Can a ‘Basic Bundle’ of Health Insurance Cure Coverage Gaps and Spur Innovation?

By the early 1980s, several high-income countries—including Switzerland, the United Kingdom, Australia, Canada, and New Zealand—had universal health insurance covering 100 percent of the population.

Meanwhile, 40 years later, the United States continues to lag behind, relying on a patchwork of policies that amount to a “fragmented insurance system” that leaves 10 percent of the population uninsured, according to research by Harvard Business School Professor Amitabh Chandra.

“The United States spends substantially more on health care than most developed countries, yet leaves a greater share of the population uninsured,” Chandra’s research says.

In a new working paper, Chandra and fellow researchers suggest a potential solution: creating a basic bundle of publicly funded health insurance that would protect every citizen while allowing people to access additional coverage through private purchases. This approach would not only insure more people, but could lead to more innovative, less costly approaches to generating medical breakthroughs, the team says.

Chandra, who is the Henry and Allison McCance Family Professor of Business Administration at HBS and the Ethel Zimmerman Wiener Professor of Public Policy at Harvard’s John F. Kennedy School of Government, conducted the research with Katherine Baicker of the University of Chicago and Mark Shepard, associate professor of public policy at the Kennedy School.

Addressing the high costs of health care

The Emergency Medical Treatment and Active Labor Act of 1986 requires all emergency departments to address critical health needs regardless of the patient’s ability to pay. This informal coverage, the researchers write, is “disorganized, stressful, low quality, and inefficient.”

It’s also costly, amounting to about $40 billion in uncompensated care per year and requiring $11 billion in publicly funded grants for community health centers.

The researchers propose offering everyone a basic bundle of health insurance, an approach that has worked for other high-income nations. For example, the researchers write, the UK automatically covers all residents in its National Health Service, a public system with no out-of-pocket costs, and Germany and Israel have systems of coverage through competing nonprofit plans.

Like programs in other countries, the researchers’ plan would offer supplemental coverage that people who want more protection or benefits could purchase. For example, basic insurance pays for shared hospital rooms in Singapore, but only people who pay out of pocket or have private insurance can get private rooms. In many countries, private insurance also gives holders access to private providers, coverage for additional medical services like dental or long-term care, and patient cost sharing.

How much health care is a right?

Establishing a basic plan would require policymakers to wrestle with complex questions about access and cost. Defining the scope of what a basic bundle covers requires a difficult public conversation to answer a critical question, the researchers write: “How much health care is a right?” It is quite different than simply stating that health care is a right, for that statement is a recipe for everything to be covered, and consequently for poor access.

Policymakers would have to weigh funding, capacity, and other resource constraints. They would also need to designate an agency or organization to administer plans, and create a system for buying coverage.

A key decision would likely involve whether holders should be able to buy “add-on” benefits for their basic bundles or replace their plans entirely with upgraded coverage—or even whether to allow supplemental coverage. Some countries, like Canada, block supplemental health insurance on the notion that all people should have equal access to care regardless of income. US presidential candidate Bernie Sanders’ proposed Medicare for All plan similarly argued that every citizen should have access to the same level of health care. The researchers advocate for this kind of top-up coverage because it provides a safeguard against the basic plan becoming too stingy, which is a problem in many other countries.

However, any universal system would likely require a substantial increase in taxes, the researchers say, which may be a hard sell for Americans.

In considering the cost of health care, the researchers say that a basic bundle would have to examine the benefit-to-cost ratio of the care, something that other countries with universal health care have struggled to regulate. If done right, establishing a mechanism for deciding whether a treatment’s benefit-to-cost ratio is high enough to merit inclusion in the basic bundle could provide a carrot for more efficient care, the researchers argue.

“A top-up system will increase incentives for innovators to invest in new treatments,” the researchers say.

A basic bundle would also need cost-sharing rules, provider payments, and myriad other details. Often, these are decisions that require detailed analysis and cannot be lumped together under a single law, the team says.

Deciding who makes decisions

So, who gets to make those choices? One possibility would be to set broad guidelines via legislation and empower a medical board or government agency to define the details, the researchers argue. Another possibility is to take a hybrid approach that gives decision-making power to private insurers while outlining some boundaries. For example, the researchers suggest subjecting insurers to minimum adequacy regulations, while giving them broad flexibility in making coverage decisions.

The researchers also suggest what’s known as capitation: Health insurance would make payments to health care providers on a risk-adjusted per-enrolled basis instead of a fee-for-service basis—as a tool to mitigate risks involved with centralized pricing and rate-setting. Evidence suggests that capitation can drive payers to compete on quality and strive to reduce overuse.

Executing the plan would undoubtedly be challenging, the researchers acknowledge, as it would require the US to overhaul the country’s current health insurance system, which would inevitably disrupt residents’ care, at least temporarily. Yet, the researchers argue that it’s time for a change, since continuing to address health insurance problems piecemeal will only create further fractures. The US needs to work on fostering “universal access to innovative care in an affordable system,” they say.

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