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July 23, 2001

Congress vs. U.S. Health Care

Kenneth Thorpe is Woodruff Professor and chair of health policy and management in the School of Public Health.



Presidential campaigns highlight differences among how candidates would address our key domestic, military and foreign policy issues. However, governing requires the ability to identify areas of common interest and a strategy for reconciling disagreements.

Leading the list of challenges facing President George W. Bush and Congress is health care. Now that Bush’s tax cut has been approved by Congress and general spending levels for health-care reform are more clear, policy makers are quickly moving to the specifics. These will include how to reform Medicare and what form a prescription drug benefit will assume. Moreover, Congress will continue to debate how to reduce the number of uninsured.

Most agree on the problems: Medicare has an antiquated benefit package, does not include coverage for outpatient prescription drugs, is overregulated by Congress, and faces financial challenges from the impending retirement of baby boomers.

Several proposals have been advanced to address these issues. The leading Democratic and Republican proposals appear to have several common themes. Despite the rhetoric, there is substantial common ground for forging a broader consensus on reform. Both parties generally agree that market forces, including competitive bidding, should be used to pay managed care plans in the Medicare program. Both would like to provide broader choices to seniors and additional flexibility to health plans.

At issue, however, is the future of the traditional Medicare program, through which 83 percent of beneficiaries receive their coverage. Republicans and some Democrats would like to wrest control over the program from the Health Care Financing Administration (HCFA) and redirect it to a more “independent” federal board. Critics cite HCFA’s heavy-handed, regulatory, command-and-control approach to traditional Medicare. Even many Democrats would allow HCFA to adopt tools used by the private sector to control costs and improve quality (for example, competitive bidding for medical equipment and supplies).

A good starting point for melding a compromise is the most recent proposal advanced by Senators John Breaux (D-La.) and William Frist (R-Tenn.). Their proposal includes many aspects favored by Democrats, including competitive bidding, assurance that premiums paid by beneficiaries enrolled in traditional Medicare remain the same as current law provides, and new options providing financial incentives to select lower-priced plans.

A key area for compromise concerns the role of HCFA in governing traditional Medicare. Relinquishing HCFA’s control over the program to an independent board is anathema to many in Congress. A compromise that retains HCFA’s oversight might provide more flexibility to managed-care plans to determine benefits offered Medicare beneficiaries.

Medicare beneficiaries interested in purchasing outpatient drug coverage have few options if they are ineligible for Medicaid or employer-sponsored insurance. They can either enroll in a managed care plan with drug coverage or purchase a Medigap policy.

Because it limits the choice of hospitals and physicians, managed care is often unpopular with seniors. Indeed, despite the allure of broader benefits, only 7 million of Medicare’s 40 million beneficiaries have enrolled in such plans. Moreover, managed care plans are not available in all areas of the country, particularly in rural areas. Only 69 percent of beneficiaries live in a county with a managed-care plan.

Medigap coverage is also problematic. It is costly; the added cost of purchasing prescription drug coverage through a Medigap plan ranges from $1,250 per year for a limited benefit to $3,000 per year for a more comprehensive benefit. As a result of these limitations, approximately 15 million Medicare beneficiaries have no coverage for outpatient prescription drugs.

During the campaign, Bush advanced a modest drug proposal: federal grants to states to enroll seniors in families under 175 percent of poverty level, followed by a broader benefit starting in 2005.

Grants to the states would have a limited impact on extending insurance to the 15 million uninsured; most would not be eligible for coverage. Moreover, based on experience in the states, very few—perhaps only 25 percent—of those eligible would actually enroll.

In contrast, the leading Republican and Democratic proposals from the last session of Congress have several common themes. For instance, everybody would be eligible to purchase a government-subsidized voluntary drug benefit. The government would not regulate drug prices. Instead, prices would be administered by private-sector pharmacy benefit managers. These similarities represent an important base for building a broader consensus, one that Bush could help develop.

However, to build a political compromise, Bush would have to drop his proposed federal grants to the states (“immediate helping hand” proposal) and move closer to the existing Republican proposal from the last Congress. The state-based approach seems to have won few converts. With the House Republican proposal as the starting point, the debate and ultimate compromise could focus on such key issues as the share of the premium to be paid by seniors, establishment of a basic minimum benefit and catastrophic coverage, and how the benefit is administered. Many of the same philosophical issues outlined here underlie the debate over reforming Medicare (particularly the sticky issues of governance).

Federal programs to reduce the number of uninsured could serve as an important test for bipartisanship in Congress. Congressional Democrats and Republicans as well as the president have outlined proposals for extending coverage to the 43 million uninsured.

The Democratic proposals would expand the State-Children’s Health Insurance Program (SCHIP) to include low-income adults and parents. Extending eligibility to all adults under 300 percent of poverty level would, along with SCHIP, make two-thirds of all the uninsured eligible for health insurance coverage.

SCHIP has been used widely by states to expand coverage to adults. Through a variety of federal waivers, some 17 states have expanded coverage to adults through Medicaid or the SCHIP. The most notable and substantial of these expansions have occurred in states with Republican governors, including Wisconsin, Rhode Island, New York, Tennessee and Massachusetts. Congressional

Democrats and governors from both parties seem to agree on using SCHIP as a key approach for extending coverage to adults.

Tax credits, rather than SCHIP, have been proposed by Bush and the Republicans as the vehicle for extending coverage to the uninsured. Many Republi-cans view SCHIP as “big government” and prefer tax credits to expand choice within the private market.

However, tax credits face two problems. First, Congress-ional proposals would provide up to $1,000 in credit for a single person and $2,000 for a family. These credits would cover only a third of the cost of a typical insurance policy. As a result, very few—perhaps only 3 million—of the uninsured would purchase insurance.

A second issue concerns the coordination of the tax-based approach with SCHIP. With the tax credit approach, the uninsured would rely on the individual market to purchase insurance. Such policies are more expensive than products purchased in the group market or through SCHIP.

Though the current Republican and Democratic proposals differ widely, a compromise position could combine the approaches. This would require the Republicans to concede that to insure sizable numbers of the uninsured, government will have to finance virtually all costs of enrolling the low-income uninsured and that SCHIP is the most efficient way to enroll low-income adults and families.

At the same time, Democrats would have to embrace tax credits as the approach for distributing federal subsidies to moderate-income families.

In light of its popularity among the states, SCHIP appears to be the most efficient vehicle for extending coverage to low-income adults and families. Tax credits could be used to provide incentives for adults and families above 150 percent of poverty level to purchase health insurance. States should be given considerable flexibility in structuring the choice of plans.

Reforming health care is a top priority, but one fraught with well-defined partisan positions. It represents a set of issues that will test the ability of the new president and Congress to strike bipartisan agreements and a productive working relationship. Though embracing these issues and forging constructive compromise involve considerable political risk, inactivity may pose even greater peril.

A version of this essay first appeared in the Spring 2001 Momentum.


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