Power and choice.

THE CLINTON ADMINISTRATION HEALTH CARE REFORM proposal contained a number of changes, including accountable health plans and health care purchasing cooperatives; however, the key managerial component of the plan was the National Health Board. This central body was to be empowered to decide the definitions of need--what would be covered, what would not be covered. The underlying conceptual foundation for such a design is that people with the right knowledge and power can objectively define what is really needed, make the right choices, and the system will work. This type of thinking dates back at least to the philosopher kings of Plato. In Plato's ideal state, an educated elite, philosopher kings, would decide what was best for the people. This perspective as a strategy was enhanced with the advent and rise of science. The mission of science was to discover the laws of nature so, as Descartes stated, "We could employ these entities (discoveries) for all purposes for which they are suited, and so make ourselves masters and processors of nature."

Over the past 200 years, this way of operating proved to be very powerful and became the common sense world perspective of this century. The right people with objective knowledge can make the just decisions. The viewpoint flourished in the Enlightenment Period, provided centralized models for organizations, and fit well with mass production. This paradigm reached its peak in the 1970s in organizations, such as General Motors, and in the USSR and Eastern Europe before their collapse. In the 1960s, General Motors was becoming so large and powerful that there was talk of breaking it up for fear it would monopolize the market. But just as General Motors was seemingly about to dominate the market, along came Toyota. Toyota demonstrated that business is not about generating products, but about customer satisfaction--fulfilling the needs and concerns of people. When viewed this way, the fundamental issue for the GM's slide is similar to the issue leading to the collapse of political structures in Eastern Europe. Today, central planning by an elite is not an efficient or competitive way of satisfying peoples' concerns.

Alternative interpretation

Social interactions, whether business or friendship, are exchange interactions. Consider the simple task of going to Starbucks for a cup of coffee. The exchange interaction begins: (1) with you as a customer asking, or the attendant as a provider offering, to get you something. (2) Next, there is clarification and negotiation of exactly what type of coffee you want followed by mutual agreement. (3) The attendant performs a series of steps and gives you the coffee. (4) You pay the attendant for the coffee indicating you are satisfied with the transaction. With each interaction, there are assessments of satisfaction or dissatisfaction. This is a basic cycle (1) for coordination of action, a map of exchange and commitment (please see Figure 1). In open societies, organizations that respond to peoples' concerns in a way that generates customer satisfaction will flourish, those that do not may perish.

[FIGURE 1 OMITTED]

Just as we can map our biochemical pathways in the body, we can also use this basic exchange cycle to map out sets of social interactions. Organizations can be seen as networks of commitment designed to produce customer satisfaction. When enzymatic or chemical cycles in the body break down, we experience disease and malaise. Similarly, when the exchange cycle is perverted or does not function effectively and efficiently, we experience social dysfunction. For example, in the 1970s, General Motors and the U.S. automobile manufacturers, in general, seemed more focused on keeping the production line going at all costs, rather than in generating customer satisfaction. The more units they produced, the lower the costs, the better the profit--and any defects or products could be fixed later. Toyota, on the other hand, was better at generating customer satisfaction the first time. Toyota made more reliable cars that created assessments of greater customer satisfaction that translated into more and repeat business. Toyota developed a stronger, healthier, and more robust company, and took substantial market share from General Motors.

The health care crisis has arisen out of a breakdown in a different portion of the basic exchange cycle. Employer-paid health insurance (which began in the 1940s), and Medicare and Medicaid entitlement (which started in the 1960s), took responsibility to pay out of the negotiation phase between primary participants, (i.e., between the patient/ customer and provider, the primary health care provider/physician--please see Figure 2). A price-insensitive way of delivering health care subsequently evolved. The responsibility to pay for services negotiated between primary customers and suppliers has been removed from the exchange cycle between patients and providers to secondary exchanges between providers and insurers.

[FIGURE 2 OMITTED]

Although many people argue that health care is too expensive, and this is what the health care crisis is all about, there are others who debate that over-consumption has occurred, not because health care is too expensive, but rather because it is actually too cheap. At the level of the customer, the average person spends: 5 cents per dollar on hospital care; 19 cents per dollar on all physician services; and 24 cents per dollar on all health care services. (2,3) So, although the total cost of health care to us as a society is high, the cost to many individual customers in the U.S. is not.

A choice of direction

We as a society have a problem allocating health care resources and at least two fundamental directions for change are available to us. One advocates that, if individuals are consuming too many health care resources, then we need to restrict their ability to choose by transferring some of their ability to consume to a central elite who would decide what is needed. Both the Clinton model of health care reform by government and the HMO-model sweeping the private sector are strategies to correct earlier reductions in accountability and responsibility for cost by removing choice. (Please see figure 3). The fundamental issue at risk in realigning health care is individual autonomy and choice.

[FIGURE 3 OMITTED]

A centralized bureaucracy, whether in government or in large "private" sector organizations, is still a bureaucracy--and they are about power and control. In addition to being undemocratic, they are also not based on the principles flourishing in market-based capitalism. The further removal of costs, accountability, and responsibility from primary customers and providers via "managed care" might reduce today's dollar cost, but it is also likely to exacerbate the situation with respect to customer satisfaction. Transferring responsibility for health care expenses to a centralized agency cannot be done without making our society more economically undemocratic.

The second approach puts patients as customers back into an accountable and responsible role. If we as a society must choose people to allocate health care resources, who better to be put in charge than someone who has a vested interest in both cost of resource utilization, as well as their own well-being? How can we do this? By expanding the current experiment called Medical Savings Accounts (MSAs), or health care IRAs.

Early results

Medical savings accounts, by their very nature, put costs back into the negotiation phase between patients as customers and physicians, hospitals, and providers (please see Figure 4). Consider the experience of the Golden Rule Insurance Company. It began offering a choice between two plans: One was a standard health insurance policy with a $500 deductible; the other was a $3,000 deductible catastrophic insurance coverage with a $2,000 cash account. The $2,000 was used to pay ongoing medical expenses. If the $2,000 was not spent, then the worker could keep the difference. Unfortunately, under current tax law, savings are taxed as income. (4,5)

[FIGURE 4 OMITTED]

The outcome has been dramatic. By 1994, 94 percent of employees have signed up for the medical savings account option. The average expense per employee in the organization was less than $3,000, so there were fewer administrative costs, and the company was able to negotiate lower rates for catastrophic coverage. When health care expenditures before implementation were compared to 1993 costs, they were estimated to have decreased by 40 percent. In 1993, close to $500,000 was distributed back to employees. (4,5) Other companies, including Forbes, Dominion Resources in Richmond, Virginia, Quaker Oats, the United Mineworkers, and the Pittston Company of Stanford, Connecticut, have begun offering similar types of plans. (6) This type of strategy is now being used to finance all health care in Singapore. (5)

These experiences indicate the potential effectiveness of the MSA concept. Putting responsibility back in the primary exchange cycle also allows the insured/customer to share in savings. This approach is consistent with the principles of democracy and market capitalism that we use to coordinate consumption in other areas. The more that decisions and accountability to expend or not expend resources are put back to the primary customer (patient) and the primary provider interaction (exchange cycle), the more efficient the administration of health care will become.

A study for the Council for Affordable Health Insurance found that a nationwide MSA plan would cut health spending by $587 billion. (5) MSAs could also fulfill other goals of health care reform. For example, there is a problem for some people who move between jobs or have a period where they are uninsured. Only one in five persons who are eligible continue their coverage as a COBRA benefit elects to do so because the cost is usually prohibitive. (7) MSAs would alleviate this from two perspectives. First, the MSA medisave account would be a source of funds to purchase insurance during such a period. Secondly, the account could be used to pay for routine expenditures, and only a catastrophic plan would need to be purchased.

Some argue against MSAs, speculating that people will not behave in a preventive way. In testimony before Congress in the Fall of '94, Hillary Rodham-Clinton dismissed the idea of MSAs, saying the plan "does nothing to encourage primary and preventive health care." Under such a plan, people would "postpone seeking help as long as possible" in order to save money. (5)

A Rand Corporation study that compared catastrophic expenditures between plans with high deductibles and fully-covered HMOs in the Seattle area did not identify any statistical differences for deferred medical expenditures between these groups. The study also showed that people with a large deductible consumed 25 percent less in total services than those with a small or no deductible. (3,8) The reintroduction of costs into the exchange cycle is an incentive for saving. The experience at Golden Rule has been that people do not postpone preventive measures, but rather they shop around for competitive prices to do what needs to be done.

The actuarial-based study by the Council for Affordable Health Insurance (5) suggests the MSAs would cut the number of uninsured in half over a five-year period. These actuarial studies must be seen as just that--estimates. Actual savings will differ; however, the direction of change would be toward a more efficient and democratic model, one more consistent with supply and demand patterns in other industries.

Role of government?

Enacting Medicare and Medicaid-entitled people to a rather generous set of services. However, as is typical with many federal social programs, the funds to fully pay for all these allocated services were never fully appropriated. Costs that were not covered by Medicaid or Medicare were transferred to those who paid private insurance. This cost shifting resulted in rising premiums in private insurance, pricing small businesses and a number of people out of the market. This generated more uninsured people. Uninsured people still get sick and the cost for their illness was again shifted to people who had insurance, further driving up the insurance premium, and so on, and so on.

In a MSA-based system, the role of government would not be to define what is needed or how much money should be spent, but rather to create a tax environment that promotes health and a regulatory environment that advocates truth in advertising and contracting. Government's role could include developing a tax structure that promotes individual rights, cost consciousness, and savings by removing tax disincentives for MSAs and tax incentives for full indemnity plans.

Government could define the standards by which contractual exclusions would be made readily apparent to every purchaser and restore a balance in the relationship between enrollees and HMOs by outlining criteria for expedient due process for appeals of denied services. Funds from the MSA could be used to secure second opinions and, if necessary, a medical advocate for the enrollee.

The issue here is not that HMOs, whether for-profit or not-for-profit, are bad. Rather, it is to see the strategies behind the proliferation of HMOs as a transition stage in the evolution of heath care finance. They are based on a strategy that has failed in other areas of coordinating human interactions. Unless HMOs coalesce into a few large national companies that can dominate the market via an oligopoly, they are likely to evolve or be replaced by less centrally, more locally efficient health care delivery systems. This may already be happening in Minnesota, where HMOs have traditionally been strong and where business coalitions are beginning to bypass HMOs and contract directly with providers. (9) There is a tremendous opportunity for hospital-physician groups contracting directly with employers using MSAs and catastrophic insurance as core strategies.

Medicare HMOs are reimbursed, on average, 95 percent of the estimated cost of the Medicare recipient. The opportunity for big and short-term profits come from rapidly enrolling people and the ratcheting down of utilization. For example, the average hospital-days-per-year consumed by a fee-for-service Medicare recipient is 2,500-days-per1,000-Medicare recipients. (10) In the San Diego area, these rates run as low as 600-700-per-1,000-Medicare-HMO members. As the market becomes more saturated and matures, keeping people healthy will become a bigger source of profits and true health maintenance will become increasingly important. Right now, however, the name of the game is restricting services, particularly in new markets. What is sorely needed is a balance between the individual and organizational agendas, between the individual and society. (1)

References

(1.) Flores, F. and Winograd T. Analyst Action Technologies, Inc., Alameda, CA.

(2.) Office of Acutary HCFA 1990, as adapted by Goodman, J.C. and Musgrave G.L. Patient Power: Solving America's Health Care Crisis, Cato Institute 1992, Washington, D.C.

(3.) Jensen G.A. and Morlock, R.J. J of Health Policy May/June, 1994. 3:14.

(4.) Pete Du Pont. The Free-Market Health Proposal, The Wall Street Journal 7/1/94.

(5.) Merline, J Employees As Health Reformers, Investors Daily 3/18/1994.

(6.) Wildavsky R. Here's Health Care Reform That Works, Readers Digest, October 1993.

(7.) Flynn P. Employment-Based Health Insurance: Coverage Under COBRA Continuation Rules, in U.S. Department of Labor, Health Benefits and the Workforce, Washington, D.C.: U.S. Government Printing Office, 1992.

(8.) Newhouse J. and The Insurance Experiment Group. Free for All?: Lessons From the Rand Health Insurance Experiment. Harvard University Press: Cambridge, MA, 1993.

(9.) Winslow, R. Employer Group Rethinks Commitment to Big HMOs, The Wall Street Journal, 7/21/95.

(10.) Anders and McGiney Laurie HMOs Are Signing Up New Class of Member: The Group in Medicare, The Wall Street Journal, 4/27/95.

Ed Chaplin,MD, is Medical Director of Continental Rehabilitation Hospital of San Diego, California. He can be reached at 619/2608300.