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5
Prototypes to
Extend Coverage:
Descriptions and Assessments
The problem of uninsurance has many potential solutions. Over the past
decade, researchers, policy makers, advocacy organizations, special interest groups,
and elected officials have all devoted considerable effort to developing proposals to
ameliorate the situation. Proposals to extend coverage come from many different
points along the political spectrum. Although few people openly oppose letting
individuals have access to health care, opinions differ on how federal and state law,
regulations, and public funds should be used and whether the goal of universal
coverage justifies their use. Therefore, it is important to consider how successfully
alternative solutions might fulfill the Committee’s principles.
This chapter describes and examines four basic strategies to eliminate
uninsurance. The purpose of this chapter is twofold:
• to highlight the range of options that have been proposed by focusing on
four prototypical models that illustrate approaches under public discussion, and
• to demonstrate how the Committee’s principles can be used to assess
various options and thus promote a more informed public debate about solutions
to the problem of uninsurance.
Each of the four prototypes satisfies the principles better than does
the status quo. Each model does so through different mechanisms and realizes
each principle to a different degree. The Committee does not recommend one
approach over another. Rather, the analysis highlights aspects of each strategy that
need further attention to correct a potential problem. Indeed, because the Com-
mittee chose to analyze very basic, simplified models in order to illustrate more
clearly their inherent incentives, the prototypes lack some of the detailed refine-
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PROTOTYPES TO EXTEND COVERAGE
ments that have been proposed in the literature (Meyer and Wicks, 2001; Meyer
and Wicks, 2002). If any particular approach is pursued, one will find many
adjustments and corrective mechanisms available for developing a realistic and
worthwhile strategy. The Committee cautions, however, that the pursuit of a
“perfect strategy” could be an endless process and delay action unnecessarily. The
Committee also notes that the four prototypes selected here do not include all
possible approaches to achieving universal coverage and are meant to be illustra-
tive of the variety of available mechanisms.
First, this chapter briefly examines selected design issues that must be ad-
dressed in the development of most proposals. The next section explains the
Committee’s rationale for the selection and development of these specific proto-
types. The third section includes a brief description of each prototype. The fourth
section assesses each prototype against the Committee’s principles. The chapter
concludes with a brief summary.
DESIGN ISSUES
Before addressing the specific models, this chapter identifies five issues or
design choices to be made that affect many, if not all, of the prototypes. Aspects of
the five issues are interrelated, but the issues will be discussed individually:
• voluntarism versus mandates and taxes,
• phasing in of target populations,
• substitution of new programs for current coverage and maintenance of
effort,
• public and private responsibilities and functions for different levels of
government, and
• risk selection and insurance pools.
This list is not exhaustive; the chapter does not attempt to cover all design
issues that policy makers will encounter in crafting a reform proposal. These issues
are raised explicitly now to acknowledge them and to identify implications of a
particular design, not to recommend which choice should be made.
Voluntarism Versus Mandates and Taxes
The choice between policies that rely on voluntary action versus those that
mandate a specific course of action is key. Most coverage extension proposals
incorporate both voluntary and mandatory elements, but the balance or general
level of compulsion varies significantly among strategies. Should certain players,
such as employers, be required to provide insurance? Should anyone be forced to
accept insurance? Can financial incentives alone induce voluntary universal take-
up of an insurance option? If incentives can induce voluntary take-up, how much
of an incentive would be necessary?
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To cover the uninsured population, additional resources inevitably will be
needed, almost certainly raised by taxes. The amount of money to be raised, saved
through greater efficiencies or shifted from other uses, will affect the level, type,
and sources of financing. These would likely vary among the models and would
affect the political acceptability of any approach as well as its equity. New revenues
are a necessary aspect of any universal coverage strategy. Based on estimates
reviewed in Hidden Costs, Value Lost, we know that services that uninsured indi-
viduals use in a year cost approximately $99 billion (2001) and that additional
health services for uninsured people would cost between $34 billion and $69
billion (in 2001 dollars) if they use the same amount and type of services as those
who have coverage under the current system (IOM, 2003b). The program or
budgetary cost of any fully implemented strategy would likely be somewhat more
than the marginal economic cost of additional services, primarily due to shifts in
the distribution of health care payments on behalf of both currently uninsured and
currently insured people. These program costs would vary depending on the
model and the richness of the benefit package implemented. Also, there would be
costs related to additional utilization by some currently insured people if the
defined benefit package for the uninsured were more generous than what they had
and their benefits were raised to that level as a result.
Even if a successful extension of coverage were implemented, including
effective utilization and cost controls, it is unlikely that a sufficient amount of the
savings could be shifted to cover all the additional people because of likely resis-
tance of existing stakeholders, discussed in Chapter 3. Also, the increased use of
services by the previously uninsured would require some additional funds. Financ-
ing mechanisms, however, were not within the Committee’s scope of research
and will not be examined in detail in the discussion of these prototypes.
Equally important to the amount of new revenue is the issue of who bears the
burden of providing this revenue—the broad social and economic impact as well
as effects on individuals, families, and businesses. Significant redistribution of the
benefits and burdens of coverage is virtually certain, and the distributional impacts
will vary depending on the strategy implemented. In part these redistributive
effects depend on whether revenue streams that currently support health services
for the uninsured and insurance for the covered population are maintained or not.
Such policy choices will be critical in the political debate.
The degree of compulsion (in addition to the newly required contributions)
inherent in a proposal to extend coverage would affect both its political accept-
ability and its subsequent implementation and outcome, including how closely the
model approaches universal coverage. Some mandates or constraints are unavoid-
able if universal coverage is to be achieved. A completely voluntary system is
unlikely to achieve universal coverage, but the Committee acknowledges that
trade-offs among the principles during the design of a coverage strategy could
result in a reform that would not maximize the goal of universality. To assess the
achievement of particular objectives, the Committee considers the balance of
voluntary and mandatory action and its impact on various actors in the process.
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Phasing In of Target Populations
Many of the recent extensions of coverage and current proposals target a
specific population, such as workers losing their jobs as a result of international
trade and retirees of certain firms that have failed to provide promised benefits
(Trade Act of 2002, signed into law as P.L. 107–210), those leaving a job that
offers benefits (Consolidated Omnibus Budget Reconcilation Act of 1985
[COBRA]), or children in families with low income (Medicaid and the State
Children’s Health Insurance Program [SCHIP]). The Committee defines its tar-
get population as all residents in the United States. Some proposals aspire to
universal coverage but plan a phase-in over time, guided by priority populations
to be covered. Defining the target population for an extension or a phasing-in
strategy requires an early decision because it affects many other choices about
mechanisms for extension. For example, if the first priority is to be the lower
income, near-elderly population without coverage, lowering the age of eligibility
for Medicare is an obvious mechanism.
The definition of a target population can require trade-offs between equity
and program costs. For example, targeting the whole population within a specific
low-income range for a new, publicly subsidized program or, alternatively, de-
signing the program to attract only those who are currently uninsured within that
income level would require different funding levels. If the former approach is
taken, some people will undoubtedly drop their current private coverage. Every-
one at a given income level will be treated equitably, but the cost of covering a
given number of previously uninsured individuals will be greater than under the
latter approach. This issue is also discussed in the next section.
Substitution of New Programs for Current Coverage and
Maintenance of Effort
The issues of substituting subsidized or public coverage for existing, private
insurance (crowd-out) and requiring employers or governments to maintain their
current investments in health insurance (maintenance of effort) both relate to the
preservation of funding streams that are currently being used for health coverage.
Any new coverage program will alter, to some extent, current incentives for and
behaviors of employers, employees, and various levels of government. The con-
sideration of changed costs to various stakeholders is important in designing a new
program because it is difficult both to change the flow of funds and to capture
existing revenue flows through maintenance of effort provisions. The redistribu-
tive effects of any health insurance reform proposal will be greater if existing
health care revenue is not captured or maintenance of effort not required.
The extent to which current financing streams are preserved or there are shifts
in the sources of funding are key factors for evaluating reform proposals. To
minimize the amount of new public funds that would be needed to cover the
uninsured, some proposals for extension explicitly include mechanisms to discour-
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age people from dropping private coverage they currently have in favor of enroll-
ing in a new public program that presumably would be of lower cost to the
individual. Other reform proposals explicitly intend to substitute the new program
for existing ones. Although substitution of the new program may be desirable on
its own merits, capturing the current funding streams reduces the need for new
revenues.
Public and Private Responsibilities and Functions for
Different Levels of Government
There are three basic questions concerning government responsibilities for
major health insurance reform:
• How much responsibility should rest in the private sector and how much
with government?
• Which levels of government (federal, state, or local) should be responsible
for which specific operational functions?
• Which level(s) of government should take responsibility for financing, and
who pays?
Answers to these questions would likely reflect a person’s political assumptions and
convictions, affecting both the scale of the whole proposal and whether it relies
mainly on voluntary, private-sector efforts or public programs and policies.
Currently all three levels of government have responsibilities for providing
coverage or care to the uninsured. The federal government acts as financier,
providing a foundation of tax-based resources and setting minimum standards for
eligibility and benefits for public coverage; the states share fiscal responsibility with
the federal government, administering coverage programs (including making deci-
sions about eligibility and benefit packages) and leading in innovative reforms; and
localities directly support the delivery of health services (Holahan et al., 2003c;
IOM, 2003a). Drawbacks of the present distribution of duties include inequitable
variation in coverage from state to state, the relatively large fiscal burdens on the
states for public coverage programs, and the fact that nearly one-sixth of the
population is uninsured, with many of those persons eligible but not enrolled in
public insurance (Weil and Hill, 2003).
The configuration of roles and responsibilities for health under the country’s
federal structure would likely change under any major reform proposal. One level
of government or another might be more suited to specific functions, such as
enrollment and its enforcement, regulation of insurance options, or selection of
participating plans or providers. Responsibility for financing a reform proposal
should relate to the fiscal capacity of each level of government. Areas of great need
(with a high uninsured rate or large numbers of uninsured people) tend to have
less ability to raise resources (Marquis and Long, 1997; IOM, 2003a). There could
also be a mismatch of resources and need during weak economic periods, depend-
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ing on what taxes are used. Financing considerations include decisions about the
particular tax and source of revenue for the reform and which level(s) of govern-
ment should collect the tax. How to collect the needed revenues, who should
ultimately bear the burden, and how subsidies should be provided to those eligible
for assistance are all design questions to be resolved politically (Wicks, 2003a).
How a reform strategy responds to the three questions posed at the beginning
of this section will influence, to some extent, any redistribution of costs and
payments. Some governments might benefit and others would not, likewise for
tax payers. Also, to the extent the reform creates cost savings or at least reductions
in the rate of growth of current health spending in order to fund the new coverage
extension, there could be a significant redistribution of dollars. Given the natural
inclination of all stakeholders to oppose reductions in their revenues and increases
in their taxes, it is not realistic to expect that all current spending on uninsured
people could be shifted into a new system. Nor is it likely that sufficiently strong
mechanisms to control costs could be designed and imposed that would fully fund
an extension to universal coverage. How much new revenue would be required
for that extension of coverage would depend on the nature of the new strategy as
well as on its ability to redistribute existing resources and contain utilization and
costs.
Risk Selection and Insurance Pools
Insurance is based on risk sharing. A fundamental reality of health insurance is
that the premiums of enrollees who turn out to be healthier than average subsidize
the costs of care of those who turn out to be less healthy in any given year.
Although a small percentage of the population (10 percent) generates a high
percentage of total health costs (70 percent), just who will fall within that high-risk
group cannot be predicted with any precision, and they are not necessarily the
same people from year to year (Berk and Monheit, 2001).
Private insurance plans, with premiums based on the shared experience of a
particular group of insured individuals, have a strong incentive to select the
healthiest people they can attract so they can keep their costs (and premiums) low
enough to attract more (low-cost) enrollees. Likewise, employers and individual
policy holders have a similar incentive to participate in the healthiest and lowest
cost risk pools.1 These incentives are especially pronounced in the current small-
group and individual insurance markets.
As a result of these incentives, older people, those in worse health, or those
expected to have high health costs must often pay significantly higher premiums
1These insurance risk pools are distinct from purchasing pools, which permit small firms, associa-
tions, and individuals to join together to increase their purchasing power and potentially benefit from
economies of scale.
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124 INSURING AMERICA’S HEALTH
for coverage. Some high-risk people are denied coverage and many cannot afford
plans that are available. This is to be expected in a competitive insurance market
and is necessary for insurance companies to be able to reimburse the higher level
of bills generated by heavy users of services. Various regulatory and insurance
mechanisms, such as community rating, high-risk pools, and guaranteed issue, have been
used to help protect high-risk individuals from exceedingly high premiums. These
approaches to spreading risk inevitably raise the premium for others in the pool,
such as young, healthy men, or require implicit or explicit subsidies to maintain
benefits. The size and heterogeneity of the risk pools, and whether the individual
has the option to select a risk pool in any proposed reform, affects the long-term
viability of the plan and the affordability of coverage for individuals and their
families.
This discussion of design issues is far from exhaustive, but it indicates some of
the choices to be considered in the preparation of a workable solution for extend-
ing coverage. Devising a strategy for increasing insurance coverage is technically
complex. Technical issues often have political implications. Recognizing these
preliminary and fundamental choices among reform options and engaging them
early on should foster a more open political debate and ideally speed a political
consensus on a particular strategy.
SELECTION OF PROTOTYPES
The Committee focuses primarily on proposals and strategies that eliminate
uninsurance through major, comprehensive health insurance reform, rather than more
limited proposals based on a discrete change to an existing program or a policy
targeting a subset of the population. We recognize that the first prototype, which
resembles many of the proposals currently under public discussion, is closer to an
incremental approach than to comprehensive reform and would not achieve uni-
versal coverage, but it is included for the sake of completeness. Although reform
around the margins may be helpful to specific subpopulations, it has proven
inadequate in achieving the broader goal of universal coverage. Despite all the
implemented extensions discussed in Chapter 3, the uninsured rate has remained
high and is increasing.
We believe health insurance coverage for the entire population is of funda-
mental importance and value. Achieving it requires systemic reform. Even if small,
piecemeal changes in insurance continue, they will not produce universal cover-
age in the foreseeable future. Universal coverage will require mandates, a signifi-
cant change from current, voluntary arrangements. Major reform will take time to
achieve, even recognizing that it is not necessary to design every fine detail prior
to beginning. Modifications and refinements can be introduced during implemen-
tation. Garnering support for a comprehensive strategy and its implementation
will also take time. Therefore, members of the public and policy makers should
begin now to plan for major reform to achieve universal coverage.
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Only a goal as important as achieving universal coverage that is equitable and
efficient is sufficient to motivate and justify major systemic reforms. Even small
changes can be costly, disruptive, and take time to implement (Marmor and Barer,
1997). The Committee did not presume to judge the political feasibility of various
approaches. The historical record reviewed in Chapter 3, however, has convinced
us that limited approaches, while perhaps more feasible to enact in the short term
than major changes, are not necessarily better if they do not lead in the desired
direction for future changes (Weil, 2001a). If the small changes do not lead to a
more equitable and efficient insurance system in the long run, time and resources
could be lost.
In the next section, the Committee examines four major insurance reform
strategies and measures them against the recommended principles. Because these
prototypes have not been implemented, there are no evaluations or hard data with
which to assess the impact they might have. The Committee recognizes that
federal policy makers and politicians face similar information gaps and uncertain-
ties as they weigh alternative approaches.
The range of models draws on the breadth and variety of political viewpoints
to create clear, coherent prototypes. They are arranged in order from the least
disruptive strategy with the least change from the status quo to the prototype
requiring the most change. Brief descriptions of the essential structure of each
model are included. Some embellishing elements are included in the prototypes to
describe a potentially workable model but are not necessarily inherent to a specific
prototype. The four models were selected based on the following criteria:
• Aspects of the prototype are described in some detail in currently acces-
sible literature.
• The prototypes represent general categories of approaches and techniques
for extending coverage.
• They promise substantial increases in coverage, approaching universal.
The elements of each prototype were selected from commonly described
strategies and seem inherent to the basic model. For example, although a single-
payer model could have a more or less comprehensive benefit package or could
have multiple benefit packages, we selected a single, comprehensive package for
discussion purposes, because that is how the model is most often characterized. At
a minimum, a benefit package in any of the models would include hospitalization
and outpatient medical services.
Specifying a minimum benefit package for coverage of the uninsured would
likely mean that people currently underinsured (with less than the specified mini-
mum benefits) would need to be brought up to the defined benefit level to avoid
inequities. Raising some currently insured people to the minimum benefit level
would create additional costs. Improved health access and outcomes for the
underinsured would also be anticipated.
In the assessment section that follows these descriptions, each of the
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Committee’s guiding principles will be discussed separately in relation to the basic
incentives and effects of the models. The Committee does not attempt to estimate
specific budgetary and private costs of the prototypes; much more detailed as-
sumptions would be necessary to model the costs of each approach. The incre-
mental economic costs of providing the uninsured with the kind and amount of
health services used by similar people with either public or private coverage
amount to between $34 and $69 billion a year in 2001 dollars. As previously
mentioned, this estimate of incremental service expenditures does not assume any
structural changes in the health system or reflect any particular model for extend-
ing coverage. Depending on the prototype and the scope and structure of the
benefit package, the incidence and distribution of program costs would vary.
Likewise, the health benefits of a particular prototype would vary depending on
how fully covered the population would be and how comprehensive its benefit
package.
In both the descriptions and assessments, the prototypes will be compared to
the status quo. A summary table, describing the models, is included at the end of
the descriptions (see Table 5.1) and a summary table of the Committee’s assess-
ment follows that discussion (Table 5.2). Each table includes a column for the
status quo for ease of comparisons. The status quo is not presented separately in the
discussions or intended as a prototype, merely as a point of reference. The current
situation regarding health insurance coverage and finances is amply assessed in the
Committee’s previous five books and summarized in Chapter 2 of this report.
DESCRIPTION OF PROTOTYPES FOR
EXTENDING COVERAGE
Prototype 1: Major Public Program Extension and New Tax
Credit
This approach would make no fundamental changes in the current structure
of private insurance. Some public programs would be merged and all expanded
dramatically. A new federal tax credit (usable only for health insurance) would be
provided to moderate-income individuals to enable them to purchase private
coverage. The intent, ultimately, would be to make coverage available to every-
one.2
Employers’ Role: There would be no mandate on the employer. Firms would
be free to offer or continue to provide coverage (or not) to employees and their
families. Current federal tax incentives for employers and their workers would
remain.
2Aspects of this prototype have been discussed in the following articles: Loprest and Uccello
(1997); Davis et al. (2000); Hacker (2001); Short et al. (2001); Johnson et al. (2002); Morone (2002);
and Davis and Schoen (2003). References for tax credits are mentioned under Prototype 3.
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PROTOTYPES TO EXTEND COVERAGE
Individuals’ Role: Workers and their dependents would be free to acquire
insurance from their employer, if offered, or from the individual market (without
the tax incentive), but they would not be required to obtain coverage. Individuals
with family income above the eligibility limit of the public program, but below
the level at which private insurance becomes affordable, would receive a subsidy
in the form of a federal tax credit, if they chose to purchase insurance. The tax
credit would be both refundable, meaning those with income sufficiently low that
they would owe no tax would receive the credit as a refund, and advanceable, so
that people would receive the credit upon purchase of a policy rather than after
the end of the tax year. The tax credit would be used to purchase acceptable
employment-based or other group coverage or a policy from the individual
(nongroup) market. The tax credit would be sufficiently large for those with
incomes just above the eligibility limit for public coverage and would phase out to
zero at the point where family income would make coverage affordable without
assistance.
Public Programs: Medicaid (except for the long-term care benefit) and SCHIP
would be merged into a new single program run and funded jointly by the federal
government and the states. It would offer comprehensive benefits, similar to those
currently offered, with minimal cost sharing. Individuals up to a certain income
level for a given family size would be eligible without regard to family structure or
employment status. The eligibility age for Medicare would be extended down-
ward so that individuals could enroll at age 55 with the payment of a special
premium.
Federal and State Insurance Regulation: The federal government would
establish an actuarial value or a package of services commensurate with the amount
of the tax credit. It would be the insurers’ responsibility to sell actuarial equivalents
or plans superior to the federally defined package. The state would certify whether
specific policies met the federal standards. The benefits would likely be less than
comprehensive, limited by the size of the tax credit. However, the credit could be
used for other, more comprehensive policies that would be available to purchasers
paying additional premiums. Except for insurance offered for purchase through a
tax credit, there would be no required change in the benefit structures of insur-
ance offered or in public regulation of it. Hence, affinity groups and other risk-
pooling mechanisms would be available in states where they are currently permit-
ted.
Design Alternative: The new tax credit could be made available to low-income
families, giving them the option of enrolling in public coverage or purchasing
private coverage on their own with the subsidy. This model could also be com-
bined with a subsidy for employers of low-wage workers in the form of tax credits,
based on payroll or other business taxes, to encourage them to offer coverage to
their employees.
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Prototype 2: Employer Mandate, Premium Subsidy, and
Individual Mandate
The current amalgam of employment-based insurance and public coverage
would form the foundation of this model. The main change from the current
system would be mandates requiring all employers to provide coverage for their
workers and requiring all workers to take that coverage. Because employers of
low-wage workers are less likely to offer coverage and low-wage workers are less
likely to take up offered coverage (Kaiser/HRET, 2003), this prototype includes
a premium subsidy for employers of low-wage workers to keep the insurance offer
affordable to their workers. Subsidized enrollment in private coverage through a
purchasing pool or enrollment in a combined Medicaid/SCHIP public program
would be required of those who do not obtain coverage elsewhere.3
Employer Mandate and Subsidy: Employers would be required to provide
coverage and finance a portion of health benefits for workers and their families,
including, at a minimum, a federally defined benefit package. The package would
be defined either by specific services or given an actuarial value, likely following
the scope of current employment-based coverage, which is generally comprehen-
sive. Firms would have to finance a substantial portion of the premium expense for
all employees who worked more than some predetermined amount of time per
week and their dependents. A protocol would be established to assign coverage
responsibility to one employer for employees in families with more than one
worker. Small employers and the self-employed would also need to meet these
requirements and offer coverage. Because many small employers have low-wage
workers, they would be eligible for a premium subsidy. The current tax provision
that excludes the employer’s share of the insurance premium from the employee’s
taxable income would remain, as would the employers’ tax deduction and the
deduction for the self-employed.
An additional federal premium subsidy would be provided to employers,
including those self-employed, based on the firm’s average wages in order to make
coverage (premium and other cost sharing) more affordable for even low-wage
workers. States would assist in the formation of large purchasing pools, particularly
for small employers, the self-employed, other employers not already providing
coverage, and those individuals not able to obtain health insurance through their
employer.
3Various aspects of this model are presented in the following articles: Krueger and Reinhardt
(1994); McArdle (1994); Steuerle (1994); U.S. Government Accounting Office (2000); Curtis et al.
(2001); Feder et al. (2001); Wicks (2003b).
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public programs would be somewhat more complex. If the design alternative
selected included a tax credit for employers to offer coverage, designing such a
program so that it would not penalize those employers already offering and con-
tributing to coverage would also add complexity.
Prototype 2: Employer Mandate, Premium Subsidy, and Individual
Mandate
The cost of the federally defined benefit package offered through this proto-
type would likely be less expensive than current employment-based plans because
the mandated coverage would not be as extensive. Employers could choose to
offer more extensive benefit packages reflecting the demands of the labor market
or their union negotiations. Premiums and cost sharing could be required of all
enrollees but kept at a minimal level for those who qualified for the public
programs. Administrative factors such as enforcement of the mandate and creation
and regulation of purchasing pools would increase administrative costs of the
program. The affordability of this system to employers, the main providers of
coverage, would depend on how the federal premium subsidy is defined and
calculated. Likewise, the size of the employer tax of the design alternative, which
permits employers to pay a tax instead of offering coverage, is important. This
prototype would rely on employers, who would continue to contribute a substan-
tial portion of the needed revenues.
Sustainability: The sustainability of this insurance strategy would depend to some
extent on using revenue sources that could readily increase during difficult eco-
nomic times when employers might need larger subsidies to provide affordable
insurance and the public program would experience an increase in enrollments.
The sustainability of the program in the long term would also depend on cost and
utilization controls and adjustments to the size of the subsidies. The reduced
health costs to state and local governments for uncompensated care, Medicaid, and
SCHIP would be significant and have a positive impact on state and local budgets,
if no maintenance of effort were required. Under the employer mandate with the
“pay or play” design alternative, some firms might drop coverage they currently
offer. As a result, their financial support, beyond their tax for not “playing,” would
be lost to the health system, and possibly to the employees as well if it were not
conveyed through a comparable increase in wages or other benefits.
Simplicity and Efficiency: For workers, this prototype would be as easy to use as
the current employment-based insurance system. The use of the public programs
would be substantially simplified compared to the current situation by combining
Medicaid, SCHIP, and the other state coverage programs and by limiting eligibil-
ity criteria to family income and lack of private coverage. Health care providers
would find this prototype similar to the current system. They would still need to
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bill many different insurers, and the private insurers would have similar claims
processing functions.
This model creates new administrative functions: enforcement of the
employer’s mandate and calculation of the employer’s federal premium subsidy;
enforcement of the individual’s mandate; and regulation of the private insurance
market to ensure the availability of insurance with appropriate basic benefits and
operation of the public program. The current functions of the existing private
insurance market and its related regulation would remain, and new administrative
functions related to the purchasing pools and certification that benefit packages
meet federal standards would be added.
The states would have a new role creating and managing large purchasing
pools that would make plans available to employers who do not currently offer
coverage, including small employer groups, as well as to the self-employed and
individuals. The evidence to date does not show that such purchasing arrange-
ments reduce the costs to small employers or pool risks effectively if other group
insurance is available with experience-based premiums (Curtis et al., 2001). These
arrangements might, however, be more effective when all employers are required
to offer coverage and the premium cost is subsidized. Small groups not currently
insured, such as small firms, could possibly create a critical mass for the purchasing
pools (Wicks, 2002).
Prototype 3: Individual Mandate and Tax Credit
While the dollar values of the individual tax credit could be set within the
annual federal budget process, it would function as an entitlement to all those who
met the income requirement and would not be subject to a specific congressional
appropriation, similar to the tax credit in the first prototype. There would be no
limit on aggregate spending on health care, which would depend on individual
decisions to purchase insurance and use services, and on the associated costs. There
would also be no limit on the aggregate size of the annual federal commitment,
but once the credit amount is set, it would not be affected directly by individuals’
patterns of service use or providers’ charges.
Sustainability: Because the tax credits would be based on the federal income tax,
it would be built on the most broadly based tax and it would be a sustainable
source. The long-term sustainability of the program, however, would depend on
cost controls and adjustments in the subsidy level. It would be difficult to directly
impose utilization controls because there would be many independent insurers
and even more separate plans.
Simplicity and Efficiency: The elimination of the federal and state public programs
along with their confusing eligibility limits and complicated administrative struc-
tures would be a significant simplification. This insurance strategy, however,
would likely be less efficient than the current system because more people would
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purchase insurance in the individual and small-group market, where administrative
and premium costs are highest, and fewer people would obtain coverage through
public programs or large employment-based groups, where premiums and admin-
istrative costs are lowest. Also, under this tax credit strategy, some employers
might be inclined to drop coverage they now provide. Although the individual
mandate would mean more healthy people entering the nongroup insurance
market, creating a broader risk pool and reducing the adverse selection problem of
that market as a whole, it would not eliminate the incentive for insurers to “cherry
pick” the healthiest people. To the extent that the current limitations of the small
group and nongroup insurance markets are ameliorated, particularly under the
design alternative, state regulatory and administrative functions become more
complicated. However, to the extent that state purchasing pools attract a sufficient
portion of purchasers, economies of scale might result.
Choosing their own coverage would not be simple for individuals and fami-
lies; some education and guidance would be necessary. Also, the individual man-
date and tax credit would require the creation of an administrative structure to pay
the credit in advance and enforce its appropriate use, both to ensure that people
received the correct credit amount and that it was spent on qualified insurance.
Prototype 4: Single Payer
This health insurance strategy would greatly reduce, if not virtually eliminate,
employment-based insurance; the small group and nongroup insurance market;
current federal, state, and local programs to cover the uninsured; and most out-of-
pocket health spending by individuals and families. These major changes poten-
tially create savings for some current participants and significant new public costs,
depending on revenue sources used. While there would be substantial public
savings resulting from the elimination of the current tax incentives for the pur-
chase of health insurance, they would be balanced by increased tax bills for
individuals. Employers’ contributions to their employees’ health insurance could
also be lost to the health system if they were not redirected through a business tax,
and lost to the employees if not shifted into the remaining compensation package.
This prototype would create significant labor dislocations in the health insur-
ance and health care industries, although it would likely produce some efficiencies
and cost savings for the health sector. Because nearly all health spending would be
aggregated under the federal budget, the decision about what society deems
affordable would be both very public and unavoidable.
Sustainability: The long-run sustainability of the program would depend on
containing cost increases; many potential cost and utilization controls would reside
at the federal level. The impact additional cost and utilization controls could have
on health access and outcomes is unknown.
The consolidation of spending decisions would have the advantage of placing
some federal controls on aggregate health care spending nationally, where it
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would be subject to taxpayer resistance to tax increases. There would be disadvan-
tages of potentially less consumer pressure to limit spending and problems if the
“wrong/inappropriate” level of spending were chosen. It is unclear how, over
time, the public’s resistance to more taxation would balance against individuals’
desires for more and better health services with little out-of-pocket payment. If
the funding were predominantly through federal taxes, the system could be politi-
cally and economically sustainable, as long as the voting public was willing to
support the health care system and balance funding with use to ensure affordability.
If the public were unwilling or unable to fund the budget fully, constraints in the
form of more limited access to some services could develop over time. Nearly the
whole populace would likely contribute both through taxes and cost sharing, but
the single payer approach would undoubtedly have significant redistributive ef-
fects.
Simplicity and Efficiency: From the perspective of a potential patient, this system
would appear simple because eligibility would not change over time nor would
reenrollment be required. While procedures and forms that consumers would
need to use would be standardized nationally, the simplicity and ease of dealing
with a large bureaucracy would likely vary across the country, depending on the
contractors and the priority the federal agency placed on consumer education and
service.
Single payer systems, such as Medicare, generally are considered to have
substantially lower administrative costs than private insurance plans, because the
need for advertising, underwriting, and much eligibility and billing work disap-
pears. However, evidence of the specific percentage devoted to administrative
costs among all participants in the health system is limited, anecdotal, and insuffi-
cient to document the costs of comparable functions.
A single payer strategy could greatly simplify provider billing procedures.
There would be no need to determine the secondary health insurers, and standard
forms and procedures for all enrollees would make it easier for those submitting
bills. On the other hand, additional administrative functions would include a
significant increase in federal regulations needed to ensure standards, procedures
for updating the benefit package, and payment rates. With only one benefit
package, risk selection would not be a concern because there would be little to
attract people based on their level of risk to one plan or another. The costs of the
healthy and the sick would be averaged across the entire U.S. population.
The supplemental coverage under the design alternative of increased
copayments would affect the impact of out-of-pocket cost sharing at the point of
service while increasing revenues. One challenge would be determining the level
at which cost sharing should be capped for families and individuals so that the
copayments would encourage responsible use but not be a deterrent to appropriate
use of services, particularly by families with higher than average needs. The level
of copayments would require balancing the advantages of cost sharing as a pro-
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grammatic financing mechanism with the incentives cost sharing creates for the
development of supplemental coverage. If the supplemental coverage did more
than “wrap around” the public benefit and covered services in the comprehensive
package with related amenities and exclusive providers with shorter queues, there
would be less control of total spending but additional revenue for the delivery
system. With higher cost sharing, it would also be necessary to collect income data
and make provision for special no-premium supplemental policies for lower in-
come individuals to avoid inequitable financial barriers to access.
With a single payer system, the federal administrative agency would need to
decide how and what to pay for various services and providers. This would present
both administrative and political challenges. The planning process as well as nego-
tiations with providers over payments present both the opportunity for greater
visibility of the allocation process and the greater risk that the funds and services
used would be mismatched.
Health Care Coverage Should Enhance Health and Well-Being
by Promoting Access to High-Quality Care That Is Effective,
Efficient, Safe, Timely, Patient-Centered, and Equitable
Prototype 1: Major Public Program Extension and New Tax Credit
The combined federal–state public program would include a comprehensive
benefit package, comparable to the current Medicaid benefits, which could be
designed to promote appropriate, cost-effective use of services even though cost
sharing would be minimal for lower income enrollees and have less impact on use.
Employment-based insurance and policies purchased on the independent insur-
ance market with the tax credit would meet certain federal standards. There
would be a wide variety of benefit packages offered, and with different levels of
cost sharing, much as there is today. Cost sharing would be likely to promote
appropriate use of services in some but not all plans. The Medicare benefit would
be similar to that offered currently.
While the public program could design incentives to promote quality in the
health system, at least for its enrollees, its share of provider revenues might be
insufficient to induce investment in data systems and other costly improvements.
There would be no new requirements on employers or insurers in the private
market, so quality improvements would occur to the extent currently expected. If
significant numbers of people remain uninsured, the quality of the whole health
care system would suffer.
To the extent that health care is inequitably delivered today, particularly
disadvantaging members of minority groups due to lack of coverage, this strategy
would reduce that inequity by covering more people. This assessment of equity
also is applicable to the following three prototypes.
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Prototype 2: Employer Mandate, Premium Subsidy, and Individual
Mandate
The structure of this prototype would require a federally defined basic benefit
package for employment-based coverage and for individually purchased subsidized
coverage. It could be defined actuarially or by general benefits to be covered.
Some plans might be based on current medical evidence to the extent feasible and
designed with cost sharing to promote the use of appropriate services. The re-
quired basic benefit package for individual coverage would be less comprehensive
than the current average employment-based benefit package, but employers would
be allowed to offer richer packages as add-ons to the basic coverage, which some
workforces might demand and some labor markets might deliver.
Assuming the more comprehensive employer plans receive the same dollar
premium subsidy as the basic plan, lower income workers would be more likely to
choose the basic plan. Those workers who could not afford or were not offered a
more comprehensive policy might go without needed medical care and suffer
poorer health, particularly those with expensive chronic needs. Workers with
sufficiently low income who were not eligible for employment-based coverage
could qualify for the enriched public program. The design of the public program
and the premium assistance to individuals could ensure equitable treatment of
employees whether their employer offered benefits or not.
The challenges to promoting quality improvements for clinical as well as
administrative management would be similar to the status quo because federal
leverage through provider revenues would not be greatly increased. State purchas-
ing pools could also play a role in promoting quality measures. The current
incentives for employers to lead in promoting quality would remain. Some pro-
gressive employers would continue to pursue quality improvements to the advan-
tage of their employees and the health system. With the employer mandate, the
motivation for employers to combine their purchasing activities enough to gener-
ate quality improvements and cost savings would be stronger than now.
Prototype 3: Individual Mandate and Tax Credit
The federally defined benefit would be a basic package defined either actuari-
ally or by general benefits with little specificity, much like the previous model.
Insurance companies would design their own benefit plans, which might, but
would not necessarily, include services proven effective by medical evidence or be
designed with cost-sharing incentives for appropriate use. As with the employer
mandate prototype, if the size of the tax credit were low relative to the cost of the
premium for the basic benefit package, it would be less likely that people could
afford a more comprehensive package. They might go without needed care and
suffer poorer health if they could not afford to purchase the needed, noncovered
services out of pocket. For people with multiple or chronic conditions this might
be especially true if there were little regulation of private insurance underwriting
practices, because their premiums would be higher than average.
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Because all purchases of health care would be through private health insur-
ance companies, mechanisms currently in place through employers and purchasing
pools could promote quality improvements in the health system. Individual con-
sumers would be free to switch to plans that they perceived to be of higher quality
and collectively could create demand for quality improvements.
Prototype 4: Single Payer
The comprehensive benefit package would be defined nationally and would
cover everyone. The cost sharing could be designed to encourage use of services
determined to be appropriate and cost effective, but the effect on use might be
minimal because the dollar amount of the cost sharing would be minimal. Because
this single payer insurance strategy would be comprehensive, the demand for
private supplemental insurance might be limited, although anyone who wanted to
purchase noncovered services could pay for them out of pocket. Under the design
alternative that includes substantially increased cost sharing and supplemental in-
surance policies, the opportunity for cost sharing to encourage appropriate use
would be diminished.
Because the single payer approach could be designed with strong central
controls, national quality standards could be defined, imposed, monitored, and
reimbursed uniformly and consistently. Whether or not those opportunities were
pursued might depend on political forces at the federal level. The development
and implementation or enhancement of data systems might prove to be easier and
less expensive than currently because systems and reporting standards could be
created and imposed at the national level and payments designed to cover capital
and operating expenses.
The single payer approach would create a strong incentive to adopt quality
measures that would enhance the use of preventive services and cost-effective care
because it would reap the benefits of better health and cost savings either in the
short or longer term. It would also be uniquely capable of incorporating payment
incentives for higher quality care. On the other hand, a strong central bureaucracy
could deter creative, innovative quality improvements because of its size, deliber-
ateness, or limitations imposed by Congress. Attempts to set high standards and
remove providers that did not meet quality standards would probably meet stron-
ger resistance than in today’s Medicare program, because there would be few or
no other practice opportunities.
SUMMARY
The assessment of these strategies shows the feasibility of systematically using
a body of evidence and a set of principles to guide policy making. The structure of
the assessments, based on the principles, gives a straightforward technique to use
when designing a new approach. It compares how well the prototypes achieve the
principle and highlights which mechanisms are most likely to achieve a particular
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principle and which strategies might need adjustment. One can also use the
assessments to examine an individual prototype by checking its section under each
of the five principles. The assessments are summarized in Table 5.2.
By comparing the assessments, one sees that some principles could be achieved
better under one model than another. For example, the voluntary approach repre-
sented by Prototype 1 is least likely to achieve universal coverage, compared with
any of the prototypes incorporating mandates. Each prototype has strengths and
weaknesses, achieving some principles more fully than others. All of them offer
improvements over the status quo. Some balancing among the objectives emerges:
a comprehensive benefit package is more likely both to achieve better health and
to cost more than a basic package. If the personal costs of coverage for individuals
were reduced, the costs to society would be likely to increase, given a standard
benefit package. Although individuals would likely pay for the increased public
costs through taxes, there would be a significant shift from current burdens.
The four prototypes were selected to illustrate the broad range of proposals
currently circulating and to serve as examples in the preceding analytic exercise.
They were described simply, as basic models of each type. It becomes clear in the
assessment that each prototype has weaknesses that could be ameliorated through
more complex and less “pure” designs. In fact, many proposals under discussion in
the public arena take into account some of the limitations highlighted here. The
potential to alter a prototype to improve its ability to achieve a specific principle
could affect the trade-offs among the principles and could affect the general
attractiveness of a particular approach. Not only could the models be improved
with further adjustments, but some of the stronger elements in one model could
be incorporated into another model. The Committee leaves the debate about the
design of a comprehensive, major reform to the public, policy makers, and elected
officials. Universal coverage can be achieved if there is political support.
The principles used in the assessment come from the Committee’s previous
research on the consequences of uninsurance and represent its conclusions on
important goals for any strategy to extend coverage. In the next and final chapter
the Committee presents its recommendations for extending coverage.
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TABLE 5.2 SUMMARY ASSESSMENT OF
PROTOTYPES BASED ON COMMITTEE
PRINCIPLES
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TABLE 5.2 Summary Assessment of Prototypes Based on Committee
Principles
Prototype 1
Major Public Program
Extension and
Principles Status Quo New Tax Credit
Coverage should be Not universal; Would not achieve universality
universal 43 million uninsured because voluntary, but would
reduce uninsured population
Coverage should be Not continuous; income, age, Family- and job-related
continuous family, job, and health- gaps in coverage
related gaps in coverage
Coverage should be Private coverage unaffordable More affordable than current
affordable for individuals to many moderate- and system for those with low or
and families low-income persons moderate income
Strategy should be Not affordable or sustainable All participants contribute;
affordable and for society; uninsurance is aggregate expenditures not
sustainable for society growing; cost of poorer controlled; new public expenditures
health and shorter lives is for only the public program
$65–$130 billion; some expansion and tax credit;
participants contribute; no sustainability of public program
limit on aggregate health depends on revenue sources
expenditures or on tax and political support; size of
expenditures—spending is credit depends on political
higher than other countries, support
sustainability of current
public programs depends
on economy and political
support
Coverage should enhance Quality of care for the Opportunities to promote
health through high- population limited because quality improvements similar
quality care one in seven is uninsured to current system
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Prototype 2 Prototype 3 Prototype 4
Employer Mandate,
Premium Subsidy, and Individual Mandate
Individual Mandate and Tax Credit Single Payer
Coverage likely to be high; Depends on size of tax credit, Likely to achieve universal
depends on enforcement enforcement, and cost of coverage
of mandates individual insurance
Brief gaps related to life Minimal gaps Continuous until death or age
and job transitions 65
Yes for workers, assuming Subsidy based only on Minimal cost sharing, but could
adequate employer premium income and family size be problem for lowest income
assistance; public program leaves older, less healthy,
designed to be affordable for and those in expensive areas
all enrollees with less affordable coverage
All participants contribute; No limit on aggregate Nearly all participants
basic package less costly than health expenditures or on contribute; aggregate
current employment coverage; tax expenditure, though expenditures controllable,
revenue from patients in federal costs relatively utilization not directly or
public program; sustainability predictable and controllable centrally controlled; high cost to
depends on revenue sources through size of credit; federal budget; administrative
for employers’ premium sustainable through federal savings; sustainability depends
assistance and public program income tax base; size of on revenue source and political
credit depends on political support
support
Could design quality incentives Similar incentives to current Potentially yes; depends on
in expanded public program private insurance system, proper design
and basic benefit package; consumer could choose
current employer incentives quality plans
for quality remain
Representative terms from entire chapter:
public program
