Health reform and the election, part 5: Covering the uninsured

October 22, 2008

About 46 million Americans -- 15 percent of the population -- do not have health insurance, according to the latest U.S. Census data. Approximately $100 billion would be needed to provide them with coverage. Can we afford it? And where would the money come from?

"To get to a universal coverage scheme that makes sense, everybody's going to have to contribute something," said John Rivers, president and chief executive officer of the Arizona Hospital and Healthcare Association and an advisory board member of W. P. Carey's School of Health Management and Policy. "We have to give up the notion there is any sort of free lunch in getting to universal coverage."

Covering the uninsured is a key objective of the health reform plans of presidential candidates John McCain and Barack Obama. Senator McCain would eliminate the tax break workers get for employer-sponsored coverage and replace it with tax credits for people to buy their own insurance. Senator Obama would mandate coverage for children and offer subsidies to make insurance more affordable.

In the weeks leading up to the Nov. 4 election in the United States, Knowledge@W. P. Carey is exploring issues related to health care reform. On the question of how to extend coverage to the uninsured, insights were sought from W. P. Carey School of Business faculty, members of the advisory board of the School of Health Management and Policy, and Mark V. Pauly, professor of health care systems at the University of Pennsylvania's Wharton School. Professor Pauly delivered a major health policy briefing at the W. P. Carey School last year.

Reforming the system

Determining how to cover the uninsured requires taking a broad view of the problem, according to the experts. Defining it as simply an insurance matter that a clever formula might solve is probably not going to succeed, they say.

"I would hope that the debate would be on the reform of the health care system," said Rivers. "Expanding coverage to the uninsured is a major component of that, but real health care reform goes way beyond."

According to Rivers, meaningful health care reform will require adopting new financial incentives that would shift American health care from a "sick-care" model to a "wellness-care" system.

W.P. Carey Professor Bradford Kirkman-Liff of the School of Health Management and Policy also advocates taking a long view of health reform. "To me the health care system is a system for all of us," he said. "It's not just a service we buy when we get sick."

Electronic records, managed care, and taxes

Kirkman-Liff agrees with both Obama and McCain that making the system more efficient would yield some of the money needed to cover the uninsured. According to Kirkman-Liff, an obvious step is shifting from paper to electronic medical records, which both McCain and Obama have advocated.

"The volume of paperwork is unbelievable," said Kirkman-Liff. "The health care system is still being run using paper forms and fax machines. We could easily cut our administrative costs by a couple of percentage points, maybe more, and it would make for a better experience for doctors and patients."

Kirkman-Liff also advocates a more serious attempt to implement managed care than the effort that was made in the 1990s. Managed care has the potential to produce savings that could help pay for coverage of the uninsured, he believes. "With managed care that is well-organized and well-run, I think the costs would be much lower," he said.

Marjorie Baldwin, director of the School of Health Management and Policy, said that one potential revenue source for covering the uninsured is the vast pool of taxes not collected on employer contributions to worker health insurance. McCain has suggested doing away with this tax break and replacing it with a tax credit for all.

"Right now anyone who gets health insurance through an employer is getting a government subsidy because you pay your portion with pre-tax dollars," said Baldwin. "So if you stopped doing that and you collect taxes on it, then that would be a huge source of income for the government."

Who are the uninsured?

The uninsured are a diverse group, which makes devising a plan to cover them especially difficult, Pauly points out. Some of the uninsured are too poor to buy insurance, while others could pay for it, but, for whatever reason, choose not to do so.

"We've studied the uninsured in Arizona and nationally," said Benton Davis, chief executive officer of United Health Care of Arizona. "A third can afford it but choose not to buy it. A third are between jobs and don't have access to health insurance, which is a problem particularly in tough economic times. And there's the final third that truly can't get insurance because they are unemployed and they have a problem qualifying for Medicaid."

Davis said the government needs to step in and provide subsidized care for those who truly cannot afford it. Those who can afford it but choose not to buy it present a difficult problem, he believes.

Paulina Vasquez-Morris, chairman of the Maricopa Health District Board, said of this group, "I think they've done the math, and they've decided it's not to their advantage to buy health insurance."

Dealing with the fringe

According to Pauly, the people who seem not to value insurance are a fringe group. Research has found that they are neither rich nor poor, are often maxed out on their credit cards, and do not have life insurance or collision insurance on their vehicles either, according to Pauly.

"To cover these people you probably do need to compel them to purchase health insurance," Pauly said.

An option to a mandate would be a requirement that these uninsured post a bond -- perhaps $20,000 in a dedicated savings account -- to cover unforeseen health care expenses, according to Pauly.

While acknowledging that mandates are a possible answer, Davis contends that a better solution would be improved private insurance options. "Is the need not being met by the marketplace, by the folks in my business?" he asks. "There are lots of reasons why they're not buying it. At the end of the day, you have to understand those reasons and eliminate them."

Finding $100 billion

The $100 billion price tag for covering the uninsured is Pauly's best guess at what a program would cost. While this represents only about 4 percent of current health care spending, the dollar cost is too high to be politically acceptable if spread evenly across the taxpaying population, according to Pauly. Each household in America would have to pay an additional $1,000 annually.

"The main political issue here is that all surveys show taxpayers are willing to pay some extra taxes to cover the uninsured but not anything near the cost that would be required," Pauly said.

Davis favors subsidized insurance for the poor, but not those who can afford to buy insurance. "For those who truly can't afford it, those who are truly uninsurable, we need a funding mechanism in which all entities share the burden," he said.

One strategy that might work is to tie in health care reform with tax reform, according to Pauly. He notes that Obama has proposed a tax cut for the middle class. "The way to kill two birds with one stone is to say, 'I'm going to give you lower middle class person a tax cut but only if you go out and get health insurance.'" said Pauly. "You could call it either a stick or a carrot."

Rivers believes that over-analyzing the plans of the presidential candidates is a mistake. If health care reform is adopted, it will be hammered out in Congress, with the president playing a lesser role, he said.

"At the end of the day, I don't think it makes much difference where the presidential candidates stand. We all learned in the third grade that the president proposes and the Congress disposes," Rivers said.

According to Pauly, reforming the health care system is a massive undertaking that cannot be accomplished overnight. The important thing now is that policymakers start the process, he said.

"I think we do not know how to reform the healthcare system but we do know how to cover  a lot more of the uninsured -- and we must think that the current system for insured people is better for them than being uninsured," Pauly added. "So it seems reasonable that we should start with what we know, making sure that we do not put something in place that may conflict with health reform when it comes and in whatever form it takes.

Vasquez-Morris agrees that the goal should not be to come up with the perfect solution right away. "You just have to start and fine tune as you go along," she said.

Bottom Line:

  • Covering the uninsured would cost about $100 billion a year. Determining where that money would come from is a major question for any health care reform plan that seeks to provide universal coverage.
  • Some experts believe that overall reform of the health care system -- providing new incentives for different kinds of care and implementing efficiency measures -- is a necessary condition for expanding coverage to the uninsured.
  • The uninsured population in the United States is diverse. Some are too poor to afford insurance, while others can afford to buy it but choose not to. Health care reform plans need strategies to deal with these different groups.
  • Requiring people who can afford insurance to buy it is one approach to covering the uninsured. More attractive private insurance options might prompt some of the uninsured to purchase insurance.
  • One way to expand coverage of the uninsured is to offer a new middle class tax, which would be tied to the purchase of health insurance. This could be seen a either a carrot or a stick to encourage more people to become insured.