On Wednesday, the Bipartisan Policy Center – a group led by former senators Howard Baker, Tom Daschle and Bob Dole – released a report describing yet another health care reform proposal that would attempt a compromise between Democrats and Republicans. The proposal is billed as “the culmination of an inclusive year-and-a-half effort that included strategic outreach to key health care stakeholders, a series of state-based public policy forums, and months of personal deliberations by the Leaders.”
The proposal [PDF only] is a mixture of repackaged proposals of the past combined with some interesting new ideas. While it has a lot of advantages over the $1 trillion-plus-deficit Kennedy-Dodd bill, once again, like the Kennedy-Dodd bill, a lot of details are left unspecified. The details, of course, will determine whether this could lead to a truly positive advance, or an unmitigated disaster for American health care.
Baker, Daschle and Dole do not call for Congress to create a new health plan run by the federal government. They would, however, allow states to set up state-government-run health insurance plans. They also pledge fairness in the competition between government-run health plans at the state level, and private enterprise health plans. They say that the plans should be required to “compete on a level playing field with private insurers” – presumably so states will not use government power to effectively run the private sector out of business. Once again, the problem is in the details. How exactly would they design the rules to ensure a level playing field? From what has emerged in the debate thus far, it is crystal clear that this requirement would be extremely difficult to enforce in practice. Moreover, it is unclear how an additional participant playing by the same rules would bring about any improvement in health insurance markets. If the government-run health plans play by the same rules as private health plans, why bother having them?
Old Ideas. Beyond this, Baker, Daschle and Dole recycle some of the same old policy options that have been introduced before. For example, they want Congress to impose an employer (“pay or play”) mandate to provide health insurance. They specify exemptions for businesses less than two years old, businesses with annual payrolls of less than $1 million, and the “pay” is a 1-3% tax on total payroll. This is, on average, much less than most employers pay for health insurance. They argue that most businesses in the higher brackets already provide insurance and so would not end up paying the tax.
The former Senators also call on Congress to impose an individual mandate – everyone will be required to obtain at least a minimal health insurance plan. The “minimal plan” is partially specified – a plan that meets the current requirements of a federally-qualified high-deductible health plan (HDHP), plus provides first-dollar coverage for certain preventive care services. Like many of the proposals for an individual mandate, the Senators do not specify the penalty for noncompliance. Instead, they offer a list of vague options – surprisingly vague, given the specificity of their recommended sanctions for employers – that could, in practice, range from reasonable to draconian. They seem to take it as given that Congress has the Constitutional authority to order all Americans to buy and pay for a particular product – something that is completely unprecedented in American law. Of course, once the principle is established that the federal government has that power, the pressure from special-interest groups to expand the scope of the “minimal” plan could be irresistible. This would certainly increase total health care spending – and that could turn out to be one of the less severe consequences.
Payment Reform. This plan’s main positive contribution to the debate is a series of proposal to allow – and provide incentives for – innovative changes in health care payment arrangements. They would change the focus away from paying medical professionals and hospitals for doing procedures, and toward paying them for producing results. They offer some enticing options for reforming Medicare payments in ways that would allow providers to profit from providing measurably better results at lower costs to the program. They would even allow doctors and hospitals — either individually, or organized into “Accountable Care Organizations” — to propose innovative payment systems to Medicare that would apply only to themselves, and would allow them to increase their profits while decreasing their costs to Medicare. They also offer proposals to streamline the FDA approval process.
One of the main problems in the health care market has been the persistence of obsolete payment arrangements that don’t reward health care providers for producing good results, and prevent them from distinguishing themselves based on either high quality or low cost — as producers do in all well-functioning sectors of the economy. Part of the reason for this persistence is that Medicare controls a large percentage of the health care market — and locked in a payment system that was state-of-the-art in 1965, when the health care system was much less advanced than it is today. Allowing payment innovation in Medicare could provide substantial benefits, both in that program and in the rest of the health care system.
The payment innovation ideas are intriguing and bear serious consideration. However, the federal mandates are just the latest variation of old big-government ideas that strike at the personal freedom of employees and employers alike.