As health care legislation winds its way through Congress, two things are now certain: we won't have comprehensive sustainable health care reform that many of us sought; and the final legislation, while imperfect, could include several beneficial provisions as I have written elsewhere. Four specific reforms in particular would be individually valuable, and in combination, they lay the groundwork for more comprehensive reform in the future:
Create Insurance Exchanges: Insurance exchanges which bring together insurance companies and consumers offer two key advantages. First, they lower costs due to economies of scale and elimination of brokerage fees. Second, they provide attractive venues for small businesses and individuals who currently face difficulties securing insurance. To work, they need to attract a large number of enrollees - both healthy and sick. They also must be fair in providing risk-adjustment to protect insurance companies that enroll above average number of sicker beneficiaries. We have experience designing exchanges that work - the State of Massachusetts, the Federal Employees Health Benefits Program, and the California Public Employees' Retirement System are three credible models.
Limit Tax Exemption of Employer-Sponsored Insurance: The fact that senior Goldman Sachs executives receive a $40,000-per-year health insurance policy - tax free - highlights what may be the most regressive section of the tax code. Poor families don't benefit much because only one in four has employer sponsored insurance. Eliminating individual tax exemptions for employer contributions to health insurance would make the tax system fairer, and also provide over $200 billion of additional federal revenue annually. To the extent that this decreases employer-sponsored insurance, a well-functioning insurance exchange would ease the transition. Eventually we need to eliminate employer-sponsored insurance if we are to achieve universal coverage and cost control. If Congress did nothing else for health care this year but restrict this exemption, this reform would accomplish a great deal.
Appoint Medicare Commission: Medicare's payment system for providers can be greatly improved by realigning reimbursement rates with value; bundling payments to promote efficiency; and improving benefit designs. These reforms would be very consequential (Medicare represents 20% of health care costs, and strongly influences the other 80%). They are also politically difficult because of acute special interest pressure. For this reason Congress should create an independent commission of physicians and other experts to devise payment reform. Recommendations should be approved by Congress, but only as a package in order to avoid special interest meddling.
Fund Technology Assessment: In 1980 the US spent about 8% of GDP on health care. We now spend over 17%. The biggest factor in rising costs is technology. Many of the procedures, tests and drugs introduced over the last 30 years are extremely valuable. Many are not. Currently, there is no institution well equipped to evaluate new medical technologies. It is not feasible for individual physicians or physician groups to do this analysis and widely disseminate findings. To accomplish this task, Congress should create a quasi-independent institute for technology assessment with steady, assured funding, such as a fixed percentage of annual Medicare expenditures.
These four reforms taken together reinforce one another. For example, insurance exchanges will help wean the country from employer-sponsored insurance, and this shift will help make the exchanges more successful. An empowered Medicare commission would benefit greatly from an institute for technology assessment.
One important omission from these four reforms is a proposal for dramatically increasing the number of insured Americans. I favor increased coverage and have advocated universal coverage financed by a value-added tax. Universal coverage is unsustainable without adequate revenues and lower costs. Current proposals for expanding coverage, which involve expanding employer-sponsored insurance and expanding income-tested insurance such as Medicaid, compound our difficulties by reinforcing inefficient and inequitable methods which must eventually be replaced.
I believe that the four reforms proposed here have more chance of doing good than harm, will lower the deficit, and will reinforce one another. Given the complexity of health care, that's the most that we can expect until comprehensive change in the financing and organization of care becomes politically possible.
Victor R. Fuchs is the Henry J. Kaiser, Jr., Professor of Economics Emeritus, at Stanford University and Stanford Health Policy. He is also director of FRESH-Thinking.