The Commonwealth Fund’s Plan for Universal Coverage

Last week the Commonwealth Fund published a proposal for a “High-Performance Health Care System” that is ambitious, and admirably honest. Unlike many health care pundits, the lead author, Cathy Schoen, understands our Byzantine health care system from the inside out. As a result, she does not try to paper over the complexities, inefficiencies and inequities of U.S. health care.  She acknowledges them as she struggles to make an irrational system rational.

The Commonwealth Fund’s 90-page report deserves a close reading. But before I begin to analyze it, let me stress that whatever objections I may raise about the Commonwealth proposal only illustrate just how hard it is to devise a plan that will deliver high quality, affordable, sustainable health care to all Americans.

There is much to like about the High-Performance Plan. First, in contrast to many proposals that I have read, the Commonwealth Fund does not fudge the numbers. Nor does it pretend that comprehensive universal health insurance would somehow magically make the whole system more efficient and less prone to inflation. As a result, this report makes it clear than any reformer must face some extraordinarily difficult tradeoffs.

The report confronts many of those tradeoffs. For instance, it recognizes that a speedy roll-out and a high quality health care system are incompatible. Putting a “high-performance” plan in place will take time. “It is urgent to start now,” Schoen explains because “it will take leadership and bold steps to move over the next decade toward a health system that achieves better access, quality, and value in return for our investment. Like President Obama, the Commonwealth Fund it targets full coverage by 2012.

Secondly, the plan recognizes that health care reform will not pay for itself. At the outset, we will have to find funds:

• To raise reimbursements for Medicaid providers to Medicare levels. Today, physicians who care for poor patients are paid much less, which explains why Medicaid patients often cannot find good care. Under the Commonwealth plan, the federal matching rate would be hiked to offset state costs.
• To raise payments to primary care doctors, family practitioners and pediatricians. (Reimbursements to some other specialists would be sliced. )
• To provide financial incentives that will encourage physicians to join together in larger groups where they can collaborate, and co-ordinate care. As the chart below, reveals, too often physicians working in separate silos fail to communicate with each other, a problem which can easily lead to missed diagnoses.

• To provide subsidies to those who cannot afford insurance.  Everyone  who does not qualify for Medicaid or SCHIP would be required to buy insurance, but premiums for individuals in the lowest two tax brackets would be capped at 5 percent of income.  The government will pay any amount over 5 percent. Those in higher income brackets would be expected to pay as much as 10 percent of income for care. (Employer-based coverage would still be available; if an employer continues to subsidize coverage, high-income individuals would pay much less.)

Finally, and most importantly, the Commonwealth report is very candid in acknowledging that unless a low-coast public sector insurance plan is available as part of the mix, we just cannot afford universal coverage.  

A Two-Tier System

Over at GoozNews, Merrill Goozner reports what Schoen told him about the need for a public sector alternative: “When  the Fund's Commission on a High Performance Health Care System looked at alternatives without including a public plan,”  they “concluded [that[] broad-based availability of a public health insurance option to run alongside private plans was necessary for universal coverage at affordable rates.”

This is, in part, because a public sector plan like Medicare spends less on administration—just 5 percent of the dollars Medicare receives are needed to cover paperwork and salaries. By contrast, Schoen points out, insurance industry overhead (which includes advertising, lobbying, high executive salaries and profits for shareholders) devours 15 percent of the premiums that for-profit insurers take in.

But, the report reveals, this is not the only reason why a public-sector plan would be less expensive. It also would save money by using “Medicare provider payment rates.”  Today,  Medicare pays physicians less than most private insurers. While the Commonwealth Fund’s High-Performance public sector plan would raise payments for primary care physicians, family doctors and pediatricians, it would lower reimbursements for many specialists, particularly those practicing in regions of the country where research suggests that excess capacity (of doctors and hospital beds) leads to overtreatment.

The report is both clear and candid on this point: “The modeling estimates that premiums for the public plan would be at least 20 percent below a comparable benefit package for those insured through fee-for-service insurance plans in private individual and group markets. This advantage comes from a lower share of the premium for administrative overhead and the effect of lower provider payments."

There’s the rub. As the chart below illustrates, the Commonwealth High Performance Plan creates a two-tier system, with premiums significantly lower in the public sector plan.  Patients in the public sector plan would be guaranteed “a minimum level of benefits,” but in many cases, the doctors who treat them  would be paid less. As a result, patients who choose the public sector plan might well have a hard time finding physicians willing to take their insurance.

If premiums under the Commonwealth Fund’s public-sector plan are going to be 20 percent lower, this suggests that half of the savings comes from lower administrative costs (5 percent versus the 15 percent that private insurers spend on administration equals savings of 10 percent) and half from paying providers less (the other 10 percent that brings premiums down by 20 percent.).

Meanwhile,  Schoen observes, the more expensive private insurance plans would enjoy “ the flexibility to establish more integrated care networks and a variety of payment policies. “  Thus, “by focusing on quality and value—the private plans could compete with each other and outperform the public plan, if they innovate.”

The Commonwealth Fund report is not trying to hide anything.   The private plans would  have the funds needed to pay providers more and  create “integrated networks,” overcoming some of the fragmentation that leads to errors in our health care system. Quite simply, they would be able to offer better care.  As I have warned in the past, “universal coverage” does not necessarily mean equal access to safe, high quality care.

Where the Public-Sector Plan Cuts Spending

The public sector plan would discourage overuse of high-priced treatments by “requiring that overvalued services (defined as the 100 fastest-growing procedures) be subject to prior authorization to be eligible for Medicare payment." This follows MedPAC’s recommendations in its March 2006 Report to Congress suggesting that Medicare identify overvalued services and revise payment for those services. They would also slow the growth of spending for technical procedures --  "expensive diagnostic tests, and specialized care in cases where increasing volume has driven up total spending.”

Let me add: this could easily lead to better care. More expensive care is not necessarily better care. Overtreatment hurts patients.  Still, patients in the lower tier would not be happy about going through a gate-keeper.

The public sector plan also would zero in on geographic areas where more than two decades of research done by medical experts at Dartmouth (www.dartmouthatlas.org)  shows that Medicare spends more—after adjusting for differences in local prices, age, race and the underlying-health of the population. As the Commonwealth Fund report observes:“In Miami, Florida, Medicare spending per enrollee was $14,359 in 2005, while in Rapid City, South Dakota, it was $5,281.”   Yet outcomes were no better; sometimes they were worse.

“To encourage more prudent use of resources particularly in high-cost areas, [annual]  payment updates for all providers in each year would be based on total Medicare spending per beneficiary in each area relative to the national median,” the Commonwealth report explains.  “The update in each area would be adjusted to reflect the percentage difference between Medicare spending per beneficiary in the region and the national median, with the full update being applied for providers in low-cost areas (those with costs below the median), no update for providers in areas with very high costs (those with costs at least 20 percent above the median), and reduced updates (according to a sliding scale) for other areas with high costs (less than 20 percent above the median). “

If doctors in Boston and Florida learned to practice medicine the way physicians practice it in Minneapolis and Boise, Idaho, they could see their reimbursements rise:  “The update adjustments would be recalculated each year, based on the most recent data on Medicare spending per beneficiary, “ the report explains, “so that areas that improve their costs relative to the national median can improve their payment updates over time. This policy would reduce national health spending, relative to currently projected levels, by an estimated $223 billion through 2020.”

Keep in mind that the high-spending regions include most of the Northeast corridor that extends from Massachusetts to Texas. How would physicians in these areas react if the public sector plan stopped giving them pay increases to cover inflation?  My guess is that many would refuse to take patients on the public-sector plan.  Thus, efforts to make universal coverage affordable clash with efforts to provide equal access.

On the other hand, does it make sense to ask patients in Minneapolis to pay higher premiums to cover overtreatment in Manhattan, Boston or Dallas.?  It’s hard to argue with the Commonwealth Fund’s recommendation--especially since that overtreatment often hurts patients.

That said, I very much doubt that Congress would pass a health care plan that penalizes physicians practicing in health care’s gold coasts. Legislators from these states—and the doctors themselves –are just too powerful.

More importantly, excellent doctors in these regions who practice the most conservative evidence-based medicine would be subject to the same penalties.

But it is possible that health care reform will lead to a two-tier system and that doctors will be paid less under the public-sector plan.  As Ezra Klein reported this afternoon on the American Prospect:

Earlier today, “CBO’s new Director, Doug Elmendorf, told the Senate Finance committee that designing a system where the public plan could compete on a level playing field with private plans is extremely difficult .We are wrestling now with how we'd model proposals to do that. Provider payments are one issue.  . . .It's true that if a public plan pays lower provider payments than private plans, than that will be a leg up for the public plan. But that's not the only way."

Klein points out: “It's an interesting admission: Elmendorf and his team don't even know how to model certain key issues in the debate.” In other words, even if they faced no opposition, administration insiders are far from having solved some of reform’s thorniest challenges."

“Pat Roberts dug into this, “ adds Klein, quoting Roberts: "’CBO does more than just estimate the cost of our policies. It guides policy. And insofar as it tries to predict people's reactions to our policy changes, it's almost impossible. I think we all appreciate that trying to [assess] the effects of policy changes in the complex world of health care is very challenging. And I'd like to suggest as fact that the enormous difficulty estimating the effects of our actions and the unintended consequences of our policies is just one of the many good reasons that we should act with tremendous restraint as we wade into these policies. I said wade, but I think we are in fact diving headlong into a foot deep pool.’

“Elmendorf agreed.”

All of this confirms what the president in his speech to Congress: "I suffer no illusions that this will be an easy process. It will be hard.”