By Christopher Guadagnino, Ph.D.

Annals of Internal Medicine Editor Frank Davidoff, M.D.

Published July 1999

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The present situation seems to please virtually no one: patients with insurance are unhappy with limitations on their choice of providers and utilization of services and increasing numbers are in the ranks of the uninsured and underinsured; employers are unhappy with double-digit increases in insurance premiums; federal and state governments struggle with the burden of Medicare and Medicaid programs; hospitals are losing large sums of money leading to layoffs and program cuts; and most insurers lose money within the crossfire of employers and governments that want to pay less and consumers and providers who want more.

Physicians are in the untenable position of incorporating the competing, and sometimes contradictory, demands of the system in their encounters with patients, while being forced to see more patients at lower fees, with the specter of malpractice lawsuits from patients and fraud investigations from government regulators. Consolidations, rather than leading to efficiencies and greater quality, appear to have led to greater costs and less choice. The level of conflict among players in the system is accelerating, leading to greater costs as well as reductions in choice and continuity of care.

While incremental solutions to one or another of these problems have been adopted or are under consideration, a surprising convergence between critics on the right and the left of the political spectrum has emerged on the point that nothing short of fundamental change will significantly improve the situation. Because of deep systemic problems, they argue, incremental reforms can at best improve one part of the system while exasperating another. "There have been proposals for 60 years of one sort or another for some broadening of coverage and nothing seems to have worked," says Frank Davidoff, M.D., FACP, editor of the Annals of Internal Medicine.

The left and right, of course, adopt different foci for reform. In general, the left focuses on generating universal access to health insurance and the right on removing fundamental barriers to an undistorted and fully-functioning free market in health care.

Universal Access

Proponents of a universal access model of health care maintain that the U.S. is an anomaly in that it spends more of its gross domestic product on health care than does any other industrialized nation and yet does not make access to health care equally available to all of its citizens.

Compounding the irony is that our employer-purchased health care financing system discriminates against the sickest (by making coverage more expensive and difficult to retain when changing jobs) and may suffer devastating disruption should a recession strike our economy, note Davidoff and co-author Robert D. Reinecke, M.D., immediate past president of the Philadelphia County Medical Society, in an Annals of Internal Medicine editorial proposing that equal access to "basic and essential health care" be guaranteed to all citizens and residents by a 28th Amendment to the U.S. Constitution.

"The Sixth Amendment guarantees the right to a lawyer, but no guarantee to the care of a professional for something so basic as health," says Davidoff. He believes that the Amendment proposal, if not politically feasible (and the authors concede that it probably is not), would spark needed national discourse during the upcoming presidential election about the priorities of our health care system, directing attention to the need for an equitable system and exposing the "horribly tangled, tortured, complicated system that doesn’t cover a sizable population," Davidoff adds.

"The uninsured get care now, but payment is shifted," says Davidoff, referring to uncompensated care that hospitals provide. "A more rational system is to have care given and billed appropriately, eliminating psychological and personal barriers to patients seeking care," he adds.

Davidoff and Reinecke leave to individual states the details of deciding upon particular mechanisms for implementing a universal health care access model. "The federal government identifies the problem and requires states to come up with a plan that meets defined standards of basic and essential care," which would not include access to all types of care, says Davidoff.

Reinecke believes that the first universal access model that should be considered would scrap employer-based coverage to level the inequities of inconsistent benefits coverage currently offered by different employers. Government-mandated benefits would have to cover those who earn the lowest wages, which could only be feasibly done, Reinecke believes, with a national tax base that is devoted exclusively to health care.

"Let people contract for their own health insurance or have government offer it at reasonable rates by expanding the Medicare system and tapping into its coverage," says Reinecke, suggesting that such an approach would entail an easier transition than building a new system from the ground up. The Medicaid system could also be folded in, as is already done to cover the seriously ill, he adds.

Other proponents argue that only a univesal access model can preserve the quality of clinically managed health care, which they insist requires a stable and adequate health insurance reimbursement flow to counteract insidious cost-cutting tactics rewarded by the free market.

Besides a stable revenue stream, a universal access system would facilitate continuity of care through stable patient populations and stable teams of providers delivering integrated care programs, all essential features of a good clinically managed care, argues Donald W. Light, Ph.D., senior fellow at the University of Pennsylvania’s Center for Bioethics and professor of comparative health care systems at the University of Medicine and Dentistry of New Jersey. A model of universal health coverage is needed, says Light, to replace a voluntary market that adds 100,000 uninsured each month to the current 43 million, under a booming economy with high employment, in which only half of all employers offer health insurance.

From an economic standpoint, other countries with universal health care have proven track records of controlling health care costs by tightly controlling prices for pharmaceuticals, equipment, CAT scans, MRIs and other procedures, whereas American prices for those goods are the highest in the world because of a loose, open market without strong and coordinated buyer activity, says Light.

Forging a consensus on a best model of universal access for the U.S. would be politically difficult, given profound disagreements even among those who favor the principle of universal access, Light declares. He highlights four possible approaches, each with strengths and liabilities.

A single payer system, which Light favors above other approaches, would entail government collection and allocation of taxes devoted exclusively to health care, eliminating budgetary competition with other non-health related expenditures. Light believes that a single payer system would be inexpensive and uncomplicated, tapping the existing taxation infrastructure.

A government-run health care system would also be inexpensive, but is less politically feasible in the U.S. and is bogged down with a large and bureaucratic civil service infrastructure, potentially compromising quality of care delivery, believes Light.

A third alternative is a flat percentage mandatory contribution by employers to allow employees to purchase health coverage from insurance pools. This approach requires government to play a minimal role, providing a "catch basin" to ensure that all citizens are covered. The approach does not offer as firm a grip on cost reduction as the other approaches and a flat percentage contribution (which is used by every country under this model) is regressive for low-income workers, says Light.

A fourth universal model would require all Americans to purchase health coverage with the help of a government tax credit, either privately or by paying into a residual government pool. Perhaps the most politically feasible and more sensitive to income variation than the third model, it still suffers from the high overhead cost and retains the fundamental structural problems of the present system, Light concludes.

Market Reform

Another group of proponents of fundamental reform, including the AMA and the Heritage Foundation, contend that distortions of the free market cause the most serious problems in our health care system. They advocate reforms such as shifting ownership of insurance from employers to individuals, establishing Medical Savings Accounts and giving Medicare, Medicaid and the uninsured tax credits or vouchers to buy health care in the private sector.

The AMA advocates health care reform that permits individual selection and ownership of health insurance from a wide choice of plans, funded by a defined contribution from employers to employees and facilitated through taxation and legislative changes to ensure affordability and group purchasing opportunities, explains AMA President Nancy Dickey, M.D. "We need an American system that addresses cost and access in a balanced way," Dickey declares, criticizing reactive government legislation that micromanages what treatments and doctors a consumer must have. "Most Americans would be happier if they picked it," says Dickey, noting that reform must also remove financial disincentives to seek preventive or needed care.

Dickey believes that a defined contribution by employers to employees, combined with progressive tax credits to both, would provide incentives and wherewithal across the board for workers to purchase their own health insurance, without driving small businesses out of business by mandating coverage.

Switching ownership of health coverage away from employers would eliminate marketplace inequities such as the purchasing discounts available to large companies that allow them to sustain higher risk patients not possible among small employers, notes Dickey. An employee-based model, she adds, would need some mechanism to ensure rational risk assessment and allow for group purchasing power, utilizing community premium ratings according to age and gender.

Employee ownership of health insurance would control costs by engaging the free market, according to Dickey, in that the individual who pays for the care has a realistic threat against health insurers who do not offer acceptable, affordable products.

As for health care access, Dickey notes that 70 percent of the nation’s 43 million uninsured are working Americans or their dependents and adds that "appropriately crafted tax credits and maybe even tax subsidies to assist the working poor will probably address a substantial number of the uninsured." Of the remaining uninsured, five million are children who qualify for Medicaid, for which the application and qualification process must be made more accessible, she notes. The CHIP program can cover the remaining five million uninsured children, and uninsured college students should be relatively inexpensive to cover, Dickey adds. The AMA hopes to advance its reform agenda during the upcoming presidential campaign. Says Dickey, "We need to move the conversation toward broad planks of reform before we start quibbling about some of the finer points." She recommends that the conversation focuses on problems in the current system rather than getting smothered in details as the Clinton plan did.

The Heritage Foundation also endorses universal, progressive employee tax credits and low-income family vouchers to allow individuals to purchase their own private health coverage. The Foundation illustrates the feasibility of that approach in a paper titled, Health Care: Improving Consumer Choice and Access, citing the successful Federal Employees Health Benefits Program (FEHBP), which currently enables nine million federal workers and retirees and their dependents, as well as members of Congress, to choose from among a dozen or so different health plans offered by 620 private insurance carriers nationwide who compete for the contracts. The federal government contributes a set dollar amount to each employee or family to choose and purchase one of the available plans. All of the plans have catastrophic coverage and federal employees pay more for plans with richer benefits.

Competition among health plans participating in the FEHBP has held health care cost inflation to a minimum and requires the minimal managerial government role of negotiating rates with private insurance carriers and setting rules for their fiscal solvency, as well as requirements for consumer protection and basic benefits. The program allows federal workers to keep their health plans when changing jobs and when retiring as early as age 55.

"Normal operation of the market where consumers play the primary role does not exist in health care as it does in all other sectors of the economy," says Robert E. Moffit, Director of Domestic Policy at the Heritage Foundation and co-author of the Consumer Choice and Access paper. "What makes the current system so strange is that we tolerate all kinds of incentives that we would never tolerate in any other sector of the economy. It’s absurd to even talk about a market unless you’re talking about consumer choice," Moffit adds.

Perhaps surprising coming from a conservative organization is the Heritage Foundation’s endorsement of mandated employee purchasing of health insurance. "We’re going to pay for it anyway and it is more efficient than uncompensated care cost-shifting," says Moffit, who was a deputy assistant secretary of the Dept. of Health and Human Services during the Reagan administration.

More in political character is Moffit’s rejection of cost control mechanisms endorsed by universal access proponents: "There is no other way to make a system cost efficient outside of a normal collision of the forces of supply and demand." Price controls, he believes, "Don’t control costs at all. All they do is basically shift costs in other sectors of the economy and reduce supply or quality of the good or service."

Moffit acknowledges the equity argument made by advocates of universal access and agrees that health care is an inelastic good compared to other commodities, but charges that declaring health care to be a public utility paid for by public taxation would lead to unlimited demand for a free good and to irrational rationing.

A limited supply, determined politically, would dictate limits to who gets care when, and under what circumstances, resulting in sacrifices to personal choice and freedom, Moffit maintains, pointing to the 1.3 million persons waiting for hospitalization in Great Britain and to Canada’s decision to shut down several hospitals for weeks in order to stay within its global health care budget.

The market reform model can assure access for high-risk consumers, says Moffit, through cost subsidies in the tax code, issuing more tax relief for higher utilization requirements. Medicaid can be retained as the catch basin for the unemployed, he adds.

The most politically effective way to sell the market reform model, Moffit believes, is to target tax relief immediately to the uninsured. "You’re talking about a new system. The working poor don’t go into a welfare program. They go into mainstream health insurance, creating a new market and letting them make the key decisions in the system."