In HealthCare, Guaranteed, Dr. Ezekiel Emanuel proposes a bold plan for health care reform that offers free, high quality health care to all Americans. No premiums. No deductibles. Low-co-pays. Under this plan, the government insists that all insurers offer the same comprehensive benefits to everyone, including: office and home visits, hospitalization, preventive screening tests, prescription drugs, some dental care, inpatient and outpatient mental health care and physical and occupational therapy. These benefits are more generous than Medicare’s and more comprehensive than what 85 percent of all employers offer their employees.
How do we fund it? Emanuel, who is the Director of the Clinical Bioethics Department at the U.S. National Institutes of Health, proposes a 10 percent Value-Added Tax (VAT) on consumption. For a median-income family earning $50,000 a year and spending virtually every penny, this means that they would pay $5,000 a year (10 percent of $50,000) in taxes on their purchases. But in return, they would receive health care benefits worth more than $12,500 (the current average price for comprehensive insurance that covers a family.) In addition, because The Guaranteed HealthCare Access Plan would replace employer-based coverage, many workers could expect a raise roughly equivalent to what their employer now pays toward their premiums.
Here is how the plan works: Every American would receive a voucher for individual or family coverage. The vouchers would be of equal value and all insurers would be required to offer the same comprehensive benefits package to anyone who applied—young or old, sick or healthy.
Insures would report to 12 Regional Health Boards. Each Board would have a Center for Patient Safety and Dispute Resolution staffed by patients, physicians and lawyers that would receive and adjudicate patient complaints, compensate patients, discipline and disqualify physicians responsible for repeatedly injuring patients, and fund and develop patient safety programs. (Patients not satisfied with the Board’s resolution of their complaint still could sue for malpractice).
The Guaranteed HealthCare Access Plan pledges to cover the 257 million Americans who are not now on Medicare at a cost of nearly $1 trillion. This number includes what we now spend on employer-based insurance, Medicaid and SCHIP –plus what it would cost if the uninsured had employer-based coverage.
People who are now enrolled in Medicaid, SCHIP or Medicare would not be forced to switch to the new Guaranteed HealthCare Access Plan, but if they chose to, they could. For the time being, probably most seniors on Medicare would stay put. But over 15 years, these three plans would be phased out.
For more details on the plan—and how it would affect families at different income levels, see part 1 of this post.
Why Not Just Raise Income Taxes?
It may seem strange—not to mention politically dangerous—to introduce
the possibility of a whole new tax, especially one with European
pedigree, into the health care debate. In a telephone interview last
week Emanuel agrees that this could be the biggest obstacle his plan
faces. On the other hand, when the majority of developed countries do
something and we don’t—whether it is providing healthcare for all of
their citizens, or taxing consumption—you have to wonder: how likely is
it that all of them are wrong, and we alone are right?
Moreover, at this point all options are on the table, and no less than
Bruce Bartlett—a consummate supply-sider who served as domestic policy
adviser to Reagan and a treasury official under Bush—has gone on the record
as supporting a VAT to fund healthcare. Healthcare reformers need some
Conservative support—particularly on the question of the cost of
universal coverage. As I have argued in the past,
if reformers don’t have sharp answers as to how they will fund
universal coverage, there is a real danger that conservatives could
torpedo health care reform on the cost issue alone.
More importantly, the VAT doesn’t just introduce a new tax, it also
lets us cut other taxes. Today, the average state spends over 30
percent of its budget on a combination of health care benefits for
state employees plus Medicaid and SCHIP. Under this proposal, VAT would
take over funding health care benefits for government employees, and
with time, both Medicaid and SCHIP would be subsumed within the new,
centralized framework. State taxes would be bound to drop: “What state
governor wouldn’t like to be able to cut taxes by, say 25 percent, and
still have change left over to improve education?” Emanuel asks.
Higher income taxes would mean more of the same. With the VAT, we won’t
just be piling tax upon tax. Here there is a compelling political
narrative at work: the system is becoming more efficient and health
care reform is not just targeting the rich, but imposing a universal
tax for the good of all.
The VAT also is fairer than many taxes because it has a high compliance
rate. It’s hard to cheat. This is in large part because the tax is
applied throughout the chain of production, making it easy for auditors
to cross-check invoices and tax returns at various points in that
chain. (When a manufacturer purchases raw materials from a supplier,
it pays a tax to the government; when the manufacturer turns around and
sells the good to the retailer, the retailer again pays a tax with its
purchase; and the consumer pays the VAT when he or she buys the final
product from the retailer.) By contrast, it’s quite easy for a cash
business like a restaurant to lie about how much it’s taking in, and
keep a portion of the sales taxes it collects. And of course,
individuals who are paid in cash often do not report their full income.
The VAT is as reliable a cash-cow as you’re going to find: it can
generate an enormous amount of money at a relatively low tax rate.
It also automatically keeps up with inflation. If the cost of goods
rises, so will the amount that the VAT collects. In that way, funding
for healthcare will keep up with overall price increases.
The VAT Provides an Incentive to Reduce Waste
At the same time—and this is key—VAT funding will rein in runaway
health care inflation. In recent years, health care spending has been
rising faster than both inflation and GDP growth. This is what we
As Emanuel points out, the VAT gives us a national health care budget
that reflects what is happening in the rest of the economy:
“We cannot spend more than the VAT brings in. If Americans want more
healthcare services, they will have to lobby and convince Congress to
increase the VAT.” And it is not likely that Congress would be willing
to hike a new tax anytime in the new future. By putting a cap on
health care spending, the VAT creates a much-needed incentive to make
sure that we are getting value for our health care dollars by weeding
out waste and inefficiencies.
Insurers won’t be able to raise premiums—they will have to live on the
funding that the VAT provides. This means that they will be motivated
to find more creative ways to manage chronic diseases –so that they
don’t have to pay for costly hospital care down the road. Insurance
companies also will need to experiment with how to reimburse
physicians, hospitals and other providers in a way that rewards them
for coordinating care and delivering it in the most efficient setting.
This is what I mean when I say that the plan forces insurers to
complete on quality, not price.
To make certain that insurers are not trying to save money by
withholding needed care, each quarter insurance companies will be
required to provide data to 12 Regional health Boards on their
performance, reporting on patient satisfaction, dis-enrollment rates,
use of preventive services, and patient outcomes. Regional health
boards will make this information public, to help families choose their
At this point, “outcomes research” is still an infant science, so at
the beginning the information that the Regional Boards collects may be
sketchy. But because the Regional Boards will be demanding
accountability, this will give insurers a strong motivation to create
an efficient infrastructure…and establish electronic medical records
systems. As Emanuel observes: “Health insurance companies and plans
will be hard-pressed to deliver the required data without electronic
medical records that reach across physicians, hospitals and other
Those records, in turn, could create the database needed to advance outcomes research.
How The Guaranteed Health Access Plan Slashes Administrative Costs
Our health care system is so expensive in part because it is so
fragmented, leading to exorbitant administrative costs. By replacing
employer-based insurance, and including everyone under one umbrella,
the Guaranteed HealthCare Access plan saves billions.
On this point, Emanuel quotes healthcare economists Alain Enthoven and
Victor Fuchs : “The need for more than 850 insurance companies to see
and contract with million of employers, underwriting each one [deciding
how much to charge based on the age and health of their employees] adds
greatly to overhead. Typically administrative costs are on the order of
11 percent of premiums, and this does not include the costs to
employers to purchase and manage healthcare spending, including armies
of consultants, benefits managers and brokers.
“To understand how this could be different,” Enthoven and Fuchs write,
“consider that Kaiser Permanente signs one annual contract for the
coverage of more than 400,000 employees and dependents with the
California Public Employees Retirement System (CalPERS) and CalPER’s
administrative costs are on the order of 0.5 percent of premiums.”
By removing the employer as middle man, Emanuel’s plan could save that 10.5 percent—or roughly $120 billion a year.
Insurers also would save because they wouldn’t have to market their
plans to millions of employers. Instead they would deal with just the
12 Regional Boards that would certify that each insurer had a
sufficient network of physicians and hospitals, adequate financial
reserves—and that insurers were indeed providing the full menu of
The Institute for Technology and Outcomes Assessment
We know that health care inflation has been racing
ahead of inflation in the rest of the economy largely due to the rising
cost of new medical technologies. But if we cap total health care
spending so that it doesn’t grow any faster than the VAT how will we
pay for exciting new medical breakthroughs?
The truth is that, today, for ever truly effective breakthrough,
countless over-priced, ineffective and sometimes dangerous drugs and
medical devices are flooding the marektplace. In recent years,
newspapers have been filled with stories about the recalls—and the
patients who have died or suffered injury because new products were not
The problem is that, under the current system, manufacturers control
the research and what we are allowed to know about their products. As I
too often that research is biased. Meanwhile, drug-makers and
device-makers have resisted calls for “head-to-head” trials that would
compare a new product to an older, less expensive device, drug or test
already on the market.
The Guaranteed Health Care Access plan would change all of that by
creating an independent Institute for Technology and Outcomes
Assessment that will evaluate the effectiveness of new drugs and
devices as well as new procedures. Its goal would be to identify and
promote technologies that save money without reducing the quality of
care by. To that end, the Institute would review existing research;
sponsor studies to compare products and services where comparative
research is lacking, and analyze the data from health plans and
insurance companies on patient outcomes and on the drugs, medical
technologies and interventions used to achieve those outcomes.
Emanuel argues that the Institute’s assessments also will “change the
dynamics of long-term medical research and development. In particular,
its decisions will encourage drug and medical-device companies to focus
their research on high-value interventions. Today, these companies
develop new interventions with little regard for price or the degree of
improvement over existing interventions.”
By creating a more rational framework for coverage decisions, the
Institute will provide industry with “more reliable information [about]
future coverage decisions.” Thus “the independent Institute will help
shift research priorities toward technologies that provide real
improvements in survival and health. In this new scenario no amount of
advertising razzle-dazzle could create broad profitable markets for
Protecting Our Health Care System From the Lobbyists
Best of all, Emanuel’s plan shields the new health care system from the
hordes of lobbyists who use campaign contributions to distort our
healthcare system to meet their special interests.
Emanuel argues that the problem with Medicare-for-all (or any single
payer plan) is that it would depend on annual appropriations from
Congress. And experience tells us that if lobbyists representing
private insurers, drug-makers, equipment-makers, a particular guild of
specialists or group of hospitals howl loudly enough, legislators will
withhold funds until their demands are met.
“The history of Medicare offers a sobering lesson on how events would
be likely to play out,” Emanuel observes. “As we have seen when
Medicare tries to…equalize payments in different parts of the country,
hospitals put pressure on their representatives and senators to
increase payments.” Drug-makers also use patient advocacy groups to
lean on Congressmen who, in turn, put pressure on Medicare to cover
unproven products Too often, political manipulation, rather than
medical evidence, drives decisions.
The Guaranteed Healthcare Access Plan is insulated from both
politicians and lobbyists because it has its own separate dedicated
stream of funding– the VAT. It does not need to go to Congress to beg
Most importantly, the Institute for Technology and Outcomes Assessment
is not subject to interference by Congress. It, too, is funded by the
VAT and needs no annual appropriations from Congress. This gives our
health care system the protection from political interference that it
so desperately needs.
The Guaranteed Healthcare Access Plan is not perfect. Emanuel does not
try to flesh out all of the details that would make it work. But I
think he is wise when he says: “At this stage of the healthcare
debate, it is more effective to realize that God is in the Essentials.”
And the Essentials—those points that must not be compromised—are in his plan:
- High quality, affordable health care for everyone, regardless of health status or income
- Effective Cost Controls that make the program affordable and
sustainable by relying on unbiased comparative effectiveness research
to spotlight over-priced products and services that are not adding to
the quality of care
- Coordinated care with government oversight that fosters the
infrastructure, information systems and financial incentives for
high-quality health outcomes, and that holds providers accountable to
- Choice of health insurance plans, doctors and hospitals as well as the option to purchase additional benefits
- Funding which requires all Americans to contribute their fair share to funding the healthcare system
- Reasonable dispute resolution to replace the current malpractice system