Editor’s note: This is the first in a series of special reports on national health care reform.
With Congress having just returned from its summer recess, the debate over health care reform is heating up again in Washington. As members of the House and Senate try to reach agreement on a proposal, the picture of what exactly a reformed system would look like keeps evolving.
Nearly everyone agrees that three major goals need to be achieved in the overhaul: coverage expansion, cost containment, and quality improvement. How best to do that is where various factions disagree. At the highest level, the issue is whether these goals are best achieved through a market-based health insurance system, a government-based health insurance system, or a combination of both.
In this article, we attempt to define some of the terms that have cropped up during the debates, discuss which proposals have a chance of making it into the final legislation, and explain how Congress plans to pay for it all.
When lawmakers or the public discuss the details of health care reform, they often use confusing terminology—insurance exchanges, “play-or-pay” mandates, bundled care, comparative effectiveness research. What does it all mean? In addition to explaining what’s behind these concepts, we also describe some of their pros and cons.
- Universal Coverage
Achieving universal coverage is widely considered an appropriate goal of coverage expansion. It means that every U.S. citizen has some form of health insurance. (Universal coverage is usually defined as between 95 percent and 97 percent of the population having coverage.) However, this does not necessarily mean moving to a government-run, single-payer financing system or changing to the public delivery of care. A number of ideas have been proposed for achieving universal coverage.
- Single-payer System
A single-payer system is generally conceived of as a system in which a single public or quasi-public agency would be in charge of health care financing for all. It does not necessarily mean that health care providers would become employees of a public entity. One way to implement a single-payer system in the United States would be to expand the Medicare program to all citizens, regardless of age.
Supporters argue that a single-payer system would decrease administrative costs by eliminating the multitude of private payers, eliminate insurance underwriting that results in sicker people becoming uninsurable, and decouple health insurance from employment.
Opponents of a single-payer system insist that it would transfer the cost of private health insurance coverage from individuals and employers to the federal government. They also point out that the current Medicare program is already underfunded and heading toward insolvency and argue that a government-run system will stifle innovation that historically has come from the private sector.
At this point, however, moving to a single-payer system is not among the options likely to be adopted.
- Insurance Reform
Most agree that there is a need for insurance reform. The current health insurance system is designed to encourage insurers to compete by covering the healthy and leaving the sick to their competitors or to the government. In the current individual insurance market, insurers use a number of underwriting tools to reduce their risk, including placing limits on pre-existing conditions. Most agree that the goal of insurance reform is to provide portable, affordable coverage to more people. Although some Americans would like to get employers out of the business of purchasing health insurance, all of the proposals before Congress maintain the current employer-based system.
- Play or Pay
“Play or pay” is the term given to a mechanism whereby employers would be required to “play” by offering some level of standardized health insurance coverage for their employees or else “pay” an assessment or tax to the government or another entity that would then fund coverage for those individuals. This method for achieving universal coverage is designed to build on the existing employer-based system that is widespread, but not mandatory.
Bills in both the House and Senate include some type of play-or-pay requirement.
- Individual Mandate
With an individual mandate, every citizen would be required to have some form of health insurance coverage. The mandate would be on the individual, not the employer; but employers still could offer health insurance. The government would subsidize coverage for low-income individuals. Massachusetts based its health reform initiative on this idea. Supporters say having an individual mandate would spread risk across a broader pool of individuals, including healthier young adults, and likely bring down health care costs and eliminate the problem of uncompensated care.
Critics say an individual mandate will never result in universal coverage without strong enforcement and government oversight. In addition, they argue that significant reform of the individual insurance market would be needed to make it feasible for individuals to obtain insurance at affordable rates. Both the House and Senate proposals include a requirement for coverage, with subsidies for people and families with low incomes.
- Insurance Exchange
All of the federal reform bills include a provision to create what is called an insurance exchange. An exchange is an entity or website that offers information on the different insurance products available to consumers in a given market. All insurers would be required to offer at least one product with a standardized benefit set through the exchange, and there would be limits on the type of exclusions they could use. The details are still sketchy as to whether there would be one national exchange or a collection of regional exchanges.
- Guaranteed Issue
Currently in the individual market, most insurance policies have pre-existing condition clauses that say they will not cover a condition that the person applying for coverage already has. For example, most insurers will not cover pregnancy-related services for women during the first 12 months of coverage. In some cases, the insurer will refuse to provide any coverage at all. As a result, individuals with cancer, diabetes, Parkinson’s disease, heart disease, and other chronic conditions can have difficulty purchasing health coverage in the individual market. With guaranteed issue, insurers would have to issue coverage to anyone who applies for it and pays premiums, regardless of their health status.
Most agree that guaranteed issue must be a part of any reform legislation that is passed. The only way to have complete guaranteed issue, however, is to have some form of mandate for coverage. Without a mandate, patients will wait to purchase coverage until just before they need it. If the goal of insurance is to spread the risk, then healthier people as well as those with health concerns will need to be in the risk pool.
- Community Rating
With community rating, health insurance companies would set one premium rate for all enrollees. This contrasts with experience rating, in which premiums are based on the cost of care for certain gender and age groups, the health status of the individual or group, and prior medical utilization data. Critics of community rating argue that it increases the cost of insurance for the young and the healthy, the exact group that we are trying to encourage to buy coverage. They also argue that we should allow premium discounts for people who take care of themselves and stay healthy.
Proponents say community rating is consistent with broad pooling of insurance risk and costs and is an important means of ensuring affordable coverage for those individuals with costly or chronic conditions.
- Payment Reform
Payment reform is a highly controversial aspect of health care reform. Some say that if we are serious about passing reform and controlling health care costs, payment reform is the most important thing we can do. The federal reform bills acknowledge that the way we pay doctors, clinics, and hospitals encourages utilization by paying for volume, rather than for health improvement or value. In addition, many contend that the current payment system does not do enough to reward primary care and prevention. The steps being discussed to rectify this are varied.
- Medical Home
Every reform bill has language to establish and reimburse for services provided by a medical home. (In Minnesota, state legislation calls them health care homes.) Again, the details differ, but the idea is to pay a care-coordination fee on a per-member-per-month basis to a physician, clinic, or team of practitioners for managing the care of patients with complex, chronic medical conditions. This payment would be in addition to the one a practitioner receives for any care provided. The medical home is intended to improve the care a patient receives and control costs by better coordinating care.
Supporters point to the fact that most health care spending goes to treat a limited number of chronic conditions and that the way we are most likely to achieve savings is through better management of care. Although few dispute the value of improved care coordination and care management, there is some debate about which medical specialties should be eligible to serve as a patient’s medical home. There is also concern that referrals to specialists will be inappropriately limited by the model.
- Bundled Care
Most reform proposals recommend a move away from pure fee-for-service payment and toward some form of payment based on bundles of care. (In Minnesota’s health care reform legislation, this is described as baskets of care.) The goal is to give providers greater flexibility in how they deliver care by linking payment to an episode or condition rather than to individual services or procedures. For example, payers would be charged for all the care needed for a knee replacement rather than for each separate service.
Supporters argue that bundling is a more rational approach to paying for health care and will encourage greater collaboration, innovation, and accountability for how care is delivered. It also allows for more targeted measurement of quality or outcomes associated with the bundle or episode of care.
In addition to a significant number of practical barriers associated with implementation of bundled payments—including benefit design, coding, and antitrust protections—opponents worry that bundled payments are far too similar to capitation models of the past. Although the intent of bundled payments is to insulate providers from insurance risk, some are concerned that the rate-setting and risk-adjustment methodologies may not be adequate for preventing exposure. Such concerns are magnified as the scope and components of bundles of care are expanded.
- Accountable Care Organizations
There is strong Congressional interest in greater organization of health care delivery as a means to improving quality and managing costs. One reform that could achieve this is the establishment of accountable care organizations (ACOs)—organized networks or systems of physicians and hospitals in a given area that would be responsible for improving the quality and controlling the cost of care for a population of patients.
Accountable care organizations have gained considerable attention despite lack of information about provider involvement, structure, and patient participation.
The current House bill calls for a three- to five-year Medicare pilot to see if ACOs could lower costs and improve care. Each ACO would be paid by Medicare to handle all the health needs of at least 5,000 elderly or disabled people.
- Medicare Sustainable Growth Rate and Geographic Disparities
A major point in the federal reform discussions is what to do about the current Medicare payment system. Medicare uses a predominantly fee-for-service payment system based on a fee schedule that is updated annually. The fee schedule includes an adjustment formula called the sustainable growth rate (SGR). This formula was designed to control the growth of Medicare expenditures by limiting increases based on a comparison of actual expenditures to target expenditures. How the target expenditures are calculated, however, has been a source of frustration because they are tied to changes in the gross domestic product rather than more meaningful measures such as changes in physician practice costs. As such, unless Congress takes action, physician payments are scheduled to be cut by more than 21 percent on January 1, 2010. Every federal reform bill has language to stop that cut. The current House bill would stop the 2010 cut and phase out use of the SGR. The Senate bill only stops the cut for one year and does not replace the formula.
In addition, the current Medicare payment formula has a series of geographic modifiers that result in physicians in Minnesota and other upper Midwestern states being reimbursed at rates lower than those received by physicians in other parts of the country.
- Independent Medicare Advisory Commission
Many of the reform bills propose that Medicare needs to change its payment system in a way that rewards value. The political difficulty with this is that many of the states that have been shown to provide the highest-quality care for the lowest cost have relatively few Congressional votes. To help address this and other challenges associated with highly technical or politically sensitive topics, some are calling for the creation of an Independent Medicare Advisory Commission (IMAC). This would be similar to the current Medicare Payment Advisory Commission (MedPAC) but would have more power. The IMAC would be an independent, nonpartisan body of physicians and other health care experts, appointed by the president and confirmed by the Senate; members would serve for five-year terms.
Conceptually, the IMAC is similar to the military base-closing commissions. The council would issue recommendations to improve quality or efficiency, provided such recommendations do not result in an increase in aggregate Medicare expenditures. The president would approve or disapprove the recommendations, then Congress would have a period of time to intervene before they are implemented.
Supporters believe this is the only way to get real Medicare payment reform because it removes the overt political considerations from the decision. Critics argue that this gives too much power to a nonelected, bureaucratic entity that is not accountable to voters.
- Public Option
Much of the media coverage of the health care reform debate has focused on the extent to which the government should be involved in our health care system. Most of that discussion has centered on what is being called the public option. This is a government-sponsored health plan that would be one option offered by the insurance exchange. It would be financed by premium revenues. Amendments made to the House bill by the Energy and Commerce Committee called for physician participation in a public option to be voluntary and physician payments to be based on private insurance rates rather than a fee schedule 5 percent above what Medicare pays. The Senate is developing different approaches to a public plan.
Supporters of the public option argue that it is needed to ensure that private insurers have competition and consumers have affordable choices. Some argue that it will simply be an option for individuals and that providers will be able to choose whether or not to participate.
Opponents argue that if the cost of the public option is set artificially low, it will squelch competition because it will become the only viable option. They argue that this is the first step toward a single-payer system. Some are concerned that if the public option is based on the Medicare fee schedule, problems such as geographic inequity and low reimbursement for certain types of care would be even more widespread.
- Health Care Cooperatives
Another option that is being discussed is the idea of health care cooperatives, which would allow consumers, or co-op members, to arrange for coverage and control decisions. Health care cooperatives would be nonprofit and would generate competition for existing insurance companies.
The co-op idea is gaining momentum as criticism of the public option increases. Government investment would likely be needed to launch co-ops. However, because it would take some time for them to get up and running, it is unclear whether we would see cost savings in the near future.
- Comparative Effectiveness Research
The American Recovery and Reinvestment Act of 2009, the $787 billion economic stimulus package enacted in February, provided $1.1 billion for comparative effectiveness research. It did not provide for a formal oversight structure or ongoing funding. The role of such research has become a topic of significant discussion. With all of the reform bills having a strong focus on quality improvement, the issue is defining what quality care is and whether there are valuable clinical benefits associated with various options for treating a particular condition.
The current House bill establishes a federal Center for Comparative Effectiveness Research. Its goal is “to conduct, support, and synthesize research with respect to the outcomes, effectiveness, and appropriateness of health care services and procedures in order to identify the manner in which diseases, disorders, and other health conditions can most effectively and appropriately be prevented, diagnosed, treated, and managed clinically.” Among recent amendments is a provision to clarify that the results of the research cannot be used by the government to deny or ration care. The House bill also creates an independent Comparative Effectiveness Research Commission comprised of the director of the Agency for Healthcare Research and Quality, the chief medical officer of the Centers for Medicare and Medicaid Services, and 15 additional members including clinicians, patients, researchers, third-party payers, and consumers of federal and state beneficiary programs.
Supporters of comparative effectiveness research argue that significant public investment is crucial for learning which treatments work best, particularly given the ever-expanding technologies and strategies available for treating medical conditions.
Opponents argue that comparative effectiveness research will favor older, cheaper therapies and that the results could be used to deny insurance coverage for innovative treatments. They argue that these efforts should be left to the private sector because the threat is that government will use this data to begin rationing care in the name of controlling costs.
Although one of the key goals of health care reform legislation is to control health care costs, most acknowledge that there will be upfront costs associated with implementing many of the changes being proposed. President Barack Obama has said many times that these reforms will not add to the federal deficit. He argues that without them, health care costs will rise at an unsustainable rate and that our country cannot afford to let that happen. Cost estimates for the differing reform proposals are between $600 billion and $1 trillion over the next 10 years. Although those are staggering numbers, total health care spending over that period is projected to be $33.1 trillion.
Again, there are many different proposals for how to pay for reform. They include an income tax increase for individuals earning more than $280,000 a year (or couples earning more than $350,000), the Senate play-or-pay proposal that would require businesses with 25 or more employees to offer health insurance or pay $750 a year per full-time worker to the federal government, the House play-or-pay proposal that would require businesses to pay an assessment of up to 8 percent of their payroll if they do not provide insurance, and proposals to eliminate the tax deductibility of overly generous employer-based coverage.
The other dollars will come from projected savings from payment reform, cuts to hospital payments, and cuts to health insurers who offer Medicare Advantage plans.
As the debate about health care reform continues, new terms will likely be added to the lexicon. Because the solutions proposed by various lawmakers require a grasp of complex payer mechanisms and care delivery systems, it is important that terms are well-defined and concepts understood. MM