(Originally published in the San Francisco Chronicle)
The Obama administration's first 100 days focused largely on the nation's financial crisis. Nonetheless, this initial period includes two major health care efforts, one contained in the stimulus package, the other embedded in a policy strategy. A promising start, but the follow-through will be critical.
The stimulus package includes not just tax cuts and transportation projects but also some important health care provisions. There is a temporary 65 percent COBRA subsidy for people who lose their employer-based health insurance. It adds $87 billion in Medicaid funds for states, such as California, hit hard by the recession.
Such visible stimulus funds immediately fill revenue gaps. More important from a policy perspective are two long-term efforts. The legislation includes $19 billion over five years for health-information technology, which, if designed well, can be critical in transforming medical care. Likewise, $1.1 billion for comparative effectiveness research will help assess the value of various clinical interventions.
As for strategy, President Obama has repeatedly said that health care is a top priority but that he is willing to let Congress take the lead in putting forward proposals. This contrasts with the effort of the Clintons 16 years ago: They developed a fully formed plan and presented it to Congress, where it died before coming to a vote.
Democratic majorities in Congress do not ensure significant health care reform. A major split is developing between some Democrats, who favor a public plan to compete with private insurers, and most Republicans, who are unalterably opposed to such an arrangement. A do-or-die battle over a public plan would doom reform. It would, moreover, be a fight over a useless piece of "policy territory." Both sides believe that a public plan leveraging Medicare's market power over fees will drive private insurers out of business. For some, this is the goal; for others financial ruin.
"Medicare for all" might reduce administrative costs, but it will do little about the growth in overall expenditures that truly threatens our nation. Medicare expenditures vary enormously across the country, and no evidence exists that the high-use areas have better care or outcomes. A public plan is good for expanding coverage but not for innovations in the delivery of care. Special-interest groups routinely get Congress to prevent true cost-saving innovations.
Forget "more of the same" - a public plan just like either private insurers or Medicare. Obama should seize this opportunity to transform health care. A differently designed, publicly chartered plan can complement both private insurers and Medicare. It would build on the strengths and avoid the weaknesses of each.
The new public plan would cover just hospitalization and chronic illnesses. Those two categories account for more than 60 percent of the costs for those younger than 65. Pre-existing (chronic) conditions are the main reason private health insurance for individuals and small employers is so expensive. The new plan would price coverage according to demographics, not one's health. By combining a mandate that everyone have this basic coverage with income-based subsidies for affordability, we could rapidly reach universal coverage.
This new insurance pool would not just be open to individuals but also would sell its "coverage" to private insurers. The private plans then would not need to worry about attracting high-risk enrollees, markedly reducing their wasteful underwriting and marketing costs. Instead, private plans will compete by offering more attractive primary-care options.
The new pool would alter the ways providers are paid. Hospitals and physicians coming together would receive a bundled payment for the whole episode of care and have freedom in how they organize services and are compensated. With greater incentives for efficiency and quality, care would be transformed.
Medicare is too constrained by special interests to encourage greater efficiency and coordination. The new pool would not attempt to control fees, instead setting its payments based on the costs of those physicians and hospitals achieving better-than-average outcomes. Episode-based payment will lead to greater cost savings than fee reductions that simply encourage more use. The publicly chartered, but politically insulated, pool could even offer its more effective payment options to Medicare.
Fundamental health care reform must not only expand coverage to everyone but also put us on the path to greater efficiency and higher quality. We cannot do this with more of the same - be it public or private. We can do it by realigning payment and incentives.
Harold S. Luft is Caldwell B. Esselstyn Professor Emeritus of Health Policy and Health Economics at the Philip R. Lee Institute for Health Policy Studies at UCSF, director of the Palo Alto Medical Foundation Research Institute, and the author of Total Cure: The Antidote to the Health Care Crisis (Harvard University Press). More information available at www.haroldluft.com.