Disappointment with the reaction of some of the public and gridlock in Congress might lead to the abandonment of reform this year. With the need so great, and with so much effort having been put forth by so many people, that would be a crime. Almost everyone agrees that the present U.S. health care system is dysfunctional: it is too costly, too incomplete in coverage, and too prone to avoidable lapses in quality of care. A true remedy would require major changes in the financing and organization of care; such changes currently have little support from either politicians or the public. But a start must be made.
Although comprehensive change is probably beyond reach this year, several specific reforms should and could be enacted: the creation of insurance exchanges, the elimination or limitation of the tax exemption of employer-sponsored health insurance, the appointment of an expert commission to devise changes to the way Medicare pays providers, and the provision of ensured funding for a quasi-independent institute for technology assessment. Each of these changes alone has a high probability of doing some good. Taken together, they reinforce each other and lay a foundation for further reforms.
Insurance exchanges that bring together insurance companies and potential buyers have lower administrative costs than does a system in which numerous sellers and buyers of insurance have to make separate deals. Exchanges are particularly valuable for individual buyers, for persons who are self-employed, and for small firms; they would also be an excellent alternative to employer-sponsored insurance. To succeed, the exchanges must attract large numbers of enrollees — healthy persons as well as sick persons — and must have risk-adjustment rules to protect insurance companies that enroll a disproportionate number of sick beneficiaries.
Insurance exchanges that attract large numbers of participants benefit from economies of scale, eliminate the cost of brokers, and can offer a wide choice of insurance policies. From the point of view of insurance companies, a well-functioning exchange is beneficial because it permits them to add large numbers of customers at a relatively low cost. Alain Enthoven has pointed out that the Federal Employees Health Benefits Program is a kind of insurance exchange.1 Although it is not called an insurance exchange, it works similarly to one, and it functions well for both government employees and the companies that insure them. The California Public Employees’ Retirement System (CalPERS) performs a similar function for employees of California’s state and local governments.
The revelation that top Goldman Sachs executives are given a tax-free $40,000-per-year health insurance policy highlights what is arguably the most regressive feature of the entire federal tax code: the tax exemption of employer contributions to health insurance premiums. This exemption confers huge subsidies on high-income Americans and small or no subsidies on those with low incomes. There are three reasons that the exemption has this effect: first, the higher a person’s marginal tax bracket, the larger the subsidy he or she receives; second, on average, higher-income workers tend to have more generous insurance policies; and third, the proportion of people who receive employer-sponsored insurance rises dramatically with family income, from approximately one in four among those with incomes under $30,000 to more than four in five among those with incomes above $75,000.2 Elimination of the subsidy would not only make the tax system fairer, but it would also provide more than $200 billion of additional federal revenue annually. If Congress did nothing else for health care this year, this reform would accomplish a great deal.Some observers believe that loss of the tax exemption would cause a large decrease in employer-sponsored insurance coverage. No one knows the extent or timing of this effect; it might occur quickly, or it might occur over the course of several years. Well-functioning insurance exchanges would ease the transition from employer-sponsored insurance; synergistically, the removal of the tax exemption would spur the growth of exchanges. Thus, these two reforms would reinforce each other. Sooner or later, the country must wean itself from employer-sponsored insurance if it is to achieve universal coverage with equitable and adequate financing and lower administrative costs.
Source InformationFrom Stanford University, Stanford, CA. | The New England Journal of Medicine