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Commission on the Future of Health Care in Canada
Discussion Paper No. 1 July 2002
By Gerard W. Boychuck, University of Waterloo

Executive Summary

In the post-deficit political context, the political sustainability of public health care seems precarious. While the tension between health care as a large public expenditure program and a broader political context oriented towards balanced budgets, debt retirement and tax reduction seems relatively obvious, the political fragility of public health care in Canada is neither the automatic nor necessary result of this broader context. Rather, the linkage between health care and fiscal issues has been politically and institutionally constructed. As a result, the sustainability of public health care in Canada at the current time is, fundamentally, a political – rather than simply a fiscal – issue. The existence of a fiscal crisis of health care in Canada is not evident in current expenditure patterns; however, public beliefs that there is a funding crisis in health care are, nonetheless, real. The crucial question is how and why this linkage between health care spending and fiscal issues such as deficits, debt and taxes, so clearly captured in current understandings of sustainability, has become so firmly embedded in Canadian policy debates over the past half decade. While the contemporary political orientation towards balanced budgets, deficit/debt reduction and lower taxes does not necessarily undermine the sustainability of the current health care system, more robust political support is required to sustain the current system of public health care in this context and the potential for current institutional arrangements to undermine support of the health care system is magnified.

The fiscal crisis of health care is not merely an ideological construct; rather, it has firm and enduring institutional underpinnings. It is rooted in the paradoxical situation by which the public health care system’s institutional framework – especially the nature and dynamics of federal-provincial fiscal relations – are structured such that they fundamentally undermine rather than bolster public support for the system. The current political fragility of the system is the result of political dynamics generated out of nearly a decade of federal-provincial wrangling over funding in a context of fiscal restraint. The incentives created by federal-provincial fiscal arrangements and the resulting patterns of interaction have led to widespread perceptions both among the elite and the broader Canadian public that the public health care system in Canada is of rapidly declining quality, is wracked by a funding crisis, is unable to control costs, and is, ultimately, fiscally unsustainable.

Current expenditure patterns provide slim grounds for arguments that the system is fiscally unsustainable. Provincial health expenditures relative to GDP are the same now as they were a decade ago and recent patterns of expenditure increases are, in part, a response to pent-up demand created by expenditure restraint in the mid-1990s. Arguments that the system is fiscally unsustainable are only plausible if based on assumptions of cost acceleration above and beyond cost increases driven by aging, population growth and moderate cost increases in services now offered or, alternatively, on the claim that current levels of tax effort are unsustainable. The former issue can be plausibly debated; however, arguing that the potential for future cost increases poses a threat to sustainability is fundamentally different than arguing that existing expenditure patterns demonstrate that the current system is unsustainable. The sustainability of current provincial tax efforts in the face of increasing global and continental economic integration is also an open question in the longer term; however, to this point, there is no evidence of downward harmonization in provincial fiscal efforts.

Despite this, there is now a widespread perception of an existing fiscal crisis in public health care. The roots of this perception lie, to some significant degree, in the institutional underpinnings of health care -especially federal-provincial fiscal arrangements. In the context of more generalized restraint, these arrangements began to generate dynamics with serious potential to undermine public support for the system of public health care. First, the illusion of the rapid growth in the overall fiscal burden of health expenditures (relative to the economy) is primarily an artifact of federal-provincial financing arrangements. Secondly, the manipulation of the fiscal system so that the burden of government debts and deficits is borne primarily at the provincial level, whose primary program responsibility is health care, has strongly reinforced the linkage in public debates between health care spending and the issue of debt and deficits. Finally, current fiscal arrangements provide provinces with strong incentives to emphasize the failings of their own health care systems and the broader fiscal unsustainability of public health care in an attempt to maximize leverage for their demands on the federal government to enrich transfers.

These dynamics have had important impacts on public perceptions of health care including the striking decline in public perceptions of the quality of health care that exists despite the prevalence of positive personal health care experiences. In addition, there also are widespread public perceptions that the public health system is experiencing a major funding crisis (despite the fact that the fiscal burden of public health care relative to the economy is no heavier than at the outset of the 1990s) and that increased funding must be a central component of improving the health care system. Finally, public confidence in the handling of health care issues by both levels of government is decreasing and the belief that governments are falling further and further behind in terms of addressing the problems facing health care is becoming more prevalent.

Current expenditure patterns do not suggest that the fiscal sustainability of the public health care system in Canada is in jeopardy in the immediate term. This does not mean that future cost acceleration poses no threat to the sustainability of health care or that there is no need for a concern with fiscal restraint in health management. Nor does it mean that the issue of sustainability should be dismissed as a transitory phenomenon that will fade as the politics of fiscal restraint ease. The conditions resulting in broad perceptions of an existing fiscal crisis of health care have very real and enduring institutional underpinnings that can be expected to continue into the foreseeable future regardless of whether there are objective grounds for it, and regardless of whether solutions to containing future cost pressures are implemented. Under current arrangements, a continuing and not easily reversible decline in public perceptions both of the quality and sustainabilility of the existing system public health care in Canada seems likely. It is here that the real potential for crisis lies.

http://www.healthcarecommission.ca/Suite247/Common/GetMedia_WO.asp?MediaID=890&Filename=Boychuk_E.pdf

Kip Sullivan clarifies the message on his response to the Miller-Luft HMO Plan Performance Update:

“Implicitly, HMO quality is as good as it appears only because HMOs use more resources than FFS plans use.”

This statement appears in the excerpt from the literature review by Miller and Luft in the latest Health Affairs that Don sent out last week. Miller and Luft name no author, and cite no paper, but given the context, it appears to be directed at me. For the record, I have never made such a statement. Anyone familiar with the literature would not make the blanket statement that “HMOs use more resources than FFS plans.”

Kip Sullivan

Council on Health Care Economics and Policy
Ninth Princeton Conference
The Robert Wood Johnson Foundation
June 6-8, 2002

Henry Simmons, MD, MPH, FACP, President of the National Coalition on Health Care:

So having shared with you our observations and recognizing the magnitude and the interrelatedness of the cost, coverage, and quality problems we face, and the failure of all the existing and presently proposed strategies to deal with it, what reforms do we feel will be necessary?

Well, we have concluded that solution is going to require a comprehensive strategy that effectively integrates federal, state and private sector policies and achieves all of those goals. We must achieve universal coverage. After ten years of effort and looking here and elsewhere, we have found no voluntary mechanism that will achieve that.

We must create a massive effort, public and private, to improve the quality of all care and to eliminate that waste of hundreds of billions of dollars and the unnecessary carnage that is causes.

We must develop a mechanism to control total health system cost, not just for Medicare, not just for the big buyers, but for everybody. And to stop the national shell game of cost shifting which currently is the mode of operation.

And obviously, we have to create a viable, fair, sustainable system to finance care. Having done those, we’ve automatically accomplished the last objective which is to administratively simplify the most complex, non-user friendly system on the face of the earth.

As you can see, the subject of this conference, cost containment, is one, but only one of the essential goals. Why do they all have to be attained as hard as that will be to do? Because as I said earlier, the problems are inextricably intertwined. You can’t solve one without addressing them all. It’s a vicious cycle.

Without system-wide cost containment strategies, you can neither assure, afford or sustain universal coverage. Without universal coverage, you cannot assure quality. And in the absence of quality, you cannot contain your costs or most importantly, make rational payment decisions…

In addition, without universal coverage, you can neither create a truly competitive market based system, make the system less complex, stop risk selection and cost shifting, or most importantly, achieve a level playing field of equitable financing. And remember, those who advance the managed competition hypothesis, honestly told us a decade ago that it could not work without mandatory universal coverage.

Now, we recognize that to achieve those ambitious reforms is not going to be easy… We have to get the public and our political leaders to understand that there is a great deal of unfinished business in health care. We are convinced that health care will be the transcendent domestic issue in our society in this decade. And in our coalition meeting just two days ago in Washington, we unanimously committed ourselves to do everything we can to make this our highest priority over the next two years.

So, to conclude, given our assessment what are our answers to the three major questions we’ve talked about these two days. Should health care costs be contained? They must be, because unless they’re contained, none other than the wealthy can be assured they will have coverage when they need it or continue to be able to afford that which they now have.

Question two. Can health care costs be contained without harming patients? Absolutely, but not with the strategies we’re currently using, or currently contemplating.

Question three. Must the system be restructured? Yes, from top to bottom.

Question four. What will be necessary to control costs? These major national policy changes and the abandonment of a bankrupt piecemeal strategy we’ve been utilizing for 40 years.

A difficult task, monumental, but one that we are convinced must be completed, because otherwise our great grandchildren will be sitting in this room attending not the 9th but the 109th Princeton Conference and a topic of which will be “Why didn’t we do what was necessary sooner?” So, I guess you can subtly show that we reject the piecemeal approach that this society is trying to implement. And frankly, we would also, I guess, object to those people who say, “Because it’s going to be hard, we shouldn’t try.” That’s a self-fulfilling prophecy.

http://www.kaisernetwork.org/health_cast/uploaded_files/Transcript_CouncilonHealthEconomics_6.8.02.pdf (Cut and paste this tail to the link above for access to the transcript.)

The website of the National Coalition on Health Care: http://www.nchc.org/

Back in March of this year, Uwe Reinhardt and I debated whether managed care damaged the quality of medical care. Uwe cited an unpublished literature review by Robert Miller and Harold Luft that Uwe described as “inconclusive,” that is, it found managed care and FFS care to be roughly equivalent in quality. I wrote Uwe back and asked, “Do you know if Luft and Miller’s new review excluded studies that didn’t control for coverage differences? If it did not, why do you give its conclusions any credibility?” Uwe did not answer me.

Now we know the answer to the first of my two questions. The latest Health Affairs (July-August 2002) contains the Miller-Luft literature review Uwe was no doubt talking about. As was the case in Miller-Luft’s 1994 and 1997 literature reviews, this one (which covers studies published between 1997 and June 2001) includes studies that failed to control for coverage differences, a failing which will often bias results in favor of managed care plans and rarely bias results against fee-for-service doctors (see the PNHP web site for more details on this argument). This was no oversight; at the end of their article, Miller and Luft make a point of arguing with an article I published in the American Journal of Public Health in 1999 criticizing their methodology. Their reasoning is very strange.

I find this latest review to be deceptive for two other reasons. (1) In places, it leads the reader to think that the studies reviewed compared HMOs to FFS plans, when in fact few studies looked at what most people think of when we hear the phrase “FFS plan” — indemnity plans that don’t use utilization review or other managed care tactics. (2) In many places, the review leads the reader to believe the studies compared HMOs to “non-HMOs,” when in fact some of the studies mixed HMOs and PPOs together.

My conclusion: None of Miller and Luft’s three reviews are reliable. My review in the Am J Pub Health uses the soundest methodology, and that review concludes HMO care is inferior to FFS care.

Kip Sullivan _______________________

Following is the abstract of the article by Miller and Luft to which Sullivan refers. Also is the comment from that article referring to the prior critique by Kip Sullivan. Please note that this was written prior to Kip Sullivan’s comments which appear above and, therefore, could not be responsive to this latest critique.

Health Affairs July/August 2002 HMO Plan Performance Update: An Analysis Of The Literature, 1997-2001 By Robert H. Miller , Harold S. Luft

Abstract

This paper synthesizes results from peer-reviewed literature published from 1997 to mid-2001, on various dimensions of health maintenance organization (HMO)plan performance. Results from seventy-nine studies suggest that both types of plans provide roughly comparable quality of care, while HMOs lower use of hospital and other expensive resources somewhat. At the same time, HMO enrollees report worse results on many measures of access to care and lower levels of satisfaction, compared with non-HMO enrollees. Quality-of-care results in particular are heterogeneous, which suggests that quality is not uniform – that it varies widely among providers, plans (HMO and non-HMO), and geographic areas.

Responding to an earlier critique.

After our last literature review, Kip Sullivan argued that our past findings were biased in favor of HMOs because we did not adjust for the fact that HMOs tend to provide more comprehensive coverage than non-HMO plans do. Adjust for those differences, the argument goes, and HMO findings would be much less favorable. This argument is flawed because it ignores the fact that plans are selected on the basis of a “bundle” of characteristics or attributes, not just one. In general, HMOs tend to have more-comprehensive coverage (that is, fewer price constraints on demand), combined with more nonprice constraints – narrower networks and other nonprice attempts (gatekeepers and prior authorizations) to limit specialist visits and expensive services. Non-HMO plans tend to have less comprehensive coverage (that is, more price constraints on demand) but fewer nonprice constraints. Sullivan’s proposal holds constant only one part of the “bundle” coverage, ignoring the other. FFS plans with comprehensive coverage and few nonprice constraints on demand have high utilization, high premiums, and few insured persons. Although the Canadian-style single-payer FFS system has few price restrictions, it too must constrain demand-through overall budgets, long-range resource planning, and queuing.

Also flawed is an additional argument that the apparent comparability of quality is because Medicare, as a result of inadequate risk-adjustment methods, over-pays HMOs, which can therefore offer better coverage (such as outpatient prescription drugs), leading to better outcomes than would have been the case without the overpayment. Implicitly, HMO quality is as good as it appears only because HMOs use more resources than FFS plans use.

There is evidence that Medicare overpaid Medicare HMOs by approximately 6-7 percent, according to two estimates. However, the implication with respect to quality is flawed, since it ignores the fact that many FFS Medicare beneficiaries, employers, or Medicaid pay extra for supplemental insurance coverage and that beneficiaries also incur copayments, deductibles, and other out-of-pocket expenses. These payments add substantially more resources for FFS than for HMO enrollees. As a result, while FFS Medicare beneficiaries may use fewer Medicare-financed dollars (risk-adjusted) than their HMO counterparts use, they almost certainly use more real resources in toto.

In fact, if quality is comparable for HMO and non-HMO plans, then many HMO enrollees who have a choice among plans seem willing to accept lower satisfaction for lower out-of-pocket payments. Based on the findings from the articles reviewed here and in the past, the trade-off overall does not appear to be one of lower quality of care for lower out-of-pocket payments. We note, however, that not all enrollees have a choice of plans, and this may be a source of some of the backlash against managed care.

U.S. Department of Health and Human Services
Office of the Assistant Secretary for Planning and Evaluation
July, 2002

“This report demonstrates the potentially serious consequences to medical innovation and overall health posed by attempts to contain drug expenditures by implementing government controls that are inevitably arbitrary and out of touch with the diversity of patient needs and circumstances. If applied broadly in the United States, government-controlled restrictions on the coverage of new drugs could put the future of medical innovation at risk and may retard advances in treatment and in the development and introduction of new products. Moreover, government controls may reduce or delay access to specific drugs for seniors. Even when a drug is available, government controls often increase the likelihood that older, lower cost products will be prescribed rather than newer, more innovative products, which may have fewer side effects or other features that improve patient compliance and hence, the effectiveness of medical treatment.

“In contrast to many other countries, the U.S. market is relatively free of government-controlled programs to contain medical costs. Although participation in many federal and state buying programs may require certain types of controls-such as rebates and coverage limits-these programs represent only a small fraction of the market.

“To ensure continued progress in the fight to treat and prevent diseases, especially the chronic illnesses of older age for which we may be on the verge of unprecedented breakthroughs, the American health care system should not resort to government controlled drug coverage decisions. Other steps can and should be taken to reduce the costs of drugs, such as investing in biomedical research on less costly and more effective treatments, protecting the intellectual property rights of American companies worldwide, improving the efficiency of the regulatory process for new treatments, and increasing the availability and effectiveness of competitive approaches to limit the cost of new treatments. These steps will help keep drugs available and affordable without reducing access to valuable new treatments and discouraging innovation just at the time when the potential for innovation is greatest.”

http://aspe.hhs.gov/health/reports/medicalinnovation/

Comment: This report, cloaked as “study” on drug innovation and coverage, is merely a blatantly dishonest political statement of the Bush administration’s policy position on pharmaceutical firms. Just at a time when access to affordable prescription drugs has become a critical problem for many of those with the greatest needs, the Bush administration blows these people away and beds down with the industry that is ripping off the American public. Have they no shame?

(Please accept my apologies for injecting politics into a policy issue. Maybe someone else reading this has a more effective approach to establishing the principle that everyone should have access to essential medications.)

California HealthCare Foundation
Press Release
July 9, 2002

A survey released today by the California HealthCare Foundation (CHCF) and The Field Institute finds that large majorities of registered California voters oppose making cuts to health care programs for low-income and disabled Californians…

A majority of voters support the basic tenets of the state’s Medi-Cal program. For example, 77 percent agree that government should provide basic medical coverage to low-income or disabled adults who can’t afford insurance. This proportion increases to 84 percent of voters when asked about government providing medical coverage to the children of low-income families.

When voters were asked whether they would favor or oppose eight possible tax increase proposals as a way for the state to avoid making major cutbacks in medical services to low-income Californians and the disabled, 94 percent support at least one of the eight tax options. Receiving the broadest support were a 5-cents-per-serving increase in state alcohol taxes (78 percent), a 50-cent-per-pack increase in tobacco taxes (74 percent), temporarily increasing the personal income tax rate of the state’s top income earners (over $130,000 or $260,000 for couples) (68 percent), and canceling the scheduled cuts in state motor vehicle registrations fees (53 percent).

On the other hand, just 28 percent of voters support temporarily increasing the state gasoline tax by 5 cents per gallon as a way to preclude major cutbacks in the Medi-Cal budget. In addition, just 34 percent favor temporarily increasing the personal income tax rate for individuals earning more than $37,000 and couples making more than $75,000 for this purpose. Voters oppose temporarily increasing state sales taxes by 1 percent to avoid Medi-Cal budget cuts by a 59 percent to 40 percent margin. Voters are somewhat more divided (50 percent opposed and 45 percent in favor) when asked about temporarily increasing state business income taxes to forestall major Medi-Cal cutbacks.

http://www.chcf.org/press/view.cfm?itemid=19813

Comment: It is refreshing to see a survey that demonstrates strong public support for health care programs for those with the greatest need. In this poll, the support extends to a willingness to pay taxes to support these programs. And, furthermore, the strongest support is for sin taxes and progressive income taxes strongly weighted toward the high end.

The public seems to be getting it right, even if there is an element here of “tax the guy behind the tree.”

Health Affairs July/August 2002

by Steffie Woolhandler and David U. Himmelstein

Most Americans have private health insurance. Citizens of most other wealthy nations have national health insurance. Hence the perception that those nations’ health care systems are public while ours is private. But these labels obscure the predominance of private medical practice and hospitals in Canada and most European countries and the dominance of tax-financed health care in the United States. … Americans now pay higher taxes per capita for financing health care than do any other nation’s citizens.

The huge role of the government in financing American health care is obscured by the fact that nearly one-third of these tax dollars meander through private insurers on their way to the patient’s bedside. What originates as taxes paid by private households ends up as recycled “private” spending in the CMS accounts (Centers for Medicare and Medicaid Services). Insurance firms not only siphon off overhead and profits in the process, they also inflict huge paperwork burdens and costs on providers. We have detailed these costs in the past. For 1999 we estimate that health administration spending was more than $309 billion. At least half of this could have been saved through a shift to national health insurance. Disinterested civil servants, and even skeptics, agree that U.S. health care costs need not rise under national health insurance because administrative savings would roughly offset the increased costs of care for today’s uninsured and underinsured persons.

While national health insurance wouldn’t cost Americans more, it would mean that taxes would pay a bigger share of health care costs and that private insurance and patients would pay a smaller share. Yet government now spends far more on health care-and national health insurance would require a smaller tax increase -than most Americans believe. The step from our current level of tax financing -59.8 percent-to Canada or Australia’s 70 percent is less steep than the CMS figures on public spending imply. About $130 billion per year-the amount of the recent tax cuts-would get us from here to there.

http://www.healthaffairs.org/ (For non-subscribers, the abstract is available.)

Comment: It is crucial to understand that an increase in taxes to fund national health insurance does NOT mean that health care costs are increased. Numerous studies have demonstrated that the administrative savings produced by converting from our inefficient system, which includes the fragmented health plan marketplace, to a single national health insurance program would fund all current care PLUS the voids in care that now exist. Net spending would not increase.

Then why would health care taxes increase? The current inequitable private financing of our heath care system through direct payments, insurance premiums, businesses’ indirect costs of health care transferred to consumer products and services, and a myriad of other hidden costs of health care would be dramatically reduced. This dysfunctional system of funding health care would be displaced by a tax system specifically designed to establish equity in the funding of health care.

Our tax system already funds half again as much as our private funding of health care. But even in the publicly funded sector, we have neglected equity. Perhaps the most egregious example is the regressive nature of the deductibility of employer premium payments. Tax systems have a moral and ethical mandate to establish equity. We should demand equity, not only in the current tax funding, but in the funding of our entire health care system by accepting a modest increase in taxes balanced with a reduction in administrative waste and a reduction in the inequity of private funding. It won’t cost us any more, but it would establish fairness for all of us.

And, oh… yes… Accomplishing this through a national health insurance program would have one additional benefit: comprehensive, affordable health care for everyone.

The Washington Post
July 7, 2002
By Michelle Singletary

My family has health insurance through my job. But what if I were pink-slipped because of some accounting irregularity that caused my company to go bankrupt? What if my company decided that the best way to pump up its stock price was to announce major layoffs?

I’ll tell you what I would do: I’d immediately sign up to continue my coverage through COBRA.

In theory, COBRA is a good law. In practice, most workers can’t afford to pick up the coverage. Only 7 percent of unemployed workers or their families used COBRA in 1999, according to the Kaiser Commission on Medicaid and the Uninsured.

I understand why so many people, faced with the high cost of this coverage, decide not to take advantage of their COBRA rights. If you and your dependents are healthy and money is tight, paying the mortgage or the car loan is your priority.

But life has a way of shifting priorities and problems. Many people who file for bankruptcy protection do so because they can no longer handle the crush of medical bills as a result of a catastrophic illness.

Is it fair that in a country as rich as ours there is anyone who has to worry about being denied health care because of its cost?

Absolutely not. All of us should be concerned, and we should work to change a system in which receiving good health care often comes down to the jobs we hold.

But until things do change, you need to prepare for the worst. In addition to saving at least three months’ living expenses, pump up that bank account to include the possibility that you may have to pay your full health insurance premium.

… if you have a good income, learn to live on less. Stop buying things you don’t need so when a crisis hits — medical or otherwise — you have some financial resources to fall back on, at least for a little while.

http://www.washingtonpost.com/wp-dyn/articles/A31306-2002Jul6.html

Comment: And if you don’t have a good income?

Universal insurance is the only answer.

The Washington Post
July 7, 2002
By Michelle Singletary

My family has health insurance through my job. But what if I were pink-slipped because of some accounting irregularity that caused my company to go bankrupt? What if my company decided that the best way to pump up its stock price was to announce major layoffs?

I’ll tell you what I would do: I’d immediately sign up to continue my coverage through COBRA.

In theory, COBRA is a good law. In practice, most workers can’t afford to pick up the coverage. Only 7 percent of unemployed workers or their families used COBRA in 1999, according to the Kaiser Commission on Medicaid and the Uninsured.

I understand why so many people, faced with the high cost of this coverage, decide not to take advantage of their COBRA rights. If you and your dependents are healthy and money is tight, paying the mortgage or the car loan is your priority.

But life has a way of shifting priorities and problems. Many people who file for bankruptcy protection do so because they can no longer handle the crush of medical bills as a result of a catastrophic illness.

Is it fair that in a country as rich as ours there is anyone who has to worry about being denied health care because of its cost?

Absolutely not. All of us should be concerned, and we should work to change a system in which receiving good health care often comes down to the jobs we hold.

But until things do change, you need to prepare for the worst. In addition to saving at least three months’ living expenses, pump up that bank account to include the possibility that you may have to pay your full health insurance premium.

… if you have a good income, learn to live on less. Stop buying things you don’t need so when a crisis hits — medical or otherwise — you have some financial resources to fall back on, at least for a little while.

http://www.washingtonpost.com/wp-dyn/articles/A31306-2002Jul6.html

Comment: And if you don’t have a good income?

Universal insurance is the only answer.

The New York Times
July 6, 2002
By Milt Freudenheim

With Congressional passage of a Medicare drug benefit still far from certain, about half the states are at least considering joining a Bush administration program that will provide federal matching money to extend drug coverage to elderly people whose incomes are modest but too high for Medicaid.

Some states are shunning the program, however, warning of financial risks for their Medicaid budgets and the low-income people they already serve.

So why are some states concerned? Because under the new federal program, which will provide each participating state a waiver from Medicaid law, there will be a federal subsidy ceiling that will rise no higher, over the five-year span of the waiver, than the total federal contribution for Medicaid that a state received before the new drug program.

In other words, from Washington’s perspective the new program will be “budget neutral”: for each dollar that a state receives under the program, it must find a dollar of savings elsewhere in the government’s contribution to Medicaid.

Cindy Mann, a Medicaid expert at the Kaiser Family Foundation:

“The waivers put all the risks onto the states and the beneficiaries. That is a fundamental change in the way the Medicaid program is normally financed.”

http://www.nytimes.com/2002/07/06/politics/06PLAN.html

Comment: The policy implications are important from two perspectives: the implications for the current Medicaid and Medicare programs, and the implications in the future once we have a universal program of health insurance.

Medicaid is a critically under-funded program. Since states must participate in the funding, the current state budget crises are only compounding the problem. The insistence of the Bush administration that this expansion of prescription coverage be budget-neutral within the Medicaid budget merely pulls more funds away from already critically under-funded Medicaid services. Providers will bail out not because their profits are diminished, but rather because they cannot sustain the increasing losses. Starving a program of funds is a devious method of assuring its demise.

Unfortunately, the administration has established a similar policy for our Medicare program. They insist that any changes be budget-neutral. For instance, they have stated that any new Medicare prescription benefit must be paid for out of reductions to other providers. With a 5.4% decrease in physician payments this year, and more cuts scheduled for each of the next few years, further reductions though the budget-neutrality policy simply cannot be tolerated. Thus Medicare will be further starved of funds, easing the way to the administration’s goal of turning Medicare over to the marketplace. Spartan benefits with unaffordable cost-sharing will be inevitable for the majority of beneficiaries.

What about budget-neutrality once we have a program of universal health insurance? Isn’t one of the promises of a single, universal program that we can control health care costs into the future? Global budgeting promises budget neutrality, with appropriate adjustments for inflation (and for technological expansion, if that is our priority).

Why is global budgeting acceptable in a single payer program, but undesirable in our existing Medicare and Medicaid programs? The answer is very simple. We have more than enough resources to fund comprehensive services for everyone, but first we would have to eliminate the administrative waste characteristic of our current system. Maintaining expenditures at the current 14.7% of our GDP would assure adequate funding for health care forever.

But then why is global budgeting failing for Medicare and Medicaid? The answer is that we have failed to adequately fund the two most expensive risk pools in the nation, Medicare, composed of the high-cost elderly population and those with long-term disabilities, and Medicaid, composed of low-income individuals with greater medical needs. If we are to isolate high-cost individuals in exclusive risk pools, we must fund those pools much more generously than we do the risk pools for the remaining healthy individuals. But we don’t do this. We under-fund Medicare, and critically under-fund Medicaid, while we over-fund private health plans in order to generously support this superfluous industry.

We see where our national policy priorities currently lie. Isn’t it time to re-prioritize?