The New American Compromise

We can cover the uninsured, but can we contain costs?

By Ian Morrison

In the 1980s and 1990s, an American compromise called managed competition was the dominant force behind health reform. Born from the ideas of Alain Enthoven at Stanford University, the theory laid out a path where consumers picked plans when they were well and lived with the consequences of their decision when they were sick. Integrated delivery systems organized in an HMO model competed for business on the basis of cost and quality, and cost-conscious consumers had real incentives to select low-cost plans; otherwise, they paid hundreds of dollars a month for more expensive (and usually broader choice) alternatives.

Managed competition was the basis for health reform initiatives in California in the 1980s and was really the intellectual foundation for all health reform efforts in the 1990s, including the ill-fated Clinton health plan. Managed competition worked best in a framework of universal coverage. Everyone was to be in a plan, and plan sponsors (such as employers or government) as well as individual consumers would have a marketplace of choices at the plan level or the integrated delivery system level. Kaiser-like entities would then compete on a value basis within a framework of universal coverage. I always kind of liked the idea because it reconciled issues of cost, quality and access, and I felt it was a genuinely American compromise between top-down control and consumer choice.

Shared Sacrifice

There is a “new American compromise” being forged. Emerging from the Romney and Schwarzenegger political aberrations (popular Republican governors in strongly Democratic states), the new American compromise makes universal coverage the primary goal. It is to be achieved through shared sacrifice in payment by business, government, individual households and even, in some cases, payment by special groups like smokers, doctors and hospitals.

The new compromise is forged from a belief that health care is both a right and an obligation: You have a right to expect access to health care but you have an obligation to pay your share of the tab. The compromise is a form of what I have called strategic incrementalism (incrementalism is going from one bad idea to another bad idea; strategic incrementalism takes steady steps toward a broader vision). The new compromise builds on existing public and private health insurance programs, it lets you keep what you have if you like it, it requires you to pay something for coverage if you have none, and it limits the behavior of health insurers in the marketplace.

The Massachusetts plan, Schwarzenegger’s California proposal and the plans of all the Democratic presidential candidates are close variants of this new compromise. Republican candidates as of this writing (in the early stages of 2008) have shown little interest in embracing universal coverage through shared sacrifice, preferring instead a combination of tax credits and deregulation of insurance markets to stimulate competition. Still, while none of them has embraced the new compromise (or said much about health care in his campaigning), whoever emerges as the candidate on the Republican side will be forced to talk about health care as the general election heats up. Why? Because, after the economy, health care is the dominant domestic issue for Democrats and Independents, which is in sharp contrast to the Republican ranking of health care as an issue (behind the economy, immigration and taxes).

A Real Debate

You could argue that the stars seem aligned for a victory for health reform, based on the new compromise, that leads to universal coverage, first in some landmark states like Massachusetts and California and then perhaps emulated through national policy. (I have always argued that Americans will not buy a car they haven’t driven. So they will want to see the new compromise working before they sign off on it.) But it is plausible to expect a real debate about health reform that may actually lead to political change and in turn to legislation.

However, there are a few things to watch for:

God is in the details. While the new compromise has been embraced by politicians on either side, there can be large and important differences in the details such as which groups of newly covered are added at what rate and to what maximum level. Is universal coverage the goal or is it simply significant coverage expansion (“universal coverage for some” was how an old colleague put it)? Similarly, while there is unanimity among Democrats about rolling back tax cuts for the rich to pay for health reform (and other things), unsurprisingly this view is not held by Republicans. Perhaps the most meaningful detail over which there is disagreement is in the degree of regulation or deregulation of the health insurance industry. Democrats are much more likely to tighten the rules on issuance, underwriting, and availability and funding of public versus private choices.

Political victory does not always mean legislation. It is one thing to speechify, to campaign and to win an election with health care reform as a plank in your platform. It is quite another to get laws passed and enacted that make massive change in one-sixth of the U.S. economy. Every lobbyist and their dog is itching to get into the middle of this next round of change making.

Affordability. Here is my big concern. We may succeed in getting everyone an insurance card, but to reach that laudable goal we may be ignoring the need to transform a delivery system to make it better, faster and cheaper than the system we have now. Giving people a card doesn’t solve the fundamental cost problem, and there seems little in the candidates’ proposals that will do much about the cost problem. We will have more people covered and we will pay significantly more to achieve it. Without adequate cost controls we may be digging our children an even bigger fiscal black hole than the one they are already facing.

Health reform should happen – it could happen. But if it addresses only coverage expansion and ignores the issues of affordability, quality and sustainability, we will have missed an opportunity to transform health care to deliver much higher performance for decades to come.

Ian Morrison is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN OnLine. This article 1st appeared on March 4, 2008 in HHN Magazine online site.