A Dictionary of Health Policy Terms
Health Letter, August 2007
As the presidential debates heat up and health issues assume a higher political profile, candidates are coming up with strategies to reform the current health care system. Some of these fundamentally redesign the way in which care is financed and paid for; most, however, tinker with the system, providing only partial solutions to lower the number of uninsured, control costs and increase accountability. These proposals are likely to be subjected to much debate, and some phrases or concepts will be over-used and abused. We are therefore providing our readers with a basic dictionary of the current health policy vocabulary.
Choice: is as American as apple pie. In the health policy arena, however, the word is usually a code for the provision of a variety of options, some of which offer skimpy services or deceptively low premiums. Although appropriate and timely information is essential to true choice, many plans violate this basic tenet. They are confusing, complicated and jargon-ridden; as a result, patients often have problems finding out what is covered and under what circumstances.
At the policy level, an insistence on “choice” often serves as the rationale for avoiding a uniform service package and universal coverage. It is also the entry point for strengthening health savings accounts (see below). Attempts to privatize Medicare also parade under the banner of “choice.” This accounts for the creation of Medicare Advantage Private Fee-for-Services plans. These cover extra benefits and cost more than traditional Medicare. Indeed, Medicare pays an average of 12 percent more for those who enroll in Medicare Advantage plans than it pays for beneficiaries who are covered under traditional Medicare. These plans have been beset by aggressive, inappropriate marketing activities. After many senior advocates complained that some beneficiaries were inadvertently finding themselves in plans in which they did not want to enroll, whose coverage they did not understand, seven insurance companies agreed to stop marketing private Medicare plans temporarily. Nevertheless, there is still much confusion disguised as “choice.”
Consumer-driven health care: This term characterizes health schemes that give greater responsibility to patients for the costs of their health care. Usually, this takes the form of higher co-pays or deductibles, which are intended to make the consumer more cost-conscious. These high-deductible plans are often paired with health savings accounts (see below).
High-deductible plans have a number of perverse effects. Because they pay for high-ticket items rather than for more basic services (e.g., amputations rather than visits to podiatrists), they distort the supply and demand of care. In addition, cost-sharing can raise barriers to care, which in turn lead to late or no services (see also Health savings accounts). Moreover, high deductibles tend to have a differential impact on women, who have a greater need for preventive services, not all of which may be covered. A recent study compared out-of-pocket expenditures for maternity care under five different plans, four of which had high deductibles. The researchers found “tremendous variation” in the financial burdens the plans impose, and concluded that “women and families could be left with thousands of dollars of expenses from maternity care even with an uncomplicated birth, resulting from the high deductibles and cost sharing requirements in these plans.”
Consumer “buy-in”: This phrase, used to justify greater cost-sharing, assumes that paying out-of-pocket will make consumers more aware of the costs of health care, thereby making them more prudent consumers. Additionally, “buying in” is intended to reinforce their role as stakeholders in the delivery of care. The problem is that this makes consumers responsible for deciding their spending priorities (most often with limited information), distinguishing between needed and unneeded care and unbundling complementary services that work only as a package.
Cost-sharing has more of an adverse effect on those in poor health. It promotes delays or decreases in health care, resulting in adverse health outcomes. A 1999 study on the burden of Medicaid drug copayments found that elderly and disabled Medicaid recipients who resided in states which required copays had significantly lower rates of drug use than their counterparts in states without copayments. The main effect of the copay was to reduce the likelihood that Medicaid recipients would fill any prescription during the year, and the burden fell disproportionately on the ill. A more recent compilation of studies on cost-sharing and use of prescription drugs found that cost-sharing is associated with lower rates of drug treatment, lower adherence rates and more frequent discontinuation of therapy. Moreover, for patients with certain conditions (e.g., congestive heart failure, diabetes, schizophrenia), higher cost-sharing means more use of medical services, thereby offsetting any savings accrued from lower drug expenditures.
Cost-sharing also affects providers who serve low-income patients. Providers are placed in the uncomfortable position of charging those they know cannot afford to pay, or assuming a financial loss for care to the poor.
Cost containment: Because many politicians, researchers and analysts agree that much medical care is ineffectual or inappropriate, cries for cost containment come from a variety of sectors and results in strange bedfellows. Conservatives favor cost-containment measures as a way of shrinking the public sector and unleashing market forces. More politically progressive segments of the population consider cost containment as a tool to better monitor health care, avoid unnecessary services and free up resources that can then be used to cover more persons or broaden the scope of services provided. Because many disparate and even conflicting measures fall under the rubric of “cost-containment,” it is best to ask Cui bono? (To whose benefit?) when assessing these strategies.
Cost-containment strategies also differ in terms of their target: some are aimed at consumers, others at providers. Those that seek to modify consumer behavior try to reduce consumption of services (see Consumer-driven care, above). Others address physician behavior by reimbursing them for certain outcomes rather than the number of services they provide. At present, for example, Medicare is carrying out an experiment which rewards doctors “for the quality of care they deliver rather than how many tests and procedures they perform.” The idea is to provide financial incentives to encourage doctors to help patients avoid costly hospital stays or emergency care through more timely monitoring of conditions and better coordination of services. Of 10 physician groups taking part in the experiment, which is still in process, all improved care for patients during the first year, but only two earned bonus payments because of monies saved. It is therefore unclear if the financial incentives work or not. Remaining issues include the fact that physicians were uncertain as to what they had done to generate savings, and rewards went to organizations rather than to the individual doctors.
Disease management: Under most health systems, a small fraction of those covered account for a large share of all costs. Thus, for example, 4 percent of Medicaid enrollees consume half of all Medicaid expenditures. Similarly, a survey among a group of large employers found that 72 percent of workers and their families accounted for only 11 percent of employer health-care expenditures annually, while the top 4 percent of users represented 49 percent of total employer costs. Program administrators are therefore eager to make a dent in the demand from those “high users” in order to reduce their disproportionate expenditures on this fraction of their enrollees. “Disease management” has been proposed as a tool to do this, and many providers are experimenting with ways to manage those with specific diagnoses or who are frail or have multiple chronic conditions. The aim is to improve health and prevent disability as well as to keep costs in check.
Because of its potential, disease management has become somewhat of a growth industry, and established plans have incorporated disease-management efforts within their offerings. At the same time, for-profit companies have sprung up to sell their services to employers and health plans who want to keep their employees healthy and their medical costs down. As self-contained entities separate from health care, these companies promote patient education and more effective self-management through phone calls and the Internet. In 2005 two thirds of employers with staffs of 200 or more offered disease management as part of their job-based insurance plans; more than 20 states have some kind of disease management for their Medicaid enrollees.
There is growing interest in assessing the efficiency and efficacy of these programs, and several studies have focused on whether or not they improve health and lower costs. Studies looking at disease-management initiatives in the Group Health Cooperative in Seattle and in the Kaiser Permanente program in Northern California found that quality of care improved, but there were no cost savings. A current, ongoing study by Mathematica Policy Research is testing whether disease management can lower costs and improve patient outcomes and well-being in the Medicare fee-for-service population. To date, the researchers have found that, while both patients and physicians are very satisfied with the efforts, few programs have had any detectable effects on patients’ behavior or the use of Medicare services. Only one program had statistically significant reductions in hospitalization, and none reduced costs. The available data therefore suggest that, whatever the benefits of disease management on patients’ health, they do not necessarily translate into savings.
Electronic health records, other IT Technology: Digital patient records provide a way to store a person’s medical history, including chronic conditions, test results, prescriptions, contraindications, diagnoses, procedures and physicians’ comments. Some “smart cards” can hold the equivalent of 30 pages of medical records. The Secretary of Health and Human Services has called this technology “the most important thing happening in health care.” EHRs have also received the blessing of Senator Hillary Rodham Clinton, and former Republican leaders Bill Frist and Newt Gingrich. What is it about EHRs that unites otherwise political opponents? Undoubtedly, the promise of easily portable, complete information that can be shared, searched and analyzed is appealing to researchers and decision-makers alike.
Nevertheless, the changing dynamics triggered by this technology could have unexpected costs. While a RAND Corporation study found that EHRs could reduce errors and save about $80 million a year, other experts caution against overstating the cost-saving aspects of the electronic record. As economist David Cutler has pointed out, “there is money to be saved, but it is not going to be cheap.” Even cost-saving products require an upfront investment, and EHRs will achieve their payoff only over the long-term, if at all. Physicians in solo practice or in small groups may find it prohibitive to shift to EHRs without passing on the costs to consumers. While efficiency may be seen as socially desirable, many individual providers will lack the financial motivation to streamline and upgrade their practices. Another potential inflationary effect of the electronic technology is that better information may lead to more care for more people and create a demand for given drugs in small markets.
Moreover, some experts feel that too much emphasis is being put on the “technological fix” that EHRs and other health-related IT represent, and that we should not be lulled into thinking that it is a substitute for real reform in how care is delivered and paid for. In short, while health information technology has the potential to improve quality; reduce the costs associated with inappropriate care and medical errors; and boost administrative efficiency, information-sharing and decision support, it is not a panacea for the system overall.
Health savings accounts (HSAs): This mechanism, ostensibly aimed at encouraging the uninsured to acquire coverage, allows those who buy high-deductible plans to deposit money, tax-free, into savings accounts that can be used to pay medical bills. If you don’t spend the money in the account, you get to keep it. This "solution" has been touted by the Bush administration as a tool to address the dwindling number of persons who have employer-sponsored health coverage. This proposal was best described by Stephen Colbert on Comedy Central: “It’s so simple. Most people who can’t afford health insurance also are too poor to owe taxes. But if you give them a deduction from the taxes they don’t owe, they can use the money they’re not getting back from what they haven’t given to buy the health care they can’t afford.”
These accounts benefit mainly the more affluent segments of the population, who have more to gain from tax breaks. Moreover, HSAs encourage the healthy and the wealthy to drop out of company health plans, further undermining the weakened system of job-related coverage by depriving the insured pool of those who are at less risk for illness and high-cost care.
Incrementalism: This refers to any policy that proceeds gradually in stages, usually by covering a growing group of people or an expanding array of services.
Many national health plans began as incremental efforts: some covered only workers in certain occupations, gradually expanding coverage to cover the entire labor force and then the rest of the population. When the United States enacted Medicare and Medicaid, some expected that this would be the first step in achieving universal coverage. And when Medicare was extended to cover those with end-stage renal disease in 1972, there was some discussion concerning whether the United States would be the first country to provide universal coverage on a disease-by-disease basis.
Incremental change has been hailed as “the American way” of addressing health care. Some have proposed covering children first and having them age into an expanding system. Others have suggested that progress is more likely to proceed on a state-by-state basis. In addition to creating a patchwork of systems that stop at state boundaries, the latter option will exacerbate existing geographical disparities. Moreover, state programs are relatively impotent to make the changes that are necessary to cover everyone and control costs. Only a national program will have the leverage to do this, and only a national program will give meaning to the concepts of “one nation,” equal opportunity and equal protection.
Individual mandate: This refers to a state requirement that all residents buy health coverage or face financial penalties, and is similar to the requirement that all licensed drivers have car insurance. In 2006 Massachusetts became the first state enacting legislation mandating such coverage. Other states, however, are considering similar legislation. Passed with surprising bipartisan support, the Massachusetts law requires all uninsured persons within the state to buy coverage by July 1, 2007. [All businesses with more than 10 employees that do not provide insurance are also mandated to contribute up to $295 per employee per year to the state (see Pay or play, below)]. The legislation stipulates that individuals who do not comply with the insurance requirement lose their personal tax exemption; furthermore, they face fines for each month that they are uninsured. There is one loophole, however: no one is compelled to buy insurance if he or she cannot find affordable coverage. Initially, the state did not define what “affordable” meant. But subsequent research has defined the upper bound of affordability at 8.5 percent of income, which is what middle-income people pay for health insurance, including cost sharing. This loophole in effect exempts a sizeable fraction of the uninsured —20 percent — from the mandate, thereby excluding them from coverage. At present, enrollment of those previously uninsured has been lagging. Because almost half of the uninsured in Massachusetts are single males, the state has enlisted the Boston Red Sox in its publicity campaign, thereby stressing the need for Massachusetts’ residents to “get in the game.”
Market-driven solutions: These solutions seek to transfer to consumers the monies now spent on their behalf for the purchase of health care. Those who favor this approach argue that the health sector has much to learn from other sectors of the economy, and that following the lead of other manufacturing and service industries will produce the “quick, courteous, consistent, low-cost service” that has made the United States globally competitive in other markets. Yet, even some who are pro-market concede that health care is the part of the public sector where market forces have had the most limited success, largely because of distorted incentives and information failures. In addition, most often it is doctors rather than patients that decide what care is needed, and how much of it. Indeed, it is estimated that physicians control over 80 percent of health care spending on hospital care, prescriptions, nursing home, testing and their own services.
Paul Krugman has succinctly pointed out that the health care insurance market does not work because of three things: risk, selection and social justice. “Risk” refers to the fact that, in any given year, only a small part of the population will incur major medical costs. Those who happen to be at high risk need good insurance if they are not to go bankrupt. But the insurance business is market-driven to cover only the healthy, pay out as little as possible for health care and raise prices for the unhealthy. It therefore selects the “better risks” that will place fewer demands on the health system and cost less. “Social justice” refers to the widely held value that no one should be denied care because they can’t afford it. So government subsidizes a growing proportion of health care, although the United States does this imperfectly, in a far-from-transparent way, and, most often, grudgingly.
Donald L. Bartlett and James B. Steele describe the problem as follows: “The market functions wonderfully when we want to sell more cereals, cosmetics, cars, computers, or any other consumer product. Unfortunately, it does not work in health care, where the goal should hardly be selling more heart bypass operations. Instead, the goal should be to prevent disease and illness. But the money is in the treatment — not prevention — so the market and good care are at odds.”
Medicare-for-all: is a short way to describe a national health system which covers everyone through single-payer financing (see Single-payer, below). This proposal builds on the foundations of the program enacted 42 years ago and therefore capitalizes on the familiarity and popularity of the current Medicare. Moreover, Medicare is run much more efficiently than private insurance plans: it operates with less than 5 percent overhead, compared with the 15-30 percent dedicated to administration and profits in commercial health insurance plans. This would fundamentally change the way in which care is provided and paid for by getting businesses out of health care altogether. As Ezekiel Emanuel and Victor Fuchs have stated in their support of this option, “Health care is not part of [businesses’] core competencies but something they use as part of their labor relations. It creates job lock and distorts employers’ hiring and firing decisions.”
"Pay or play": refers to proposals adopted or under consideration by states that require businesses to provide workers health insurance ("play"), or pay into a government fund that will do it for them. The latter is most often called a Fair Share Health Care Fund. In some states, the legislation has been limited to very large employers (e.g., those with 10,000 employees or more); but other states (e.g., Massachusetts) have cast a broader net in an attempt to cover more of the uninsured. The proposal has elicited a variety of responses from different interests, and there are conflicting opinions even within the business community. While some employers regard “pay or play” as an ideologically offensive mandate, others see it as a way to protect their own interests. The latter are those who cover their employees but are undercut by competitors who have lower labor costs because they do not provide health insurance to their workers.
Single-payer: describes a financial system in which one entity acts as single administrator, collecting all health bills and paying out all health care costs. This would streamline administration, eliminating the complexity of having thousands of intermediaries with different billing systems, forms and requirements. A single-non-profit plan is based on the original concept of insurance: creating a large buying pool to spread the financial risk of sickness so that no one faces a crisis when a health need strikes. The public agency would negotiate and pay the bills, exerting the leverage provided by being a powerful buyer to control costs and insure quality control. It would not employ providers or own health care facilities. At present, both traditional Medicare and the Veterans Health Administration operate as single payers, thereby cutting their administrative expenses. Single-payer systems have been praised not only for their managerial simplicity but also for serving as “the ideal vehicle for implementing an egalitarian social ethic.”
Universal coverage: means that everyone is covered. Few proposals accomplish this. But calling plans “near universal” or “quasi-universal” is a contradiction in terms.