HEALTH - A New Prescription

March 14, 1998, 7 a.m.

Pic­ture your­self start­ing a new job with a big firm in, say, five years. Your salary, va­ca­tion and sick leave are set. But health in­sur­ance isn’t part of the pack­age. The com­pany stopped provid­ing cov­er­age the year be­fore, after the fed­er­al gov­ern­ment stopped giv­ing em­ploy­ers tax breaks for in­sur­ing their work­ers. Now, you get the tax break. And it’s your re­spons­ib­il­ity to buy health in­sur­ance. You can buy a tra­di­tion­al in­dem­nity policy from a com­pany such as Blue Cross/Blue Shield. You can join a health main­ten­ance or­gan­iz­a­tion (HMO) such as Kais­er Found­a­tion Health Plan. You can even get in­sur­ance through your trade as­so­ci­ation or church. It’s your choice.

Far­fetched? Per­haps. But rum­blings from em­ploy­ers that they’d just as soon get out of the busi­ness of provid­ing in­sur­ance—com­bined with warn­ings from ana­lysts that health care costs could start ex­plod­ing again—are re­kind­ling the deba te on over­haul­ing the health care sys­tem. This time, however, the im­petus is not com­ing from the Clin­ton Ad­min­is­tra­tion, which got badly burned in its 1993 re­form at­tempt; it’s com­ing from in­flu­en­tial con­ser­vat­ives.

All it will take is a dip in the eco­nomy, and the coun­try will real­ize that man­aged care alone won’t keep health care costs un­der con­trol, said Wil­li­am McIn­turff, a part­ner at Pub­lic Opin­ion Strategies, a Re­pub­lic­an polling firm. ”As soon as the eco­nomy weak­ens, we’ll be back to a very ser­i­ous de­bate about health care. The prob­lems are still there. Ima­gine what will hap­pen when people start los­ing jobs.”

McIn­turff pre­dicts that the is­sue will come to a head in the next pres­id­en­tial elec­tion. ”In 2000, people will be talk­ing about tax breaks. Busi­nesses are go­ing to want to get out of the busi­ness of pick­ing cov­er­age and move to defined be­ne­fits. We’ll be ready to deal with ma­jor change in 2000.”

When Wash­ing­ton last con­sidered health care re­form, health care costs had been in­creas­ing rap­idly since the mid- 1980s, at a rate seem­ingly stuck in the double di­gits, and the pub­lic lis­ted re­form as a high pri­or­ity. That ef­fort, though, col­lapsed with a thud, as it be­came clear that Amer­ic­ans wer­en’t buy­ing what Pres­id­ent Clin­ton was selling. But changes were already un­der way in the private mar­ket­place. Em­ploy­ers were turn­ing to man­aged care to cut costs. And the eco­nomy was on the up­swing. After a while, it ap­peared that the cost prob­lems were a thing of the past.

”We had a whole bunch of brain-dead politi­cians breath­ing a sigh of re­lief after the 1993 de­bate,” said Robert Mof­fitt, dir­ect­or of do­mest­ic policy stud­ies at the con­ser­vat­ive Her­it­age Found­a­tion. ”But the fun­da­ment­al prob­lems of the sys­tem are still there and in fact are get­ting worse.”

Con­sider re­cent de­vel­op­ments:

* Al­though em­ploy­ers are shift­ing more work­ers from ex­pens­ive fee-for-ser­vice plans in­to man­aged care, many em­ploy­ers are opt­ing for so-called pre­ferred pro­vider or­gan­iz­a­tions (PPOs) and point of ser­vice (POS) plans in­stead of HMOs. The PPO and POS plans give pa­tients the op­tion of pick­ing doc­tors out­side the plan’s net­work. But they don’t con­trol costs nearly as well as the HMOs.

* Con­sumers have already per­suaded Con­gress and state le­gis­latures to re­quire health plans to provide cer­tain ser­vices, like ex­tra days in the hos­pit­al for baby de­liv­er­ies and mastec­tom­ies. Now, con­sumer groups are lin­ing up be­hind a bill by Rep. Charlie Nor­wood, R-Ga., that would let pa­tients vis­it doc­tors out­side their man­aged care plans and would re­quire in­surers to re­im­burse those doc­tors. The Nor­wood bill would also let pa­tients ap­peal to a third party if their man­aged care plan denied them treat­ment and would give them the right to sue their health plans—and per­haps even their em­ploy­ers. Some eco­nom­ists say the bill, which has 225 co-spon­sors and elec­tion-year ap­peal, could raise health care premi­ums by as much as 23 per cent.

* Man­aged care plans are be­gin­ning to feel squeezed fin­an­cially. They’ve been hold­ing down premi­ums for sev­er­al years to en­sure their com­pet­it­ive­ness and boost mar­ket share, and some are start­ing to show big losses. As a res­ult, premi­ums are be­gin­ning to rise.

Small won­der that em­ploy­ers are get­ting nervous about be­ing in the health care busi­ness. Even without Nor­wood’s bill, health care costs are ex­pec­ted to grow at an an­nu­al rate as high as 8 per cent by 2000, re­cent stud­ies show. ”If PARCA (Nor­wood’s bill, the Pa­tient Ac­cess to Re­spons­ible Care Act) is en­acted, we are out of the health care busi­ness,” said M. An­thony Burns, chair­man of Ry­der Sys­tems Inc. and chair­man of the Busi­ness Roundtable’s health and re­tire­ment task force. The res­ult, he said, ”would be an un­mit­ig­ated dis­aster. Em­ploy­ers would hand people a check to buy health care on their own.” Is Man­aged Care a Bust?

There’s no doubt that man­aged care is go­ing through grow­ing pains. ”Every single HMO in the coun­try is either los­ing money or show­ing much-re­duced profits,” said Ken Ab­ramow­itz, a health care ana­lyst at San­ford C. Bern­stein & Co., a New York City in­vest­ment firm. ”Every­one has lost con­trol over costs.”

After Pres­id­ent Clin­ton’s health care re­form ef­fort died in 1994, health care cost in­fla­tion plummeted from double di­gits to around 3 per cent. For this de­crease, some ob­serv­ers cred­it the mass move­ment to man­aged care. Not Ian Mor­ris­on, a health care ana­lyst in Menlo Park, Cal­if. ”Way too much cred­it is be­ing giv­en to the man­aged care mar­ket­place and not enough to the fact that Hil­lary scared the beje­sus out of the health care in­dustry,” he said.

Now, prices are on the rise again. On av­er­age, HMOs are ex­pect­ing to raise premi­ums by 4.6 per cent this year, com­pared to 3.1 per cent last year and 1 per cent the year be­fore, ac­cord­ing to Douglas B. Sher­lock, seni­or health care ana­lyst at the Phil­adelphia-based Sher­lock Co., which pub­lishes news­let­ters on health ser­vices firms and con­ducts an­nu­al sur­veys on premi­um rate in­creases. Cur­rently, the av­er­age HMO is op­er­at­ing with a profit mar­gin of 0.8 per cent, Sher­lock said, down from 8 per cent five years ago. Many health plan man­agers are real­iz­ing—as profits de­cline—that it’s ex­tremely dif­fi­cult to con­trol costs and give con­sumers what they are de­mand­ing.

Take New York City-based Ox­ford Health Plans, which tried to do it all. Ox­ford offered enorm­ous net­works of phys­i­cians and lots of op­tions for flex­ib­il­ity. As a res­ult, it be­came very pop­u­lar, and mem­ber­ship boomed. ”They have sold to con­sumers the prom­ise that man­aged care is com­pat­ible with an enorm­ous free­dom of choice and an enorm­ous lack of pro­vider ac­count­ab­il­ity for care,” said Mor­ris­on. ”In a closed-pan­el set­ting, if health care qual­ity is not high, you can identi­fy the par­tic­u­lar pro­vider and say, ‘Your out­comes are poor. You’re not do­ing right by your pa­tients.’ But in an open-pan­el sys­tem, you don’t have that.”

After an­noun­cing ma­jor losses, Ox­ford last month asked New York state’s in­sur­ance de­part­ment for the go-ahead to in­crease premi­ums 50 per cent for HMO mem­bers and 60-70 per cent for those with a broad­er choice of doc­tors. The com­pany now has two mil­lion mem­bers, but Sher­lock pre­dicts it will slice off 400,000 of them to keep costs down.

”There’s ten­sion in­side these health plans,” said Sher­lock. ”The mar­ket­ing guys are say­ing, we have to ap­pease these crit­ics and (tell pa­tients), ‘You can go any­where, see any spe­cial­ist you want.’ But the med­ic­al man­age­ment guys say it will be more ex­pens­ive. The mar­ket­ing guys won. Pre­dict­ably, the plans grew. En­roll­ment, ex­pan­ded choice, and the con­trol of their net­works has not been as tight.”

But this doesn’t mean the death of HMOs, said Mor­ris­on. ”The HMOs have hit a wall, and now they have to re­in­vent them­selves and make some steps for­ward. They know they have to do $ %it. The prob­lem is that it’s easi­er to in­vest in re­search and de­vel­op­ment when you’re mak­ing money, and health plans are not now mak­ing money. There are some angry share­hold­ers out there.”

Kar­en Ig­nagni, pres­id­ent of the Amer­ic­an As­so­ci­ation of Health Plans, which rep­res­ents most man­aged care plans, says it’s short­sighted to think that man­aged care won’t work. The first wave of man­aged care was of­fer­ing ar­ti­fi­cially low prices to be com­pet­it­ive. She said that she still ex­pects to see some dis­count­ing in cer­tain com­munit­ies. But man­aged care is now ad­just­ing and en­ter­ing the second wave of its evol­u­tion, she said. Health plans are build­ing in­form­a­tion sys­tems to im­prove the qual­ity of health care de­liv­ery, which is key to sus­tained cost con­trol. ”Highest qual­ity is the most cost-ef­fect­ive strategy, be­cause in the end, you don’t do things that are un­ne­ces­sary. That’s the es­sence of dis­ease man­age­ment.”

Man­aged care plans are now col­lab­or­at­ing more with med­ic­al pro­viders—they’re fo­cus­ing on pre­ven­tion and early de­tec­tion, she said. ”We’re see­ing tre­mend­ous evid­ence of the cost-ef­fect­ive­ness of this,” Ig­nagni said. And it’s work­ing for more-open net­works, like PPOs and POS plans, she ad­ded.

When it comes to con­trolling health care costs, some con­ser­vat­ives think it’s time to reex­am­ine a sys­tem that has de­veloped al­most by ac­ci­dent over the last half-cen­tury.

When Pres­id­ent Roosevelt placed wage and price con­trols on the eco­nomy dur­ing World War II, Con­gress agreed to cush­ion the blow by al­low­ing com­pan­ies to count be­ne­fits as com­pens­a­tion and count them as tax-free. From that con­ces­sion sprang the sys­tem of work­ers’ get­ting health in­sur­ance through their em­ploy­ers. ”There was no de­bate in Con­gress that said we should have a tax code that fa­vors em­ploy­er-based in­sur­ance,” Mof­fitt said.

But what has res­ul­ted, Mof­fitt said, is a fun­da­ment­ally broken mar­ket, be­cause the pur­chaser of the in­sur­ance—the em­ploy­er—is not the same as the con­sumer—the work­er/pa­tient. ”The laws of sup­ply and de­mand don’t ex­ist. You can­not have real ef­fi­cient al­loc­a­tion of re­sources un­less you have a nor­mal col­li­sion of sup­ply and de­mand. And you can’t have it un­less you change the tax treat­ment of the health care mar­ket.”

As long as people be­lieve their em­ploy­ers are pay­ing for their health care, they won’t be prudent pur­chasers of med­ic­al ser­vices, said John C. Good­man, pres­id­ent of the con­ser­vat­ive Na­tion­al Cen­ter for Policy Ana­lys­is in Dal­las. ”People need to make the im­port­ant de­cisions of choos­ing between health care and oth­er goods and ser­vices.” Em­power­ing In­di­vidu­als

As chair­man of the House Ways and Means Health Sub­com­mit­tee, Rep. Wil­li­am M. Thomas, R-Cal­if., is in a good po­s­i­tion to re­dir­ect the tax break. Here’s his idea:

Em­ploy­ers would give the money they’re now spend­ing on a work­er’s health care (not count­ing the tax break they get from the gov­ern­ment) dir­ectly to the work­er in cash. The fed­er­al gov­ern­ment, mean­while, would de­term­ine the mar­ket value of a ba­sic health plan, and from that would cal­cu­late the tax cred­it that the in­di­vidu­al would get. Work­ers who wanted a bet­ter policy would have to use their own money to cov­er the ad­ded cost.

Thomas would want the gov­ern­ment to provide a sub­sidy for those work­ers who don’t make enough to be eli­gible for a tax cred­it. ”If people want more choice, then they put more money in, and they get more choice,” he said. ”Choice and ac­cess­ib­il­ity costs money. If you don’t want the pro­gram that you can buy for the cred­it amount, then buy a bet­ter one.”

The idea is not to end group in­sur­ance pur­chases. Lar­ger com­pan­ies would still be in a good po­s­i­tion to pur­chase group health care. But work­ers who didn’t like their em­ploy­er’s plan could join a pool through their uni­on, church or oth­er or­gan­iz­a­tion. ”In­stead of hav­ing just em­ploy­er pools, you would have huge na­tion­al pools,” said Mof­fitt. ”Right now, the fed­er­al em­ploy­ee health be­ne­fits pro­gram has nine mil­lion fed­er­al em­ploy­ees and dozens of plans to choose from. All kinds of as­so­ci­ations would be in a po­s­i­tion to spon­sor in­sur­ance.”

Thomas isn’t the only one in Con­gress push­ing for change. Rep. Jim Mc­Crery, R-La., who also serves on the Ways and Means Com­mit­tee, and Don Nickles, R-Okla., who is the Sen­ate ma­jor­ity whip, also are on board. ”There’s an enorm­ous in­equity in the tax code,” Nickles said, adding that he will try to make some changes whenev­er the next tax bill arises. But Nickles ac­know­ledges that chan­ging the sys­tem won’t be easy. He says that he’ll con­cen­trate first on en­han­cing the tax break for the self- in­sured.

There are ma­jor stum­bling blocks. Giv­ing the tax break to in­di­vidu­als would help many of the 41 mil­lion un­in­sured Amer­ic­ans, in­clud­ing those whose em­ploy­ers don’t now provide in­sur­ance. But the cost to the gov­ern­ment could be ex­traordin­ary. ”If you’re talk­ing about fix­ing the sys­tem, you’re talk­ing about spend­ing some money here,” said Mof­fitt, who sug­ges­ted us­ing some of the cur­rent budget sur­plus or any money re­covered from the pending to­bacco set­tle­ment.

Re­dir­ect­ing the tax break raises oth­er policy ques­tions. ”Any time you talk about em­power­ing in­di­vidu­als rather than us­ing large pools, you need sig­ni­fic­ant in­sur­ance-mar­ket re­forms as well,” said Chris­toph­er Jen­nings, spe­cial as­sist­ant to the Pres­id­ent for health care. He men­tions sev­er­al con­cerns: For in­stance, how do you make sure that in­di­vidu­als are guar­an­teed ac­cess to health in­sur­ance if they have to get it on their own? How do you see to it that in­sur­ance com­pan­ies don’t dis­crim­in­ate against the un­healthy or raise their premi­ums to pro­hib­it­ive levels?

Moreover, would people be re­quired to get health in­sur­ance? Would the tax cred­it vary, de­pend­ing on re­gion­al vari­ations in health care costs? And would the tax break be enough to en­able work­ers to buy a plan if they didn’t have as­sist­ance from their em­ploy­ers?

There are also smal­ler changes Con­gress could make, Mof­fitt said. ”Why not give people the right to have the con­di­tions of their be­ne­fits dis­closed to them? If a per­son doesn’t like the em­ploy­er plan, he can take the money and get in­to an­oth­er plan and … get the same tax break.” An­oth­er op­tion is simply to ex­tend the tax cred­it to those who cur­rently don’t have in­sur­ance.

Thomas says he’d like to keep polit­ics out of this de­bate—at least for now. ”If you get the policy right, the polit­ics tends to fol­low,” he said. ”If you try to start with polit­ics, you wind up where we are, to a cer­tain ex­tent, be­cause frankly, a lot of de­cisions in the past have been made on the basis of polit­ics. It doesn’t solve fun­da­ment­al prob­lems.”

What We're Following See More »
Trump Opposes White House Aides Giving Congressional Testimony
17 hours ago

"President Trump on Tuesday said he is opposed to current and former White House aides providing testimony to congressional panels in the wake of the special counsel report, intensifying a power struggle between his administration and House Democrats. In an interview with The Washington Post, Trump said that complying with congressional requests was unnecessary after the White House cooperated with special counsel Robert S. Mueller III’s probe of Russian interference and the president’s own conduct in office."

Nadler Subpoenas Unredacted Report
5 days ago
Mueller Made 14 Criminal Referrals
6 days ago
The Report Is Here
6 days ago
Nadler Asks Mueller to Testify By May 23
6 days ago

Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.