By Oxford Analytica - 10/10/07 07:11 PM EDT
The chronic problems faced by the U.S. healthcare system are becoming more acute:
•Uninsured population. According to the Census Bureau, the number of uninsured rose from 44.8 million (15.3 percent of the population) to 47 million people (15.8 percent) from 2005 to 2006.
•Surging costs. Although health insurance premiums are rising at a slower pace — 6.1 percent from 2006 to 2007, down from 7.7 percent the year before, according to the nonprofit Kaiser Family Foundation’s (KFF) employee benefits survey — they are still outpacing workers‘ earnings and inflation.
•Falling employee coverage. Nearly all large firms continue to offer health insurance benefits to their employees. However, KFF reports that the percentage of small firms — those with less than 200 employees — offering health insurance is down from 68 percent in 2000 to 59 percent in 2007. In addition, only 45 percent of micro-enterprises — firms with three to nine employees — offered health benefits in 2007.
Not surprisingly, healthcare is a top domestic concern among voters, ranking behind only the Iraq war as the most important presidential campaign issue.
The United States has faced these familiar problems with its healthcare system for a very long time. Former President Bill Clinton’s attempt at healthcare reform in 1993 — which became known as “Hillarycare” due to the then-first lady’s involvement — already stressed the growing number of uninsured and rising costs as an impetus for change. However, this initiative failed to convince the U.S. public.
Fourteen years later, U.S. citizens seem more open to reform and are beginning to favor schemes that aggressively address the problem of the uninsured:
•KFF’s August “health tracking poll” found that only 13 percent of respondents would endorse a presidential candidate who would keep the health system as it is now. More than half (54 percent) — and 67 percent of Democrats — prefer a healthcare reform proposal that would cover most or all of the uninsured by increasing spending to a plan that would cover some of the uninsured but would reduce spending.
•The Massachusetts Health Reform Tracking Survey reported that support for the recent health insurance reform among Massachusetts residents who were aware of it rose from 61 percent in September 2006 to 67 percent in June 2007.
Politicians — especially presidential candidates — are responding to voter receptiveness by considering serious reform. There is a growing consensus that it is politically viable to require several groups to work together as part of a more comprehensive strategy — a principle termed “shared responsibility” — rather than targeting just one element of the healthcare system at a time. Both Democrats and Republicans believe that this approach will be a better way to contain costs and improve quality while also achieving universal coverage.
Sen. Clinton’s new healthcare reform package — the “American Health Choices Plan” — exemplifies this trend. She proposes five main “branches” of responsibility:
•Individuals. Through an individual health insurance mandate, all U.S. citizens would be required to purchase health insurance. Clinton’s proposal claims that individuals wishing to purchase health insurance would have the option of joining Medicare or could choose from a menu of the plans currently available on the Federal Employee Health Benefits Program (FEHBP). This should bring people into the insurance pool and, it is hoped, reduce premiums and overall costs for many. Those who cannot afford private coverage would receive a refundable tax credit to help purchase insurance. Clinton also proposes a cap on the amount of premium expenses, as a percent of income, for families. For wealthier people, the tax exclusion for employer-provided insurance would be capped for those making over $250,000 per year — this should provide funding for some of the proposal’s other provisions.
•Employers. Large employers would come under a “pay-or-play” mandate, which would require that they either offer insurance to employees or contribute to the outside cost of coverage. Small- and medium-sized employers would get a refundable tax credit to provide an incentive to offer health benefits.
•Insurers. Insurance companies would face new federal regulation on guaranteed issue, community rating and guaranteed renewal — laws that are at present left up to the states. In addition, any discrimination based on pre-existing conditions would be considered unlawful. The extension of FEHBP plans cited above would probably entail regulation requiring insurance companies to offer these plans.
•Providers. By encouraging the adoption of health information technology and pay-for-performance measures, Clinton’s plan calls for providers to improve quality.
•Government. The government’s main responsibility would be to support insurance affordability through refundable tax credits, insurance regulation and cost-saving initiatives such as health information technology. Increasing Medicaid and State Children’s Health Insurance Program (SCHIP) enrollment, and expanding eligibility requirements, would also serve as key means to cover the uninsured.
The rhetoric of shared responsibility in healthcare reform has clearly appeared in the presidential campaign, but there are also numerous state and local programs that espouse this design:
•California. In California, policymakers are considering a comprehensive healthcare reform package. Gov. Arnold Schwarzenegger is pushing for an individual mandate, and providers, insurers and employers are all contributing to the process.
•Massachusetts. Massachusetts has already enacted a reform plan that involves such shared responsibility among various parties, with an individual mandate, an employer mandate and a reworking of the insurance industry.
•San Francisco. The Healthy San Francisco program — which opened city-wide in September — uses an employer mandate, requiring medium and large employers to pay a certain amount per hour on health benefits for employees, and individual means-tested user fees.
Yet making shared responsibility programs effective requires employer participation, which means that reform at the federal level is crucial. The Employee Retirement and Income Security Act (ERISA) exempts firms that “self-insure” — i.e., assume the financial risk of offering health benefits — from state and local regulation of those benefits. Indeed, courts have already voided state employer mandates in Maryland and New York on ERISA grounds.
Shared responsibility as a reform concept has two powerful advantages. It appeals to voters, and enacting widespread rather than piecemeal reform will make it more likely to succeed at its goals in the long run. However, bringing several parties to the bargaining table makes finding a mutually agreeable solution very difficult and time-consuming — having dragged its feet for too long, the California state government is now in a special legislative session to try to reach a compromise on healthcare reform.
Oxford Analytica is an international consulting firm providing strategic analysis on world events for business and government leaders. See www.oxan.com.