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On the Road to a High Performance Health System: Changing Course and Making History


Thank you for this opportunity to present my assessment of the urgent need for health care reform. President Obama has made a forceful case for health reform, stressing the imperative of action on the goals of ensuring stability and security of health insurance coverage for those who have it, providing insurance for those who don't, and slowing the rise in health care costs for employers, families, and government. He set forth a pragmatic plan, building on what works and fixing what doesn't, while signaling his openness to the best ideas from all. Congress has taken unprecedented steps toward passing comprehensive reform that achieves these goals and moves our system down the path to high performance. As the President stressed, after a century of inaction, now is the season to act and failure is not an option. It is too important to those who are harmed by our inadequate insurance system, too important to our economy, and too important to our character as a country.

This forum is aptly titled the "Urgent Need for Health Care Reform." The urgency of action on health reform is compelling in both human and economic terms. Our health care system is at a breaking point, with the uninsured facing extraordinary hardships, small businesses struggling to overcome competitive disadvantages, and taxpayers saddled with unsustainable burdens.

Last Thursday, the Bureau of the Census released the latest data on the number of Americans without health insurance. The number of uninsured individuals rose from 45.7 million in 2007 to 46.3 million in 2008. This increase of 0.6 million uninsured would have been much worse without an offsetting growth in government-provided insurance that brought coverage to 4.4 million people, including a 3.0 million under Medicaid. The latest data show the importance of the nation's safety-net insurance system—Medicaid and the Children's Health Insurance Program (CHIP). The major bright spot in these new data was the fact that the rate of uninsured children is at its lowest since 1987—9.9 percent. Still, more than 7.3 million children remain uninsured, highlighting the importance of Congress's reauthorization and expansion of the CHIP program earlier this year—an action that covered 4 million more uninsured low-income children.

The high cost of health care in the United States—higher than anywhere else in the world and rising faster than our gross domestic product—is taking its toll on families, employers, and government. U.S. health care spending is more than twice the per-person spending of other major industrialized countries, with costs projected to continue to rise rapidly over the next decade. Health care already consumes 17 percent of the nation's economy and will reach 21 percent by 2020 if trends continue. With increases regularly exceeding economic growth, ever-higher health spending has directly contributed to stagnating or declining incomes for middle-class families and workers. Health insurance premiums have risen from 11 percent of family income in 1999 to 18 percent today. If we continue on our current course, they will reach 24 percent by 2020.

Nor are we receiving value for what we are spending. The nation is now in last place, behind 18 other high-income countries, on "mortality amenable to health care before age 75"—in other words, deaths that are potentially preventable with timely, effective health care or early efforts to screen and prevent the onset of disease. Too often, we as a nation fail to lead on health outcomes or care experiences: compared with many other advanced countries, U.S. adults are far more likely to report medical errors that result from delays in hearing about diagnostic tests, to encounter duplicative care or coordination gaps, and to lack rapid access to primary care or care after hours. We must change course.

Goals of Health Reform and Congressional Action
The goals of health reform are: 1) to ensure the stability and security of health insurance coverage for those who have it; 2) to provide insurance for those who don't; and 3) to slow the rise in health care costs for employers, individuals, and government.

Impact of Insurance Provisions
The health reform provisions in H.R. 3200 as amended would go a long way toward fixing our broken health insurance system. Consistent with the priorities outlined by the President, the leading congressional proposals, including HR 3200, aim to provide near-universal health insurance by building on the strongest aspects of the existing insurance system—the large-group market and Medicaid and CHIP—and by strengthening the weakest parts of the existing system—the individual and small-group markets—where so many individuals and small businesses face the insurmountable obstacles of medical underwriting, high premiums, astronomical administrative costs, and uncertainty regarding their benefits. 

  • The Congressional Budget Office (CBO) estimates that the House bill would reduce the numbers of uninsured by 37 million, leaving about 17 million nonelderly residents uninsured. 
  • Employer-sponsored insurance under the House bill will remain the primary source of insurance for most families, covering 60 percent of the population, or 166 million people. 
    The CBO estimates that about 30 million people, or 11 percent of the under-65 population, will gain coverage through the health insurance exchange by 2019. 
  • Coverage through the Medicaid program would rise by about 9 million people by 2015, and by 11 million by 2019. 
  • The establishment of insurance market rules, creation of the insurance exchange, and an essential-benefit package, and the provision of sliding-scale premium and cost-sharing assistance would help those Americans who are most adversely affected by the current health system. Health status would no longer affect one's ability to get coverage with a reasonable premium. The shared responsibility of employers to contribute 72.5 percent of health insurance premiums of workers (65 percent for families) would go a long way to making the employee shares of premiums affordable. 
  • The sliding-scale premium and cost-sharing assistance for those in the exchange would make premiums and cost-sharing more affordable for lower- and moderate-income families. 
  • The stability of coverage would be improved as people lose or change jobs or experience changes in life circumstances. Most importantly, young adults who leave their parents' insurance policies, widowed or divorced spouses who lose their coverage obtained through a family member, people who lose their job, and adults forced into early retirement by disability or a serious health problem—all would have a place to turn to find affordable coverage.

In short, these key House provisions would ensure that no one becomes bankrupt from ruinous medical bills or struggles to pay medical debts arising from a serious illness.

Impact of System Reform Provisions
To achieve a high performance health system, health reform proposals must go beyond ensuring affordable coverage to address health system changes that will improve health outcomes and the quality of health care, increase efficiency, and slow the growth in total health system costs. The House bill includes key provisions for: investing in primary care; replacing the current Sustainable Growth Rate (SGR) formula for updating physician fees; adjusting for geographic variations; piloting rapid-cycle testing and innovative payment methods, including medical homes, accountable care organizations, and bundled hospital payments; providing a choice of private and public plans; containing costs, including those in the Medicare program; limiting premium increases in the insurance exchange; and fostering quality improvement. These provisions, in combination with those in the American Recovery and Reinvestment Act of 2009, would enhance the value obtained for health spending and set in motion reforms to slow the growth in health care costs over the long term. Specifically:

  • Investments in primary care, pilot programs to test new payment methods, and using the purchasing leverage of Medicare and a new public health insurance plan to slow health care spending growth would all help bend the health system cost curve over the long-run. Annual productivity improvements of one percentage point a year are assumed to be possible for providers to achieve, given the reductions in bad debt and charity care and given the opportunity to share in the savings gained from preventing avoidable hospitalizations and hospital readmissions, controlling chronic conditions, and eliminating ineffective and duplicative care. 
  •  The House bill emphasizes the importance of prevention and wellness by eliminating any cost-sharing for preventive services in Medicare and increasing Medicare payments for key preventive services. 
  •  Additional Medicare spending would come from resetting the SGR formula for updating physician fees—$245 billion over the period 2010 to 2019 (including interactions with other provisions). Major new savings come from the productivity improvement requirement and other changes in provider payment updates ($200 billion) and correcting Medicare Advantage payment rates ($172 billion). 
  •  The net effect would be $448 billion of savings before the revision of the SGR formula, and $219 billion after making this adjustment. Including the SGR payments in the baseline projection yields an 8.0 percent annual growth rate in federal health expenditures over the 2010–2019 period, up from 7.6 percent under current law. Applying the other net savings would bend the Medicare spending cost curve and reduce the annual growth rate to 7.3 percent. 
  •  The House bill would also affect trends in total health system spending. Important provisions include the creation of the insurance exchange and insurance market rules, such as minimum medical-loss ratios for plans. Administrative overhead in individual-market plans, now averaging 40 percent and 15 to 35 percent in small-business plans, would fall to 12 to 14 percent within the insurance exchange. 
  •  The House bill seeks to limit the rate of premium increases and calls for a review of any health plan participating in the exchange whose premium increases exceed 150 percent of the medical inflation rate. Private insurance premiums more than doubled over the last decade, and they are projected to double again by 2020. If premiums had increased annually at even 150 percent of medical inflation from 1999 to 2008, family premiums would have been $2,600 lower in 2008. Our studies indicate that slowing premium growth by 1.0 percentage points annually would save $2,571 in 2020 family premiums; slowing it by 1.5 percentage points, as pledged by an industry coalition, would save $3,759 for the average family in 2020. 
  •  CBO estimates that a public plan along the lines of that described in the Ways and Means bill would lower premiums by 10 percent, enrolling about 10 million people. Based on analysis of a plan similar to that in the Ways and Means bill, with a public health insurance plan paying providers at an intermediate rate between Medicare and commercial rates, total health spending would be slowed from an annual rate of 6.5 percent to an estimated 5.6 percent.

Financing Health Reform

The CBO estimates that the cost of providing sliding-scale assistance with premiums and cost-sharing ($773 billion over the 2010–2019 period), expanding Medicaid ($438 billion), and assisting small businesses ($53 billion) would be offset in part by payments made by employers and uninsured individuals, so that the net federal budget impact would be $1.042 trillion over 2010–2019. The Joint Committee on Taxation estimates that new revenues in the Ways and Means bill, primarily increases in the marginal tax rate for upper-income families, would yield $587 billion over this period. Net payment and system reform savings, including the cost of revising the SGR formula, would save $219 billion, for a net impact on the federal budget of $239 billion over the 10-year period, and would be budget-neutral with the resetting of the flawed SGR formula.

It is important to consider that CBO has seriously underestimated savings and overestimated cost in the last three major health reforms. Given these inevitable uncertainties as new terrain is traversed, Congress may well want to establish a system for monitoring actual spending and savings over time. Certain actions or features of health reform could be conditioned on actual experience, rather than hinging totally on what is so inherently difficult to know in advance with any precision.

Areas for Further Consideration
The House of Representatives has fashioned a health reform plan that will fundamentally change our present course—that of rising costs and rising numbers of uninsured and underinsured Americans. Certainly, new ideas could be considered, either when shaping a final bill or as the legislation is implemented. Two areas for further consideration stand out:

  • the harmonization of public and private provider payment; and
  • the creation of an independent commission.

Moving Forward and Making History
Recognizing the plight of families facing an unraveling safety net of health insurance coverage, there is an urgent need to address the crushing burden of rising health care costs for both businesses and families. No one would argue that all of the benefits, costs, and consequences of health reform are known with certainty. What is known is that we cannot afford to continue on our current course.

What makes sense is committing to moving forward, carefully and thoughtfully phasing in reforms and measuring our progress in order to make any mid-course corrections that may be necessary. Implementation of a new insurance exchange and testing payment and system reform innovations may well call for additional steps as experience is gained and lessons are learned. Congressional oversight will be critical as health reform implementation proceeds. Congress should insist that the Administration establish a system for tracking performance on major health reform goals, with annual reports issued by the President and recommendations for taking any additional policy actions that are needed. If necessary, Congress can act in future years to modify reform, including phasing in various provisions more slowly or quickly, or adding additional safeguards or savings.

Congress has a historic opportunity to put our health care system on the path to high performance. Though moving in a new direction can be politically difficult, the comprehensive reforms developed by Congress will help spark economic recovery, put the nation back on the road to fiscal responsibility, and ensure that all families are able to get the care they need while having financial security.

The cost of inaction is high. With a clear path before us, the time has come to take bold steps to ensure the health and economic security of this and future generations. Health reform is an urgently needed investment in a better health system and a healthier and economically more productive America.

Publication Details



K. Davis, S. R. Collins, R. Nuzum, and C. Schoen, On the Road to a High Performance Health System: Changing Course and Making History,  Invited Presentation, Forum on the Urgent Need for Health Care Reform, U.S. House of Representatives Steering and Policy Committee, September 15, 2009.