Three of the chief health-care challenges facing the United States are: finding a way to provide coverage for the millions of uninsured, reforming Medicare, and setting up a prescription-drug plan for the elderly. Faculty members at Wharton say the Bush administration is likely to make headway on only the third of these problems in the next two years.
In itself, these experts say, a prescription program for the elderly is worthwhile, but it would not begin to address the full extent of the health-care crisis in America.
According to Mark V. Pauly, professor of health care systems at Wharton, a prescription-drug plan is not the most vital health issue facing the country; insuring the uninsured is the most important, in his view. Yet he says the White House and Congress have little choice but to make a prescription plan their top priority. “Now that the Republicans have [control of the White House and both houses of Congress] they are going to have to do a prescription-drug program,” says Pauly. “The cost of the program will be very substantial and won’t help the government’s fiscal situation. But since the Republicans have promised it so vigorously, they’re going to have to go ahead with it.”
Republicans favor using competing private insurers to administer a drug program, while Democrats want the government to administer it through Medicare. “The Republican proposal is less aggressive than the Democratic one in providing coverage, but my view is anything is better than nothing,” adds Pauly.
The Republican proposal, he notes, has two parts: universal catastrophic drug coverage, plus a complex component that would provide upfront coverage for low-income people. The catastrophic coverage would make drugs virtually free after a person has spent thousands of dollars out of pocket. Under the other component, the Republican plan would pay a certain percentage of a person’s drug bills at first, but then insurance would stop entirely until more bills piled up. When the cost of the drugs reached a certain point, the catastrophic coverage would kick in.
“The rationale is that the upfront portion would cover those drugs that would be more preventative in nature, so that Medicare won’t get hit with bigger hospital and doctor bills later,” Pauly says, adding that the Republican version would cost some $300 billion over 10 years, the Democratic version about twice that. “Relative to the budget, it’s not an enormous expense, but it’s still a lot of money.”
Sean Nicholson, professor of health care systems, agrees with Pauly that a prescription drug plan for old people is not the nation’s “most pressing” need. He explains that 70% percent of the elderly get drug coverage through some channel – either from Medigap insurance, from their former employer, or from Medicare or Medicaid.
Nicholson also believes that enacting a prescription plan falls short of the kind of overarching reforms needed to improve the nation’s health-care system. If they pass a drug plan, lawmakers may feel they have done enough for the time being and be more likely to defer serious consideration of other issues, like coverage for the uninsured. “It just postpones a more constructive, meaningful solution,” Nicholson says. “It may push out to five or 10 years the time when Congress really tackles Medicare. In that sense, it’s unfortunate. But, at the same time, innovations are taking place in the pharmaceutical sector and it’s important to give the elderly access to those products.”
Robert I. Field, professor of health policy at University of the Sciences in Philadelphia and an adjunct professor at Wharton, says the prescription-drug issue is important for several reasons. First, a prescription-drug plan would relieve the financial burden on those who have trouble affording medication. Second, a drug program would allow the health system to improve the overall delivery of medical care.
“By increasing access to prescription drugs, we see a ‘drug dividend’ – reductions in visits to hospitals and in the number of procedures that patients undergo,” Field says. “In addition to managing chronic diseases, many prescription-drug treatments prevent hospitalizations and health complications. We’re not going to realize the full benefits of the drug dividend if all people don’t have access to the medications they need.”
In Nicholson’s view, overhauling Medicare is more vital than a drug program for seniors. “Medicare is a lousy health insurance plan in the sense that it doesn’t protect individuals against very long hospital stays or catastrophic expenses. Individuals pay the first $800 of hospital care and the first $100 of outpatient physicians’ visits. And if they’re in the hospital more than 60 or 90 days, they could end up paying another $250 per day for hospital care. That’s not optimal health insurance. Insurance is supposed to protect people from financial ruin, but Medicare doesn’t do that. The least likely people to purchase Medigap coverage [which takes care of expenses not covered by Medicare] are low-income people, so it’s essential to have Medicare protect people against catastrophic loss.”
Nicholson says revamping Medicare to make it more effective would not, as some may think, require a large, new government program. It might be possible, for instance, to have private-sector health plans bid for the business of Medicare beneficiaries.
“But Medicare would have to be willing to pay more in sheer dollars for health insurance so that insurance companies could provide more comprehensive benefits,” according to Nicholson. “The Medicare HMO program had 18% of Medicare beneficiaries enrolled in Medicare HMOs in the late 1990s. So one solution could be as simple as this: rather than sinking money into a prescription-drug program, let’s put more money into the Medicare HMO program and have it compete with the traditional Medicare program. You dangle enough money so that private companies want to offer these more comprehensive plans. To me, that’s more sensible than a prescription-drug plan. It would allow alternative plans to be offered to the elderly to choose if they wanted to, but didn’t have to, and allow companies enough profits in selling prescription-drug coverage.”
A Medicare HMO is a private health plan that must provide at least as many benefits (for example, hospital care) as the traditional Medicare program, but can offer additional benefits such as prescription drug coverage. One way these plans are able to offer additional benefits is by restricting which physicians patients can see. Medicare HMO enrollment has been going down because the government hasn’t been increasing payments sufficiently to keep up with health-care costs.
Insuring the uninsured
Pauly, Nicholson and Field agree that the problem of the uninsured is the nation’s top health issue. Some 41.2 million Americans, or 14.5% of the population, have no health insurance, and many of them have middle-class incomes, according to a report issued in November by the National Academy of Sciences’ Institute of Medicine.
The effects of having millions uninsured, Field points out, are inestimable. For one thing, many people risk serious illnesses or death by putting off necessary care. In addition, the people who pay into insurance pools are forced to pay higher premiums because it costs more to treat uninsured people who become seriously ill as a result of a lack of routine, preventative care. What is more, companies suffer productivity losses because the uninsured frequently miss work due to illnesses that are left untreated.
“Under any political regime, large, expensive new government programs are going to be politically disfavored under present economic conditions,” Field says. “Clearly, under a Republican regime, they won’t even be considered. But that doesn’t mean there isn’t a lot that can be done. We will not solve the problem of the uninsured overnight, but we can make important contributions at the margins.”
The report by the Institute of Medicine recommended that a number of states, as an experiment, pursue the goal of universal coverage by providing tax credits or expanding programs such as Medicaid and the State Children’s Health Insurance Program, known as SCHIP (pronounced ess’-chip). The SCHIP program, funded by the federal government and administered by the states, provides financial help for children whose families are not on Medicaid but are not wealthy enough to afford routine care.
“SCHIP was a significant contributor in the effort to insure the uninsured that occurred in the late 1990s,” Field says. “By extending coverage and permitting states more latitude in administering SCHIP, we could cover an important group of people. The Institute of Medicine says the federal government should encourage five or six states to try experiments with universal coverage, so that we can see on a lower level what might work on a national scale. Encouraging experimentation is a good idea.”
For their part, Pauly and Nicholson favor the use of tax credits or vouchers to provide health insurance to low-income people. “Democrats dislike this idea and prefer to expand Medicaid, but I’m not as distrustful of private insurers,” Pauly says. “I’m willing to go for anything to reduce the number of uninsured. To me, that’s more important than providing prescription-drug benefits to seniors who already get it.”
In a book published by the American Enterprise Institute earlier this year, Pauly and co-author John Hoff, an attorney specializing in health issues, proposed a plan under which low-and middle-income people could take advantage of tax credits for basic coverage that would vary inversely with their incomes. In the book, titled Responsible Tax Credits for Health Insurance, Pauly and Hoff argue that the failure of large-scale compulsory proposals for covering the uninsured has set the stage for the use of flexible, well-designed, refundable tax credits or vouchers to cover part of the premiums for private or public health insurance.
Providing coverage for the millions of uninsured is not likely to happen soon, but something eventually will need to be done. “Insuring the uninsured is the most vexing problem of all,” says Nicholson. “Realistically, vouchers or tax credits are the best way.”