Winds of change in health care financing - and will long-term care come first?

"Government action on consumers' behalf, not competition for their business, is the best hope for controlling costs."

"Every other industrialized nation, even those with private insurers, has a system that sets or negotiates fees to providers consistent with a budget."

Quotes such as these from articles and reports authored by Dr. Judith Feder, co-director of the Center for Health Policy Studies of Georgetown University, are providing Washington analysts with very lean meat, as they try to predict how the Clinton Administration will tackle the massive problems of health care cost reform. For long-term care providers, however, the shape of health care changes to come may center on the policy preferences within the Senate and the House rather than the incoming White House.

Dr. Feder was tapped in early December as the director of the "health cluster" for the Clinton transition team, after sources reported that President Clinton was attracted to her vision of a less competitive private sector health system. Although little-known outside of Washington, Dr. Feder had the good fortune of writing a critique of the Bush Administration proposals in the New York Times on January 24, 1992, when Clinton was first being described as the front-runner for the Democratic nomination.

Dr. Feder's basic argument is that the economic rules that govern cost, supply, and demand for most types of goods and services do not work in the health arena. "Consumers choose plans on factors other than cost," she wrote. Further, the lowest-price health plans tend to be those that screen out all but the most healthy people. "The more we rely on competition the more we risk segregating the sick from the healthy." In long-term care, the most affordable insurance often is offered to relatively young people who are not likely to use it; as a result fewer than 8 percent of all Americans are privately insured for lengthy nursing home stays.

A completely noncompetitive system is not in the cards either. There is virtually no support for a Canadian-style national health system among the militantly moderate Clinton Administration policy-makers. At the very least, such a radical restructuring of the national health care system would involve an expansion of the federal budget that no Clintonite would accept.

Analyses conducted by the Georgetown Center also dispute the insurance industry's claims that managed care provides a solution to keeping costs low. Feder argues that the evaluation and oversight necessary for true managed care is too costly. Instead, most insurers opt for simply denying payments based on rigid rules for deciding what is generally needed for patient care. In addition, insurers tend to sign with providers that offer the best volume discounts rather than the most cost-effective care for individual patients. According to Dr. Feder, three years of intensive managed care efforts by the insurance industry has not slowed the momentum toward cost hikes by the health care industry.

If managed care and open competition are not the wave of the future, what will take their place? As of this writing (just prior to the Inauguration), the answer to that question remains murky. In general, Feder supports the creation of mixed private/public sector boards or commissions to determine an overall health care budget and negotiate fees with health care providers. This might take the form of a single national board, or independent boards for each State, or even regional boards which some analysts describe as "super-HMO's" (health maintenance organizations).

Under this concept, health care providers could continue to compete, but not on the basis of price. Nevertheless, the most successful providers would be those that could keep their total costs as low as possible, because their fees would be set by the independent boards. Total revenue of private providers, however, would probably increase, because all Americans would be covered by some type of third-party payment system.

Some Washington pundits already are predicting early passage of a health care financing system based on Feder's concepts, as well as sweeping changes in the Federal health bureaucracy. Supposedly the Health Care Financing Administration (HCFA), whose rules and regulations have been the bane of the nursing home operators for years, would be eliminated. Medicaid would be replaced by universal insurance for the poor. The special status of the VA hospital system would be phased out, as the facilities become simply another group of providers eligible for insurance payments for both veterans and non-veterans.

Others are more skeptical, particularly when it comes to long-term care. The Feder proposals apply basically to acute care, for which employers already are carrying most of the costs for the majority of insured Americans. Long-term care, however, is financed mainly by the government, the residents, and their families. Since a large proportion of long-term care residents are retirees, it is not clear whether it makes sense to expect a cost board dominated by employers to fairly represent resident interests in negotiations with long-term care providers.

A senior staff member of the Senate Committee on Aging reports that Congress is willing to wait to see what the Administration comes up with, but adds that a strong consensus is building for new long-term care legislation, regardless of what Clinton does. "It won't be the Kennedy bill," the staff member said, referring to one of last year's failed efforts at generalized health care reform, "but it will include a new financing system." The staff member also suggested that protection against marketing abuses in long-term care insurance is more likely to pass this year without the threat of a presidential veto.

The National Governors Association is also pressing for nursing home financing reform, following a meeting on health care issues last December in which virtually every State complained that Medicaid long-term care expenses were driving them into bankruptcy. Recent studies indicate that, in most States, any increased state tax revenues resulting from economic recovery will be consumed by increased Medicaid costs in 1993.

In summary, the pressures for major reform of long-term care financing are building rapidly in Washington -- more rapidly, perhaps, than many in the industry expected. The Clinton administration may be forced to at least give a stamp of approval to a congressional initiative on long-term care even before it can enact the more sweeping changes advocated by Dr. Feder and her supporters.