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The Commission's blueprint for building a universal job-based/public system of health care coverage has five parts.

1. The Commission believes that employers and the government together should provide a minimum level of health care coverage for workers and nonworkers who, in turn, should be expected to accept that coverage.

Small employers face considerable and increasing obstacles to purchasing affordable health insurance policies for their employees. Other Commission recommendations address the problems of the insurance market (see below). Because of these obstacles, and because it would take time for the insurance market recommendations to take effect, the Commission recommends that small employers be encouraged through tax credits/subsidies to provide coverage for their employees.

Large employers do not face such obstacles. The Commission recommends that, after a period for adjustment, they be required to provide coverage for their employees.

The subsidies and the insurance market reform should allow small employers to purchase affordable insurance for their workers. If sufficient progress has not been made after several years, the Commission recommends that small employers become subject to the same requirements as large employers.

Even if job-based insurance becomes much more widely available, it will never be enough. The unemployed and the poor will need public protection. The Commission recommends that the federal government provide coverage for these groups by replacing and expanding the role currently performed by states through the Medicaid program.

When job-based coverage and the federal program are fully implemented and in place, the Commission recommends that all individuals be required to obtain health care coverage from their employer or from the public program.

2. The Commission believes that all parties-employers, individuals, and government-should share in financing health care coverage. Requirements for financial participation should not impose excessive burdens on individuals or employers. It is the federal government's responsibility to establish a ceiling on obligations related to ability to pay, and to provide

Commission recommends that the small employers encouraged to provide coverage receive tax credits/subsidies to reduce the costs of private insurance; that employers required to provide coverage be able to obtain it from a federal program for a contribution set at a fixed share of their payroll expenses; and that low-income workers and nonworkers receive subsidies to keep their contributions within reasonable bounds.

3. The Commission believes that private insurers and government should each play a role in administering health care coverage. But there is a critical need for reforms to strengthen both private and public performance, making coverage not only available but also adequate to ensure access to care. In order to preserve and expand private insurance as the primary source of job-based coverage, the Commission recommends requirements that would bring an end to the underwriting, rating, and marketing practices that are unraveling private insurance protection for small employers. At the same time, the Commission recommends that responsibility for providing public coverage be shifted from states to the federal government, be severed from the welfare system, be uniform across the country, and pay providers at rates determined by Medicare rules.

4. The Commission believes that universal health care coverage that ensures people access to necessary care must meet an adequate minimum standard. That standard should establish basic protection for the currently uninsured and underinsured and preserve protection for the currently insured into the future. For public and private coverage, the Commission recommends a federally specified minimum benefit package that includes preventive and primary care as well as other physician and hospital care. Individuals would be responsible for a share of premiums and service costs-on all but preventive services-up to a maximum and subject to their ability to pay.

5. The Commission believes that action cannot come too soon for the millions without coverage and millions more who see their coverage threatened. However, an effective system cannot be put into place overnight. It will take time to develop and implement.

To balance these concerns, the Commission recommends that the system be put in place a step at a time. The first and most critical step in expanding coverage is to ensure protection for pregnant women and children who are now uninsured and to initiate reforms that reverse the disintegration of the private insurance market for small employers. This would create an environment in which employers would have an op

Lack of insurance means too many babies are born too soon, too small, and too sick.

portunity to provide the coverage the Commission expects. The second step, to take place in years two through five of implementation, is to effect a series of incentives and requirements for employer coverage, giving employers time to adjust to their new obligations. The final step, to occur in year five, is to extend the federal government's coverage for all nonworkers.

The Commission believes this sequence of steps allows immediate action to address the most urgent problems and provides an orderly transition to universal health coverage.

Strengthening the Health Care System

The Commission recognizes that universal health care coverage can only be as sound as the health care system itself. Coverage that buys unnecessary or inappropriate care, that pays for poor quality, that fails to promote efficient delivery, or that shifts costs from some purchasers to others, wastes private and public dollars that could be used elsewhere.

The Commission disagrees strongly with the view that we cannot extend coverage to the uninsured until we control health care costs and reform the health care system.

The Commission believes, on the contrary, that expanding access to quality care and containing costs through increased efficiency are equally urgent and fundamentally intertwined goals. Ultimate success in reaching either goal can be achieved only through an


integrated strategy of system reform. The Commission's recommended strategy has six parts.


1. The Commission believes that the nation needs a national system of quality assurance aimed at defining appropriate or necessary services and ensuring that patients receive these services.

The Commission recommends that national practice guidelines and standards of care be developed and implemented; that a uniform data system on all health care services, regardless of payment source or setting, be developed and implemented to support research on treatment outcomes and assessment of provider performance; that new methods of quality assessment and assurance be developed and tested; and that local organizations be developed and held accountable for effective quality


It is also imperative that we find a better way to deal with the problem of malpractice. Because there is, at present, insufficient evidence to support specific reforms, the Commission recommends that the Physician Payment Review Commission and congressional committees study and explore the issue of malpractice and propose legislative remedies.

The Commission believes that universal coverage should be designed in a way that promotes efficiency in service use and delivery of care. Several of its recommendations pursue this goal.

2. The Commission recommends a minimum benefit package that, except for preventive services, includes significant consumer cost sharing (subject to ability to pay and an out-of-pocket maximum), so that consumers recognize and are sensitive to costs as they consume services.

3. The Commission recognizes the efforts of employers and their private insurers to manage their health care expenses by encouraging appropriate use of services and negotiating appropriate payment rates with providers. Accordingly, its recommendations include managed care as an appropriate means of service delivery for employers as well as the federal government. Insurers offering managed care to large employers would be required to extend that option to small employers as well. The Commission's recommendations for insurance reform, if implemented, would further encourage managed care and other cost management innovations because insurers could no longer profit simply by avoiding the "poor" risks. Competition would have to be based on efficient service and health care expenditures management.

4. The Commission recommends also that the newly established federal program adopt and extend Medicare's

hospitals and more recently for physicians, Medicare's payment rules have been refined to reward providers for delivering services efficiently. Applying these rules in the new federal program would extend their scope for publicly financed patients as well as provide a model for private insurers seeking new ways to control their costs.

5. The Commission recognizes that universal coverage in an efficient health care system is necessary but not sufficient to ensure all persons access to the care they need. People in isolated rural areas and inner cities, and particular segments of the populationminorities and the poor, pregnant teenagers, the physically or mentally disabled-would still face difficulties finding and getting the care they need.

The Commission recommends that expanded public coverage reinforce but not replace primary care delivery systems that are subsidized to serve these populations. It also recommends federal support to promote and extend systems that provide and coordinate a broad array of social and health services. Moreover, it recommends provider payment methods and other mechanisms to ensure the general availability of health providers adequate to serve these most vulnerable citizens.

6. The Commission's commitment to universal coverage in an efficient and effective health care system goes beyond ensuring access to treatment. Preventing the need for treatment ensures Americans the most secure and productive lives, and uses the nation's resources most efficiently.

The Commission therefore recommends federal support for programs of health promotion, disease prevention, risk reduction, and health education toward the reduction of excess morbidity and mortality, and toward the increase of healthy lifestyles.

Beneficiaries and Costs of the Commission's Health Care Recommendations

Building universal coverage in the way the Commission recommends would extend coverage to almost 32 million Americans under 65 who are now uninsured. It would also ensure adequate health insurance coverage for the 20 million under 65 who have some insurance, but are still exposed to catastrophic costs if major illness strikes. All Americans would be guaranteed affordable protection that ensures access to care when they need it.

The Commission's strategy for ensuring adequate access to health care for everyone is achievable for

"I think these are the two words that [characterize what's going on in our country in health care]. The first one is 'wrong.' And the second one is 'stupid'. . . . [People] say South African apartheid [is]... wrong. . . . It's immoral. . . . The kind of suffering we have heard about here today is just wrong.... On the stupid side, we have already heard about the death, the suffering, the expense, the loss of productivity." -Luanne Nyberg, director, Childrens' Defense Fund-Minnesota

less than 2 percent more than the nation spends for health care under current law. If the recommendations were implemented in 1990, the projected increase in total health care expenditures would amount to $12 billion, raising total current health care expenditures from $647 billion to $659 billion in 1990. (All cost estimates are for 1990.)

Not all sectors of society would be required to pay more, however (see Table 1). Employers who now offer health insurance to workers and their dependents are projected to save almost $13 billion because they would no longer bear the cost shift by insuring (as dependents) individuals who work for other firms or by paying for uncompensated care. Individuals and families are projected to save over $19 billion, as employers and government share their insurance and health care costs. State and local governments are projected to save more than $7 billion in payments now made for the uninsured, over and above Medicaid. Because states' contributions to expenditures

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Our health care system still inspires awe-and rightly so. Americans should be proud of a system that can provide the best care in the world.

But our system also creates fear-among the millions already excluded from it and the increasing numbers at risk of exclusion:

• Uninsured pregnant women, without the resources to seek prenatal care;

• Workers who are ill, with preexisting conditions that may cost them their health insurance if they change jobs;

• Workers in small businesses, for whom a sudden illness can put insurance premiums out of reach for the entire firm;

• Workers with good coverage, who see their benefits threatened each time they go to the bargaining table;

• Families whose emotional and financial resources are exhausted from providing long-term care to frail parents or disabled children.

Finally, our system breeds frustration-among the many who seek ways to reform it and resolve its problems.

Most reformers agree that our health care system should cover all Americans. But to do so, some would replace the system. Others would reshape it, often in dramatically different ways. People and institutions criticize and ultimately reject initiatives that differ from their ideal or that—in their view-move too fast or too slowly. If their first choice is unattainable, the second choice for many is to do nothing.

Public policy is paralyzed. The fear and the flaws continue.

The Pepper Commission calls for action to end that paralysis with recommendations for legislation that would guarantee all Americans coverage for health and long-term care within a system that both ensures quality and contains costs.

To develop these recommendations, the Commission intensively investigated the problems and alternative actions to address them. It listened to numerous witnesses in public hearings held in the nation's capital and around the country. It heard from experts in health and long-term care. In the process the Commission gathered a wide range of views from consumers, employers, workers, providers, insurers, and numerous organizations and groups. Then its members met in a series of working sessions to consider all these views, clarify their own objectives, and develop recommendations to achieve them.

Based on a shared view that current conditions are unconscionable and that public action is urgent, the Commission unanimously agreed that all Americans should have access to affordable health and long-term care coverage in an efficient and effective system.

"Allowing these health and long-term care problems to persist not only deprives millions of Americans of what they ought to be able to have . . . it diminishes our economy. . . . [and] ... the United States of America. I don't think it's possible to say... that we are a civilized nation when so many of our people... do not have long-term care, do not have health insurance."

- Senator John D. Rockefeller IV

After further intense debate, the majority of the Commission adopted specific recommendations to achieve this goal. These recommendations reflect the view that we must begin to build universal health care coverage now. We must pursue the workable rather than the ideal. We must secure and improve the health care system for all Americans, including those currently left out. And we must create a longterm care system that serves our nation's severely disabled and addresses the deepest fears of Americans-elderly and nonelderly-about their future should they become disabled and need long-term care.

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