RETHINKING REFORM most have not. 9 As a result, Enthoven now favors legislation that would require every employer that offers insurance to offer a choice of plans. In addition, only the value of the premium of the low-cost plan could be counted as tax-exempt income by the employee. 0 Those who choose more expensive plans would have to treat the excess as taxable income. In this approach, employees would have more incen- tive to choose the low-cost plan, and expensive plans would have an incentive to cal ng costs down to retain their customers. Some economists have raised theoreti objections to having employees pay the marginal difference between the cost of heir plan and the low-cost plan, but their approach requires those workers in a firm who expect to use less care to subsidize those who expect to use more2lIn competitive markets, this cross-subsidization could not persist in the long run. Quality incentives. Two other incremental reform proposals that work through fi nancial incentives are paying for performance and subsidizing providers to install EMRS. 2 The first assumes that public and private payers will be able to distin- ity differentials among providers. Making such distinctions for such a complex, multidimensional service as medical care is not easy. Quality assessment might be forced to rely on a few relatively easy-to-observe "dos and don'ts"rather than on long-term outcomes If payers decide to reward X at the expense of y and Z, it does not take advanced study in economics to know that there will be some reallocation of time and other resources to X, even though patients might put as high a value on Y and Z. The British National Health Service(NHS) has had for many years a rating system for hospitals based on how well each hospital con formed to process specifications laid down by the NhS central administration.An independent study of British hospitals, however, found very little correlation be tween the NHS ratings and patient outcomes.23 Subsidizing providers to install EMRs will work in the sense that if the subsidy large enough, some providers will surely take advantage of it. However, one may question whether such subsidies are a good use of scarce public funds. Many large EMRs without subsidies. The holdup in small-scale practices mig ahs a health care organizations have already installed or are in the process of installing oft-cited lack of capital but the much smaller benefit yielded by EMRs in such practices. Subsidies for EMRs will not change that economic reality. David brailer, he national coordinator for health information technology, said, "Technology alone is never a lasting solution. The way health information technology is devel oped, the way it is implemented and the way it is used are what matter. 24 In short, EMRs might or might not be cost-effective, depending on the setting a Comprehensive reform. A common goal of all comprehensive reform propos als is universal coverage, providing every American with health insurance. The pro posals differ in how extensive the change from the current system would need to be, how providers of care would be reimbursed, and how money would be raised to fund the system. Here we consider three approaches to comprehensive reform; other hes are typically variants or combinations of these three 1404 November/ December 2005
RETHINKIN G REFOR M most have not." As a result, Enthoven now favors legislation that would require every employer that offers insurance to offer a choice of plans. In addition, only the value of the premium of the low-cost plan could be counted as tax-exempt income by the employee.^° Those who choose more expensive plans would have to treat the excess as taxable income. In this approach, employees would have more incentive to choose the low-cost plan, and expensive plans would have an incentive to bring costs down to retain their customers. Some economists have raised theoretical objections to having employees pay the marginal difference between the cost of their plan and the low-cost plan, but their approach requires those workers in a firm who expect to use less care to subsidize those who expect to use more.^' In competitive markets, this cross-subsidization could not persist in the long run. Quality incentives. Two other incremental reform proposals that work through financial incentives are paying for performance and subsidizing providers to install EMRs.^^ The first assumes that public and private payers will be able to distinguish quality differentials among providers. Making such distinctions for such a complex, multidimensional service as medical care is not easy. Quality assessment might be forced to rely on a few relatively easy-to-observe "dos and don'ts" rather than on long-term outcomes. If payers decide to reward X at the expense of Y and Z, it does not take advanced study in economics to know that there will be some reallocation of time and other resources to X, even though patients might put as high a value on Y and Z The British National Health Service (NHS) has had for many years a rating system for hospitals based on how well each hospital conformed to process specifications laid down by the NHS central administration. An independent study of British hospitals, however, found very little correlation between the NHS ratings and patient outcomes.^^ Subsidizing providers to install EMRs will work in the sense that if the subsidy is large enough, some providers will surely take advantage of it. However, one may question whether such subsidies are a good use of scarce public funds. Many large health care organizations have already installed or are in the process of installing EMRs without subsidies. The holdup in small-scale practices might be not the oft-cited "lack of capital" but the much smaller benefit yielded by EMRs in such practices. Subsidies for EMRs will not change that economic reality. David Brailer, the national coordinator for health information technology, said, "Technology alone is never a lasting solution. The way health information technology is developed, the way it is implemented and the way it is used are what matter."^'' In short, EMRs might or might not be cost-effective, depending on the setting. • Comprehensive reform. A common goal of all comprehensive reform proposals is universal coverage, providing every American with health insurance. The proposals differ in how extensive the change from the current system would need to be, how providers of care would be reimbursed, and how money would be raised to fund the system. Here we consider three approaches to comprehensive reform; other approaches are typically variants or combinations of these three. 1404 November/December 2005
HEALTH CARE REFORM Personal mandates and subsidies. The proposal that would make the least change in the existing system is mandating that every american have health insurance that meets some minimum standard and having the government provide income related subsidies or tax credits to the poor and near-poor to enable them to pur chase insurance in the individual market or through exchanges formed for that purpose. 2 In most versions, recipients of employer-based insurance would satisfy he mandate as would Medicare beneficiaries 26 One version of the individual andate approach envisages the elimination of employer-based and means-tested insurance and the phasing out of Medicare. All Americans would be required to purchase one of three levels of coverage with income-related subsidies. 7 The fact that mandates with subsidies would build on existing of fi nance,organization,and delivery is perceived as an advantage by some and as a disadvantage by others. The advantage lies in simplicity of plan design and the likelihood that no large groups would believe that they had been hurt by the re form. The disadvantage is that this would preserve the existing methods of finance with all of their flaws and do little to increase the efficiency and effectiveness of the organization and delivery of care. Without increased efficiency, overall health spending would be likely to shoot up. For instance, Jeanne Lambrew and col leagues estimate that their reform proposal would require $100-$160 billion per Mandates with subsidies seem relatively simple, but implementation could prove to be complex and expensive. Enforcement of a mandate on 300 million Americans would not be trivial, as evidenced by widespread noncompliance with liability insurance mandates by millions of automobile owners. What will happen when a patient who does not have health insurance shows up at a hospital with a heart attack or after a bad accident? Administration of income-related subsidies is also likely to prove problematic. Should a persons subsidy be determined by in- come during the previous year or in the current year? If the latter, the appropriate subsidy would not be known until the year was over. If the former, the subsidy might be too large or too small, given the person's current circumstances. with premiums now close to $10,000 per year for decent family coverage, the subsidies for low-income families would have to be substantial. 29 Potential loss of subsidy would discourage efforts to increase income and encourage misreporting Mandates with subsidies would not require huge additional governmental out ays if everyone who now has insurance kept it. But that outcome is not certain Low-income workers who now have employer coverage might find that it is eco- nomically advantageous to accept the subsidy while taking a better-paying job in a firm that does not offer coverage. Some might refer to this as an"unintended' consequence, but when there is evidence that substitution between private and public insurance does occur, it can hardly be considered"unforeseen. "30 Single-payer proposals. Single-payer proposals come in several different versions; probably the best-known is the plan laid out by the Physicians Working Group HEALTH AFFAIRS u mc Number 5 1405
HEALT H CAR E REFOR M Personal mandates and subsidies. The proposal that would make the least change in the existing system is mandating that every American have health insurance that meets some minimum standard and having the government provide incomerelated subsidies or tax credits to the poor and near-poor to enable them to purchase insurance in the individual market or through exchanges formed for that purpose,^^ In most versions, recipients of employer-based insurance would satisfy the mandate, as would Medicare beneficiaries,^* One version of the individualmandate approach envisages the elimination of employer-based and means-tested insurance and the phasing out of Medicare, All Americans would be required to purchase one of three levels of coverage with income-related subsidies.^^ The fact that mandates with subsidies would build on existing systems of finance, organization, and delivery is perceived as an advantage by some and as a disadvantage by others. The advantage lies in simplicity of plan design and the likelihood that no large groups would believe that they had been hurt by the reform. The disadvantage is that this would preserve the existing methods of finance with all of their flaws and do little to increase the efficiency and effectiveness of the organization and delivery of care. Without increased efficiency, overall health spending would be likely to shoot up. For instance, Jeanne Lambrew and colleagues estimate that their reform proposal would require $100-$160 billion per Mandates with subsidies seem relatively simple, but implementation could prove to be complex and expensive. Enforcement of a mandate on 300 million Americans would not be trivial, as evidenced by widespread noncompliance with liability insurance mandates by millions of automobile owners. What will happen when a patient who does not have health insurance shows up at a hospital with a heart attack or after a bad accident? Administration of income-related subsidies is also likely to prove problematic. Should a person's subsidy be determined by income during the previous year or in the current year? If the latter, the appropriate subsidy would not be known until the year was over. If the former, the subsidy might be too large or too small, given the person's current circumstances. With premiums now close to $10,000 per year for decent family coverage, the subsidies for low-income families would have to be substantial.-^' Potential loss of subsidy would discourage efforts to increase income and encourage misreporting. Mandates with subsidies would not require huge additional governmental outlays if everyone who now has insurance kept it. But that outcome is not certain. Low-income workers who now have employer coverage might find that it is economically advantageous to accept the subsidy while taking a better-paying job in a firm that does not offer coverage. Some might refer to this as an "unintended" consequence, but when there is evidence that substitution between private and public insurance does occur, it can hardly be considered "unforeseen."^" Single-payer proposals. Single-payer proposals come in several different versions; probably the best-known is the plan laid out by the Physicians Working Group HEALTH AFFAIRS - Volume 24. Number 6 1405