Is universal health coverage possible? – Alain Enthoven’s consumer choice proposal – Special Report – The 1990s: What’s Ahead for Health Benefits – illustration
Karen Hunt
Is universal health coverage possible?
Alain Enthoven thinks it is–if purchasers insist on making the health care system more efficient and change existing financial incentives.
Since the mid-1970s, Alain Enthoven has been one of the leading members of this country’s health care policy brain trust, a small, informal, and exclusive group of individuals, mostly from universities and think tanks.
But Enthoven isn’t an ivory-tower academic, despite his title: the Marriner S. Eccles Professor of Public and Private Management in the Graduate School of Business at Stanford University.
At Stanford, he’s chairman of the benefits committee where he grapples with the real world dilemma of providing high quality, affordable coverage to the university’s 10,000 employees. He also serves on the state of California’s health benefits advisory council.
What’s more, Enthoven has experienced corporate pressures from the inside, having headed up Litton Medical Products for a time.
When it comes to politics and government, Enthoven is no babe in the woods either. During the Kennedy and Johnson years, Enthoven was one of “McNamara’s Whiz Kids.” As assistant secretary of defense, his job, as he describes it, was “point man on trying to bring cost effectiveness to the Pentagon. I learned that the ideal weapons system is built in 435 congressional districts and doesn’t work.”
Government’s potential
The experience has given him some definite ideas about the government’s potential to manage health care. “People have to give up the fantasy that someday, somehow, we’ll bring in the government to get health care costs under control,” he says. “That’s a ridiculous idea. Government is anti-cost effective.”
He is staunch in his belief that “we’re not going to get cost effective care in this country unless we get every purchaser interested in it and seeking it out–seeking value for money.”
As Enthoven sees it, the incentives aren’t right to make employers, the government, and consumers demand cost efficiencies.
Early this year, Enthoven and his colleague Richard Kronick presented their ideas for changing the health care system. The proposal, called “A Consumer-Choice Health Plan for the 1990s: Universal Health Insurance in a System Designed to Promote Quality and Economy,” was published in two articles in The New England Journal of Medicine, January 5 and 12.
Hill attention
The proposal, which is getting a lot of attention on Capitol Hill, evolved from one Enthoven made in 1978 at the request of President Jimmy Carter’s Secretary of Health, Education and Welfare Joseph Califano. Ideas from that version surfaced in at least a half dozen different health insurance bills introduced in the late 1970s by liberals, moderates, and conservatives alike.
The new proposal
The new proposal, in a nutshell, recognizes the “paradox of excess and deprivation.” While the country spends more than 11 percent of the gross national product on health care, we still have some 35 million people who have no health insurance.
“To an increasing degree, the present financing system is inflationary, unfair, and wasteful,” the authors say. “In its place we need a strategy that addresses the whole system, offers financial protection from health care expenses to all, and promotes the development of economical financing and delivery arrangements. Such a strategy must be designed to be broadly acceptable in our society.”
The proposal calls for everyone who isn’t covered by Medicare, Medicaid, or some other public program to be able to buy affordable coverage either through an employer or a “public sponsor.”
“To attack the excess,” the authors propose “a strategy of managed competition in which collective agents, called sponsors, such as the Health Care Financing Administration and large employers, contract with competing health plans and manage a process of informed cost conscious consumer choice that rewards providers who deliver high quality care economically.”
Employers’ role
In a recent interview with Business & Health, Enthoven described how the plan would affect employers.
“The main thing for employers in the proposal is that we’d limit the amount of tax-free contribution to health insurance. We’re not saying the whole thing becomes taxable.”
The consumer-choice plan doesn’t specifically require private employers to offer choices, but Enthoven says, “It would work better if they did.
“I find that offering choices and a defined contribution is just smart management from the employers’ point of view.”
Wrong incentives
Enthoven says the way most employers structure what they’ll pay toward health insurance is sending the wrong message to employees, providers, and insurers.
“I’m trying to get people to understand that the group purchaser who has been totally passive must get very active. In fact, employers should apply principles of rational economics. For example, sometimes people say if cost effective HMOs are such a good idea, why haven’t they grown faster and taken over? For one thing, the employers, the large group purchasers, still insist on paying more money, often substantially more money, on behalf of those employees who choose the costly, inefficient plan.
“The overwhelming majority of employers in the country who offer health plan options, one way or the other, will pay more if employees choose the more costly health plan. The tax laws encourage the same thing.
Subsidizing inefficiency
“How can you expect an efficient industry to emerge if the purchasers heavily subsidize inefficiency?”
He uses Stanford as an example. The university’s lowest-cost plan is the HMO, Kaiser Foundation Health Plan. To figure the contribution the employer will make, the university takes the price of the lowest-cost plan plus $48. That total amount can be applied to any one of the four HMOs, one PPO, or Blue Shield plan. Couples and families can apply the $48 toward buying dependent coverage.
The formula, however, gives individuals no reason to be cost conscious, Enthoven explains. An employee can sign up with the most expensive plan and pay nothing extra. “It’s understandable why 80 percent of families are in HMOs, but only 60 percent of individuals,” Enthoven says. “The attitude is that if it costs more and I can get it for free, it must be good.”
The state of California has a similar set-up. It offers eight HMOs and PPOs and no indemnity plans. According to Enthoven, the state’s contribution for the employee buying single coverage is 100 percent of the average of the four largest plans.
“Plans that price their product below average must wonder why they’re doing it,” he says. “They’ve got nothing to gain. What kind of a message are we sending? In the case of Stanford, we’re in effect saying to Kaiser that we’re willing to pay $48 a month more than what they are charging us. Why does anybody attempt to be cost conscious or hold down their prices when employers are willing to do that?”
Contributions in question
Enthoven’s frustration is that such policies are widespread. A few months ago, while speaking to the Northern California Employee Benefits Council, Enthoven took an informal poll of the 400 people in the audience. He asked them to raise their hands if they worked for an employer who makes a defined contribution that does not exceed the cost of the lowest-priced plan. “Over in the corner, two people sitting together raised their hands. Two out of 400. That’s my scientific poll,” he says.
What makes the situation even worse is that the subsidy for more expensive plans is being paid out of pretax dollars. The Internal Revenue Code permits employees to characterize their premium contributions as non-taxable employer contributions.
“Next year at Stanford, the choice will include Kaiser family coverage at $300 and Blue Shield at $500. Because of the way the tax laws work, if I’m in the 40 percent tax bracket and I choose Blue Shield, the government, in effect, will be paying 40 percent of the additional $200.
“The government is saying to me, `Alain, if you choose the more expensive plan, we’ll contribute $1,000 a year to reward you for doing that.’ That’s $1,000 the government in this country does not have and, if it did have it, there would be a lot higher-priority use for it–in particular, to subsidize the purchase of health insurance for people who don’t have any.
“The key foundation of our proposal is to say, `Don’t offer us an extra $1,000. Offer that to those who don’t get a subsidy now.”
Labor opposed
Enthoven’s proposal is gaining ground with some key legislators on Capitol Hill including Sen. David Durenberger (R-Minn.) and Rep. Willis Gradison (R-Ohio). But the idea has some formidable opponents, including organized labor.
“The big problem is politically, of course, organized labor has dug in on opposing limits on tax-free employer contributions. It’s unfortunate because a limit would not throw them for any kind of major loss.
“Whether we have universal health insurance or not, large group purchasers,” he concludes, “have to get a lot smarter, more active, and better informed. They must consciously manage the process of competition in such a way as to reward the production of high quality, cost effective services. We have to stop rewarding skimming the risks, segmenting the market, differentiating the product, and other time-honored techniques to defeat competition.
“We need an active force on the demand side. There’s no satisfactory substitute for an efficient, well-organized delivery system. The only way you can get that is to have most of the purchasers really seeking value for their money and being willing to make hard choices to get it.”
COPYRIGHT 1989 A Thomson Healthcare Company
COPYRIGHT 2004 Gale Group