Health Reform

The Big Picture On Health Reform
by Steve Schulte

It now looks like there may well be sweeping healthcare reform legislation passed and signed by President Obama by the end of this year. One note of caution: keep the big picture in mind. The U.S. has been on the brink of major healthcare reform -several times before. With the Clinton efforts in 1994, during the Truman Administration after World War II, in the first Roosevelt years during the Great Depression and even as far back as the 1920s. Some would argue that the debate leading up to Medicare’s startup in the mid-Sixties was actually about major healthcare reform. But each of these previous attempts was stopped far short of the ultimate goal.

This time, three major factors may come into alignment to support passage of some reform measure. First, big business and consumer groups are in sync demanding some reform of the system and help in controlling costs. Second, most of the huge provider stakeholders including unions, pension funds, the AMA, the American Hospital Association, the American Health Insurance Plans (AHIP) and even PHarma (the group representing many large pharmaceutical companies) support some type of legislation that would lead to the reduction of the number of uninsured Americans. Finally, a popular new president and the heads of key House and Senate committees are all publicly committed to major reform this year.

This issue was heightened recently because of announcements that top Democratic senators (and powerhouses) Ted Kennedy (Mass.) and Max Baucus (Mt.) are advancing differing legislative variations from their respective committees. Momentum seemed to slow when the Congressional Budget Office announced that the bill from the Kennedy committee would cost up to $1.6 trillion over the next 10 years and still not cover all those currently uninsured. But, on June 19, the House overwhelmingly passed legislation that emerged from three different committees and that strongly revived political hopes.

However, this sort of shifting will con-tinue through the summer. The outcome here matters. To understand why, let’s look more closely at two aspects being proposed (and opposed) as part of wide reform: mandatory coverage that includes sanctions against private insurers who cherry pick the healthiest or who deny coverage altogether for pre-existing but often manageable conditions. A government model would be set up to compete with private insurers as part of the final legislation.

Let’s start at the beginning. About 46 million Americans are without health coverage. That is, about 18% of the total population under 65. Moreover, eight in 10 uninsured people come from working families – almost 70% of them from families with one or more full-time workers. (Data cited are from the U.S. Census Bureau and reports from the Henry J. Kaiser Foundation.)
It is not just the poor, the unemployed and the young who are uninsured. (But, of course, 28.1% of 18-24 year olds are not.) Looking more deeply, 40% of the uninsured are in households that earn $50,000 or more annually. Only about two thirds of small businesses can afford to offer insurance to their employees – yet 38% of all employees work in this segment of the economy. Strikingly, 10.7% of all children in the U.S. are without insurance. And the number of Latinos who were uninsured in 2007 was 15 million (about 32% of that population). This number is rising as the demographic increases per total population.

Those facts should help put a face on the overall issue. But what they also tell us is that the lack of coverage (forget, for a moment, underinsurance) is very, very costly. It appears that healthcare costs are now growing at around 9% again. They take up an increasing chunk not just of household income, but also of the GDP.

Some studies estimate that every individual insured in California pays approximately $800 more per year for their premiums just to cover the cost of uncompensated care and the systemic burden of the uninsured. The U.S. government spends around $100 billion per year to provide the uninsured with healthcare. It goes without saying that much of this care would have been cheaper had it been sought sooner and somewhere other than an emergency room. The uninsured are 50% more likely to be hospitalized for a condition that could have been treated sooner – and in a preventive setting, according to a study by the Institute of Medicine.

So, when we get sticker shock reading the estimates that universal coverage may costs as much as $1.6 trillion over 10 years we do well to remember the tremendous cost of not insuring everyone. The Obama administration put a placeholder in the federal budget this year of slightly over $600 billion for healthcare expansion costs over the next decade. They further claim to have identified around $300 billion so far in trimming and adjustments to Medicare and Medicaid. (Remember that these two giants are now covering many people who have no private insurance.). So financing change will be a major battle and challenge.

Most health economists argue that everyone must be insured to wring wasted costs, errors and inefficiencies out of the system. Thus, mandatory coverage. While Obama resisted this concept as a candidate, his administration now appears to have softened as long as the final bill has an opt-out provision for those who cannot find a private plan in their immediate area (as might happen in some wide-open and rural parts of the country.)

Some will want coverage to come through employers. But, as the economy changes, more people work independently. This strategy will have to change since the high cost of coverage has pushed many businesses to ratchet down benefit options. Universal reform would allow an advantage for many individuals who cannot cover themselves or their families. They would not be dependent on the workplace as in the past. Smaller employers (say, 25 employees and under) would get help to provide coverage to all. De-linking employment and insurance coverage (hence, making insurance portable) would add huge cost savings to reform.

The Obama Administration (and now Senate and House Committees) favors the creation of a government model that would compete regionally with private insurers. This public option would do two things: it would set standards for basic coverage by adopting regionally recognized best practices in health delivery and it would create target market prices for policies. Again, this would vary regionally and there would be room for rate adjustment to cover the sickest individuals. But these aspects together would drive costs down.

Not surprisingly, insurers, health plans (represented by the AHIP) and many businesses strongly oppose the idea of a government model. Republican lawmakers and some Democrats agree with them. They claim that not only would private business be unable to compete with the government model, but also countless numbers of the insured would leave private plans in droves to join the government alternatives. They therefore dispute the purported cost savings.

While there is clearly some contradictory thinking going on here, there is little doubt that some companies would have a hard time meeting new cost and quality standards. That may be heresy within the industry, but it is demonstrated over and over again daily as agents try to find good coverage for their clients. So, the jury is out on how well private insurers will step up to the plate if change includes a public option. And unless private insurers have to adapt to the basic standards of this public option there is no doubt that adverse selection could result in people leaving private plans in droves for a likely cost advantage elsewhere.

It is instructive to observe what has happened with Medicare over the past few decades. Once considered branded as socialism, this giant program has done a reasonably good job of controlling costs while maintaining access to care for its members (CMS, the federal agency that runs Medicare and Medicaid, covers about 92 million Americans). It is a huge and costly government program, but the reforms under discussion now (including the allowance of the federal oversight agencies to negotiate with pharmaceutical companies on drug prices) would greatly assist in cost control. In fact, the Advantage plans offered by private insurers do draw off the healthier seniors. And they are subsidized by the federal government in doing so. Despite these inefficiencies most older people cannot imagine doing without Medicare.

So, for cost control as well as quality assurance there must be a government alternative model in whatever final universal coverage legislation comes out of the national legislative process. That is the only hope we have to offer a chance at meeting these very complicated and difficult goals. Without a basic, affordable, quality model to compete in the private market there will be no meaningful reform. Ditto failing to cover everyone.

It is clear that most observers, including health providers, health economists, and government policy makers see that widespread and effective reform is not just about increasing enrollment and thereby adding to the size of the federal government. It is about the need for both control and regulatory reform. Without these two giant levers any reform, no matter how well-intentioned, will ultimately fail – not just in trying to cover everyone, but because it will ultimately be unaffordable.

Should brokers and agents fear reform (not knowing yet just how it will look) and work to prevent it? My position is no, not at all. Be part of the debate since the issues are huge and important. If we truly represent the interests of our clients, whether individuals, families or businesses, then we ought to push for major reform. There will be plenty of good business opportunities in the field after reform for those who are sincere about wanting to help others get health coverage. But this must be a debate about true, much-needed reform, not business as usual. Anything less is history.
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Steve Schulte, of National Business Insurance Agency (NBIA)/HealthAdvocateSolutions, is a health policy specialist, insurance agent, and teacher. He is a licensed agent for health, life, long-term care with a Medicare specialization. Professional experience includes: chief of Public Affairs for the AIDS Healthcare Foundation, director of Strategic Planning and Analysis for Kaiser Permanente, executive director of Project Angel Food and Center for Living, executive director of the Gay and Lesbian Community Services Center, director of Strategic Planning and Analysis for Kaiser Permanente, Senior Contract Manager for Kaiser Permanente, government relations analyst for CareAmerica Health Plan (now Blue Shield). He has a Master’s in Public Health (MPH), UCLA, Los Angeles, CA Bachelor of Arts (BA), Yale University with a major in comparative government and politics (Modern Europe) and a minor in history. For more information, call 213-999-1227 or email steve6schul@yahoo.com.