[Congressional Record Volume 140, Number 101 (Thursday, July 28, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: July 28, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
          CONTROLLING COSTS ARE THE KEY TO TRUE HEALTH REFORM

                                 ______


                        HON. MICHAEL A. ANDREWS

                                of texas

                    in the house of representatives

                        Thursday, July 28, 1994

  Mr. ANDREWS of Texas. Mr. Speaker, as the deadline for health care 
reform quickly approaches, it seems that Congress is deadlocked on how 
best to remedy the ailing health system. In a recent article by the 
Progressive Policy Institute, David Kendall writes that the core reason 
for this impasse is due to the displacement of the true goal of reform: 
controlling costs. I commend the following article to my colleagues:

Breaking the Health Reform Deadlock--The Competitive Path to Universal 
                                Coverage

                         (By David B. Kendall)

       The great health care reform debate of 1994 is dissolving 
     into chaos. No less than five Congressional committees are 
     working on different proposals, none of which seems capable 
     of attracting a critical mass of political support. The 
     balkanization of the debate has mystified the public and made 
     it harder to fashion a coherent reform that stands on its own 
     internal logic.
       Yet the case for fundamental reform remains compelling: 
     America's health care system is highly inflationary and 
     denies too many people access to affordable care. The 
     Progressive Policy Institute (PPI) believes that President 
     Clinton is right in pressing Congress to enact systemic 
     reform this year.
       The Administration, however, has contributed to the impasse 
     by allowing the debate to bog down in the controversy over 
     employer mandates as the means to universal coverage. While 
     universal coverage is a central goal, the first and 
     overriding imperative is to attack the problem at its root: 
     exploding costs. The rapid escalation of health care costs is 
     driving middle-class insecurity about shrinking benefits, the 
     increase in the ranks of the uninsured, the budget deficit, 
     and lagging corporate investment as health care claims a 
     growing share of business resources.
       In ``Mandate for Change,'' PPI defined the central 
     challenge of health care reform:
       Far more fundamental is the choice of how to restrain our 
     health system's runaway costs. Many of the political right . 
     . . suggest ``the market,'' without fundamental reform, can 
     cure the health care system's ills. Some on the left suggest 
     that ``the market'' does not apply to health care, and so the 
     government must step in to set limits on health care prices, 
     and perhaps to become the sole health insurer as well.
       This is a false choice. The proper role of government, on 
     health care and elsewhere, is neither to let broken markets 
     run amok, nor to replace the market with bureaucratic 
     mechanisms that set prices and allocate resources. Rather, 
     government's primary role should be to improve the market's 
     ground rules in order to decentralize decision making, spur 
     innovation, reward efficiency, and respect personal 
     choice.\1\
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     \1\Footnotes at end of article.
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       The real danger today is that Congress will concentrate on 
     immediately delivering the most tangible benefits--guaranteed 
     health care coverage and perhaps new additional entitlements 
     as well--while deferring the hard work of restructuring 
     health care markets to constrain runaway costs.
       To get health care reform back on track, President Clinton 
     needs to define the common ground on which a broad, 
     bipartisan consensus can be forged. In PPI's view, managed 
     competition is the most plausible common denominator in the 
     health care debate, the least intrusive and most effective 
     means to the end of affordable coverage for all. The 
     essential architecture of the competitive approach can be 
     found in the Preisdent's bill and in its two nearest 
     relations: the Cooper-Breaux and Chafee-Thomas bills.\2\ The 
     market-based approach is the most likely to constrain medical 
     inflation without government micromanaging of the health care 
     economy and, for that reason, to win broad public backing.
       The report examines the three managed competition bills 
     that occupy the vital center of the health reform debate. It 
     also draws on the pioneering work of the Jackson Hole Group, 
     led by Paul Ellwood and Alain Enthoven, especially new 
     refinements outlined in ``Managed Competition II.''\3\ PPI 
     proposes four steps for resolving the key differences among 
     the bills--for illuminating the competitive path to universal 
     health care.
       Those steps are:
       1. Restrain costs through choice and competition, not 
     government price controls. In health care reform, 
     government's chief responsibility is to fix broken markets, 
     not to set prices and allocate resources. Yet the 
     Administration proposes a shotgun wedding of market 
     incentives and bureaucratic command and control that would 
     undermine the very competition it tries to create. In 
     contrast, true market-based reform decentralizes 
     responsibility for controlling costs to millions of consumers 
     and providers. This is the logic of managed competition, 
     which relies on these key elements: insurance reform to 
     prevent risk-skimming; a standard benefits package; health 
     plan report cards; a cap on tax subsidies for employer-paid 
     health insurance; elimination of the proposed ceilings on 
     employers' health care costs; and the exclusion of 
     inefficient providers by health plans.
       2. Establish competitive health purchasing groups to 
     organize markets, not regulate them. Market-based reform 
     requires a new institutional framework: purchasing groups 
     that pool the buyer power of small businesses and 
     individuals. The Administration's health alliances have been 
     correctly criticized as new regulatory agencies; the better 
     alternative is to create member-governed purchasing 
     cooperatives that offer a menu of competing plans and report 
     on quality so that consumers can make informed decisions. A 
     network of competing purchasing groups would prevent 
     regulatory encroachment on markets and solve the three key 
     problems facing small businesses: risk-skimming by insurance 
     companies, the lack of health plan choices for small business 
     employees, and high administrative costs.
       3. Finance reform on a pay-as-you-go basis, not with 
     unfunded entitlements. A decentralized, market-based approach 
     to health care reform would not create a vast new government 
     entitlement. The history of such entitlements shows clearly 
     that their costs are difficult if not impossible to control: 
     For example, only seven years after they were created, the 
     Medicare and Medicaid programs cost four times more than 
     government projections. Untrammeled entitlement spending is 
     driving the federal budget deficit. Nonetheless, the 
     Administration's bill would create a legal entitlement to 
     comprehensive health benefits and add new entitlements for 
     prescription drugs, long-term care, and health benefits for 
     early retirees. Rather than create entitlements that are 
     likely to be underfunded, we should finance health care 
     reform on a pay-as-you-go basis. We should establish a 
     balanced health security budget that continuously reconciles 
     public spending for health care with revenues designated to 
     pay for reform.
       4. Achieve universal coverage step-by-step. From the 
     standpoints of both equity and efficiency, universal coverage 
     is integral to managed competition. But health care reform 
     must end with universal coverage, not begin there. The reason 
     is simple: If we expand demand by adding 39 million new 
     consumers before restructuring markets to make them more 
     efficient, prices will rise dramatically. Yet the 
     Administration courts this danger by insisting on an 
     immediate employer mandate. The following timetable 
     illustrates how a step-by-step approach might work.
       1995-1999: Phase in subsidies for needy families gradually 
     as reforms restructure health care markets for greater 
     efficiency. Using a balanced health security budget, savings 
     from the tax cap, and reforms in Medicare and Medicaid would 
     pay for subsidies for low-income households.\4\ The priority 
     should be full coverage for those in poverty. Next, those 
     above the poverty line should receive subsidies on a sliding 
     scale; that is, the higher the income, the smaller the 
     subsidy. Subsidies should extend to income levels as high as 
     240 percent of poverty to allow for a gradual decrease. (Too 
     rapid a decrease might discourage people from working harder 
     to increase their earnings.) When fully phased in these 
     subsidies will extend assistance to about 26 million people 
     or two-thirds of the uninsured. The dramatic result of market 
     reforms and subsidies is that 97 percent of all health care 
     spending would be covered through insurance.\5\
       2000: Fully fund subsidies and put in effect an individual 
     mandate. If revenues are not sufficient to ensure full 
     subsidies by the year 2000. Congress would have to act under 
     expedited procedures to make up the shortfall. Once subsidies 
     to needy families are fully funded, we can in good conscience 
     require everyone to obtain coverage. An individual mandate 
     would add more young and healthy individuals to the insurance 
     pool, thereby lowering everyone's premiums and reducing cost 
     shifting. Those who cannot show proof of coverage (either on 
     their tax forms or when they show up for treatment) would 
     face a stiff sanction of one year's premium plus a 20 percent 
     penalty.
       2003: Take additional steps, including an employer mandate 
     if necessary, to achieve comprehensive coverage. Even after 
     market reforms, full subsidies for low-income families, and 
     an individual mandate, some people may still be uninsured. 
     That is because the individual mandate may prove difficult to 
     enforce and may lead some unscrupulous employers to drop 
     coverage for their workers. If by 2003 there is still a 
     significant cost-shifting problem because too many Americans 
     remain uninsured. Congress should take additional steps to 
     capture these remaining free riders. Such steps may include 
     stepped up penalties for free riders, further expansion of 
     subsidies or an employer mandate. The trigger for 
     Congressional action might be the failure to achieve coverage 
     as extensive as Hawaii's (92 percent for the non-elderly). A 
     target of 100 percent coverage is neither realistic nor wise. 
     Instead, we should define universal coverage as reaching that 
     point at which the marginal cost of expanding coverage 
     exceeds the economic benefit of doing so.
       The step-by-step approach is preferable to an immediate 
     mandate because it disaggregates America's 39 million 
     uninsured into two groups: Those who cannot get coverage 
     either because they are poor or because insurance companies 
     will not cover them, and free riders who can afford coverage 
     but don't buy it. It is more cost-effective to deal with 
     these groups separately than with a blanket mandate. However, 
     an individual mandate will be necessary to prevent free 
     riders from taking advantage of the system, and the employer 
     mandate should be held in reserve in case the other measures 
     fall short.
       Managed competition is not the only school of thought about 
     how to fix America's ailing health care system: There is 
     substantial support among Congressional liberals for a 
     Canadian-style single-payer system. Rather than importing 
     foreign models, however, the challenge facing the United 
     States is to leapfrog the health systems of other advanced 
     countries and create a distinctively American system that 
     combines the best of U.S. medicine and capitalism. Market-
     based reform would preserve America's status as the world 
     leader in medical technology, leave to decentralized markets 
     rather than public bureaucracies decisions over resource 
     allocation, and give individuals the power and responsibility 
     to control health care costs through their own choices.
       President Clinton is right: Americans want fundamental 
     health care reform. What they do not want is a government 
     takeover of the health care system. The President's challenge 
     therefore is to use government's power in a more creative and 
     sophisticated way. Instead of expanding government 
     bureaucracy and regulation--the old Democrat approach--
     President Clinton should embrace the New Democrat logic that 
     informs many of his other initiatives: using government's 
     power to improve the ground rules for market competition.
       The New Democrat approach also avoids the ideological 
     polarization that has so often frustrated the country's 
     attempts to confront its problems. It holds promise of 
     building a broad coalition in the vital center of American 
     politics. History shows that America's great social reforms 
     have been enacted by wide, bipartisan majorities. Congress 
     passed Social Security by a 10-to-1 margin in 1935 and 
     Medicare by a 3-to-1 margin in 1965. It is time for the 
     President to bring together leaders from both parties to 
     forge a broad, bipartisan agreement for health care reform.


                               footnotes

     \1\Jeremy D. Rosner, ``A Progressive Plan for Affordable, 
     Universal Health Care,'' in ``Mandate for Change,'' Will 
     Marshall and Martin Schram, eds., p. 108.
     \2\Representative Jim Cooper (D-Tenn.) and Senator John 
     Breaux (D-La.) are sponsors of the Managed Competition Act, 
     H.R. 3222/S. 1579. Senator John Chafee (R-R.I.) and 
     Representative Bill Thomas (R-Calif.) are sponsors of the 
     Health Equity and Reform Today Act, H.R. 3704/S. 1770. 
     Senator George Mitchell (D-Maine) and Representative Richard 
     Gephardt (D-Mo.) are sponsors of the Administration's bill, 
     the Health Security Act, H.R. 3600/S. 1757.
     \3\Managed Competition II,'' the Jackson Hole Group, March 
     18, 1994. See also Paul Ellwood, Alain Enthoven, and Lynn 
     Etheridge. ``The Jackson Hole Initiatives for a Twenty-First 
     Century Health Care System,'' Health Economics,'' Volume 1, 
     1992.
     \4\The following examples illustrate how the financing might 
     work: According to CBO, the revene from the tax cap in the 
     Cooper-Breaux bill would range from $5 billion to $15 billion 
     in 1999, depending on the size of the stadard benefits 
     package. The Medicare savings in 1999 would be $13 billion in 
     the Cooper-Breaux bill and $28 billion in the 
     Administration's bill. On average, then, these sources would 
     raise $30 billion. The cost of the Cooper-Breaux subsidies 
     (to 200 percent of poverty) would range from $11 billion to 
     $34 billion over projected Medicaid spending in 1999, again, 
     depending on the size of the benefits. On average, these 
     subsidies would cost $23 billion, which would leave revenue 
     available for subsidies up to 240 percent of poverty..
     \5\Expanding Insurance Coverage Without a Mandate,'' Lewin-
     VHI, May 18, 1994.

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