Health care coverage for all: Hits, misses and possible fixes

As more and more states begin targeting insurance reform, the costs and problems they face become increasing evident. Still, the current system of health-insurance coverage in the U.S. has been "crumbling for 30 years," says Bradford Kirkmann-Liff, a professor in the School of Health Management and Policy at the W. P. Carey School of Business. In part two of Knowledge@W. P. Carey's coverage of state health care initiatives, Kirkman-Liff joins his colleague, Marjorie Baldwin, director of the health-management school, in offering ideas on reforms that could protect the 45-million Americans without health insurance safety nets.

State healthcare cures are just getting started and, already, they're catching flack. Three and half weeks after the July 1 commencement date of the Massachusetts healthcare reform law, The Wall Street Journal reported that the state's mandate for personal health-insurance coverage has hit a snag. Yes, people are signing up for policies rather than face the tax penalties that uninsured status will bring in 2008.

But, a critical shortage of primary-care physicians plagues the Bay State and leaves the newly insured hopelessly hunting for doctors. According to a study released on July 24 by the Massachusetts Medical Society, 54 percent of the state's community hospitals report doctor shortages in internal medicine, and 43 percent report similar physician scarcity in family practice.

Almost half — 49 percent — of internists surveyed are not accepting new patients. Clearly, having insurance doesn't necessarily mean having a doctor. A day before reporting this story, WSJ writers lambasted policy wonks in the State of Wisconsin, another place where legislators are trying to provide health insurance for all.

As lawmakers try to hammer out a free healthcare program for those who need it, the WSJ reports, "Wow, is 'free' healthcare expensive. The plan would cost an estimated $15.2 billion, or $3 billion more than the state currently collects" in taxes. More and more states are targeting insurance reform, so there are likely to be increasing revelations of the problems and costs it may bring.

Still, the current system of health-insurance coverage in the U.S. has been "crumbling for 30 years," says Bradford Kirkman-Liff, a professor in the School of Health Management and Policy at the W. P. Carey School of Business. Below, Kirkman-Liff joins his colleague, Marjorie Baldwin, director of the health-management school, in offering ideas on reforms that would make good policy sense and protect the 45-million Americans without health insurance safety nets.

To market, to market

Baldwin, who is an economist, will tell you, "Economists are naturally suspicious of government." That's why she favors "market-based reforms." For one thing, she'd like to see state-boundary lines removed in terms of healthcare. "Create a national market for health insurance," she says. The way things work now, individual states regulate coverage details and plan designs. If an insurer doesn't play by a state's rules, it can't sell products within the state's boundaries.

What's more, residents can't go outside the state for coverage. According to Baldwin, that's equivalent to a state saying, "You can't gamble in our state. And, you can't fly to Las Vegas to gamble there, either." Another change Baldwin would like to see involves tax reform. "The majority of people who are getting insurance through employers are paying for it with pre-tax dollars," she explains.

The employer's portion of the cost is actually part of an employee's compensation, because it's part of the compensatory benefits package. And, since employees' portions of the coverage come out of salaries before taxes hit them, those with employer-based healthcare plans get a tax write-off that the self-insured don't enjoy.

Allowing individuals to deduct the complete cost of their health-insurance premiums should "start to open up the market to plans that would be more affordable to people who now opt to forego coverage," Baldwin states. That's because removal of the cost barrier for many buyers will, in theory, inspire insurers to create more coverage options with varied price tags. Baldwin adds that she doesn't envision an end to an employer-based healthcare system until "we open up the tax code." However, market forces should take it from there.

Buy insurance? Make me.

Kirkman-Liff likes the idea of tax breaks, too, but he takes a different stance on market vs. government forces solving the problem of uninsured Americans. "There has to be a mandate on individuals to buy insurance," he says. Some states reflect this view in their proposed policy changes. Massachusetts already has a mandatory health-insurance law in place. Similar mandates are under review in Pennsylvania, California and other states.

So, how do you make health insurance something everyone can afford? Most states are looking at subsidies for low-income residents. For those who don't have low incomes, Kirkman-Liff has an idea: "We recognize that there are possible catastrophic costs in the healthcare system, such as for the person who needs a heart transplant," he says. "Even though they are only a small percentage of the population, these people have incredibly high costs."

His method of dealing with those sky-high costs is to have the government pick up the tab once it crosses a threshold of $250,000 or so. "We restructure Medicare so that everyone in the U.S. gets a Medicare card." But, that Medicare doesn't kick in until a person's private insurance has run its course.

"If you're disabled or over age 65, you get the current Medicare program," he adds. This approach, he explains, makes the government a stop-loss provider. "By putting a cap on what the policy has to pay out, it becomes easier for insurance companies to start writing affordable coverage." Kirkman-Liff sees another advantage to such a system. "Once everybody in the U.S. has a Medicare card, you can have electronic medical records."

Efficiency malpractice

According to Kirkman-Liff, under today's system, different players in the healthcare arena have different computer systems, patient ID numbers and other barriers to sharing medical records. That leads to duplicative testing, because each doctor a patient sees may need to order the same tests. "The amount of money we waste in duplicative X-ray and lab testing in the U.S. is unbelievable," he notes.

He also laments the sorry state of America's administrative costs in healthcare. "We have the most expensive system in the world in terms of administrative costs," he says. It doesn't buy us much. When the Organization for Economic Cooperation and Development, an international research and policy concern, compared healthcare spending statistics among its 30 member nations in 2006, it found the U.S. outspends the whole lot, but ranks 22nd in terms of life expectancy.

As Colorado legislator Claire Levy noted in a recent Denver Post editorial, commercial insurance carriers spend up to 25 percent of the premium dollars they collect on corporate overhead. The non-profit Blue Cross/ Blue Shield companies spend an average of 16.3 percent of their premium revenue on administration. According to her, the U.S. would save $982 per person annually if all organizations operated as cost-effectively as such non-profits.

Why does the U.S. have such complicated healthcare administration and correspondingly high costs? It's not just a corporate-profit thing. "In some ways, we don't have one healthcare system. We have more than 50," Kirkman-Liff explains. That's one reason he thinks reform would be more effective if it occurred on a national level. "But, it probably will go state-by-state. I'm enough of a realist to see that," he adds.

Little things that count?

One thing neither Kirkman-Liff nor Baldwin finds appealing is limited-liability coverage — without a federal stop-loss — such as that offered by the State of Tennessee's CoverTN program. There, employers with less than 25 workers — and at least half of those workers earning less than $41,000 — can offer what some insurers call a "mini-med" plan. Premiums can come in at less than $100 per month, but there is another price to pay.

The Tennessee plan only protects policyholders for a maximum of $25,000 per year, of which $15,000 can go to hospital bills. That might be a problem, considering that 2004 federal data show that the average hospital bill is more than $20,400. Mini-med plans aren't intended to provide major-medical coverage. They're simply a way to open medical-access doors to the working poor.

But, in considering them, Baldwin thinks they're of iffy value. "If I knew I had to cover the first $25,000 of my health care, it would be difficult, but I could plan for it. How can I plan for hundreds of thousands or even millions of dollars of healthcare expenses?" she asks. That easily could be the case with a catastrophic illness. "That's not what insurance is supposed to be," she says.

"Insurance is supposed to protect you from devastating financial losses." Baldwin's comments inspire questions that remain to be answered: Do Americans truly believe the government should protect us from heavy monetary burdens due to illness or injury? If so, which government — state or federal? And, at what cost will be buy into reform?

Bottom Line:

• Approximately 45-million Americans have no health insurance, and policy analysts think that should change. Some favor market-based reforms. Others choose government fixes.
• Market-based reforms include tax changes to make health insurance more affordable, as well as elimination of state regulations that limit consumer choice.
• Government interventions include mandatory coverage laws. Another idea: Expand Medicare to use federal dollars for health claims over some catastrophic amount, such as $250,000. That might lower premiums by relieving health insurers of the heaviest payouts.
• Electronic medical records and simplified administration are two more recommendations for bringing healthcare costs down.