Ending Separate and Unequal Health Care€¦ · health insurance more affordable: ... deductibles, and copay-ments) under the public plan, with the level contribution and cost-

EndingSeparateand UnequalHealth Care

Proposals of theAmerican Society ofInterna Medicine

of internal medicine1101 VEKMONT AVENUE, NW l SUITE 500WASHINGTON, DC 200053457 l (202) 289-1700

S U M M A R Y

ASIM Policies for EndingSeparate and Unequal Health Care

EXPANDINGEMPLOYER-BASEDHEALTHINSURANCE

1. Require employers to offer employees a basic package of health insurancebenefits.

2. Provide special assistance to small businesses to make the cost of offeringhealth insurance more affordable:

Allow for an appropriate phase-in of the requirement;Designate regional insurers and establish risk pools;Allow businesses to substitute an “actuarially equivalent” plan for therequired standard benefit package;Provide a federal subsidy in hardship cases;Preempt state laws that mandate minimum benefits; andPermit full tax deductions for the costs of health insurance premiums.

3. Reform the market for health insurance by prohibiting experience ratingand preexisting condition exclusions and by establishing special rules formarketing to small groups. Once market reforms are implemented, alongwith expansion of Medicaid and a mandate that employers provide healthinsurance coverage to their employees, all individuals should be requiredto offer evidence of having obtained insurance coverage.

4. Provide tax incentives for individuals to set aside funds to pay for healthexpenses in order to supplement financing from employer-based healthinsurance and public programs.

IMPROVING ANDEXPANDINGPUBLICFINANCING

1. Convert Medicaid from a welfare program to a source of funding for allindividuals, regardless of income, who are unable to obtain employer-based health insurance:l Mandate national uniform eligibility standards;l Require individuals with incomes above the poverty level to contribute

to the cost of coverage (through premiums, deductibles, and copay-ments) under the public plan, with the level contribution and cost-sharing varying on a sliding scale based on income.

(As an alternative to revamping Medicaid, a new federal-state programcould be established to accomplish the same purposes.)

2. Mandate a defined set of basic benefits for the Medicaid program.

3. Reform physician payment under the Medicaid program to ensure ade-quate incentives for physician participation and to introduce properincentives into the system.

4. Increase federal government funding for the expanded Medicaid programto reduce the financial burden on the states.

Ending Separate and Unequal Health Care / 8

‘s’ PROVIDING: COVERAGE FOR

LONG-TERM CARE

HEALTH CARECOSTS AND OTHERBARRIERS TOACCESS

1. Encourage the availability of private long-term care insurance:Apply the same tax status to long-term care products as now exists foraccidental death and dismemberment insurance and health insurance;Allow the deductibility of insurance reserves and related investmentearnings and permit the inclusion of long-term care coverage in cafeteriaplans;Offer tax credits for the purchase of long-term care coverage; andEliminate restrictions on the prefunding of retiree health benefits andlong-term care insurance.

2. Provide a sliding subsidy to enable low-income beneficiaries (e.g., thosewith incomes up to twice the poverty level) to purchase private long-termcare insurance.

3. Provide for federal and state regulations that enhance consumer protectionsin the long-term care market. These regulations should:l Assure appropriate standards of coverage;l Promote establishment of guidelines for proper disclosure;. Provide protections against sales abuses;l Regulate renewal and cancellation;l Assure requirements for sufficient reserves; andl Develop benefit/premium ratios.

4. Provide an asset protection program for individuals who purchase long-term care policies as an incentive to purchase private long-term care insur-ance.

5. Establish a new Medicare benefit to assist individuals in paying for long-term care. The program should:l Provide for adequate cost sharing by individuals;l Protect against depleting personal assets; andl Have premium contributions on a sliding-scale basis.

1. In order to assure that money spent on medical care is spent wisely andeffectively, the medical profession, with the cooperation of governmentand other payers, should:. Place high priority on studying the outcomes of different medical inter-

ventions andl Develop practice guidelines to modify physician behavior and provide a

basis for setting payment criteria.

2. Eliminate administrative hassles that impede access to care.

3. Institute reforms in the medical liability system.

4. Require some level of patient cost-sharing in all insurance plans.

4 / Ending Separate and Unequal Health Care

Achieving Eaual AccessTo HealthCaie

merica has two separate and unequal healthcare systems-one that provides access to abasic level of health insurance coverage andone that does not. It is time to provide alIAmericans with equal access to adequatehealth insurance protection.

Most Americans are fortunate to be under asystem that allows them to obtain affordablehealth insurance through their employer. Byproviding access to insurance coverage, andby sharing the cost between the employer andthe employee, the employer-based system ofhealth insurance coverage provides mostAmericans with protection from the cata-strophic costs of major illnesses. They areable to obtain the latest treatments andtechnology without fear of impoverishment.They arc able to choose their own physiciansand hospitals. They have access to regular,comprehensive medical care. The system isnot perfect, but employer-based healthinsurance accomplishes its major purpose:assuring that no American need delayseeking care because of fear of financial catas-trophe.

But there is a sizable minority of Americansestimates range between 30 million and 37million, or about 15 percent of the popula-tion’-that receives its care (if able to obtain itat all) in a completely different world. Forthem, there is no health insurance protection.A major illness can mean personal bank-ruptcy. Even minor illnesses can represent anintolerably high expense. Delays in obtainingcare are common. Access to preventive careis virtually unknown. And, when they do getso sick that they need professional care, thatcare usually comes from chronically under-funded public clinics or hospital emergencyrooms-or from physicians who donatedsome $6 billion in charitable cam in 1989.2

Others have health insurance-but it is inadc-quate for the task. Lack of coverage for the

catastrophic illnesses expenses and inade-quate benefits for preventive and primarycare services place too many Americans-theunderinsured-at risk. Americans who havecoverage under welfare-type public pro-grams, such as Medicaid, find that chronicunderfunding of those programs createsinsurmountable barriers to care. As many as20 million Americans have inadequate healthinsurance coverage.3

Even those Americans who now receivecomprehensive coverage through theiremployer arc at risk. Unemployment canlead to loss of coverage. An illness followedby a change in jobs can make it impossible toobtain coverage for that illness, since mostinsurers refuse to provide coverage for “pre-existing” health problems. As the cost ofproviding insurance escalates, more and morebusinesses are contemplating dropping orlimiting their health benefits. Even thosefortunate to have good comprehensiveinsurance through their jobs still live with thefear and uncertainty of joining the ranks ofthe uninsured.

The American Society of Internal Medicine(ASIM), representing physicians nationwidewho are specialists in adult medical care,believes that we can no longer accept twoseparate and unequal health care systems. Acomprehensive solution that gives all Ameri-cans equal access to a basic level of healthinsurance is within our grasp. Such a solu-tion should preserve the strengths of ourpresent system while closing its gaps; spreadthe burden of financing care equitablythroughout society; and ask businesses,government, patients and physicians to all dotheir share.

This paper outlines ASIM’s proposal forputting an end to separate and unequal accessto basic medical care. Since any realisticsolution must be based on an understanding

Ending Separate and Unequal llealth Care / 5

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of why some Americans do not have access tothe same type of protection available to mostof their neighbors, this paper begins bylooking at who are the uninsured and undtr-insured. It then presents a series of recom-mendations for comprehensive long-termreform, including a comparison of ASIM’srecommendations with other proposals, suchas the U.S. Bipartisan Commission on Com-prehensive Health Care (better known as thePepper Commission) report and the BasicHealth Benefits for All Americans Act, andan assessment of each recommendation’simpact on cost and access.

Who Are the Uninsuredand Underinsured?everal recent studies have looked at thecharacteristics of those who constitute theranks of the insured and underinsured, andhow they differ from other Americans.Several findings are especially important incrafting a workable solution:

l Most of the uninsured-80 percent ofthose Americans without health insur-ance-have jobs or are dependents ofthose who work.4 In fact, 14 percent ofAmerican workers have no health insur-ance.j

l By comparison, a large majority of Ameri-cans are insured through their places ofemployment. Only a small minority ofAmericans under the age of 65 are coveredthrough publicly funded programs.According to the Congressional ResearchService, 64.8 percent of all Americansunder the age of 65 are insured through theworkplace, 17.7 percent arc insuredthrough individually purchased insuranceor through publicly funded programs, and17.5 percent are uninsuredP Expertsestimate that 85 percent of all workers andtheir families receive job-based health in-surance.7

l Of the uninsured who are the primarysource of financial support for their fami-lies, 60 percent work full-time.’

l Many, but not all, of the uninsured arepoor. One third have annual incomes thatfall under the U.S. poverty level ($10,989for a family of four and $5,469 for an indi-vidual); 19 percent have incomes that fallbetween 100-150 percent of the povertylevel; 14 percent have incomes that fallbetween 150-200 percent of the povertylevel; and one third have incomes that are

at least twice the U.S. poverty level.9 Still,low-wage earners arc as likely to be unin-sured as unemployed individuals.‘O

l Most of the working uninsured are em-ployed by small businesses. One-third ofthe uninsured are employed by businesseswith fewer than 10 employees and another25 percent are employed by firms employ-ing between 10 to 100 people.”

.

.

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Still, most businesses-including mostsmall businesses-offer coverage to theiremployees. Nine out of 70 businesses withmore than 25 employees already covertheir workers. Almost half (46 percent) ofthe smallest businesse-those with fewerthan 10 employecs~ffered health insur-ance to their employees. Almost 80percent of firms employing between 10and 24 workers provided health insuranceto their workers.12

Medicaid, ostensibly the major source ofcoverage for the poor, actually financescare for only 42 percent of people whoseincomes are below the U.S. povertylevel.13 The low income cligiblity stan-dards set by many states make it impos-sible for many poor Americans to qualifyfor the program.

Virtually every American lacks adequateprotection for long-term care. The ex-traordinary costs of intensive long-termcare make most people vulnerable tofinancial catastrophe. Medicaid, the majorsource of public financing for long-termcare, requires people to deplete their ownresources in order to qualify. AlthoughCongress recently enacted legislation toreduce spousal impoverishment, Medicaidstill poses too great a risk to personalassets.

Directions for National Health Policyhese findings suggest several importantdirections that should guide national policyto end separate and unequal coverage.

First, a logical national strategy should bedirected toward making it possible foruninsured workers to obtain job-basedinsurance. The common assumption that thetypical uninsured person is unemployed andwithout any financial resources, or is some-one who works only part-time, is a myth.Most uninsured persons are no different fromtheir neighbors with health insurance. Theywork full-time or are dependents of full-time

6 / Ending Separate and Unequal llealth Care

workers. The only difference is that theiremployers are unable or unwilling to offerhealth insurance.

Second, since most businesses-large andsmall&do a good job of offering healthinsurance to their employees, an effectivenational strategy should be directed towardthe minority of businesses that do not nowoffer health insurance. This means askingthose businesses that can afford to offercoverage, but now refuse to do so, to acceptthe same level of responsibility to theiremployees, as do most firms. It also meansfinding a way to make insurance premiumsaffordable for those small businesses thatnow cannot afford to provide health benefitsto their employees.

Third, Medicaid needs to be restructured sothat it is no longer a “welfare” program forsome of the poor, but a program that canprovide coverage to any person-regardlessof incomcwho cannot obtain insurancethrough his or her employer.

Fourth, for the majority of Americans whonow have access to health insurance, im-

provements in the current employer-basedsystem-rather than a complete shift awayfrom job-based insurance-makes sense.Such improvements should protect theseindividuals from underinsurance or fromlosing their coverage because of a change incareer or employment status or the onset ofillness. But it defies logic to toss out entirely asystem-which works well for most Amcri-cans and can be made better with modestimprovements-for a new and untriedapproach. The goal instead should be tobring as many Americans as possible into theemployer-based system-not to replace it.

Fifth, since rising costs threaten the ability ofemployers and government to provide ade-quate funding for health benefits, it is impor-tant to institute measures that make healthinsurance premiums more affordable and thatdirect expenditures on health only towardthose services that are of benefit to patients.

ASIM’s specific recommendations for anational policy that reflect these directions ispresented on the following pages.


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A S I M P R O P O S A L S - I

Expanding Employer-BasedHealth Insurance

1 All employers should be required ton offer to their employees a basic pack-

age of health insurance benefits.

Impact QIZ the Problem

The most effective approach to reaching mostof the uninsured is to require those businessesthat do not now offer health insurance to doso, with provisions to assist small businessesand to make premiums more affordable asoutlined under the following rccommenda-tions. In October 1988, the ASIM House ofDelegates-representing democraticallyelected state leaders of internal medicine andits subspecialtiesbecame the first medicalorganization to call for a mandate that em-ployers offer health insurance coverage. TheSociety subsequently endorsed the BasicHealth Benefits for All Americans Act, intro-duced by Sen. Ted Kennedy (D-Mass.) andRep. Henry Waxman (D-Calif.). Althoughthis bill reportedly is being revised, theoriginal version provides a useful model of aplan that is consistent with ASTM’s recom-mendations. However, Congress should haveflexibility to consider a variety of proposedimplementation strategies to achieve the goalsidentified in this paper.

The Basic Health Benefits Act would requireall employers to offer health insurance bene-fits to all workers who are employed morethan 17.5 hours per week. A basic package ofhealth benefits would be mandated by thebill. The Congressional Budget Office (CBO)projects that the bill’s employer mandatewould result in most of the previously unin-sured’s having access to health insurance.According to the CBO, 23 million out of 37million uninsured--or almost two thirds ofthe uninsured-would then be coveredthrough their employer.14

Recently, the Pepper Commission released acomprehensive plan for assuring access that


contains a similar approach for expandingjob-based health insurance coverage Allbusinesses with more than 100 employeeswould be required to provide private healthinsurance (that included defined minimumbenefits) or to contribute to a public plan forall employees and nonworking dependents.Smaller businesses also would be required tooffer private insurance or to pay into a publicplan, unless they voluntarily provided healthinsurance coverage within a specified periodof time to at least 80 percent of their employ-ees. If an insufficient number of employees ofsmall businesses were not voluntarily cov-ered within five years (defined as 80 percentof all workers and their dependents in firmswith fewer than 25 employees), all businesseswould be required to either provide insur-ance or pay into a public plan. The end resultwould be the same as the Basic HealthBenefits Act: Virtually all working Americansand their dependents would have access tohealth insurance through their employer.

Both the Pepper Commission proposal andthe Basic Health Benefits Act call for rtquir-ing employers to subsidize at least 80 percentof the cost of health insurance premiums,thus minimizing any undue economic burdenon working Americans.

Cost impactThere is no question that mandating em-ployer-based health insurance would beeffective in substantially reducing the num-bers of the uninsured, and because of thespecified benefits requirements, the underin-sured. But some have questioned whetherthe cost of such a requirement is too high formany businesses.

The evidence suggests, however, that theactual net cost to most businesses is notinappropriately high. The total value of theinsurance that would be purchased by

businesses under the Basic Health BenefitsAct is estimated to be $33 billion. The net costwould be $18 billion as a result of eliminatinguncompensated charitable care costs thatcurrently arc passed on to businesses in theform of higher premiums, plus the additionof other provisions in the bill that wouldresult in savings to businesses. The averagehourly cost of an indemnity plan that meetsthe bill’s requirements is estimated at 80 centsfor a full-time worker, of which the employerwould pay 64 cents. A managed care planwould cost employers 54 cents per hour. Putanother way, the costs of the bill’s employermandate would represent four-tenths of 1percent of total wages.‘” The Pepper Com-mission estimates the cost to employers of itsrequirement at $20 billion.lh

For many businesse+thosc that arc nowproviding health insurance to their employ-ees--costs actually would be lower, sincethey are now indirectly subsidizing, throughhigher premiums, the health care expenses oftheir competitors’ unininsured employees.All employers would benefit from the insur-ance reforms discussed later in this report.

And for those employers who can now wellafford to provide health benefits to theiremployees, but who refuse to do so, theproposed mandate simply asks them to paytheir fair share. Although most of the work-ing uninsured are employed by small busi-nesses that have a legitimate concern aboutcosts, one-quarter of uninsured workers areemployed by firms with 1,000 or moreemployees. I7 As noted earlier, most smallbusinesses-including half of those withfewer than 10 employeesnow providehealth benefits. Those businesses wouldstand to gain under a more equitable sharingof costs.

Nor would the economy suffer significantdamage. Several studies, which take intoaccount jobs that will be gained in the healthcare sector, found no net job loss as a result ofthe Basic Health Benefits for Americans Act.Still other studies, which did not take intoaccount offsetting gains, found a smallincrease in unemployment (one-tenth of 1percent or less over a three-year pcriod).‘6

Most importantly, these costs must be com-pared to the far greater human and economiccosts of denying millions of adult Americansand their children access to health insurance.

Requiring employers to offer health insurancecoverage enjoys extraordinarily broad public

2 n

support. Two recent polls found that ap-proximately three out of four Americans feltthat employers should be required to providehealth insurance. The same level of supportwas found in all regions of the country andamong all political ideologiesJ9 In addition toASIM, at least 21 other medical associationshave endorsed mandatory cmployer-pro-vided health insurance. The American Hos-pital Association and a number of other or-ganizations representing health providers,consumers and labor also have endorsed thisapproach as part of a comprehensive strategyto expand access. Several business leadersalso have endorsed the concept.

Most of the opposition to an employer man-date have come from small businesses, whichunderstandably arc concerned about theimpact of this requirement on their economicviability. However, both the proposed BasicHealth Benefits Act and the Pepper Commis-sion report include measures to assist smallbusinesses and to reform the market forhealth insurance to lower premium costs.

Provide special assistance to smallbusinesses to make the cost of offer-ing health insurance more afford-able. Specifically, allow for anappropriate phase-in of the require-ment, designate regional insurersand establish risk pools, allow busi-nesses to substitute an “actuariallyequivalent” plan for the requiredstandard benefit package, provide afederal subsidy in hardship cases,preempt state laws that mandateminimum benefits, and permit fulltax deductions for the costs of healthinsurance premiums.

impact on the Problem

Both the Basic Health Benefits Act and thePepper Commission proposal recognize thepotential adverse impact on some smallbusinesses of any requirement that employersprovide private health insurance to theiremployees. After all, the cost of such insur-ance is the primary reason that some smallbusinesses are unable to offer such healthbenefits. The Congressional Research Serviceestimates that health insurance premiums forsmall employers average 10 to 15 percenthigher than for large employers.20


The Basic Health Benefits Act would directlyhelp small businesses in several ways. Manybusinesses that now offer good health insur-ance coverage would not have to upgradetheir plans as long as their benefits packagesarc actuarially equivalent (i.e, the employer’sdollar contribution to the plan is equal towhat would be the case if they offered thespecified benefits). New businesses withfewer than 10 employees would be required tooffer only a low-cost catastrophic plan in thefirst two years, Full coverage of businesseswith fewer than five employees would bephased in over five years.

Companion legislation would allow 100percent tax deductibility of the cost of self-employed and unincorporated business’contribution, instead of the current 25 percentlimit. All small businesses that currentlyinsure their workers and those who would berequired to start offering health insurancewould benefit from a system of regionalinsurers. Under the regional insuranceprogram, small businesses would be offeredthe economy of scale, group purchasingpower, and reduced sales and administrativecosts previously available only to largerbusinesses. The Small Business Administra-tion reports that 17 percent of very smallemployers (one to nine employees), 3 percentof small employers (10 to 25 employees) and22 percent of employers with 25 to 50 workerscite the unavailibility of group coverage as areason for not offering health insurancc2’

Finally, the bill provides a direct federalsubsidy for small businesses that spend morethan 5 percent of gross revenues on prcmi-urns. Seventy-five percent of the cost inexcess of this ceiling would be paid by thefederal government. A similar subsidyprogram has been in effect in the state ofHawaii, which has required employers tooffer health insurance for the past 10 years. Inthose 10 years, however, only four businessesapplied for a subsidy due to hardship.22

The Pepper Commission report provides aneven more extensive program of assistance tosmall businesses. The employer rcquircmentwould not begin for large employers until thethird year of the plan; businesses of 25 to 100employees would not be subject to the re-quirement until the fourth year, and busi-nesses with fewer than 25 employees wouldhave five years to comply. Small businessesthat voluntarily insure 80 percent of their em-ployees would be exempt. The option ofcontributing to a public fund, rather thanpurchasing private insurance, also gives small

10 / Ending Separate and Unequal Heulth Care

employers greater choices in how to covertheir employees, although ASIM stronglybelieves that the contribution to the publicfund must be set at a level to encourageprovision of private insurance to the greatestextent possible.

Under the Pepper Commission plan, firmswith fewer than 25 employees and averagepayrolls below $18,000 would be eligible toreceive a 40 percent tax credit/subsidy for thecost of health insurance. Employees of thesefirms with family incomes up to twice thepoverty level would receive a subsidy.

In addition, the plan calls for the creation of avoluntary reinsurance mechanism throughwhich insurers could spread the risk ofinsuring high-risk persons or groups. ASIMbelieves that this approach could be taken astep further, by legislatively mandating staterisk pools to make coverage available atstandard group rates to high-risk individuals.This would enhance the ability of smallbusinesses to purchase coverage at a moreaffordable rate than might be available on theprivate market.

Both the Basic Health Benefits Act and thePepper Commission would preempt statelaws that require insurers to offer a specifiedpackage of minimum or basic benefits. Bysubstituting federally determined basicbenefits, employers would be protected fromstate governments mandating benefit expan-sions that drive up the costs of premiums.

Cost lmpacf

The Basic Health Benefits Act would savesmall businesses that currently provide healthinsurance an estimated $4.8 billion, becausethey would have the opportunity to partici-pate in the regional insurance program andoffer managed care programs. The regionalinsurance program would reduce premiumsto small businesses by 10 percent as a resultof savings on sales and administrative costs,and the availability of managed care optionswould save an additional 15 percent, for atotal premium reduction of 25 pcrccnt.23 Thecost to the federal government of the subsidyprogram would be about $200 million in thefirst year but would rise to $600 million bythe fourth year.24

Small businesses and their employees wouldreceive annual subsidies costing the federalgovernment $8.4 billion as proposed in thePepper Commission report. The 100 percenttax deductibility for self-employed individu-

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als and unincorporated firms, if it had beenimplemented in 1988, would have resulted inan estimated reduction in federal revenue of$500 million in 1988, $900 million in 1989, and$1.3 billion in 1990, which represents anequivalent amount of tax savings to smallbusinesses.25

Reform the market for health insur-ance by prohibiting experience ratingand pre-existing condition exclusionsand establishing special rules formarketing to small groups. Oncemarket reforms are implemented,along with expansion of Medicaidand a mandate that employers pro-vide health insurance coverage totheir employees, all individualsshould be required to offer evidenceof having obtained insurance cover-age.

Impact on the Problem

Both the Pepper Commission report and theBasic Health Benefits Act attack practices inthe insurance industry that now drive upcosts, particularly to small businesses, andleave too many Americans at risk for losinghealth insurance coverage due to illness.

Prohibiting exclusions for pm-existing condi-tions, as both plans would do, would closeone of the major gaps in our present insurancesystem. Currently uninsured individuals whobecome ill and then try to purchase insuranceon their own, or who otherwise wouldbecome eligible for job-based health insur-ance, no longer could have benefits for theirillness denied by insurers. Currently insuredindividuals who change jobs (and insuranceplans) also could no longer be denied cover-age for a preexisting condition. The Office ofTechnology Assessment estimates that 20percent of all Americans who apply forcommercial health insurance face pre-existingcondition limitations resulting either inincreased premiums or exclusions fromcoverage. 26 Since prohibiting pre-existingcondition exclusions could result in individu-als declining to obtain health insurance untilthey are ill, the Pepper Commission appropri-ately would require all individuals to docu-ment that they have obtained coverage eitherthrough a private or public plan. Once theavailability of insurance is guaranteed, no onewould be permitted to simply decline toobtain coverage.

The current practice of experience rating-basing premiums on the characteristics andclaims experience of the particular groupbeing insured--drives up costs for smallbusinesses. Small businesses can be subject tohuge premium increases if only a few of theiremployees are viewed as “high risk,” or ifseveral of their employees take advantage oftheir health benefits during a particular year.The Pepper Commission proposal wouldoutlaw the practice. Instead, insurers wouldset rates based on the characteristics of theentire community (community rating), mean-ing that all employers would have theirpremiums established on the same terms.

The Pepper Commission report also directlyconfronts many of the other barriers that smallbusinesses must face in obtaining affordablecoverage Insurers would be required toguarantee acceptance of all groups wishing topurchase insurance. Rates could not beincreased selectively for any group in a plan.Enrollment would be for a specified minimumperiod. Both the Pepper Commission and theBasic Health Benefits Act would requireinsurers to offer small businesses managedcare plans if such plans arc available to largeemployers.

Cost Impact

Replacing experience rating with communityrating would substantially lower premiumcosts for small businesses, although preciseestimates of the impact arc not available.

Provide tax incentives for individualsto set aside funds to pay for healthexpenses in order to supplementfinancing from employer-basedhealth insurance and public pro-grams.


Allowing individuals to set aside tax deduct-ible funds each year to help pay for futurehealth care expenses would provide animportant source of supplemental financingfor health care. Similar in concept to Individ-ual Retirement Accounts (IlLAs), individualswould be given an incentive to save money tohelp pay for their health care expenses.Interest earned on the account also would betax free. Savings and interest income wouldbe taxable only upon withdrawal to supple-ment benefits under private and public healthinsurance programs.


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Neither the Basic Health Benefits Act nor thePepper Commission report includes a rccom-mendation for “Health IRAs,” although thePepper Commission calls for inclusion oflong-term care policies in employer cafeteriaplans, which would enable employees to setaside pretax dollars to buy long-term care in-surance.

ASIM believes that “Health IRAs” should beviewed as a supplement to requiring employ-ers to provide health benefits and expandingpublic programs, not as an alternative tothose policies. Although some have advo-cated “Health IRAs” as the primary source offinancing for medical care, ASIM believes thatwithout an expansion in employer-basedhealth insurance and substantial improve-ments in public programs, Health IRAs bythemselves would leave too many Americanswithout adequate coverage. It is not clearhow many Americans would choose to setaside funds to pay for future medical careexpenses, even with favorable tax treatment.Moreover, low wage earners, who are morelikely to be uninsured, are less likely tocontribute to a Health IRA. For these reasons,

ASIM advocates the inclusion of Health IRAsonly as a way for some individuals to supple-ment coverage by insurers and the publicsector.

Cosf zmpct

Depending on the number of individuals whotake advantage of this option, some loss infederal tax revenues is likely. The Joint TaxCommittee estimates that a bill by Rep.French Slaughter (R-Va.) to create HealthIRAs would have resulted in loss of federalrevenue in 1988 of $2.5 billion, $6.8 billion in1989, $7.2 billion in 1990, and $7.9 billion in1992.27 By providing an individual source offinancing for health care, however, somesavings to businesses and government mightbe expected. Because of the potential adverseimpact on federal revenues, however, ASIMbelieves that making federal funds availablefor the other recommendations in this plan ofaction (e.g. expansion of public programs, asdescribed in the next section) should takepriority over establishing Health IRAs.Health IRAs could be added as resourcesbecome available.


A S I M P R O P O S A L S - I I

Improving and ExpandingPublic Financing

Convert Medicaid from a welfareprogram to a source of funding forall individuals, regardless of income,who are unable to obtain employer-based health insurance. Specifically,national uniform eligibility stan-dards should be mandated. Indi-viduals with incomes above thepoverty level should be required tocontribute to the cost of coverage(through premiums, deductibles andcopayments) under the public plan,with the level of contribution andcost-sharing varying on a slidingscale based on income. As an alter-native to revamping Medicaid, a newfederal-state program could be estab-lished to accomplish the same pur-poses.


Even with a mandate that employers providehealth insurance coverage and with theinsurance reforms described earlier, there willstill be individuals who otherwise would bewithout health insurance coverage. Uncm-ployed, self-employed and part-time (thosewho work less than 17.5 hours per week) in-dividuals and their dependents could still bewithout access to health insurance. Withoutexpansion of Medicaid or creation of a com-parable public program to provide coveragefor all of the remaining uninsured, approxi-mately 14 million of the uninsured still wouldnot have access to health insurance.28

There is widespread agreement on the needto reform the current Medicaid program or toreplace it with a new one, so that publicfunding for medical care no longer is linkedto AFDC (Aid for Families With Dependent

Children) or other welfare programs. Withfewer than half of all individuals below thepoverty level now eligible for Medicaid, theprogram-as currently structured-is clearlyinadequate to the task of providing coveragefor the poor, let alone serving as a vehicle toprovide access for uninsured individuals withincomes above the poverty level.

The Basic Health Benefits Act would correctthis fundamental flaw by establishing uni-form eligibility standards for Medicaid oranother comparable program. The first phaseof the public program (implemented simulta-neously with the employer requirement)would cover all uninsured children of fami-lies whose incomes are below the povertylevel and pregnant women whose incomesfall between the poverty line and 85 percentabove that line. This would expand coverageto 4 million unemployed persons.29

The second phase of the program, whichwould be implemented in 1996, calls forproviding coverage for all uninsured adultswith incomes up to 85 percent above thepoverty line. An estimated 5.7 million moreAmericans would now be covcred.3n

The third phase, to be implemented by theend of the decade, would cover all of theremaining uninsured.

Copayments, deductibles and premiums fornonworking individuals and dependentsbetween the poverty line and up to 85 percentabove the poverty level could be imposed, atstate option. Copayments and deductibles forthose with incomes beyond 85 percent abovethe poverty level would be equal to those re-quired under the employer-based plan.Federal premium subsidies and limits onpremiums would be mandated based ongross income. The Pepper Commissionadvocates a similar approach. In the firstyear, all uninsured pregnant women and

Ending Separa te and Unequal llealth Care / 18

Mandate a defined set of basic bene-fits for the Medicaid program.


The Pepper Commission, the Basic HealthBenefits Act and the Health Policy Agendareport all agree on the need to improve andstandardize benefits under Medicaid or acomparable new program.

The Basic Health Benefits Act would requireall states to offer the same basic benefits asthose mandated under private, employer-based health insurance, including medicallynecessary hospital care, physician care,diagnostic tests, prenatal care, well-baby careand a limited mental health benefit.

Under the Pepper Commission plan, a newfederal-state program would be created tooffer basic services, including hospital andsurgical services, physician services, diagnos-tic tests, limited mental health benefits,preventive services (prenatal care, well-childcare, mammograms and Pap smears, colorec-tal and prostate cancer screening procedures,and other preventive services that evidenceshows are effective relative to cost), and earlyperiodic screening and treatment services forchildren.

The HPA offers the most ambitious list ofbenefit expansions. In addition to the benefitsproposed under the other two plans, it wouldinclude institutional care for the elderly andthe disabled, dental services, family planningservices, and home health and personal careservices.

In order to protect those most at risk underthe current system, ASIM believes that itwould be appropriate to mandate expansionsof Medicaid’s benefit structure as an interimstep toward a more comprehensive solutionrequiring an employer mandate.

Cost Impact

The costs of the Basic Health Benefits Act andthe Pepper Commission proposed standardbenefits were included in the earlier costestimates.

The HPA benefit package, in the absence ofan employer mandate, would increaseMedicaid spending (federal and state) bybetween $6.5 billion (for a “median” package)to $21.5 billion (for a comprehensive pack-age), in addition to the $9 billion to expandeligibility.35 Since the HPA package is the

3.

most expensive of the proposals, it mightmake sense to begin with a more basicbenefits package, such as proposed in theother two plans, and then augment thepackage further as funds become available.

Reform physician payment underthe Medicaid program to ensureadequate incentives for physicianparticipation and to introduce properincentives into the system.

Impact on fhe Problem

Low levels of reimbursement under moststate Medicaid programs have createdsignificant barriers to access to care. Accessto primary care services (internal medicine,pediatrics, family practice and obstetrics) thathistorically have been paid disproportion-ately less than other services, has beenparticularly impeded. Moreover, paymentsfor services vary widely among states. Maxi-mum payments for brief follow-up officevisits ranged from $6 in New Hampshire to$28.41 in Alaska.36

All three of the major proposals for Medicaidreform address this inequity. The PepperCommission would model future reimburse-ment under its new federal-state program onthe Medicare physician payment reformlegislation enacted by Congress in 1989.Beginning in 1992, Medicare will reimbursefor all physician services based on a resource-based relative value scale (RBRVS), whichwill substantially improve payments forundervalued primary car-r evaluationand management-services. By narrowingthe historic gap in compensation betweenevaluation and management services andsurgical and technological procedures, momappropriate incentives would be introducedinto the system. The Pepper Commissionwould also immediately mandate improve-ments in reimbursement for obstetrical andpediatric care.

ASIM supports the Pepper Commissionproposal to base future reimbursement underMedicaid (or a comparable new program) onthe Medicare RBRVS fee schedule, providedthat this is clarified to state that reimburse-ment under the state program would be noless than would be paid under the MedicareRBRVS fee schedule for a comparable service,states would have the flexibility to furtherincrease payments for services where particu-lar access problems exist, and other Medicare


rules (such as volume performance standardsand limits on balance billing for higherincome individuals) would not be mandated.

The Basic Health Benefits Act simply requiresstates to offer payment rates at levels ade-quate to insure access. The Health PolicyAgenda similarly recommends that Medicaidexpansion would include policies and incen-tives to encourage provider participation. TheHPA cites a Congressional Research Serviceestimate that shows raising the level ofMedicaid payments to physicians wouldincrease by 13.6 million the number of visits tophysician offices, a clear indication of theimportance of improved reimbursement ineliminating barriers to care.37

The Physician Payment Review Commission,an independent body of physicians, econo-mists, consumers, business and health profes-sionals established to advix Congress onreform of physician payment under Medicare,and now Medicaid, reviewed several studieson the effects of fee levels on access. Thecommission reports that “practically everystudy has reached the same conclusion:Higher Medicaid fees result in greater physi-cian participation in the program.“3s

Cost Impact

The cost of applying the Medicare rules ofpayment to the Pepper Commission’s pro-posed federal-state public program wereestimated to cost $4 billion annually at full im-plementation.39

There is no specific information available onthe potential costs of improved reimburse-ment as called for by the Basic Health BenefitsAct.

The HPA estimates that if states reimbursedphysicians at Medicare levels and hospitals atincurred costs, costs would rise an additional$4.4 billion to $5.5 billion, of which $1.5 billionwould represent increased spending onphysician services .40 The Physician PaymentReview Commission cited one study, how-ever, that found that every 1 percent increasein fees was associated with a 0.5 percentincrease in Medicaid expenditures. One of thereasons that the relationship was less thanone-to-one was that there was an inverserelationship between the number of recipientsof outpatient care and Medicaid fees, indicat-ing the apparent substitutability betweenoutpatient and office services. In other words,higher expenditures on office visits might bepartially offset by fewer visits to more expen-


4.

sive hospital outpatient departments or emer-gency rooms.4’

To reduce the financial burden onthe states, increase the federal gov-ernment’s funding for the expandedMedicaid program.


The HPA specifically has called for thefederal government to bear a greater burdenof the fiscal impact of eligibility expansion.The Pepper Commission agrees: It calls forthe fully phased-in public plan to be financedand administered primarily by the federalgovernment. States would continue tocontribute the same amount that they cur-rently spend on Medicaid to the new pro-gram. The Basic Health Benefits Act wouldmatch eligible state expenditures for theprogram at Medicaid matching rates, whichsuggests that the Act would not significantlyalter the share of the costs of the programborne by federal and state governments.

ASIM believes that it is essential that thefederal government pay the largest portion ofthe proposed Medicaid expansions. Uniformbenefits and eligibility would financiallystrap poorer states with more limited re-sources. Many of the states that now havemore restrictive benefits, eligibility and reim-bursement simply are unable to affordprogram expansions. A federal mandate thatall states enhance their programs to meetnational guidelines makes sense only if thefederal government is willing to financelargely those expansions. Opposition of thenation’s governors to further federal man-dates to improve Medicaid would be muted itthe federal government were to provide itsfair share.

Cost Estimates

The estimates of increased federal costs andsavings to states depend on how large aportion of program expenditures the federalgovernment would pick up. More detailedprojections arc not now available.

1 n

A S I M P R O P O S A L S - I I I

Providing CoverageLong-Term Care

Encourage the availability of privatelong-term care insurance by: apply-ing the same tax status to long-termcare products as now exists for acci-dental death and dismembermentinsurance and health insurance, al-lowing the deductibility of insurancereserves and related investmentearnings, permitting the inclusion oflong-term care coverage in cafeteriaplans, offering tax credits for thepurchase of long-term care coverage,and eliminating restrictions on theprefunding of retiree health benefitsand long-term care insurance.

impact on fhe Problem

Currently, the market for long-term careinsurance is hindered by inequitable taxtreatment. Allowing tax deductions of long-term care insurance premiums paid by em-ployers and tax benefits for insurance compa-nies-allowing them to accumulate intereston collected premiums-would help stimu-late the long-term care insurance marketplace. Changes in the tax code to accomplishthese purposes were proposed as part of theLong-Term Care Assistance Act, introducedin 1988 by Sen. George Mitchell (D-Maine).The bill also allowed for inclusion of long-term care policies in employer cafeteria plans,in order to enable employees to purchasethese plans with pretax dollars. The pro-posed changes in the tax code were endorsedby the Pepper Commission as well. TheLong-Term Care Assistance Act reportedly isbeing redrafted prior to its reintroduction.

Prefunding of long-term care insurance,through Health IRAs or other mechanisms,would help reduce the economic burden onthe next generation.

2 n

for

Cost impact

Little data is available on how the proposedchanges in the tax code would affect the costof long-term care insurance. One estimatesuggested that premiums could be as much as11 percent lower for insurance purchased atage 65 if long-term care insurance reserveswere treated the same as life insurancereserves.42

The Pepper Commission estimates that $6.7billion in lost federal revenue in fiscal 1990would result from its proposals to change thetax code to encourage long-term care insur-ance.43

Provide a sliding subsidy to enablelow-income beneficiaries (e.g., thosewith incomes up to twice the povertylevel or less) to purchase privatelong-term care insurance.

ASIM supports a bill introduced in 1989 byRep. Barbara Kennelly (D-Conn.) to providefederal subsidies to help low-income indi-viduals purchase private long-term careinsurance. This would extend assistance tothose individuals who would not benefitfrom tax credits, as would middle- andupper-income groups. Although it is unclearhow many lower-income Americans wouldtake advantage of the subsidy, ASIM believesthat it is important to establish the principlethat individuals with lower incomes shouldnot be excluded from the long-term caremarket.

Cosf impactNo data is currently available on the cost ofthe proposed federal subsidy to low-incomepersons.


m-

Provide for federal and state regula-tions that enhance consumer protec-tions in the long-term care market.These regulations should assureappropriate standards of coverage,the establishment of guidelines forproper disclosure, protectionsagainst sales abuses, regulation ofrenewal and cancellation, require-ments for sufficient reserves, anddevelopment of benefit/premiumratios.


Any proposal to stimulate the availability oflong-term care insurance must protect con-sumers from the deceptive and fraudulentpractices that all too often have accompaniedmarketing of Medicare supplemental insur-ance (or Medigap) policies. Without suchprotection, individuals are at risk for purchas-ing inadequate insurance, paying excessivepremiums or purchasing duplicate coverage.

The Pepper Commission agrees with the needfor states to regulate long-term care insuranceby using federal or stricter standards. Thecommission recommends that the federalgovernment encourage states to strengthencivil penalties for misrepresentation, salesknowingly made of duplicative insurance orsales of unapproved policies by mail.

Cost Impact

No data is available on the costs to stateauthorities or the insurance industry associ-ated with promulgating and complying withstricter regulatory standards.

As an incentive to purchase privatelong-term care insurance, provide anasset protection program for indi-viduals who purchase long-term carepolicies.


Rep. Kennelly’s proposal would provide astrong incentive for individuals to purchaselong-term care policies as a way of protectingthemselves from future impoverishment.Under her plan, an individual’s assets wouldbe protected up to the dollar value of thebenefits provided by the insurance. Once theindividual’s unprotected assets are used, he

18 / Ending Separate and Unequal ilealth Care

5 n

or she would become eligible to receive long-term care benefits under the Medicaidprogram. For example, if an individual with$50,000 in assets purchased a long-term carepolicy with $50,000 in long-term care benefits,the individual would bc able to maintainthose assets and still qualify for Medicaidcoverage after the private policy’s benefitswere exhausted.

Cosf Impact

No estimates are available on the cost of thisproposal.

Establish a new Medicare benefit toassist individuals in paying for long-term care. The program shouldprovide for adequate cost sharing byindividuals, protection against de-pleting personal assets and premiumcontributions on a sliding scalebasis.

The Long-Term Care Assistance Act, asproposed by Sen. Mitchell in 1988, wouldprovide for Medicare coverage of long-termcare after an individual paid for the first twoyears of chronic nursing home care. Medicarewould pay 70 percent of costs for an unlim-ited time in a nursing home after the first twoyears. Home health care benefits would beexpanded to include benefits of up to $2,000 ayear with a 50 percent copayment. The newbenefit would enable individuals caring for aMedicare beneficiary at home to hire some-one to relieve them when ncedtd. The newbenefit would be financed partly by prcmi-urns that would increase with beneficiaryincome.

The Pepper Commission proposes an evenmore ambitious plan. Rather than payingbenefits after the beneficiary has financedcare out-of-pocket for a defined time period,the commission would pay for the entire costof the first three months of skilled andcustodial nursing home care, except for amodest copayment. During the first threemonths, all income and assets would beprotected. After the first three months,individuals must contribute their incometoward the cost of care minus a personalneeds and housing allowance. Individualswould contribute non-housing assets above$30,000 for single persons and $60,000 formarried persons. The commission alsoproposes a separate social insurance programfor home and community-based care.

ASIM believes that either approach is consis-tent with the principles of asset protection,cost-sharing and varying contributions byincome. More debate is needed on whetheror not the beneficiary should be required topay more out-of-pocket up front, comparedwith having the federal government financethe first few months in a nursing home. ThePepper Commission’s rationale for thisproposal is that most Americans who needlong-term care are in and out within threemonths.

Given the huge costs of financing long-termcare, Congress will need to carefully considerwhat is a realistic level of federal support.ASIM also believes that although providingbenefits for long-term care is an appropriatenational objective, the highest priority mustgo toward providing access to care for the

more than 30 million Americans without anyhealth insurance coverage. Consequently, iflimited resources dictate a choice betweenimplementing that portion of our programcalling for Medicaid expansion and an em-ployer mandate, or that portion calling for thecreation of a long-term care benefit, prioritymust go toward the former. Long-term carebenefits could be added as funds becomeavailable.

Cost lmpxt

The Pepper Commission long-term careproposal is estimated to cost $42.8 billion.”

The Long-Term Care Assistance Act, asinitially proposed in 1988, was estimated tocost between $16 billion and $18 billion.45


ANAL Y S I S

Advantages of ASIM’s Access PlanOver Alternative Approaches

he common thread running through ASIM’sproposals on access and long-term care is onecalling for the private sector and governmentto share the costs of expanding access to care.We believe that the way most Americans nowget coverage for medical care-throughemployer-based health insurance-hasworked well and must be preserved, albeitwith some substantial improvements. Theobjective must be to bring as many Ameri-cans as possible into that system-not replaceit.

Some have advocated that this country movetoward a single-payer system. Although thespecifics of single payer proposals vary, theyhave one clement in common: The federaland/or state governments would financecoverage for all Americans. Some of theplans would do away with private insurance.Others would have the government issuevouchers to purchase private insurance, orwould contract with private insurers toadminister the program. Some wouldadminister the plan largely at the federallevel; others would give primary responsibil-ity to the states. Proponents of a single-payer system tend to look toward the Cana-dian system as a model.

Whatever variation of a single-payer systemis proposed, however, there are significantdrawbacks compared to ASIM’s proposedmix of public and private funding sources.Specifically:

1. By giving one entity-government-anexclusive monopoly over financing care,patients would be limited to receivingcare only under that system.

Under the current pluralistic system, ifpatients or employers do not like the servicethey receive from a particular insurer or feelthat payments or benefits under the plan are


inadequate or do not care for restrictions theplan places on access to physicians andhospitals, they can simply purchase coverageby another plan. But if the government-financed program is the only practical choiceavailable to patients, they cannot just “fire”the government and select another plan.Only the very wealthy would have theresources to opt out entirely from the system.Even if a single-payer plan contemplates arole for private insurers, the fact that thegovernment still pays all the bills wouldresult in the same inherent restriction onchoice. If patients do not like medicinefinanced and controlled by the government,simply finding another insurance plan thatoperates within that system does not reallyoffer the only choice that matters: the free-dom to obtain coverage through another fi-nancing source.

2. A single-payer system would limit com-petition.

It is ironic that at a time when more competi-tion is being introduced into virtually allsegments of society, proponents of a single-payer system propose to give a monopoly to aplan operated and financed by the govem-mcnt. Most Americans would agree thatconsumers benefit when government pro-grams arc forced to compete with privatesector alternatives. Consumers, for example,benefit when the U.S. Postal Service is forcedto compete with private delivery services.But in a far more important arena-the healthof Americans-some are calling for a govem-ment monopoly. That just doesn’t makesense.

3. If the government pays the entire healthcare bill, the care available to individualswould be at risk to the annual budgetarybattles over competing priorities.

If the government accepts the enormousresponsibility of another massive entitlementprogram, medical care would be at risk tocompeting budget priorities. Congress wouldneed to balance funding for medical careagainst such other priorities as defensespending, deficit reduction, education and aidto farmers. Given that the new single-payerprogram would immediately become one ofthe largest spending programs, it would be anatural target for spending cuts to pay forother national priorities--or to reduce thedeficit. Medicare, which has been cut by morethan $35 billion during the past nine years, isone example of the pressure to cut costs thatwould be placed on the new program.

4. A single-payer system places too muchcontrol over patient care in the hands ofgovernmental agencies.

After promising to pay for the health care billsof all Americans, Congress immediatelywould be under pressure to cut costs. Thiswould inevitably lead to efforts to restrictbenefits for needed services, to penalizefinancially physicians and hospitals thatprovide patients with the care they need andto limit access to new technology. Thegovernment also would have a reason toimpose even more administrative barriers thatare designed to make it difficult for physiciansto order and patients to obtain benefits forneeded services. As the only paymentsource, the government essentially couldimpose its will on who receives care andunder what circumstances. Multiple fundingsources, as ASIM proposes, protect the publicfrom too much power being concentrated inany single payer.

5. It is fiscally irresponsible to propose asingle-payer system at a time when theU.S. has a massive budget deficit.

One proposal for a single-payer systemrecently introduced in Congress is estimatedto cost more than $250 billion. Obligating thefederal government to a massive entitlement

program, at a time when there already is ahuge federal deficit, is irresponsible. Publicopinion polls show that of those who favoredfederally funded National Health Insurance,90 percent would be unwilling to pay even$500 a year in additional taxes to finance anew national health program.46 It is unrealis-tic to expect Congress to approve a plan thatwill exacerbate the deficit and impose a largetax burden on workers.

6. By holding out for a single-payer system,proponents of this approach risk blockingany action on expanding access.

In the late 197Os, an opportunity to reachagreement on a moderate approach to expandaccess was lost because of the insistence ofsome that only a single-payer national healthinsurance program would be acceptable.Pushing a single-payer system now risksreopening that divisive debate, with the sameoutcome expected. Given the growingconsensus for requiring employers to offerhealth insurance and expanding publicprograms to fill the remaining gaps, it iscounterproductive to reintroduce the debateover a single-payer system. This timearound, many of the groups and individualsthat were in conflict with each other in thepast have codlcsced around the approach rec-ommended by the Pepper Commission. Let’sbuild on that consensus, not undermine it.

An employer mandate coupled with expan-sion of public programs also offers advan-tages over alternatives that rely solely on taxbreaks and the marketplace to encourageemployers to offer health insurance. Taxbreaks alone will not be a sufficient incentivefor employers to provide health insurance.Some have proposed asking individuals tofinance their own basic care, with insurancepaying only for catastrophic expenses. Butthis approach could hinder access to servicesthat patients would be required to pay forout-of-pocket, such as routine medical careand preventive services.

Ending Separate and Unequal Healtn Care i 21

1-

1 .

Health Care Costs andOther Barriers to Access

comprehensive plan to end separate andunequal access to care must address morethan expanding the availability of healthinsurance coverage but also other barriers toaccess. Those barriers include the cost ofmedical care, inequitable reimbursementsystems, excessive medical liability costs, andadministrative and review requirements thatimpede access to appropriate services. ASIMoffers the following specific proposals toaddress these barriers. More information onthe rationale behind each of these recommen-dations is available from ASIM.

In order to assure that money spenton medical care is spent wisely andeffectively, the medical profession,with the cooperation of governmentand other payers, should place highpriority on studying the outcomes ofdifferent medical interventions anddeveloping practice guidelines tomodify physician behavior and toprovide a basis for setting paymentcriteria.

Outcomes research and the development ofpractice guidelines must bc at the core of anyeffort to address the cost of medical care. Byproviding a scientific basis for physicians todecide what works-and what does notwork-in treating patients, the uncertaintiesof medical practice that drive increases in thevolume of services can be substantiallyreduced. Physicians would have a basis fornot providing certain services that, based onthe best scientific evaluation available, areineffective or not as effective as alternativetreatments. The creation by Congress in 1989of the new Agency for Health Care Policy andResearch can provide a focal point andfinancial resources to support this effort.

ASIM is involved with a partnership with theAmerican Medical Association and otherspecialty societies to promote the develop-ment of practice guidelines.

Development of practice guidelines is a moreeffective approach to moderating costs thanattempting to set arbitrary limits or targets onexpenditures, since it gets to the heart of therelationship that largely determines the costof care-the decisions that a physician makeson behalf of his or her patients-instead ofattempting to impose overall limits onresources. ASIM is pleased that the PepperCommission endorses the role of practiceguidelines in addressing cost increases.

Once practice guidelines are widely available,however, medical care costs are likely tocontinue to increase due to the aging popula-tion, advances in diagnosing and treatingpatients, and new diseases. Practice guide-lines provide payers with a reasonablecertainty, however, that money is being spentonly on those services shown to be effective.Further attempts to restrain costs will requirea basic societal decision on whether-andhow-resources for medical care should bclimited, even though this may require limit-ing coverage for some services shown to beeffective.

Caution must be exercised in imposing othercost-containment strategies that could, in fact,hinder access, by forcing or rewardingphysicians for withholding needed services,by lowering payments to the point wherephysicians cannot afford to treat patients forthe payment allowed (as is already the casewith Medicaid in most states), or by settingup unneccessary administrative barriers topaying benefits for appropriate care. More-over, the more than 30 million Americanswithout health insurance should not be heldhostage while the country tries to find an


n

answer to the extraordinarily difficult prob-lem of expanding access while controllingcosts.

2 Eliminate administrative hasslesw that impede access to care.

The “hassle factors” associated with medicalpractice pose a direct threat to access.

There is a growing consensus that thecurrent methodologies instituted by payersto review utilization and appropriateness ofcare are overly intrusive and are not work-ing well for patients, physicians or payers.Criteria for review is of questionable scien-tific validity and is typically developed withminimal professional input. Bad criteria canresult in payments for needed services beingdenied, while inappropriate services escapescrutiny. Emphasis on sanctions and pay-ment denials-rather than education-undermines physician support for medicalreview and is ultimately less effective inmodifying behavior. Those physicians whopractice responsible, cost-effective medicinearc subject to the same intrusive reviewrequirements as physicians with morequestionable practice patterns. Claim-by-claim review often results in denials ofpayments for appropriate services that laterare reversed on appeal. But the hassle offighting for payment for each claim candiscourage physicians and beneficiaries frompursuing payment for needed services. Thebarriers to paying for covered servicesimposed by many payers have appropriatelybeen characterized by one author as “ration-ing by inconvenience.“47

Other administrative burdens--excessivepaperwork and record-keeping require-ments, overly complicated rules of payment,duplicative and contradictory rules ofdifferent payers, and constantly changingrequirements-also are contributing to theproblem.

Since the hassles of medical practice todayhit office-based physicians the hardest, it is

perhaps not surprising that fewer physiciansare entering specialties such as internalmedicine, and more and more physicians areexpressing a desire to rctirc early or acceptadministrative positions outside of directpatient care.48 Some physicians have becomeso frustrated with the red tape of Medicareand Medicaid that they are likely to bereluctant to see patients covered by thoseprograms, even if reimbursement is mademore equitable.

For these reasons, any comprehensive plan toimprove access must include measures toreduce the hassle factor of medical practiceand to replace the present irrational, overlap-ping and complex system with a simplified,more fair and more effective alternative.ASIM will be releasing a comprehensive planto reduce the “hassle factor” in the nearfuture.

3 Institute reforms in the medicalH liability system.

ASTM is pleased that the Pepper Commissionrecognizes the role of medical liability reformin reducing medical care expenditures. Westrongly support tort reform and limits oncontingency fees and punitive damages aspart of any effort to bring the costs of medicalliability under control.

4 Require some level of patient cost-n sharing in all insurance plans.

Requiring individuals to pay some share ofthe cost of services, through deductibles andcopayments, provides an incentive forpatients and physicians to use servicesjudiciously. Varying cost-sharing by incomewould protect those who cannot affordsignificant out-of-pocket contributions, whilestill maintaining adequate protection overexcess utilization.


C O N C L U S I O N S

Financing of Access andLong-Term Care Proposalsany critics have chided the Pepper Commis-sion for not identifying specific financingmechanisms to pay for its recommendedprograms. Similar criticisms can be leveled atthe Basic Health Benefits Act and the recom-mendations in this paper.

ASIM recognizes that implementation of therecommendations in this paper will carry alarge price tag. But we believe the price ofneglecting those without adequate access tocare is even higher. Criticism of the PepperCommission and other similar proposals fornot identifying specific funding measures isunfounded. The Commission has identifiedwhat it will cost to carry out its plan. Through-out this paper, ASIM has attempted to identifyas well the potential costs of implementing ourrecommendations.

The issue is not the specific funding mecha-nisms needed to pay for the proposed expan-sions, but instead, whether this country agreeswith the urgency of getting the job done. Ifthere is a consensus that expanding access tocare is an important national priority, thenCongress can arrive at the right combination oftax increases and reallocation of spendingpriorities to pay for the needed expansions.But no one can argue that expanding access toAmericans who now receive care under aseparate and unequal system will not costmoney. It is expensive, but it is well worth it.

One of the advantages of ASIM’s proposal isthat it asks business, government, taxpayersand patients to share the costs of expandingaccess to care rather than asking only onesegment of society to pay the whole bill. Italso is appropriate for Congress to sortthrough the various plans that are consistentwith the recommendations in this report-particularly the Pepper Commission, theBasic Health Benefits Act and the HealthPolicy Agenda proposals-and decide whichcombination of specific changes proposed ineach is most effective at expanding access at arealistic cost. Finally, setting some prioritiesfor expansion is appropriate. ASIM believesthat if limited resources preclude implcmen-tation of this entire plan at this time, makingimmediate interim improvements in theMedicaid program, followed by implementa-tion of the employer mandate and a completeoverhaul of Medicaid, must take initialpriority over other recommendations in thispaper.

But in our view, it is unconscionable for theadministration and Congress to delay anylonger on moving forward to end separateand unequal health care.

Let’s get the job done-now.


Key Access Proposals inSuggested Order of PriorityFor Resource Allocation

Make interim improvements in Medi-caid eligibility, benefits and reim-bursement to expand access for thepoor and near-poor.

,,‘ .s”& Require all employers to provide

.:a s. w health insurance to their employees,institute reforms in the market forhealth insurance, and implementprograms to provide special assis-tance to small businesses to reducethe cost of providing such insurance.

/ :^ Implement measures to expand: availability of private long-term care

insurance.

ii

1 * :2, Establish new federal benefits for: long-term care.

i 5 ” Establish “Health IRAs” as a supple-mental source of financing for medi-cal and long-term care expenses.


M

Available Annual Cost EstimatesFor Key ASIM Access Proposals(In billions of dollars)

Public

Expand Medicaid eligibility, benefitsand reimbursement (without concurrentemployer mandate)

Expand Medicaid eligibility, benefitsand reimbursement (with concurrentemployer mandate)

Require employers to provide health insurancel Mandate that all employers provide

basic benefit packagel Provide subsidy to small businessl Provide 100% tax deductibility for

health insurance purchases by self-employedand unincorporated

l Establish regional insurance program

Create new federal benefit for long-term care

Enact legislation to establish “Health IRAs”

$ 20 -36.05

5.2 - 23.4

0.6 - 8.4

1.3

16 - 42.8

7.9

Employers

$ 18-33

(0.6 - 8.4)*

(1.3)’

(4.8)*

* F igures in paren theses ind ica te sav ings .

Sources: Health Policy Agenda for the American People; Pepper Commission Findings, Objectives and Recommenda-t ions; Report and Background Informat ion on the Basic Heal th Benef i ts for Al l Americans Act ; and Congress ionalBudget Office Estimates on Long-Term Care Assistance Act of 1988 and “Health IRAs.” See text and endnotes forde ta i l s on assumpt ions under ly ing cos t es t imates .


ENDNOTES

1 . Monhcit, Alan C. and Pamela Farley Short,“Mandating Health Coverage for WorkingAmericans,” Health Affairs, Winter 1989.

2 . American Medical Associat ion, Health AccessAmerica, February 1990.

3 . U.S. Bipartisan Commission on Comprehen-sive Health Care (The Pepper Commission),Access to Health Care: Findings and Objectives,Sept. 28‘1989.

4 . Fuchs, Beth C., “Mandated Employer Pro-vided Health Insurance,” Congressional Re-search Service Issue Brief April 3,1989.

5 . Monhc i t and Shor t , “Manda t ing Hea l thCoverage for Working Americans.”

6 . Fuchs, “Mandated Employer-Provided HealthInsurance.”

7 . Monheit and Short, “Mandating HealthCoverage for Working Americans.”

8 . Danzon, Patricia M. and Frank A. Sloan,Vanderbilt Institute, Covering the Uninsured:How Much Would It Cost?, 1987

9. Ibid.

1 0 . Short, Pamela Farlcy, Alan C. Monheit andKaren Beauregard, Department of Health &Human Resources, “A Profile of UninsuredAmericans,” National Medical ExpenditureSurvey, Research Findings I, September 1989.

11. Ibid.

12. Fuchs, “Mandated Employer-Provided HealthInsurance.”

13. U.S. Bipartisan Commission on Comprehen-sive Health Care, Access to health Care:Findings and Objectives.

14. Committee on Labor and Human Resources,Report on Basic Health Benefits for all AmericansAct (Report lOl-217), Nov. 20,1989.

15. Committee on Labor and Human Resources,Background Information on the Basic llealthBenefits for All Americans Act of 1989 , Apr i l 12 ,1989.

16. U.S. Bipartisan Commission on Comprehcn-sive Heal th Care , “Access to Heal th Care andLong-Term Care for All Americans,” Recom-mendations to Congress, March 2, 1990.

1 7 . Committee on Labor and Human Resources,Background Information on the Basic llealthBenefits for All Americans Act of 2989.

18. Ibid.

19. Ibid.

20. Fuchs, “Mandated Employer-Provided HealthInsurance.”

2 1 . ICF, Inc. , Uni ted States Small Business Admini-strat ion Office of Advocacy, Health Care Cover-age and Costs in Small and Large Businesses: FinalReport, 1987.

2 2 . Lewin, John C., MD, Testimony before theCommittee on Labor and Human Resources onthe Basic Health Benefi ts for All Americans Act1989, June 23,1989.

2 3 . Committee on Labor and Human Resources,Report on the Basic Benefits for All Americans Actof 1989, Nov. 20, 1989.

24. Committee on Labor and Human Resources,Background Information on the Basic HealthBenefits for All Americans Act of 1989, April 12,1989.

25. Congressional Research Service, Insuring theUninsured : Options and Analys is , Uni ted Sta tesGovernment Printing Office, Washington,1988.

26. The Honorable Doug Walgrcn, ‘Testimony onH.R. 2649,” Congressional Record, June 14, 1989.

2 7 . Office of Rep. French Slaughter, Personal Com-munication, March 1990.

28. Monheit and Short, “Mandating HealthCoverage for Working Americans.”

29. Committee on Labor and Human Resources,Background Information on the Basic 1IealthBenefits for All Americans Act of 1989, April 12,1989.

30. Ibid.

3 1 . Thorpe, K. E. , J . E. Siegel , and T. Dailey,“Including the Poor: The Fiscal Impacts ofMedicaid Expansion,” /ourml of the AmericanMedical Association, Vol. 26, No. 7 (Feb. 17,1989).

32. Committee on Labor and Human Resources,Report on the Basic IIealth Benefits for All Ameri-cans Act of 1989.

33. U.S. Bipartisan Commission on Comprchen-s ive Heal th Care , “Access to Health Care andLong-Term Care for All Americans.”

34. Thorpe, Siegel and Dailey, “Including the Poor:The Fiscal Impacts of Medicaid Expansion.”

35. Ibid.

36. Physician Payment Review Commission, “Phy-sician Payment in the Medicaid Program,”March 1990.

37. Thorpe, Siegel and Dailey, “Including the Poor:The Fiscal Impacts of Medicaid Expansion.”

38. PPRC, “Physician Payment in the MedicaidProgram.”

39. U.S. Bipartisan Commission on Comprchcn-


s ive Hea l th Care, “Access to Heal th Care andLong-Term Care for All Americans.”

40. Thorpe, Siegel and Dailey, “Including thePoor: The Fiscal Impacts of Medicaid Expan-sion.“

41. PPRC, “Physician Payment in the MedicaidProgram.”

4 2 . U.S. Department of Health and HumanServices , “Repor t to Congress and theSecretary by the Task Force on Long-TermHealth Care Policies,” Sept. 21,1987.

43. U.S. Bipartisan Commission on Comprehcn-sive Heal th Care , “Access to Heal th Care andLong-Term Care for All Americans.”

44. lbid.

4 5 . Sen. George J . Mitchell , Statement on theIntroduction of the Medicare Long-Term CareAct, 1988, April 21,1988.

46. The Gallup Organization for Employee BenefitResearch Ins t i tu te , June 1989.

4 7 . “Health Care Rationing through Inconven-ience: The Third Par ty’s Secre t Weapon,“ NewEngland Journal of Medicine, Vol. 321, No. 9(Aug. 31,1989).

4 8 . Hershey, Charles O., MD, Margaret H.McAloon, MD, and Dennis A. Bcrtram,MD,MPH, ScD, ‘The New Medical PracticeEnvironment: Internists’ View of the Future,”Archives of internal Medicine, Vol. 149, August1989.


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Ending Separate and Unequal Health Care€¦ · health insurance more affordable: ... deductibles, and copay-ments) under the public plan, with the level contribution and cost-