From Hospitals and Health Networks Online, November 11, 2008

Too often, ideas take on a partisan coloration, doubly so in an election year. And the colors are often rather arbitrary. From a systems-thinking point of view (and shorn of their partisan labels), which ideas for healthcare reform floated during the campaign make sense? What would actually work?

Reading the systemic tea leaves on reform

Too often, ideas take on a partisan coloration, doubly so in an election year. And the colors are often rather arbitrary. When, 40 years ago, we had a presidential election in the midst of a deeply unpopular war, “Set a timetable” was the Republican refrain, and it was Democrats who decried the desire to “cut and run.”

In this election, both candidates trumpeted the need to reform health care, something almost every American agrees with. Amidst the rhetoric, both candidates laid out real ideas. We are likely to have a health care bill within 12 months, if only because everyone thinks we need one, and no one wants to take on anything serious in a congressional election year (2010). The process will be messy and difficult, but we can reasonably hope that the bill will take ideas from both sides in the debate—and possibly ideas that neither of the candidates espoused.

Single-Payer Politics

From a systems-thinking point of view (and shorn of their partisan labels), which ideas make sense? What would actually work?

Neither candidate campaigned for a universal, single-payer system. This makes sense only from the point of view of political caution. As Lawrence Jacobs pointed out in the May 1 New England Journal of Medicine, for two decades the American public has consistently polled high numbers in favor of deep reform, a complete overhaul, and some kind of universal system, even tax-supported.

On the other hand the public can easily be led to believe that a government-run system of some kind will actually lead to even longer waits, higher personal costs, rationing and less access to specialists and sophisticated diagnostics—and if they believe that, the support for reform withers. The ghost of the Clintons’ political disaster when they attempted health reform 15 years ago hovers over all politicians. No one wants to be caught out in the cold if support for reform weakens and dies.

As the Republican candidate, John McCain often expressed the opinion that government-run health care would be inefficient and of poor quality—and this was a consistent applause line on the campaign trail. Yet there is little evidence to back this idea, in this country or abroad. The countries that spend less for equal or higher quality include systems with heavy private insurance involvement (like Switzerland and Germany) and completely government-run systems (like Canada). Differences in quality and cost do not seem to map onto gross differences in payment structure. And many of the most widely admired and popular parts of the U.S. health care system are government-run, including the Veterans Administration, the military TriCare system, the Federal Employees Benefits Program and, of course, Medicare.

Can We Get To Universal Coverage Without Mandating

Democratic candidate Barack Obama, on the other hand, argued for massive government investment in subsidizing coverage for the uninsured, yet would not contemplate making such coverage mandatory (except for children). Once you made health insurance inexpensive enough, and provided subsidies for the really poor, market forces would mean that almost everyone would buy in, he maintained.

The argument missed two important factors: Even at lower price points (and whether we agree with them or not), many people will make a rational choice not to spend money on health insurance. And the social good provided by health insurance is not just to the individual, but to the society, by helping keep hospitals alive (even in poor neighborhoods), and by helping catch chronic diseases at early stages, when they are less expensive and more effective to treat.

Whether individuals choose to be insured or not, covering them is good for the rest of us. This weakness was common to both candidates: Though both hoped to make insurance cheaper and more widely available, neither presented schemes that would nearly or completely eliminate the problem of the uninsured.

Employer Requirements

The deepest differences appeared in how the two plans treated insurance and employers. Obama would force employers (except really small ones) to provide insurance or pay a tax—and reinsure them against catastrophic claims. McCain, in contrast, would eliminate the tax-free status of health care premiums paid by employers, and use the funds generated to pay for a health care tax credit.

In effect, McCain would make individuals and families the main “customers” of health care, rather than employers and the government. The main systemic result of this lies in the details—the tax credit ($2,500 for individuals, $5,000 for families) does not vary with the cost of premiums. If premiums cost less, the taxpayer can put that difference in a health savings account. This would encourage shopping for low premiums. Of course, employers look for low premiums now. One question is whether employers shop with more information, and more leverage, than your average employee would.

The plan would also even out some key differences in the work force. A major “class” divide in America is between those who have stable health insurance because they work for a major employer or government agency, and those who do not. This leads to “job lock,” with people unwilling or unable to change jobs, even when it would otherwise make sense, because of worries about their health care coverage. The McCain plan would give the tax credits to everyone, no matter who they worked for, even the unemployed. This would greatly increase the fluidity of the work force, and expand people’s realistic options when they consider career choices.

Obama, on the other hand, intended to create a national health insurance exchange to offer the uninsured and small businesses a wide array of choices—an important shift, since in many markets there are only one or two insurance choices, and little real competition between them. McCain’s plan would offer such a nationwide insurance pool only to the “uninsurable.”

Obama would reduce the number of “uninsurables” by ending the ability of health care plans to offer health insurance to everyone except those who actually need it—he would impose national regulation to prevent insurers from denying coverage based on health status. This would remove from insurers some of their primary methods of guaranteeing profitability by gaming the risk pools and aggressively rescinding coverage on patients who turn out to be expensive. This would likely rationalize the health plan industry and force them to compete on more difficult grounds, such as aggressively pushing preventive and maintenance care, to keep the less expensive patients from becoming more expensive.


McCain wanted to “deregulate” health care insurance to promote more competition, allowing companies to sell across state lines and vitiating states’ abilities to mandate what types of coverage must be offered. This would certainly increase competition in the markets where competition is anemic, and increase the pressure of the “race to the bottom” on price.

Deregulation might offer an opportunity for companies to differentiate plans—you can pay for whatever level of coverage makes sense for you and your family and your budget—but only if real transparency about both providers and insurers gives the customer enough information that you can actually get more by paying more. Without that information, health care and health care insurance remain commodities, with price the only real differentiator.

This, combined with the low tax credits (and no mention of indexing them to inflation) and the taxability of health care premiums (which would become more burdensome as inflation drove the premiums up), would rapidly move people from more comprehensive plans to anemic, high-deductible plans. Past experience shows that many more people would be avoiding all routine care (preventive care, chronic care, maintenance care and education) because each appointment, each pill, co
mes right out of their wallet. Routine care is precisely the kind of care that keeps overall costs down and quality up.

Both candidates mostly focused on how to finance health care, not about how to provide it less expensively, and at higher quality. In the details, though, McCain emphasized systemic changes that didn’t make for applause lines, but that could have a profound positive effect on making health care better faster cheaper. Medicare, for instance, should not pay fees for individual tests and procedures, but should pay for bundled episodes of care.

Pay by Performance

Similarly, both Obama and McCain spoke of paying on the basis of performance and outcomes (though the details of how to do this are murky and problematic). Paying for bundled services, and for outcomes rather than tests and treatments, would transform health care providers, driving them to integrate vertically, take control of their processes through lean manufacturing and other techniques, and compete strongly on the basis of the outcome and price of whole services—which is exactly what the end customer wants—rather than on the basis of how many individual tests and procedures one can get reimbursed for.

The great unspoken myth of health care has long been that there really is no such thing as health care management, that you just provide the doctors with resources and step out of the way. This is provably false, and any move to bundle services and pay for outcomes will quickly show its falsehood. If you want high quality and low cost, you have to manage intelligently and aggressively for it.

Health care will never cease to be complex. No real answers to its management can be reduced to a sound bite or a bumper sticker. Some mix of the two sets of ideas could actually make a big positive difference in health care. The president-elect can expect strong opposition to any and every detail of any eventual legislation, and every regulatory interpretation of the legislation for years to come.

To imagine that we will emerge from this process with a substantially better health care system is not only to imagine that the ideas are sound, but to hope for extraordinary political leadership, and vision, and a real ability to embrace creative ideas, and to sell them both across the aisle and to the American people. Unfortunately, these are not qualities in great abundance in the political landscape in recent years. But we can always hope, and work like crazy while we hope.