INTRODUCTION TO
CED’S POSITION ON HEALTHCARE REFORM
As you may know, CED’s Healthcare Reform Subcommittee is on the job producing a report on the evolution of our proposal to restructure the nation’s costly and inefficient healthcare system. Over the next few weeks, we hope to take some major strides forward on a new policy statement. I would like to take this opportunity to begin to present ideas for that report to you. You can expect to see some additional contributions over the coming weeks, as we develop the succeeding sections of the report. If you are interested, we would be pleased to have you join the efforts of the Subcommittee as this report takes shape.
For your background: Almost a decade ago, the Committee for Economic Development (CED), anticipating the need for fundamental change, undertook a research project on our nation’s healthcare system. CED had already issued a policy statement on how employers, working both on their own and cooperatively among themselves, could improve healthcare quality and efficiency. However, although we believed that those recommendations were sound, we observed that few if any firms found it to be in their own interest to put our recommendations into practice. As a result, healthcare costs continued to mount, while quality continued to lag behind any level commensurate with what society spent.
Accordingly, CED’s new policy statement, released in October of 2007, found that the United States would need to take collective action to achieve greater quality of care at lower cost. Our policy statement explained our vision, in which greater consumer choice among competing private health-insurance plans would motivate greater efficiency and higher quality on the part of both plans and providers. We proved to be right that dissatisfaction with the healthcare system would lead to early legislative action. However, we were not successful in bringing our vision to implementation. There are reflections of our vision in the subsequent Patient Protection and Affordable Care Act of 2010, often referred to as the “ACA” or “Obamacare.” But the resulting system has been described even by some supporters as incomplete, and it of course has many virulent detractors as well.
As much as CED would prefer a fundamentally different alternative that would reflect our vision, the ACA is the law of the land. Millions of insurance contracts have been written according to its terms. Therefore, simply repealing the ACA today is not a viable option. Rather, the task is to find a way forward from this new starting place to a better end point – in our view, to a system that is more market-driven, along the broad lines of CED’s vision as expressed in 2007, but with refinements that we will describe later in the project.
FIRST PRINCIPLES: A CENTRAL ROLE FOR GOVERNMENT OR A MARKET-BASED APPROACH?
The ACA organizes the purchase and delivery of health care in a rather jumbled and disorganized way; that would be a part of CED’s critique of the law. But the ACA’s central tendency is toward a lead role for the federal government to control costs, increase access and improve quality – for government as the prime mover in health care. CED, in contrast, favors a fundamentally market-driven approach to control costs, increase access and improve quality.
These differences of belief should not be subject to caricature. The vast majority of both advocates of a central role for government and advocates of a market-driven approach agree that everyone should have access to health care and that no one should be denied care because of lack of ability to pay. This might fairly be characterized as a shared American value. And to be sure, CED’s system requires government rule-setting – such as is essential in many other industries – to ensure that the market is fair and that there is true and effective competition. So there is considerable overlap between the two views – perhaps on the questions that are most important to most Americans.
The fundamental disagreement is whether health care resources are best allocated through mechanisms put in place by the federal government or through market-based mechanisms. In the end under CED’s vision, many more decisions would be made by consumers, care-providers and insurance plans than is likely to be the case under the ACA.
Those who advocate a central role for government envision a system with the government as essentially the single payer, and as such, playing a key role in deciding what health care is appropriate to provide – a system that they believe would be the most equitable in the allocation of healthcare resources. Those who advocate a market-based approach envision a system with expanded access to private insurance with government playing a limited role similar to that played in other sectors of the economy. Decisions about what health care to provide would be made primarily between doctors and patients – a system that they believe would be more effective at allocating healthcare resources than a single-payer system.
Again, although the ACA left much of employer-provided insurance, and even to a degree Medicare, essentially untouched, the Act’s clear inclination is toward a central role for the federal government. However, the influence of those who advocate a market-based approach has been increasing. Their ideas are reflected in the design of the Medicare drug benefit enacted into law about a decade ago. The drug benefit is a government entitlement, but it is delivered through competing private plans. The Medicare drug benefit has lower costs and wider choice among private plans than had been projected, and arguably has achieved higher levels of satisfaction among seniors than was expected by many. Advocates of the market-based approach cite this outcome to reinforce their arguments.
Thus, these fundamentally different world views about the ultimate design of the health care system, and which approach would achieve the most equitable and effective outcomes, can create major conflicts when deciding how to go about expanding access, improving quality and controlling costs. The nature of these conflicts becomes apparent when trying to answer the following questions.
Is health care a public or a private good?
As was noted earlier, and despite some of the heated rhetoric over healthcare legislation in the last five years, almost no one seeks to deny or “ration” care to any American. And most advocates of these vastly different approaches tend to be pragmatic and to recognize that both the government and the private sector have roles to play. Still, there are major differences over whether the government role should be central or limited. Those who advocate a central role for the federal government would tend to characterize health care as a public good, and as such, as a service that is appropriate for the government to provide either directly of under relatively explicit guidance. Because they see health care as a public good, also, advocates of the government role would tend to espouse a system that delivers care in a fairly uniform way across the entire population. Advocates for a market driven approach, in contrast, would be more likely to characterize health care as a private good that should be primarily the responsibility of the individual and should be provided through the private sector. Furthermore, individual choice would be seen by this camp as likely – and properly – to lead to differences among many alternative healthcare plans that reflect differences among people’s preferences for modes of care, which may result in differences of cost from person to person.
How much should be spent on health care?
Most exponents of both schools of thought recognize that costs under the current system of delivery of care are rising unsustainably. Thus, although some of the most aggressive advocates of a central government role might believe that care can be essentially unlimited and paid for by government fiat, most thinkers on health care from both camps are highly motivated to find ways to achieve the complex task of slowing the growth of cost. Those who favor a central role for government are likely to believe that there should be an upper limit, or cap, on the amount of healthcare spending, probably expressed as a percentage of the GDP. This belief is consistent with the view that the system should be financed by the government, which then makes health care a budget issue. These advocates of a central role of government would use “global budgeting” to limit spending if the demand for health care exceeds what government determines it can afford. The task of government in these circumstances becomes how best to allocate healthcare spending among the competing demands in the most equitable fashion.
Advocates for a market-driven system would tend to argue that the amount spent on health care should be the sum of millions of individual decisions to buy health care – the same way that spending is determined in the rest of the economy. The upper limit of what is spent and the allocation of how it is spent should be determined by patients in consultation with their doctors about the improved health outcomes that will result from additional expenditures. Implementation of this market-driven approach in a world of limited resources would require greater transparency about quality and costs than is now available, and would require that the patient have a meaningful personal financial stake in the outcome of the decision, which is not usually the case today.
Who should decide what health care will be provided?
Once advocates of a central government role have decided that health care is a public good, largely financed by government, and that government should cap the amount spent on health care through global budgeting, it follows that the government should play a central role in deciding what health care is appropriate to provide. Otherwise, government could not carry out its task of allocating equitably the limited resources across competing demands. The underlying assumption is that capable and knowledgeable people can design a comprehensive approach to health care that will make these resource allocation decisions in an optimal manner. This underlying assumption leads to attempts to reform the entire system from the outset according to this comprehensive design.
Medicare already functions in this way, but the impact on patients is somewhat muted because providers shift costs to the private sector to compensate for being under-reimbursed by the government. Certain new procedures are restricted and delayed, but apparently not yet to an extent sufficient to trigger a protest. With an entire healthcare system operating under conditions where government plays a central role, the approaches such as those used to control Medicare spending would have to be expanded significantly. Tools and techniques such as health benefits measured in “quality adjusted life years,” “comparative-effectiveness studies,” and “cost-benefit analyses” would be brought into wider play to assist the panels and commissions that would be established to make the reimbursement and allocation decisions. This general outline perhaps characterizes the forthcoming role of the Medicare Independent Payment Advisory Board, or IPAB, which will be discussed further below.
These studies, when done well and when their limitations are understood, have merit. The issue is who decides what procedures and technologies are made available based on these studies – a government panel or the doctor and patient? Market-economy advocates come down on the side of the doctor and patient, and see these studies as important assists to the doctor and the patient when deciding what procedures are appropriate. The underlying assumption of those who advocate a market-driven approach is that the healthcare delivery system is far too complex for any group, no matter how knowledgeable or expert, to manage from the top down. The belief is that the sum of many, many individual doctor and patient decisions will provide outcomes that are superior to top-down management. This underlying assumption leads to a more incremental approach to reform the system.
Who should decide the price of health care?
Those who advocate a central role for government are adamant that markets do not work in health care and that price competition does not exist. Their solution is a regime of administered prices and centrally established reimbursement rates, which is the approach used in Medicare. The Medicare prescription drug benefit is an anomaly in that pharmaceutical prices are not set by the government, but some members of Congress continue to introduce legislation to authorize the government to negotiate the prices directly.
The advocates of a market-based approach believe that price competition exists and can be expanded. They cite the Federal Employees Health Benefits Program (which covers members of Congress and federal employees), several state-government-employee systems including California and Wisconsin, university systems including Stanford, and some private-employer systems as successful examples of market competition among private health-insurance plans. Each individual member chooses the plan that best fits his or her needs each year from a wide variety of competing plans. Such health plans have generated vigorous price competition among providers, including pharmaceutical companies supplying the Medicare prescription drug benefit. Congressional Budget Office studies indicate that this competition would continue to be more effective in holding down pharmaceutical prices than if the government moved to negotiate prices directly.
What is the best way to achieve improvements in healthcare quality and productivity?