Health Care Reform and the Balancing Act

May 23, 2011

With the announcement of  Rep. Ryan’s proposal to convert Medicare into a voucher program and Medicaid into a block grant, contrasting visions of health care reform became very clear.

The Ryan/Republican House approach embraces a market strategy and would effectively cap federal government payments for health care. A Medicare voucher program would leave seniors to purchase health insurance with government financial help. This concept has been used by many employers with regard to pension benefits: it’s called a defined contribution approach because it sets a capped limit on what the employer (or government) pays.

The Affordable Care Act, in contrast, retains and in fact strengthens what is known as a defined benefit approach. In a defined benefit approach, there is a commitment to fund a certain set of benefits (the Affordable Care Act calls those “essential benefits”). Even if individuals contribute financially through copayments, deductibles, or premium sharing, a promise is made: within certain parameters, a known set of benefits will be covered.

For Medicaid, while Ryan’s proposal does not use a voucher approach, it ends the entitlement foundation. That is, the federal government would cap the payments to states and allow states considerable flexibility in program design. Some states would certainly continue offering programs close to those offered today, while others would likely cut eligibility categories, reduce benefits, place more restrictions on where and how care is delivered, etc. And, in times of financial challenge for states, the safety net would likely be eroded.

Rep. Ryan’s approach is relatively simple to design and implement from the sponsor’s perspective (the federal government in this case). On the other end of the spectrum, the Affordable Care Act is much more complicated – and in some eyes, more intrusive – in the way it structures benefits and delivers care.

In fact, recent articles have described hospitals as having “buyer’s remorse” when it comes to health care reform because so many regulations are now coming out that affect what they do – either by reducing/holding back and redistributing payments, or otherwise telling hospitals in a very direct way what to focus on (such as patient satisfaction along with certain quality measures).

States, too, are increasingly challenged by some of the strictures placed on them by the Affordable Care Act. A new rule from HHS is designed to make it more difficult for states to cut payments to providers of care.  In recent years, many states have tried to reduce their Medicaid cost trends by cutting provider reimbursement. And as a result, fewer and fewer providers (especially specialists) have been accepting Medicaid patients. The imposition of “maintenance of effort” requirements, which limits the ability of states to reduce benefits or cut categories of existing Medicaid enrollees, have more states looking to balance their budgets by cutting payments to providers. The new rule would curtail many of those efforts.

The structure of the Affordable Care Act is as much as anything else, a balancing act. It attempts to balance the often competing goals of access to health care and health care security, and at the same time, reduce health care cost trends. While the Ryan approach represents a true market place vision of health care benefits and the government’s role in that regard, the ACA reflects the messy, sweeping approach to health care that has been an American tradition for the past 40 years –ever since the advent of Medicare and Medicaid.

Whether this sweeping and more complicated approach can work in the long run is still an open question. But, what is not a question is that the ACA builds on where America has been whereas the Ryan approach would take us in a sharply different direction – and, if recent polls are to be believed, a direction even less popular than the Affordable Care Act.