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Age and cost exacerbate national health care dilemma.

The changing health care environment in the United States and President Bill Clinton's push for a national health care plan have significant implications for American business. indeed, one of the major challenges for business in the 21st century will be the continued acceleration of health care costs. An aging workforce and growing retired population, characterized by a higher prevalence of chronic conditions, will only exacerbate the problem as the year 2000 approaches. Policies are being proposed by a variety of interests to address the issues of health care provision and costs, and the new president made creation of a national health plan the cornerstone of his campaign. Only a week into his new presidency, Mr. Clinton created a task force on national health care reform and named his wife as its chair. What lies ahead will be a fascinating journey because the issue is complex and the stakes are high.

Although the rising cost of health care in the U.S. is one of the most widely discussed policy issues of the day, there are a host of health care concerns that promise to affect business policy well into the next century. These issues may be viewed from three perspectives. From the standpoint of the service providers, broad changes in the policy and marketing environments have led to significant alterations in how business is conducted. More providers are market driven than ever before and, given current trends, with respect to the increased level of competition, a market orientation has become necessary just for survival. From the standpoint of health care consumers, rising costs, a lack of health care insurance for an increasing number of persons, and rapidly changing options for those who can afford care have raised serious concems. These concerns have led to increased pressure on public bodies to formulate a rational policy and, in fact, made health care one of, if not the, major issue in the 1992 elections. From the standpoint of businesses that provide health insurance as part of a benefits package, rapidly increasing costs, shifting options, and rapid changes in labor force composition have left many observers wondering about the future of employer-sponsored coverage.

This article focuses on the last of the three perspectives, the future of employer-sponsored insurance (the president envisions mandatory coverage by employers), and touches on a variety of factors that will affect the situation. First, however, several current developments are reviewed to provide a context for a 21st century perspective.

The Demographic Context

The U.S. is currently experiencing unprecedented demographic changes. These changes, in turn, are rapidly altering the nature of health care demand. Population growth is slow by historical standards, though the recent upturn in the number of births and changes in the volume of immigrants probably mean that growth, albeit small, will continue for the foreseeable future. At the same time, the population of the U.S. is aging. By the end of this century, the population will be dominated by those over age 40. The older, slowly growing population that will characterize the 1990s and the early part of the next century portends an entirely different health care environment from that seen between 1950 and 1980.

Although growth from natural increase (births minus deaths) has slowed, the contribution of immigration to growth has increased substantially. Currently, more than 25 percent of annual population growth occur because of immigration. Given the yearly increase in deaths (the number of births will remain relatively constant), the proportion of total growth accounted for by immigration will increase considerably in the near future. In addition, the growth rates of racial and ethnic minorities in the U.S., particularly those for African-Americans and Latinos, far exceed that of the anglo population. The increasing contribution of immigrants and racial/ethnic minorities to population growth implies that the U.S. is again becoming a land of diverse languages and cultures. In the first three decades of the next century, fully one-third of the population of the U.S. is expected to be part of a visibly identifiable racial or ethnic group.

Household and family structure are changing as well. Both households and families are considerably smaller, with the size of the average household shrinking by one person and the average family by more than one and one-half persons since 1940. The number of single person households has increased to about 25 million, and the growth of single person households is greater than the growth in other types of households. The reduction in the size of families is caused by the decline in the birth rate as well as the rapid increase in single-parent families. Single-parent families now comprise more than one-fifth of all families, and this percentage is increasing. Moreover, single-parent households have a much greater probability of being at or below the poverty income level.

Along with marked changes in the racial/ethnic composition and household or family restructuring of the U.S., there also have been major shifts in the income structure. The income discrepancy between who can be labeled the "haves" and "have nots" appears to be widening. Between 1970 and 1987, the number of persons at or below poverty level increased from 25.4 to 32.5 million, or from 12.6 to 13.5 percent of the population.[1] There are also wide compositional differences between the poverty and nonpoverty population. Although the median age for the total U.S. population was 32.3 years in 1987, the figure for the population at or below poverty level income was 23.7. Of the 32.5 million persons at or below poverty, about 17 million are age 17 or younger. Moreover, nearly 23 percent of the population age six or younger falls into this category.[2] Overall, the segments of the population that experience the highest levels of poverty also are increasing most rapidly in number and proportion.

The Health Care Environment

Although the provision of health care has been to a great extent driven by the size and composition of the population, many other factors have impacted the health care environment. One factor is he increasing cost of virtually every component of health care services. Although the population of the U.S. increased by about 21 percent between 1970 and 1989, private and public expenditures for health care increased 751 percent and 915 percent, respectively. Federal outlays for health care increased even more over the same period (984 percent). Components of these outlays include Medicae (+1,385 percent), Workers Compensation (+1028 percent), and hospital and medical care for veterans (+600 percent.[3] Cost increases show no sign of abating and, in fact, the recent rate of increase has risen.

At the same time, health care supply components have not changed as rapidly. For example, between 1970 and 1987 the number of physicians and dentists grew by 175 percent and 41 percent, respectively. The number of nurses increased by 220 percent.[4] Supply levels for some components actually declined. The number of hospitals and hospital beds declined by 4 and 19 percent, respectively, although hospital personnel grew by 44 percent.[5] Although some observers would contend that we are oversupplied with respect to infrastructure and some personnel, the slow growth in supply and significant maldistribution of health care resources have resulted in very uneven access to services.

Other health care-related environmental factors of import to businesses include technological advances that bring about better instruments and the introduction of pharmaceuticals for addressing morbidity and avoiding mortality. Strongly associated with technological advances is the issue of how quickly new treatments are made available to the general public.

The changing popularity of treatment modalities on the part of physicians (either as i result of changing consumer or provider preferences or because government approval has been extended or withdrawn) is an important environmental component. For example, the implementation of lithotripsy as a substitute treatment for surgery in the case of gallstones has occured slower than expected in some geographic areas because of physician resistance to the change. Gallstone surgery requires hospitalization for several days and a long recovery period, and lithotripsy can be done on an outpatient basis and reduces recovery to two weeks. Variations and changes in treatment preferences have implications for business in that there are complications for both health care costs and lost work time for employees.

Long-Term Care

The growth in the number of elderly, coupled with the previously-mentioned large increases in the cost of health care, are making long-term care prohibitively expensive. The cost of care within hospitals has more than doubled since 1980 as measured by average daily room charges, average cost per day, and average cost per stay. This leaves outpatient, home care, and other institutional services as financially more attractive options. Although the proportion of persons over age 65 who live in nursing and related care facilities has remained relatively low for decades, the number of facilities and eds has increased. From 1971 to 1986, the total number of facilities increased from 22,004 to 25,646 (+17 percent), and the number of beds rose from 1.2 to 1.7 million (+42 percent). In particular, the number of beds in skilled nursing facilities ties climbed from 4.3 to 6.9 million (+60 percent).[6]

The increase in need for long-term care options is a consequence of the aging of the U.S. population although the overall shift from acute to chronic diseases and conditions is a significant factor in the health services utilization. Medical advances have allowed persons to live longer even after becoming ill, and many require ongoing medical management. The services required range from hemodialysis to intravenous transfusion. Because many of these services can be provided at home, home health services have risen dramatically in recent years. For example, the sales of Continuous Ambulatory Peritoneal Dialysis equipment (equipment designed for home use for kidney dialysis) exceeds $100 million per year. Some treatments and therapies, although not administrable at home, can be delivered at physician's offices, clinics, and in other nonhospital environments. These shifts in treatment setting affect the cost of care.

Public policy regarding payment for long-term care has been slow to develop although it will likely become a key component in President Clinton's national health care plan. The Los Angeles Times asserted that the President's intention to include long-term care coverage in his national plan "brings a striking new element to the equation that could alter the dynamics of the emerging debate and greatly increase the cost of reforms."[7] Although the federal and state governments understand that long-term care is now part of the American way of life, and that such care often can be delivered most economically and most humanely in noninstitutionalized settings, mechanisms for payment for such services have not been proactively addressed. Even private insurers, who have begun offering long-term care benefits, are overpaying for institutionalized services that could be best delivered elsewhere. Home health care options are likely to play a major role in the control of costs later in this decade and on into the next century.

Health Care "Policy"

Health care policy on the part of the federal and state governments significantly affects the cost of health care to U.S. industry. Increased pressure at all levels of government to "do something about the high cost of health care" and address the not-unrelated problem of the 37 million Americans who have no health uninsurance is generating a large number of proposed solutions to these problems. All of these proposals would affect the cost of coverage, and a few are argued to threaten the very existence of the insurance industry.

Although business faces a limited direct impact from the costs of long-term care, there are some significant indirect implications. To the extent that corporations provide health care benefits to their retirees, there will likely be a growing clamor for coverage of long-term care under these policies. In addition, current employees are increasingly faced with the burden of long-term care costs on the part of their parents or other family members. This was a consideration of limited importance in the past but one that will grow in significance in the future.

A major implication of the shift in the types of health problems that has occurred is the growing prevalence of chronic conditions characterizing an aging workforce. Traditional employer-sponsored insurance is geared toward the treatment of acute conditions and not the management of chronic conditions. As a result, there is a growing mismatch between the benefits offered and the needs of the beneficiaries. In particular, traditional indemnity policies are hospital-oriented and encourage inpatient care rather than its alternatives.

One of the issues that employers must deal with, then, is the changing nature of its employees' health problems. As employers and other major purchasers of health care take a more active role in managing the care of their covered lives, there will be increasing pressure to modify the nature of the coverage. Because the two major concerns of those paying for health care are cost and outcome, there will be an increasing demand for alternatives to hospital care that are most cost-effective and result in acceptable outcomes. Otherwise, both employers and employees will continue to suffer from the mismatch.

The most significant factor in health status, it is now understood, is the impact on lifestyles. Lifestyle-related health problems require behavioral change. Businesses face a challenge to provide adequate incentives to deter unhealthy behavior (e.g., cigarette smoking and obesity). These behaviors have been shown to reduce worker productivity and increase health care costs. However, this aspect of illness control is not addressed by most existing insurance plans.

Impact on Business

The developments in health care over the last decade have placed American businesses in a difficult position for a number of reasons. Some of the factors that caused this position are clearly financial, but others are more complex. Clearly, business believes it is faced with seemingly out-of-control health care costs. As employee health care costs rise faster than other component costs, employers are faced with some unsatisfactory options. Those employers who were generous enough to allow retirees to retain their health care benefits are affected the most. The "burden" of this benefit commitment will grow as the current retired population ages and more retirees are added to the rolls. Some argue that the poor competitive position realized by U.S. industry in the world market is in part the result of rising health costs.

This situation has forced a number of employers to become self-insured. In an attempt to reduce costs (e.g., by eliminating the middle man) and gain some control over the management of their employees' health care, they have entered the insurance business. Obviously, this is something that most businesses prefer not to do and, in fact, the actual long term cost savings have yet to be determined.

One other consequence of rising costs has been the dropping of insurance coverage altogether or, at least, the change to a voucher system. This seems to represent only a short-run solution and creates dissention within the industries involved in the elimination of health insurance. Those who continue to provide coverage argue that they are at a competitive disadvantage with businesses that have reduced the cost of employee insurance in the budget.

Whether involved in a traditional insurance arrangement or self-insured, employers are faced with some unpleasant decisions about the coverage they offer their employees. Any change in benefits, particularly health benefits, is perceived negatively by employees, and businesses are sensitive to this concern. This is particularly true in unionized industries in which health care benefits have been secured by years of negotiation.

National Health insurance

In 1990, the Congressional Health Care Commission (the "Pepper Commission") issued a document that probably comes closer to being a national health care policy statement than anything that has preceded it. The proposed initiative, with an estimated cost of $86 billion, would expand private health insurance to most of the 37 million Americans who are without coverage and develop a system that would guarantee long-term health care for persons in need irrespective of their financial status. The federal government would pay $66 billion, with the remaining $20 billion being assessed to private businesses. Components of the plan include: mandatory health insurance coverage for businesses with 100 or more employees, tax credits and subsidies to smaller companies to encourage them to offer an insurance plan after five years all businesses would be covered under the public plan), free coverage for uninsured pregnant women and children under age six in families below 185 percent of the federal poverty level, and no out-of-pocket expenses for patients for the first three months spent in a nursing home.

In the summer of 1991, Senator Bob Kerrey (D-Nebraska) introduced "The Health USA Act of 199l." A basic objective of the bill is to disassociate health insurance from the work place. it would also abolish the Medicare and Medicaid programs. The legislation is designed to ensure the ability to pay for care for all U.S. citizens and permanent residents. Services covered include: primary care, inpatient and outpatient hospital care, hospice services, dental care for children to age 18, and preventive services. A combination of federal income, corporate, and state taxes would fund the program.

Costing an estimated $500 billion annually, the Kerrey plan would allow for the establishment of a trust fund by the U.S. Treasury Department. The Treasury Department would be responsible for allocating funds to states based upon population size and age structure. Each state would provide funds to match the federal dollars and, in turn, these monies would be distributed to health care providers for services performed. Payment rates for professionals and hospitals would be negotiated each year.

Critics of these measures argue that they are too costly and that, in the case of the Kerrey plan, thousands of jobs in the insurance industry are at stake.

The Clinton Plan

Soon to be brought to the table is President Clinton's plan which will likely focus the national debate. From campaign speeches and position papers, it appears the president would build upon the nation's private, employer-based health insurance system and require every employer to offer health care coverage for workers. The government would provide coverage for the unemployed. An opening would be left for employees to be taxed for health benefits. Cooperatives or networks of health insurance purchasers would be created, and insurers, HMOs, and other participants would compete for their business. The latter is an untried concept certain to undergo intense scrutiny during the legislative process. Proponents argue that the market works in other areas and that competitive forces will ensure its success in health care. A national board would be created to set health care budgets for public and private plans with fee schedules fixed and managed by the states. And somehow, long-term care would be woven into the plan. Describing his intentions as "an unprecedented effort," the President said, "There is no such thing as a perfect solution. So, whatever course we take, we will preserve what is best about American health care, of consumer choice and the quality of care."[8]

Some insurance reform proposals would separate coverage from employment status. Other reform measures focus closely on those already employed. in regard to the working uninsured, some argue that strategies such as tax subsidies for the self-employed, tax incentives for small employers, improved access of small employers to pooling arrangements, and mandating the offering or provision of benefits by all employers would reduce the number of uninsured substantially.[9]

Focusing on the entire population, one researcher emphasizes the long run policy option of putting in place a federal fail-safe health insurance program that would provide coverage to all who do not have adequate private health insurance. Those who take advantage of such a program would have less provider choice than those with private insurance and would pay for treatment based upon their income.[10] Congress recently rejected legislation that contained in revised form some of the provisions described above, opting to tinker with minor parts of the insurance system rather than consider wholesale modifications. Moreover, employee-based coverage has declined in recent years in part as a result of the changing industrial structure of the U.S. (But that may change if the heart of the president's plan survives.) in the absence of a national insurance policy, private insurers are attempting to develop strategies for meeting the needs of this market.[11] To the extent that health care insurance is separated from the workplace, health care issues will likely decline as a concern of American business. However, the positive or negative impact of health care policy on the well-being of the workforce cannot be overlooked.

"Policy" For The Next Century

Historically, the U.S. has not had a formal health care policy of any type. This situation exists in stark contrast to that of other developed nations, including our neighbor to the North - Canada. The limited incursions into health planning that occurred during the 1960s and 1970s failed for a variety of reasons. Even if they had been implemented, they would not have produced a coherent policy for health care in the U.S. Other initiatives that have taken on the force of policy are best represented by the Medicare program. By introducing a prospective payment system, Medicare attempted to reduce the open-endedness of its financial responsibilities. Although it focused strictly on the financing of health care for a select portion of the population, Medicare did effectively, even if indirectly, formulate policy. Significant changes in practice patterns occurred as a result. Even this mechanism, however, has become useless as a force for policymaking. The proactive stance of Medicare has been replaced by a reactive, negative posture that has severely limited its ability for creative guidance.

There is also no extant policy for an industry as heavily regulated as the insurance industry. Despite the significance of this industry for the operation of the health care system, the system of state regulation results in a total lack of coordination.

The issues of importance for the health care system overall and those of importance for American businesses do not coincide very well. As a society, we are faced with runaway costs, increasing pressure on services created by an aging population, unsatisfactory means of financing long-term care, and growing numbers of medically uninsured, among other problems. Although all of these issues at least indirectly affect the business community, some are more significant than others. The issues for business, on the other hand, are much narrower. Their direct concerns focus on the cost of care for their employees and the effectiveness of the services they are buying for their workforce. In fact, it has been these issues more than anything else that have forced the development of business coalitions and other initiatives geared toward taking over the management of their beneficiaries' care. These issues, along with the realization that they are paying a share of the cost of care for the indigent and the uninsured, have prompted some within the business community to take demands for a national health insurance system to Washington.

Given a population that is older, chronic-disease-dominated, and in need of increasingly high levels of health care resources, new policies will be required to preserve the level of care that has come to be taken for granted. The issues of import - access to care, long-term care, adequacy of health insurance - must all be addressed, most likely through a public sector/private sector joint effort. The cost of care for the indigent, the uninsured and the elderly will have to be shared by all. The Clinton plan, for example, envisions the government funding a basic benefits package for poor people.

Although the population overall is aging, numerical increases are expected for the 15-and-under age cohort. The projected population of the U.S. includes a segment that is older, in need of more care, and very dependent on federal programs, coupled with a much younger segment that has fewer - but nevertheless significant - health care needs and a limited ability to pay for care. Policymakers who wish to adequately address the health care needs of the entire population must be cognizant of this dual sector market that has developed. it is for this population (or at least the parents of this population) that employers will be providing coverage in the future. Moreover, this is the future workforce of America.

A Limit on Heroics?

The most expensive types of care today are associated with heroic efforts to keep critically ill patients alive. As the population ages, the number of persons requiring extraordinary efforts will grow disproportionately and become a heavier burden on health resources. At the national level, there is virtually no policy about this issue, and some would argue that too many resources are being utilized in these efforts. Those resources, it is argued, could be better expended on a larger and less ill younger population. The financial strain placed on an already overburdened system is likely to result in the development of standards (medical and moral) that specify the circumstances under which heroic efforts cease.

The increase in the per capita cost of care may slow as reforms are instituted, but the overall cost will grow rapidly, especially as baby boomers begin to enter their less healthy years. Policy makers will have to search for better methods to contain costs and, at the same time, guarantee that health care is still available to all of the population. Medical "breakthroughs" will undoubtedly reduce the financial impact of some of the most costly diseases (e.g., AIDS), but sickness and death are inevitable. Being saved from one malady generally means being stricken - albeit later - by another.

Priorities for care will have to be set. However, the notion that health care can somehow be rationed is being challenged in the courts. In a recent case, a U.S. District Court judge ruled that Blue Cross and Blue Shield must pay for a bone marrow transplant for an eight-year-old girl.[12] If the decision is upheld at higher levels, some current attempts to control costs could be negatively affected. These cases are being tested at a time when numerous governmental jurisdictions are considering some form of health care rationing. The denial of payment because a treatment is judged to be "experimental" may no longer be allowed or, at the very least, the experimental category will be redefined.

Although American business is not able to alter the societal effects of demographic changes, the impact of slowing growth and an aging population on health care availability and costs are part of the business agenda.[13] It will take the creative energies of a public and private coalition to create a system that is both just and cost effective. Although the Clinton Administration may succeed putting a national system in place, its components will continue to be refined well into the next century.

[1] U.S. Bureau of the Census, 1989, "Poverty in the United States," Current Population Reports, Series P-60, No. 163, Washington, D.C., U.S. Government Printing Office, Table 1. [2] U.S. Bureau of the Census, 1991, Statistical Abstract of the United States 1991, Washington, D.C., U.S. Government Printing Office, Table 743. [3] Ibid, Tables 1, 137 and 145. [4] Ibid, Table 158. [5] Ibid, Table 167. [6] U.S. Bureau of the Census, 1991, Table 179. [7] Chen, Edwin, Hilary Clinton to Lead Health Panel," Los Angeles Times, January 26, 1993, Al. [8] Ibid. [9] Wilensky, Gail, "Filling the Gaps in Health Insurance: Impact on Competition," Health Affairs, 7, Summer 1988, 133-149. [10] Reinhardt, Ewe E., "Health Insurance for the Nation's Poor" Health Affairs, 6, Spring 1987, 101-112. [11] Kirchner, Russell J., and Richard K. Thomas, "New Markets for Health Insurance," American Demographics, December 1990, 39ff. [12] Ruffenbach, Glenn, "Debate Grows Over Rationing of Medical Care," WALL STREET JOURNAL, March 27,1990, B1, B4. [13] Pol, Louis and Richard Thomas, "The Demography of Health and Health Care," 1992, New York, Plenum.
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Title Annotation:new US health care policy
Author:Pol, Louis G.; Thomas, Richard K.
Publication:Business Forum
Date:Jan 1, 1993
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