《卫生经济学》课程参考文献：10.Victor R. Fuchs and Ezekiel J.Emanuel_Health Care Reform：Why What When What it might take to effect comprehensive change 2005

HEALTH CARE REFORM Health care Reform why What? When? What it might take to effect comprehensive change by victor R. Fuchs and Ezekiel J. Emanuel ABSTRACT: Dissatisfaction with the U. S health care system is widespread, but no consen- sus has emerged as to how to reform it. The principal methods of finance-employer-based insurance, means-tested insurance and Medicare-are deeply and irreparably flawed Policymakers confront two fundamental questions: Should reform be incremental or com- prehensive? And should priority be given to reforming the financing system or to improving organization and delivery? We consider here several proposals for incremental reform and three for comprehensive reform individual mandates with subsidies, single payer, and uni- versal vouchers. Over the long term, reform is likely to come in response to a major war, de- pression, or large-scale civil unrest Changes are Necessary, but what they Ought to be, what they will be, and how, and when to be produced -John Jay(787) HESE WORDS. WRITTEN ON THE EVE OF THE COnstitutional Conve tion, aptly describe U.S. health care in 2005. Most observers agree that re- form is necessary, but whether that reform should be incremental or com prehensive and whether changes in finance or changes in organization and delivery should receive priority are questions that must be answered. What are the options before the country? What are the obstacles to reform? What are the conditions that might make reform possible? Before addressing these questions, however, it is useful to review briefly why reform deserves urgent attention Why The United States Needs Health Care Reform The palpable symptoms of our"sick health care system"are described almost daily in popular print and broadcast media. Almost one of every six Americans have no health insurance, health care spending is escalating rapidly, administra- tive costs are excessive, and medical errors(including overuse and underuse of medications and procedures )are rampant. Less frequently discussed, but of fun- Victor Fuchs (fuchs @newage. stanford. edu) is the Henry Kaiser ] r. Professor Emeritus at Stanford University in Stanford, California, and a research associate at the National Bureau of Economic Research, also in Stanford Ezckiel Emanuel is chair of the Department of Clinical Bioethics, Warren G. Magnuson Clinical Center, National Institutes of health, in Bethesda, Maryland. HEALTH AFFAIRS Volume 24. Number 6 139 DO1 10 1377/hlthaff 24.6.1399 o2005 Project HOPE-The People-to-People Health Foundation,Inc

HEALT H CAR E REEOR M Health Care Reform: Why? What? When? What it might take to effect comprehensive change. by Victor R. Fuchs and Ezekiel J. Emanuel ABSTRACT: Dissatisfaction with the U.S. health care system is widespread, but no consen￾sus has emerged as to how to reform it. The principal methods of finance—employer-based insurance, means-tested insurance, and Medicare—are deeply and irreparably flawed. Policymakers confront two fundamental questions: Should reform be incremental or com￾prehensive? And should priority be given to reforming the financing system or to improving organization and delivery? We consider here several proposals for incremental reform and three for comprehensive reform: individual mandates with subsidies, single payer, and uni￾versal vouchers. Over the long term, reform is likely to come in response to a major war, de￾pression, or large-scale civil unrest. changes are Necessary, but what they Ought to be, what they will be, and how, and when to be produced are arduous questions. —John Jay (1787) T HESE WORDS, WRITTEN ON THE EVE OF THE Constitutional Conven￾tion, aptly describe U.S. health care in 2005.^ Most observers agree that re￾form is necessary, but whether that reform should be incremental or com￾prehensive and whether changes in finance or changes in organization and delivery should receive priority are questions that must be answered. What are the options before the country? What are the obstacles to reform? What are the conditions that might make reform possible? Before addressing these questions, however, it is useful to review briefly why reform deserves urgent attention. Why The United States Needs Health Care Reform The palpable symptoms of our "sick health care system" are described almost daily in popular print and broadcast media. Almost one of every six Americans have no health insurance, health care spending is escalating rapidly, administra￾tive costs are excessive, and medical errors (including overuse and underuse of medications and procedures) are rampant.^ Less frequently discussed, but of fun￾Victor Fuchs (fuchs@ncwagc3.stanford.edu) is the Henry]. Kaiser ]r Professor Emaitus at Stanford University in Stanford, California, and a research associate at the 'National Bureau of Economic Research, also in Stanford. Ezekiel Emanuel is chair ofthe Department of Clinical Bioethics, Warren G. Magnuson Clinical Center, National Institutes of Health, in Bethesda, Maryland. HEALTH AFFAIRS - Volume 24, Number 6 1399 DOI 10.1377/hltha£f.24.6.1399 C2005 Project HOPE-The People-to-Peopk Health Foundation, Inc

RETHINKING REFORM damental importance, are systemic problems in the financing of health care and in the organization and delivery of care Not discussed in this paper, because of space limitations and because their relation to health care is usually indirect, are many problems that affect population health, such as cigarette smoking, diet, exercise, air pollution, and road safety a Health care finance. Employer-based insurance. Ever since World War II, the cornerstone of U.S. health care finance has been employer-based insurance. Today such insurance still covers approximately 55 percent of the population, but with de clining coverage and loss of community rating, its role as quasi-social insurance has greatly eroded in recent decades. Competitive pressures on U.S. firms have increased as a result of antitrust actions, deregulation of many industries, and the inroads of foreign competition. Many fewer U.S. firms now enjoy steady monopoly profits that hey can draw on to subsidize health insurance for their worker For example, forty years ago the largest private employer was AT&T, a regu lated monopoly with guaranteed profits If health insurance premiums rose, they could easily be passed on to telephone subscribers. Moreover, aT&T was underno pressure to force older and sicker workers to pay more than their peers to compen sate for their higher use of care. Today the largest private employer is Wal-Mart, which despite its size faces intense competition daily from a host of other retail outlets. When they offer health insurance, it must come out of their workers' wages; for minimum-wage employees, this is not possible, so it often will mean loss of jobs The decline of unions to about one in twelve private-sector workers has also re duced the role of employer-based insurance as quasi-social insurance In indus tries comprising many small firms, such as residential construction, strong unions organize industrywide labor-management health insurance plans, which typi cally allow for sizable cross-subsidies among firms and among individual employ- ees within firms. In the past, tens of millions of workers were insured through such plans, but the disappearance of unions from most of the private sector tends to diminish the importance of this type of coverage Today most beneficiaries of employer-based insurance are in plans in which the firms are self-insured or are experience-rated (which means that they are self insured with a year lag). Community-rated premiums have disappeared, thus eliminating cross-subsidies among firms and industries, and the move toward large deductibles and health savings accounts(HSAs)will reduce cross-subsidies among workers within individual firms. 4 Employer-based insurance involves high administrative costs for the more than 1,000 insurance companies seeking contracts with millions of employers and for providers seeking reimbursement. Moreover, the large costs incurred by employ ers when negotiating contracts and administering benefits do not appear in the health care spending estimates. Employer-based insurance has other serious flaws: It distorts the labor-market decisions of workers and firms; it generates dis- 1400 November/ december 2

RETHINKIN G REFOR M damental importance, are systemic problems in the financing of health care and in the organization and delivery of care. Not discussed in this paper, because of space limitations and because their relation to health care is usually indirect, are many problems that affect population health, such as cigarette smoking, diet, exercise, air pollution, and road safety. • Health care finance. Employer-based insurance. Ever since World War II, the cornerstone of U.S. health care finance has been employer-based insurance. Today such insurance still covers approximately 55 percent of the population, but with de￾clining coverage and loss of community rating, its role as quasi-social insurance has greatly eroded in recent decades. Competitive pressures on U.S. firms have increased as a result of antitrust actions, deregulation of many industries, and the inroads of foreign competition. Many fewer U.S. firms now enjoy steady monopoly profits that they can draw on to subsidize health insurance for their workers. For example, forty years ago the largest private employer was AT&T, a regu￾lated monopoly with guaranteed profits. If health insurance premiums rose, they could easily be passed on to telephone subscribers. Moreover, AT&T was under no pressure to force older and sicker workers to pay more than their peers to compen￾sate for their higher use of care. Today the largest private employer is Wal-Mart, which despite its size faces intense competition daily from a host of other retail outlets. When they offer health insurance, it must come out of their workers' wages; for minimum-wage employees, this is not possible, so it often will mean loss of jobs. The decline of unions to about one in twelve private-sector workers has also re￾duced the role of employer-based insurance as quasi-social insurance.^ In indus￾tries comprising many small firms, such as residential construction, strong unions organize industrywide labor-management health insurance plans, which typi￾cally allow for sizable cross-subsidies among firms and among individual employ￾ees within firms. In the past, tens of millions of workers were insured through such plans, but the disappearance of unions from most of the private sector tends to diminish the importance of this type of coverage. Today most beneficiaries of employer-based insurance are in plans in which the firms are self-insured or are experience-rated (which means that they are self￾insured with a year lag). Community-rated premiums have disappeared, thus eliminating cross-subsidies among firms and industries, and the move toward large deductibles and health savings accounts (HSAs) will reduce cross-subsidies among workers within individual firms."* Employer-based insurance involves high administrative costs for the more than 1,000 insurance companies seeking contracts with millions of employers and for providers seeking reimbursement. Moreover, the large costs incurred by employ￾ers when negotiating contracts and administering benefits do not appear in the health care spending estimates. Employer-based insurance has other serious flaws: It distorts the labor-market decisions of workers and firms; it generates dis- 1400 November/December 2005

HEALTH CARE REFORM continuities in coverage; and, because premiums are exempt from income taxes,it provides a greater subsidy for high-wage than for low-wage workers Means-tested insurance. Since 1965 the financing system based on employer-based insurance has been shored up by means-tested insurance, such as Medicaid, and by Medicare. These programs, which together cover almost 30 percent of the pop- ulation, are also deeply flawed, but for different reasons. Means-tested insurance requires costly determination of eligibility, imposes high marginal tax rates on re- cipients because the subsidies fall or disappear as income rises, encourages eva sion of reported income, and generates discontinuities of coverage as recipients move into and out of eligibility. State governments, which share in the cost of these federally mandated programs, are finding it increasingly difficult to fund them. As a result, education and other state programs face budget cuts at a time when they need increases Medicare is popular with most beneficiaries and with many physicians and hospitals, but it has two big flaws On the benefit side, it is an open-ended entitle- ment that does not consider the costs of technologies relative to their benefits. Re- imbursement of physicians by fee-for-service also contributes to escalating ex penditures. Medicare expenditures are difficult to predict or control. For example, from 2003 to 2004 the bill for physician services jumped 15 percent. Ac cording to Medicare analysts, this was the result of longer and more intensive of fice visits, more laboratory tests, more frequent and complex imaging procedures, and greater use of in-office prescription drugs. With implementation of the new drug benefit in 2006, Medicare alone will consume 3. 3 percent of U.S. gross do- mestic product(GDP)(7.5 percent in 2035), and the Medicare Hospital Insurance Trust Fund is predicted to be depleted by 2019. Short of massive increases in taxes or a slowdown in spending growth, Medicare is headed for financial failure a Organization and delivery of care. Lack of IT. In addition to and in part be ause of flaws in the financing system, there are serious problems with the way med ical care is organized and delivered. More than half of all physicians are in sm practices; thus, they are poorly positioned to take advantage of advances such as in formation technology(IT), which could contribute to more efficient and effective care. Although large organizations such as the Palo Alto Medical Foundation have transformed their records system(without government subsidy), to the benefit of their patients, physicians, and the organization, for many physicians in small prac- tices, the cost of electronic medical records(EMRs)outweigh their benefits Quality control. Inadequate quality control is another problem. Although there re frequent statements of concern about quality, Donald Berwick, a leading ex- pert, recently expressed frustration with the slow progress that has been made. A critical examination of research on methods of quality improvement points out that even though "quality problems are widespread. reasons for these problems remain unclear. 0 The authors of this statement, Kaveh Shojania and jeremy Grimshaw, suggest several possible explanations: Providers may not know what HEALTH AFFAIRS Volume 24. Number 6 40l

HEALT H CAR E REFOR M continuities in coverage; and, because premiums are exempt from income taxes, it provides a greater subsidy for high-wage than for low-wage workers.^ Means-tested insurance. Since 1965 the financing system based on employer-based insurance has been shored up by means-tested insurance, such as Medicaid, and by Medicare. These programs, which together cover ahnost 30 percent of the pop￾ulation, are also deeply flawed, but for different reasons. Means-tested insurance requires costly determination of eligibility, imposes high marginal tax rates on re￾cipients because the subsidies fall or disappear as income rises, encourages eva￾sion of reported income, and generates discontinuities of coverage as recipients move into and out of eligibility.* State governments, which share in the cost of these federally mandated programs, are finding it increasingly difficult to fund them. As a result, education and other state programs face budget cuts at a time when they need increases. Medicare is popular with most beneficiaries and with many physicians and hospitals, but it has two big flaws. On the benefit side, it is an open-ended entitle￾ment that does not consider the costs of technologies relative to their benefits. Re￾imbursement of physicians by fee-for-service also contributes to escalating ex￾penditures. Medicare expenditures are difficult to predict or control. For example, from 2003 to 2004 the bill for physician services jumped 15 percent. Ac￾cording to Medicare analysts, this was the result of longer and more intensive of￾fice visits, more laboratory tests, more frequent and complex imaging procedures, and greater use of in-office prescription drugs.'' With implementation of the new drug benefit in 2006, Medicare alone will consume 3.3 percent of U.S. gross do￾mestic product (GDP) (7.5 percent in 2035), and the Medicare Hospital Insurance Trust Fund is predicted to be depleted by 2019.^ Short of massive increases in taxes or a slowdown in spending growth. Medicare is headed for financial failure. • Organization and delivery of care. Lack of IT. In addition to and in part be￾cause of flaws in the financing system, there are serious problems with the way med￾ical care is organized and dehvered. More than half of all physicians are in small practices; thus, they are poorly positioned to take advantage of advances such as in￾formation technology (IT), which could contribute to more efficient and effective care. Although large organizations such as the Palo Alto Medical Foundation have transformed their records system (without government subsidy), to the benefit of their patients, physicians, and the organization, for many physicians in small prac￾tices, the cost of electronic medical records (EMRs) outweigh their benefits. Quality control. Inadequate quality control is another problem. Although there are frequent statements of concern about quality, Donald Berwdck, a leading ex￾pert, recently expressed frustration with the slow progress that has been made.' A critical examination of research on methods of quality improvement points out that even though "quality problems are widespread...reasons for these problems remain unclear."'" The authors of this statement, Kaveh Shojania and Jeremy Grimshaw, suggest several possible explanations: Providers may not know what HEALTH AFFAIRS - Volume 24, Number 6 1401

RETHINKING REFORM experts recommend; they may know but disagree with the experts; the support systems needed to comply with the recommendations may be absent; or financial incentives may be misaligned. As has been observed in many contexts, it is diffi- cult to get people to understand something when their income depends on their t understanding it Cost-benefit trade-o ffs. Another major problem with care organization and deliv ery is insufficient attention to benefit-cost trade-offs. Most physicians are consci- entious about evaluating the benefits versus the risks of any intervention, but many fewer will consider costs, except perhaps for uninsured patients. Physicians often do not know what the costs are; they may believe that their responsibility is to deliver the best care that is technically possible, regardless of costs; or as Shojania and Grimshaw write, "Financial incentives may be misaligned. "ll Over the years, there has been a plethora of recommendations as to how physicians can contribute to more cost-effective care, but the fact that they have not been impl mented on a wide scale suggests that the problem is systemic in nature. Some ex perts advocate a complete overhaul of the financing of health care to give physi cians the information, opportunity, and incentive to deliver cost-effective care What Kind of reform? Policymakers seeking to reform health care face two fundamental questions Should reform be incremental or comprehensive? And should reform focus first on the financing of care or on the organization and delivery of care? a Incremental reform. Employer mandates. Most incremental reform proposals fo- cus on financing-in particular, on reducing the number of uninsured people. Some reformers seek to increase coverage by mandating that all employers above some specified size offer their workers health insurance; these mandates may or may not pe accompanied by subsidies or tax credits to the firms. One economic rationale for employer mandates is that the cost of care for uninsured workers is often passed along to the insured through taxes and other mechanisms. Mandates are, in part,an attempt to eliminate" free riders. " Their possible negative effects include loss of er ployment, especially for workers who are at or near the minimum wage, which makes it impossible for firms to pass on the costs by reducing wages. Firms that are below the specified minimum size that trigger the mandate could be discouraged from expanding or could resort to using more part-time or temporary workers toes cape the mandate. When mandates are legislated at the state rather than the federal level, firms have an incentive to move to a state that does not have a mandate, even though economic efficiency would be greater in their original location Subsidies. Another incremental approach would provide subsidies for the unin sured, usually through tax credits, to purchase insurance in the individual mar- ket. The main advantage claimed for this approach is that it increases freedom of choice and does not intrude directly on the labor market. It could have indirect ef- fects such as reducing the numbers of workers covered by employers. If subsidies 1402 ember/December 2005

RETHINKIN G REFOR M experts recommend; they may know but disagree with the experts; the support systems needed to comply with the recommendations may be absent; or financial incentives may be misaligned. As has been observed in many contexts, it is diffi￾cult to get people to understand something when their income depends on their not understanding it. Cost-benefit trade-offs. Another major problem with care organization and deliv￾ery is insufficient attention to benefit-cost trade-offs. Most physicians are consci￾entious about evaluating the benefits versus the risks of any intervention, but many fewer wall consider costs, except perhaps for uninsured patients. Physicians often do not know what the costs are; they may believe that their responsibility is to deliver the best care that is technically possible, regardless of costs; or as Shojania and Grimshaw write, "Financial incentives may be misaligned."" Over the years, there has been a plethora of recommendations as to how physicians can contribute to more cost-effective care, but the fact that they have not been imple￾mented on a wdde scale suggests that the problem is systemic in nature. Some ex￾perts advocate a complete overhaul of the financing of health care to give physi￾cians the information, opportunity, and incentive to deliver cost-effective care. What Kind Of Reform? Policymakers seeking to reform health care face two fundamental questions: Should reform be incremental or comprehensive? And should reform focus first on the financing of care or on the organization and delivery of care? • Incremental reform. Employer mandates. Most incremental reform proposals fo￾cus on financing—in particular, on reducing the number of uninsured people. Some reformers seek to increase coverage by mandating that all employers above some specified size offer their workers health insurance; these mandates may or may not be accompanied by subsidies or tax credits to the firms. One economic rationale for employer mandates is that the cost of care for uninsured workers is often passed along to the insured through taxes and other mechanisms. Mandates are, in part, an attempt to eliminate "free riders." Their possible negative effects include loss of em￾ployment, especially for workers who are at or near the minimum wage, which makes it impossible for firms to pass on the costs by reducing wages. Firms that are below the specified minimum size that trigger the mandate could be discouraged from expanding or could resort to using more part-time or temporary workers to es￾cape the mandate. When mandates are legislated at the state rather than the federal level, firms have an incentive to move to a state that does not have a mandate, even though economic efficiency would be greater in their original location. Subsidies. Another incremental approach would provide subsidies for the unin￾sured, usually through tax credits, to purchase insurance in the individual mar￾ket.^^ The main advantage claimed for this approach is that it increases freedom of choice and does not intrude directly on the labor market. It could have indirect ef￾fects such as reducing the numbers of workers covered by employers.'^ If subsidies 1402 November/December 2005

HEALTH CARE REFORM are geared to income, there are the additional disadvantages associated with de termining eligibility and disincentives imposed on people who might increase heir income Medicare and Medicaid. Two other approaches for reducing the number of unin sured people are to build on the Medicaid and Medicare programs For Medicaid, this would involve raising the income level for eligibility; for Medicare, it would involve lowering the age for eligibility. 4 Expansion of these programs would mag ify their existing advantages and their disadvantages. In addition, if nonpoor, working-age people become eligible for these public programs, there would prob ably be a decline in the number covered by employer-based insurance and even some decline in labor-force participation Health savings accounts. Some incremental reform proposals have objectives other than reducing the number of uninsured people. Consumer-directed health care subsidized by favorable tax treatment of HSAs, aims at making patients more cost-conscious, leading to usage reductions and possibly more price competition among providers. 6 It is also said that if costs to individuals vary with use, they will choose healthier behavior, such as stopping cigarette smok ing. Out-of pocket payments do give patients an incentive to use less care; whether they are able to make appropriate choices is much more doubtful. The AND Health Insurance Experiment showed that patients with a higher percent age of out-of-pocket expense use less care, but the proportion of care that experts deem "appropriate"did not vary with the extent of insurance coverage ere a re several reasons for thinking that HSAs, or large deductibles in gen eral, would not have as favorable an effect on utilization as advocates claim First a large fraction of health spending is accounted for by a small proportion of pa tients-patients whose spending levels will be far above their deductible. Second even for those who have not yet exceeded their deductible but expect to do so be fore the end of the year, any particular test, visit, or procedure will effectively be free because the patient's total outlay(the deductible)would be the same, regard less of whether or not they get the particular service. Third, a considerable amount of care is elective with respect to timing. People who have exceeded their deduct ible have a great incentive to undergo in the same year all of the tests and other procedures that they are contemplating because there will be no cost to them. Fi- nally, a deductible that might be reasonable for a high -wage worker would be un reasonable for one making much less. Thus, there will be pressure to have the de ductible vary with income, and that will give rise to other problems, including increasing the administrative costs of such plans Managed competition. Managed competition is another incremental reform pro- posal. Although in principle it can be applied to all health coverage, in recent years at improv efficiency of employer-based insur- ance. The leading proponent of managed competition, Alain Enthe oven eve that employers would see its advantages and voluntarily adopt it. 8 Some have, but HEALTH AFFAIRS Volume 24, Number 6

HEALT H CAR E REEOR M are geared to income, there are the additional disadvantages associated with de￾termining eligibility and disincentives imposed on people who might increase their income. Medicare and Medicaid. Two other approaches for reducing the number of unin￾sured people are to build on the Medicaid and Medicare programs. For Medicaid, this would involve raising the income level for eligibility; for Medicare, it would involve lowering the age for eligibility.''' Expansion of these programs would mag￾nify their existing advantages and their disadvantages. In addition, if nonpoor, working-age people become eligible for these public programs, there would prob￾ably be a decline in the number covered by employer-based insurance and even some decline in labor-force participation.'^ Health savings accounts. Some incremental reform proposals have objectives other than reducing the number of uninsured people. Consumer-directed health care, subsidized by favorable tax treatment of HSAs, aims at making patients more cost-conscious, leading to usage reductions and possibly more price competition among providers.'^ It is also said that if costs to individuals vary with use, they will have an incentive to choose healthier behavior, such as stopping cigarette smok￾ing. Out-of-pocket payments do give patients an incentive to use less care; whether they are able to make appropriate choices is much more doubtful. The RAND Health Insurance Experiment showed that patients with a higher percent￾age of out-of-pocket expense use less care, but the proportion of care that experts deem "appropriate" did not vary with the extent of insurance coverage.''' There are several reasons for thinking that HSAs, or large deductibles in gen￾eral, would not have as favorable an effect on utilization as advocates claim. First, a large fraction of health spending is accounted for by a small proportion of pa￾tients—patients whose spending levels will be far above their deductible. Second, even for those who have not yet exceeded their deductible but expect to do so be￾fore the end of the year, any particular test, visit, or procedure will effectively be free because the patient's total outlay (the deductible) would be the same, regard￾less of whether or not they get the particular service. Third, a considerable amount of care is elective with respect to timing. People who have exceeded their deduct￾ible have a great incentive to undergo in the same year all of the tests and other procedures that they are contemplating because there will be no cost to them. Fi￾nally, a deductible that might be reasonable for a high-wage worker would be un￾reasonable for one making much less. Thus, there will be pressure to have the de￾ductible vary with income, and that will give rise to other problems, including increasing the administrative costs of such plans. Managed competition. Managed competition is another incremental reform pro￾posal. Although in principle it can be applied to all health coverage, in recent years it has been aimed primarily at improving the efficiency of employer-based insur￾ance. The leading proponent of managed competition, Alain Enthoven, believed that employers would see its advantages and voluntarily adopt it.'^ Some have, but HEALTH AFFAIRS - Volume 24, Number 6 1403

RETHINKING REFORM most have not. 9 As a result, Enthoven now favors legislation that would require every employer that offers insurance to offer a choice of plans. In addition, only the value of the premium of the low-cost plan could be counted as tax-exempt income by the employee. 0 Those who choose more expensive plans would have to treat the excess as taxable income. In this approach, employees would have more incen- tive to choose the low-cost plan, and expensive plans would have an incentive to cal ng costs down to retain their customers. Some economists have raised theoreti objections to having employees pay the marginal difference between the cost of heir plan and the low-cost plan, but their approach requires those workers in a firm who expect to use less care to subsidize those who expect to use more2lIn competitive markets, this cross-subsidization could not persist in the long run. Quality incentives. Two other incremental reform proposals that work through fi nancial incentives are paying for performance and subsidizing providers to install EMRS. 2 The first assumes that public and private payers will be able to distin- ity differentials among providers. Making such distinctions for such a complex, multidimensional service as medical care is not easy. Quality assessment might be forced to rely on a few relatively easy-to-observe "dos and don'ts"rather than on long-term outcomes If payers decide to reward X at the expense of y and Z, it does not take advanced study in economics to know that there will be some reallocation of time and other resources to X, even though patients might put as high a value on Y and Z. The British National Health Service(NHS) has had for many years a rating system for hospitals based on how well each hospital con formed to process specifications laid down by the NhS central administration.An independent study of British hospitals, however, found very little correlation be tween the NHS ratings and patient outcomes.23 Subsidizing providers to install EMRs will work in the sense that if the subsidy large enough, some providers will surely take advantage of it. However, one may question whether such subsidies are a good use of scarce public funds. Many large EMRs without subsidies. The holdup in small-scale practices mig ahs a health care organizations have already installed or are in the process of installing oft-cited lack of capital but the much smaller benefit yielded by EMRs in such practices. Subsidies for EMRs will not change that economic reality. David brailer, he national coordinator for health information technology, said, "Technology alone is never a lasting solution. The way health information technology is devel oped, the way it is implemented and the way it is used are what matter. 24 In short, EMRs might or might not be cost-effective, depending on the setting a Comprehensive reform. A common goal of all comprehensive reform propos als is universal coverage, providing every American with health insurance. The pro posals differ in how extensive the change from the current system would need to be, how providers of care would be reimbursed, and how money would be raised to fund the system. Here we consider three approaches to comprehensive reform; other hes are typically variants or combinations of these three 1404 November/ December 2005

RETHINKIN G REFOR M most have not." As a result, Enthoven now favors legislation that would require every employer that offers insurance to offer a choice of plans. In addition, only the value of the premium of the low-cost plan could be counted as tax-exempt income by the employee.^° Those who choose more expensive plans would have to treat the excess as taxable income. In this approach, employees would have more incen￾tive to choose the low-cost plan, and expensive plans would have an incentive to bring costs down to retain their customers. Some economists have raised theoreti￾cal objections to having employees pay the marginal difference between the cost of their plan and the low-cost plan, but their approach requires those workers in a firm who expect to use less care to subsidize those who expect to use more.^' In competitive markets, this cross-subsidization could not persist in the long run. Quality incentives. Two other incremental reform proposals that work through fi￾nancial incentives are paying for performance and subsidizing providers to install EMRs.^^ The first assumes that public and private payers will be able to distin￾guish quality differentials among providers. Making such distinctions for such a complex, multidimensional service as medical care is not easy. Quality assessment might be forced to rely on a few relatively easy-to-observe "dos and don'ts" rather than on long-term outcomes. If payers decide to reward X at the expense of Y and Z, it does not take advanced study in economics to know that there will be some reallocation of time and other resources to X, even though patients might put as high a value on Y and Z The British National Health Service (NHS) has had for many years a rating system for hospitals based on how well each hospital con￾formed to process specifications laid down by the NHS central administration. An independent study of British hospitals, however, found very little correlation be￾tween the NHS ratings and patient outcomes.^^ Subsidizing providers to install EMRs will work in the sense that if the subsidy is large enough, some providers will surely take advantage of it. However, one may question whether such subsidies are a good use of scarce public funds. Many large health care organizations have already installed or are in the process of installing EMRs without subsidies. The holdup in small-scale practices might be not the oft-cited "lack of capital" but the much smaller benefit yielded by EMRs in such practices. Subsidies for EMRs will not change that economic reality. David Brailer, the national coordinator for health information technology, said, "Technology alone is never a lasting solution. The way health information technology is devel￾oped, the way it is implemented and the way it is used are what matter."^'' In short, EMRs might or might not be cost-effective, depending on the setting. • Comprehensive reform. A common goal of all comprehensive reform propos￾als is universal coverage, providing every American with health insurance. The pro￾posals differ in how extensive the change from the current system would need to be, how providers of care would be reimbursed, and how money would be raised to fund the system. Here we consider three approaches to comprehensive reform; other approaches are typically variants or combinations of these three. 1404 November/December 2005

HEALTH CARE REFORM Personal mandates and subsidies. The proposal that would make the least change in the existing system is mandating that every american have health insurance that meets some minimum standard and having the government provide income related subsidies or tax credits to the poor and near-poor to enable them to pur chase insurance in the individual market or through exchanges formed for that purpose. 2 In most versions, recipients of employer-based insurance would satisfy he mandate as would Medicare beneficiaries 26 One version of the individual andate approach envisages the elimination of employer-based and means-tested insurance and the phasing out of Medicare. All Americans would be required to purchase one of three levels of coverage with income-related subsidies. 7 The fact that mandates with subsidies would build on existing of fi nance,organization,and delivery is perceived as an advantage by some and as a disadvantage by others. The advantage lies in simplicity of plan design and the likelihood that no large groups would believe that they had been hurt by the re form. The disadvantage is that this would preserve the existing methods of finance with all of their flaws and do little to increase the efficiency and effectiveness of the organization and delivery of care. Without increased efficiency, overall health spending would be likely to shoot up. For instance, Jeanne Lambrew and col leagues estimate that their reform proposal would require $100-$160 billion per Mandates with subsidies seem relatively simple, but implementation could prove to be complex and expensive. Enforcement of a mandate on 300 million Americans would not be trivial, as evidenced by widespread noncompliance with liability insurance mandates by millions of automobile owners. What will happen when a patient who does not have health insurance shows up at a hospital with a heart attack or after a bad accident? Administration of income-related subsidies is also likely to prove problematic. Should a persons subsidy be determined by in- come during the previous year or in the current year? If the latter, the appropriate subsidy would not be known until the year was over. If the former, the subsidy might be too large or too small, given the person's current circumstances. with premiums now close to $10,000 per year for decent family coverage, the subsidies for low-income families would have to be substantial. 29 Potential loss of subsidy would discourage efforts to increase income and encourage misreporting Mandates with subsidies would not require huge additional governmental out ays if everyone who now has insurance kept it. But that outcome is not certain Low-income workers who now have employer coverage might find that it is eco- nomically advantageous to accept the subsidy while taking a better-paying job in a firm that does not offer coverage. Some might refer to this as an"unintended' consequence, but when there is evidence that substitution between private and public insurance does occur, it can hardly be considered"unforeseen. "30 Single-payer proposals. Single-payer proposals come in several different versions; probably the best-known is the plan laid out by the Physicians Working Group HEALTH AFFAIRS u mc Number 5 1405

HEALT H CAR E REFOR M Personal mandates and subsidies. The proposal that would make the least change in the existing system is mandating that every American have health insurance that meets some minimum standard and having the government provide income￾related subsidies or tax credits to the poor and near-poor to enable them to pur￾chase insurance in the individual market or through exchanges formed for that purpose,^^ In most versions, recipients of employer-based insurance would satisfy the mandate, as would Medicare beneficiaries,^* One version of the individual￾mandate approach envisages the elimination of employer-based and means-tested insurance and the phasing out of Medicare, All Americans would be required to purchase one of three levels of coverage with income-related subsidies.^^ The fact that mandates with subsidies would build on existing systems of fi￾nance, organization, and delivery is perceived as an advantage by some and as a disadvantage by others. The advantage lies in simplicity of plan design and the likelihood that no large groups would believe that they had been hurt by the re￾form. The disadvantage is that this would preserve the existing methods of finance with all of their flaws and do little to increase the efficiency and effectiveness of the organization and delivery of care. Without increased efficiency, overall health spending would be likely to shoot up. For instance, Jeanne Lambrew and col￾leagues estimate that their reform proposal would require $100-$160 billion per Mandates with subsidies seem relatively simple, but implementation could prove to be complex and expensive. Enforcement of a mandate on 300 million Americans would not be trivial, as evidenced by widespread noncompliance with liability insurance mandates by millions of automobile owners. What will happen when a patient who does not have health insurance shows up at a hospital with a heart attack or after a bad accident? Administration of income-related subsidies is also likely to prove problematic. Should a person's subsidy be determined by in￾come during the previous year or in the current year? If the latter, the appropriate subsidy would not be known until the year was over. If the former, the subsidy might be too large or too small, given the person's current circumstances. With premiums now close to $10,000 per year for decent family coverage, the subsidies for low-income families would have to be substantial.-^' Potential loss of subsidy would discourage efforts to increase income and encourage misreporting. Mandates with subsidies would not require huge additional governmental out￾lays if everyone who now has insurance kept it. But that outcome is not certain. Low-income workers who now have employer coverage might find that it is eco￾nomically advantageous to accept the subsidy while taking a better-paying job in a firm that does not offer coverage. Some might refer to this as an "unintended" consequence, but when there is evidence that substitution between private and public insurance does occur, it can hardly be considered "unforeseen."^" Single-payer proposals. Single-payer proposals come in several different versions; probably the best-known is the plan laid out by the Physicians Working Group HEALTH AFFAIRS - Volume 24. Number 6 1405

RETHINKING REFORM (PWG). The simplest way to think of this proposal is to imagine Medicare ex tended to cover all age groups. However, the PwG proposal goes beyond that sim- ple version to cover dental services, long-term care, prescription drugs, and more comprehensive mental health care. Private health insurance would be sharply re- stricted or eliminated entirely. For-profit hospitals and clinics would be phased out over time. Copayments and deductibles would be eliminated or held to a mi mum. Hospitals would be funded by an annual budget, fixed in advance. Physi- cians would be reimbursed by fee-for-service or salary. The global budget for the national health insurance program would be set at approximately the same pro- portion of GDP as in the year preceding its establishment. The PwG proposal suggests that funding could come from a variety of sources, including earmarked income taxes, payroll taxes, or compulsory employer contributions For the long run,the PWG favors "income or other progressive taxes"as being"fairest Some of the advantages claimed for a single-payer approach are supported by the experience of similar systems in other countries. It is the simplest,most straightforward way of achieving universal coverage. Administrative costs would undoubtedly be much lower than they are now, although it is a mistake to think that low administrative costs are always conducive to low overall costs Much de pends on the effects of less administration on the level of fraud and abuse.32In Canada, most provinces do not report high levels of fraud, but in the United States, considerable fraud in Medicare is probably attributable, at least in part,to the desire to keep administrative costs low Experience in other countries also alerts us to some of the problems encoun tered in single-payer systems. For example, negotiated fee schedules have proved to be inadequate as a method of controlling spending in Canada because many physicians responded to what they regarded as inadequate compensation by ramping up utilization. Thus, Canadian plans felt obliged to respond by imposing caps on the annual compensation that each physician could receive Fixed budgets for hospitals with capital outlays controlled by central authorities have been usee by the British NHS since its inception but are increasingly found to be unsatisfac tory. The NHS's new reform efforts include freeing up hospitals to make their own decisions with regard to operations, including the ability to go to private capital markets for funds to expand or acquire costly equipment On paper, there is a strong egalitarian ethos in most single-payer plans, abun dantly evident in the PWG proposal. In practice, however, many countries with such plans that are egalitarian on paper are less so in reality. Some patients and physicians make their own arrangements for care, with patients paying out of pocket or with private insurance. The physicians keep most or all of the proceeds as a supplement to their earnings in the national system. British specialists, espe- cially surgeons, are so attached to their private earnings that when the NHS of- fered them a substantial boost in pay if they would agree to more accountability as to how they spend their time, they refused the contract. Even Canada, which has November/december 2005

RETHINKIN G REFOR M ).^' The simplest way to think of this proposal is to imagine Me(iicare ex￾tended to cover all age groups. However, the PWG proposal goes beyond that sim￾ple version to cover dental services, long-term care, prescription drugs, and more comprehensive mental health care. Private health insurance would be sharply re￾stricted or eliminated entirely. For-profit hospitals and clinics would be phased out over time. Copayments and deductibles would be ehminated or held to a mini￾mum. Hospitals would be funded by an annual budget, fixed in advance. Physi￾cians would be reimbursed by fee-for-service or salary. The global budget for the national health insurance program would be set at approximately the same pro￾portion of GDP as in the year preceding its establishment. The PWG proposal suggests that funding could come from a variety of sources, including earmarked income taxes, payroll taxes, or compulsory employer contributions. For the long run, the PWG favors "income or other progressive taxes" as being "fairest." Some of the advantages claimed for a single-payer approach are supported by the experience of similar systems in other countries. It is the simplest, most straightforward way of achieving universal coverage. Administrative costs would undoubtedly be much lower than they are now, although it is a mistake to think that low administrative costs are always conducive to low overall costs. Much de￾pends on the effects of less administration on the level of fraud and abuse.^-^ In Canada, most provinces do not report high levels of fraud, but in the United States, considerable fraud in Medicare is probably attributable, at least in part, to the desire to keep administrative costs low. Experience in other countries also alerts us to some of the problems encoun￾tered in single-payer systems. For example, negotiated fee schedules have proved to be inadequate as a method of controlling spending in Canada because many physicians responded to what they regarded as inadequate compensation by ramping up utilization. Thus, Canadian plans felt obliged to respond by imposing caps on the annual compensation that each physician could receive. Fixed budgets for hospitals wdth capital outlays controlled by central authorities have been used by the British NHS since its inception but are increasingly found to be unsatisfac￾tory The NHS's new reform efforts include freeing up hospitals to make their own decisions with regard to operations, including the ability to go to private capital markets for funds to expand or acquire costly equipment. On paper, there is a strong egalitarian ethos in most single-payer plans, abun￾dantly evident in the PWG proposal. In practice, however, many countries with such plans that are egalitarian on paper are less so in reality. Some patients and physicians make their own arrangements for care, with patients paying out of pocket or with private insurance. The physicians keep most or all of the proceeds as a supplement to their earnings in the national system. British specialists, espe￾cially surgeons, are so attached to their private earnings that when the NHS of￾fered them a substantial boost in pay if they would agree to more accountabihty as to how they spend their time, they refused the contract. Even Canada, which has 1406 November/Decembe r 2005

HEALTH CARE REFORM the most egalitarian rules of any country, does not bar patients from obtaining care in the United States at their own expense. Moreover, it cannot prevent huge socio- conomic differences in the use of some services such as magnetic resonance imag (MRI) scans within a single city.3 Voucher system. The most recent proposal for comprehensive reform is based on Universal health care vouchers(UHVs). This approach, which we favor, combines publicly funded social insurance for basic care with important elements of choice and competition. 4 The central feature of this plan is universal coverage for basic health services, with guaranteed enrollment and renewal for the risk-adjusted value of the voucher. Individuals and families would have free choice of plans and freedom to purchase additional services with their own after-tax dollars. The voucher plan would be funded by an earmarked value-added tax(VAT). The pro posal contemplates the end of employer-based insurance, elimination of Medicaid and other means-tested programs, and, over time, the replacement of Medicare Administration and oversight, including selecting qualified plans, would be the responsibility of a federal health system, modeled on the structure of the Federal Reserve system, with regional boards to manage and oversee the various graphic regions. An independent Institute for Technology and Outcomes Assess- ment would be established and funded by a dedicated portion of the vat. The advantages claimed for the UHV approach are that every American would be covered for basic care without means-testing or exclusion for any reason; the fi nancial burden would be distributed fairly according to a person,'s consumption; and, for the public as a whole, there would be a direct connection between the level of benefits and the level of taxes. Labor markets would work more efficiently because neither workers nor firms would base their decisions on extraneous health insurance considerations, and a major source of management-labor friction would be eliminated. State governments would be relieved of the large financial and administrative burdens associated with the means-tested programs. Because the proposed voucher system would provide basic care for all with freedom to choose among competing plans and freedom to purchase more than the basic care, it is more congruent with fundamental American values than single-payer propos als that emphasize equality or HSAs that emphasize freedom The voucher proposal does not contemplate legislation aimed at the insurance industry; however, because only a relatively small number of plans would be quali fied to enroll beneficiaries under the voucher system, most of the more than 1,000 health insurance companies would disappear. Similarly, UHV pro but they be- onents do not advocate legislation to change the organization and delivery of care lieve that if most people get most of their care most of the time from plans that are reimbursed by risk-adjusted capitation, changes in organization and delivery would inevitably follow. Of the three major approaches to universal coverage, UHV is the one most likely to precipitate changes in organization and delivery as a result of the capitation reimbursement HEALTH AFFAIRS Volumc 24. Number 6 1407

HEALT H CAR E REEOR M the most egalitarian rules of any country, does not bar patients from obtaining care in the United States at their own expense. Moreover, it cannot prevent huge socio￾economic differences in the use of some services such as magnetic resonance imag￾ing (MRI) scans within a single city." Voucher system. The most recent proposal for comprehensive reform is based on universal health care vouchers (UHVs). This approach, which we favor, combines publicly funded social insurance for basic care wdth important elements of choice and competition.^'' The central feature of this plan is universal coverage for basic health services, with guaranteed enrollment and renewal for the risk-adjusted value of the voucher. Individuals and families would have free choice of plans and freedom to purchase additional services with their own after-tax dollars. The voucher plan would be funded by an earmarked value-added tax (VAT). The pro￾posal contemplates the end of employer-based insurance, elimination of Medicaid and other means-tested programs, and, over time, the replacement of Medicare. Administration and oversight, including selecting qualified plans, would be the responsibility of a federal health system, modeled on the structure of the Federal Reserve system, with regional boards to manage and oversee the various geo￾graphic regions. An independent Institute for Technology and Outcomes Assess￾ment would be established and funded by a dedicated portion of the VAT. The advantages claimed for the UHV approach are that every American would be covered for basic care without means-testing or exclusion for any reason; the fi￾nancial burden would be distributed fairly according to a person's consumption; and, for the public as a whole, there would be a direct connection between the level of benefits and the level of taxes. Labor markets would work more efficiently because neither workers nor firms would base their decisions on extraneous health insurance considerations, and a major source of management-labor friction would be eliminated. State governments would be relieved of the large financial and administrative burdens associated with the means-tested programs. Because the proposed voucher system would provide basic care for all with freedom to choose among competing plans and freedom to purchase more than the basic care, it is more congruent with fundamental American values than single-payer propos￾als that emphasize equality or HSAs that emphasize freedom. The voucher proposal does not contemplate legislation aimed at the insurance industry; however, because only a relatively small number of plans would be quali￾fied to enroll beneficiaries under the voucher system, most of the more than 1,000 health insurance companies would disappear. Similarly, UHV proponents do not advocate legislation to change the organization and delivery of care, but they be￾lieve that if most people get most of their care most of the time from plans that are reimbursed by risk-adjusted capitation, changes in organization and delivery would inevitably follow. Of the three major approaches to universal coverage, UHV is the one most likely to precipitate changes in organization and delivery as a result of the capitation reimbursement. HEALTH AFFAIRS - Volume 24. hlumbcr 6 1407

RETHINKING REFORM Compared with other comprehensive reform approaches, several questions are specific to or more pronounced with the UHV approach. How would health plans qualify to participate? What kind of reimbursement system would reward effi ency and cost-effective care without creating incentives for stinting and adverse lection? How quickly and successfully would the major health plans adapt to risk-adjusted capitation reimbursement? What arrangements would be made for care in rural areas and small towns where low population density precludes the presence of several competing plans? Perhaps most important, because the UHV would the transition from the existing system be hand e health care system, how approach contemplates more far-reaching changes in the In addition, UHV, like any comprehensive reform, would have to address several fficult questions. How to specify the universal benefit? What arrangements would be permitted for care beyond the universal benefit? How would the wide geographic disparities in use and spending documented by John Wennberg and handled? How would funding for research and education be provideds tactice be others be dealt with?3 How would disputes about coverage and malpractice be Exhibit I provides a succinct summary of the principal features of alternative reform proposals, and Exhibit 2 shows the relation between the goals of reform and the alternative proposals Incremental versus comprehensive reform. Advocates of incremental re- forms acknowledge that they are less-than-optimal public policy. Incremental re- forms will not achieve universal coverage, greatly reduce administrative expenses, or address discontinuities in coverage, and they are not likely to greatly increase the cost-effectiveness of care. The principal virtue claimed for incremental reforms is their political viability: "Limiting the restructuring of the health care system may improve the political prospects"of enactment 36 What has incremental reform achieved? Over the past decade, it has led to the State Childrens Health Insurance Program(SCHIP)and expanded drug coverage for Medicare beneficiaries. Yet today we have an ever-declining proportion of peo- ple with employer-based insurance; more people uninsured than at any time since 1998, including more than 8.4 million uninsured children; and record-high and ris- ing health care costs. Taken as an overall strategy, there is little evidence that in cremental reform has improved U.S. health care. Also, given the current concerns about costs, adoption of new incremental reforms seems unlikely because any in- crease in coverage through incremental reform will result in greater health care spending 39 For example, to cover an additional twenty-seven million people, the proposal by presidential candidate John Kerry would have required $653 billion over ten years; President Bush's more modest plan would have covered just 2.4 mil lion uninsured Americans at a cost of $90 billion over ten years. 4 Political viabil ity requires a plan to transform the inefficiencies of the current system into ex panded coverage without increasing total outlays for health care I Reform priorities: finance or organization? Which should take priority: re November/ December 2005

RETHINKIN G REFOR M Compared with other comprehensive reform approaches, several questions are specific to or more pronounced with the UHV approach. How would health plans qualify to participate? What kind of reimbursement system would reward effi￾ciency and cost-effective care without creating incentives for stinting and adverse selection? How quickly and successfully would the major health plans adapt to risk-adjusted capitation reimbursement? What arrangements would be made for care in rural areas and small towns where low population density precludes the presence of several competing plans? Perhaps most important, because the UHV approach contemplates more far-reaching changes in the health care system, how would the transition from the existing system be handled? In addition, UHV, like any comprehensive reform, would have to address several difficult questions. How to specify the universal benefit? What arrangements would be permitted for care beyond the universal benefit? How would the wide geographic disparities in use and spending documented by John Wennberg and others be dealt with?^^ How would disputes about coverage and malpractice be handled? How would funding for research and education be provided? Exhibit 1 provides a succinct summary of the principal features of alternative reform proposals, and Exhibit 2 shows the relation between the goals of reform and the alternative proposals. • Incremental versus comprehensive reform. Advocates of incremental re￾forms acknowledge that they are less-than-optimal pubhc pohcy. Incremental re￾forms v ^ not achieve universal coverage, greatly reduce administrative expenses, or address discontinuities in coverage, and they are not likely to greatly increase the cost-effectiveness of care. The principal virtue claimed for incremental reforms is their pohtical viability: "Limiting the restructuring of the health care system may improve the pohtical prospects" of enactment.^* What has incremental reform achieved? Over the past decade, it has led to the State Children's Health Insurance Program (SCHIP) and expanded drug coverage for Medicare beneficiaries. Yet today we have an ever-declining proportion of peo￾ple wdth employer-based insurance; more people uninsured than at any time since 1998, including more than 8.4 million uninsured children; and record-high and ris￾ing health care costs.^^ Taken as an overall strategy, there is little evidence that in￾cremental reform has improved U.S. health care.^^ Also, given the current concerns about costs, adoption of new incremental reforms seems unlikely because any in￾crease in coverage through incremental reform will result in greater health care spending.^' For example, to cover an additional twenty-seven million people, the proposal by presidential candidate John Kerry would have required $653 billion over ten years; President Bush's more modest plan would have covered just 2.4 mil￾lion uninsured Americans at a cost of $90 billion over ten years."*" Political viabil￾ity requires a plan to transform the inefficiencies of the current system into ex￾panded coverage without increasing total outlays for health care. • Reform priorities: finance or organization? Which should take priority: re- 1408 November/December 2005