Center for American Progress

Trading Power for Progress: A Health Care “Fed” To Reform Coverage

Trading Power for Progress: A Health Care “Fed” To Reform Coverage

Distinguished Senior Fellow Sen. Daschle outlines a Federal Reserve-style institution that could make difficult and critical health policy decisions.

As Democrats prepare to take the helm of Congress, few challenges loom larger than the health care crisis. Years of neglect and policies that put special interests ahead of the public interest have weakened the nation’s health and economic security. For every job created during the Bush administration, three more Americans became uninsured. Medical debt is spreading. And health costs will exceed profits in Fortune 500 firms by 2008.

Stated simply, we are paying more for less.

The new congressional leadership will undoubtedly make reversing these trends a national priority. Numerous programs that today are starved for resources need to be resuscitated. Gaps in oversight and management must be redressed. And common sense policies such as Medicare negotiation for drugs and insurance purchasing pools should be enacted.

But fixing the broken health care system may involve more than a simple act of Congress. Ensuring that all Americans have affordable, value-oriented health care means changing how we pay and what we pay for. We spend the most in the world for our health system, paying high prices in a byzantine insurance system where few limits exist. A seamless system that covers and pays for what works could rein in costs. As past proposals have shown, it is well within the power of the richest nation in the world to prevent delayed and denied care due to cost.

Obviously, creating such a system is politically difficult. Health care providers are powerful and fear change. Americans who have insurance fear losing it. Those without it cannot afford it without significant—and expensive—assistance. Business leaders don’t trust government bureaucrats to make decisions. The policy solutions themselves are complex.

But I believe the challenge is less about politics and more about the nature of health policy decisions. Health policy decisions are technical, complex, and may literally be matters of life or death. Members of Congress today are, in effect, health plan CEOs for a significant portion of the American public, determining, for example, what drugs and services are available to seniors, veterans, or low-income children. Each congressional decision has a major impact on some patient or provider group as well as other members of Congress or a family member who has experience with the diseases personally.

Yet the outcomes of congressional health care policymaking depend on circumstances—timing and leadership—resulting in a federal coverage policy that is impossible to explain, inefficient and inequitable. Congress may be challenged in rationalizing the health care system, but it could create a process for doing so. A Federal Health Reserve, modeled loosely on the Federal Reserve System, should be created to make critical, difficult health policy decisions.

Like the Fed, “Fed-Health” members would be independent, Senate-confirmed experts: clinicians, health benefit managers, health economists and researchers, and similar experts. The Federal Health Reserve would have a large staff of analysts to assess and produce the research needed for its decisions. The system would be financed through a small tap on federal health programs proportionate to their spending; these programs’ return on this investment would likely be high.

The Federal Health Reserve’s “dial” to affect policy would be its ranking of health care services. Its staff would assess the health impact and cost effectiveness of major and/or costly services. It would vote on recommendations on the ranking of such services to set model coverage and cost sharing policy. The Fed-Health could also set processes for exceptions to these rules and separate policies for vulnerable populations. By getting a handle on what we pay for, we would be able to address how much we pay: a central element in health reform.

The recommendations from the Fed-Health would have teeth because all federal health coverage programs would have to use them for their benefits policies. Federal health programs such as Medicare, Medicaid, and the Veterans Administration pay for 45 percent of all health expenditures and insure close to 100 million Americans. Conforming benefit policies across these programs would be a major step toward a more rational, seamless, and efficient health system.

In addition, the Fed-Health would promote best practices and protocols. Working at the regional level with providers and insurers, it would develop performance profiles and evidence on effective ways to redesign care to improve outcomes and efficiency. Over time, if it is successful, the Federal Health Board could develop policy to link payment to value.

Like the Fed, the Fed-Health would not literally regulate the private coverage system. Yet the process and nature of its recommendations could spill over. They would be made by a committee of private-sector and regional experts, not a single political appointee. While incentives to cover low-value services would remain, private payers would have greater leverage to discourage their use. And Congress could opt to go further with the Board’s recommendations. It could, for example, link its use to tax subsidies for health insurance.

Rough parallels exist between the decisions about the cost of money and health benefits. Decisions about health coverage, like interest rates, are technical, time-sensitive, and involve evidence as well as judgment. Decisions by the Federal Reserve result in economic expansions and contractions and thus affect livelihoods and fortunes. Because of their large impact, Fed decision-making must garner trust. That trust is earned, in part, by keeping a sharp focus on their tools.

For the Fed, those tools include money supply; for the Fed-Health model, benefit rankings would be key. Ultimately, decisions made by the Fed and the proposed Fed-Health cannot be made well by elected officials, warranting an extraordinary delegation of power.

This model follows the path of the only recent successful passage of health legislation: in Massachusetts. The legislation to guarantee affordable, accessible health coverage for all people in Massachusetts itself was relatively vague. It delegated a number of decisions to an independent authority governed by a board. While the ultimate outcome in Massachusetts is unknown, its creation of a new process for key decision-making contributed to its successful enactment.

A Federal Health Reserve would be only one part of the solution to the nation’s health system crisis. Any complete solution must provide affordable, accessible health coverage for all Americans. To do so, responsibility must be shared. Congress, for example, would need to set the framework for financing health coverage. The Executive Branch would need to implement new elements, such as an information technology infrastructure that is sorely lacking today. Employers and individuals would each have some role in the system.

Creating a Fed-Health now, however, could both improve health policy and lay the groundwork for the long-overdue debate on making health care affordable and accessible for all.

For more on health care from Sen. Daschle, see:

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Tom Daschle

Distinguished Senior Fellow