The International Journal of Medical Banking

The full article, that outlines a potential role for an independent health board referred to as a “Health Fed”, was published by the Council for Economic Development, developed mostly by Jerome H. Grossman, M.D., Director, Harvard Kennedy School, Senior Fellow at the Mossavar-Rahmani Center for Business and Government, Honorary Physician and Adjunct Professor of Medicine at Tufts University School of Medicine (please see honorarium for Jerry at end of this article)*.

Introduction

OUR POLITICAL PROCESS much prefers incremental movement to sudden, large, discontinuous changes whose consequences cannot be foreseen. Quantum change is rare in peacetime or in the absence of a major upheaval such as deep recession or depression.

Yet failings in cost, quality and access in American health care today have become extremely serious and require far-reaching changes. Restructuring the underlying financial incentives of a $2 trillion industry is a bold undertaking that requires a transition from “cost-unconscious and cost-increasing” to a true “cost and value consciousness”. Some see the entire health care problem within the context of the growing number of uninsured and suggest that because of this there is a crying need for universal coverage. Yet there really can be no secure coverage for anyone unless the growth of costs is slowed to a sustainable rate and a transformation occurs that fundamentally alters the current system.

To achieve restructuring through a political process that values stability, we propose a bold path that is nonetheless feasible with incremental steps that produce steady progress. In the end, we achieve market-based universal health insurance. We do not claim this is the only way or even the best way but rather, we believe it demonstrates that given political will and support it is possible to get there from here. It is what mathematicians call “proving an existence theorem.”

The proposed transition builds on the experience of existing models that have worked well for decades. It adapts existing institutions, like the Federal Employers Health Benefits Program (FEHBP) to new roles and builds a new institution, a “Federal Health Board” (or “Health Fed”) patterned on the governance, expertise and regional structure of the Federal Reserve System to oversee, regulate and manage the system.

Phase I: Building the Foundations for Responsible Choice

• To create an administrative structure, modernize and adapt the FEHBP into a framework for a national system of health insurance exchanges. Put the FEHBP under the supervision of a Health Fed. Use fixed-dollar contributions to encourage responsible choice; introduce risk adjustment; establish a minimum benefit standard for all plans; and allow premiums to vary by region.
• To make health care more competitive and less costly and to eliminate conflicts between states and federal regulation of health insurance, modernize and simplify health insurance regulation by creating an alternative federal regulatory system that multi-state health plans can choose instead of being regulated by states. Designate the Health Fed as the regulatory agency. While state insurance regulators have attempted to deal with the difficulty of myriad regulations by promoting uniform national standards (by creating NAIC¹), today’s insurer still must go hat-in-hand from state to state to secure approval. Added to this red tape, each state has unique standards and many regulate rates. Contrast this with a federally-chartered banking product. Once approved, the product can be marketed throughout the United States.
• To provide reliable, objective and authoritative scientific information about the value and costs of clinical interventions, create a national institute for medical outcomes and technology assessment, or build it onto the National Institutes of Health (NIH) Translational Medicine Program which determines the effectiveness of new technology and procedures in the delivery system. In contrast to the dynamism of other industries there is a paucity of objective scientific data about the value and cost of clinical interventions even as costly technologies are widely deployed. Most patients assume that their doctors are up-to-date on widely accepted standards of care yet the data on practice variations among well-qualified doctors raise serious doubt. Much is spent on services of little or no value as evidenced by the lack of demonstrably better outcomes in the United States compared with countries that spend much less on health care. We need a widely respected institution to sponsor the needed research and offer authoritative judgments.
• To reverse the recent erosion of health insurance coverage and the consequent growth in the number of the uninsured, expand existing safety net programs, especially the State Children’s Health Insurance Program (SCHIP). The primary motivation for health care reform is to provide secure protection for every American. It follows that special early effort should go towards those who have no protection at all (even though cost restructuring is ultimately needed to make all coverage sustainable).

In addition to placing the FEHBP under the supervision of a new Federal Health Board, the Board would also oversee a network of regional exchanges, direct their operation and become the regulator for insurers choosing the national option. Like the Federal Reserve, the Health Fed would make judgments about complex issues such as the specific details of coverage contracts and acceptable business practices. Also like the Federal Reserve, the Health Fed would be fee-funded and thus not subject to annual appropriations.² One potential funding source is a small percentage of all health insurance premiums; for example, in 2006, a one percent assessment on premiums would have yielded over $6 billion.

The Health Fed would be semi-independent. Its governors could be appointed for fourteen year terms. They would not be drawn as ex-officio but rather would be the best candidates with knowledge of the complexities of health care without personal conflicts of interest. They would be supported by an expert staff that could be drawn from the existing agencies of Congress like the Medicare Payment Advisory Commission, the Agency for Health Research and Quality and CMS, as well as state governments. The board and its staff could build on the work of the National Association of Insurance Commissioners (NAIC), which has been successful in moving to national financial standards. It would seek broad input to establish the regulatory frame work for those insurers who choose national accreditation.

The Health Fed would establish the locations and responsibilities of a network of independent regional exchanges. The “National Health Fed Governors” would select regional exchange presidents or chairs while remaining officers could be elected from among the appropriate stakeholders. The Health Fed would establish standards to be used by regional exchanges. The standards would insure that the exchanges operated fairly, transparently and uniformly, that the plans’ offerings were easily understood and that the plans met financial, quality and service standards. Regional exchanges could have both regulatory and research staffs to understand and evaluate innovative programs.

It is time to rethink regulation. The regulatory framework today should reflect new conditions and public-policy goals. In an era of consumer choice there is an urgent need to improve value for money. To facilitate this goal there should be an optional single source of regulation at the federal level to speed new product approval and spread cost-reducing innovations from one state to another. Regulation should encourage multi-state insurers to enter regional markets with risk-bearing plans to increase competition. An informed-choice system would obviate the need for much existing regulation so that different delivery-system designs, including those that share cost-reduction gains with providers, can challenge one another in the marketplace to spur efficiency.

The Health Fed could modernize and simplify health insurance regulation and provide an alternative federal regulatory system. The model conveys impartiality, expertise, freedom from narrow political interests, stability and a long-term perspective. While health care is more complex than banking it is already a shared responsibility of state and federal government, just like banking in 1913 when legislation established the Federal Reserve. That law was a political compromise which echoes the health care environment today.

For decades there have been calls for systematic assessment of medical technologies, clinical interventions and outcomes and more recently, for formalized comparative effectiveness studies. Yet federal support has been limited and haphazard. Existing organizations cannot evaluate technologies and practices because of inadequate resources and fragmented efforts.³ In one well publicized case a federal agency that did such a study suffered severe budgetary retaliation from disgruntled surgeons who didn’t like the findings, taking their disagreements to Congress. The health care system urgently needs a new entity, which might be called the Institute of Medical Outcomes and Technology Assessment (IMOTA), to asses the effectiveness, cost and value of health interventions and practices, including drugs, devices, diagnostics tests and medical practices and procedures. IMOTA, like the health-insurance exchange system, could be a part of the Health Fed.

Like the Federal Reserve, IMOTA should be freestanding and semi-autonomous with a board resembling the Federal Reserve in selection of members, numbers and terms. The board should set priorities, approve research, overstaff and operations, coordinate with outside health groups and insure integrity and independence. The director should brief Congress periodically. Like funding for the Health Fed, IMOTA’s budget should come from the health care financing system without annual appropriations.⁴ While IMOTA would provide analyses, evaluations and findings, it would not make decisions about coverage. Such decisions would remain with the same agencies and private insurers now responsible for them.⁵

Phase II: Progressively Expand Coverage

As the second phase of transition to market-based universal health insurance, we recommend extending the availability of a wide range of responsible choices of insurance carriers and delivery systems within the employment-based health insurance system by including all small employers (of up to 50 or 100 employees) in the new exchange system. We should further expand participation to the self-employed. The system should be open to entire states at the request of the governors and legislature.⁶ When the new system is up and running, demonstrating its success, the firm size threshold should be raised progressively to 200 employees, then 500 employees, and so on, until all employers are covered.

To build universal cost consciousness and free resources to subsidize access for low income people we should limit the amount of the employer contribution to employee health insurance that can be excluded from the taxable incomes of employees and from employer taxable incomes. President Bush proposed a version of this limit to help finance a tax incentive for people without employer-based health insurance to buy in the individual market. While some objected because the market for individual policies would not help employees in states where there is no community rating or guaranteed issue (thus leaving out many people with chronic conditions), a market-based, universal health plan would ensure guaranteed issue and the same price for the same class of coverage regardless of health status. Therefore a limit on the tax preference is important to create incentives for economical choice and fairness. Why should taxpayers continue to subsidize more costly choices when good quality/less costly choices are available?

The limit on tax-free contributions would prevent employees from demanding supplemental payments from their employers that would subsidize more expensive, inefficient health plans, and undermine competition to attract cost-conscious consumers. To the same end, employers should be required to make fixed dollar contributions as a condition of employees receiving the exclusion of employer contributions from taxable income.

Finally in Phase II, the functions of the Health Fed would be expanded to integrate data from the exchange system and other national agencies and, like the Federal Reserve, periodic “Beige Books” to describe the available plans, affordability and performance metrics of plans and providers. This would facilitate public discussion of the efficacy of plans, what services should be covered, strategy for performance, efficiency and quality improvement with universal coverage and more. If health expenditures continue to grow unsustainably, the Health Fed should analyze the causes and report to the Congress with recommendations.

Phase III: Achieve Market-Based Universal Health Insurance

To complete the transition to universal health insurance, replace all the employer contributions with universal fixed-dollar credits financed by broad-based tax revenues. To help these credits eliminate any tax break for employer-paid health insurance or health benefits.

Conclusion

If the United States is to achieve sustainable, quality, affordable health care, the health sector must achieve the improvement in efficiency that has become commonplace in virtually every other sector of the economy. Under the proposed system, those who prefer fee-for-service care can keep it if they are wiling to pay any difference in price. However, most people with choices have proven happy to consider evolving delivery modes that emphasize preventive care and healthy behavior, early intervention against and sustained control of chronic disease and better use of contemporary digital technology.

The health insurance model presented here relies on incentives for individuals to choose both plans and providers that offer what those individuals judge to be the best combination of quality and price. Exposing the healthcare sector to such competitive forces will create a new dynamic toward improvement. Without these incentives, health care delivery has trundled along essentially unchanged and prices have grown much faster than average incomes in the economy, leaving growing numbers of people that cannot afford coverage at all.

*In honor of Dr. Jerome Grossman, who contributed so much to so many… I had the pleasure of having breakfast with Jerry in Washington, DC four months before he passed away. He was willing to give me his time and advice and I will always treasure the memory of bouncing medical banking ideas around with him as we envisioned an improved health care system using banking. He said the Health Fed wouldn’t happen for 10 years unless there was a grave economic crisis. Little did he know…

—John Casillas

Honor Roll

The New York Times, “Jerome H. Grossman, Health Care Policy Expert, is Dead at 68”

The Boston Globe, “Jerome Grossman, Led New England Medical Center for 16 Years”

Notes

¹The NAIC’s greatest success has been in the development of uniform financial standards – for example, risk-based capital standards, standard statutory accounting principles, and uniform financial statements. Those standards are enforced through a detail system of accreditation, which all but one state (New York) follow. The NAIC has also developed uniform financial examination and market-conduct examination procedures, and encouraged multi-state examinations to achieve consistency from state to state.

²The Federal Reserve is funded by the interest on its portfolio (mostly U.S. Government securities) and fees for its services to banks. It returns the excess above its expenses to the U.S. Treasury.

³For example, the entire budget of the Agency for Health Research and Quality is less than 0.025 percent of total health spending - $500 million compared with $2 million.

⁴Another approach would be to attach IMOTA to the transitional Medicine Program of the NIH, whose mission includes measuring the comparative effectiveness of new delivery-system technology. That program integrates effectiveness comparisons into new products development, and its work could be seamlessly added to delivery science. However, the NIH lacks the secure funding and political independence of the Health Fed. Independent funding would enable IMOTA to meet the needs of the public even when it threatens powerful political interests.

⁵This point is the key difference between what we recommend and the similar British National Institute for Health and Clinical Excellence (NICE), which is the nationalized British system is perceived to have greater control of actual practice decisions. For a more extensive discussion of the functions of IMOTA, see appendix E.

⁶The Employee Retirement Income Security Act would have to be changed by Congress and the President to allow states to make such decisions for all their residents.