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 Bushs 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
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 HCFAs 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 HCFAs control over the program to an independent
board is anathema to many in Congress. A compromise that retains HCFAs
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 Medicares 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 fewperhaps only
25 percentof 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-Childrens 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
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 fewperhaps only 3 millionof
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
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.