New Proposals Would Share Responsibility for Insurance Coverage

Modern Healthcare has named Karen Davis one of their "25 Top Women in Healthcare."

Over the last year, state health coverage initiatives have been gathering momentum, spreading from Maine to California and inspiring other states along the way. Several pending congressional bills on health care reform, a proposal from the Bush administration, and growing attention to health insurance on the 2008 campaign trail all suggest that health care coverage is becoming a national priority as well. The issue is clearly on the minds of the voters: A recent New York Times/CBS News Poll found that a majority of Americans says the federal government should guarantee health insurance to every American. And people are willing to make tradeoffs for a better health care system, including paying more in taxes.

The Building Blocks of Coverage
Most of the state and federal plans are built upon the same foundation: the concept of "shared responsibility." This idea—proposed in Commonwealth Fund–staff authored publications, including the 2003 Health Affairs article, "Creating Consensus," and 2005 Inquiry article, "A Shared Responsibility: U.S. Employers and the Provision of Health Insurance to Employees"—posits that individuals, employers, and the state and federal government all bear responsibility for health insurance. The "Creating Consensus" framework for extended coverage entails:

  • an individual mandate with affordability of premiums ensured by premium subsidies for lower-income individuals;
  • a requirement that employers not providing health insurance to workers contribute $1 per employee, per hour worked, or 5 percent of payroll expenses, as well as expansion of employer group coverage to young adults up to age 23 under parents' health insurance;
  • a new purchasing pool for individuals and small businesses modeled on the Federal Employees Health Benefits Program, with community ratings and federal reinsurance;
  • State Children's Health Insurance Program expansions for all low-income adults with incomes under 150 percent of poverty; and
  • Medicare expansions to adults age 60 and older and elimination of the two-year waiting period for coverage of the disabled.

A new Commonwealth Fund analysis of congressional bills introduced over 2005–2007 and a Bush administration proposal to expand health insurance coverage found that many of these plans, with the exception of President Bush's proposal, incorporate the shared responsibility concept. For our analysis, we commissioned The Lewin Group to estimate the projected number of people who would become newly insured through them (assuming they went into effect in 2007) and their effect on stakeholder and health system costs.

Expanded Coverage and Controlled Costs
Both Representative Pete Stark's "AmeriCare" proposal and Senator Ron Wyden's "Healthy Americans Act" would cover nearly all uninsured and require employers and individuals to share in the cost. The two proposals differ in that Medicare would become the primary source of coverage for all Americans under Representative Stark's bill, while private insurance plans offered through regional purchasing pools (Health Help Agencies) would become the major source under Senator Wyden's bill. President Bush's proposal would cover 9 million uninsured mostly through the individual insurance market; 10 senators have written the president about their willingness to work with him on revising the proposal. More uninsured could be assisted if the tax deduction—the cornerstone of the president's proposal—were restructured as a refundable tax credit.

The Lewin Group found Representative Stark's AmeriCare bill would have increased federal spending by $155 billion in 2007. By comparison, Senator Wyden's Healthy Americans Act would have increased federal spending by $165 billion, but the tax revenue effect of the bill's requirement that employers cash out their health benefits in the first two years of the program would have dampened the increase significantly, to $24 billion in 2007. President Bush's bill would have initially increased the federal deficit by $70 billion in 2007, but would generate a surplus over 10 years given the indexing provisions. (The tax deduction is indexed to the Consumer Price Index, which historically has increased much more slowly than employer premiums; if past trends continue many more workers would be paying taxes on employer premiums that are in excess of the allowable tax deduction.)

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Despite increased federal spending, these plans manage to reduce overall health spending significantly. The Institute of Medicine, for example, estimates that individuals lose $65 billion to $130 billion in economic productivity as a result of poorer health and shorter lifespans due to a lack of insurance coverage.

The Wyden and Stark plans would reduce total health spending and administrative costs significantly. Representative Stark's AmeriCare bill would result in substantial overall health system savings relative to the other approaches: the bill was estimated to reduce national health expenditures by $61 billion in 2007. This difference stems primarily from large savings in the cost of administering health insurance under Representative Stark's bill. Insuring everyone under Medicare would spread risks across a large risk pool and bring Medicare's lower administrative costs per premium dollar to the full population.

Representative Stark's AmeriCare proposal is estimated to achieve additional savings by requiring the federal government to negotiate prescription drug prices with pharmaceutical companies, thus reducing national spending on prescription drugs by $34 billion in 2007. Medicare's provider payment rates generate another $62.4 billion in savings, offsetting a portion of increased provider revenues stemming from payment for care to those who are newly covered. The combination of lower administrative costs and lower provider payment rates under Medicare makes Medicare coverage very attractive to employers. When given the choice, most employers would purchase coverage for employees through Medicare, resulting in 97 percent of the population with Medicare coverage.

Senator Wyden's bill is estimated to reduce health spending by $4.5 billion. And it substantially reduces insurance administrative costs by creating large regional groups in which people would buy private coverage. Insurance administration costs are estimated to decline by $57 billion in 2007, though the savings would be offset somewhat by the costs of administering the new program.

Another national proposal of interest is presidential candidate Senator John Edwards's health plan. Senator Edwards's plan also embraces shared responsibility. It includes an individual mandate and calls for employers to either provide coverage to workers or contribute 6 percent of payroll expenses. In addition it would expand coverage under Medicaid and the State Children's Health Insurance Program. The plan would include sliding scale premium subsidies in the form of refundable tax credits to those who qualified, as well as offer regional insurance pools of competing private plans and a public plan like Medicare. Quality and efficiency reforms would be another component, with ratings for insurance plans, coverage of preventive and chronic care, and provider rewards for quality and efficiency. Funding for the plan would come from a repeal of recent tax cuts for those earning more than $200,000 and enforcement of the capital gains tax, as well as the employer payroll contribution.

Federal–State Cooperation
Health care reform is in the air this year. To take advantage of this energy, both state and federal governments will need to turn their attention to providing access to coverage through shared responsibility. The federal government should support the expansion of the successful State Children's Health Insurance Program, and provide some financial support to states mounting their own reform efforts—such as matching funds for coverage of low-income uninsured adults as well as children, another component of the Edwards plan. Likewise, the proposed federal solutions outlined above merit serious consideration. In so doing, the United States can ensure that like other industrialized nations it provides affordable high-quality health insurance to all.

As always, I'm interested in your feedback. Please e-mail me at kd@cmwf.org.

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April 2007



Written with the assistance of Christine Haran, web editor.

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