Can HMOs Be Fixed?

...The history of efforts to constrain the behavior of for-profit firms does not provide grounds for optimism...

...Unwilling (and legally unable) to turn uninsured patients away, not ready to close services that attract nonpaying patients (for example, outpatient and emergency care), DISSENT / Summer 1998 • 69 the hospital was eating into its endowment and would soon face bankruptcy...

...I would argue that the role is substantial, that government needs to act in a comprehensive fashion, and that partial "solutions" will probably prove ineffective...

...I turned the pages, certain that the next words would be "health care...

...Health insurance is also about dignity: the way people obtain what society has come to regard as important...

...Not in my group" was the health insurance equivalent of "Not in my backyard...

...Medicaid, a federal -state entitlement program 68 DISSENT / Summer 1998 largely for the poor, although not for all of them, was also enacted in 1965...

...Competition between forprofit and not-for-profit insurance companies (largely the Blues: Blue Cross and Blue Shield) resulted in the substitution of "experience rating" —where premiums reflect the health care experience and costs associated with a defined group, say, of employees—for the Blues' "community rating" under which premiums reflect average costs and average risks in the entire community...

...They can shine a bright light, gather information, and make certain that conversion is a public rather than a private process...

...Medical insurance, like all insurance against the financial impact of improbable but costly events, rests on principles of risk sharing...

...Health care markets are not truly competitive...

...DEVELOPMENT and consideration of limited proposals should meet two requirements...

...There is no reason to believe that the market would allocate health care resources in ways that meet the needs of the entire community...

...Except for those who would give free reign to economic forces, most analysts have long agreed that there is a health care role for government...

...Low-income individuals cannot afford the high costs of insurance...

...Market competition makes such measures vulnerable...

...This is the case in spite of the fact that the United States has a low unemployment rate...

...Those who have argued for national health insurance have constructed various programs to reach that goal, with different proportions of private and federal funding, different private and public administrative loci of control and responsibility, and different organization of medical care delivery...

...These factors help explain why, over the years, the usual estimates have been that a universal and comprehensive insurance program would add something in the neighborhood of 5 percent to the nation's health expenditures...

...it is efficient at performing inherently inefficient tasks...

...To obtain all these benefits for an initial increase of about 5 percent in public health care costs seems most advantageous...

...Were this the whole story of the distribution of health insurance, persons without insurance would face the same difficult conditions that the uninsured faced in earlier periods...

...Nor can the argument against universal insurance rest on the presumed "fact" that all who need care and cannot pay for it manage to receive it...

...As they grew more expensive and became weaker and weaker, still more employers and subscribers left in search of lower costs, and so on in a downward spiral...

...A financing system that provides universal access has to be redistributive...

...That is especially so at a time when employers are cutting back on health insurance for early retirees...

...Many years ago, when New York City was in the midst of one of its recurrent fiscal crises, Mayor Abraham Beame proposed closing some city hospitals...

...Mayor you are taking away our...

...Those mechanisms have come under attack as private insurance and managedcare organizations compete to reduce payments and premiums and as each employer bargains more vigorously for lower premiums...

...The first is obvious: if most of those without adequate insurance are healthy or mostly receive care when ill, why bother with a universal program...

...At best, our existing system is efficient at doing things that in a well-designed system would be unnecessary...

...We know that even small steps often require the expenditure of considerable energy and effort...

...Except for issues of fraud, there is relatively little that can be done to reduce costs as long as the program continues to serve the eligible population...

...Recommendations (1) Given current attitudes about "privatization," it would seem to be a misallocation of effort to press for legislation that would convert existing for-profits to not-forprofit status and ban any new ones...

...Indeed, it is often the presence of for-profit HMOs that, because of the power of competition, leads not-for-profit entities to behave as if they, too, were seeking profits, thus violating their community-service ethos...

...We may succeed in enacting new legislation that can be built upon in succeeding years...

...It is not something that just "happens" during the course of normal activity, something that those connected with the enterprise are not aware of until the accounting results of the year's activities are available...

...In striving for the "best deal" it could cut, the manufacturer had withdrawn the "extra" funds that helped subsidize the care of those not fortunate enough to have insurance coverage...

...Our democracy is strengthened by participation and, in general, one participates, organizes, carries banners, addresses envelopes, raises money, attends rallies, in favor of specific proposals, not abstractions...

...The second requirement is that we understand that just as the costs of care for persons in different risk groups have to be shared and that high-risk populations cannot pay the full costs of their care, so too among persons in different income groups...

...It was expanded in 1972 to include the disabled...

...Furthermore, both the percentage and number of perDISSENT / Summer 1998 67 sons without insurance is growing (and has been year by year...

...They have untoward side effects and, often, are negated by larger external forces...

...These are the antithesis of the bold and comprehensive thinking represented, for example, by the British National Health Service or the American Head Start program...

...America will not get national health insurance by stealth...

...Although a number of larger cities have public hospitals paid for by local or county governments, most uninsured individuals have been served by notforprofit community hospitals...

...The attack on the cross-subsidy form of sharing (without an adequate replacement) is, I fear, a symptom of a deeper problem: an increasing emphasis on "what's best for me" rather than "what's best for us''—on efficiency rather than justice...

...The legislative battles around these issues of regulation and control are likely to be intense...

...The conditions under which one receives care, and what one has to do to receive it, help define the community...

...While some not-for-profit HMOs are less than paragons of virtue, only sloppy thinking would lead us to condemn the general concept of an HMO...

...The less explicit the strategy, the less the education...

...General Issues These are the two major problems of the American health care system: (1) the organization of care delivery, especially its increasing emphasis on for-profit organizations and (2) the financing of medical costs, especially the growth in the number of individuals who are uninsured, underinsured, or otherwise unable to meet the high costs of medical care...

...I was wrong...

...As employers became increasingly concerned about rising health care costs and as their understanding of health care financing became ever more sophisticated, they pressed for an end to the cross-subsidization mechanisms that helped finance care (especially hospital care) for the uninsured...

...That would be bad enough...

...in health care, public dollars are channeled into a private delivery system...

...He was followed by the head of the hospital in a community where the auto manufacturer was the dominant employer, who spoke about the impact of this "success" on the local hospital's ability to take care of the uninsured...

...The statement read, "you are taking away our jobs...

...Regrettably, their situation has become even more distressing...

...This is not the place for a review of ways to assure the continued presence of a strong and even more comprehensive (for example, by adding pharmaceutical benefits) Medicare program...

...In reality, the fact that few would be hurt meant that it would not be costly to cover those few and that the cap was not warranted...

...This, together with the system of checks and balances, divided government, and the federalist structure, has led to an inherently conservative political system characterized by incrementalism, with a bias in favor of the status quo...

...Furthermore, many of the uninsured (and underinsured) do receive necessary medical services, albeit often only when their illnesses have become severe...

...Regrettably, however, we must recognize that it would be difficult to regulate and monitor the day-to-day behavior of for-profits whose actions reflect their value system and who are accountable to stockholders rather than to the general community...

...EvERTHELEss, it became clear that we would not reach universal coverage by _ combining a series of programs, each covering a defined, but limited, part of the population...

...There are no general answers to such questions...

...Inevitably, as healthier patients left and as communityrated programs were left with the highest risks, their premiums rose...

...We need to be aware, however, that there are other problems whose resolution should not be determined by market forces...

...3) Yet another area that needs to be addressed is Medicare, our most universal (in the sense that it is not income related) socialinsurance health program...

...Yet it is also affected by one's ability to purchase necessary pharmaceuticals and follow therapeutic regimens, by continuity of care and early diagnosis, and by the quantity and quality of medical intervention...

...I turn now to why this is so and what we might do about it...

...We must remember that the health sector generates jobs and that many of those jobs are held by members of minority populations...

...In part that reflects the ascendancy of economics and its emphasis on marginalism as a pattern of thought and on analytical techniques involving measurement (of whatever can be measured) and cost/benefit calculations...

...These issues won't be resolved by "market forces...

...IN PART ONE of this essay ("The HMO Revolution: How It Happened, What It Means," Dissent, Spring 1998) I explored the rapid growth of HMOs, noted potential advantages that prepaid group practices held over traditional fee-for-service arrangements, and considered a number of important shortcomings of HMO/managed-care organizations...

...He implied that employers who had not cut costs were irresponsible and profligate...

...Health care systems require systematic approaches...

...it does not include rationing, pain control, issues connected with death and dying—all of which have an economic dimension and are influenced by the flow of funds...

...is better than none...

...This is the second essay in a two-part series now available in pamphlet form from the Foundation for the Study of Independent Social Ideas, 521 Fifth Avenue, Suite 1700, New York, N.Y...

...Yet, even these (nonradical and quite inefficient) programs that extended existing private financing could not be enacted...

...Though some would argue that explicit timetables would doom the legislation, strategies that are implicit and hidden from view prevent the mobilization of support...

...Among the matters that we (by "we" I imply collective action, most often through government) will have to address are the funding of research and education as Medicare and HMOs reduce the support previously provided for these endeavors...

...Those who care about Medicare will have to become knowledgeable about the potential sources of such revenues and participate in the debates on alternative uses of funds...

...Nevertheless, in supporting an insurance program with an upper limit on coverage of individual health care expenditures, the Nixon administration argued that very few Americans would exceed the maximum and face financial hardship...

...Nevertheless, employers as well as HMOs and other insurers are likely to oppose regulatory legislation...

...Nevertheless, over the years cross-subsidies--in health care as in other fields such as telephone service and airline travel—made it possible to finance services for those who could not purchase them on their own...

...Geographic mobility as well as changes in demographic, socioeconomic, and employment characteristics meant that there would be massive inefficiencies and coverage gaps in such an approach...

...Nor does it pay adequate attention to the nonmedical implications of changes in health care organization...

...The statement "universal health insurance is the hallmark of a civilized society" speaks to the issue of dignity...

...People would shift between categories (for example, too poor yesterday, too "rich" today, perhaps too poor tomorrow...

...This can lead to a "sequential" approach in which a comprehensive program would become effective in staged, predetermined steps over a defined period of time...

...It is they who will question basic structures and conventional ideas, including the idea that profits are the necessary stimulus for efficiency...

...the market's damaging effects on the ethos of medicine cannot readily be circumscribed...

...The legislative battles can be won if, but only if, the public organizes effectively...

...74 DISSENT / Summer 1998...

...We still have not dealt with the problem of universal and equal access...

...In general, however, that is not likely to be the case...

...Nevertheless, none of the many approaches has had sufficient support to be enacted in even one branch of Congress...

...That may be true of some (though often not in timely fashion), but surely not of all...

...Put simply, in a voluntary system, many individuals would want to disassociate themselves from high-risk persons...

...Most Americans do have some (often, less than adequate) private or public health insurance, but forty-two million individuals, one out of six of our neighbors, have none...

...The dangers to urban and miDISSENT / Summer 1998 • 71 nority communities and the explosive social implications, if those heretofore stable sources of employment and income decline, cannot be overemphasized...

...He attributed success to a series of programs calling for second opinions, revised medical protocols, special review procedures, emphasis on preventive care, as well as hard bargaining with the hospital sector...

...The success of voluntary not-for-profit insurance attracted for-profit insurance firms into the health field...

...The impact of employment cutbacks as we reduce hospital utilization shows up not only as reductions in family income but as a weakening of the financial underpinnings of many urban neighborhoods...

...2) An important second area for action at both state and federal levels involves the regulation and increased accountability of managedcare organizations...

...Furthermore, the limited benefits of much insurance (even including Medicare) and the presence of deductibles and co-payments meant that some individuals would spend a high fraction of their income for health care and/or be left without needed services...

...Voluntary cross-subsidies are hardly the preferred instrument of redistribution goals: they are less effective than general tax mechanisms...

...It abstracts from the human implications and side effects of disease...

...In considering changes, we should recognize that Medicare's fiscal problem is largely due to exogenous demographic changes and to program successes in providing added years of quality life to the elderly and disabled...

...the plight of the elderly (and others) who use many services (especially pharmaceuticals and long-term care) not covered by Medicare or by private insurance policies...

...Presumably, in the fullness of time, this "residual" might receive assistance via some combination of federal and state programs...

...On the other hand, we are told to "make no small plans, because they lack the power to move men's souls...

...Although most illness is selflimiting, the physician visit may provide valuable reassurance, reduce anxiety and/or pain, or speed recovery—all matters of value that 70 DISSENT / Summer 1998 those who have the means are quite willing to pay for...

...We must work together to strengthen our sense of concern, compassion, and community and so to revive the American dream...

...The elimination of high administrative costs and inefficiencies inherent in a system with multiple insurers (Medicare's administrative costs, for example, are much lower than costs in the private sector) would yield substantial savings...

...the implications for Medicare of the increasing number of very elderly and the high costs of their care...

...Isn't the fact that such a program would add so little to the nation's health bill proof that it isn't very important...

...Yet we know that it is difficult to enact overarching "solutions...

...Men and women of color who clean the hospital rooms and minister to patient needs, and who are "downsized" as hospital beds are closed, are not likely to find ready employment in the expanding financial-services sector...

...Furthermore, cost projections of social insurance or single-payer national programs have shown that within three to five years after enactment, health expenditures would be less than they would be if current funding patterns continue...

...Although a number of proposals were advanced, and some members of Congress argued for universality under a Social Security or Medicare-for-all approach, the only serious debate about national health insurance since the early 1970s has taken place around limited proposals developed under Presidents Richard Nixon and Bill Clinton...

...The aged faced both these and other difficulties: they were high risk, without employer insurance assistance, without the administrative economies from group enrollment, and with low incomes...

...In its front page story on a demonstration against the closure, the New York Times quoted a community leader: "Mr...

...they would have to be tracked, an inevitably costly and imperfect process...

...Redistribution, too, cannot be smuggled in while no one is looking...

...In response to the various failures of the voluntary employment-linked model, Medicare—the federal hospital and physicians' services insurance program (importantly, not including drugs) for those sixty-five years old and over—was enacted in 1965...

...How do we weigh the fact that when incrementalism helps some (but not all), those left behind have even less political power...

...RASHI FEIN is professor of the economics of medicine at Harvard Medical School...

...Even so, I believe left/liberals should continue to press for comprehensive change...

...This story can be repeated across America...

...As a consequence, analysts came to recognize that individuals with above-average health care costs would face difficulty in obtaining insurance...

...It would therefore be irresponsible to offer only a choice of all or nothing...

...There is more...

...There is value in the continuing battle for (even limited) reforms of the organization and the financing of health care...

...I cannot forbear noting one important, but largely ignored, "side effect" that stems from the reduction in job growth as a consequence of changes in the patterns of health care delivery...

...there is reason to believe that resources would flow to those parts of the community with the most ample financial assets...

...In part two of this essay I will offer some suggestions on ways to improve the financing and organization of American health care...

...Universal coverage would not increase their personal costs, but would offer a measure of valuable security that they would be insured in the future...

...Nor do they take account of our grossly unequal distribution of income and wealth...

...In our nonparliamentary political system, one hesitates to offer coherent and internally consistent proposals certain to be altered, amended, restructured, and rewritten by legislators not bound by any party discipline...

...THIS ARGUMENT raises two questions...

...most of the over one trillion dollars of national health expenditures ($3,759 per person), of which almost 90 percent is devoted to personal health care, derive from private insurance ($1,225), public Medicare insurance ($738) and Medicaid entitlement ($536...

...When private employment-linked insurance began its rapid growth during the post– World War II period, policy analysts believed that eventually the voluntary system would provide coverage for all Americans except for a limited number of individuals, largely those who were very poor and with only tenuous links to employment...

...Of course, there is no "average" American with those per capita health care expenditures...

...We will be told that these initiatives would significantly increase premiums...

...Nor would it expand the demand for health care beyond the nation's capacity to deliver the needed services...

...Many of the uninsured are children and young adults who, generally, are healthy and require few medical services and very little expensive hospital care...

...Most of the various state proposals involve issues of disclosure (for example, of salaries, grievance and malpractice claims, percent of premium dollars spent on health care), establishment of tighter complaint and appeal procedures with review by outside parties, new standards for approval of emergency-room care, and other such provisions...

...Of course, ill health is the result of many factors: income, occupation, housing, nutrition, and social conditions...

...But energy and effort should be devoted to slowing down the change in status (either by conversion, merger, or purchase) of not-for-profit 72 DISSENT / Summer 1998 entities...

...Most serious students of American health care believed that a universal program, in which Medicare could be one building block, was the appropriate answer to our increasingly fractionated system...

...State attorneys general have the responsibility to investigate and approve such changes, to make certain that charitable assets are not dissipated but valued appropriately and protected...

...Strengthening Medicare's fiscal outlook will require an increase in revenue...

...None of us can do that alone...

...Finally, guaranteed insurance would benefit the many who already have private insurance...

...10017...

...The first is that we think in strategic, not tactical, terms...

...this quest affects the behavior of everyone connected with the enterprise—physicians, nurses, and all the others who deliver health care services...

...We delude ourselves if we fail to recognize that many of our medical-ethical discussions are defined and constrained by economic arrangements...

...In part that is pragmatic: one of the reasons that the nation has taken the small and incremental steps some favor is because others pressed for a universal social insurance...

...Profit is not "incidental" to such entities...

...There are a number of incremental steps that are doable and useful...

...phone 212-595-3084...

...America's failure to enact comprehensive universal health insurance does not derive from our inability to finance such a program...

...Attorneys general have it within their power to affect materially the terms of any change in status and to make conversions and buyouts significantly less attractive and/ or assure that one or another community benefit (for example, health foundations, care for the uninsured) is added to the "cost" of conversion...

...Still, I discuss them with some hesitation because I do not want to deflect attention from the need for a more comprehensive approach...

...and then noted that the story continued on one of the inside pages...

...A health care cliche is that "the system is like a balloon: if you push in here, it pops out there...

...Forprofit managed care, however, is not all that ails American medicine, and efforts to regulate it are only a subset of the actions necessary to improve the performance of the American health sector...

...The fact that untoward events are improbable is an argument for, rather than against, health insurance...

...Some limited actions do seem desirable and, perhaps, achievable...

...To cure health care we must work to heal that society...

...Socially acceptable outcomes require coherent community planning and purposeful intervention...

...Although it is true that this need not always be so (for example, the depression and the period during the Johnson administration when we enacted War on Poverty, civil rights legislation, and Medicare and Medicaid), I believe the forces that make for incrementalism, for small steps gingerly taken, are greater today than in previous periods...

...Instead, they had saved money for one employer by withdrawing funds that provided care to a significant part of the community...

...Cost-containment efforts had not reduced the costs of necessary care...

...It is a fallacy to suppose that having a job translates into having insurance...

...These eschewed the social-insurance, tax-supported mechanism and called for a continuation of employment linkage and employer contributions (with government "patches" to assist the unemployed, those withdrawn from the labor force, and those who earned low wages or worked for low-profit employers...

...Rather, profits are consciously and, sometimes, avidly sought...

...Providing coverage to the almost 16 percent of the population now without insurance would not add 16 percent, or anything approaching that, to the nation's health bill...

...The answer, of course, rests on the recognition that there is a distribution around the average: though most of us are healthy, some are sick, and some are very sick...

...That brief (and necessarily incomplete) list does not include the medical challenges we face as individuals and as a community...

...It is clear that patients, potential patients, and caregivers do not view HMOs as benign institutions, always operating in a responsible fashion to improve the quality of health care, reduce costs, and increase efficiency...

...Thus, there is a potential alliance between the general public and the medical professions in support of legislation that would rein in the power of HMOs to interfere with clinical decisions and restrict the monetary incentives that HMOs could provide to caregivers...

...THIS Is NOT a startling statement...

...Finally, health care reflects the society in which it is embedded...

...I recall attending a lecture on health care cost control and listening to a director of one of America's major auto companies proudly proclaim that the firm had stabilized its healthinsurance premiums and health care costs...

...One way to save dollars is by reducing or eliminating any "add-ons" that helped pay for the care of the uninsured...

...Quantity discounts are available for classroom and educational use...

...Paying for Health Care Most Americans have some form of private or public protection against the unpredictable costs of medical care...

...Is President Clinton right in proposing a Medicare buy-in for Americans who have not yet turned sixtyfive, even though only a small proportion of those who might benefit would be able to pay the out-of-pocket premiums...

...Progressive legislation will not be enacted without organized support and such support will not be mobilized without discussion, debate, and eduDISSENT / Summer 1998 73 cation...

...Each of us must choose...

...They will have to guard against "solutions" arrived at by increasing the age of eligibility or otherwise providing less assistance to individuals who will have difficulty purchasing private insurance...

...On the one hand, we are told that incrementalism is the way things are done in the United States and that "half a loaf' (and, by inference, why not a quarter, an eighth, a crumb...

...potential conflicts of interest as the lines between industry and the academy become blurred and researchers and clinical investigators are increasingly supported by, and receive stock options from, private for-profit firms...

...Furthermore, political action, even on behalf of only minor improvements, is an extremely useful educational enterprise...

...Care was funded through cross subsidies (charging insured patients more than the cost of care in order to generate funds for those without insurance...

...Various legislative and regulatory changes designed to "manage" or temper competition and affecting all HMOs would benefit not-for-profit entities by forcing the forprofits to function in more responsible ways...

...By excluding high-risk individuals from the pool, for-profit firms were able to keep premiums below those quoted by cornmunity-rating organizations that accepted everyone, including the sick and high-risks who wanted (and were financially able) to join...

...Not-for-profit HMOs should be criticized when they misbehave, but our strongest criticisms should be reserved for the for-profit sector where impacts are more extensive and pervasive...

...That is the camp readers of Dissent and their friends and allies should join...

...I concluded that the greatest difficulty and danger for patients and caregivers lay with the expansion of for-profit health maintenance organizations...

...In addition, a number of states developed programs to assist hospitals that served a disproportionate number of patients unable to pay for care...

...Out-of-pocket payments by consumers at the point of service account for $621, non-personal health care expenditures (that is, research, construction, net cost of private health insurance, and public health activities) account for the remaining $639...

...It is they who would question the channeling of public dollars to the for-profit private sector and who would recognize the implications for government regulation and for issues of accountability of the sharp contrast between two alternative contemporary arrangements: in education, public dollars are channeled into a public delivery system...

...Therefore, I will turn at the end to other problems afflicting American medicine...

...Was Ted Kennedy wrong when he shifted to incrementalism from universal social insurance (though in principle still supportive of a Canadian-like single-payer approach) because he did not want to hold hostage those who would be helped by incremental steps and did not believe that a more comprehensive solution was possible...