Health Care Costs Are Going Down
Barnes, Fred
Fred Barnes Health Care Costs Are Going Down At least in the private sector—and Bill, Hillary, Donna, et al. don't want to hear about it. resident Clinton has a p story and he's sticking to it....
...Nobody wants to invite special attention while restrictions and ceilings are being written into the bill," the Post said...
...That's still nearly twice the rate of general inflation, but a lot better than 1989 (8.5 percent) or 1990 (9.6 percent...
...Every time a president starts talking about health-care reform, there has been some moderation, probably a mixture of politics and economics going on...
...It's structural, not temporary...
...Sometime in the next thirteen years we're going to be spending 22 to 25 percent of our income on health care," Cox said...
...The idea was to encourage employees to shop around...
...When controls were lifted, its rapid climb resumed...
...Don't get your hopes up...
...n fact, Clinton's scheme would spur individuals to do exactly that...
...The Clinton administration backed away from steering the Medicare elderly into HMOs after a study found the government was losing money by doing so...
...Employees can go to an HMO that's part of the company's program or outside the HMO network...
...Then there are "preferred provider organizations" (PPOs), networks of doctors who agree to discounted fees...
...HMO membership has doubled since 1986, from 25 million people to an expected 50 million this year...
...That's just at the federal level...
...There's a torpedo heading for the great ship healthcare reform," says Democratic Senator Bob Kerrey of Nebraska...
...This process, once rare, is now routine...
...It's worse than that...
...W hat's been done in the private sector...
...Something had to give, and it has...
...Its health-care plan would remove the force driving the downward trend in health costs—businesses thatinsure employees—from the game...
...Take HMOs, which didn't exist on any scale before the mid-eighties...
...Don't count on preventive care, Hillary's favorite solution, to hold down costs either...
...The firm has also shown employees a video on how to negotiate lower fees with recalcitrant doctors...
...In 1993, Forbes boosted the refund to twice the difference between their claims and $600...
...True, patients would get more preventive care, because the Clinton plan includes it, free...
...The administration and its allies are desperately seeking to minimize the new trend, particularly because it's beginning to draw press attention (from Business Week to Fortune to Time to columnists James K. Glassman and George Will...
...Instead of accelerating the revolution in healthcare financing that has contained costs while protecting the best medical system in the world, he would end it...
...In his first chat with White House staffers in 1994, the president set the stakes very high in the fight over healthcare reform...
...Not only are HMOs less expensive than fee-for-service medicine, their premium hikes have fallen for five straight years, from 16 percent in 1990 to 5.6 percent in 1994...
...Bringing managed care to government programs is the brainchild of David Harrington, vice president of Chicago's Grant Hospital and former chief strategic planner for Aetna Insurance...
...One thing stands in the way: the Clinton administration...
...It boosted the level at which the company would pay 100 percent of expenses and began informing employees how much it would pay for each medical procedure and how much physicians in their area charge...
...This hasn't happened...
...But in 1991, the revolution in private health-care financing was just getting off the ground...
...Its full impact hadn't been felt...
...He cited the Nixon administration as an example...
...She credited the "Hillary factor...
...Get serious...
...Corporate health plans cover roughly 140 million Americans...
...A month later, he sent the plan to Congress and said ominously: "If we do nothing, almost one in every five dollars spent by Americans will go to health care by the end of the decade...
...The most recent year for which it has calculated national health expenditures is 1991...
...They can do the same with Medicaid and Medicare...
...They've gained from experience, becoming leaner and more cost-effective as they've had to compete for customers...
...Was President Reagan jawboning the health-care industry in 1986...
...After health insurance premiums soared 30 percent in 1990, Forbes magazine gave its employees an incentive to avoid filing claims for routine medical care...
...Four corporations in Cincinnati—Procter & Gamble, Kroger, General Electric, and Cincinnati Bell—banded together to prod the city's fourteen hospitals to reduce wide disparities in treatment fees and hospital stays...
...The savings in Arizona haven't been epic-6 percent less than traditional Medicaid costs—but with its large number of retirees the state had start-up problems other states won't face...
...f you suspect the cost revolution in the private sector 1 undermines health-care reform, you're right...
...HHS Secretary Donna Shalala echoes Clinton...
...The Washington Business Group on Health has published such a list, in a booklet called "The Health Reform Challenge: Employers Lead the Way...
...By mid-1994, he says, HMO cost increases will have dropped to the rate of inflation (about 3 percent) and non-HMO price hikes will be well under twice the inflation rate...
...There's a new direction in health-care costs—down, down, down...
...The mere threat of hiring a firm that aggressively scrutinizes medical bills prompted the hospital to slash the bill by $15,000...
...It paid a higher rate for fee-for-service insurance, but fewer employees chose that option...
...A 1993 study concluded that if all Americans went to HMOs the 19 percent chunk of GDP projected for health care in 2000 would shrink to 15 percent...
...The thing the large employer did early on, the small employer is now doing," says Clark...
...One is the willingness of businesses—especially insurance companies and firms that self-insure—to challenge medical bills...
...medical science...
...Numbers like those alarm the Clinton administration, since they knock out the overarching rationale for Clinton's sweeping plan...
...And this would drive up medical inflation, not control it...
...Labor Department calls "price inflation for consumer medical goods and services...
...By 1996, states will spend more on Medicaid than on education...
...The examples are many and spectacular...
...Elwood's son David, by the way, is an assistant secretary of health and human services in the Clinton administration...
...Of course, there would still be medical inflation...
...Clinton has the right question, but the wrong answer...
...While the private sector has begun to get a grip, the federal government allows its health-care programs to roar out of control...
...36 The American Spectator February 1994 S uch signs of downward pressure on health-care costs are largely the result of two changes...
...Clinton's plan, as he put it at a White House meeting in January, would guarantee "comprehensive benefits that can never be taken away...
...His article "What Health-Care Crisis...
...True, but nobody wants an artificially low floor for health-care prices as price controls are being enacted, either...
...IBM has produced even more impressive savings from its mental health program...
...They can't let the public think this has gone very far, because it takes the steam out of what they want to do," insists Paul Elwood, the respected health-care expert at the Jackson Hole Group and father of the managed care movement...
...As a Harvard professor, he came up with the idea of cutting off welfare recipients after two years on the dole...
...By 1993, 70 percent of Digital's employees were enrolled in HMOs, up from 30percent in 1990...
...The answer is either to pay HMOs less or get more Medicare patients, including the older, less healthy ones who need more care, enrolled...
...But they pay a bigger share of their medical expenses if they go outside...
...Dan Clark, a benefits consultant in Seattle for Howard Johnson and Co., recently advised a client whose employee had been murdered to balk at a $75,000 hospital bill (the victim had lingered near death for five days...
...For the first time in years, the percentage of payroll costs devoted to health and dental insurance dropped from 8.4 percent in 1991 to 8.1 percent in 1992, according to a U.S...
...It started several years before the Clintons arrived in Washington and began harping on "skyrocketing" (Hillary's favorite adjective) medical cost increases...
...But there's no evidence this would lead to lower medical costs later as a result of early detection...
...he said...
...Overall, the firm's annual increases in medical costs have fallen to 9 percent—not a breathtaking improvement, but good for starters...
...And if the government chooses to let the uninsured join HMOs, perhaps with subsidies, we'd have universal coverage...
...One result: growth of the total cost of private health insurance premiums decreased from 18.6 percent in 1988 to 12.1 percent in 1991 and 10.1 percent in 1992, the consulting firm Foster Higgins found...
...That will never happen in a nation with rapid population growth and lifesaving but costly advances in Fred Barnes is a senior editor of the New Republic...
...Every month brings a fresh decrease in what the U.S...
...This generated a 10 percent drop in the average hospital stay in 1992 from 1991 and a 5 percent decrease in the cost per case (an average saving per hospital admission of $350...
...Chatter about reform hasn't been a factor...
...State outlays for Medicaid rose 30 percent from 1991 to 1992...
...That's pretty good...
...Energy and creativity are already producing results in the private market," he told columnist Morton Kondracke...
...And the yearly increase in HMO fees paid by the company has fallen from 12 to 14 percent in 1992 to 9 percent in 1993 and 4.5 percent this year...
...Don't thank Bill and Hillary Clinton...
...More important, companies are steering employees away from fee-for-service medicine (with each doctor visit billed) and into managed care, particularly health maintenance organizations (doctor groups charging an annual fee per patient...
...appeared in our May 1993 issue...
...Clark surveyed fifteen Seattle-area companies at random recently and found every one was part of a PPO network with cut-rate fees...
...In 1992 claims fell by 23 percent and the magazine's insurer, CIGNA, gave it a $200,000 rebate...
...Better yet, the 4.9 percent rise in the third quarter of 1993 was the lowest quarterly hike since 1973...
...Billions could be saved simply by sending Medicaid patients to HMOs, a step implemented thus far only in Arizona, and billions more by encouraging Medicare beneficiaries to try managed care...
...One result of the surge in managed care: fewer patients hospitalized and a decline in the growth of hospital expenses nationally, from 10.2 percent in 1992 to 8.1 percent in 1993...
...The Congressional Budget Office last October predicted health spending at 18.1 percent of GDP in 2000, down from its June projection of 18.9 percent, but still quite high...
...Premiums were then cut 17.6 percent for major-medical and 29.7 percent for dental...
...Elwood is convinced that, through HMOs, Medicaid costs can be stabilized at the level of general inflation and patients can get better care...
...This would increase national health expenditures...
...National health-care expenditures have risen less in some years than others, but for economic, not political, reasons...
...The downward trend is the product of a revolution in health-care financing caused by market forces, not government...
...Many HMOs participating in the Federal Employees Health Benefits Program, which covers nine million federal workers and their dependents, offered dramatically reduced fees for 1994...
...Or both...
...This, 38 The American Spectator February 1994 rather than reforming the entire health-care system, should be Clinton's first priority...
...We clearly have had some experience," she said in December...
...Under Clinton's scheme, companies would pay a set amount to a "health alliance" and have no further involvement...
...Not smart...
...My guess is folks would take advantage, as they have in Germany and Japan (where doctor visits occur three to six times more often than here...
...Overall, the 300-plus plans competing for the business of federal bureaucrats this year averaged fee hikes of 3 percent...
...More likely, it would create a large increase in costs—just to pay for the burst of preventive care...
...But it would stay near the general rate of inflation...
...Well, there's a simple explanation: the government is operating off of old numbers...
...Contrary to the administration's line, the current dip in health cost increases reflects what Paul Elwood calls "a fundamental and permanent change...
...It was triggered by businesses and consumers confronted in the late 1980s with annual health benefit increases of up to 20 percent or more...
...Medicaid is expected to grow 16.6 percent in 1993...
...Only 2.5 million of the 36 million Medicare beneficiaries had signed up for HMOs, and these tended to be the younger, healthier ones...
...This means health companies have an incentive to get large price increases now, because they won't be able to impose them later under the Clinton plan...
...And it's a good bet medical inflation will fall further...
...Their bottom line wouldn't be affected if workers rang up heavy medical expenses...
...They would have no financial incentive to curb the health costs of their employees...
...One emboldened employee got $400 shaved off the cost of his knee operation, according to the Wall Street Journal...
...This lowers insurance payments...
...So that's its baseline for projections...
...It negotiated fees with a network of 20,000 providers nationwide and cut its spending in half, saving $30 million annually...
...The real question, he adds, is whether Washington "will accelerate that trend or screw it up...
...Rampant medical inflation," he declared last September in unveiling his health-care plan, "is eating away at our wages, our savings, our investment capital, our ability to create new jobs in the private sector and this public Treasury...
...And, sorry to say, more preventive care will have only a marginal impact on the serious diseases like cancer and heart trouble that generate huge healthcare costs...
...Their implication, of course, is that insurance companies, doctors, and hospitals hold down cost increases when Washington is threatening to impose controls, then jack up prices wantonly once the crisis passes...
...Heavy demand for care, the intensive brand of medicine practiced in the United States, pharmaceutical research, technological innovation, union contracts with lavish health benefits, a growing and aging population—these guarantee some inflation...
...It wasn't until 1992 that International Paper, whose medical costs had been rising at better than 20 percent a year, gave its employees an incentive to be cost-conscious in 'buying health care...
...Clinton chuckled at the joke...
...Don't sugarcoat it, Clinton was advised just before Christmas by William Cox, vice president of the Catholic Health Association...
...The Washington Post suggested in a December editorial that health-care providers are purposely defusing the crisis atmosphere as Clinton's legislation moves through Congress...
...That's actual cuts, not merely cuts in the growth rate...
...At that rate, "if you want to go out for dinner and a movie, you're going to have to check into a hospital...
...More broadly, Harrington insists, market forces, if left alone, will gradually push down insurance costs far enough so that small employers can afford to cover workers...
...Medicare spending jumped 12 percent in 1992...
...The government was paying HMOs too much for their care...
...This revolution has been driven by frustrated employers," says Michael Bromberg, executive director of the Federation of American Health Systems...
...For example, U.S...
...There are, Elwood says, "very basic differences in provider and purchaser behavior...
...They'd be refunded twice the difference between their major-medical and dental claims and $500...
...Or, if a cap were put on health-care spending, inflation would take another form, waiting lines for medical care, as it has in Canada...
...Buttering up Clinton at Bryn Mawr, she added, "Certainly there has been some moderation under your administration...
...171 The American Spectator February 1994 39...
...The benefits—including thirty psychotherapy sessions a year, treatment for drug abuse and alcoholism, eye exams, and so on—would be much broader than most Americans now have...
...The results are eye-popping...
...Consider 1986, the year national health The American Spectator February 1994 37 expenditures rose by the lowest percentage (7.6) since 1961...
...This makes superficial sense...
...There's an obvious solution here: extend the managed-care revolution to Medicare and Medicaid...
...It's all happened without legislation...
...No, spending isn't actually declining...
...Healthcare slashed the employee payment for its "high family" plan by 29 percent...
...Medicare and Medicaid have tripled since 1982," Clinton correctly told an entitlements summit in Bryn Mawr, Pennsylvania, in December...
...could go on and on, citing both companies and healthcare organizations that have increased efficiency and cut costs while maintaining quality...
...It's a question, he said, of "whether we are going to be able to maintain a health-care system and still have the money that we need to invest in a growing and highly competitive global economy so that America will be strong...
...It was 5.8 percent for the year ending last August, 5.7 percent for October, 5.5 percent for November...
...In fact, the 5.5 percent increase is the lowest since January 1974...
...Clinton and Shalala are dead wrong...
...Chamber of Commerce study of 1,100 firms...
...What's striking about the revolution in health costs is the absence of government...
...It was hogwash...
...It's not the private sector but the federal government that has failed to curb exploding costs...
...They've forced the insurance industry to change from an indemnity industry to a managed-care industry...
...Clinton offered this putdown: "A couple of times before when an administration's made a serious effort at health-care cost control, health-care costs have moderated for a year or so, then they start up again...
...But first, a question: Why hasn't all this free-market cost-trimming been reflected in the government's projections on national health expenditures...
...Medicare is trickier...
...That was the year Digital Equipment Corporation began offering a new series of health plans...
...When President Nixon put on price controls, the rise abated...
...But the rate of growth in medical spending is dropping precipitously...
Vol. 27 • February 1994 • No. 2
