Behind closed doors all over Washington, serious people are working hard to design a major overhaul of the U.S. health care system. We should wish them well, but their chances of success are slim. Since yet another complete failure would be catastrophic, some attention should be given now to policies that are politically palatable, and would begin the evolution to a new and better health system.
Three measures will start this process. Two--improved health information technology, and investment in research that would study the comparative effectiveness of various forms of health care--have already been put in motion. The third--a national health insurance exchange--has a bipartisan heritage and can appeal to both liberals and conservatives.
The reasons why systemic reform of the U.S. health care system is needed are widely recognized. Rising health care spending threatens private and public budgets alike. Avoidable medical error kills or injures hundreds of thousands annually. The number of uninsured continues to grow.
As clear as the need for reform are the reasons why wholesale change is unlikely. Covering the uninsured will cost money now, even if other reforms promise savings later. Taxes for some will go up. Since changing the way hospitals and doctors deliver health care means changing the way millions of people do their jobs, incomes of some providers will go down. And as health care is a $2.5 trillion behemoth, those who oppose change will be well funded and fight hard.
Any doubts on this point should have been extinguished by the reception accorded President Obama’s budget proposal to fund half of his $634 billion health reform reserve fund with increased taxes on high-bracket filers. Those whose taxes are now reduced by 33 cents or 35 cents for each dollar of itemized deductions would be limited to tax savings of only 28 cents. Not a bad idea, one might think--tax upper income households who have prospered mightily for two decades to pay for a reform that will benefit all. Think again! The Democratic chairs of the House and Senate tax writing committees ultimately condemned the proposal. Bad for charities, they declared. Other members of Congress from both parties agreed.
So, why do I believe that health IT, comparative effectiveness studies, and insurance exchanges will get larger-scale health reform underway?
Let’s start with the $19 billion included in the economic recovery bill to help physicians and hospitals introduce health information technology. If well-designed, health information technology can improve care coordination, reduce administrative spending, and, perhaps most importantly, generate information that will tell researchers, inexpensively, which treatments work, which don’t, and at what cost. The economic recovery bill also includes $1.1 billion to pay for such research. Though initial savings will be modest, both are essential to any rational program of pruning waste and inefficiency, and will likely become only more essential over time.
Still to be enacted is the seemingly drab, but strategically important, proposal to create a national health insurance exchange (or several regional ones). In the late 1980s, Alain Enthoven pointed out that no mortal human being can rationally choose among the myriad available health insurance plans. For markets to work, the number and diversity of plan features must be limited, and since insurers use a bewildering range of plan gimmicks to attract low-risk patients, the sale of insurance has to be tightly regulated. The Clinton administration was persuaded by the argument and proposed a variant of this idea in its proposal.
Obviously, that didn’t work, but a bipartisan track record has since emerged on the issue. In 2006, when Massachusetts’s Republican governor and Democratic legislature agreed to require nearly every state resident to have medical coverage, a key part of that plan was a health insurance exchange endorsed by advisers from the conservative Heritage Foundation. And in 2008, Barack Obama included a similar call for a health insurance exchange in his campaign platform. This ideologically mixed history indicates that a health insurance exchange can be negotiated because it can--and should!--appeal to both conservatives and liberals.
Conservatives believe a well-functioning health insurance exchange will encourage genuine consumer choice in the individual health insurance market and competition among insurers, and that that, in turn, will slow spending growth. What’s more, replacing Medicare, and perhaps Medicaid, with vouchers to help the elderly, poor, and disabled select among competing private plans would also become plausible--bringing us closer to the conservative Nirvana: a market-driven health insurance system.
To liberals, a health insurance exchange offers an efficient way to funnel subsidies to low- and moderate-income households and to expand coverage at companies that now do not offer health insurance plans. It could discourage socially wasteful marketing practices by insurers, such as competing to cherry-pick low-cost enrollees (“have we got a sports medicine program for you!!”). If linked to a mandate that everyone or nearly everyone must be insured, an exchange could end the practice of charging exorbitant premiums to the old or the sick. Also, the exchange could wield the regulatory clout that may be necessary to force modernization of health care delivery.
And for both, a well-functioning exchange could end “job-lock,” one of the chief drawbacks of employment-based health insurance. Employers could simply pay the exchange premiums on behalf of current employees, who could keep coverage when they change jobs.
I don’t know whether the vision of liberals or that of conservatives would be realized if a health exchange proposal were implemented --probably some of each. It would not be a first. The 1965 law that created Medicare and Medicaid was a legislative marriage of distinct initiatives--some embraced by Democrats, some by Republicans--enacted by a heavily Democratic Congress, and signed by a Democratic president. Sound familiar? A plan with bipartisan appeal would not please ideological true-believers in either party. But it can pass. And, if it does, it would set in motion a process of change that cannot be stopped.
Henry J. Aaron is the Bruce and Virginia MacLaury Senior Fellow in the Economic Studies Program at the Brookings Institution.
By Henry Aaron