MONEY & MEDICAL CARE : Where resources & needs conflict.

There is a morbid race going on in health policy in the United States-a game of "chicken." The question is, what will force us to confront our limited health-care resources first: the demographic bubble of aging baby boomers who will break the Medicare bank or the growing number of people with no health insurance?

As Americans, we appear to want all to get all the medical care they need. While we set up public insurance for the most vulnerable-Medicare for the elderly and Medicaid for poor women and children-we don't have faith in the government to pull it off for all of us. So we rely on privately financed health insurance and we subsidize free or reduced-cost care for those who cannot afford it.

These efforts, though, have never been enough. Good medical treatment does not exist without a steady way to pay for it. People without health insurance postpone needed preventive care and medical treatment (over half of all adults without health insurance have no regular source of care), and as a result have poorer health. Community health centers-the traditional free clinics-have always struggled to meet great demand with limited funding. Hospital emergency departments have become triage centers for uninsured people who show up for nonemergency care, knowing that while they will have to wait, they will not be turned away. Treatment and follow-up care for an uninsured person can vary dramatically from what an insured person with the same condition receives, and, finally, medical-care debts can saddle patients for years after treatment.

Get a job

Historically, the uninsured were usually the unemployed. Get a job and you'd get your health insurance. Good labor policy was good health policy. But that strong connection between employment and health coverage is weakening. The number of uninsured continues to rise even as unemployment rates drop to theoretical lows. And the uninsured find that their health costs are rising at a time when there are fewer subsidies available to treat them. What happened to the deal that a job meant health insurance? How did we get here and how do we get out?

Some figures. From 1987 to 1996 the number of people under the age of sixty-five without health insurance rose by 10 million, to more than 41 million. Moreover, in the last two years, one in every three people experienced a break in health insurance coverage, and that break was usually for longer than a year's time. Who are the people without health insurance? Most are adults and most are not poor (80 percent of the uninsured have family incomes above the poverty level, and almost half of them are from families with incomes twice the poverty level). They are disproportionately nonwhite (even accounting for age, work status, and income). Most significant, more and more are employed. There are 22 million workers-17 percent of the workforce-without health insurance. Fifty percent of people without health insurance are from families with a full-time worker; another 25 percent are from families with a part-time or part-year worker.

What has happened to employment-based health insurance? From 1987 to 1995, in a period of economic expansion, the proportion of Americans with workplace health coverage dropped 5 percentage points. Why the decline? Two reasons: We began making fundamentally different kinds of jobs; and our health-care costs went through the roof.

* Different jobs. Compared to earlier periods of employment growth, our new jobs were more likely to be in smaller businesses, nonunionized industries, temporary employment, or the service sector. Historically these sectors have been less likely to provide health insurance to their employees. Moreover, they produce lower-wage jobs, which means employees are less likely to be able to afford to pay their share of a health- insurance premium.

* Rising costs. The annual rate of health-care inflation has averaged just under twice the general rate of inflation for the past ten years, and is accelerating rapidly. Simply put, treatments cost much more than they used to, we are using more of them, and our insurance rates reflect that reality. Choose your factor and it probably contributes: more available technologies, more seniors, vain baby boomers who consider aging a disease, more doctors, inefficient administration, and a pharmaceutical industry that generates record profits in the name of scientific progress and turns novelties into rights (Viagra as a mental- health benefit, anyone?).

Health care now consumes nearly 15 percent of our gross domestic product. We have all paid the cost of increased medical care in larger Medicare and Medicaid payments, and in the costs of medical goods and services purchased. At the same time, employers have sought to shift some of the higher cost for health insurance to employees by increasing cost sharing for insurance policies, reducing benefits, or simply dropping coverage altogether. The burden has fallen disproportionately on low-wage workers. A study sponsored by the Kaiser Commission estimated that between 1987 and 1996, the percentage of poor workers covered by employer health insurance dropped by 12 percentage points (compared to five points for all workers). It attributed the decline to two major factors: fewer of these employees were offered health insurance (a 5-point decline); and fewer were able to afford what they were offered (a 13-point decline in the percentage of workers participating in the employer's plan).

Health-insurance cost increases have also landed disproportionately on small employers. Unable to command volume discounts from insurers and excluded when large employers demand "experience rating," where insurers set premiums based on the costs of care of one specific group, these small businesses are regularly quoted significantly higher prices than their larger peers for similar benefit packages. The results: Small businesses are more likely to forgo insurance all together, or, if they do offer it, to pass on the higher costs to their employees. Consider the ramifications: A 25-percent cost sharing on a family health-insurance premium (a fairly standard figure), can result in a gross wage reduction of $1 per hour-hard to absorb for many low-income families earning less than $15 an hour. Moreover, this contribution will only increase over the years and potentially lower take-home pay-since medical inflation outstrips wage hikes. Thus health insurance, which once was considered an implicit right for the employed, has become a regressive, and often unaffordable, tax.

Without major policy shifts, future prospects are grim. The effect of medical cost inflation on employment-based health insurance will continue to be devastating. In the March issue of Health Affairs, economists estimate that an average per capita increase in health-care spending of 5.5 percent would increase the proportion of uninsured workers to 27 percent by 2005, up from 17 percent today. This assumes no economic slowdown. Whenever that happens-and it will-more people will be out of work and the overall percentage of uninsured will increase even further.

What is to be done?

A charity-based system of medical care in the United States has never been up to the task of meeting all the needs of the medically uninsured. It does not provide adequate preventive care, cannot insure good treatment or consistent follow-up care, and most important, does not reach all the people who need it. The system certainly cannot meet the increasing demands being placed on it. If we believe everybody should get the care they need, then our society has an obligation not only to help provide basic health care but to offer basic health insurance. Without the ability to pay, access will never be adequate.

There are numerous incremental reforms being implemented to improve access to health care. Some states, in the wake of the spectacular failure of the 1996 Clinton health-care initiative, have stealthily made inroads on the uninsured population by expanding Medicaid eligibility to families with incomes 250 or even 300 percent above the poverty line, and by matching federal funds with state money. Several years ago Congress passed the Children's Health Insurance Program (CHIP), releasing huge amounts of federal matching funds to states to design their own health- insurance programs for the nation's 10 million uninsured kids. But the results have been mixed. Some states have produced cautious programs, while most have had difficulty locating eligible children.

Medicaid and CHIP remain family programs: Childless, able-bodied adults are ineligible. The most progressive states are now looking to develop programs to promote coverage by employers. They are talking about increasing the leverage of small businesses in purchasing medical insurance, and even supplementing their premiums. Some states are also seeking to reduce inequities in how insurers price the same benefit package for different businesses. But state-based efforts-such as rating reform, Medicaid eligibility expansion, and public/private purchasing efforts-cannot address regional differences in the rates of the uninsured. For example, Southern and certain Western states are strikingly parsimonious in their Medicaid benefits. The result is that they have and will continue to have higher rates of uninsured. Moreover, even those states with low rates of uninsured people are seeing these trends increase because of the effect of health-care cost inflation on employer health programs.

Much of the federal debate is uninspired. Many federal proposals try to use tax policy as social reform, letting individuals-like their employers-purchase health insurance with pre-tax dollars. Such efforts will have little effect; the market for individual insurance is anemic, since insurers know that in a nonmandatory environment the only people who will pay the full cost of health insurance are those who will probably use more than their share. How many drivers would go without auto insurance if it were an option?

The need for wholesale reform to reduce the number of uninsured seems clear. At present, efforts run in two directions: (1) universal health- care coverage; (2) attacking the root cause of cost inflation by creating a better market for health-care coverage, one in which consumers who bear the costs make the most efficient purchasing and utilization decisions.

Universal coverage could be achieved through government mandates on employers or by single-payer programs. However, European and Canadian systems have shown that universal coverage is not immune to the underlying cost pressures being felt in health care today. Policy makers there are looking to introduce some sort of cost-based competition or at least a patient-based payment to create some price cost sensitivity. On the other side, free-market advocates have limited experience and a poor track record in creating positive market conditions for health insurance. Health care is not really a commodity and its complexity makes for a tough market transaction. More important, in every market there exists distributional inequality-exactly the problem we are trying to correct.

The U.S. political structure embraces incrementalism. Short of wholesale reform, federal efforts should build on the current structure of mixing federal and state funds to support state-based programs. This funding should be extended to adults and built into employment-based subsidies. Federal efforts should also attempt-by incentives or mandates-to eliminate the wide variation in the rate of uninsured which exists among the states.

But if the number of uninsured remains inextricably linked with the rising costs of medical care, the fundamental issue is that we cannot afford the treatment options available and have not figured out a way to limit our choices. The amount of money involved is so mind-boggling and the resource-allocation decisions and so painful that no wholesale reform is possible without some significant oxen being gored. It was just this prospect in the early 1990s that caused us to flinch and let the private sector work its invisible hand in the form of health maintenance organizations. While managed care has the capacities to reduce clinical practice variation and improve health outcomes in the population, it does nothing to improve access and its gains have come at great public mistrust. It too seems defenseless against the rising tide of more options, more demands, and thus rising costs.

What will force us to acknowledge the chasm between the medical options we want and those we can afford? Daniel Callahan has written presciently of the changes required-a shift in personal and collective attitudes concerning mortality and aging, and a recognition of the limits and finite resources of any medical system. We need to look for opportunities to inform our policies and our choices with this thinking. How do we fund research and development in health care? How can we promote hospice and nursing alternatives, limit federal and private health-insurance benefits, and influence the number and nature of physician-training programs? How do we decide what health-care facilities are built and how to shape the market for diagnostic testing and pharmaceuticals? It even gets personal: When is the last time we exercised? Have we talked with our family members about how we want to die?

The 22 million workers in the United States, the 10 million children, and the 9 million others who now delay needed medical care because they lack coverage live marginalized in financial uncertainty and a societal no man's land. They should not have to wait for most of us to grow old before the nation takes notice of their plight.