As Congress gets down to its legislative business this year, there is considerable pressure on lawmakers to address the growing concerns about America's employment-based health care system. In particular, the mounting number of uninsured Americans has forced greater attention to the simple fact that the employment-based health system leaves millions of workers without coverage.
Further, many working families with good coverage are angry and feel powerless because key decisions affecting their health care are being made by their employers or by insurers. They want to make those decisions themselves, or have someone make sure those decisions are made in their family's interests.
If Members of Congress are to tackle these challenges successfully, they must avoid instituting "solutions" to one problem that will only exacerbate others. But to do so, they must identify--more clearly than they have done in the past--the root causes of these problems. And they should consider key principles of reform that deal directly with these causes, not merely with the symptoms, before shaping policy changes for the future.
WHY THE PROBLEMS EXIST
The problems of uninsurance and dissatisfaction with the
current health care system have significant but resolvable
underlying causes:
- Uninsurance. Today, there are well over 40 million Americans, chiefly in working families, who lack health coverage. The real cause of this problem is that coverage is primarily employment-based, which is no longer an effective way to provide insurance for major segments of the population. Employer-provided coverage continues to be a good arrangement for workers (and their families) who look forward to long-term employment in large companies that offer comprehensive health benefits. But it is not an effective way to cover people who change jobs frequently, have spells of unemployment, or for other reasons do not have a firm attachment to one employer. Nor are employees of small firms typically able to obtain good coverage; they are in very small insurance pools, and their employers generally lack the skill and administrative capacity to arrange good plans for them.
The current debate over "patients' rights," requirements on insurers, and the enactment of mandates on plans to cover certain services is irrelevant to the plight of families who do not even have insurance. Worse still, regulation of this kind, which drives up the cost of coverage and even discourages employers from offering coverage because of the red tape involved, actually will increase the number of uninsured Americans.1
It would make more sense for uninsured working families to obtain coverage through large organizations that could act as an alternative to employers, such as unions or groups of churches. This option is rare today because the tax code discriminates against such an alternative. The value of employment-based coverage is treated as tax-free compensation by the Internal Revenue Service, but there generally is no tax break or other financial help available to families wishing to obtain coverage through other large institutions with which they have a more permanent affiliation.
- Frustration and Powerlessness. Since a condition of the favorable tax treatment of employment-based coverage is that employers own and control the health plans of their employees, decisions about coverage and services are made by employers or the insurers and managed health plans they hire. These decisions often do not reflect the interests of the workers and their families. In some cases, the plans or providers may even withhold services that seem to be assured in the description of the plan.
Faced with this practice, there is growing demand that Congress legislate "patients' rights" requirements on plans to provide specified levels of certain services, and proposals to give patients greater latitude to sue their plans (and employers who select them) when services are deemed inadequate.
Although such demands for action are understandable, the proposed remedies largely miss the point. Obviously, when the provider of any service fails to deliver a promised service and that failure causes harm to the customer, there is a case for legal action. But lawmakers should ponder carefully whether encouraging an avalanche of litigation is likely to be the way to improve health care.
Moreover, "body parts" mandates and other steps to require plans to cover certain services miss the point that the problem arises because plans are answerable to employers, not employees. If plans were answerable directly to patients, and if their business success routinely depended on satisfying those patients (as is the case in the Federal Employees Health Benefits Program which serves Members of Congress and their families), they would behave quite differently because such plans could be "fired" by dissatisfied families.
PRINCIPLES FOR REFORM
To address these problems in ways that deal directly with
their causes, not just with their symptoms, Congress needs to
fashion proposals that meet the following goals and principles:
- Create a parallel health system for working families who are not adequately served by employment-based coverage, while leaving intact the current system of employment-based coverage. Although the case can be made for sweeping reform of the employment-based system, the most urgent need is to concentrate on families who are not served at all by employment-based coverage (the uninsured), as well as those--working chiefly for small or seasonal employers--who lack adequate or permanent basic coverage.
The key to solving uninsurance is to reduce the tax bias against families who need to turn to coverage outside their place of work, and to encourage the creation of an effective market for family-selected and family-owned plans. Specifically, Congress should:
Reduce the tax bias.2 Among the steps Congress could take in line with this principle is to move toward allowing plans sponsored by organizations other than employers, such as churches or unions, the same tax relief to cover uninsured workers that the current system provides employers. Even better--and more helpful for low-paid uninsured families--would be to provide tax credits, perhaps even refundable credits, for the purchase of insurance or direct services.
Create a market for family-owned plans. Congress could encourage the creation of "HealthMarts" in which employees select from among many plans in a network of insurers and providers, even if they work for small employers. Congress also could make it much easier for large associations to organize coverage for their members by extending to them the federal protection from state regulation granted under the Employment Retirement Income Security Act (ERISA).
- Make it easier for Americans with good employment-based coverage to exercise greater control over their insurance and health purchases. Although the primary focus of reform should be on the uninsured, Congress can help ease tax barriers in order to give covered employees greater control over their insurance and care. Today, the tax system allows the value of employer-sponsored insurance or managed care to be excluded from all income and payroll taxes; but unless the firm sets up a flexible spending account (FSA) or similar tax-advantaged account, employees do not receive tax relief for special coverage or alternative services of their choice.3
Making it easier for employees to exercise direct control, or ownership, over their health plans would also address the anger with employer-sponsored coverage that occurs on two fronts. There certainly are instances of promised services being wrongly withheld, which may lead to actual harm. These cases are appropriate candidates for compensation, and perhaps litigation. But for the most part, the problem is that a patient is irritated by a general pattern of poor service rather than by a dangerous event.
In the regular marketplace for most services, customers faced with poor service may decide to take their business away from that supplier and go somewhere else. In health care, federal employees in the Federal Employees Health Benefits Program (FEHBP) are permitted to do this once a year.4 But because the tax system so skews control over health plan decisions for most Americans by putting considerable selection power in the hands of employers and very little in the hands of employees, this normal guarantor of customer satisfaction breaks down in today's system.
Fortunately, Congress can take steps toward creating normal consumer pressure in employment-based health care. Congress could:
Allow flexible spending account rollovers. Congress could defuse some of the pressure for increased regulation of employer-sponsored plans by allowing workers with FSAs to roll over the unused balances in these tax-free accounts at the end of the year (currently, these revert to the employer). Doing so would encourage employers and employees to make greater use of FSAs relative to traditional employer-sponsored insurance. This in turn would give employees greater opportunity to supplement their basic employer-sponsored coverage by acquiring additional partial coverage that is more in tune with their needs and desires. Such an opportunity to switch to alternative coverage that they own and control would be an effective antidote to the frustration over general deficiencies in the employer's plan, and more effective than suing plans over coverage.
Remove excessive regulation from medical savings accounts (MSAs). Congress can give even greater control to employees by stripping away the excessive regulation on medical savings accounts, such as the number of plans, the limits on the size of employers able to offer such plans, and other regulations that discourage employers and insurers from offering MSAs.
- Make health insurance contracts clearer and more enforceable.5 The terms of a health plan, like those of any other contract, should be enforceable under the law. This means there should be adequate recourse for anyone truly harmed by the decision of a plan to withhold promised benefits. Nevertheless, America's sorry history of costly medical litigation suggests strongly that resorting to the courts should be the last choice, not the first. Moreover, facilitating wider choice and consumer control is, in general, a far better antidote than litigation to a pattern of poor service by a plan.
Congress can take steps to reduce instances of benefits being withheld and to encourage effective methods of restitution where that is appropriate. Specifically, Congress could:
Require ERISA plan disclosure. Plans covered under ERISA could be required to provide clearer information on the services provided and the methods used to determine benefit reimbursement.
Encourage arbitration and alternative dispute resolution. Some managed care plans agreed recently to establish procedures for resolving disputes over coverage; the disputes would be referred to private independent boards, and the plans would be bound by their decision. Medicare also provides a private arbitration system to help resolve disputes over benefits. These and similar approaches should be encouraged by Congress as an alternative to litigation to settle coverage questions and to address at least routine cases of compensation for bad decisions by plans.
- Declare a moratorium on "body parts" mandates. Requiring plans to cover particular services that are the focus of media investigations or lobbying campaigns may seem like good politics, but it clearly is no solution to the problems of the health care system. Such mandates have politicized medical care.
If the health insurance system is failing to adapt to the service desires of patients, the proper lesson to draw is that there is something wrong with the relationship between the insurer and the patient (due to the lack of patient control discussed above). The wrong lesson to draw is that politicians need to act like medical experts and make medical determinations for patients. It is significant that in the consumer-driven FEHBP, plans routinely introduce new services in response to customer demands; they would go out of business if they did not.
What Congress should do is take the steps needed to remove the obstacles to a similar dynamic in the insurance market serving private-sector workers, rather than leaving those obstacles in place and adding a layer of politicized mandates.
CONCLUSION
Congress will face many challenges in attempting to reform today's
health care system. In particular, the growing number of uninsured
Americans is forcing greater attention to the gaps in the current
employment-based health care system, which leaves millions of
workers without coverage. And discontent with the current system
grows as workers encounter plans that do not address their needs or
interests or provide expected benefits. Congress should examine the
underlying causes of these problems and consider the key principles
of reform that address these causes before it undertakes to shape
policy changes for the future.
Stuart M. Butler, Ph.D., is Vice President for Domestic and Economic Policy Studies at The Heritage Foundation.
Endnotes
1. Melinda L. Schriver and Grace-Marie Arnett, "Uninsured Rates Rise Dramatically in States with Strictest Health Insurance Regulations," Heritage Foundation Backgrounder No. 1211, August 14, 1998.
2. Carrie J. Gavora, "Back to the Drawing Board: Why Tax Reform Is the Key to Health Care Reform," Heritage Foundation Backgrounder No. 1189, June 8, 1998.
3. Robert E. Moffit and William W. Beach, "Rollover Flexible Spending Accounts: More Health Choices for Americans," Heritage Foundation Backgrounder No. 1159, February 24, 1998.
4. Stuart M. Butler and Robert E. Moffit, " Congress's Own Health Plan as a Model for Medicare Reform," Heritage Foundation Backgrounder No. 1123, June 12, 1997.
5. Carrie J. Gavora, "How to Deal with Public Concerns About Health Insurance," Heritage Foundation Backgrounder No. 1196, June 24, 1998.
