Health Reform via Guaranteed Choice

America's health care system further unraveled relentlessly in 2008, with the Wall Street meltdown and economic uncertainty adding to citizens' anxiety over their health care in an increasingly dicey future.

Barack Obama has put forward a plan that promises to avoid both government-run health care and the unregulated status quo dominated by big private insurers. Obama's plan promises to allow Americans to keep their private insurance or enroll in a Medicare-style public plan, while imposing strong new regulations forcing insurers, for example, to accept enrollees without regard to pre-existing conditions.

The Obama plan is backed in its essentials by a new coalition called Health Care for America Now (HCAN) composed of labor and citizen-advocacy groups, which heralds its guaranteed choice proposal as "a bold new solution that gives you real choice and a guarantee of quality coverage you can afford: keep your current private insurance plan, pick a new private insurance plan, or join a public health insurance plan."

But is the Obama-HCAN production destined to be a flop, a sequel to the failed 1993-94 Clinton health reform effort, which also left private insurance companies as the chief regulator of health care in America? Moreover, contrary to Obama's statement that "health care is a right" during the final debate with John McCain (who labeled it a "responsibility"), the guaranteed choice approach overlooks the demise of state-based reforms heavily premised on individuals' responsibility to purchase insurance for themselves and families. While the new effort features harsher rhetoric against insurers, it reinforces the illusion that the present system entitles individual consumers to freely pick their insurer, rather than the other way around. Guaranteed choice advocates also appear overconfident in the ability of regulators to force insurers to actually implement reforms.

Single-Payer Supporters & Detractors

Dr. Oliver Fein and Joanne Landy spotlight the central danger of the guaranteed choice strategy: "Halfway solutions won't work, particularly those that put more taxpayer money into helping people buy more private health insurance. Private health insurance is not only extremely costly; it will also result in more and more under-insurance and actually moves us away from achieving universal health coverage. In order to maintain profits and control their costs, private insurers will jack up deductibles and co-pays and cut benefits, [while] do[ing] all they can to recruit the healthy and avoid the sick."

Despite the structural flaws of Obama's plan, his approach will at least allow progressives to argue that the public component of guaranteed choice should become the dominant model of U.S. health care reform.

Since George W. Bush's became president in 2001, the deterioration of the health care system has proceeded exponentially. As a result, strong majorities of both the general public and doctors now favor a Canadian-style single-payer plan that would largely displace private insurers with one public authority in each state.

For example, in 2005, Business Week summarized its survey results among the public in these terms: "67 percent of all Americans think it's a good idea to guarantee health care for all U.S. citizens, as Canada and Britain do, with just 27 percent dissenting." More recently, a new poll published April 1 in the Annals of Internal Medicine shows that 59 percent of U.S. doctors support a "single-payer" plan that essentially dethrones private insurers. Moreover, Rep. John Conyers's bill for single-payer health care, HR 676, has 92 co-signers, far more than any other health proposal in Congress.

Essentially, single-payer plans, operating in nations as diverse as Canada and Taiwan, provide health care to all citizens and permit them free choice of their doctors and hospitals. They also largely eliminate the commanding role of private insurers in the system and the huge administrative costs they impose, enabling the health system to cover every citizen. The single-payer plans are typically funded by a mixture of general tax revenues and payroll taxes.

However, the Obama-HCAN guaranteed choice policy direction would leave private insurers at the core of the health-care system, along with adding a public, Medicare-style option. Obama supports a model based upon an "individual mandate" to purchase private insurance. This mandate has been the shoal on which a number of state-level reform plans have crashed and splintered. Moreover, the guaranteed choice plan is premised on the illusion that individual consumers—rather than their employers or insurers—have the final say on insurance costs, coverage, and co-pays.

Further, the absence of effective cost controls in the guaranteed choice plan means that unrestrained medical cost inflation will undermine efforts to establish and retain coverage for all Americans. More and more ill and aging Americans will likely feel pressure to choose the public plan, leaving it with a disproportionately heavy burden of expensive patients gleefully abandoned by private insurers.

During the Democratic presidential primary, the effort to disqualify from serious consideration the single-payer alternative has been led by a group of influential public-interest and labor leaders, and academics who consider themselves realists, with almost the entire Democratic field of candidates following in their wake. These pragmatists—now gathered in HCAN—and are seeking to marginalize the single-payer approach in favor of guaranteed choice. The pragmatists insist that the American public is not fully committed to a publicly-administered insurance system and are now lobbying members of Congress with the argument that a single-payer plan is not viable. HCAN also includes a variety of groups including ACORN, Planned Parenthood, the SEIU, National Council of La Raza, and USAction.

Some of the pragmatists have not disguised their scorn for the single-payer approach. The SEIU's Andrew Stern has proclaimed, "Americans want to have an American solution, not a Canadian solution." In the same vein, Families USA's Ron Pollack has stated that he favors an approach that "allow[s] a marketplace to [function] with some ground rules, as opposed to saying that government is going to make all the decisions"—a caricature of the single-payer plan that was employed in one Obama TV ad as noted above.

Clear Alternative Or Untested Plan?

In the eyes of single-payer advocates, the push for guaranteed choice threatens to fracture the potential unity behind a proven and comprehensible alternative, in favor of a much less coherent plan of questionable feasibility and limited ability to generate mass support. Don McCanne of the Physicians for a National Health Plan warns, "It is likely that the next president of the United States will enter office having campaigned on the promise of allowing you to keep the insurance you have"—a vow that will prove impossible to keep. "Keeping the insurance you have"—in terms of price, range of choices, and quality—is dependent on decisions made by employers and insurers, not employees, yet, "Large coalitions are forming to spread this gospel," observes McCanne. "They are rejecting those who call for a national health plan [i.e., single-payer], stating that the policy debate is over, and now it is all about unity."

The pragmatists' call for a unified reform campaign rings somewhat hollow given the disparagement of the single-payer plan by prominent leaders like Pollack and Stern. Still, at least some of the pragmatists like Hickey, co-director of the Campaign for America's Future, believe the public portion of the guaranteed coverage plan leaves enough room to accommodate both the single-payer and pragmatist wings behind it.

To justify their dismissing single-payer, the pragmatists contend that there is insufficient committed public support for such a system at this time. Hickey argues that polling shows that more than half of Americans like their present health care plan and are hesitant about plunging ahead into an entirely new system. He cites polling by the AFL-CIO, Stan Greenberg and his Democracy Corps, SEIU, Hart Research, Celinda Lake, and American Environics to back up his case.

Hickey said that the polling showed surprising strong support for the guaranteed choice approach, especially among African-American and Latino union members who seemingly feared that a public system would mean a second-class system, as is the case now with so many public institutions and programs. Among all groups, "We have picked up the attitude that a public program will be more like Medicaid than Medicare," explains Hickey.

These various surveys illustrate that the single-payer plan is not immediately appealing even to those infuriated with the health system, Hickey says. Pollster Celinda Lake tested the guaranteed choice plan of tightly regulated private insurance for all against single-payer, and guaranteed choice "wins 64 percent support to 22 percent for single-payer," Hickey reports. Further, he notes, "Even the hard core progressive part of the population, which Celinda [Lake] calls the 'health justice' constituency, favors guaranteed choice over single-payer."

However, this finding seems to run directly counter to a CBS poll conducted September 14-16, 2007. The CBS survey found that 55 percent preferred "having one health insurance program covering all Americans that would be administered by the government and paid for by taxpayers," compared with 29 percent who chose "keeping the current system where many people get their insurance from private employers and some have no insurance."

Nonetheless, Hickey maintains that there is a widely-felt desire to hang on to existing insurance benefits, coupled with realism about corporate America's relentless shrinkage of health care benefits. But there is little wonder why a majority would desperately hope, against a backdrop of fast-disappearing health benefits, to "keep the insurance you have." "For healthier individuals who believe that they have good insurance, this concept polls very well. In fact, the other questions in the polls are now tailored to reinforce this simple concept," McCanne points out.

The immediate health-care vista observed by most Americans is indeed frightening. U.S. corporations have been "remarkably successful at shifting health-care costs onto employees, their families, and other individuals," notes Professor Marie Gottschalk—a success that also dampens corporate America's self-interest in enacting health-care reform. Many employers are dropping coverage of their employees, skidding from about 75 percent in 1992-93 period to 64 percent in 2000 and then again falling to 60 percent in 2006. Similarly, many retirees, accustomed to employer plans supplementing Medicare, are finding that corporations are raising premiums astronomically or allocating a fixed sum for all retiree health costs, thereby placing the burden on workers or their unions.

Moreover, there is a well-grounded fear among the public that even "good" insurance coverage may instantly evaporate when an insurer faces paying for a costly treatment. Thus, the possibility of relying upon the "good insurance" side of the guaranteed choice plan seems like it is shrinking fast. Workers' share of premiums is rising rapidly, far faster than wages, with the amount that workers pay toward family health-care coverage skyrocketing 87 percent since 2000.

Insurance Choices Generally Not Up To Workers

In this context, the polling by the guaranteed-choice advocates takes on a distinctly unreal air, say single-payer advocates. McCanne suggests a better survey question would be to ask: "When you did change coverage for reasons not really under your control, did the new plan have better benefits with lower costs than your prior plan?"

With employers flitting from one plan to another, sometimes on an annual basis, the notion of consistent, continuous health coverage has all but disappeared. "The average length of time a patient stays in any given private health insurance plan has dropped to less than two years," notes Rose Anne DeMoro, director of the California Nurses Association. "Health insurance on a continual basis is practically non-existent in the private insurance market," observes McCanne. In countless situations, "the insured individual was not granted the option of 'keeping the insurance you have'," McCanne notes.

While the pragmatists seem eager to close down policy debate and plunge ahead with a campaign for their "winnable" guaranteed choice plan, there is a need to thoroughly examine a number of unanswered questions about the proposal. Even if enacted relatively intact—despite the best efforts of the insurers and their allies—Obama's guaranteed choice plan would likely encounter very serious problems for four reasons:

(1) Bad drives out the good. One immediate barrier to guaranteed choice working is "adverse selection," with private insurers—even under new constraints about accepting all applicants—using a variety of subtle techniques to drive older and sicker patients into the public program. For example, private insurers might use the denial of authorization for treatments to drive away more costly patients. The existing laws and regulatory bodies can do little to effectively protect patients from such unfair denials of care, as insurers routinely use pretexts like "cost cutting" or "quality control" to justify their actions.

As Dr. Steffie Woolhandler puts it, "If you have two groups trying to enroll people in health plans, the bad guys will drive the good guys out of business. The bad guys will selectively recruit healthier people, and push sicker people onto the single-payer plan. Competition is not something that works with health care."

This could even trigger what McCanne calls a "death spiral" for the public plan. "The competition will not be fair because the private insurers will figure how to attract the well by offering perks like free health-club memberships and by advertising aggressively among healthier groups," write Landy and Fein. "Even if they are legally required to insure all applicants," insurers have already shown a high degree of sophistication in carefully marketing to attract the healthy and avoid those with significant health problems. "This will inevitably leave a disproportionate number of the sick to Medicare, which will in turn raise Medicare premiums, which will make it less attractive to healthy people than private insurance," Landy and Fein predict.

Meanwhile, private insurers will continue to try to use their political clout to "game the system," securing unfair subsidies like the 12 to 19 percent in extra payments to insurers offering Medicare Advantage programs.

(2) The savings that would accrue from slashing administrative costs are sacrificed. Clearly, retaining the for-profit insurers forsakes almost all of the potential $350 billion to $400 billion a year in excess administrative overhead that could be eliminated by a single-payer system. Private insurers with their huge overhead costs devoted to a strategy of "denial management"—i.e., paying as few claims as possible—would remain in operation. At the same time, providers would need to maintain their own huge clerical apparatus to fight to minimize the rejection rate of the insurers. Thus, even with a parallel public system attracting a substantial number of patients, most of the overhead costs would still remain as insurers would maintain their bureaucracies and providers such as hospitals and doctors being forced to cope with multiple insurers with intricate differences in coverage.

(3) Meaningful cost controls are absent. The guaranteed choice plan also lacks an effective brake on the greed of for-profit insurers and their ability to boost profits by continually raising premiums. Notably, the guaranteed choice plan remains weak on keeping insurers from further raising premiums purportedly in return for taking on what they view as distasteful and unprofitable obligations. Though the guaranteed choice plan would require insurers to accept all applicants (a practice known as guaranteed issue), insurers may sabotage these regulations via large premium increases and by refusing to authorize needed treatments. Potentially, insurers could also be forced to swallow regulation of their "loss ratio"—the ratio of funds devoted to providing patient care to the enormous funds absorbed in executive pay, profits, marketing, and their massive administrative overhead. But it would take an army of government regulators to guard against insurers improperly allocating all kinds of administrative costs as medical expenses for anything that can be labeled as an effort to improve quality and cut costs.

The cost-cutting mechanisms produced thus far by guaranteed choice advocates fall far short of the proven effectiveness of the single-payer plan in holding down costs through the elimination of bureaucracy and a role for the public in negotiating prices with hospitals, doctors, and pharmaceutical firms. In comparison, Canada's per-person health costs are about half of costs in the U.S. ($3,326 per person in Canada vs. $6,697 in the U.S).

From the single-payer side, Woolhandler of Harvard Medical School and a co-founder of Physicians for a National Health Plan, says, "There's not another plan that will work. All of the other proposals lack feasibility in terms of economics. The other plans simply won't get you to universal health care. The key to the economic feasibility of the single payer plan is administrative savings." Only by realizing those savings—by replacing the private insurers with state-level governmental bodies coupled with negotiated prices with providers—can a system of universal care actually be sustained.

(4) Individual mandates are unaffordable. The backers of guaranteed choice see a mandate for individuals buying health insurance as essential for assuring universal coverage. But these mandates have universally failed, as is occurring now with the new Massachusetts Connector Plan, as Woolhandler pointed out: "The fundamental assumption is that the uninsured have enough money to buy insurance policies that they can buy their way out of the predicament. If they had the money, they'd already have insurance. They don't have money in the first place. Someone my age, in their 50s, and making over $29,400 a year, would get no subsidy. The cost of that premium would be $4,200 a year, but along with that there's a $2,000 deductible before any coverage begins, co-pays, and co-insurance after that first $2,000."

The result is that hundreds of thousands of residents are unable to afford insurance, even if they face stiff financial penalties for failure to enroll. Numerous state-level "universal" plans have sunk upon the very same rock in Massachusetts, Oregon, Tennessee, Minnesota, Vermont, and Washington.

Essentially, plans requiring an individual mandate have been configured to prevent a necessary showdown with private health insurers and their unaffordable premiums. As Woolhandler and Himmelstein observe, "The mandate model for health care rests on impeccable political logic: avoiding challenging insurance firms' stranglehold on health care. But it is economic nonsense. The reliance on private insurers makes universal coverage unaffordable."

The outcome is "coverage without care," as Dr. Marcia Angell puts it. This ultimately has a corrosive effect on the public's confidence in government's ability to serve their interests, much as the defeat of Clinton's complex and insurer-centered health-care plan did in 1994. As economist Robert Kuttner puts it, "Universal social insurance signals government help. A mandate signals government coercion." Such an approach seems destined to waste the massive support for a single-payer health system.

Despite Barack Obama's avowed hopes for change, a guaranteed choice plan, manacled to private insurers, may ultimately deepen public cynicism about the possibility of any substantive help with their increasingly desperate health care situation.

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Roger Bybee is a Milwaukee-based activist and writer. His articles have appeared in numerous publications.