Reforming US Health Care: Title and subTitle BreakKey Considerations for the New Administration

The election of President Barack Obama has set in motion high expectations that he will undertake systematic reform of the US health care system in his first term. Such reform must address 3 persistent problems: the uninsured, the high and rapidly increasing cost of care, and significant lapses in quality. Having studied these problems for more than 40 years, I would like to share in this Commentary some conclusions about reforming health care in the United States. Before suggesting what should and should not be done, however, it is important to learn from the failure of the proposed health reform in 1993.

Sixteen years ago a bright, young, charismatic Democratic politician entered the White House with a high priority of reforming US health care. The First Lady, Hillary Clinton, led the effort; a 500-person task force worked on the plan for more than a year; and Democrats controlled both houses of Congress. Nevertheless, the Clinton plan never reached either house for a vote. What went wrong?

Articles and books dissecting the Clinton plan's failure are enough to fill a small library.^{1 - 3} Their discussions of political missteps, design complexity, and misleading arguments by opponents are instructive. They do not, however, get to the heart of the matter. Although public opinion polls reported clear majorities in favor of health care reform, support for substantial change was weak and divided. In an article directed to then President Clinton in April 1993, I pointed out that “[m]ost Americans have health insurance. Most Americans are satisfied with their doctor. . . .”^{4 (p678)} More generally, numerous individuals and organizations preferred the status quo, and the political system gave them many opportunities to block change. Most critics of US health care incorrectly focused on “greedy” drug companies and “overpaid” physicians rather than on systemic problems in funding, organization, and delivery of care. Most workers mistakenly thought that their insurance was a gift from their employer rather than an offset to higher wages. The Clintons never rose to the challenge of explaining these problems to the public.

Most importantly, the Clintons were not alone in failing to achieve reform. The experienced and influential Rep Pete Stark (D, California) submitted a bill calling for greater reliance on government than the Clinton plan. Rep Jim Cooper (D, Tennessee) put together a bipartisan group of 80 representatives in support of a more market-friendly plan, and Senators Breaux (D, Louisiana) and Durenberger (R, Minnesota) authored a similar bill in the Senate. Significantly, no reform plan was ever reported out of committee. Weak, divided, uninformed public support combined with failure of reformers to unite behind a single plan doomed the effort.

What is different this time around? Not so much. Public opinion polls in 2008 show support for health care reform at levels somewhat below those in 1992.⁵ Public understanding of the problems still misses the mark; this time insurance companies are now the favorite villains. Few critics realize that insurance companies are usually only providing administrative services. Employers are typically self-insured, and most workers still do not understand the connection between insurance and wages. The major problems are as great or greater now than they were in 1993, but individuals and organizations who like the status quo are also still numerous. Furthermore, the inability of reformers to unite behind a single approach remains a major obstacle.

The biggest difference is the economic climate. In 1993, the economy was on the rise after a mild recession in 1991. Now the economy is headed downward. The recession that began in December 2007 shows no sign of ending and may turn out to be the worst since the 1930s. Advisors to the president will probably differ on how the overall economy affects the prospects for health care reform. Some will say that declines in employment and employment-based insurance strengthen the pressure for bold new approaches to coverage. Others will argue that because the federal government already faces a large and increasing budget deficit, this is not an opportune time to increase government spending on health insurance. These conflicting views can be reconciled if reform addresses coverage and cost issues simultaneously. The need to control costs strengthens the case for universal coverage instead of targeting particular groups. An incremental strategy may have a short-run political payoff, but as long as millions are uninsured, poverty health clinics and public hospitals will still be needed. Also, uncompensated care by physicians and hospitals will still be inefficient and inequitable. Universal coverage creates opportunities for significant improvements in the organization and delivery of care.

What about reducing cost? There is a great deal of waste, fraud, and abuse in the present health care system, but there also was a great deal of waste, fraud, and abuse in the system 40 years ago. There is no evidence that these issues account for a larger share of spending today than they did then—or that they will be any easier to eliminate. Every dollar of waste, fraud, and abuse is a dollar of income to someone in the system. Lord Acton's famous aphorism, “Power tends to corrupt; absolute power corrupts absolutely,” can be paraphrased: absolute cuts in spending will be resisted absolutely.

The best chance for a sizable one-time reduction in the level of costs is through a reduction in administrative expenses. Employment-based insurance and income-tested insurance (eg, Medicaid) both require costly administration. Universal coverage, funded in a straightforward manner, would result in administrative savings large enough to pay for most of the additional utilization by those previously uninsured.⁶

One-time savings are welcome, but the most important goal should be to slow the growth of health care expenditures. To that end, an independent institute for technology and outcomes assessment is warranted.^{7 - 8} Physicians and hospital administrators need reliable information about the cost-effectiveness of alternative interventions. Such information, especially when combined with appropriate incentives and easy access to supporting technology and nonphysician personnel, can slow the growth of health care spending.

Another important tool to slow spending growth is to discontinue open-ended funding. This method of finance, which characterizes most public and private insurance today, contributes to the rapid escalation of expenditures. Fixed budgets have much the same effect as Samuel Johnson's observation: “when a man knows he is to be hanged in a fortnight it concentrates his mind wonderfully.”⁹

Apart from reduced administrative costs, there should be no rosy promises of lowering costs from other popular recommendations. For example, some argue that more preventive medical care such as screening and testing will reduce expenditures. While such interventions may contribute to better health outcomes, they usually increase total health expenditures.¹⁰ A review of 599 articles on preventive interventions published between 2000 and 2005 concluded, “Although some preventive measures do save money, the vast majority . . . do not.”^{11 (p,662-663)} Widespread use of electronic medical records reduces costs and improves quality of care when introduced in appropriate settings such as the Veterans Affairs hospitals and other coordinated health care organizations. But requiring or subsidizing electronic medical records in the present fragmented system will not have the same effect. For example, Leonard Schaeffer, former chairman of WellPoint, wrote that his company gave away $42 million worth of hardware and software to doctors with little success because “it doesn't add value to them personally.”¹²

There should also be caution in adopting a seemingly innocuous plan to include uninsured 55- to 64-year-olds in Medicare at a fair premium. Because enrollment will be voluntary, it would attract a disproportionate number of less healthy individuals. The resulting deficit would bring unwarranted disrepute to all plans for public funding of insurance, including those not subject to selective enrollment.

Going forward, several essential points must be kept in mind. First, there is no quick or easy fix. A sustainable reform package will probably take several years to put together, to muster public understanding, and to gain the necessary political support. Second, because the problems of coverage, cost, and quality are interrelated, the reforms must reinforce one another. Third, the goal of seeking wide support for reform is commendable, but there should be no settling for appearance over substance. Any reform plan not controversial is certain to be inconsequential.

Fourth, several short- and intermediate-term actions and initiations can help lay the groundwork for long-term sustainable reform. Examples include capping or eliminating the tax-exemption of employer contributions to health insurance, developing demonstration projects by Medicare for payment alternatives to current fee-for-service methods, and creating an institute for technology assessment.

Finally, and most importantly, the importance of comprehensive, sustainable reform of health care should not be underestimated. The long-run fiscal stability of the country depends on it. But the experience of 1993 shows the difficulty of achieving such reform. It will take skill, determination, and exceptional leadership—the very qualities President Obama demonstrated in reaching the White House.