Fearing and then Fixing Health Care in the United States
By Bryan Dowd, Ph.D.
In the movie “Dirty Harry,” Clint Eastwood’s character, Detective Harry Callahan, offers the opinion that shooting people is acceptable, as long as the right people get shot. President Barack Obama has chastised his critics for fear mongering in the health care reform debate. But fear mongering is acceptable if what is being mongered truly is fearsome. There are three truly fearsome problems in the U.S. health care “system”: the cost of entitlements, especially Medicare; the loss of health insurance (now occurring among the middle class); and the dysfunctional individual insurance market that produces the majority of the horror stories about denied and discontinued coverage. Although it won’t be easy, there are things we can and must do to solve these problems.
Unlike many daunting social concerns, the problems of Medicare are impervious to one’s perspective. It doesn’t matter if you consider yourself to be conservative, liberal, a “values voter,” or “green.” It’s just a matter of doing the math. Medicare Part A will run out of money in 2017 (or sooner if the recession continues to depress federal revenues). In 2018 the program’s deficit will jump to $150 billion and skyrocket from there. The Medicare program faces a $32.4 trillion deficit over the next 75 years, primarily because of massive growth in the number of aging baby boomers. Note that $32.4 trillion is not the program’s total cost. Nor is it the portion of the program’s cost that we are planning to pass on to our children, as deplorable as that is. It is the portion of the program’s cost for which we have no plan at all.
At the current rate, entitlements including Medicare, Medicaid, and Social Security will consume 62 percent of the federal budget by 2015. Standard and Poors recently downgraded the United Kingdom’s bond ratings because its government debt was projected to be 81.7 percent of its gross domestic product (GDP) in 2010. The debt-to-GDP ratio for the United States is nearly 100 percent. If U.S. Treasury bond ratings are downgraded, the interest our government pays to borrow money, which already is a substantial portion of the federal budget, will increase dramatically. Ultimately, there are only three options for dealing with this: print more money, default on our Treasury bonds, or align Medicare’s revenues and expenditures. The first option is inflationary and disproportionately hurts the poor. The second option likely would paralyze international credit markets, making the current recession look like a tea party (no pun intended). The third option also would be traumatic for both taxpayers and beneficiaries. But sometimes trauma is required to avoid more fearsome outcomes.
To do this, we need to cut Medicare costs by limiting eligibility (by either age or income), reducing payments to providers and health plans, limiting coverage, and creating incentives for people to adopt healthier lifestyles and receive their care from more efficient health care delivery systems. We also need to reduce fraud and medical errors, including mistakes and care-induced illnesses and injuries, and to introduce more price competition among providers and insurers (implying stricter enforcement of antitrust laws for both insurers and providers). Program revenues could be increased through higher taxes or higher premiums, provided the economy improves. The survival of Medicare will depend on us doing all of the above, and all of those measures have adverse consequences—but not as adverse as doing nothing.
The increasing number of Americans going without health insurance because it costs too much could also be addressed. Because the primary health insurance cost driver is the cost of health care itself, we need to work on reducing expenditures among the commercially insured population. The steps for doing this are the same as those required for solving the Medicare problem—provide incentives for people to take better care of themselves, reduce fraud and medical errors, and introduce more price competition among providers.
The horror stories emanating from the individual health insurance market could be addressed through a purchasing pool similar to Medicare Part D, the government-administered insurance pool for outpatient prescription drug coverage in Medicare. Any qualified private health plan can enter the Part D pool and compete on the basis of out-of-pocket premiums and coverage. Exclusion of a public plan keeps Congress from mangling the administration of a Part D plan (as they have mangled administration of fee-for-service Medicare) and then covering up their mistakes with open-ended tax subsidies. Enrollees are free to switch plans during annual open enrollment periods, and their choices are facilitated by a sophisticated Internet-based information system. Premiums are adjusted based on enrollees’ risk. Beneficiaries must enroll in Part D while they are healthy or face a late-enrollment penalty. However, beneficiaries can accrue “creditable coverage” through a policy obtained outside the government-run pool that also protects them from paying the late-enrollment penalty. The same system could be set up for the individual insurance market. People should be able to accrue “creditable coverage” by paying community-rated premiums through their employment-based (or individual) policies that protect them from being experience-rated if they later find themselves in the individual (non-group) insurance market. During a recent radio interview, I was asked why health care reform is so hard. The simple answer, often overlooked in the overheated rhetoric of health care reform discussions, is that the vast majority of Americans prefer the current arrangement with all of its flaws to a vague alternative designed by people they don’t trust. As a nation, however, we must face our collective fears and work toward fair and fiscally responsible reform. To do this, we need to do three things.
1. We need to follow this important rule of thumb: When you think you’re spending too much on something, stop subsidizing it—and especially stop the subsidies for the wealthy. We simply must stop providing government-financed health insurance subsidies at least for the wealthiest half of the population. That means replacing the open-ended tax exemption of health insurance premiums with an advanceable, refundable, means-tested tax credit and gradually-but-dramatically increasing premiums for future Medicare beneficiaries (my generation). Medicare beneficiaries should get credit for every dime they have paid into Medicare during their working years but then pay the balance of their actuarially fair premiums out of their own pocket.
2. We need to take better care of ourselves or face the financial consequences of failing to do so. Bad choices have bad consequences, and relying on government subsidies to save us from ourselves is intellectually irrational and fiscally ruinous.
3. We need to use the power of government to play its proper role: to correct market failure, promote competition, and provide help to the truly needy. Rather than mandating participation in a dysfunctional health insurance market, the government needs to offer products that the market has failed to provide and that people are willing to pay for out of their own pocket such as long-term risk protection in the individual insurance market.
Health care in the United States faces some truly fearsome problems. Dealing with those problems will be painful, but not dealing with them will be worse . Continuing to provide misguided subsidies is the worst idea. Congress has proven itself incapable of administering a fiscally responsible entitlement health plan. However, there still is hope that the federal government could run a competitive insurance pool for people in the individual health insurance market. But participants in that pool would have to play by the same rules as people in employment-based group insurance, which means continuous enrollment, beginning when they are healthy Overall, the best metric of real reform will be the extent to which people are required to confront and then pay for the true cost of their choices.
Bryan Dowd is Mayo Professor in the Division of Health Policy and Management in the School of Public Health at the University of Minnesota.