Policy Expert Stephen Davidson on “Round 1.5: Maximizing the Benefits of Health Care Reform”

in Faculty, Health Sector, Markets, Public Policy & Law
August 4th, 2010

A Widely Cited Scholar Who Recently Released New Book on Health Care Reform


Professor Stephen DavidsonStephen Davidson, Boston University School of Management Professor of Markets, Public Policy, and Law, and author of the recently-released book Still Broken: Understanding the U.S. Health Care System, has published a new commentary for the Huffington Post, on “Round 1.5: Maximizing the Benefits of Health Care Reform.”  He writes,

The imperfect health care reform law President Obama signed in March was no one’s first choice. Recognizing the progress in its provisions, however, some have called it Round 1 on the road to a more perfect system. And while it focused primarily on expanding access to coverage, they expect the primary focus of Round 2 to be on keeping costs under control. But since Congress will not want to take up that challenge soon, the current implementation phase, Round 1.5, demands our attention.

“While the accomplishments in the law are substantial, the actual benefits will depend on implementation. The challenge is particularly great because the underlying reform strategy is relatively weak.” 

–Professor Stephen Davidson

Make no mistake: whatever its limitations, the new law was not only a huge legislative accomplishment, but also a big step forward for both individual Americans and the health care system as a whole….As a result, more than 30 million additional Americans will gain access to comprehensive health care coverage….

Nonetheless, while the accomplishments in the law itself are substantial, the actual benefits will depend on implementation. Moreover, the challenge is particularly great because the underlying reform strategy is relatively weak. Here is why: To accomplish the main goals of reform — increasing coverage, containing expenditures, making quality of care more reliable, and restoring the deteriorating delivery system — competing private insurers have only three ways to differentiate themselves in order to attract customers, and two of them reduce the value of the insurance.

Read more on the Huffington Post


Davidson in BU Today on How to Fix Health Care: the Sequel

Even with all the good [the new law] does, few serious students of the health-care system would have chosen this approach, which is to rely on competing private insurers to accomplish the goals of reform. No insurer can do much more than limit who can buy its policies and limit what those policies cover or how much the insured person pays out of pocket when he uses services. With the new law, Congress constrained insurers’ ability to decide who and what they’re going to cover, so they don’t have a lot of wiggle room to keep costs down.

Read more in the interview, “How to Fix Health Care: the Sequel,” by Rich Barlow, BU Today, April 27, 2010

Davidson in the Huffington Post on What Makes Him Angry

I’m trying to figure out what’s wrong with me. My new senator, Scott Brown, and his Republican colleagues are telling us that “the American people are angry” about the new health care reform legislation. But even though I am an American born and bred, I’m not angry, and I am trying to figure out what’s wrong with me.

….[But] I do know one thing that will make me angry. And that is that now that they have passed this historic legislation we so badly need — even though more work remains to be done — I will be angry if the Democrats fail to defend with conviction and enthusiasm their historic achievement. And anyone who doubts the magnitude of the accomplishment should recall that although efforts to reform the health care system have been made regularly from the 1930s onward, before now only Lyndon Johnson has ever been able to get the two houses to vote on a bill. The result of his effort was Medicare. It has taken a long time to take this next step. Surely the bill’s Congressional supporters, all of whom are Democrats, can persuade their constituents that they did the right thing!

Read full blog post, “What’s Wrong With Me?” By Stephen M. Davidson, Huffington Post, March 23, 2010.

Davidson in the Huffington Post on “The Final Push”:

Policy analysts are focusing now on the cost to the health care system and the nation of doing nothing (see the New York Times’ Week in Review section, 2.28.10). But many of the 535 men and women whose votes will determine the outcome on health care reform — especially those whose votes are uncertain as of now — will concentrate on the political cost to them.

In that calculus, they will weigh 2 main dimensions: the politics in their districts or states and the persuasiveness of party leaders in the House and Senate…[If] the House doesn’t pass the Senate bill and then the two pass an adjustment using reconciliation, it will be many years before anyone will tackle comprehensive reform again. So, as the policy analysts quoted in the Times made clear, the stakes are high. If we do nothing, the system will continue to deteriorate and our ability to access it and benefit from it, whether or not we are insured, will decline.

A third force, if mobilized effectively, has the potential to turn the tide in favor of reform. That is the public’s dissatisfaction with the current system….So, we need a concerted campaign. What will engage the public? Here are three ideas:

  • first, emphasize the degree to which their present good coverage is at risk;
  • second, detail the horrific behavior of private insurers under the current system;
  • and third, show them that the delivery system itself is losing its ability to put patients first because of the degree to which it is dominated by the rules of private insurers.

All three points are captured dramatically in the heart-wrenching insurance nightmare of a retired New York Times reporter and editor. After saying it is “far easier to deal with my disease than with my insurers,” Janet Battaile described in detail her encounters with United Healthcare, one of the nation’s largest and most profitable. She had trouble even getting to talk with a person and then was told by more than one that someone else was the person to help, transferring her to another who turned out to be even less helpful….The author closes with a counterpoint: what happened when she and her husband encountered two other large bureaucracies. Signing up for Social Security took 15 minutes, and her checks come “like clockwork.” He signed up for Medicare. “Same experience. No problems, no complaints. This is your government at work. Some bureaucrats know how to get it right.”

See full post, “The Final Push,” by Stephen M. Davidson, Huffington Post, March 3, 2010.

Davidson in Politico on Health Policy Summit:

Thursday’s health policy summit confirmed, as many have pointed out, that wide “philosophical differences” divide Republicans and Democrats. Implicitly, these statements suggest: first, that both sides agree the health system is broken; second, they differ only on the means for fixing it, especially whether or not to rely on government or the market; and third, that either approach would get us to where we want to be.

Indeed, Republicans do say the health system has problems, but they don’t spend much time defining them beyond arguing that if we can only keep costs down, the market will take care of the rest.

But this line of thinking is fatally flawed because the market cannot keep medical care spending down to acceptable levels and it certainly cannot guarantee coverage to everyone. Here is why:

The key is challenge is whether insurers can keep down prices so that coverage is affordable, and everyone can buy it. Insurers have only two levers to work with: They can limit who buys their coverage and, indeed, have been good at excluding high-cost people with pre-existing conditions. They can also limit what is covered or the terms of coverage. In practice, their main tool has been to increase out-of-pocket costs to discourage people who need services from using them, thus keeping down their outlays on care. These two strategies have done much to cause the problems we are trying to solve, including creating the 25 million “underinsured” Americans who value insurance enough to buy it, but cannot use the services they need because of the high out-of-pocket costs.

So, to contain spending on medical care so that everyone can buy coverage, government must take a large role. But that role can take many forms as demonstrated by the variety of arrangements used by other countries to guarantee coverage to all their citizens and to keep costs down. Some governments collect the money and pay providers of care; others rely on private insurers to collect payments. Some rely on private doctors and private hospitals; others own the hospitals.

Whichever path they take, there are at least two common elements. All require by law that everyone has comprehensive coverage for needed services. And where they use private insurers, those organizations are not-for-profit. Otherwise, there is much variety.

So, if we want to solve the main problems, government must play a large role. Private insurers can compete – but not for profits and not by varying the price of their coverage. Instead, they can compete on the quality of their service and on the outcomes their care produces.

Although other systems have problems, too, they cover everyone and spend much less than we do. They also produce more reliable quality of care, higher rates of cost-effective preventive services, much better health outcomes, and much more satisfied citizens.

The main philosophical issue is whether everyone should be covered. If they agree on that goal, then, Democrats and Republicans must also agree government must be involved. Period.

See post online at Politico’s The Arena, February 27-March 1, 2010.

In the Huffington Post on Insurers v. Hospitals: Another Reason We Need Reform

The New York Times ran a story last week about negotiations between a health insurer and hospital group that deserves comment.…[They] reported on a dispute between one of the largest insurers, UnitedHealthcare, and a consortium of 5 New York hospitals, Continuum Health Partners….What attracted attention was [that the] insurer was insisting that the hospitals inform it within 24 hours after a patient is hospitalized….[During] the negotiations, UnitedHealthcare upped the ante still more by taking the additional step of sending letters to “tens of thousands of patients, warning that they could be cut off from coverage at Continuum hospitals and affiliated doctors, and advising them to start shopping for new ones.”

Now, it is reasonable for insurers to want to keep down their spending and to be concerned about the quality of care they pay for. But given what we know about how the health system operates, it is hard to believe that UnitedHealthcare’s primary concern was really to improve quality and cut costs….If UnitedHealthcare were really serious about improving health care, it would try to engage the hospitals and their doctors in a process of changing the way they deliver care. Inviting a partnership, together they would work to figure out what needs to be fixed in a particular institution, set priorities, decide on specific actions to be taken, and implement them. In the process, they would set measurable goals and agree to share the gains if, by meeting those shared goals, the insurer were able to reduce its payouts. Moreover, the focus would be not just on what goes on inside the hospital, but on the entire continuum of care. They would encourage early use of primary care so as to avoid more costly services and hospitalization; and they would develop coordinated after-care so that patients with chronic conditions could both avoid being rehospitalized and manage their ongoing condition.

Read the full post, Insurers v. Hospitals: Another Reason We Need Reform, by Stephen M. Davidson, the Huffington Post, February  1, 2010.

In the New York Times on Health Reform, After Massachusetts:

To the Editor:

One of the biggest lessons from the president’s first year is that he must speak to the people more than he has.

Case in point: People are angry about the health care bills. But from answers to detailed survey questions, it is apparent that they don’t know what is in the bills.

So their anger reflects not a reaction to facts, but disgust with both the “sausage making” aspect of the legislative process, which has played out relentlessly on cable news programs, and the determined Republican opposition to the bill.

To the extent opponents give reasons beyond vague generalizations about the government’s taking over medical care or “death panels” or socialized medicine, many of their statements are false.

Only activated public opinion — based on reality, not fantasy and prejudice — can overcome the money and influence of special interests. And the president, whose communication skills are beyond doubt, is in the best position to stimulate that public opinion.

We are in danger of losing health reform again even with the historic accomplishment of bills having passed both houses of Congress.

Stephen M. Davidson
Boston, Jan. 21, 2010

The writer, a professor at the Boston University School of Management, is the author of the coming book “Still Broken: Understanding the U.S. Health Care System.”

See this letter online at the New York Times.

For Reuters on The Elements of Effective Reform:

Unfortunately, the [healthcare] reform proposals being discussed in the Congress are unlikely to [be truly effective].  Instead, to get there we need all of the following key provisions:

  • Everyone must have comprehensive health insurance. Indeed, there is no good justification for any other outcome.
  • Further, universal coverage is the single most important step needed to arrest the deterioration of the healthcare delivery subsystem. Providers will be able to count on a reliable source of income no matter where they locate and, therefore, to open offices anywhere that does not have enough providers to meet residents’ needs.
  • Everyone needs access to a personal primary care physician and, through him or her, early access to needed care.
  • All needed services must be covered; and providers should know that, if they exercise their best clinical judgment, they will be reasonably compensated for their work.
  • To improve quality, opportunities must be maximized to take advantage of information technology and to build teams and coordinated care; and system-generated obstacles to good quality care must be eliminated.
  • Costs – from insurance premiums and utilization, including patients’ out-of-pocket costs – must be kept under control. High out-of-pocket costs discourage individuals from seeking needed care. And high total expenditures will force insurers to cut back covered services and will make insurance too expensive for many to afford.

In Huffington Post on The Limitations and Dangers of Relying on Competition among Insurers:

Reliance on competition among private insurers is fundamentally a weak approach to health care reform. (The reason is that to keep prices low, insurers have only two levers to pull: they can refuse to insure people at high risk for using services, and they can change the conditions of insurance. Usually that means refusing to cover certain services or charging high out-of-pocket amounts. It could also mean paying providers by other means than fee-for-service, but they tend not to do that.) …[But] if competition among insurers is the approach to be used, it is critically important that [certain] provisions be in the bill presented to the President for his signature. They include the following:

  • Guaranteed issue, which would keep insurers from denying coverage to people with pre-existing conditions and other characteristics, like age, which increase the chances they will need services (and, thus, cost insurers money);
  • Guaranteed renewal, which prohibits insurers from refusing to renew a policy for a subscriber as it expires; and
  • Low or no cost-sharing when people use services, so that out-of-pocket costs do not make needed care unaffordable, as it is now for many insured Americans….

Even if the reform legislation that passes would cover all Americans, a critically important goal, unless the law also contains these provisions, many people will be shocked when they actually go to use medical care. They will understandably be angry if the coverage they are forced to buy is so limited that they still cannot afford the services they need. And they will get scant satisfaction if disappointed constituents make lawmakers pay a price at the polls in the next election.

Read more from “The Devil is in the Details,” Huffington Post, September 9, 2009.

Paying for Reform by Creating a Federal Health Insurance Fund

The key to successful reform, Davidson argues, is to create a Federal Health Insurance Fund.  He writes,

Here is the idea: Require that everyone contribute an income-related amount (that is, more for higher-income people than for others) to a dedicated pool of funds for paying insurers and health plans. Then issue vouchers which entitle everyone to choose a health plan or insurance policy.

Before dismissing this idea for the cardinal sin of raising taxes, consider these facts: If everyone is covered, per capita costs will be much lower than currently because everyone will be in the risk pool, including millions who will need few or even no services. Also, the currently uninsured who now rely on expensive hospital emergency departments could select community-based primary care physicians. And the vast sums now spent on administrative functions — by insurers to keep from spending money on care and by providers to cope with the vast variations in coverage — would no longer be needed.

Furthermore, for people who are currently insured, this “tax” will not only be lower but will substitute for the premiums they pay now.

Read more from Paying for Health Care Reform: Part 1, Huffington Post, August 12, 2009.

In the Huffington Post on How the HIF Should Be Used:

The Fund’s managers would estimate the next year’s needs and set rates to create a pool large enough to cover them. Individuals would receive vouchers with which to choose a health plan that meets federal standards for covered services, appropriate numbers and types of providers, and fiscal and managerial capacity. Private insurers, which would continue to play a large role, would be paid risk-adjusted amounts so that those that happened to attract large numbers of high-risk people would not be disadvantaged by their success. That is, the HIF would pay the plans more for older people and those with pre-existing conditions than for healthy 25-year-olds. Another benefit of this proposal is that those who like the coverage they have now would be able to select the firm that provides it. Importantly, individuals would choose a plan based not on price but on the particular providers who are included and the quality of the plan’s service.

Read more from Paying for Health Care Reform: Part 2, Huffington Post, August 13, 2009.

In the Huffington Post on the Insurance Industry’s “True Colors”:

The release of the PriceWaterhouseCoopers report reveals the insurance industry’s true colors for all to see. Everyone who has followed events closely saw insurers publicly supporting reform (“We want to work with you, Mr. President.”). The pros knew that, at the same time, their lobbyists have been working hard to strip the proposals, especially the Senate Finance Committee’s version, of provisions that would guarantee robust coverage and might actually keep expenditures under control.

Not content with the prospect of huge new profits from the addition of millions of currently uninsured to their rolls, greedy insurers have worked hard to strip “most of the serious proposals … to curb costs” from the bills under consideration. (New York Times, “Lobbyists Fight Last Big Plans to Cut Health Care Costs,” October 11, 2009) Unless Congress rebels against this duplicity, unhappy voters will discover — when they need care — the limitations of the new coverage they must buy. The result is likely to be profoundly disappointing to everyone but the insurers….

The silver lining from this cloud of duplicity may be that insurers have destroyed any lingering justification for trying to please them in exchange for their public support of reform. If our Representatives and Senators are as angry as they should be for having been played for fools, they could wind up passing a much stronger bill — one that would provide good coverage to more people at relatively modest cost….

The bottom line is that the insurers have demonstrated that there is no reason any more to cultivate their support. That being the case, Congress has a new chance to do the job right.

See more from “By Revealing Their True Colors, Insurers Eliminate Any Reason to Compromise With Them,” by Stephen M. Davidson, Huffington Post, October 19, 2009.

In the New York Times on the Public Option

On October 20, 2009, the New York Times publishes the following letter from Davidson, warning that if Congress does not adopt a public option in its health care reform initiative, “We will be creating a whole new generation of underinsured.”  He writes,

The Public Option, and Other Choices

To the Editor:

I agree with your editorial that Congress should adopt a public option as part of its health care reform bill. It is the only way that those who do not have access to good, affordable insurance through their employers will be able to get decent coverage. Without it, the most popular private plans for this group of Americans are likely to be those with the highest out-of-pocket expenses, because those will be the plans they can afford.

In the Senate Finance Committee’s bill, that is the bronze plan, which requires that insurers cover only 65 percent of medical bills, leaving a whopping 35 percent to the patient. Many will forgo beneficial services because they will not be able to afford the out-of-pocket costs. Those who get really sick and need hospitalization or surgery will be in debt for years.

We will be creating a whole new generation of underinsured. The public option will give them a reasonable chance at affordable coverage that actually protects them.

Stephen M. Davidson

The writer, a professor at the Boston University School of Management, has written a forthcoming book about health care reform.

See letter online