Ezra Klein argues that “if you rebuild health care financing around a single tax, you’d also have to rebuild health insurance offerings around what is, in effect, a single payer”:

Employer-based insurance, for instance, only exists because employers pay for it. If the government were paying for it through a VAT, then that insurance would no longer be attached to employers. That would be a good thing because employer-based insurance is a bad thing. But it would also mean individuals would “lose” their current insurance (even though it would be instantly and seamlessly replaced). Which is why we won’t have a VAT.

Back in 2003, the Center for American Progress proposed a universal plan that allowed Americans to keep their employer-based coverage, established a new health insurance exchange modeled on the FEHB, strengthened Medicaid, offered coverage subsidies and financed it all through a Value Added Tax (VAT). And as Len Burman notes, the tax has some advantages:

- It is the only plausible revenue source that would pay for universal access to health insurance without very tight targeting by income.

- A VAT combined with free health insurance is highly progressive

- A VAT that is earmarked to pay for health care would serve as a brake on health care spending because otherwise the VAT would tend to increase

- Announcing a future VAT would stimulate spending in the short term

- When fully phased in, a VAT would encourage savings (since it is untaxed by the VAT), which will boost long-term economic growth and provide a cushion against future recessions.

Personally, I’m not convinced by the above arguments, but it is clear that one can preserve the current employer based system and fund the expansion of coverage through some form of new revenue, whether it be a VAT of some other combination of taxes. (Preserving employer coverage would obviously require a smaller VAT and as Matt Yglesias points out, we’ll probably need some form of taxation to sustain the system in the long run.) I just hope that we don’t over-rely on taxation. The present system wasted a lot of dollars and improving its efficiency may be the only way to build sustainable reform.

Building on their pledge to reduce health care spending by $2 trillion and responding to President Obama’s request for specific cost-containment proposals, UnitedHealth’s new Center for Health Reform and Modernization released a report demonstrating that the federal government could save $540 billion over the next decade if it adopted (through Medicare Fee For Service) existing United Health Care cost-saving measures:

The new research paper provides policymakers and health care leaders with a range of “real world” savings options, based on empirical data and actual results from a selection of UnitedHealth Group programs…. Most of the savings estimates derive from applying more broadly the approaches UnitedHealth Group has found to work either in its commercially-insured or Medicare programs.

Their argument is this: plug United’s existing initiatives into Medicare and save billions over a decade. Some of the savings:

- Member Incentives to Use Highest Quality Providers ~$37 billion

- Cancer Support Programs: Voluntary guidance on cancer treatment best practices and patient options, including hospice care ~$5 billion

- Institutional Preadmission Program: Provision of onsite nurse practitioners at skilled nursing facilities to manage illnesses and prevent avoidable hospitalizations ~$166 billion

Fair enough, but if United is so certain of the savings then why hasn’t it implemented the measures across its entire network, lowered its rates, and attracted millions of new customers? Efficiency, after all, is a competitive advantage. And, as Robert Laszewski asks, “If United Health knows how to save $500 billion in Medicare costs why has it been lobbying for years to maintain the hundreds of billions of dollars in extra payments private Medicare plans–of which United is the biggest player–get from the government? It would seem to me that if they know how to save all of this money in Medicare they wouldn’t need the extra 14% the government pays United and all the other private Medicare plans above what it pays itself under the traditional Medicare plan.”

United cost-containment measures are voluntary and they’re being presented as an alternative to a new public option. But why why can’t both coexist? A new public plan could lead the way in greater cost containment innovation, implementing some of United’s so-called “real-world” solutions with other innovations. It can take what United is calling a voluntary effort and transform it into standard practice across all public programs, muscling private health care insurers to follow suit and reduce spending across the board.

New details are emerging on the Senate Health, Education, Labor & Pensions Committee’s (HELP) health care bill, originally slated for release tomorrow, but now pushed back to next week.

According to news reports, “a brief, unofficial summary of the Senate health committee’s draft reform proposal circulating among Washington lobbyists Wednesday includes a public plan option that would pay providers — who would be required to participate — 10 percent more than Medicare rates.”

There is more:

- An individual and employer mandate for coverage

- The legislation would expand the Medicaid program to cover individuals earning up to 150 percent of poverty

- It would subsidize people earning up to 500 FPL to purchase insurance through state-based insurance exchanges

- Expands the Children’s Health Insurance Program (CHIP) to people up to age 26

- Establishing a “federal health reserve” type entity called a Medical Advisory Council that would assist in designing minimum standard benefits

On quick glance, this is very good news for public option proponents who were concerned that the HELP legislation would build on state-employee pools and establish fifty different plans around the country or develop some kind of trigger mechanism. This summary suggests that while providers participating in Medicare would also have to offer services in the new public option, the reimbursement arrangement would give the new plan leverage by allowing it to piggyback on Medicare’s reach. Reimbursing providers less than private insurers, but paying them more than Medicare rates allows the new public option to pass on the negotiated payment rates to consumers in the form of lower premiums.

As Lester Feder, who is covering health care reform for The Nation, explained it:

Of course, we’ll save the most money if the public plan pays what Medicare pays. But short of that, any public plan will be more effective if it doesn’t have to negotiate the rates it pays providers on its own, but can piggy back on the rates the (much much much) larger medicare program can negotiate with providers. It’s about market leverage. Let’s say I run a small chain of department stores. It’s expensive for me to negotiate with my suppliers, and if I’m not very big I won’t get great deals. So instead I say, “I’ll pay you what Walmart pays plus 10%.” Then I’m benefiting from Walmart’s ability to negotiate with suppliers.

There are some political pitfalls here — which I will re-visit– but from a cost-containment perspective, it makes sense.