Sunday, July 1, 2001

Health Policy Expert Offers New Health Insurance Proposal

STANFORD GRADUATE SCHOOL OF BUSINESS—Three Stanford health policy experts have proposed a new solution to a very complicated problem: how to make affordable health care available to as many Americans as possible.

Their idea is to create a system of health insurance "exchanges," each offering a choice of plans, and to build a new federal agency to monitor them.

Health care today is "not affordable for most people, and it's also not affordable for taxpayers to help many of those people," says Alain Enthoven, the Marriner S. Eccles Professor of Public and Private Management, Emeritus, at the Graduate School of Business. In response, he has worked out a system intended to foster competition and price-cutting among health plans. Along with Sara Singer, executive director of the Center for Health Policy, and Alan Garber, the Henry J. Kaiser, Jr. Professor and the center's director, Enthoven applied rigorous economic principles to health care. Their work resulted in proposals that the group presented recently in Washington, D.C. The group's work is included in the new book Covering America: Real Remedies for the Uninsured, released June 20 at the National Press Club.

At the crux of the group's plan is the notion of an insurance exchange. An exchange would be created when an employer, or any other public or private organization, offers people a choice among several competing health care plans. Since consumers would be able to pick between plans -- each with its own price tag -- the resulting competition would give health plans an incentive to lower their premiums to attract more members.

The group hopes that the government will give tax credits to allow lower and middle-income Americans to afford the price of premiums. Because individuals would pay for the coverage -- either from tax credits, employer-given credits or from their own funds -- consumers also would have an incentive to choose lower-priced plans. That pressure to lower prices could cut medical costs across the board, the three researchers believe.

The key points of the Singer-Garber-Enthoven plan are:

The creation of public, private and employer-based "insurance exchanges" that would offer a variety of health plans in every geographic region, as well as a U.S. government-sponsored "U.S. Insurance Exchange" to work as a safety net. Individuals who enroll through an exchange would be guaranteed an insurance policy. People who did not enroll themselves would be enrolled in a default plan. Tax credits for low and middle-income Americans for use toward health care purchased through such exchanges. A new "Insurance Exchange Commission," a federal agency resembling the Securities and Exchange Commission, that would distribute tax credits and payments, accredit exchanges and serve as an information clearinghouse for the public.

The proposals resemble the plans former Sen. Bill Bradley put forward during the Democratic presidential campaign of 2000 -- and, interestingly, are also similar to a mid-1990s Republican plan that never got off the ground, Enthoven says.

Such "managed competition" has been put into place before on a smaller scale -- including at Stanford, which gives its employees credits and a choice of insurance plans, with employees having to contribute more of their own funds for more expensive plans. Enthoven also advised the University of California, Harvard University and the state of California when they sought to remake their health plans.

"It's a wide range of choice, but it's a responsible choice -- if you pick something that costs more, you bear the cost yourself," Enthoven says.

Enthoven, often called the father of managed care, since 1978 has promoted similar solutions to the country's health care problems. His two colleagues are also old hands at health policy: Garber helped craft Bradley's much talked-about health care plans, and Singer has held a variety of health care research and government advisory positions. Garber emphasizes that the policy ideas come from the three researchers individually, and are not endorsed by the nonpartisan Center for Health Policy. (Mark McClellan, associate professor of economics and of medicine and, by courtesy, of health research and policy, also consulted with the three researchers to produce the plans; he is now awaiting confirmation of his appointment to President Bush's Council of Economic Advisers.)

Since hammering out the details of health care economics can make even some policy wonks' eyes glaze over, it has sometimes been hard to motivate political discussion of health insurance reform. At the time he worked on Bradley's plan, Garber recalls, pundits said that health care financing was a boring issue that no one would ever get excited about. But when Bradley introduced proposals for universal coverage, "it really resonated with the public," Garber says. He's hoping that the group's paper might spark a few flames of interest on Capitol Hill.

Their ideas already have attracted notice in some quarters, says Singer. She was called to testify about the group's proposals before the House Ways and Means Committee's Health Subcommittee this April. Singer told the legislators that "our plan would provide near-universal coverage among the non-Medicare population by making private plans more affordable" because of increased competition. She got a warm welcome.

"I was pleased that the Ways and Means Committee seemed to be receptive," says Singer.

With a new administration in the White House and with premiums for health insurance expected to rise around 12 to 14 percent next year, according to Garber's estimates, politicians and citizens alike have incentives to push for reforms. As the aging population rises and further medical breakthroughs mean more pricey treatments, prices will only continue to shoot up unless things change, many predict.

"I fear there will be even more uninsured," says Garber. However, he and Enthoven lament that universal health care is not a Washington priority. "America is not in the mood for looking hard at this right now," Enthoven says.

But if bipartisan policy-makers wake up, this type of plan might be just the thing the doctor ordered. Singer thinks that the team presented an economically sound plan that should appeal across party lines. It focuses on free-market economics, which moderates from both parties tend to support.

And what's more, Singer says, "it's the right thing to do." 

Related Information

Near-Universal Coverage Through Health Plan Competition: An Insurance Exchange Approach, Sara J. Singer, Alan M. Garber, and Alain C. Enthoven, In Jack A. Meyer and Elliot K. Wicks (eds.) Covering America: Real Remedies for the Uninsured, Washington, D.C.: Economic and Social Research Institute, 2001

Outcomes-Adjusted Reimbursement in a Health Care Delivery System, Prashant Fuloria and Stefanos Zenios, Management Science, June 2001

Stanford Center for Health Policy