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Cost shifting: the final straw in federalization of health care.

Cost Shifting: The Final Straw in Federalization of Health Care

The history of the U.S. health care delivery system can be compared to the four seasons (figure 1, page 29). Spring, when everything is readying for bloom, was the period before 1965, when the Medicare and Medicaid programs were passed by Congress. Summer can be equated to 1965-1982. It was a period when physicians and hospital received payment for services previously performed as "charity work." This new source of revenue, coupled with a "no questions asked" policy on the part of government and insurance companies, resulted in providers' having considerably higher incomes. During this period, what might be called "medical fee entitlement" came into bloom.

In the beginning, with the "medical fee entitlements" of Medicare, providers made money. Subsequently, lawyers, looking for a piece of the revenue action, made money with malpractice claims, until the malpractice crisis of the mid-seventies led to rising medical costs. These increases, in turn, brought about a series of efforts by the federal government and other payers to control costs. In 1982, the Tax Equity and Fiscal Responsibility Act (TEFRA) was signed into law. It proposed a prospective pricing system for Medicare. The following year saw amendments to the Social Security Act that brought about prospective pricing by diagnosis-related groups (DRGs) and utilization review activities through peer review organizations (PROs). From 1982 to perhaps as far as 1995, one can consider the season in health care to be autumn. The blooms and the greenery of summer are beginning to fall away. With controls came overutilization, increases in the scope and amount of charges, increases in health policy premiums, and screams from employers.

Somewhere around 1995, winter will set in. A National Health Service will be a reality, along with rationing of health care. The winter season can be avoided, but the effort will require the cooperation of a number of organizations (medical and legal professions, labor unions, employers, legislators, politicians, the insurance industry, and society at large). If none of them is forthcoming, America's competitive edge in national and international markets will be eroded. With the federal budget deficit and the nation's trade imbalance continuing to increase, the business community, fighting for survival, will petition Congress to institute a National Health Service. [1]

To understand the position of employers, it is important to recall that the Tax Reform Act of 1954 provided a tax advantage to employers who provided a tax advantage to employers who provided health care benefits to their employees. In 1989, the cost of providing health care benefits is no longer the tax advantage it was and those costs continue to rise. A National Health Service will introduce a period of rationing--a period when Americans will experience severe cultural shock. They will no longer have what they want in health care services when they want it.

The Workers' Compensation program has also become an issue in the health care costs debate. Funding for Workers' Compensation comes from employers via the purchase of Workers' Compensation insurance policies, mandated by the states. While costs of the Medicare program, indemnity group policies, and alternative delivery systems (HMOs, PPOs, et.) are better controlled, Workers' Compensation is a playground for cost shifting and is laden with opportunities for continuation of high provider incomes at the expense of employers and their insurers.

Historically, Workers' Compensation has lagged behind Medicare and non-Workers' Compensation programs when it comes to issues involving money. With controls in place, and employers forcing more costs on the backs of employees, providers discovered covkers' Compensation, which pays from the first dollar and does not come from the employee. By shifting as much cost as possible into Workers' Compensation, a return by the provider to the cornucopia is possible. Only with vigilant Workers' Compensation cost controls, including physician input, [2] can abuses be curtailed.

If Workers' Compensation costs are not controlled, another cry from the business world will erupt. This will bring Workers' Compensation under a federal health program and complete the circle. All health care delivery, whether work-related or not, will come under the aegis of a federalized system, bringing with it all the negatives of centralized controls (figure 2, page 29). This will foster cries of infringement of our 14th Amendment rights.

Perhaps, after we suffer through the last two seasons of health care delivery, we may once again see rationality and, much as with nature, a return to a renewal of seasons. Everything seems to run in cycles, but the question arises, how long will the winter of rationing last?


[1] Freudenheim, M. "A Health Care Taboo Is Broken." New York Times, May 8, 1989, pp. D1 and D7.

[2] Taricco, A. "Medical Consultant Key to Dealing Effectively with Insurance Fraud and Abuse." Physician Executive 14(5):22-5, Sept.-Oct. 1988.

Alfred Taricco, MD, FACS, is a Medical Director of Aetna Casualty and Surety, Hartford, Conn. He is an associate member of the College's Forum on Bioethics. The opinions expressed in this article are those of the author and do not necessarily reflect the views of Aetna Life and Casualty. Some of the material in this article was presented as part of the author's keynote address at the Annual Kansas Workers' Compensation Seminar, Wichita, Kan., Oct. 26, 1989. The material was also used for a presentation at the ACPE's National Conference of Physician Executives, San Antonio, Tex., May 16-19, 1990.
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Title Annotation:health insurance policy
Author:Taricco, Alfred
Publication:Physician Executive
Date:Jul 1, 1990
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