The Legacy of the Crash

by Terrence Casey

  In terms of reducing the number of uninsured, two measures contained in the ACA stand out. First, from 2014, a major expansion of Medicaid is projected to result in coverage for 16 million extra Americans by 2019 (CBO, 2010b) as everyone with an income of less than 133 percent of the federal poverty level will become eligible for the program. Second, again from 2014, state authorities will establish health insurance exchanges that will act as regulated insurance markets for people lacking employer or public insurance. The exchanges will offer a variety of private insurance plans with federal government providing ‘premium credits’ to help pay the premiums and subsidies to help with out-of-pocket expenses (Washington Post, 2010, pp. 75–82). This help will be available, on a sliding scale, to people with income up to 400 percent of the federal poverty level. Insurers will be restricted in how much they can vary premiums so the cost is not prohibitive for people with pre-existing medical problems (Marmor and Oberlander, 2010). The CBO predicts that in 2019, 24 million people will get their health insurance through these exchanges (CBO, 2010b).

  Most working-aged Americans employed by mid-size and large employers will continue to receive their insurance as a benefit of employment, but even here the ACA makes potentially important changes. Insurers will not be able to refuse to cover people with pre-existing illnesses and will not be able to impose annual or lifetime caps on their payments for individuals. Furthermore, children are allowed to remain covered by a parent’s insurance until age 26. For employers the ACA introduced extra incentives to cover their workforce. Larger firms will face penalties if they do not offer insurance while smaller businesses will be helped to insure workers through the use of temporary subsidies. This will mean, if not explicitly then at least in effect, that employers with over 50 workers will face a mandate to cover some of the costs of insuring their employees (Simon, 2010, pp. 7–8).

  A further highly controversial measure, designed to ensure that people take insurance rather than gamble on their health, is to impose fines on people who willingly forego buying insurance. This individual mandate sparked a rush of constitutional challenges, and in December 2010 federal judge Henry Hudson became the first to rule the mandate was unconstitutional in a case in Virginia (Mazzone, 2010). Yet the mandate is an important aspect of the law for insurance companies. Since insurers have been compelled to insure people who constitute a high risk, that needs to be balanced by insuring – and receiving premiums from – people who have a low risk of needing medical care. Hence for insurers the individual mandate will act to mitigate the problem of adverse selection.

  As well as improving access for the uninsured the ACA set out to ‘bend the cost curve’. This meant that during the legislative process the CBO’s scoring of the fiscal impact of reform proposals was critical. In the end the CBO predicted that the net impact on the federal budget of all the aspects of the ACA would be a saving of $143 billion between 2010 and 2019 (CBO, 2010b). That is, the accumulated extra spending involved in the plans described above would be more than offset by savings generated in the Medicare and Medicaid programs and extra revenues such as fees on branded drug manufacturers and insurers and additional hospital insurance tax (CBO, 2010c). The savings are mostly to come from changes to Medicare through cuts to the annual updates of Medicare’s fee-for-service payments and reductions in monies paid to Medicare Advantage.1 Furthermore, an Independent Payment Advisory Board is to be established. This will make recommendations to Congress for limiting Medicare spending. Congress will consider these recommendations under special rules that mean it cannot simply overrule the suggested savings without proposing alternatives.

  Opponents disputed the efficacy of the supposed savings maintaining that the CBO was forced to take unrealistic assumptions about future trends and congressional behavior written into the ACA at face value (Nix, 2010). And it does remain to be seen what will happen when ‘irresistible force meets immovable object’. From 1999 to 2008 Medicare grew at a rate that was 2.8 percent per year higher than the annual growth in the rate of GDP. The question is whether it really is politically feasible to stop that growth rate, potentially incurring the wrath of seniors, or to find extra revenues to continue funding that growth (Newhouse, 2010, pp. 6–7).

  The ACA is also designed to restrain costs for business and individuals. According to Health and Human Service Secretary Kathleen Sebelius speaking on the Meet the Press: ‘Every cost cutting idea that every health economist has brought to the table is in this bill’ (Politics Daily, 2010). Much emphasis was placed on reducing unnecessary use of medical care. For example, one measure in the bill, which angered labor unions that had negotiated for generous insurance packages for workers, is the so-called ‘Cadillac’ excise tax on insurance plans that cost over $10,200 for an individual or $27,500 for family coverage that will come into force in 2018. The idea behind this tax is that it will encourage businesses and individuals to look for alternative plans that involve more cost sharing, and hence more cost consciousness (Jacobs and Skocpol, 2010, pp. 140–1). Elsewhere in the bill it is assumed that emphasis on modernizing medical care delivery will bring efficiency and that increasing competition and transparency in the insurance industry will restrain costs. Also it is predicted that the establishment of so-called accountable care organizations that will bring together primary and secondary care doctors as well as hospitals to look after a group of patients will further slow health care inflation (Cutler et al., 2010).

  Through these measures the CBO predicts that 32 million extra Americans will be insured by 2019, meaning that 92 percent of the non-elderly population, or 95 percent if unauthorized immigrants are excluded, would be insured (CBO, 2010b). This would still leave the US, alone among industrialized democracies, as having a significant proportion of its population lacking health coverage. Nevertheless, assuming that the ACA is not significantly diluted by reform, its regulations mean that insurance will become affordable for many low-income Americans.

  Moreover, people with health problems will not live in fear of losing that insurance.

  It is more questionable whether the ACA will deal effectively with the apparently inexorably rising costs in the US health care system. Fundamentally the ACA does not tackle the problems inherent in the supply state – that is, that the hand dealt to producers and providers is stronger than the hand held by consumers (patients) and payers (government and insurance companies). Analysts Ted Marmor and Jonathon Oberlander agree that the ACA contains many ideas advanced by health economists, but conclude that this ‘shows that American health policy researchers pay scant attention to international experience’. That is, other countries spend less than the US ‘largely by adopting budgetary targets for health expenditures and by tightly regulating what the governments and insurers pay hospitals, doctors, and other medical care providers. Outside of Medicare, the current reform contains no such measures’ (Marmor and Oberlander, 2010). This absence of constraining measures on health care providers reflects the decision made by the Obama administration to compromise to get some legislation passed. In particular the decision to attempt to co-opt some of those stakeholders who had opposed previous efforts at comprehensive reform meant that their interests had to be accommodated (Oberlander, 2010).

  The Americanization of the British National Health Service?

  This subtitle, without the question mark, was the title of an article by the health policy analyst David Mechanic (1995) that explored the impact of changes made by the Thatcher and Major governments to the NHS. Particularly controversial was the decision to divide purchasing agents and providers (Secretary of State for Health, 1989). Purchasers, then in the guise of District Health Authorities, were empowered to spend their budget buying from a provider of their choice. The providers of hospital care were to become autonomous NHS Trusts that would compete to win contracts from purchasers. In addition, GPs could become purchasing agents by adopting the status of GP Fundholders. If they did this they could spend their allocated budget directly buying service
s for their patients. These plans provoked claims that the NHS was under attack. The British Medical Association (BMA) voted in favor of non-cooperation. Robin Cook, then the Labour Shadow Secretary for Health, maintained that the government was promoting ‘market medicine as it is practised across the Atlantic’ (quoted in Klein, 2006, p. 153). The idea of an Americanizing influence was given some substance as American analyst Alain Enthoven had advised the government in the mid 1980s that more emphasis on money following patients would generate greater efficiency in the NHS (Ham, 1994). Yet in implementation the reforms had a muted effect (Klein, 2006, pp. 146–52). The exact nature of the market being created was unclear (Dolowitz et al., 1996) and in the end, the state did not sacrifice that much command while other changes emphasized managerial supervision of the medical profession, meaning that in some ways the state had extended its methods of control. Indeed the Secretary of State who oversaw the legislative changes, Kenneth Clarke, maintained that the purpose all along had been to give ‘managers additional tools to challenge doctors’ (Greener, 2009, p. 149).

  In opposition the Labour Party had promised to undo the reforms but by 2000 the Labour government had adopted a not too dissimilar agenda. The NHS Plan issued in July 2000 called for ‘sustained increases in funding’ but also for ‘far reaching changes across the NHS’ (Secretary of State for Health, 2000, p. 10). This message was reinforced in a further White Paper in 2002, Delivering the NHS Plan, which declared that the ‘1948 model is simply inadequate for today’s needs’ (Secretary of State for Health, 2002, p. 3). So, after eliminating GP Fundholding, the government set up Primary Care Trusts (PCTs), which would be able ‘to purchase care from the most appropriate provider – be they public, private or voluntary’ (ibid., p. 4). This was intended to ‘expand choice and promote diversity in supply’ (ibid., p. 5). In addition, patients would no longer be ‘handed down treatment’ but would be given a choice of ‘where and when’ to be treated (ibid., p. 7).

  Thus the Labour government went further towards establishing a health care marketplace than the Tories had previously done by inviting private and not-for-profit providers to compete for contracts in what was termed the ‘mixed economy of care’ (Greener, 2009, p. 221; Pollock, 2005, p. 200). Furthermore, the government was keen to increase the extent to which money flowed to successful facilities signalling a ‘retreat from a command-and-control style of management’ (Klein, 2006, p. 232). Related reforms included giving patients a choice of secondary care provider. There were also elements of decentralization. For example, the best-performing hospitals were allowed to set up as Foundation Trusts, giving themselves a greater degree of autonomy. The Department of Health described Trusts as being ‘at the cutting edge of the Government’s commitment to devolution and decentralization in public services, and are at the heart of a patient led NHS’ (Department of Health, 2005, p. 2).

  Together the changes enacted during the 1990s and 2000s did end the 1948 command and control model of governance of health care providers in the UK, but it is not clear that the real impacts of the reforms were as significant in practise as was potential in theory. For example, most patients chose their secondary care provider for reasons of geographical convenience rather than according to league tables, thus limiting the impact of patient choice on incentives for providers. A King’s Fund study found that ‘While the threat of patients choosing a different hospital led some providers to focus more on reputation, there was little evidence of direct competition for patients’ custom and choice has not so far acted as a lever to improve quality’ (Dixon et al., 2010). Moreover, for all the rhetoric about devolving decision-making the government proved reluctant to let too much power ebb towards providers. For example, the Foundation Trusts remained ‘subject to NHS standards, performance ratings and systems of inspection’ (Department of Health, 2005, p. 2). The tensions this produced were exemplified by the enduring dilemma about how to balance central and local control. There was some devolution of budgets to frontline health workers but also greater centralization through the use of targets and the creation of the National Institute for Clinical Excellence (NICE) that helped decide the financial as well as medical viability of new drugs (Glendenning, 2003, p. 209).

  As it was, by the time of the 2010 general election Labour boasted about the increased expenditure on the NHS and pointed to reduced waiting times as evidence that the extra money invested had been put to good effect. And public satisfaction with the NHS was significantly higher than it had been in 1997 (Cole, 2009), though ironically Labour’s lead over the Conservatives as the best party on the issue of health care had declined from a 32 point advantage in April 1997 to just 9 points in March 2010 (Ipsos Mori, 2010). In this context the future of the NHS was not a high-profile campaign issue. Conservatives protested that too much money had been spent on managers and maintained that the NHS needed a period of stability with resources concentrated on frontline staff not health bureaucrats. That stance was reinforced during the 2010 campaign when the Tories promised to ring-fence NHS spending even as they spoke of the need for deep public spending reductions.

  Thus neither the Conservatives nor the Liberal Democrats, the constituent parties to the coalition, had suggested major reform of the NHS during their election campaigns and the coalition agreement made no mention of this either. Yet, by the summer Secretary of State Lansley had unveiled plans for reform of the NHS in England that an array of health care experts described as genuinely radical. The NHS Confederation referred to the ‘biggest shake-up of the NHS in its history’ (NHS Confederation 2011, p. 2).2 A King’s Fund analysis noted that the plans were ‘much more ambitious than previous reforms’ (Dixon and Ham, 2010, p. 1). An underlying sentiment was the idea that the government’s plans represented the ‘biggest shift of power and responsibility in the NHS’s 62-year history’ (Timmins, 2011).

  The introduction to the Coalition government’s White Paper on the NHS reaffirms the commitment to uphold ‘the values and principles of the NHS’, going on to define these as a ‘comprehensive service, available to all, free at the point of use and based on clinical need, not the ability to pay’ (Secretary of State for Health, 2010, p. 3). Accordingly the NHS would remain a state-funded system with access based on social equity. In this context, why then did the White Paper provoke remarks about a radical transformation?

  Perhaps the feature of the government’s plans that drew the most immediate attention was the decision to abolish PCTs, which were responsible for buying health care services for patients. Instead the bulk of control for commissioning care would be passed to GPs. Also abolished would be the ten existing strategic health authorities in England. GPs would group together in consortia in order to carry out and coordinate their commissioning duties. A newly created NHS Commissioning Board would oversee their work. That Board would have some responsibility for purchasing rarer or higher-tech medical equipment that it might not be appropriate for each GP consortium to purchase separately. The rationale for giving GPs this power is that, as primary care providers, they are best aware of how to distribute resources on behalf of their patients. In addition the change would lead to a reduction in the number of managers in the NHS. For GPs the flip-side of the extra power they will have over their budgets is that they will possibly become the frontline in the terms of rationing care.

  Another key aspect of the reform plans concerns hospitals. The White Paper states: ‘Autonomy in commissioning will be matched by autonomy for providers’ (Secretary of State for Health, 2010, p. 35). Accordingly all NHS Trusts will become self-governing Foundation Trusts. These will remain in the public sector, but will be in competition with providers from the private and voluntary sectors. ‘Our aim is to free up provision of healthcare, so that in most sectors of care, any willing provider can provide services, giving patients greater choice and ensuring effective competition stimulates innovation and improvements, and increases productivity within a social market’ (ibid., p. 37). An economic regulator, Monitor, will o
versee this market, setting prices and promoting competition.

  Overall, on paper at least, these proposals look to justify the commentaries emphasizing their radical nature. Much will of course depend on how these new structures work in practise. The implications of the plans are that some market dynamics will be at work. For example, one possible repercussion of the increased autonomy for providers is that they, including public sector Foundation Trusts, will be allowed to fail. Isolated cases of such failure might be tolerable, but it seems unlikely that the government would allow this to happen on a regular basis. Interestingly, the White Paper talks of reducing the power of the government to ‘micro-manage and intervene’ in the day-to-day affairs of the NHS (Secretary of State, 2010, p. 33). It will be difficult, however, for government to stay out of the fray should a spate of NHS scare stories surface. Devolving power does not necessarily translate into devolving political responsibility.

  In the spring of 2011 the government acknowledged the mounting criticism of its plans, including from Liberal Democrat voices within the Coalition, by announcing a pause in the legislative process. In June 2011 the government revealed its revisions to the original proposals. This was widely reported as a significant climb-down by the government (BBC 2011), but the changes were more a slowing and partial diluting of the reform process than a fundamental course correction. Perhaps most importantly, the role of Monitor was adjusted so as to promote collaboration as well as competition and other health professionals were to join GPs in commissioning arrangements.