Hearing on Health Reform in the 21st Century: Proposals to Reform the Health System

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Abstract

The testimony begins by mentioning a large number of positive aspects of the legislation. The role and importance of an individual mandate is then briefly discussed. It argues that the public plan that is proposed in the plan is important for overall cost containment and for budget savings. The plan would address problems in the current market that are caused by increasing concentration in insurance and hospital markets. Further it is argued that it is in fact possible to structure a fair competition between public and private health insurance plans. Finally, the testimony makes recommendations for the financing of the Medicaid expansion and for modifying the employer mandate proposal.

Testimony

Mr. Chairman and distinguished members of the committee, thank you for inviting me to share my views on the Tri-Committee's health reform draft proposal. The views I express are mine alone and should not be attributed to the Urban Institute, its trustees, or its funders.

The proposal has many strengths and I applaud the committee for the thoroughness with which it approached its development. In many respects, it builds upon the successful health reform enacted in the state of Massachusetts. It provides for a Medicaid expansion to 133 percent of the federal poverty level (FPL), a set of incomerelated subsidies between 133 percent FPL and 400 percent FPL, a national health exchange, and extensive insurance market reforms. It contains an individual mandate, which is essential to providing universal coverage. It provides for a competitive framework within the exchange by requiring individuals to pay more if they want more comprehensive coverage. The plan improves access to primary care, including increasing payment rates to primary care physicians in the Medicaid program. It also provides for a cap on total out-of-pocket spending, an essential protection for those with high medical expenses in a given year. Finally, it includes a public option, which I think is essential for several reasons that I will discuss below.

I want to focus my testimony on a few specifics of the plan: the individual mandate, the public plan option, the Medicaid reforms, and the employer pay or plan mandate. First, an individual mandate is essential for providing universal coverage. Numerous studies and the leading microsimulation models have shown that voluntary efforts, even with generous subsidies, will fall well short of universal coverage.¹ An individual mandate with subsidies that make coverage affordable is a fair way to get to universal coverage. Voluntary efforts will tend to extend coverage to those with the most serious health conditions. As a consequence, adverse selection into a new guaranteed source of insurance coverage would likely lead to unstable insurance pools. A requirement for everyone to participate eliminates this critical problem. Also, the government's cost of extending coverage via an individual mandate to those who would not voluntarily enroll is relatively small because this group tends to be healthier and, therefore, lower cost. Further, without an individual mandate and universal coverage, it is impossible to reallocate dollars now being used to support safety net providers that care for the uninsured. This is an important source of financing that is only possible with an individual mandate.

Second, I think it is important that the committee has included a public insurance option in the plan because having a competitor to private plans, under a fair set of market rules, will provide more choice and place substantial cost containment pressure on the health care system. The arguments made in the public plan debate too often ignore the fact that a public competitor would not be introduced into a well-functioning health marketplace. Many health insurance markets, as well as provider markets, are simply not competitive today. As a result, the markets are not providing the benefits one would expect from competition, including efficiency and control over the growth in health care costs. An extraordinary amount of concentration in the insurance and hospital industries has taken place over the past several years. This concentration has been a significant contributor to cost growth.

(End of excerpt. The full testimony with references is available in PDF format.)

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