Health reform deal, circa December 2010

One thing about health policy blogging is that if you do it long enough, your bell bottoms come back into style. Me, two blogs ago on a political deal using the ACA as a start, published December 16, 2010. Reprinted below in full.


While the rhetoric around health reform has been incendiary from day one, in policy terms, a compromise between Democrats and Republicans using the outline of the Affordable Care Act (ACA) has always been available. The two primary problems with the health care system are costs and lack of coverage. The ACA does pretty well on the second, and is a start on the first, but much more is needed. It will be very hard to get a handle on health care costs, and we will likely only succeed in doing this if both parties are on board.

This is what a deal to move ahead could look like.

  • Replace the individual mandate to purchase insurance with guaranteed catastrophic coverage that is universal. I suggest individual caps of $10,000/family $15,000. I would do this via Medicare because it is simple, and could be implemented quickly. Others have suggested new federal initiatives that would provide catastrophic coverage; it is surprising to me that conservatives would want a new federal apparatus to implement this, but I follow the logic of their wanting to focus on catastrophic coverage. I would gladly trade true universal, catastrophic coverage for slowly creeping up on universal coverage with more comprehensive benefits. This allows progressives and conservatives to get what they most want: universal coverage and catastrophic, instead of first dollar coverage, respectively.
  • End the tax exclusion of employer paid insurance. This is easily the most consequential policy that we could undertake to slow cost inflation in the private market. The Deficit Commission suggested this. It has long been a mainstay of Republican health care plans, like Sen. McCain’s, and the Patients’ Choice Act, the most comprehensive Republican bill submitted in the last Congress (but never scored by CBO). The tax on high cost insurance that is in the ACA (delayed by the reconciliation bill until 2018) is a back door way of achieving the same policy goal of slowing cost inflation. It would be better to cap this tax subsidy in a more straightforward manner and to do so sooner rather than later. It will take both sides to take this politically difficult step.
  • Set up insurance markets for coverage underneath the catastrophic cap. Some would stick with the catastrophic level of insurance, others would want more coverage. People should buy this insurance with after tax dollars; employers could arrange such cover but the premiums they paid for workers would be taxable as income. I think you would expect employer involvement in insurance to decrease over time, which I think would be good. We could have income-based premium support. States could be given broad discretion in setting up these markets. There are many details to work out, but the parties should be able to do so if they can agree on the goal of helping people shop for insurance.
  • Medical Malpractice reform. Our current malpractice system does almost nothing well. I always thought the route to the deal went through malpractice reform. The Republicans could have gotten quite a lot on this after Scott Brown’s victory last January, and they missed an opportunity to advance a long term interest of theirs given that the ACA passed. However, they thought they could kill it, and preferred that to moving ahead on this issue. Politics aside, there are good policy reasons to have malpractice reform, especially if we can use that opportunity to develop a comprehensive quality improvement approach that is hard to develop in the midst of an adversarial malpractice system. I think the cost savings of malpractice reform are real but overstated, but there are many reasons to move ahead in this area.
  • Transition Medicaid. Medicaid is now essentially two programs: Acute Care Medicaid, which covers mostly pregnant women and children, and with the ACA adults up to 133% of poverty. Long Term Care Medicaid, which pays for long term care services (nursing homes) for elderly and disabled persons. The acute care portion of Medicaid could be transitioned into premium support to allow persons to buy private coverage underneath the catastrophic cap. This would mainstream these folks. States could decide what extra help and services such low income people might need; some states might prefer to keep Medicaid as the provider of underneath cover. The long term care portion of Medicaid would remain unchanged as these persons are the amongst the most vulnerable members of society.
  • Medicare purchasing. The Independent Payment Advisory Board (IPAB) set up by the ACA could play an important role is addressing health care cost inflation if it implemented, and particularly if it is expanded as suggested by the Deficit Commission. Most interestingly, the first suggestion of such a Board during 2009 was made by Republicans: The Patients’ Choice Act (PCA) was introduced on May 20, 2009, around one month before the House of Representatives passed any of their reform bills. Republicans criticizing the IPAB have conveniently forgotten that the PCA proposed a similar commission that would apply cost effectiveness research and use this to make coverage decisions. Co-sponors of the PCA include Rep. Paul Ryan and Sen. Tom Coburn, leading conservatives in the Congress (and my senior Senator, Richard Burr). Of course, Rep. Ryan is the incoming chair of the budget committee, a key health care committee. We have got to be able to ask hard questions about what we pay for, when and how in the Medicare program. The existence of the IPAB in the ACA is an example of a Republican-initiated idea being folded into the final bill. Again, we will only be able to do the hardest things if both parties work together.

The Democratic party invested much political capital and time to pass the ACA. The Republicans have talked about many of the ideas above over the years, but it is worth remembering that they passed none of this when they controlled both Houses of Congress and the White House from 2002-2006. No federal bill to expand insurance purchase across state lines; no medical malpractice reform; no changing of the tax treatment of employer paid insurance. Now that they control the House of Representatives, I hope they will work to pass some health reform legislation, and thereby continue the health reform discussion that is needed if we are to ever develop a sustainable health care system.

About Don Taylor
Professor of Public Policy (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute), and Chair of the Academic Council at Duke University . I am one of the founding faculty of the Margolis Center for Health Policy. My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

8 Responses to Health reform deal, circa December 2010

  1. Bob Hertz says:

    Let me respond to the first two ideas here…..thanks for presenting them (again)!

    1. Universal catastrophic coverage under Medicare

    A great concept, but what would it cost?

    Let me take a stab at the cost.

    200 million people would be covered (all the employed plus the uninsured plus their families)

    Say that in any given year, 3% of this group have a serious illness. That is 6 million cases.

    Say that the average bill is $30,000. With a $10,000 deductible, that means $20,000 for the new plan to pay.

    That totals $120 billion a year. About a 2% increase in the payroll tax would cover this.

    Leaving two questions:

    – am I even close on the cost?

    – how to deal with the usual hysteria about a “1.2 Trillion tax increase over 10 years?”

    2. Ending the tax free treatment of employer premiums

    I have never quite followed how this would lower the cost of health care.

    Why would a hospital or clinic lower their prices by a dollar, just because an employee is being taxed on their employer contributions?

    I could be missing something here.

    What does concern me is that if employees were taxed on employer paid contributions, this would be a ‘phantom tax’, i.e there is no income left over. Like the property taxes on your house.

    Say that 50 million families who have good employer plans suddenly have to take $12,000 apiece as taxable income. That is an extra hit of about $250 a month to their family budgets.
    Wouldn’t that cause a recession? Wouldn’t restaurants and health clubs be closing left and right?

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