never do. Take Dick Armey's plan. He's introduced a bill that would give families up to $3,000 a year in tax credits to help them buy health insurance. That's more generous than some of the other proposals floating around in Congress. But health insurance can run over $5,000 a year for families, even when they can get it at group rates. The rest is going to have to come out of their pocket, and the bigger the gap, the fewer people will use the credit. According to a study by the Lewin Group, a tax credit that pays for half of the premium would be used by only 7.1 million uninsured people, and it would take an 80 percent tax credit to reach as many as 14.6 million.

Bradley goes farther, assuming he can pay for his proposal. He'd give the poorest families a refundable tax credit of $1,200 for kids and $1,800 for adults, up to $5,000 per family, which would be paid directly to the health plan. Bradley says he'd let them buy into the Federal Employees Health Benefits Program, but his tax credit may not be big enough to make that an option; the average premium for family coverage under FEHBP will run $6,300 this year. But it might buy other policies, and it's the most generous proposal out there at the moment. "He's putting real money on the table," said Linda Blumberg, a senior research associate at the Urban Institute. "You don't have to agree with his particular approach to appreciate that he's acknowledging that you can't do this for free"

Still, it's important to note that neither Bradley nor Gore would get all the way to universal coverage. Bradley says 95 percent of Americans would have health coverage under his plan (we're at about 84 percent now), but his advisers admit they haven't figured out how to get the other five percent and are looking for ideas. Gore says he'd get to nearly 90 percent with his incremental plan and claims Bradley would end up at about the same place. But Gore may not be trying to close the entire gap; Kamarck says the plan wouldn't help the relatively small group of upper-income uninsured people, and that the government shouldn't be subsidizing them anyway. Meanwhile, Rep. Thomas still talks about his plan for individual mandates only in the broadest terms, and no one else in Congress is pushing anything that gives the full road map for covering the uninsured. If that's really what they want, everybody has some work to do.

What Other Countries Did

Does health care reform have to be done all at once? Not necessarily, and most survivors of 1994 would say you probably shouldn't do that with a trillion-dollar health care system. So it's important to know that other countries that have gotten to universal coverage did it in steps. But their steps were bigger, and they weren't voluntary.

Germany used a combination of employer and individual mandates. It made everyone below a certain income level join "sickness funds," nonprofit health insurance organizations whose premiums are paid by employers and employees, and then gradually raised the income level. South Korea took 12 years to do it--again, with a combination of employer and individual mandates. It started by requiring all employers with 500 or more workers to provide health insurance, then ratcheted down the size of the companies until all firms with more than 16 workers were providing health coverage. Then it brought the other groups into the system by requiring them to buy health insurance and paying up to half of the costs. Even Canada's single-payer system took a couple of jumps to get into place: first hospital insurance, then coverage for physicians' services.

Unfortunately, none of these examples are likely to be very useful in the current debate. Germany, for example, got started in 1883. South Korea was a repressive regime when it did its reforms--not something you want to use in the talking points. Canada, at least, has a devoted following in this country for its single-payer system, and a number of physicians and consumer groups are still pushing for it. But the public isn't comfortable with it. Blendon's surveys show most Americans like the employer-based health care system. "The public is not ready for single-payer," California consumer advocate Jamie Court said in an October speech--and he's one of the supporters.

The point is, it is possible to have a long-term plan that proceeds in steps, if you make the effort to map it out. That's been the standard in other countries lately, which have taken 10 to 15 years to get to full health coverage, according to Gerard F. Anderson, director of Johns Hopkins University's Center for Hospital Finance and Management. "You don't sort of wake up one day and say you're going to go from zero to 100 percent coverage," said Anderson, who has studied the health care systems in 29 industrialized nations.

Most of this is academic at the moment, because even the incremental ideas aren't going anywhere. And that's another problem with incremental reform. If you thought it would be easier to pass than comprehensive health care reform, think again. The fights are just as big with the bite-sized pieces as they are with the whole thing. Sure, CHIP got through, as did the 1996 law which makes it easier to change jobs and still get health coverage. After that, it's all one big stalemate. Republicans have no interest in the Medicare buy-in, and the Patients' Bill of Rights is stuck in a bitter brawl over the right to sue health plans. Meanwhile, the Republicans keep offering the same menu of association health plans, HealthMarts, and medical savings accounts. And Clinton keeps threatening to veto them.

For the veterans of the 1994 health care debate, this is not a good sign at all. Jay Rockefeller, the Democratic senator who chairs the non-partisan Alliance for Health Reform, sounds frustrated and more than a little bit restless these days. He knows there is nothing close to the consensus or the political will Congress would need to start thinking bigger on health care reform again. But he also knows the smaller steps are not going to get us very far either.

"When we do talk about it, we talk about it incrementally, so you don't generate the energy to deal with any kind of comprehensive health care reform," Rockefeller says. "We're doing incremental reform because it's the only alternative we have. As we try to do incremental reform and fail, it makes the job of doing comprehensive health care reform more difficulty

"You certainly can argue that CHIP was good. You certainly can argue that doing pre-existing conditions and portability was good. Then you kind of run out of good things to say about incremental health care reform:

What And What Not To Do

So what will break the deadlock? No one's found the answer yet. But there are some things the health care reformers can do if they really want to find it.

* Set the goal from the beginning. Is it universal coverage, or isn't it? Like Gore's advisers, some would argue that it isn't, since 20 percent of the uninsured make more than $50,000 a year. "That's not a public policy problem," says Grace-Marie Arnett, coordinator of the Consensus Group, a coalition of centrist and conservative health policy researchers. If you're not worried about that group, just say you're going to get the rest and call it a day. But others, like Addington of the American College of Physicians-American Society of Internal Medicine, say universal coverage should be the goal and that you have to get everyone to agree on it by making it a theme of the presidential race. If the goal is to cover all of the uninsured, as both Gore and Bradley have said it is, then say it loud and say it proud--and stick to it.

* Have a road map. Instead of saying you're going to cover 90 percent of Americans and figure out how to cover the rest later, figure it out now. There's a lot to work out; besides getting everyone into the system, says Simmons of the National Coalition on Health Care, you have to decide how to bring costs down and improve the quality of health care, since they both have an impact on how many people are uninsured. That's a lot to bite off at one time, but that's the point of having a road map--you figure out how you do it over time. If you don't think it should be done at the federal level, let the states do it; Aaron suggests a CHIP-like approach in which the states would get federal matching funds if they can reach, say, 90 percent coverage by 2005 in whatever way they want. But the point, says Goldberg, is that "we need to have the conversation as to how we finish the job"

* Don't make insurance companies the heavy. That's a lesson Addington says everyone should have learned from 1994. Clinton tried that, and got buried in "Harry and Louise' ads; besides, it would be hard to make the reforms work without them. "I think we have to realize that the insurance companies have to play a part," Addington says.

* Be bipartisan. It sounds like a no-brainer, but then again, this is Washington. This is the lesson Clinton's advisers cite over and over again: If 1994 taught us anything, it's that health care reform doesn't get done unless there's a real give-and-take between both sides. So far, they've been proven right every time. CHIP got through because both parties agreed that children need health coverage, and the portability law got through because it was one of the few reforms from the 1994 effort that everyone could agree on. Just last year, it was a bipartisan Patients' Bill of Rights, not any of the Republican alternatives, that got through the House. But now it's stuck because neither Clinton nor the Senate Republicans are budging on the right to sue. And just about every other reform that's backed by only one side has stalled out.

* Don't punish politicians for changing their minds. Another no-brainer? Think about how Washington works. The politicians keep score on wins, losses, and flip-flops--often egged on by overeager staffers--and every reversal becomes a headline because the media can't resist. "If you change your position, everyone assumes it's because somebody got to you or you're weak,' Rockefeller says. "It's not because you've learned more about the subject or you've matured: That's especially tragic on health care, which is so complicated and so poorly understood by so many lawmakers. Even CHIP, that motherhood-and-apple-pie program, got stuck in Congress several times in 1997 because of partisan differences on how to pay for it and how rich the benefits should be.

And above all:

* Think big. Without a good, hard kick, the Washington health care crowd will continue doing what it has done for years. Go to conferences, talk about old favorites like the Patients' Bill of Rights or medical savings accounts, argue about whether they will cause the earth to crash into the sun, and leave. And then come back the next year at the same time and talk about the same things. "If we want to make any substantial progress," says Goldberg, "we need to do some fairly dramatic things:

Otherwise, we'll all be reading the same stories about the uninsured in another five years and wondering why nothing ever changed.

DAVID NATHER covers health care reform for the Bureau of National Affairs, Inc., a public policy news and information publisher in Washington, D.C.
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Title Annotation:problems confronting health care reform
Author:NATHER, DAVID
Publication:Washington Monthly
Date:Jan 1, 2000
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