Round 1.5: Maximizing the Benefits of Health Care Reform

The imperfect health care reform law President Obama signed in March was no one's first choice. Recognizing the progress in its provisions, however, some have called it Round 1 on the road to a more perfect system. And while it focused primarily on expanding access to coverage, they expect the primary focus of Round 2 to be on keeping costs under control. But since Congress will not want to take up that challenge soon, the current implementation phase, Round 1.5, demands our attention.

Make no mistake: whatever its limitations, the new law was not only a huge legislative accomplishment, but also a big step forward for both individual Americans and the health care system as a whole. It mandates that, beginning in 2014, virtually all Americans buy affordable coverage. It expects states to create health insurance exchanges on which private insurers will offer coverage for small businesses and individuals unable to obtain it otherwise. Federal subsidies will help those who cannot afford an available policy to pay the premiums and required cost-sharing amounts. As a result, more than 30 million additional Americans will gain access to comprehensive health care coverage.

Further, it permits parents to continue to cover unmarried children through age 25 and reforms the private health insurance system. Insurers will no longer be able to refuse to sell to people with pre-existing conditions or other risk factors, charge them more for coverage (except for age), cancel or refuse to renew policies for people using services, or impose limits on benefits. Insurers have done all these things, justifiably earning the public's enmity.

Nonetheless, while the accomplishments in the law itself are substantial, the actual benefits will depend on implementation. Moreover, the challenge is particularly great because the underlying reform strategy is relatively weak. Here is why: To accomplish the main goals of reform -- increasing coverage, containing expenditures, making quality of care more reliable, and restoring the deteriorating delivery system -- competing private insurers have only three ways to differentiate themselves in order to attract customers, and two of them reduce the value of the insurance.

First, they can set their premiums low enough to attract customers. But to do that, they need to control what they spend on care, and the only two ways to do that are either to sell policies to low-risk people unlikely to use services and, therefore, to spend much on care; or to limit what is covered and the terms for accessing it. Since both have caused much hardship and undermined the value of coverage, Congress reasonably banned many such practices, as noted. Faced with these constraints, what will insurers wanting to participate in the new program do to protect their profits? And how can the law's potential benefits be maximized?

One thing to expect is that insurers will participate actively in the processes states use to create their exchanges. They will look for ways to get around provisions regarding the content of coverage and for permission to raise premiums and cost-sharing amounts. One of the few options left to them is to offer several levels of coverage. The least expensive (bronze) requires them to pay only 60 percent of the actuarial value of medical bills, leaving patients to come up with the remaining 40 percent. Insurers will try to influence the exchanges to define allowable costs in ways that minimize their exposure and increase that of the individuals using services. If they succeed, many who can afford only bronze plans will pass up beneficial services, just as 25 million underinsured Americans do today.

Insurers also will try to ensure that they are well represented on the exchanges' governing bodies. One goal will be to form alliances with providers and others in the on-going decision-making processes.

To maximize the new law's benefits under these conditions, insurers should be required to use their third lever (regarding the content and terms of coverage) to change the way they pay for care. Now, they pay fees for individual services, which tends to encourage provision of additional fee-producing services. That is especially likely when insurers limit individual fees, making it harder for doctors to keep up with their own rising costs. Instead, they should be required to pay providers, not for individual services, but for "taking care of people." Insurers could pay providers a monthly amount for each enrolled patient. Providers, in turn, could aggregate the monthly fees received into a budget and find innovative ways to take good care of patients while reducing the volume of individual services of marginal value. For example, instead of seeing patients only when they are sick, they might encourage them to come for age-appropriate screening tests to try to catch potentially serious conditions early enough to deal with them inexpensively - rather than waiting until they develop into debilitating illnesses that require costly services. It may even make sense to have nurses visit bed-ridden chronically ill patients in their homes to keep them from developing expensive, hard-to-treat secondary conditions.

Since we already saw that insurers can do little to control spending on care, expenditures will continue to rise unless steps like these are taken. Thus, for good things to happen, representatives of the public interest must travel to state capitals and join the exchange-creating process, too. And later, exchange officials will need to use their regulatory authority to force insurers to serve the public interest.

The new health care law is an opportunity for the U. S. to catch up to all the other developed countries in the world whose citizens are guaranteed good coverage and which spend much less on care and produce better health statistics. The unanswered question: Can we muster the determination to seize this chance?