Special Supplement: Health Care Reform

Third Opinion

A Leading Health Researcher Looks Beyond the Reform Debate

By John Godges

John Godges, a RAND communications analyst, is editor-in-chief of RAND Review.

Nearly every sector of U.S. society will be affected directly, from the pocketbook to the pulse, by the passage or failure of legislation designed to reform the nation’s health care system. No wonder emotions are roiling. It can be hard to identify anyone in the health care debate whose focus extends beyond the immediate passions surrounding the matter.

PHOTO: DIANE BALDWIN Elizabeth McGlynn frequently addresses government officials, policymakers, journalists, business executives, labor organizers, and community leaders, offering a factual basis as a springboard for improving the U.S. health care system.

Meet Elizabeth McGlynn. Associate director of RAND Health and one of the top 100 U.S. health care “innovators,” according to healthspottr.com, McGlynn is also codirector of the Comprehensive Assessment of Reform Efforts (COMPARE) initiative, which includes an online tool, developed at RAND, to help policymakers, the press, and others understand, evaluate, and design proposals for health care reform, not just for the current legislative session but also over the long term.

“Much of the information being provided in the health care debate comes from individuals or organizations that are advocates or opponents of particular ideas for fixing the health care system,” said McGlynn. In contrast, the COMPARE initiative offers “objective analysis from a neutral third party about the likely effects of policy choices on cost, quality, and access at the national level and for different stakeholders.”

SIPA VIA AP IMAGES/KRISTA KENNELL Patients receive dental care, assembly-line style, at a large health care clinic set up by Remote Area Medical at the Forum in Inglewood, California, on August 11, 2009. The clinic provided free medical, dental, and vision services to more than 6,000 patients. The Los Angeles-area event marks the first time Remote Area Medical has provided such care in a major urban area. Several of the dentists themselves were unemployed because of the recession.

She explained that the health care debate in Washington today revolves around two of the key pressing issues: expanding health insurance coverage and decreasing health care costs. “There is a philosophical debate about how best to fix the system,” said McGlynn. “Some people believe we should get everyone covered and that this will make it easier to control costs. Others believe that until we figure out how to reduce health care spending, we should not bring anyone new into the system.” McGlynn went on to observe that both issues, coverage and cost, would have to be addressed simultaneously.

Another key issue — health care quality — has received less attention in the current health reform discussion than have coverage and cost. Numerous RAND studies have shown that the United States faces a substantial gap between what is known to work in health care and what is actually provided. For example, McGlynn and colleagues have shown that American adults receive just half of recommended care for the leading causes of death and disability and that American children receive less than half of necessary care.

Expanding Coverage

Currently, 46 million Americans lack health insurance coverage, amounting to 15 percent of the U.S. population. RAND analyses have estimated the number of Americans who would likely gain insurance coverage under alternative policy options.

Just one of those options, an individual mandate for Americans to obtain coverage or else risk a penalty, could add up to 34 million people to the ranks of the insured, covering almost 75 percent of those who are now uninsured. This estimate is based on designing the individual mandate with a combination of a “generous” subsidy to help individuals purchase their insurance and a “substantial” penalty for those who do not.

Bills in both the U.S. House of Representatives and U.S. Senate contain an individual mandate. In the RAND analysis, the “generous” subsidy would cover the full cost of insurance coverage for people with household earnings below 100 percent of the federal poverty level while offering subsidies on a sliding scale for people with household earnings up to 400 percent of that level. The “substantial” penalty for noncompliance would be 80 percent of the cost of the insurance premiums that an individual would otherwise pay in a national insurance exchange. In this national exchange, a variety of insurers would offer policies that meet a minimum standard of benefits and are offered under specific rules (regulated premiums, guarantees that everyone could obtain coverage).

In contrast to the individual mandate, an employer mandate that requires firms with five or more employees to provide them with health insurance could add up to 3.4 million people to the insurance rolls, just a tenth of those potentially added by an individual mandate. Tax credits, another option, could add up to 10 million net newly insured people. Expanded eligibility for Medicaid and the State Children’s Health Insurance Program could add up to 13.9 million net newly insured people; this level of expansion would also result in an additional 20 million people replacing their private insurance with this public insurance. (See Complete Checkup for further comparisons.)

“Neither opponents nor supporters have provided much detail about how the public option would operate. The intensity of the debate is fascinating given the lack of specifics that have been offered by either side.”

All of the estimates above examine the effect of implementing a single change in coverage policy. However, most legislative proposals call for some combination of strategies. Forthcoming RAND analyses will estimate the comparable effects of combined options. Although McGlynn hesitated to indicate a strong preference for any single option or combination of options, she did reach a clear conclusion: “The analyses suggest that you cannot gain much traction in the absence of an individual mandate.”

One of the most controversial issues among the options for expanding coverage is the availability of a public plan. “Neither opponents nor supporters have provided much detail about how the public option would operate,” said McGlynn. “The intensity of the debate is fascinating given the lack of specifics that have been offered by either side.”

Before anyone can draw conclusions about the cost implications of a public plan, she said, three key design choices need to be answered. First, who would be eligible to enroll in the public plan? Second, how would the public plan pay doctors and hospitals to care for their patients? And third, how generous would the benefits of the public plan be?

AP IMAGES/KENTUCKY NEW ERA, MELANIE GEORGE A “pills on wheels” tour bus for the national Partnership for Prescription Assistance stops in Hopkinsville, Kentucky, on August 21, 2008. Forty people from the surrounding area received help in obtaining their medications for free or at a reduced price.

Regarding eligibility, the public plan could be open to anyone or just to those people who have no other source of health insurance. If Congress were to exclude people who are already eligible for Medicaid or who could already purchase insurance through their employers, for example, the plan would not be available to 44 percent of the uninsured and all those who currently have insurance. The more restrictive the criteria for eligibility, the lower the cost of the public plan.

Regarding payments, the public plan could pay providers the fees already established by Medicare or linked to Medicare rates (as in the current House Tri-Committee bill), or the plan managers could be required to negotiate contracts with doctors and hospitals. In the former case, the public plan would have lower costs than private plans, which has drawn charges of unfair competition. In the latter case, the outcome would be less clear, particularly in the early years when the plan might not have enough enrollees to negotiate favorable rates.

The benefit structure of the public plan will also determine the premiums that must be charged. If the benefit package is generous, the cost of subsidies to help people purchase the public insurance will also be larger. If the benefit package is less generous, the premiums will be lower and thus the total subsidy cost will be lower.

“Balancing these design elements will ultimately determine the cost to the government of operating a public plan and the relative attractiveness of this insurance option,” McGlynn explained. “The cost and attractiveness, in turn, will provide a sense of how much the public plan will compete with the private sector.”

Reducing Costs

A major challenge facing the bills under consideration in the House and Senate is finding ways to reduce spending in order to cover the increased cost of expanding coverage. The “pay-go” rules under which the U.S. Congress operates require that legislation be budget neutral — increased government expenditures for new programs must be offset by reduced government spending on existing programs. “Finding the right mix of policies has proven difficult for a number of reasons, including considerable uncertainty around the potential savings from policies that have not been widely tested,” said McGlynn.

“Finding the right mix of policies has proven difficult for a number of reasons, including considerable uncertainty around the potential savings from policies that have not been widely tested.”

To reduce spending, she continued, the government needs to reduce either the prices paid for services or the volume of services provided. For both of these approaches, there are regulatory and market-based strategies. Many of the regulatory strategies (such as setting rates for insurance reimbursements or requiring providers to obtain “certificates of need” before offering new or expanded services) have been tried in the past and in many cases provided short-run savings, but over time they lost their impact. By contrast, many of the market-based strategies are newer and have not been tested — that is, they are largely based on economic theory — or have been tested on only a very small scale.

Several RAND studies have shown the limitations of two market-based strategies: high-deductible health plans and greater cost sharing. Neither approach has resulted in lower costs for better care, as hoped. While high-deductible health plans have reduced costs, they have had mixed effects on quality of care, and even the lower costs could be the result of self-selection of healthier enrollees into these plans. Meanwhile, increased cost sharing has become associated with worse adherence to prescription drug regimens and an increased use of health services other than the prescriptions, offsetting any cost savings.

Some of the popular cost-reduction concepts in current legislation include prevention and wellness programs, disease management, medical homes, bundled payments, and accountable care organizations. “These initiatives are designed to keep people healthy with the hope that they will spend less money in the future, to improve the delivery of services so that patients get the right care and avoid duplicate services, and to provide different financial arrangements that encourage more coordination of care,” said McGlynn.

PHOTO: DIANE BALDWIN Speaking at a Mayo Clinic Health Policy Center forum in Santa Monica, California, in March 2007, Elizabeth McGlynn outlines the potential benefits of integrated care systems, which coordinate caregivers to improve quality and to reduce costs.

There is little evidence that prevention and wellness programs or disease management reduces spending, and accountable care organizations have not been clearly defined or studied. However, bundled payments — under which providers are paid a lump sum to deliver services over a set time period (one year for chronic disease) or for the length of an episode (such as care before, during, and after a surgery) rather than per patient visit — appear promising. RAND modeling and the results of some small pilot projects indicate that bundled payments can reduce spending, but they have been implemented only on a limited basis for procedures (bypass surgery, cataract surgery) that have predictable, finite trajectories.

The medical home model offers patients access to a primary care physician who is responsible for coordinating all of their care, who is accessible outside of regular business hours, and who uses other health professionals and technology to ensure high-quality care. This is a relatively new model that is currently being evaluated. “Because providers are generally paid more to serve in this role,” McGlynn noted, “the savings would have to come from reduced use of emergency departments or hospitalizations.”

Continuing to COMPARE

McGlynn pointed out that the health care system didn’t get into trouble overnight and that it will likely take more than one legislative session to address the challenges of access, cost, and quality. “Although it appears that some major changes will be undertaken this year, there will be an ongoing need for the tools and analyses that RAND has developed” to monitor the functioning of the health care system into the future.

“We see an ongoing role for COMPARE,” concluded McGlynn. “We look forward to continuing to work with policymakers and others to evaluate which policy options are most likely to achieve the goal of improving the health care system.”