Next-gen health care reform

The forces fighting for a better health care system should spend the next two years laying the groundwork for a major overhaul of the way we pay for health care.

Given the Democratic control of the Senate and a narrow GOP majority in the House, major initiatives in health care policy will be off the table in the next Congress. But with Sen. Bernie Sanders (I-VT) in line to run the upper chamber’s Health, Education, Labor and Pensions (HELP) committee, reformers on Capitol Hill have an opportunity to educate the public about what next-gen health care reform should look like.

Rather than use his committee’s time to continue tilting at the windmill of a single payer system (which draws hostile opposition from insurers, employers, most union-run plans, and many providers), he should hold hearings on a series of payment reforms that would achieve many of the same goals.

In thinking about what those reforms should be, my own thinking is guided by two principles. First, they should move the system toward achieving what health care policy wonks call the triple aim: universal access; higher quality with better outcomes; and lower costs for patients and payers. And, they should be politically feasible, i.e., have the potential to put together winning coalitions.

Over the next several weeks, I will lay out such an agenda. It has three essential components, each of which can be pursued on its own with immediate benefits for the system. They are:

• Replace the 50 state Medicaid programs with a unified federal program that offers states tax relief and its beneficiaries (now one in four Americans) better care;

• Equalize provider prices for all payers to eliminate administrative waste and the gross disparity between what public and private payers spend on individual services; and

• Move hospitals and physician practices onto annual budgets under the control of organizations that can take full responsibility for their patients’ total cost of care.

Reforming Medicaid

Today, I’ll start with Medicaid. Prior to this month’s election, I feared a GOP-controlled Congress would use its predicted majority to advance the most radical plank in its health care agenda: funding Medicaid with block grants to the states. Thank goodness the pundits and pollsters had it wrong.

The trial balloons issued by some Republicans to cut Medicare benefits and promote further privatization – the issues highlighted by Democrats on the campaign trail – posed much less of a threat in my mind. Many if not most members of the GOP will run away from cutting seniors health benefits in the name of fiscal austerity in the two years leading up to a high turnout presidential election.

But cutting benefits for the poor? That’s something the entire GOP has united around before and will again. The sad reality is that defending the poor has much less salience with the voting public than defending seniors.

Block grants would be a disaster for a program that now provides health insurance for 83 million souls and covers 42% of all births. It would give Republican-controlled states the leeway to further reduce their already skimpy coverage. It would set back efforts in the 11 states that still haven’t expanded Medicaid to cover people earning up to 138% of the poverty line. And block grants would become the vehicle for ratcheting down federal support over time, which would make it politically difficult for more generous states to maintain their existing programs since it would entail raising state and local taxes.

Medicaid expansion was crucial to the Affordable Care Act’s cutting the U.S. uninsured rate in half over the past decade. But there are still 8% of Americans without health insurance.

As we saw from South Dakota’s vote in favor of Medicaid expansion, the public in conservative areas is slowly coming around to seeing the wisdom in helping the working poor. Getting all states to expand Medicaid would go a long way toward reducing the coverage gap. When that is coupled by a friendly Congress with more generous subsidies for individual and family plans sold on the exchanges, the U.S. will be able to finally get its uninsured rate down to negligible levels.

But will it be fiscally sustainable? Medicaid financing is a shared responsibility between the federal government and the states. For most states, Medicaid is second only to primary and secondary education as the largest component in their budgets, which are far more dependent on regressive sales taxes than the federal government.

Source: Medicaid and CHIP Payment and Access Commission, data from 2016

Tax reform is key

The time has come to flesh out a tax reform plan that can win popular support in red and blue states alike. Let’s federalize Medicaid and deliver a huge tax relief package to the states.

Federalizing Medicaid could provide as much as $200 billion in relief from regressive state sales and income taxes. The federal taxes needed to finance the switch could be made far more progressive than they are now as part of the plan.

States could use the windfall any way they like. Legislatures could offer sales and income tax relief to their low- and moderate-income citizens. Or they could invest more in education, housing, transportation, and economic development.

As I noted in a 2017 article in Democracy: A Journal of Ideas calling for federalized Medicaid, the nation’s miserly attitude toward basic social services (housing, food assistance, basic mental and behavioral health) is one of the major drivers of ill-health in our society. It helps explain why the U.S. spends so much more than other advanced industrial countries on caring for the sick. Federalizing Medicaid will provide the states whose governments are charged with providing most of those services with new fiscal capacity to meet those needs.

Federalizing Medicaid would also standardize benefits across the country. It makes no sense that a working adult in Texas earning poverty-level wages does not qualify for Medicaid while someone earning significantly more in New York or Massachusetts is not only covered but has a significantly better benefits package.

It also would sharply reduce the administrative staff needed to oversee the differing requirements in each state. A simplified, federally-run program with clear entry and exit criteria would make the lives of the poor and working poor simpler by eliminating the “time tax” needed to fill out the complicated paperwork that state-run Medicaid programs impose to limit their financial exposure. As people get jobs or earn more than poverty-level wages in the jobs they have, a federalized Medicaid program could be structured to allow an easy transition into exchange-based plans when their employers don’t provide coverage.     

This reform has been batted around for years. What’s needed now is some think tank to flesh out a full proposal that includes the estimated cost of federalizing Medicaid; the tax reform needed to raise the money; and the state-by-state estimate of the tax relief that will accrue to their budgets; and a full discussion of its social and administrative benefits.

Legislation should be introduced in the next Congress and hearings held in the HELP committee. If Republicans want to talk about block grants, fine. Democrats should show they have a better idea – one that helps the working poor and taxpayers alike.