Lessons From 3 Other Countries
By Regina E. Herzlinger, DBA; Barak D. Richman, JD, PhD; Richard J. Boxer, MD
JAMA, February 27, 2017
The most popular parts of the Affordable Care Act (ACA) are the most expensive. Universal coverage is a top priority not only for Democrats but also for President Trump. Both Republicans and Democrats want to preserve many costly coverage features of the ACA, including those that prevent insurers from precluding people with preexisting conditions and those that eliminate lifetime or annual coverage limits. The challenge is how to preserve these features and make insurance affordable.
A primary obstacle to achieving affordable universal coverage is the high costs of those with diseases or costly traumatic events — approximately 20% of individuals accounting for approximately 80% of health care spending. So, a key question is how to pay for their care.
Some nations in the Organisation for Economic Co-operation and Development (OECD) rely on a governmental single-payer model to achieve universal coverage, but this approach is politically infeasible in the United States. As the United States relies on private-sector insurance, 3 other countries that use private-sector insurance to offer affordable universal coverage provide some potentially helpful lessons.
Paying for Costly Patients
Some advocate creating risk pools for enrollees with preexisting conditions. This strategy removes individuals with high health care costs from the broad pool of enrollees and uses government funds to subsidize their insurance premiums. In turn, the cost of insurance is substantially reduced for the rest of those who are insured. This strategy, however, requires substantial infusions of funds.
If high-risk pools are part of the solution to attaining universal coverage, federal funding is essential. But federal policy makers are unlikely to commit a sufficient amount of funds to make this approach successful.
Another strategy to pool costly patients would channel them into Medicare and rely on the federal government as the ultimate risk bearer. But Medicare premiums are artificially controlled by passing some present spending onto future generations. Trustees project Medicare’s 75-year total spending in excess of dedicated revenues at $27.9 trillion, and the Centers for Medicare & Medicaid Services Office of the Actuary projects this amount at $36.8 trillion. Adding costly individuals to Medicare would only exacerbate these intergenerational problems.
This leaves a third strategy: the individual mandate — or as the Supreme Court characterized it, an annual tax assessed against individuals who have not purchased qualified health insurance within the calendar year. Although vilified by some, the mandate is attractive for several reasons. It is relatively easy to implement, is effective in pooling risk, and reflects the values of individual responsibility. Coverage is primarily funded by the enrollees rather than by general taxation. For these reasons, some nations that are committed to a private health insurance sector have achieved universal coverage and effective risk pooling by mandating the purchase of insurance.
Examples of the Individual Mandate and Penalties
Switzerland, Singapore, and Germany have achieved universal coverage and made insurance affordable even for their citizens with highest health care costs by instituting an individual mandate. One major difference, however, is that unlike the ACA, the mandates instituted by these countries are reinforced with effective penalties for nonparticipation, thus ensuring that lower-cost enrollees — generally healthier individuals — balance out the costs of the others who require more medical resources.
* In Switzerland, citizens must purchase health insurance. If they do not, government authorities automatically enroll them, selecting the insurance provider on the individuals’ behalf. Moreover, insurers can implement debt enforcement proceedings against anyone failing to pay their premiums and collect a penalty in addition to back premiums. The Swiss government subsidizes premium payments for more than a quarter of the population, including retirees who purchase the same insurance as workers.
* Singapore institutes compulsory contributions from employers on behalf of their employees to create medical savings accounts. Employees maintain these accounts for health care expenses such as health and disability insurance premiums, hospitalization, surgery, rehabilitation, end-of-life care, and outpatient services. Those failing to pay their premiums are subject to garnished wages and other legal actions that can force payment of back premiums, penalties, and interest. Unemployed or low-income individuals are eligible for government subsidies that enable them to pay for the premiums.
* In Germany, insurance is funded by compulsory contributions to private insurers levied as 7.3% of income. Unemployed individuals have their contribution taken out of their unemployment benefits coupled with means-based sliding-scale subsidies, and uninsured self-employed persons who later attempt to purchase insurance face payment of back premiums for the period in which they were uninsured.
In sum, health insurance models in Switzerland, Singapore, and Germany suggest that an individual mandate, with adequate subsidies, can achieve affordable universal coverage. But the recipe for their success also includes firm penalties. Achieving universal coverage, like these 3 nations, requires a more forceful approach.
From the Conclusions
If the goal is universal health coverage that provides care even for patients with the highest health care costs without relying on public insurance programs, the financial burden must be spread across the whole population. This requires either massive government spending, whether through high-risk pools or Medicare, or requiring individuals to purchase insurance.
It is time to stabilize the premiums of the universal insurance market by neutralizing the political disagreements surrounding the ACA’s mandate and penalties. As these 3 countries demonstrate, maintaining the popular aspects of the ACA requires keeping its less popular part, and achieving the stated goal of universal coverage requires a serious commitment to individual responsibility.
A Conversation With Regina E. Herzlinger, PhD: A New Individual Market on the Horizon
Managed Care, July 2011
Quotes from the interview:
“I have always supported universal coverage for personal and economic reasons. There are 40 million people who are uninsured. Typically, in any pool, 20 percent are sick. That’s 8 million people. How are we going to cover these 8 million sick people? The only way we can pay for them is to raise taxes — which is not going to happen — or to have universal coverage. Universal coverage is in many ways much more acceptable than a tax in which the well subsidize the sick.”
Are we headed toward a single payer system?
“I wouldn’t say that. I think we are going to a Swiss system. Employers will drop their health insurance coverage, not solely for reasons of cost. Many employers find buying health insurance onerous, and they would rather it be a consumer purchase.”
Accountable care organizations — does this concept have any legs?
“It’s like the Affordable Care Act itself — great idea, poorly thought through. Fee-for-service payment is perverse because it penalizes integration. The problem is the scope of the ACO, which is not just one disease or one condition, but everything for everybody. It’s not feasible to excel in managing every kind of care. It’s too complicated.”
Will the consumer model make its way to Medicare?
“Consumer-driven health care started in the commercially-insured population. I would hope it would go to Medicaid so that the poor aren’t stuck in this terrible program. And eventually it will go to Medicare because we have to solve the Medicare problem.”
The Congressional Budget Office thinks that senior citizens will be worse off under a voucher system from Medicare, which is Rep. Ryan’s plan.
“What the CBO failed to think about is, if 50 million seniors go out in the insurance market, is that market going to remain the same, or is it going to become more competitive in ways the Swiss insurers are competitive, by reducing administrative costs? The CBO’s mistake was assuming that nothing would change. If 50 million seniors show up in the insurance market, they are going to force insurers to become more competitive.”
Providers talk about the difficulty of dealing with so many insurance companies. Is it going to get worse for them as more health plans enter a consumer-driven market?
“Well, either you are going to have a lot of insurers breathing down your neck, or it’s going to be single payer. Our last gasp is consumer-driven health care. Take your choice.”
By Don McCanne, M.D.
The theme of this article is somewhat astonishing. The authors recommend that we modify the most unpopular element of the Affordable Care Act – the mandate to purchase private health insurance or face penalties – by increasing the severity of the penalties to a degree that they will drive people to purchase plans, thereby forcibly achieving near universal coverage. This, as the title of the JAMA article implies, is to avoid the inevitability of single payer, as if single payer were so terrible that it is worth it for us to make being uninsured an unconscionable act warranting severe punishment.
The intent of this approach to health care financing is to avoid “massive government spending” as they say might occur with high-risk government insurance pools or by enrolling high-risk patients in Medicare (or, of course, single payer). By instead requiring individuals to purchase insurance the costs would shift to the individuals. But considering our very high national health expenditures, who could afford to pay for plans that include all of the high-risk individuals in the insurance pools? Of course, only wealthier, higher-income individuals. That puts us back into the position of either providing government subsidies that are more generous than those currently offered under ACA, or opening the market to barebones plans that would make health care access unaffordable.
Harvard Business School Professor Regina Herzlinger has been a long-time advocate of consumer-directed health care. She believes that “the stated goal of universal coverage requires a serious commitment to individual responsibility” with the individual functioning as an informed consumer in the private health insurance marketplace. Her opposition to single payer is ideological, preferring markets over governments.
She has repeatedly threatened us with single payer if we don’t establish policies that promote consumer-driven health care. In spite of her disdain for single payer, she does recognize that “either you are going to have a lot of insurers breathing down your neck, or it’s going to be single payer. Our last gasp is consumer-driven health care. Take your choice.”
Some choice: Market-driven hell or single payer nirvana.