Personal Health

High-Quality, Universal Health Care Is Possible -- With No Premiums or Deductibles

What's more, this new plan from Dr. Ezekiel Emanuel would rein in health care inflation and insulate our health system from lobbyists.
This article appeared originally as a two-part series on Health Beat.

Most plans for health care reform that stress "choice" give families the opportunity to choose from a menu of plans that offer insurance at different prices. In effect, families are "free to choose" the health care plan that they can afford. (More accurately, they are "forced to choose" the plan they can afford.)

Imagine, instead, a proposal for health care reform that guarantees free, high-quality health care for all Americans. No premiums. No deductibles. Under this plan, the government insists that all insurers offer the same comprehensive benefits to everyone, including: office and home visits, hospitalization, preventive screening tests, prescription drugs, some dental care, inpatient and outpatient mental health care, and physical and occupational therapy.

These benefits are more generous than Medicare's and more comprehensive than what 85 percent of all employers offer their employees. (Individuals who want to purchase coverage for additional services like concierge medicine, experimental drugs for serious conditions, complementary medicines or more mental health benefits could do so.)

If this all sounds too good to be true, you need to read Healthcare, Guaranteed: A Simple, Secure Solution for America by Dr. Ezekiel Emanuel. Published this month, Healthcare, Guaranteed offers a bold, refreshing plan for health care in America. The charm of the proposal is four-fold: It faces up to the fact that reform won't pay for itself, and it offers a funding mechanism that is fair and efficient and could deliver high-quality care nationwide. It regulates insurers, forcing them to concentrate on quality. Finally, and perhaps most importantly, this plan insulates our health care system from the lobbyists who, today, have far too much control over our health care system.

Emanuel has the background and experience needed to help draft a blueprint for health care reform. An oncologist who also has a Ph.D. in political science and now serves as chair of the Department of Bioethics at the Clinical Center of the National Institutes of Health, Emanuel is attuned to the ethics as well as the politics of medicine, and he understands the needs of seriously ill patients.

Emanuel's ambitious plan, the Guaranteed Healthcare Access Plan, would replace employer-based insurance with insurance that offers generous benefits to everyone who is not now covered by Medicare, Medicaid or the State Children's Health Insurance Program. (Anyone now enrolled in one of these three programs could, if they wish, switch to the new Guaranteed Healthcare Access Plan. Over 15 years, Medicare, Medicaid and SCHIP would be phased out.)

Affordable, High-Quality Care

Under the proposal, all Americans would receive a health certificate entitling the individual or family to enroll in the health care plan of their choice. In most cases, they would keep their current physician. The certificate would not be a "cash card" to buy services; instead, it would be a voucher that gives the individual or family the right to enroll in whatever insurance plan they choose.

Thus, under Emanuel's plan, all Americans are treated equally. The vouchers are of equal value, and the health plans must all offer the same rich package of benefits. No cheap "Swiss cheese" plans riddled with hidden holes. No high-deductible plans. To distinguish themselves, health care plans would have to compete on quality, not on price.

Emmanuel's plan also eliminates vexing problems like mandates that require all Americans to purchase insurance. No one would be forced to buy insurance; everyone would simply receive a voucher that entitled them to an equal place in our health care system -- at no charge.

How Do We Pay for It?

But what is most intriguing about the Guaranteed Healthcare Access Plan is its financing. Emanuel would pay for the nation's health care with a 10 percent value-added tax (VAT). Revenue from the tax could not be diverted to other uses such as the military or Social Security. No other tax revenues would be used to pay for the plan. And although Emanuel calls for a new tax to support the program, in the end, we as a nation would be paying no more than the $2.2 trillion that we now spend on health care. The money would simply be collected in a more equitable way and spent more rationally, avoiding waste and excessive administrative costs.

Unlike many health care reformers, Emanuel doesn't shy away from acknowledging the true cost of providing high-quality care for all Americans. Unless they are funded, other plans might provide health insurance to everyone, but not affordable health care.

As Bob Laszewski points out on Healthcare Policy and Marketplace Review, the Massachusetts plan has demonstrated that if we don't make major structural changes in the system, money can easily become the biggest obstacle to health care reform. Like most other would-be reformers, Massachusetts underestimated what universal coverage would cost -- and did not make the changes needed to reduce waste and contain costs. As a result, Laszewski observes:
The 2006 Massachusetts Health Insurance Law is looking to be little more than an expensive expansion of Medicaid, and that does not bode well for Barack Obama, who has used the Massachusetts health reform law as the template for much of his own health care reform plan -- as did all major Democratic candidates, including Hillary Clinton.
While the Massachusetts plan has enrolled some 176,000 citizens who qualified for subsidies, "the Massachusetts Health Insurance Law is doing almost nothing for the middle class because people can't afford the premiums -- leading the state to also back off on the individual mandate for these people," Laszewski explains. "For example, almost all families would need an income of at least $110,000 a year" in order to afford the insurance.

"The cost for the program in its first year -- July 1, 2007 to July 1, 2008 -- was first estimated to come in at $472 million when the bill was passed in 2006," Laszewski points out. "Now, in May, in a statement to bond rating agencies, the governor has estimated that the fiscal year 2008-2009 costs will be more like $1.1 billion ..."

By contrast, Emanuel begins by calculating costs and estimates that a 10 percent value-added-tax (VAT) could raise enough money to provide free, comprehensive health care for all citizens -- with minimal co-pays and no deductibles.

Isn't a VAT Regressive?

Granted, at first glance, a VAT sounds like an extraordinarily regressive solution. A VAT, like a sales tax, adds to the cost of everything that we buy. This can place an unfair burden on low-income families that must spend a much higher percentage of their incomes just to buy necessities.

But before considering the impact of the VAT on middle-class families, take a look at how it works. Under a VAT system, consumption is taxed throughout the chain of production, not just at the point of consumer purchases. When a manufacturer purchases raw materials from a supplier, it pays a tax to the government; when the manufacturer turns around and sells the good to the retailer, the retailer again pays a tax with its purchase; and the consumer pays the VAT when he or she buys the final product from the retailer. The amount that each player pays is a fixed percentage of the transaction price (in Emanuel's plan, it would be 10 percent).

Critics who argue that a VAT is regressive have a point. But instead of just looking at how the taxes are collected, you need to look at how those tax dollars are distributed. Do that and you discover that because, in this case, the VAT is used solely to fund health care, working-class and middle-class families would receive more than full value for their VAT dollars.

For example, a median-income family earning $50,000 a year might well spend the entire $50,000 on housing, food, utilities, clothing, transportation, etc. Under a 10 percent VAT, that family would pay $5,000 a year to help fund universal coverage. But, in return, Emanuel points out, it would receive health insurance worth at least $12,500 (the going price for an employer-based family plan).

But what about high-spending, high-income families -- would they think a VAT was fair? Consider the impact of a 10 percent VAT tax on a family that earns $200,000 and spends $170,000 a year. Suddenly, that household would be paying an extra $17,000 in taxes. Granted, it would be receiving health insurance worth $12,500. But today, most families in that income bracket already have insurance through their employer. And the typical "higher-wage" worker pays only about 25 percent of the premium, or roughly $3,000 for a family plan. Under Emanuel's plan, that family would be paying an additional $14,000 dollars ($17,000 in VAT taxes minus $3,000 that they no longer pay toward the premium).

But, Emanuel points out, if employers are no longer required to offer health benefits, workers can expect a one-time raise roughly equal to what the employer was paying toward the employee's benefits. In a phone interview last week, Emanuel acknowledged that not all employers would be that generous, but if they wanted to hold onto their most valuable employees, most would hand out raises. In that scenario, the family earning $200,000 would be likely to receive a $9,000 raise -- roughly equivalent to what the employer was paying toward its health care. That family is now spending only $5,000 more than it had in the past ($14,000 minus the $9,000 raise.)

And it's likely that, for a family earning $200,000, a cut in state taxes would more than cover the extra $5,000. Today, the average state spends more than one-third of its budget on health insurance for state employees, Medicaid and SCHIP. The very first year, states would no longer have to cover employees, and both Medicaid and SCHIP would begin to shrink. Ultimately, as those two programs were phased out, the savings would be enormous. "What state governor wouldn't like to be able to cut taxes by, say 25 percent, and still have change left over to improve education?" asks Emanuel.

For high-spending, affluent families who would be paying more in VAT taxes, pay raises and state tax cuts would probably make up for the extra taxes. But middle-income families also would benefit from lower taxes and higher wages. Moreover, Emanuel expects that since employers would no longer be burdened with health benefits, they might well hire more employees, which would be good for workers on every rung of the income ladder.

Why Not Just Raise Income Taxes?

It may seem strange -- not to mention politically dangerous -- to introduce the possibility of a whole new tax, especially one with European pedigree, into the health care debate. In a telephone interview, Emanuel agreed that this could be the biggest obstacle his plan faces. On the other hand, when the majority of developed countries do something and we don't -- whether it is providing health care for all of their citizens, or taxing consumption -- you have to wonder: How likely is it that all of them are wrong, and we alone are right?

Moreover, at this point, all options are on the table, and no less than Bruce Bartlett -- a consummate supply-sider who served as domestic policy adviser to Reagan and a treasury official under Bush -- has gone on the record as supporting a VAT to fund health care. Health care reformers need some conservative support -- particularly on the question of the cost of universal coverage. As I have argued in the past, if reformers don't have sharp answers as to how they will fund universal coverage, there is a real danger that conservatives could torpedo health care reform on the cost issue alone.

More importantly, the VAT doesn't just introduce a new tax, it also lets us cut other taxes. Today, the average state spends over 30 percent of its budget on a combination of health care benefits for state employees plus Medicaid and SCHIP. Under this proposal, VAT would take over funding health care benefits for government employees, and with time, both Medicaid and SCHIP would be subsumed within the new, centralized framework. State taxes would be bound to drop.

Higher income taxes would mean more of the same. With the VAT, we won't just be piling tax upon tax. Here, there is a compelling political narrative at work: The system is becoming more efficient, and health care reform is not just targeting the rich, but imposing a universal tax for the good of all.

The VAT also is fairer than many taxes because it has a high compliance rate. It's hard to cheat. This is in large part because the tax is applied throughout the chain of production, making it easy for auditors to cross-check invoices and tax returns at various points in that chain. By contrast, it's quite easy for a cash business like a restaurant to lie about how much it's taking in, and keep a portion of the sales taxes it collects. And of course, individuals who are paid in cash often do not report their full income.

The VAT is as reliable a cash cow as you're going to find: It can generate an enormous amount of money at a relatively low tax rate.

It also automatically keeps up with inflation. If the cost of goods rises, so will the amount that the VAT collects. In that way, funding for health care will keep up with overall price increases.

The VAT Provides an Incentive to Reduce Waste

At the same time -- and this is key -- VAT funding would rein in runaway health care inflation. In recent years, health care spending has been rising faster than both inflation and GDP growth. This is what we cannot afford.

As Emanuel points out, the VAT gives us a national health care budget that reflects what is happening in the rest of the economy: "We cannot spend more than the VAT brings in. If Americans want more health care services, they will have to lobby and convince Congress to increase the VAT."

And it is not likely that Congress would be willing to hike a new tax any time in the near future. By putting a cap on health care spending, the VAT creates a much-needed incentive to make sure that we are getting value for our health care dollars by weeding out waste and inefficiencies.

Insurers wouldn't be able to raise premiums -- they would have to live on the funding that the VAT provides. This means that they would be motivated to find more creative ways to manage chronic diseases so that they wouldn't have to pay for costly hospital care down the road. Insurance companies also would need to experiment with how to reimburse physicians, hospitals and other providers in a way that rewards them for coordinating care and delivering it in the most efficient setting. This is what I mean when I say that the plan forces insurers to compete on quality, not price.

To make certain that insurers are not trying to save money by withholding needed care, each quarter, insurance companies would be required to provide data to 12 regional health boards on their performance, reporting on patient satisfaction, disenrollment rates, use of preventive services, and patient outcomes. Regional health boards would make this information public, to help families choose their plans.

At this point, "outcomes research" is still an infant science, so at the beginning the information that the regional boards collects may be sketchy. But because the regional boards would be demanding accountability, this would give insurers a strong motivation to create an efficient infrastructure ... and establish electronic medical records systems. As Emanuel observes: "Health insurance companies and plans will be hard-pressed to deliver the required data without electronic medical records that reach across physicians, hospitals and other providers."

Those records, in turn, could create the database needed to advance outcomes research.

How the Guaranteed Health Access Plan Slashes Administrative Costs

Our health care system is so expensive in part because it is so fragmented, leading to exorbitant administrative costs. By replacing employer-based insurance and including everyone under one umbrella, the Guaranteed Healthcare Access Plan saves billions.

On this point, Emanuel quotes health care economists Alain Enthoven and Victor Fuchs: "The need for more than 850 insurance companies to see and contract with millions of employers, underwriting each one [deciding how much to charge based on the age and health of their employees] adds greatly to overhead. Typically administrative costs are on the order of 11 percent of premiums, and this does not include the costs to employers to purchase and manage health care spending, including armies of consultants, benefits managers and brokers.

"To understand how this could be different," Enthoven and Fuchs write, "consider that Kaiser Permanente signs one annual contract for the coverage of more than 400,000 employees and dependents with the California Public Employees Retirement System (CalPERS) and CalPERS' administrative costs are on the order of 0.5 percent of premiums."

By removing the employer as middleman, Emanuel's plan could save that 10.5 percent -- or roughly $120 billion a year.

Insurers also would save because they wouldn't have to market their plans to millions of employers. Instead, they would deal with just the 12 regional boards that would certify that each insurer had a sufficient network of physicians and hospitals and adequate financial reserves -- and that insurers were indeed providing the full menu of benefits.

The Institute for Technology and Outcomes Assessment

We know that health care inflation has been racing ahead of inflation in the rest of the economy largely due to the rising cost of new medical technologies. But if we cap total health care spending so that it doesn't grow any faster than the VAT, how will we pay for exciting new medical breakthroughs?

The truth is that, today, for every truly effective breakthrough, countless overpriced, ineffective and sometimes dangerous drugs and medical devices are flooding the marketplace. In recent years, newspapers have been filled with stories about the recalls -- and the patients who have died or suffered injury because new products were not fully tested.

The problem is that, under the current system, manufacturers control the research and what we are allowed to know about their products. As I have discussed, too often that research is biased. Meanwhile, drug makers and device makers have resisted calls for "head-to-head" trials that would compare a new product to an older, less expensive device, drug or test already on the market.

The Guaranteed Healthcare Access Plan would change all of that by creating an independent Institute for Technology and Outcomes Assessment that would evaluate the effectiveness of new drugs and devices as well as new procedures. Its goal would be to identify and promote technologies that save money without reducing the quality of care. To that end, the institute would review existing research, sponsor studies to compare products and services where comparative research is lacking, and analyze the data from health plans and insurance companies on patient outcomes and on the drugs, medical technologies and interventions used to achieve those outcomes.

Emanuel argues that the institute's assessments also will "change the dynamics of long-term medical research and development. In particular, its decisions will encourage drug and medical device companies to focus their research on high-value interventions. Today, these companies develop new interventions with little regard for price or the degree of improvement over existing interventions."

By creating a more rational framework for coverage decisions, the institute would provide industry with "more reliable information [about] future coverage decisions." Thus "the independent institute will help shift research priorities toward technologies that provide real improvements in survival and health. In this new scenario no amount of advertising razzle-dazzle could create broad profitable markets for other products."

Protecting Our Health Care System from the Lobbyists

Best of all, Emanuel's plan shields the new health care system from the hordes of lobbyists who use campaign contributions to distort our health care system to meet their special interests.

Emanuel argues that the problem with Medicare-for-all (or any single-payer plan) is that it would depend on annual appropriations from Congress. And experience tells us that if lobbyists representing private insurers, drug makers, equipment makers, a particular guild of specialists or a group of hospitals howl loudly enough, legislators will withhold funds until their demands are met.

"The history of Medicare offers a sobering lesson on how events would be likely to play out," Emanuel observes. "As we have seen when Medicare tries to ... equalize payments in different parts of the country, hospitals put pressure on their representatives and senators to increase payments." Drug makers also use patient advocacy groups to lean on congressmen who, in turn, put pressure on Medicare to cover unproven products. Too often, political manipulation, rather than medical evidence, drives decisions.

The Guaranteed Healthcare Access Plan would be insulated from both politicians and lobbyists because it would have its own separate dedicated stream of funding -- the VAT. It would not need to go to Congress to beg for money.

Most importantly, the Institute for Technology and Outcomes Assessment would not be subject to interference by Congress. It, too, would be funded by the VAT and need no annual appropriations from Congress. This would give our health care system the protection from political interference that it so desperately needs.

The Guaranteed Healthcare Access Plan is not perfect. Emanuel does not try to flesh out all of the details that would make it work. But I think he is wise when he says: "At this stage of the health care debate, it is more effective to realize that God is in the Essentials."

And the Essentials -- those points that must not be compromised -- are in his plan:

  • High-quality, affordable health care for everyone, regardless of health status or income

  • Effective cost controls that make the program affordable and sustainable by relying on unbiased comparative effectiveness research to spotlight overpriced products and services that are not adding to the quality of care

  • Coordinated care with government oversight that fosters the infrastructure, information systems and financial incentives for high-quality health outcomes, and that holds providers accountable to achieve them

  • Choice of health insurance plans, doctors and hospitals as well as the option to purchase additional benefits

  • Funding that requires all Americans to contribute their fair share to funding the health care system

  • Reasonable dispute resolution to replace the current malpractice system

Maggie Mahar is a fellow at the Century Foundation and the author of Money-Driven Medicine: The Real Reason Health Care Costs So Much (Harper/Collins 2006).
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