The Health-Care System Needs Strong Medicine
By Robert Kuttner
Corporate benefits managers are reeling from the latest premium hikes, even as the number of uninsured Americans sets a new record. In the 2004 Presidential campaign, George W. Bush and John Kerry, in very different ways, will try to square a policy circle -- attempting to simultaneously expand coverage and contain costs.
For President Bush, market incentives serve both goals. Bush's recently enacted Medicare revision, for instance, offers new drug benefits, but with extensive out-of-pocket payments. This strategy limits government's cost and, presumably, creates incentives against overuse of expensive medicines. The Administration also relies on voluntary discounts by the pharmaceutical industry. It not only rejects price controls but explicitly prohibits Medicare from negotiating volume drug discounts. The law also creates incentives to encourage seniors to switch from conventional Medicare to managed-care plans, on the premise that competition will increase efficiency. It dramatically expands tax-advantaged medical savings accounts. President Bush proposes additional tax credits to subsidize the purchase of individual or small-group policies.
BY CONTRAST, JOHN KERRY WOULD OVERHAUL Bush's Medicare drug program. He'd find the money to pay for better drug coverage by restraining drug prices. Kerry supports public Medicare and opposes converting it into a system of vouchers. He would add a novel federal "stop-loss" reinsurance program to secure employer-provided insurance: If annual medical expenses exceeded $50,000 for any person insured by a qualified plan, the government would share the costs.
Kerry vows to raise the percentage of Americans covered by health insurance to 96% by allowing uninsured people to buy into the Federal Employees Health Benefit Program (or a pool just like it) and by expanding programs such as Medicare. By insuring more Americans, Kerry hopes more patients can be treated more efficiently -- in health plans rather than hospital emergency rooms, and in early treatment of diseases rather than costly interventions for the acutely sick.
Unfortunately, neither candidate quite comes to grips with the underlying forces driving health costs higher. Expenses are inexorably rising for three basic reasons. First, people are living longer, and oldsters consume more health dollars. Second, medical technology keeps finding ways to keep us alive. Third, health care can't get major productivity gains because it is a labor intensive enterprise. Some favorite remedies, such as malpractice reform and more consistent national application of the most appropriate medical practices, could help restrain some costs. But absent more fundamental reform, the most likely source of cost reduction for employers, insurers, and government alike will be shifting the burden to individuals. Employer-provided insurance is already shifting costs at an alarming rate. As the Medicare and Medicaid budgets come under increased stress, fiscal pressure will mount to cap the government's costs, too.
In reality, most people who lack adequate health coverage can't afford it at prevailing prices. Bush's proposed health tax credit would cover only $1,000 of the cost of a decent family policy ($6,000 to $9,000), just as his Medicare drug program leaves very sick people paying about 50% to 75% of the cost of their medications. His health savings account requires insurance plans with high deductibles, which undermines the goal of preventive care. These "market incentives" aren't much help. Indeed, marketization can exacerbate the problem if it encourages insurers to fragment the risk pool and maximize profits by discriminating against people likely to get sick.
Kerry would actually deliver some expansion of coverage. Even so, allowing people on modest incomes access to the excellent Federal Employees plan isn't much use to families that can't afford the premiums. Absent stronger medicine (such as mandatory employer coverage or a universal, single-payer system), government incentives to employers or tax credits to individuals won't solve the problem. Advocates of universal coverage contend that only by putting everyone in the same risk pool -- and reducing the hundreds of billions of dollars that go to marketing, claims processing, and profit -- can we afford both to contain costs and cover the entire population. At the same time, however, society just can't afford to give every patient every possible treatment. That's a reality that no one wants to face.
Robert Kuttner is co-editor of The American Prospect and author of Everything for Sale.