ReThinking National Health Care Reform: Universal Healthcare Vouchers

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Re-Thinking National Health Care Reform
Universal Healthcare Vouchers

• Ezekiel J. Emanuel, M.D., Ph.D.
• Department of Clinical Bioethics
• Warren G. Magnuson Clinical Center
• National Institutes of Health

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Problems with the US Health Care System

• 15 uninsured
• High and escalating costs
• Inconsistent quality
• Frequent medical errors
• Substantial racial, geographic and other
  disparities
• High administrative costs
• Under investment in information technology
• Absence of systematic technology assessment
  before dissemination
• Personnel shortages

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Victor R. Fuchs, PhD
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Another Perspective

• On July 30, 1965, Lyndon Johnson signed the
  Medicare and Medicaid acts in Independence,
  Missouri which put in place the framework for our
  current health care financing system.
• It rests on on 3 pillars
• Employment-based insuranceworkers and their
  families
• Medicareelderly
• Medicaidpoor and unemployed

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DISCLAIMER

• The views expressed in this presentation do not
  represent the views of the NIH, DHHS, or any
  other government agency or official. These are
  not their views.

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DISCLAIMER

• These views merely represent
• The Truth.

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Another Perspective

• Each is of the 3 components of the system is
• Inequitable
• Inefficient
• Increasingly unaffordable

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Employment-Based Coverage

• Inequitable
• Rich receive more substantial tax subsidies than
  the poor.
• Workers at larger firms receive better health
  care coverage than workers at smaller firms.
• Workers receive better coverage than non-workers
  or part time workers or the unemployed.

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Health Insurance Tax Breaks
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Employment-Based Coverage

• Inefficient
• Distorts labor marketsreduces hiring and creates
  job-lock even wed-lock.
• Source of labor-management conflict.
• High administrative costs--120 billion.
• Leads to discontinuities in coverage as employers
  change coverage or workers change jobs.

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Employment-Based Coverage

• Increasingly Unaffordable
• Costs about 2-5 per hour per worker for
  coverage.
• Declining proportion of insured. Now just 63 of
  workforce has employment based coverage with less
  than half of private, non-governmental workers.
• Decline of 5 million jobs with health insurance
  between 2001-2004.

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Real Health Costs and Real GDP
Percent
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Erosion of Employment-Based Coverage

• Increasingly competitive economy
• Anti-trust actions
• Deregulation
• More foreign competition
• Decline of unions
• Globalization
• Outsourcing of jobs to foreign countries
• Foreign production

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Erosion of Employment-Based Coverage

• Rise in health care costs
• Real per capita expenditures for health care are
  6 times higher than in 1965.
• Real average weekly earnings of production
  workers are lower than in 1965.
• All increases in productivity have gone to health
  care.
• Changes in health care insurance market
• End of cross-subsidization between firms.
• End of cross-subsidization within firms.

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Erosion of Employment-Based Coverage

• In 1960s the largest firm ATT
• 1 million workers all with health insurance.
• Regulated industry with guaranteed profit.
• Health insurance costs passed onto consumers an
  implicit tax.
• In 2000s the largest firm Wal-Mart
• 1 million workers, only 38 have any health
  coverage, no workers get coverage in first 2
  years of employment. Many get Medicaid.
• Price is king, cheaper even if foreign produced
  is not better.

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Medicaid

• Inequitable
• Some are eligible, but many poor
  Americansespecially working poorare ineligible.
  
• Benefits and eligibility criteria differ
  substantially between states.
• Some states give children at 300 FPL coverage
  while othersWyomingat 133. Disparity even
  worse for adults.

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Medicaid

• Inequitable
• Widely viewed as second class medicine compared
  to employment-based or Medicare coverage.
• In Massachusetts Medicaid covers just 21 days of
  hospitalization in a year.
• In Tennessee Medicaid covers just 5 days of
  hospitalization in a year.

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Medicaid

• Inefficient
• High administrative costs if eligibility is
  closely monitored. It costs the equivalent of 2
  months of insurance to screen and enroll a child
  in SCHIP. Even more for adults.
• High tax on increases in income.
• Encourages evasion or avoidance of reported
  income.

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Medicaid

• Inefficient
• Leads to discontinuities in coverage.
• Many who are eligible do not apply because of
  hassle, embarrassment, or belief that their
  prospects will improve.

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Medicaid

• Increasingly Unaffordable
• About 20 of state budgets go to Medicaid other
  means tested programs and health care for state
  employees.
• Problem is rate of increase. Over the last 4
  years health expensesMedicaid and health
  coverage for state employees have gone up 8-10
  per year.

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Medicaid

• Increasingly Unaffordable
• With flat revenues, this requires cuts in other
  state services or tax increases.
• In Georgia, since 2001 state universities lost
  211 million while admitting 30,000 more
  students. This year, 42 million in cuts with
  15,000 more students anticipated.

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Medicaid

• States are facing a perfect storm
  deteriorating tax bases, an explosion in health
  care costs, and a virtual collapse of capital
  gains and corporate profit tax revenues.
• National Governors Association, 2003

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Medicare

• Inequitable
• Old get guaranteed coverage which the young do
  not. Not done in any other country.
• Young subsidize old.

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Medicare

• Inefficient
• Administrative costs are very low.
• High levels of fraud.

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Medicare

• Medicares controls against fraud have not kept
  pace with todays health care environment in
  which the number of claims processedand those
  submitted electronicallyhave risen dramatically
  While electronic claims processing is critical
  for efficiency, when the volume rises to this
  degree, it also increases the need for more
  innovative controls to curtail fraud.
• GAO

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Medicare

• Inefficient
• No assessment of quality or cost per benefit.
• Covers Erbitux Treats metastatic colorectal
  cancer. Does not cure patients, but prolongs
  life on average 1.7 months. Cost about 60,000
  per patient.
• Covers Lung volume reduction surgery--300,000
  per QALY.

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Medicare

• Increasingly Unaffordable
• In 2004, 17 increase in Part B premiums.
• In 2004 Medicare consumed 2.6 of GNP--309
  billion.
• In 2006, with the drug benefit Medicare will be
  3.4 of GNP438 billionand by 2020 over 5 of
  GNP.
• By 2020, Medicare will exhaust the hospital trust
  fund.

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Medicare

• Increasingly Unaffordable
• In 75 years, if unchanged Medicare will consume
  all federal tax revenues from all sources.

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Medicare

• Medicare could be brought into actuarial
  balance over the next 75 years by an immediate
  108 increase in program income or an immediate
  48 reduction in program outlays.
• Medicare Trustees Report, 2004

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Medicare

• Even in fantasy, no one has yet come up with a
  way to pay for Medicare.
• New York Times, May 23, 2004

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The Problem

• The American health care system is inherently
  and irreparably broken.

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Implications for You

• Hostile regulatory environment.
• The perception of excessively high drug costs
  brings with it increased scrutiny of the industry
  by Washington.
• Cuts in reimbursement.
• Reduced coverage of drugs by Medicaid.
• Harder negotiation by PBMs and MCOs.

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Implications for You

• Likely regulation of prices in Medicare drug
  benefit.
• Uncertainty about coverage in the future and
  level of payment which makes investment and
  business decisions much harder and risky.

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What Should be Done?
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Reform Proposals

• Incrementalism
• Comprehensive mandates with subsidies
• Single payer

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Incremental Reform

• Subsidies to individuals or firms.
• Tax exemptions, deductions, or credits.
• Mandates on individuals, firms, or insurance
  companies.
• Higher income eligibility for means tested
  programs300 of poverty level.
• Lower age levels for Medicare eligibility55-64
  eligible.

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Incremental Reform

• Main appeal of incremental reform is not the
  quality or adequacy of the reform but its
  political feasibility.
• Comprehensive reform is not possible. It was
  the scope and reach of the Clinton proposal that
  proved to be its downfall.
• Ken Thorpe, NEJM 2004

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Incremental Reform

• Incremental reform fails as policy and as
  politics.
• As policy, incremental reform
• Builds on a broken system.
• Fails to realize any savings by efficiency.
• Makes us lose ground as we wait.
• Only postpones real reform.

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Incremental Reform

• As politics, incremental reform is
• Costly. At 60 billion per year for partial
  coverage and without cost control measures making
  it is not politically viable.
• Uninspiring. Who can even recall what Kerrys
  plan was? A few hard core policy wonks. Even
  casual wonks do not remember it.
• Misdiagnoses the problem with the Clinton health
  care reform. The problem was not over-reaching,
  but lack of a good plan.

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Incremental Reform

• We often think of public policy as changing
  slowly or incrementally, but policy agendas often
  change dramatically. Issue hit suddenly.
  There is a tremendous burst of activity, and
  government policy changes in major ways all at
  onceNeither scholars nor practitioners, even
  with the best of knowledge and the best theory,
  can predict with great certainty what will happen
  and often find themselves surprised.
• John Kingdon, Univ. of Michigan, 2002

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Incremental Reform

• Key Republicans now reject incremental reform
  opting for comprehensive reform.
• The crisis we face in health care cannot be
  resolved by our present strategies or with
  patchwork efforts of the past. Neither can it be
  resolve by dealing with only one or several
  problems we face. Resolution will require
  comprehensive health system reform.

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Mandates with Subsidies

• The Clinton Health Security Act.
• Pay or Play.
• Maines state program.
• Center for American Progress.
• AMA, Heritage Foundation, and other mainstream
  groups endorse this approach.
• It is the responsible and prudent approach.

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Mandates with Subsidies

• Fails for both policy and political reasons.
• As policy
• A summary of Maines proposal in the New England
  Journal was confusing and complex which creates
  opportunities for gaming the system.
• Builds on the failed current system foregoing
  efficiencies.

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Mandates with Subsidies

• As politics
• Uninspiring. No grand vision.
• Costly. Using inefficiencies of the current
  system requires adding 100 billion to get
  universal coverage.
• Offends a key interest group. Business strongly
  opposes mandates. They want out of health care
  not to be locked in.

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Single Payer

• Medicare for All
• Canadian-style single payer.
• Physicians Working Group for Single-Payer
  National Health Insurance.
• Arnold Relman.

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Single Payer

• A single public plan covering all Americans for
  all medically necessary services, including
  long-term care, mental health and dental
  services, and prescription drugs and supplies.
• No private insurance except for services excluded
  by national insurance.
• No deductibles or co-payments.

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Single Payer

• Lump sum payments to hospitals for operations.
  No billing for services.
• Negotiated payment for capital improvementsconstr
  uction, equipment, etc.
• Physicians paid by 1) fee-for-service
• 2) salary in an institution
• 3) salary in an HMO

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Single Payer

• Cover disabled care for all Americans including
  home and nursing home care.
• Cover all medically necessary prescription drugs
  and supplies. Establish formulary with
  negotiated prices.
• Financed by unspecified taxes.

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Single Payer

• Fails for policy and political reasons.
• As policy
• Institutionalizes fee-for-service delivery system
  which makes cost control and quality improvement
  efforts difficult.
• Almost always end up with queuing to save money
  which is deeply resented.
• Both Medicare and Canadian system are going
  bankruptnot persuasive models for cost control.

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Single Payer

• The past decade in Canadian health care has
  been difficult for patients, providers, and
  governments alikeRecent changes appear
  unlikely to achieve a sustainable transformation
  in the organization, delivery, and financing of
  Canadian Medicare. We foresee continued
  turbulenceas a growing proportion of Canadians
  lose patience with health care systems that they
  perceive as no longer delivering reasonable
  access to core services.

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Single Payer

• As politics
• Does not cohere with American valuesAmerican
  equality is not everyone getting the same thing.
  
• Americans value freedom to upgrade if they want
  to spend the money.
• May appeal Boston doctors who dont want to be
  accountable, but lacks national appeal.

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Universal Healthcare Vouchers

• Every American receives a voucher to purchase a
  universal benefits package through a health plan.
• Free choice of a qualified plan.
• Vouchers are funded by an ear-marked value added
  tax.
• Freedom to purchase more than universal benefits
  with after-tax dollars.
• Private sector organizes and delivers care.

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Universal Healthcare Vouchers

• Elimination of tax exemption for employment-based
  insurance.
• Elimination of Medicaid and other means tested
  programs.
• Phase out of Medicare while protecting current
  beneficiaries.
• Administration and oversight by National and
  Regional Health Boards modeled on the Federal
  Reserve System.

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Universal Healthcare Vouchers

• An Institute for Technology and Outcomes
  Assessment.

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3 Key Feasibility Questions

• Ethical
• Economic
• Political

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Ethical Feasibility

• Universal coverage for all Americans.
• With VAT the financial burden is fairly
  distributed according to ability to pay.

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Ethical Feasibility

• Tiering is ethical as long as universal benefit
  package is good enough.
• Practicalitythe rich can always buy out.
• Autonomypeople should be able to buy more if
  they want amenities and reduce risks. We do not
  level down.
• Justicesociety cannot guarantee everything, must
  make choices, too much health compromises other
  important goods, e.g. education, environment, etc.

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Economic Feasibility

• Costs of the current systemwithout Medicare or
  nursing home coverage
• Employment-based coverage 600 billion
• Medicaid 200 billion
• Out of pocket expenses 212 billion
• Economic feasibility means the voucher should
  cost about 800 billion.

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Economic Feasibility

• Two ways to calculate economic feasibility.
• Begin with the current system.
• Covering the 15 uninsured will increase their
  utilization of health care services approximately
  33.
• Overall, increase in utilization 5.

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Economic Feasibility

• Underinsuredcompared to voucherwill also
  increase utilization somewhat.
• Overinsured will decrease utilization somewhat.
• Overall utilization will increase approximately
  5 or 40 billion.

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Economic Feasibility

• Voucher system should save administrative costs.
• Less cost for Medicaid and means testing.
• Less cost for sales and marketing of employment
  based insurance which now costs about 120
  billion per year.

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Economic Feasibility

• How much would it cost to purchase
  employment-based insurance at 2004 rates?

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Economic Feasibility

• How much would it cost to purchase
  employment-based insurance at 2004 rates?

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Economic Feasibility

• But, the uninsured and Medicaid recipients are
  sicker and will use more health care services
  than Americans with employment-based coverage.
• How much more? 26 more.

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Economic Feasibility

• The uninsured and Medicaid recipients constitute
  25 of all Americans under 65 and will use 26
  more health care, raising overall costs 6.5.
• The total cost of the voucher then would be
• 759 billion or 837 billion

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Economic Feasibility

• Long term cost control
• Rheostat based on the earmarking of
  VATincrease in benefits requires willingness to
  increase taxes.
• Lower demand by requiring additional services to
  be paid for by after tax dollars.
• Systematic technology and outcomes assessment,
  changing delivery and research by drug and device
  companies.

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Political Feasibility

• The voucher system is not politically feasible
  today.
• The goal is to outline a plan that can be adopted
  when forces for change coalesce.
• Forces may come from
• Depression Public health emergency
• Civil unrest Health system melt down

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Political Feasibility

• Who will support the voucher proposal?
• Big business
• Small business
• State governments
• Some unions
• Some health care professionals
• Uninsured
• Vulnerable insured

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Political Feasibility

• Who will oppose the voucher proposal?
• Some of the 1300 health insurers
• Health benefits consultants and suppliers
• Some health care professionals

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Political Feasibility

• Ironically, most extreme opposition may come from
  liberals.
• Will not give up Medicaid and Medicare
• Oppose VAT as regressive
• Hate anything associated with vouchers

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Advantages of Universal Healthcare Vouchers

• Universalityall American are covered without
  means testing.
• Fairnessfinancial burden is fairly distributed.
• Cost controllinkage between benefit levels and
  willingness to pay through ear marked VAT.
• Continuity of coverage and care.

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Advantages of Universal Healthcare Vouchers

• Administratively efficient system.
• Data for assessing quality of care and costs
  relative to benefits.

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Advantages of Universal Healthcare Vouchers

• More efficient labor markets.
• Eliminate incentive for out-sourcing.
• Eliminate source of labor-management conflict.
• Relieves states of financial and administrative
  burden so they can focus on education, etc.

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Advantages of Universal Healthcare Vouchers

• Bigger market with 15 uninsured included.
• Much less uncertainty regarding what drugs and
  devices will be paid for.
• Shift in research priority to computer
  modelgetting more for less rather than
  discovering whatever is possible.

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Pay for Performance

• We should pay physicians and hospitals for
  delivering quality medical care that is
  explicitly measured.
• Sounds great, but is much harder and less
  effective than appears at first blush.

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Pay for Performance

• Assessing quality is very, very difficult
  especially for multi-dimensional care.
• Cannot assess just cancer surgeries. Some places
  do very well on breast surgery but poorly on
  colorectal surgery and neither correlates with
  mammography rates.
• Little data on long term outcomes.
• Skew what physicians and hospitals focus on to
  what is measured.

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Pay for Performance

• British NHS has rated hospitals based on their
  adherence to established process measures for
  quality.
• Guess what? Very little correlation between NHS
  ratings of hospitals and actual patient outcomes.

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Medical Savings Accounts

• Create catastrophic health insurance with
  consumers paying for routine care from their own
  funds using large deductible.
• By making consumers have skin in the game it
  will make them
• More cost conscious about health care.
• Induce a change to healthier lifestyles.

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Medical Savings Accounts

• MSAs are a fantasy world based on ideology not
  data or reasonable assumptions of economic
  behavior.
• High out-of-pocket expenditures for routine care
  does lead to lower use of health services, but
  they decrease both appropriate and inappropriate
  care.
• Why? Patients are not doctors.

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Medical Savings Accounts

• Likely to lead to less use of preventive services
  and greater use of high technology interventions
  for the very sickbecause they are covered by
  catastrophic insurance.
• This will further bias RD toward expensive,
  end-of-life interventions and increase future
  health costs.

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Medical Savings Accounts

• A small proportion of people account for a large
  proportion of health care costs. These patients
  will all have good catastrophic coveragenot
  lowering costs.
• Those who are close to the deductible limit or
  cost where catastrophic coverage kicks in will
  have an incentive to use more services. Each
  additional service becomes free. This is also
  true with services that are elective regarding
  the timing of the service.

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Medical Savings Accounts

• If the deductibleor place where catastrophic
  insurance kicks inis income adjusted, this
  will significantly increase administrative costs.