Compulsion: The Key to Us Health Care Reform

Introduction

There is no doubt about the historic importance of the Patient Protection and Affordable Care Act passed in the US Congress in March 2010. As Europeans, it will not be surprising that we admire the proposals to expand coverage to a further 32 million Americans and abolish insurance practices that deny coverage to so many. However, recent challenges as to whether compelling people to purchase health insurance is unconstitutional, heard in Circuit Courts in several States, have resulted in inconsistent rulings. ¹ It is now almost certain that the case will be referred to the US Supreme Court and, if delayed much longer, health care will be back on the agenda for the forthcoming US presidential election campaign.

Of course, there have been many critics of the Act arguing that it carries with it significant costs to the US taxpayer and, therefore, that the status quo would have been preferred. Defenders of the Act argue that, ultimately, it will save costs. Time will tell. At this point, as outsiders to the US but keen observers of its health care system over the past 25 years, our contribution is motivated by the same desire as all who have been involved in the wrangling and debate over this Act: to help in the creation of a health care system in the US that will better serve all Americans. By ‘better serve’, we follow the original stated goals of the reform, which were to create a system in which all Americans are covered and one that does not add significantly to the total expenditure on health care. Our fear is that the proposals contained in the Act may initially achieve the former goal but not the latter. This will then ultimately threaten the former goal itself, as an unaffordable reform is unlikely to be sustainable. Our solution, however, is not to support the status quo, as major questions exist as to the sustainability of that too. The key is to go in the other direction and push further the notion of compulsion that seems to be currently exercising the US legal system.

There are two key components to achieving the twin goals of expanded coverage at low extra cost: government intervention and compulsion. The former is necessary from an economic efficiency perspective and the US seems to understand this, with about half of all health care expenditure already coming from the public purse. ² By compulsion, we do not refer simply to the proposal contained in the Act about the legal requirement for everyone to become insured. In this paper, compulsion is taken to mean that all US taxpayers would have no choice but to contribute, through taxation, to the funding of a universal health care system. These contributions would become the main form of such funding, not merely covering expansions but covering all citizens. Again, speaking as outsiders, the notion of compulsion seems to sit less well with many Americans and perhaps more so when promoted by government. However, it is important to note that a level of compulsion in health care funding is already accepted in the US. Tax dollars are spent on Medicare and Medicaid programs and the Veterans Administration health system. Here, we are talking about extending this to a universally available health care system.

The flip side of compulsion is, of course, freedom of choice. At least rhetorically, freedom of choice has been preserved in successive US health care reforms, an understandable tactic as politicians seek to sell reform to legislators and the public. It fits better with US culture and seems to be what the Obama administration has been wrestling with, by wavering on whether to propose a parallel public system to expand coverage and into which people can voluntarily enter. Our contention, however, is that even this latter ‘public option’ does not go far enough.

The aim of this paper is to make the case for compulsion but with an American twist, so recognising some aspects that might be of importance to US citizens and institutions. We start with a discussion of why freedom of choice fails if the twin goals are affordability and universal access. Then we outline and discuss a possible compromise of ‘compulsion plus choice’ as a way forward.

Health care reform: why voluntary schemes fail

Health care reform, in both private and public systems, is riddled with failed attempts to control costs based on voluntary schemes. In general, costs have continued to rise in the US despite repeated attempts to induce more competition and, thus, efficient behaviour. The reason for this is that reform based on competition simply entices enrollees to opt into that part of the system which gives them, amongst other things, the biggest financial gain. Note the experience of large-scale innovations such as health maintenance organizations or managed care more generally. Low-cost people were still low-cost and simply opted into the new (e.g. HMO) part of the system. High-cost people tend to remain in the traditional part of the system and remain high-cost. In total, system costs remain the same or keep rising. This situation is almost guaranteed to continue in a system of tax credits being used to subsidise private health insurance, as in the proposals in the recent Act. Recent evidence also shows that Accountable Care Organizations, resulting from attempts to encourage physicians, hospitals and insurers to team up in treating patients by allocating bonuses for providing better care at lower cost, have caused a great deal of activity in consultancy and legal offices due to the complexities involved. ³ Further to this, such organizations are voluntary and the main consideration as to whether a provider or insurer will join will be financial. If they can gain they will and if they cannot then they will not; in toto, health care costs will remain unaffected.

It could be argued that copayments represent another way of maintaining choice whilst attempting to limit costs. The irony of such demand-side schemes, however, is that, amongst Western economies, the US has the health care system that makes the greatest use of copayments but which has the greatest challenges with respect to cost control. Demand amongst some is choked off and the supply side responds with more intense servicing and meeting new needs. ⁴

Two often promoted examples, one supplyside (the lesser promoted of the two) and one demand-side, further illustrate the point: physician renumeration and medical savings accounts. On the former, there have been several attempts globally to encourage physicians to move from fee-for-service remuneration to capitation but none has arrested the continuing growth in health care costs. The reason? Participation is voluntary. Low-cost physicians, usually already practicing in the required manner and thus in a good position to benefit from a capitation fee based on average utilization of the population, tend to move to the new scheme. Meanwhile, the higher-cost laggards remain in the established system. In total, nothing changes. Medical savings accounts, too, have never taken off in the US. The reason? You guessed it - participation is voluntary. ⁵ Once again, patients who are already low-cost will opt for savings accounts, whilst higher-cost patients remain in the established part of the system.

Of course there are many subtleties of such reforms that are ignored in a short commentary. However, the key point is that when people are free to choose, they will opt into that part of the system that is financially beneficial for them. At the level of the system overall, however, nothing changes. Our contention is that the same will happen with attempts to run private and public systems in parallel combined with voluntary enrolment to each.

Compulsion plus choice

Our proposal would be for Americans to further embrace the concept of compulsion but also for freedom of choice to be exercised on top of compulsory contributions. This could be achieved by everyone having to pay for health care through their taxes or contributing to a sickness fund but then being free to top-up their public coverage with private insurance.

Indeed, this is the system that exists for US seniors already (through the Medicare program) and in many other advanced economies of the world, which means that single-payer is to some extent a myth. The only way to hold the line on single payer would be to ban people from spending some of their remaining disposable income on health insurance, which would not seem tenable in the US. In addition, systems in most other countries also allow physicians to enhance their public sector incomes by spending limited amounts of time practicing in the supplemental private market.

The only exception to ‘compulsion plus choice’ in advanced economies is Canada. There it is illegal to pay privately for procedures that are covered via the public system. Also physicians cannot practice in parallel in private and public systems. Canadians are very proud of their one-tiered system although it is important to point out that this applies only to physician and hospital services, which take up about 70% of health care spending. For the remaining 30% (drugs prescribed in the community, dental care etc.), various types of private funding exist with public funding for special groups, such as seniors. This leads in reality to multiple levels of coverage, inevitably meaning that the poor end up with worse (and often no) cover for such services, leaving one in six with no adequate coverage. Two lessons here: one-in-six seems to be the magic number for under or non-insurance when trying to plug the gaps with a mix of private insurance and public schemes for special groups; and beware Canadians telling you about how great their health care system is!

Another important characteristic to note is that a different kind of contract is created between patients and payer in a public as opposed to a private system. In the former, attempts are made to work out entitlements for everyone and this obviously creates tensions as there are only limited resources available in total. Generally, the perception is that people are compelled to wait longer in publicly-funded systems because bed occupancy rates tend to be higher; peak flows of demands on the system are harder to accommodate when, on average throughout the year, 90% of beds are occupied. In the US, only about two-thirds of beds are occupied on average; this is because, when one is paying privately, the contract requires instant access to care once a diagnosis is made. This is costly, as maintenance of a two-thirds bed occupancy rate has to be paid for out of premiums but such spare capacity is required to meet the private nature of the contract. This situation would continue under the proposals in the Act.

However, the idea of long waits in a public system versus instant access being achieved (at a cost) in a private one, although no doubt worrying to many Americans, is in many respects a caricature that is not borne out by the evidence. This is because of another key aspect of compulsion kicking in. With the vocal middle classes locked in through compulsory payments, the demands they might place on the system in terms of maintenance of quality end up being of benefit to more vulnerable groups in society. The danger, of course, is that the vulnerable and disadvantaged get left behind in terms of standards of service offered if the middle classes are able to opt out. Assuming most people would accept compulsion, what we have here is a balancing act whereby the greater good is served as a result of compelling a (likely) small group towards participation. We would contend that this is an unfortunate, but minor, consequence of achieving the twin goals of affordability and universal access, especially when balanced against the (current) alternative of one in six people being uninsured or the recently-passed proposals rooted in choice, which will likely be unaffordable.

The evidence? Although there are issues of comparability (more to do with challenges in measuring delays caused by bureaucratic decisionmaking of insurance companies and HMOs in the US!), waiting times in England to see a family doctor (2 days for the vast majority of people), from referral by a family practitioner to commencement of treatment (8.6 weeks on average) or from referral to an outpatient appointment (4.6 weeks on average) as of January 2009 (see ‘NHS Choices’ pages at www.nhs.uk) are comparable with those in the US, and shorter than in Canada (17 weeks for referral to treatment in October 2008). ⁶ Compared with several other publicly-funded systems, the US system, as currently organized, is seen to have challenges in delivery over several aspects of quality of care, including timeliness.^7,8 In addition, despite declining bed numbers in the US, given the spare capacity referred to above, it is likely there would be enough capacity in the system to continue to meet the high standards of access demanded by the US population.

Whither the health care insurance industry?

Undoubtedly a major barrier to what we propose and presumably to previous single-payer proposals is the potential threat to the health care insurance industry. There are more aggressive or more conciliatory responses to this question, depending on one's perspective. The more aggressive response is to say that other countries, notably Canada, have moved from the type of system currently prevailing in the US. Admittedly, this was about 40 years ago. Combined with this, it could be argued that private industry adapts and diversifies in light of the economic environment around it.

The more conciliatory response would be that the ‘plus choice’ part of our proposal would still be the preserve of the insurance industry. Although this may be seen as the remaining crumbs of such a proposed reform, it would also be possible for government to have the industry administer health funds for the public system, a much greater proposition. This has indeed been proposed in legislation recently signed into law in Vermont that puts this State on course for implementation of a single-payer health care system. ⁹ Vermont is a small State. Nevertheless, this shows that the notion of single payer is not so alien to the US after all. Challenges remain in implementing various prerequisites, such as changing physician remuneration mechanisms, prior to single-payer introduction. ¹⁰ Estimates show that Vermont could save 25% on health care expenditures over 10 years and that the single-payer plan would be less costly than the recent Obama-led reforms. ¹⁰ Further evidence that high performance can be achieved within the context of public funding in the US has been provided by reports of turnaround in quality of care within the Veteran's Administration. ¹¹

An alternative to ‘compulsion plus choice’, is the attempt to cover the uninsured via expansions of Medicaid. We have not addressed this because it has its own literature, having much press in advance of the Act and having even been tried in some states, such as Tennessee.^12–14 Different interpretations of history as to the success or failure of these schemes now exist but there is no doubt that they carry the potential to expand coverage at low cost. What is less clear, as with Vermont, is how in the current economic climate to incentivise participation of physicians and cover the addition to total cost. Furthermore, these expansions do not result in everyone being covered under the same financial umbrella, as does ‘compulsion plus choice’. Two systems, with two sets of standards, are more likely to emerge under Medicaid expansions.

One may also ask what is different between ‘compulsion plus choice’ and the Act. We want a public option and so did Obama. Under the Act, the insurance industry is simply presented with 20 million or so new customers whose premiums will be subsidised by the taxpayer and the rest of the system will remain largely untouched. Under ‘compulsion plus choice’ the choice part is activated only after all taxpayers have been asked to pay for themselves as well as others through the compulsory tax-financing of the whole system. Those who wish to top-up would make that decision based on whether the publicly-funded system, of which they would be a part and entitled to draw upon, was not meeting their needs. This is much like the UK, where the basic system delivers consistently high quality care such that few exercise the top-up choice.

Where now? The road to hell…

Once again, the key to successful reform of the US health care system is compulsion. With people continuing to be free to choose, they will exercise such choice in ways that benefit themselves financially. Under the recent Act, we would predict that the costs of the US system will continue to rise and, ultimately, universality will be threatened. We hope we are wrong and that these reforms are merely steps towards something more radical. However, two things follow from our argument. The notion of compulsion needs to be further embraced by the US in this crucial area of social policy, and ‘compulsion plus choice’ is the most likely way of achieving the goals of universality and affordability.

Finally, we all know that the road to hell is paved with good intentions. By that we mean that a US-based expert may think us naïve in what we propose and unaware that powerful lobby groups and the (sometimes admirable and sometimes obstructive) system of checks and balances in US government has made ‘bad things happen to good plans’. ¹⁵ Our response is that we are well aware that such complexities can drive US society from one policy direction to another. Our goal here, however, has been to point out that any such policy compromises in the past have failed, and will fail, to deliver on the twin goals of cost containment and universal coverage when seeking to preserve notions of choice, freedom and voluntarism. Naivety, from our perspective permeates the many US health care reforms that have not embraced compulsion, an observation with which we are sure many street-wise American citizens would agree.