Health-care reform.

We still need it

Much is being made by HMO advocates of a reduction in the U.S. medical inflation rate that began around 1993. We are to believe that rising rates of enrollment in health plans that use HMO cost-control techniques account for this reduction. We are not being told that this reduction may be due entirely to a fall in the general inflation rate, rising numbers of uninsured, increased rationing of care among the insured, the "Hillary effect" (the tendency of insurers and providers to keep prices in check following an effort by the federal government to enact price or premium controls), and temporary premium reductions by insurance companies scrambling to build market share.

But the question of whether HMOs should take the credit for this blip in health-care spending seems quite secondary when we compare U.S. spending to that of other nations. The latest data indicate the United States continues to outspend the rest of the world by a huge margin. Moreover, the numbers indicate that between 1990 and 1996 - the period in which HMOs strengthened their grip on the U.S. health-care system - the gap between the United States and the rest of the industrialized world increased. The data, which were prepared by the Organization for Economic Cooperation and Development (OECD), appeared in the November-December 1997 edition of Health Affairs, a health-policy journal.

The OECD has been keeping track of economic and demographic data on twenty-four industrialized nations since the end of World War II (five less-prosperous countries were added after the fall of the Berlin Wall). In 1996, only five countries spent more than $2,000 per person on health care: The United States at $3,708; Switzerland at $2,412; Germany at $2,222; Luxembourg at $2,206; and Canada at $2,002. Similarly, only five countries devoted more than 9 percent of their Gross Domestic Product to health-care spending: The United States (14.2 percent); Germany (10.5); Switzerland (9.8); France (9.6); and Canada (9.2). The United States is the only first-world OECD nation without a national health-insurance system, and is the only one that sports an uninsured rate of 16 percent.

Despite the recent slowing of the medical-inflation rate in the United States, health-care spending here is rising faster than in the rest of the industrialized world. Between 1990 and 1996, for example, per capita spending increased by 38 percent in the United States, compared to 32 percent for the other twenty nations that had 1996 expenditures of more than $1,000 per person. Yet the high cost of the U.S. system cannot be attributed to more frequent use of the system by Americans. Among the major industrialized G7 countries (Canada, France, Germany, Italy, Japan, Britain, and the United States), in 1995 the United States had the fewest hospital beds per 1,000 people, the second-lowest proportion of the population admitted to hospitals, and the fastest discharge rate.

Inflation, in any sector, depends on the behavior of two numbers - volume of goods or services sold, and price. Conventional wisdom in America has been that volume, not price, is the primary culprit and that HMOs, which are much better at denying services than traditional indemnity insurers, are the answer to the alleged problem of excessive volume. The rest of the industrialized world long ago adopted policies based on a very different premise - that health-care inflation is caused primarily by doctors, hospitals, and drug companies that overcharge, and secondarily by excessive volume. The rest of the industrialized world long ago adopted policies that impose price controls on providers and, with a few exceptions, on drug companies. In the United States, Medicare (the nation's program for the elderly) and Medicaid (the nation's program for some of the poor) also utilize price controls. But that still leaves the nonelderly nonpoor population - a huge market pool - unprotected by price controls.

Not surprisingly, the diverging policies of the United States and the rest of the industrialized world have led to vastly different consequences. Americans are getting kicked out of hospitals sooner, seeing doctors less often, and paying much higher fees and prices. Despite a slowdown in the growth of physician income, due to pressure by HMOs, American doctors remain far and away the best paid on the planet. And U.S. drug companies charge Americans roughly twice what they charge the rest of the world for some drugs.

But the most galling financial consequence of the U.S. focus on restricting volume at the expense of price has been the rapid increase in administrative costs. The HMO bureaucrats who argue with doctors about whether patients can have drug x instead of drug y, or an extra two days in a hospital, cost money. So too do the clerks and nurses hired by doctors and hospitals to haggle with HMOs. Several studies indicate that U.S. administrative costs have soared. A 1996 issue of the American Journal of Public Health reported that between 1968 and 1993 the number of doctors in the United States rose 77 percent, but that the number of administrators rose 288 percent. According to federal government figures, while U.S. spending on all health care (not including administrative costs) rose 196 percent between 1980 and 1991, administrative costs rose 350 percent. In short, the savings our HMO-dominated system has achieved by reducing the volume of medical services has been offset by ballooning administrative costs.

Understandably, Americans are not happy about a system that restricts their choice of doctor, impedes their access to care, and still costs an arm and a leg. A 1990 poll of citizens of ten industrialized nations - conducted jointly by Harvard, Lou Harris, and the Institute for the Future - indicated that Americans were the least satisfied with their health-care system. The appearance of the "HMO backlash" in this country in the last two years suggests that a similar poll taken today would find the United States still in tenth place.

The de facto U.S. policy of letting "competition" between HMOs control health-care inflation would be dubious even if it could be shown that the United States is spending less than other countries. But when evidence indicates that the HMO strategy has failed to control health-care spending, has not stemmed the rising tide of the uninsured, and has placed quality in jeopardy, it should be obvious that it is time to change our national policy.

Kip Sullivan is executive director of Minnesota COACT (Citizens Organized Acting Together), a citizen group working to enact a universal health insurance system and to save the family farmer.