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Providing Universal and Affordable Health Care (1989)

Chapter: Providing Universal and Affordable Health Care to the American People: Private Sector Perspectives

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Suggested Citation:"Providing Universal and Affordable Health Care to the American People: Private Sector Perspectives." Institute of Medicine. 1989. Providing Universal and Affordable Health Care. Washington, DC: The National Academies Press. doi: 10.17226/18473.
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Suggested Citation:"Providing Universal and Affordable Health Care to the American People: Private Sector Perspectives." Institute of Medicine. 1989. Providing Universal and Affordable Health Care. Washington, DC: The National Academies Press. doi: 10.17226/18473.
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Page 33
Suggested Citation:"Providing Universal and Affordable Health Care to the American People: Private Sector Perspectives." Institute of Medicine. 1989. Providing Universal and Affordable Health Care. Washington, DC: The National Academies Press. doi: 10.17226/18473.
×
Page 34
Suggested Citation:"Providing Universal and Affordable Health Care to the American People: Private Sector Perspectives." Institute of Medicine. 1989. Providing Universal and Affordable Health Care. Washington, DC: The National Academies Press. doi: 10.17226/18473.
×
Page 35
Suggested Citation:"Providing Universal and Affordable Health Care to the American People: Private Sector Perspectives." Institute of Medicine. 1989. Providing Universal and Affordable Health Care. Washington, DC: The National Academies Press. doi: 10.17226/18473.
×
Page 36
Suggested Citation:"Providing Universal and Affordable Health Care to the American People: Private Sector Perspectives." Institute of Medicine. 1989. Providing Universal and Affordable Health Care. Washington, DC: The National Academies Press. doi: 10.17226/18473.
×
Page 37
Suggested Citation:"Providing Universal and Affordable Health Care to the American People: Private Sector Perspectives." Institute of Medicine. 1989. Providing Universal and Affordable Health Care. Washington, DC: The National Academies Press. doi: 10.17226/18473.
×
Page 38
Suggested Citation:"Providing Universal and Affordable Health Care to the American People: Private Sector Perspectives." Institute of Medicine. 1989. Providing Universal and Affordable Health Care. Washington, DC: The National Academies Press. doi: 10.17226/18473.
×
Page 39
Suggested Citation:"Providing Universal and Affordable Health Care to the American People: Private Sector Perspectives." Institute of Medicine. 1989. Providing Universal and Affordable Health Care. Washington, DC: The National Academies Press. doi: 10.17226/18473.
×
Page 40
Suggested Citation:"Providing Universal and Affordable Health Care to the American People: Private Sector Perspectives." Institute of Medicine. 1989. Providing Universal and Affordable Health Care. Washington, DC: The National Academies Press. doi: 10.17226/18473.
×
Page 41

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Providing Universal and Affordable Health Care to the American People: Private Sector Perspectives Robert E. Patricelli T'.ie subject of this year's Rosenthal Lectures, "providing universal and affordable health care to the American people," is a good subject. But it is not a new subject; we have been worrying about these issues for at least a quarter century, and not having solved them, they keep coming back. I have been asked to attempt to deal with this subject from the private sector perspective, drawing on my experience in the commercial insurance and managed health care industries and my service as head of the U.S. Chamber of Commerce's Health Care Council and now its Mandated Benefits Subcommittee. I agreed to do so only on condition that I could define the subject in a way that suits my ability to respond, and that my views are not taken as the position of any group on which I serve. In fact the Rosenthal Lecture title suggests something of the definition I would use, emphasizing as it does the terms "universal" and "affordable." My thesis is that universal financial access to care—or national health insurance in some form—is now inextricably entangled with the issues of health care costs and quality, and that these three matters must be dealt with concurrently. Indeed, by dealing with all three together it may be possible to forge a consensus of payers, 32

providers, and consumers that has eluded us on the legislative front since the passage of Medicare and Medicaid in 1965. But before suggesting what might be possible in the future, let me go back over where we are and how we got here. Historical Perspective on Access, Cost, and Quality Issues One of the first things you learn in the health care world is that there are three fundamental, linked issues—cost, quality, and access. What is remarkable given this consensus on the analytic framework, however, is how quickly the subjects then get unglued when it comes to both legislation and benefits policy. I can trace two periods in the recent history of federal and employer policy on these subjects, and I believe that we are now entering a third period. The first period we might call the "era of benefits expansion," lasting from about 1960 to the late 1970s. Consumer out-of-pocket expenditures accounted for over 50 percent of personal health care expenditures in the early 1960s, but with the advent of Medicare and Medicaid and the growth of employer-based insurance that figure had fallen to 32 percent by 1976. Access barriers were falling, and plugging the remaining gaps seemed doable. At the federal level, the national health insurance issue domi- nated the health policy debate during this period. The question was not so much whether we would have national health insurance, but rather what form it would take. Senator Edward Kennedy led one broad coalition (The Committee of One Hundred) that called for a tax- financed solution, while more conservative elements supported the employer mandate approach embraced by President Nixon in his pro- posed 1971 National Health Insurance Partnership Act. But as the decade of the 1970s progressed, the focus of health policy debate began to switch as health costs and the percentage of the gross national product (GNP) spent on health care spurted. We then entered what I would call the "era of cost containment by cost shifting," lasting for about 10 years from the late 1970s to the late 1980s. In the private sector, employers began the first phase of their cost containment initiatives—simultaneously moving toward self-insur- ance and more employee cost sharing. Between 1977 and 1987, the 33

number of employees with first dollar coverage for physician services declined from 15 to 5 percent, and the number with coinsurance under 20 percent declined from 21 to 9 percent. Then, during the 1980s, private sector cost-containment efforts intensified with aggressive use by employers of health maintenance organizations (HMOs), preferred provider organizations (PPOs), utilization review, and other first gen- eration efforts at utilization management. In the public sector, we moved into this period with President Carter's proposed hospital expenditure caps and intense debate on the relative efficacies of competitive versus regulatory strategies for cost containment. With the Reagan years and the growth of the federal deficit, tax-financed national health insurance fell completely off the table as a viable approach, and in the 1980s federal health policy was largely budget-driven as we progressed through prospective payment, annual diagnosis-related group (DRG) rate battles, and physician fee restrictions under Medicare. But it now appears that most of what went on during this period under the rubric of cost containment in both the public and private sectors was really cost shifting: from the federal government to private payers through reduced public reimbursement in Medicare and Medi- caid (a cost shift estimated by Hewitt Associates to be responsible for about one-third of employer cost increases in 1988); from employers to employees through higher deductibles, copayments, and premium con- tributions (and the same was happening under Medicare); from large private payers able to get discounts to smaller companies paying full retail prices; and from the hospital sector to physician and other outpatient cost centers as a result of utilization review and prospective payment. At the same time another cost shift was taking place—less visible but no less problematic. As larger employers, in the name of cost containment, began to offer multiple choice plans involving one or more indemnity plans and several HMOs, their risk pools became fragmented. Different benefit options were selected against by employ- ees shopping for the best coverage for their particular needs, so rates went up. In effect, within employer plans the healthy were shifting risk and cost back to the sick. As this second era of cost shifting progressed, it became increas- 34

ingly apparent that the rise in total costs was not abating. In fact, between 1977 and 1987, premiums for conventional insurance plans increased by 172 percent, or 10.5 percent per year, as against a general inflation rate of 6.2 percent per year and a medical price inflation of 8.3 percent per year. As this was happening, the third-party payment expansion we had previously seen slowed, then was stopped, and even reversed. So, the proportion of personal health expenditures accounted for by direct consumer payments rose from 27 percent in 1983 to 29 percent in 1986. The proportion of uninsured in the population has increased steadily from at least 1980 on, during a period of prolonged economic expan- sion, climbing to an estimated 37 million by 1986 and focusing attention back on the access issue once again. By 1988, we were entering a third period in our recent evolution, a period to which I hesitate as yet to assign a name. It is starting off as a time in which the Congress, having manifestly failed to resolve the health care cost issues, is in its typical fashion leaving those issues on the table while once again starting down the potentially conflicting track of expanding health care financing. Proposals for public or private insurance coverage of long-term care and home care have flourished in Washington. A new round of mandated benefits legislation was introduced in both the House and Senate, coming on the heels of the benefits expansion inherent in the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). (Ironically, the old Nixon health insurance approach has now become the proposal of the political left.) At the state level, individual benefits mandates continued to be passed and now number almost 700, while Massachusetts put in place the first full mandated benefits law. At the same time in 1988, we saw signs that finally the third leg of the policy stool, the quality issue, began to get serious attention. The product of years of careful health care services research on appropriate- ness and area variations began to find its way into the popular debate. Health Care Finance Administration Director William L. Roper, M.D., declared health care effectiveness his number one priority. At another level, the American Medical Association (AMA) announced plans to join with the RAND Corporation to develop practice guidelines. Whereas in the past the public and private sectors had been 35

marching in reasonably consistent directions in their shifting emphasis from access to cost considerations, 1988 may mark a watershed change. Despite renewed attention in Washington on access issues, most private payers are more heavily focused than ever on cost containment. Benefit expansions are rarely on the table. In fact, faced with lack of cost containment success and rising pressures in the area of retiree health care as a result of the Federal Accounting Standards Board (FASB) mandates, employers seem to be passing on more and more of the high 1988 and 1989 premium increases to employees. Some are dropping dependent coverage, others are cutting retiree benefits. The growing popularity of flexible benefits plans, which give the employer a defined contribution framework within which to operate, is another form of de facto benefits cutback. Finally, for small employers, afford- able health insurance is harder and harder to get on any terms. Whereas in the early 1970s mandated benefits proposals were raised in a context of grow ing voluntary employer-sponsored and public program coverage and only moderate annual health care cost increases, now they are coming to the fore again but in a context of shrinking private and public coverage and rapidly rising costs. The natural reaction to benefits mandates from the employer community is, for the most part, one of incredulity—how can you even think of mandating our participation in a runaway system? And yet, most employers and their trade associations support the general policy goal of universal health insurance coverage and plugging financial gaps in access to care. Their policy problem now is that the business community's favorite means of reaching universal coverage—growth of voluntary, employer sponsored health insurance—seems like an inop- erative strategy given what is happening on the cost front. Similarly, given cost pressures it is harder and harder for the public programs to do their share. Medicaid buy-ins are supported by the U.S. Chamber of Commerce and the Health Insurance Association of America, but with no clue as to where the money will come from. Likewise, businesses and insurers want Medicare to stop shifting costs to them but the budget pressures suggest only more of the same. It is something of a standoff as I see it—growing political pressure for universal coverage but a cost picture which renders that more and more difficult. The solution, if there is one, has to be in joining the two 36

agendas of access and cost containment—and adding the third element of quality—into a package that gives all the parties an offer they cannot refuse, or at least refuse to discuss. Toward a Merging of Agendas This may be a fantasy, but let us at least realize that it is different—using cost containment and quality enhancement as the inducements for expansion of coverage. I cannot suggest all the elements of such a plan, but I will offer some specifics to start the dialogue. Let me suggest five elements to such a plan. First, a philosophical point. In the words of the Rosenthal Lec- ture, our goal should be a system that provides universal and affordable health care to all the American people. Put another way, I firmly believe that this country is rich enough so that no one need fail to get appropriate and effective health care for want of ability to pay. 1 believe that most business leaders would agree with that, even if it means a continuing expansion of health care spending as a percentage of the GNP. Can we then design a system in which public and private payers have some assurance that what they are buying is appropriate and effective care, and that they are not being unfairly burdened by cost shifting? The second point proceeds from the first. It is apparent that my statement of the goal requires an ability to identify appropriate and effective care or, the reverse, to identify wasteful practices and proce- dures. That is not doable to any great extent right now. We can make a start, however. Using the elaborate technology developed over several years at the RAND Corporation to rate indications for the appropriate- ness of a procedure, my company now offers payers a software and physician review system that permits the prior identification of inappro- priate high-cost procedures. And there are other approaches coming on the market. We can at least begin to screen out 10 to 20 percent of the clearly inappropriate procedures. However, we need a 10-year federal funding commitment to a research agenda to develop a better knowledge base about what works and what does not work in health care. Over time, that research will produce a body of guidelines that can be used by physicians to improve 37

the ir practice patterns and by carriers and payers as the basis for applying the medical necessity clauses of their contracts. The cost-saving and quality-enhancing potential from such an approach is substantial. Researchers estimate that from 20 to 40 percent of what is done in health care is either inappropriate or ineffective; some estimate even more. Reducing the incidence of such procedures enhances the quality of care by reducing health care risks for patients. There is ample opportunity, therefore, to produce real cost containment without compromising quality. This brings me to a third point—how to encourage the develop- ment and use of such practice guidelines by providers and payers in an evolving fashion. The answer is to tie such guidelines to malpractice protection. The seeds of such an approach are already present in the peer review organization (PRO) provisions of the Medicare law. Sec- tion 1320c-6 of Title 42 of the U.S. Code now protects any health care provider from civil liability on account of action taken in compliance with "professionally developed norms of care and treatment" applied by a PRO, provided that he or she uses due care. As practice guidelines become available from academic medical centers or broad-based provider organizations, HCFA might adopt those guidelines for use in connection with Medicare and the PROs. Then, by regulatory or legislative extension, any provider, private review organization, or payer using those HCFA approved guidelines in the care of private patients would likewise be protected. That protec- tion might be extended to private payers only on condition that they are used in connection with an approved health benefits plan. Approached in this way, practice guidelines could carry clear benefits for physicians in terms of reducing malpractice exposure, and the support of physicians for such guidelines is obviously critical. For payers, insurers, and review organizations, anything that sweats defen- sive medicine costs out of the system is also welcome. And the HCFA endorsement process could be used to prevent the development of dozens of conflicting guidelines for the same procedure—a very real risk we face now. This brings me to a fourth point—getting unnecessary cost and barriers to coverage out of the insurance system. Part of the problem 38

here has to do with the high cost of providing insurance to small or high- risk businesses or both. This high cost is the result of the natural forces of adverse selection and underwriting in the small case market. The small employers whose employees most need the insurance are the ones most likely to seek it, with the result that the community rate for the pool of small cases in the carrier's book of business goes up more than it might. On the other hand, carriers will medically underwrite these cases, so that employers or employees with high previous experience may not be able to get coverage. Additionally, the costs of marketing and servicing this fragmented market are unusually high and ultimately add to the premium. Perhaps the time has come to turn to a forced pooling mechanism for small and high-risk employers—a pool that would reunite low- and high-risk cases and reduce administrative burdens. One approach might be a federal mandate that states set up an insurance pool meeting certain minimum benefit standards, with a federal fall-back mechanism activated for any state that did not act within two years. Any employer below a certain size and any high-risk employer (defined in some way based on past health cost experience) would have access to the pool, which ideally would be administered by a private carrier acting as a fiscal intermediary. Rates for the pools would be capped at, say, 110 percent of the average small case rate prevailing in that state for non-pool business, with any pool deficits made up by health insurance surtaxes levied on all employers. These pools might also be made accessible to individuals without coverage, and perhaps Medicaid funds might be used to help subsidize buy-ins for the working poor. My intent is not to offer a finished proposal but only to suggest that insurers do know how to set up pooling mechanisms and that gov- ernment, carriers, and employers working together should be able to lower the cost of insurance to small and high-risk employers by getting back to the group insurance principle and the law of large numbers. Fifth, I would create strong incentives at the federal level—but stopping short of mandates at this time—for the spread of voluntary employer-sponsored insurance. The way to do this, I believe, is to set a minimum benefit plan value in federal law that, if met or exceeded by an employer's plan, would trigger certain advantages. The minimum 39

standard would be expressed in terms of an actuarial dollar value or premium net of employee cost sharing, rather than in terms of specific benefits—that way, employers would retain the right to shape benefit plans to meet their specific needs. Thus, if the federal standard for family coverage called for a plan costing at least $2,400 per year, and the law limited employee cost sharing to one-third, the federal minimum employer family premium would be $1,600. If an employer's plan met the federal minimum, he or she might get at least the following protections and benefits: a pre-emption of the 700 different benefit mandates now in place at the state level plus pre- emption of any specific federal benefit mandates; access to the provider rates paid by HCFA under the Medicare program; and the limited malpractice protection for the employer and his or her agents and providers described above, to the extent that he or she used HCFA- endorsed practice guidelines in the management of his or her program. A brief word about each of these proposals. Thefirst, pre-emption of specific benefit mandates, would have the effect of permitting carriers to offer (and employers to buy) a stripped-down health insurance plan that offered the most protection for the money. The current state-level hodgepodge of requirements for coverage of everything from chiroprac- tors to herb specialists gets in the way, adding as much as 20 to 30 percent to premium costs. Permitting private payers to have access to Medicare payment rates, actuarially adjusted for age differences where necessary (as in the case of many DRGs), would substantially correct the cost shifting going on and simplify the rule book for providers. At the same time, HCFA would have to take into account the potential system-wide effects of its policies, knowing that providers could not merely cost shift. This would be a strong incentive for employers, certainly, but it could have the effect of creating a de facto all-payer rate setting system, something that I am not sure would be wise at this time. This idea needs careful consideration as to its pros and cons. Lastly, hooking the limited malpractice protection into meeting the minimum federal standard should encourage both the expansion of private coverage and the use of quality-enhancing practice guidelines. 40

Conclusion The above ideas are certainly not the only possible recipe for a new initiative. Rather, they are meant principally to illustrate my central premise—that it is necessary and feasible for those pursuing the differ- ent agendas of broadening access, containing cost, and enhancing quality to come together. We should seek not a national health insurance bill, but a universal, affordable health care program in which payers, providers, and consumers will all see tangible benefits. I believe that such an approach, which strongly encourages the spread of employer coverage, should be tried before we move to any system of mandates. The potential negative impacts of mandates on employment and job creation cannot be ignored. An additional step needs to be taken to improve coverage of those who are outside the work force, and a redefined Medicaid program is probably the best avenue. But if we bait the hook for voluntary expansion of employer-based coverage with a new set of inducements that deal with cost and quality, we may be able to close remaining gaps so that mandates later become a manageable issue. 41

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