Published 11/1/2009
Louis G. Jenis, MD; John Flint, MD; Alok D. Sharan, MD

Health insurance: Is there a better way to cover Americans?

Why reforming health care requires reforming health insurance

Why are 47 million Americans uninsured? Both the number and the reasons are under constant investigation and vigorous debate. But the number of truly uninsured individuals is probably smaller and includes noncitizens, individuals who earn enough to purchase insurance but choose not to, individuals who qualify for government programs but have not enrolled, and individuals who do not qualify for any programs and do not receive insurance benefits from their employers.

According to a 2005 report from the U.S. Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation, among Americans who are insured, most (60 percent) receive healthcare benefits from their employer or their spouse’s employer. Government plans (Medicare/Medicaid/military) cover 31 percent, and 9 percent purchase insurance coverage on their own (Fig. 1).

The uninsured population is disproportionately young adults, usually without children, who are generally healthy and are working for small firms. Among these individuals, however, are many who could afford insurance if they chose to purchase it and could find a plan. Going without health insurance coverage is a temporary situation for many people who are between jobs. The Kaiser Family Foundation estimates that the number of uninsured Americans who do not qualify for government programs and make less than $50,000 a year is between 8.3 million and 13.9 million individuals.

Citizens who are not insured and have no practical way of obtaining insurance, however, are at great risk for financial ruin if they have health issues or pre-existing conditions. They also often fail to receive preventive health care.

Several proposals to ensure that all Americans can obtain health insurance coverage are being discussed as part of the current healthcare reform debate. Among these are a public option, medical cooperatives, and health insurance exchanges.

The public option
As the costs of health care increase, many businesses are finding it difficult to provide health insurance for their employees. As a result, many working individuals are losing their healthcare coverage. One solution currently being discussed is the creation of a public option.

Although the Obama administration has not defined the details of how a public option would be structured, some broad principles have been described. Essentially, the public option would be a government-run program that would provide health insurance for individuals who could not obtain it through their employer or the government. Small business employers who could not provide health insurance for their employees would have to pay a tax to help finance the public option.

Although the public option would fill the gap in coverage for the uninsured by providing basic coverage, many individuals believe the public option is a “Trojan horse” for a government-run program. The Lewin Group, a healthcare policy research and consulting firm, believes that many small businesses will drop their employee plans, and these employees will join the public option. Over time, this will result in the government providing health care for most of the population.

Proponents of the public option see it as a competitor to insurance companies, which would force the companies to provide higher quality care for a better value. On the other hand, many believe that private companies cannot compete with any government-run program. A public option with the advantage of government funding would not have to face true market competition.

Medical co-ops
The concept of a healthcare cooperative, or co-op, is not new, but served as the basis for the first health insurance programs. The early designs of the Blue Cross/Blue Shield plans were similar to a cooperative, with the ultimate goal of community service, and were operating long before commercial insurance plans were developed. In addition, credit unions and mutual insurance companies provide precedent in the financial, residential, and insurance markets.

Healthcare cooperatives could be groups that organize coverage provided by insurers or groups that seek to be insured by one provider. Sen. Kent Conrad (D-N.D.) has proposed using healthcare cooperatives instead of a public option plan. Proponents of a national co-op claim that the number of insured patients would enhance the co-op’s bargaining powers with providers, particularly with national and global pharmaceutical agencies and other medical suppliers, resulting in decreased expenses. In addition, a national co-op could provide a platform for a database on healthcare use and stimulate national quality initiatives.

The formation, operation, and growth of a national co-op, however, remain formidable obstacles to its adoption. Shifting from incentives based on fee-for-service to those based on outcomes and accountability would require a shift in physician attitudes. Perceived physician loss of control over healthcare resources and intrusion into the patient/physician relationship are also barriers.

Sen. Conrad’s proposal would permit the national co-op to serve state-level or larger geographic area co-ops. It would be governed by elected boards, allowing for regional level administration. By functioning as an insurer, the national co-op could contract directly with healthcare providers such as hospitals, hospital systems, or multispecialty physician groups, which would allow for coordinated, high-quality deliverance of care. The proposed co-op would depend on seed money from the federal government but would be required to abide by the same rules that apply to private insurance plans.

Critics of this plan say that the initial seed funding would allow the government to be involved later in the evolution of a national co-op. They also note that the co-op would require a critical number of insurers to compete with current private health insurance systems.

Health insurance exchange
Health insurance exchanges are part of both the president’s plan and the Senate Finance Committee plan. To understand the rationale of a healthcare exchange, one must admit to several deficiencies in the current healthcare system, including spread of risk, cost containment, high administrative costs, a certain number of policies with inadequate coverage, lack of competition or lack of transparency of competition, and lack of health insurance accountability.

The purpose of a health insurance exchange would be to organize the insurance market around essential requirements for insurers and to make it easier for consumers to compare different options. The goal of the exchange is to maximize the competition among plans and choice for consumers. It would help consumers understand the value and cost-effectiveness of various options. The exchange also aims to reduce the number of high-risk individuals who cannot obtain coverage and to spread the costs of caring for the medically infirm more broadly.

These goals would be achieved by streamlining and standardizing the insurance company requirements, which would reduce administrative costs. With standardized, government-imposed minimum standards of coverage, consumers would know that they had adequate coverage.

The exchange itself would not bear risk as insurance companies do, but it would serve as an organizing entity, or clearinghouse, bringing buyers and sellers together, standardizing policy offerings, facilitating the understanding and purchasing of policies, and regulating policies to meet government standards. With the exchange acting as a clearinghouse, the need to establish new government bodies to regulate the various imposed requirements would be circumvented.

What’s next?
The healthcare reform debate is ongoing. During the past few months, the discussion has become heated and has involved numerous political and economic influences. As of this writing, no proposal has generated sufficient support to pass, and congressional subcommittees are still attempting to negotiate an acceptable proposal. Whether any—and which—of these proposals actually is implemented remains to be seen.

Louis G. Jenis, MD, is a member of the 2009-2010 Leadership Fellows Program; John Flint, MD, and Alok D. Sharan, MD, are Washington Health Policy Fellows.

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