Ten Things to Look for in Health Care Reform

By Kelly McCutchen

Disguised as “reform,” numerous health care proposals are finding support. The result is a mishmash of plans that do little to improve access, quality or cost. There are at least 10 criteria that provide a foundation for reform.

Fifty percent of the nation’s health care costs are attributable to lifestyle, such as smoking, alcohol abuse, improper diet, lack of exercise, according to the Centers for Disease Control and Prevention. Lesson: Reform must include incentives for changing behavior.

Roughly 75 percent of all health care spending is associated with a small number of patients with one or more chronic conditions, according to Emory University’s Ken Thorpe. Lesson: Reform must work for the sick as well as the healthy.

The tax code rewards spending on health insurance over direct payment for health care. The result is an overemphasis on comprehensive health insurance, where most health care spending is run through the costly insurance claims process. Out-of-pocket payments for health care have declined from 47 percent in 1960 to only 12 percent today. Lesson: Tax reform is critical. Protecting families from unforeseen, costly health care expenses makes sense, but insuring routine expenses is both costly and inefficient.

The actuarial firm Milliman calculated that public programs, such as Medicare and Medicaid, currently shift $88.8 billion in costs onto private payers per year, increasing the typical family’s annual private premium by $1,512. This hidden tax often hides the true cost of these government programs. These underpayments also harm health care providers who treat a disproportionate number of patients with government insurance. Lesson: Eliminating cost shifting by government insurance programs would make private insurance more affordable, improve access to health care and help our most vulnerable safety net providers.

David Walker, former U.S. Comptroller General, estimated that future liabilities of the Medicare program add up to $36 trillion. Lesson: Reform must not be based upon “stealth” savings and overly optimistic cost projections or the staggering debt burden will grow.

States cannot run a deficit but Medicaid is swallowing a growing portion of state budgets, crowding out other areas such as funding for education and transportation. Nationally, Medicaid recipients use the emergency room more frequently than patients with private insurance – 82 per 100 recipients for Medicaid vs. 21 per 100 for private insurance. An estimated 20 percent of Georgia’s uninsured are eligible for Medicaid or other government programs but choose not to sign up. Lesson: Medicaid expansion is an ineffective and expensive way to increase insurance coverage and access to health care.

Companies such as Whole Foods and Safeway have had great success in reducing health care costs by providing incentives for employees to improve their health using consumer-driven health plans (CDHPs). Georgia sees similar success in its state employees’ health insurance plan. Sen. Tommie Williams recently reported that “claims data from the State Health Benefit Plan show higher compliance rates under the CDHP plans than PPO/HMO plans for several categories of preventive care services including annual exams and screenings for various types of cancer and cholesterol. At the same time, state expenditures per employee in these plans were over 4 percent less than the expenditures per employee in the HMO plans, and over 13 percent less than for employees in the PPO options. Members in the CDHPs also have lower emergency room utilization, lower hospital admissions and spend fewer days in the hospital than the other plans.” Lesson: Reform should encourage successful programs. Unfortunately, the current reform proposals include restrictions on these innovative approaches.

Many uninsured Americans voluntarily pay extra income taxes, because they forgo a non-taxable health benefit. The Pacific Research Institute estimates that the uninsured likely pay about $60 billion extra in federal income taxes alone – an amount greater than most estimates of the cost of uncompensated care provided to the uninsured. Lesson: Money is in the system, but it is not getting to the right place. The federal government should provide tax credits to the uninsured to help them afford insurance, or at least make sure health providers are fully reimbursed for the costs of treating the uninsured.

Studies over the last 30 years and across several states show a consistent rate of adverse medical events due to negligence. Lesson: Using malpractice lawsuits to encourage patient safety has not been effective. Reform must include medical malpractice reform that protects patients and reduces defensive medicine.

In “How American Health Care Killed My Father,” in The Atlantic magazine’s September issue, David Goodhill conservatively estimates that the average American will spend $1.77 million for their family’s health care over their lifetime. Just a quarter would be paid by the individual directly, he says, suggesting that this is why our health-care system is so expensive. Lesson:He is correct.


 

Kelly McCutchen is executive vice president of the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (October 16, 2009). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.

By Kelly McCutchen

Disguised as “reform,” numerous health care proposals are finding support. The result is a mishmash of plans that do little to improve access, quality or cost. There are at least 10 criteria that provide a foundation for reform.

Fifty percent of the nation’s health care costs are attributable to lifestyle, such as smoking, alcohol abuse, improper diet, lack of exercise, according to the Centers for Disease Control and Prevention. Lesson: Reform must include incentives for changing behavior.

Roughly 75 percent of all health care spending is associated with a small number of patients with one or more chronic conditions, according to Emory University’s Ken Thorpe. Lesson: Reform must work for the sick as well as the healthy.

The tax code rewards spending on health insurance over direct payment for health care. The result is an overemphasis on comprehensive health insurance, where most health care spending is run through the costly insurance claims process. Out-of-pocket payments for health care have declined from 47 percent in 1960 to only 12 percent today. Lesson: Tax reform is critical. Protecting families from unforeseen, costly health care expenses makes sense, but insuring routine expenses is both costly and inefficient.

The actuarial firm Milliman calculated that public programs, such as Medicare and Medicaid, currently shift $88.8 billion in costs onto private payers per year, increasing the typical family’s annual private premium by $1,512. This hidden tax often hides the true cost of these government programs. These underpayments also harm health care providers who treat a disproportionate number of patients with government insurance. Lesson: Eliminating cost shifting by government insurance programs would make private insurance more affordable, improve access to health care and help our most vulnerable safety net providers.

David Walker, former U.S. Comptroller General, estimated that future liabilities of the Medicare program add up to $36 trillion. Lesson: Reform must not be based upon “stealth” savings and overly optimistic cost projections or the staggering debt burden will grow.

States cannot run a deficit but Medicaid is swallowing a growing portion of state budgets, crowding out other areas such as funding for education and transportation. Nationally, Medicaid recipients use the emergency room more frequently than patients with private insurance – 82 per 100 recipients for Medicaid vs. 21 per 100 for private insurance. An estimated 20 percent of Georgia’s uninsured are eligible for Medicaid or other government programs but choose not to sign up. Lesson: Medicaid expansion is an ineffective and expensive way to increase insurance coverage and access to health care.

Companies such as Whole Foods and Safeway have had great success in reducing health care costs by providing incentives for employees to improve their health using consumer-driven health plans (CDHPs). Georgia sees similar success in its state employees’ health insurance plan. Sen. Tommie Williams recently reported that “claims data from the State Health Benefit Plan show higher compliance rates under the CDHP plans than PPO/HMO plans for several categories of preventive care services including annual exams and screenings for various types of cancer and cholesterol. At the same time, state expenditures per employee in these plans were over 4 percent less than the expenditures per employee in the HMO plans, and over 13 percent less than for employees in the PPO options. Members in the CDHPs also have lower emergency room utilization, lower hospital admissions and spend fewer days in the hospital than the other plans.” Lesson: Reform should encourage successful programs. Unfortunately, the current reform proposals include restrictions on these innovative approaches.

Many uninsured Americans voluntarily pay extra income taxes, because they forgo a non-taxable health benefit. The Pacific Research Institute estimates that the uninsured likely pay about $60 billion extra in federal income taxes alone – an amount greater than most estimates of the cost of uncompensated care provided to the uninsured. Lesson: Money is in the system, but it is not getting to the right place. The federal government should provide tax credits to the uninsured to help them afford insurance, or at least make sure health providers are fully reimbursed for the costs of treating the uninsured.

Studies over the last 30 years and across several states show a consistent rate of adverse medical events due to negligence. Lesson: Using malpractice lawsuits to encourage patient safety has not been effective. Reform must include medical malpractice reform that protects patients and reduces defensive medicine.

In “How American Health Care Killed My Father,” in The Atlantic magazine’s September issue, David Goodhill conservatively estimates that the average American will spend $1.77 million for their family’s health care over their lifetime. Just a quarter would be paid by the individual directly, he says, suggesting that this is why our health-care system is so expensive. Lesson:He is correct.


Kelly McCutchen is executive vice president of the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (October 16, 2009). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.

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