Wanted: a framework for comprehensive health reform that provides near-universal coverage, reduces costs, and fosters continued improvement in medical care. Oh – and the plan must be politically achievable. Jacob Hacker thinks he’s designed a plan that fits this bill, and after a Q&A with him I’ve come to think he could be right.
Health reform hasn’t received this much attention since 1994. Obama’s approach has been to lay out overall goals and let Congress work out the details, a strategy that insiders say makes reform more likely. But Republicans are going to be cautious about handing Obama any policy victories, as we’ve seen from the House stimulus vote, and they’ll probably stick to the free-market line when it comes to health reform. Initiatives are likely to be criticized from the left, too, if they don’t dramatically reduce the number of uninsured. But the assessment has already been made in Washington that single-payer (“Medicare-For-All”) coverage is not politically achievable.
That’s where Jacob Hacker comes in. Hacker is a Professor of Political Science at UC Berkeley. He’s a leading health policy theorist and political commentator whose book The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream is the best overview yet on the decline of the post-World War II social contract between workers and employers.
Professor Hacker’s proposal, Health Care for America, is based on two simple principles: First, that both the employer-based private system and publicly-funded Medicare are essentially working for their members. Second, that every uninsured American (or legal resident) should be able to buy into a Medicare-like public program at affordable rates, with need-based subsidies. In theory, the Hacker plan increases coverage while lowering costs in several ways: by bringing more people into a system whose costs are rising more slowly; by helping the government increase the scope and effectiveness of its design changes; by encouraging private plans to keep costs low: and by increasing the public system’s leverage and reach.
The plan has been well-received across the center/left spectrum, even receiving a friendly review from Don McCanne, MD, a Senior Fellow with single-payer advocacy group Physicians for a National Health Program (PHNP). But I had a number of questions, so Prof. Hacker was kind enough to agree to an email Q&A. He was able to address many of my concerns – including economic fairness (some other plans place unreasonable burdens on uninsured working families) and the risk of dislocation within the health economy.
Health Care for America’s public/private mix is an attractive option for several reasons:
- It minimizes the risk of creating more problems gaining access to doctors who will accept the public plan (although the this problem has sometimes been over-stated).
- It emphasizes employer mandates rather than placing the burdens on individuals first – and it limits out-of-pocket costs.
- It leaves private plan options in place, which minimizes the backlash that would result if people lost freedom of choice. (As Prof. Hacker noted, “some people buy cars that Consumer Reports says are less reliable .. because they like how they look and drive … and more seriously, the private plans will be able to do things like selectively contract with small numbers of providers … some people will value these innovations.”)
- It emphasizes “medical homes” – the idea that people should have a doctor somewhere who knows them and understands their overall health needs.
- It gives private insurers the chance to compete with the public system. If they control costs more effectively – or provide more attractive benefits – they can still win people away from the public plan.
That last point remains a subject of continued controversy. Newt Gingrich once predicted that Medicare would “wither on the vine” when private-sector alternatives became available. (Prof. Hacker caught my offhanded reference to this quote in our Q&A – although I’ve always suspected Gingrich’s line was a subtle parody of Engels and “the withering away of the state.”) But, pace Gingrich, we’ve now seen that private Medicare Advantage plans are significantly more expensive than the government program. Not a lot of withering going on there. But, interestingly, the Hacker plan provides the same sort of competition Gingrich envisioned – but for all age brackets, not just the one already receiving publicly-funded care.
Free-market health advocates still insist that the private sector can do a better job. It’s true that private Medicare plans had no incentive to innovate, since they were heavily subsidized by the last administration. So, shouldn’t conservatives support this plan? If the private sector really is a source of greater innovation than government, what better way to prove it than in direct competition? (Or, as Prof. Hacker rather drily observes, “Perhaps they will discover inner wellsprings of cost-consciousness we didn’t know they had.”)
Health Care for America is designed as a framework for more detailed discussion. There are issues to explore and details to flesh out. But Congress and the President need a global outline around which to frame the ongoing policy debate. The Hacker plan fills that need. And, as PHNP fellow and single-payer advocate Don McCanne observed, “It is just possible that (Hacker) may have crossed the threshold of political feasibility.”
If that’s true – and I suspect it is – then Health Care for America may become the framework for genuine reform.
(The Q&A with Prof. Hacker is below)
Health Care for America
An Exchange with Prof. Jacob Hacker (questions by Richard Eskow)
Cost Inflation: The first and most obvious conclusion one draws from reading this brief is that a Medicare-like option could reduce overall medical cost inflation in at least four ways: first, by increasing the public system’s negotiating leverage and reach; secondly, by bringing more Americans into a program whose costs are rising more slowly than the overall health sectors; third, by adding to Medicare’s databases and research capabilities; and fourth, by extending the scope of its delivery redesign and cost containment programs.
Is this a fair conclusion and summary? Have I left anything out?
This is an excellent summary, but I do think that another benefit is that a public plan will provide greater pressure on private plans for cost discipline as well. That is, it is not just that the public plan will control costs better than the private sector, but that it will set a benchmark against which the private plans must compete, allowing its innovations in cost control to spill over into the private sector.
Premiums: Your paper states that cost-sharing would be income-based, so that these costs would be capped at the highest rate (7.5% of income) for those earning 300% of the Federal poverty level and above. The brief doesn’t address the issue of premiums directly, however. What do you envision as a premium structure (e.g. age-based only, age/sex based, regional variations, etc.)? Would you expect premiums for this plan to be significantly lower than those of private-sector plans?
Well, this brief is not an attempt to lay out a specific proposal, but to make the general case for public plan choice. (My own specific proposal, Health Care for America, actually has premiums that are capped at $200 per month for a family of four.) I believe that these are issues best worked out within the legislative process, which doesn’t mean I don’t have a view on them. Workplace plans offered by large employers don’t charge higher rates to older workers or women, so why should plans within a national pool? So long as all plans within the pool have to follow the same rules, I would argue for as close to pure community rating (that is, the same rates for all subscribers) as possible.
I recognize, however, that there are difficult issues that arise when people enroll in a national pool, not as members of a work group, but as individuals. Think, for example, of a self-employed or contract worker. If he or she can buy an individual policy in the private market that is not community rated, but a community rated policy within the new national insurance pool, then younger people without chronic conditions — the so-called lowest-risk people (so-called because all of us are at risk of catastrophic costs) — are likely to stay out of the pool. Assuming, however, that there are rules for the individual market like those within the pool, as well as risk adjustment (that is, adjustments of the payments to health plans to reflect the health status and other characteristics of those they enroll), community rating for individual enrollees should be possible, too. And, yes, I expect the premiums to be substantially lower on the order of one quarter to one third lower. That’s what my paper shows.
Redirect: If I read your response and the Health Care for America proposal correctly, that $70/$200 monthly cap applies to all enrollees, whether they belong to an employer insurance plan or not. Presumably the $12,000 it currently takes to insure an American employee will drop eventually. But even if the figure is ($12,000-x), it’s likely to be larger than $2,400. Right? So someone will have to pick up the difference for self-employed workers. Any sense of the scope of that cost? (Granted, I’m not factoring in the synergistic savings and so on, but there’s some cost there, wouldn’t you think?)
Actually, self-employed workers pay both the employer (6%) and employee (income-scaled) premium. Those without any ties to the workforce (and hence no 6% contribution) pay an income-related premium that goes up to the actuarial cost of coverage above 400% of poverty. However, as the Lewin study notes,
“Most non-workers enrolled in Health Care for America would have low incomes and thus their premiums would be highly subsidized. We estimate that 53 percent of non-workers that would enroll in HCA would have annual family incomes below the FPL (Federal poverty level) and thus pay no premium. Another 23 percent would have incomes between 100 and 200 percent of the FPL and would be charged modest premium amounts. About 16 percent would have incomes between 200 and 400 percent of the FPL and would pay gradually increasing premiums, and 8 percent would have incomes over 400 percent of poverty and would pay the full community-rated premium.”
Remember this is 8% of non-workers — so a very small proportion of all Americans would pay the full premium.
The uncovered federal cost is about $50 billion, according to the Lewin report. If you look at the report, you will see that the premiums and payroll contributions cover about half the total program costs, with most of the rest coming from federal and state money previously spent on Medicaid (remember I roll Medicaid beneficiaries into the program). See figures 8 and 10 in my report.
Public Plan Choice vs. Medicare For All: One attraction of public plan choice vs. Medicare For All is frankly political: Nobody is imposing a state-run system from above. If private plans can attract members either by learning to manage costs better than Medicare or by offering more attractive plan design they can survive and prosper. Yet if they fail to control costs, ultimately private plans would wither away.
Your question makes a clever play on Newt Gingrich’s argument that traditional Medicare would wither on the vine if forced to compete with private plans. As you know, the private plans within Medicare have not delivered on their promise of more for less. Instead, they provide about the same amount as Medicare at a much higher cost (roughly 13 percent higher, according to the CBO). So you might, and do, ask: Why should we expect the private plans to survive at all within the pool? I have three answers. First, some people are going to want to be in a private plan, period just as some people continue to buy cars that Consumer Reports says are less reliable than the norm because they like how they look or drive or value the decal on the front. Second, and more seriously, the private plans will be able to do things like selectively contract with small numbers of providers that a stable, inclusive public plan simply cannot do, and some people will value these innovations. Third, we don’t know how the private plans will react to real competition, since they’ve worked so hard to avoid it till now. Perhaps they will discover inner wellsprings of cost-consciousness that we didn’t know they had.
Glad you caught the Gingrich reference. I suspect that he, in turn, was making a subtle reference to Engels and the “withering away of the state.” He’s an erudite guy …
Mandates: Your brief is silent on the issue of mandates, but it cites a Lewin study’s projected savings for an earlier proposal that included a shared responsibility or mandate component.
Is some form of mandate necessary in order to enact public plan choice?
Yes, there must be a requirement on employers to either provide insurance or help fund coverage through the new national insurance pool. The broader this mandate, the less the need for an individual requirement on people to be covered. After all, most Americans are either employed or live in the family of a worker (yes, even today!). In my 2007 proposal, I estimated (with the help of Elise Gould of the Economic Policy Institute) that roughly 95 percent of Americans younger than 65 were in this category in a given year. And if we had a rule that said no one enrolled in the pool was allowed to leave it without showing proof of comparable private coverage, we would have everyone covered quickly. That said, if there is the perceived need and political will to enact an individual requirement alongside a broad employer requirement – with adequate guarantees of affordability (which is crucial). I am for that, too.
Obama Plan: You indicate in your brief that President Obama, among others, is proposing to offer a new public insurance option to Americans who lack employment-based coverage. The public plan would be similar to Medicare. Yet the Obama plan appears to offer an FEHBP-like program, not an open Medicare option. As your paper rightly notes, FEHBP is experiencing cost increases similar to those in the private sector.
Do you have any indication that the President is moving toward a Medicare-based public option?
President Obama has consistently talked about a public plan option separate and distinct from private plans in his health insurance exchange. Here’s the text from the White House website: Establish a National Health Insurance Exchange with a range of private insurance options as well as a new public plan based on benefits available to members of Congress. It is clear that President Obama supports a true public plan, not a FEHBP-style purchasing pool, within the national insurance exchange. He is suggesting that the benefits of this plan should be similar to those offered to members of Congress within the FEHBP, which is a nice, high standard. By “Medicare-like,” I mean a plan that pools risk and pays providers directly, not a contract with private plans. And all indications are that this is what President Obama will seek. It is what his HHS Secretary-Designate Tom Daschle advocates. It is also what Max Baucus, Chair of the Senate Finance Committee, has proposed.
Cost Shifting: As your paper documents so well, the cost-shifting phenomenon (public to private) is routinely overstated. Yet, as you also observe, one study shows a shift of approximately 17 cents for each hospital dollar reduced in Medicare. Whatever the ratio, have you done any modeling of how this shifting might change (either as a ratio or in gross numbers) if substantially more Americans are enrolled in Medicare as a result of public plan choice? Is this a matter of concern for you?
First, both the CBO and MedPAC have strongly argued that the cost-shifting argument is weak. The CBO argues in its December report that if providers indeed have the quasi-monopoly power required to cost shift, they should be commanding the highest rates possible from private insurers and their rates should have nothing to do with Medicare rates. MedPAC says that efficient providers actually make money on Medicare rates. And, in fact, the Lewin Group modeling of my plan (available at http://sharedprosperity.org/topics-health-care.html) did take into account cost-shifting. Indeed, it used an estimate of cost-shifting much higher than I would have used if I were doing the modeling. Nonetheless, the Lewin Group finding was that, even with this high-end estimate of cost-shifting and substantial enrollment in the public plan (they modeled several different enrollment levels), the overall effect on employers now providing insurance would be a reduction in their spending. At the same time, providers would make up nearly all the payment reductions in greater reimbursements for uncompensated care. And states would reap substantial savings as well. One thing to note is that I advocate rolling the low-income, nonelderly Medicaid/S-CHIP population into the national pool, which means a substantial upgrading of payment rates for these people, since Medicaid is a notorious under-payer. If this were not done, I would advocate providing money to the states to upgrade payments separately.
I know you’re a cost-shifting skeptic, but I’m not sure the CBO’s “quasi-monopoly” argument is 100% convincing. Are you? It sounds persuasive, but I’m not sure it requires a” quasi-monopoly” in order for a group of providers – especially hospitals – to act as an uncoordinated group facing common financial pressures. As for the offsetting increase in revenue due to uncompensated care, that makes complete sense (especially having just worked on a Rockefeller Foundation-funded project on uncovered health expenses). As long as there was careful planning re reimbursement design, etc., as all this shifting was going on …
No, I don’t find it fully convincing. That’s why I say that the best studies show some cost-shifting, but the amount is much smaller than critics suggest.
Medical Homes: Your paper endorses the medical home concept. Have you looked at the cost of this option? If primary care doctors aren’t paid to act as a “home,” it’s tempting to assume they won’t. Have you looked at the possible expense associated with physician reimbursement for these services, along with IT or other enabling tools?
Physicians would clearly need to be paid for this. In general, I believe primary-care physicians are underpaid and specialists overpaid, so I would argue for using the medical home approach as one means of shifting the balance.
The idea is certainly intuitive. A large-scale demonstration program might be the ideal way to promote it – as well as some reflection on why similar models (e.g. “gatekeepers”) haven’t succeeded in the past. But variations on this idea are certainly working in the UK, Finland, etc., whatever each system’s issues may be. Would you agree?
Yes and the Commonwealth Fund has some nice reports on this.
CBO Study: The recent CBO study on health reform did not analyze the Public Plan Choice option. It did analyze a Medicare buy-in for individuals aged 62-64, and also looked at a Medicaid buy-in. This is an open-ended question perhaps unfairly so but did anything in the CBO approach or methodology surprise you? Is there anything you would have done differently? Would you have reached different conclusions?
First, I was surprised that CBO did not look at this option. I think the CBO is appropriately careful and measured, but the approach it is taking – while providing very valuable information – is inherently limited. That is because it is considering every possible change in isolation from other changes. But interaction is where the action is in public policy. A major overhaul of our system will produce systemic effects that are very hard to model one-by-one. That said, I think that one of the main cases for the public-plan option is that it provides a cost-control backstop, so to speak. As John Holahan and Linda Blumberg suggest, it is a way to drive competition in the provider and insurer markets to rein in costs. It is also an opportunity to test, evaluate and implement cost-effective treatment protocols systematically; a means for driving quality systematically; and, above all, the best way to guarantee basic health security to millions of Americans and millions more over time.