Economic Analysis

The prospects for reforming health care financing revolve around five questions: (1) Will Congress mandate universal coverage? (2) Will Congress require employers to pay most of the cost of employee coverage? (3) Will Congress authorize effective limits on health care spending? (4) What role should regional health alliances play in the reformed system? (5) How much change in health insurance arrangements can be implemented over the remainder of this decade? The author argues that the prospects are slight for quickly implementing reforms as sweeping as those that President Clinton has proposed. But prospects are good for beginning a process that will lead to universal coverage and effective cost controls. The key is the creation of regional alliances. All too often participants in the health care reform debate present “best” new systems, rather than “best” reforms of the system that exists. Rather than worrying about how to move from where we are now to where they would like us to be, such advocates pretend that it is possible to erase current arrangements and start afresh without cost. Such immaculately conceived visions fail because they do not recognize the enormous investment that the United States (and every other country) has in its current system. Creating wholly new arrangements entails wholesale changes in methods of paying for care, the relationships between patients and health care providers, and perhaps the organization of the delivery of care itself. In a country such as the United States literally billions of significant contractual and personal relationships would have to be altered as part of a move to a financing system fundamentally different from the one we have. The wrench of change is compounded if, as under the plan advanced by President Bill Clinton, a large cut in the use or price of medical services is the keystone to financing the new system. Such savings require massive income shifts, changes in practice patterns, or both. Except in cases of economic or military catastrophe, democracies seldom break so much china in the name of reform. Even parliamentary systems seldom make revolutionary changes when the population is sharply divided, although narrow pluralities can and sometimes do effect sweeping Henry Aaron is director of economic studies at The Brookings Institution in Washington, DC. He is author of Serious and Unstable Condition: Financing America’s Health Care (Brookings, 1991). on O cber 6, 2017 by H W T am H ealth A fairs by http://conealthaffairs.org/ D ow nladed fom 58 HEALTH AFFAIRS | Spring (I) 1994 reforms. Under the U.S. governmental system, in which minority interests can marshal1 numerous and powerful defenses to block major changes not supported by powerful and well-mobilized majorities, such change is inconceivable. The structure of U.S. health care problems compounds this political difficulty. Americans recognize the need to assure and extend insurance coverage. This step will cost money. But most reformers say that they also want a drastic slowdown in the growth of health care spending. If both goals are met, reform must inflict losses on some people, businesses, industries, and regions, as the gainers win resources that otherwise would have flowed elsewhere. Such shifts run afoul of the political law, peculiarly apt in this case, that Charles Schultze articulated, “Never be seen to do direct harm.” However, health reform must do some harm. To pay for extending benefits, one must either raise taxes, which is always politically difficult, or cut somebody’s income, which is politically insupportable under Schultze’s law, unless the somebody is shown to be a fool (“we are cutting waste”) or a knave (“we are slashing fraud and abuse”). I believe that recognition of these underlying forces helps one to interpret the various proposals for reforming the U.S. system of paying for health care and to make sense of the forthcoming debate. I focus here on the proposal President Clinton outlined 22 October 1993, but I comment briefly on other major proposals that will play a meaningful part in the debate. The President’s Plan President Clinton’s plan begins with a basically conservative political vision of building on rather than replacing the current system, but deviates substantially from it in execution. This vision recognizes that curbs on premium growth linked to limits on approved cost sharing and prohibition of balance billing can create the budget discipline that is largely missing from the current system. Unavoidable complexity. Although advocates of the Clinton plan would deny it, the vision behind the plan rests on an acceptance of the complexity of the current system. It does so because it forswears neat alternative program designs that would scrap the current system. In fact, the president’s conservative strategy increases complexity because his plan does not rely exclusively on any one of the three possible ways to achieve universal coverage but uses all three-an employer mandate to pay for insurance, an individual mandate to purchase insurance, and government provision of insurance through Medicare. To make the individual mandate for the self-employed and unemployed on O cber 6, 2017 by H W T am H ealth A fairs by http://conealthaffairs.org/ D ow nladed fom