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Diverging views on health care reform.

BY NOW IT'S an obvious, indisputable fact: The United States is in the throes of a health care crisis. In 1990, health care spending in the United States reached $666.2 billion, an astonishing 12 percent of the nation's Gross National Product (GNP); the U.S. Commerce Department predicts that health care costs will equal 14 percent of the GNP in 1992. These cost rises have been growing steadily, from $2,572 per family in 1980, to a staggering $6,535 per family in 1991.

Despite the exorbitant amount of money spent on health care, approximately 37 million Americans have no health insurance. Additionally, among the uninsured, 66 percent are fulltime workers or their dependents and 14 percent work part-time or belong to families with one or more part-time workers.

Employers have been especially hard hit by spiralling health care costs. A U.S. Chamber of Commerce report shows that corporate health expenditures in 1990 averaged $3,197 per employee, a 12 percent increase from the previous year. In response, some companies have altered their benefits packages by increasing deductibles and co-payments, changing their funding systems, requiring second opinions for surgery, refusing to pay for certain procedures and offering managed care programs such as HMOs, PPOs and point-of-service plans. Some large companies are taking a different tack: they are dealing directly with doctors and hospitals for health services or, in the case of certain very large firms, they are hiring their own physicians and running their own medical facilities.

Other approaches also exist. John Groskopf, senior vice president at MMI Companies Inc., a health care risk management company, says that in the 1990s, risk managers will need to take a proactive approach to managing health care costs. "The emphasis will be on reaching an 'appropriateness' level of care. This means ensuring the patient gets the right care for his or her condition. This approach involves asking the question: `What is the appropriate level of care for a particular condition?'" Mr. Groskopf remarks that to perform this function, risk managers have to be conversant with medical issues and terminology. "A health care risk manager must have a working knowledge of medical issues so as to be effective in helping ensure that standards of medical practice are met. For example, many hospital bills are higher than they should be because of medical mistakes. For example, in the case of unsterilized equipment that leads to an infection, the cost of the treatment for the infection will be on the bill, but may not be designated as such. The risk management function can make a big difference in discovering and preventing unnecessarily costly occurrences such as this. In working toward this end, the risk process must involve the medical profession; there's a direct link between quality of risk management and the quality of care."

While companies and their risk managers are doing whatever they can to contain increasing health costs, various reform proposals are being discussed at the federal level. According to Dr. Roger Taylor, National Leader Health Care Consultant with the Wyatt Co., there are approximately 50 health care reform bills currently before Congress, not to mention numerous other proposals not yet embroiled in legislation. These plans, advanced by members of Congress, research analysts, academics and trade associations, take different approaches to resolving the crisis.

Incremental Reforms

THE VARIOUS PROPOSALS aim to accomplish two goals: first, to broaden the availability of health care for the millions of uninsured Americans, and second, to reduce the costs of health care inflation. Proposals aimed at undertaking modest alterations of the current system are often referred to as incremental reforms. Changing malpractice insurance policies is one such step. Critics of the current system say that malpractice insurance rates are so high that health care providers must pass those increases onto consumers; hence, the continuing increase in health care costs. This reform approach is predicated on the assumption that a significant number of physicians practice "defensive medicine" - that is, overprescribe certain medical tests and procedures to protect themselves from malpractice claims. Malpractice insurance reforms call for limiting the awards on realpractice suits, limiting attorneys' fees, developing new clinical practice guidelines and using arbitration instead of the judicial process to settle some claims.

Another incremental reform calls for expanding the availability of COBRA (The Consolidated Omnibus Reform Act). COBRA, which allows employees who either lose their jobs or have a change in marital status to continue receiving health benefits through their ex-employers' health plan, is generally used by only 10 percent to 21 percent of those eligible for its coverage, reports the Employee Benefit Research Institute (EBRI). Unfortunately, since COBRA requires ex-employees to purchase their own coverage - and a number of those eligible are likely to have just lost their jobs - many individuals would probably refuse its coverage due to cost. Two forms of legislation aimed at extending COBRA eligibility are (H.R. 1116), introduced by Rep. Patricia Schroeder (D-Colo.), and (S.514), introduced by Sen. Barbara Mikulski (D-Md.).

Market-Based Reform

REFORM OF THE small group insurance market is another option being considered. An example of this type of legislation is Senator Lloyd Bensten's (D-Texas) Better Access to Affordable Health Care Act (S. 1872). "This type of plan encompasses a broad range of terms to mean reforms that would make it easier for certain employers to obtain affordable health insurance," reports Dr. Taylor. "It would amend insurance policies so that smaller companies can more easily obtain health insurance. Generally, these reforms would change underwriting rules that exclude some high-risk groups that have bad cost experiences causing their premiums to increase beyond affordable levels; the result would be the establishment of `community rating,' under which insurers would have to charge a similar rate for a health plan regardless of the age levels or health risks of the employees in that group." Other market reform proposals would allow small employers to form pools so that they could afford to buy insurance for their workers; some of these plans would contain a provision requiring state governments to provide subsidies or financial inducements such as tax credits to help smaller companies afford insurance.

Proponents of small market reforms say that an approach such as this would widen the availability of health insurance coverage without substantially increasing health care costs; others, however, charge that "community rating" would lead to an unfair system in which the employers of younger, healthier employees would subsidize the costs of higherrisk group s.

Tax-Based Reform

TAX-BASED REFORMS, such as President Bush's Health Care Reform Proposal, are designed to provide tax credits to low-income and some middle-class individuals so they can purchase health insurance. President Bush's plan frees employers from responsibility for health care, and shifts it onto individuals. This approach operates on the assumption that people, in their own economic self-interest, will select the best, most cost-effective plan for their needs. Assumably, this, in turn, would lower health care costs while allowing the health care industry to continue to operate as a free market. According to the Department of Health and Human Services, President Bush's plan would allocate credit vouchers worth $1,250 per year for low-income individuals, $2,500 for married couples and $3,750 for families of three or more. Those with higher incomes would be allowed to take tax deductions. The plan, however, would not come cheap; some estimates place the cost at $35 billion per year.

Play or Pay

OTHER, MORE INVASIVE plans are aimed at revising the current methods of financing and delivering health care. Some programs would reduce the age limits for Medicare coverage and allow families with higher incomes to qualify for Medicaid. Conversely, employer mandates would require employers to provide health insurance to all of their employees; a variant of this policy, called "play or pay" plans, would allow employers to either provide coverage to their employees or contribute a portion of their workers' wages to a government-run insurance pool. Funds from the pool would pay for care for the unemployed, other nonworkers and the poor. Two play or pay proposals before Congress are (S.1227), introduced by Sen. George Mitchell (D-Maine), and (H.R.3205), introduced by Ways and Means Committee Chairman Dan Rostenkowski (D-Ill).

Critics of the "play or pay" plan argue that many smaller businesses would be unable to afford the cost of health insurance, and, if forced to pay the proposed 7 percent or 9 percent payroll tax, would have to cut costs via layoffs or perhaps even go out of business. An EBRI analysis, for example, found that between 131,000 and 965,000 jobs could be lost under a play or pay proposal with a 9 percent tax if other labor costs did not adjust. The study also suggests that some employers whose health benefit costs exceed the payroll tax would opt to enroll their workers in the public plan rather than providing the benefits themselves. "Play or pay plans are untested, so no one really knows what would happen if they were enacted," says Jill Foley, a co-author of the EBRI report. "A simulation we did showed that the proposal could cost employers as much as $45 billion; to compensate for a higher rate in health care costs, some companies would be forced to cut costs elsewhere, reduce hiring or reduce salaries. However, some of the proposals call for certain measures to alleviate the effects of this type of legislation on small businesses, such as subsidizing the smaller companies, allowing them to buy into a group or giving them more time to comply."

Another category of plans calls for a single-payer system financed and administered by the federal - or individual state - government. Such plans, which are often modeled on the Canadian system, cover all Americans, regardless of age, income or health status. The plan touted by the Committee for National Health Insurance is one example; through it, the federal government would create a basic package of benefits that would be administered at the state level through private health insurance companies. Taxes would be levied on both employers and employees to fund the plan. EBRI reports that cost estimates for a single-payer plan vary widely, with some figures estimating a $30 billion increase in costs.

A State Approach

THE VARIOUS FEDERAL proposals represent merely one facet of the health care reform movement in the United States. Some states, tired of waiting for congressional activity, are enacting their own legislation to solve this critical problem; the Health Insurance Association of America reports that 92 bills relating to health care issues were enacted by various states in 1991. According to The Wyatt Co., Massachusetts, Connecticut, New York, Michigan, Illinois and Oregon are some of the states that have developed health care reforms. In 1988, Massachusetts even attempted to implement a play or pay plan. Entitled the Massachusetts Universal Health Plan, the proposal would have required employers with five or more workers to provide health insurance or pay a tax of approximately $1,700 per employee. However, due to fiscal crisis and administrative problems, the state legislature voted to delay implementation until 1995; it remains to be seen if the plan will ever be set in motion. In Oregon, there is a proposal that focuses on expanding coverage for Medicaid by rationing certain medical procedures according to priorities determined by community census; in Vermont, a commission will make recommendations on how the state can enact universal health care by October 1994.
COPYRIGHT 1992 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Author:Christine, Brian
Publication:Risk Management
Date:Jul 1, 1992
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