Annapolis Institute Overview


Health Care: Less for more

by Phil Burgess, Unabridged from the Rocky Mountain News, March 16, 1993

Under the current employment-based health insurance system, 65% of Americans under 65 obtain health insurance through their jobs. Another 18% are enrolled in other plans — including Medicaid (for poor people) and individual private insurance. Medicare covers those over 65. What remains is the health care crisis — which includes 37 million uninsured people and skyrocketing costs for everyone. This is a crisis with many “solutions.”

One option is national health insurance (NHI) which comes in many shapes and sizes. Examples are Canada, Japan, Germany and the United Kingdom. According to NHI proponents, access to health care should not depend on the job you have. Many NHI advocates also claim that using a single payer will eliminate enormous administrative waste in the current multiple payer health insurance system. Reason: NHI would simplify billing and claims processing, reduce administrative overhead, specify minimum benefits and enforce strict cost controls.

Cost controls are achieved by establishing “global” budgets, which set annual fixed budgets for hospitals and annual fee schedules and expenditure caps for physicians. If costs threaten to exceed the budget, payment rates to providers would be scaled downward or consumers would pay more.

Opponents say NHI would lead to rationing and waiting lines, reduce the supply of practitioners and stifle the development of new drugs and technologies.

Another option is “pay or play” (POP). Under POP, employers must either “play” by sponsoring a group health plan for their employees or “pay” into a new federal health insurance pool. The federal pool will cover current Medicaid beneficiaries, the unemployed and the employees of firms that decide to pay into the federal pool.

Opponents say POP is simply a backdoor approach to NHI. Reason: Most employers would find it cheaper to shed their company-sponsored insurance program and pay for access to the new national system.

“Managed competition” (COMP) is the healthcare reform option favored by the Clinton administration. COMP tries to make the current system more competitive. First, it organizes the supply side — physicians, hospitals and insurers — in government-approved Accountable Health Partnerships (AHP). AHPs then compete on the basis of price, consumer satisfaction and medical success. A Securities & Exchange Commission-type agency would then issue public reports on the cost and medical performance of each AHP. Existing HMOs (health maintenance organizations) and other managed care providers — such as Kaiser Permanente, FHP or Blue Cross — could adapt and become designated AHPs.

COMP would also organize the demand side. Government will establish healthcare purchasing organizations — called Health Plan Provider Cooperative (HPPC). HPPCs will give small businesses and uninsured individuals the same bargaining power vis-a-vis AHPs as large companies have. A national board would set the basic benefits to be offered, and tax breaks for businesses and individuals would be limited to the cost levels achieved by the most efficient partnerships. Those who want extra benefits would pay for them with after tax dollars.

Proponents say increased consumer information and competition will hold down costs. Opponents see rationing, more bureaucracy, higher costs and special problems in rural areas. The Health Policy Council of the Center for the New West advocates many of the reforms contained under managed competition. But, Council Director Dr. John McGrath says “we need to make sure that its managed competition with a small ‘m’ and a capital ‘C’.”

The politics have just begun. Reason: Under any scheme, Americans will get less health care at a higher cost while most are expecting more health care at a lower cost.

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