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Recasting health care.

Millions of lives and billions of dollars are at stake. Associations study the challenge.

"The issue is not whether to change, but how," Linda Jenckes booms authoritatively. "Americans are not muddled about what they want, just how to pay for it," Ted Scallet agrees. And John Patchett says it comes down to two basic decisions: What format and how do we pay?

This year the United States will spend in the range of $809 billion to $839 billion on health care, and the most optimistic of plans to reform our current system aims to hold growth to the rate of inflation, not reduce that figure. By comparison, we'll spend an estimated $307 billion on national defense--and $445 billion on education.

Jenckes, Scallet, Patchett--respectively, senior vice president of the Health Insurance Association of America, Washington, D.C.; executive director of the Coalition of Association Employee Benefit Plans and a partner in the law firm LeBoeuf, Leiby, Lamb & MacRae, both in Washington, D.C.; and director of state legislation at the American Medical Association, Chicago--and others in the association community are captured by the format and price tag questions much as government is. Associations grapple with operating costs, member needs, and their relationship with the larger community.

Analogously, three aspects of the health care crisis drive the many reform options: cost, quality, and the uninsured. If that sounds suspiciously simple to you, you're right. Both the Medusa-like crisis and the large library of reform proposals are strenuously complex.

Tim Gibson, director of public affairs and medical service at the Iowa Medical Society, West Des Moines, is working in coalition with other state groups to describe a compromise. He's skeptical. "It's almost frightening to look at an apparent solution and see so many downsides. Even with so many people working in good faith, solutions don't look great and always gouge some group here or there. The problems are terribly complex, there are so many forces and so many groups with critical stakes."

"Our differences are sharp, and we're all trying to put our pieces in place," agrees Barbara Redman, executive director of the American Nurses Association, Washington, D.C. The nursing profession proposes comprehensive reform, and Redman argues powerfully for it. "This country has put reforms in incrementally for the last 20 years--we're tinkering. It's clear that if you fix one little piece, the problem pops out elsewhere. Reform will be sequential, but it must be complete or we won't plug the holes."

Redman's remarks also underscore the difficulty of talking about the health care debate. The problem isn't linear; each element--insurance reform, universal access, and so forth--is bound up with others. And solving it is so politically flammable--for elected officials with constituents, association leaders with members, and everyone with the American public--one might easily be burned at somebody's critical stake.

Uncontrolled costs

Everything has gone up, from the employer's insurance premium and employee's copayment to the hospital's unreimbursed medicaid tab and physician's malpractice rates. The country's total health care bill eats up 14 percent of gross national product, and the Department of Commerce expects the tab will hit $1.3 trillion in 1995.

Associations have internal operating costs like any employer, struggling for the last several years with annual premium increases as high as 300 percent. So have their members. "A member company in Ohio with 200 employees is self-insured," relates Sharon Canner, assistant vice president of industrial relations at the National Association of Manufacturers, Washington, D.C. "Costs in the last three years have gone up 50, 60, and 40 percent. The CEO calls me up and asks, 'What can I do? I'm going to raise the deductible to $1,000.' Some say it's bad to shift costs to the employee, but there are limits to how deep the employer's pocket goes," observes Canner.

State and federal governments bear a similar burden, with employees to insure, medicaid to dispense, and a big system to administrate. Medicaid provides a good example of the circularity and depth of cost issues. The federal government has sought to provide more care to the uninsured by requiring the states to expand medicaid entitlements; but without additional federal dollars for already overspent budgets, the states can't pay that bill. Care is provided, nonetheless, by health professionals and hospitals that absorb costs not reimbursed by medicaid. They make it up indirectly in charges to patients who do have private health insurance. So are insurance companies carrying the big load? Logically enough, no: They shift the cost along to customers in the form of higher premiums.

No quality controls

Medicaid isn't the only cost culprit, of course. Many are happy to point the finger at physicians who practice defensive medicine, overtreating and testing to prevent malpractice suits, and at pricey new medical technology. On the flip side, as Canner points out, is the consumer. "The demand for increasingly sophisticated health care service and the inability to sort out what's inappropriate" are symptoms of a sick system, she says.

Health care is a market with few controls on supply or demand, as some see it. "Getting a bypass now is like getting a burger," remarks Linda Jenckes, of the Health Insurance Association of America (HIAA). "Services are available because of new technology, but keep in mind that the equipment and severity of the surgery mean a much higher cost than in the '60s and '70s." While equipment like a magnetic resonance imaging machine may detect certain tumors early enough to preclude more expensive surgery later, Jenckes points out, physicians today are "oriented to sickness, not preventive care."

Quality has two connotations in the reform lexicon. On the business side, many critics are quick to note poor management driving up costs; Jenckes cites a Government Accounting Office report of $70 billion in fraudulent claims paid annually by the government and private insurance. On the customer service side, health care in America is delivered late and in irregular packages. As former Surgeon General C. Everett Koop and two colleagues note in The Washington Post, you're statistically more likely to undergo hysterectomy or cardiac bypass surgery in New Haven, Connecticut, than in Boston, because "the scientific basis of medicine is much weaker than most patients or even physicians realize." Koop, like many others, recommends outcome research--collecting data on therapeutic results to help care providers and even patients decide which course is best in each case.

Covered care for the uninsured

Although how is the billion-dollar question, creating a safety net for America's estimated 35.7 million people without health insurance is one agenda item everyone agrees on. (Some analyses put the number of uninsured as high as 39 million.) The Employee Benefit Research Institute, Washington, D.C., based on data from the March 1991 Current Population Survey by the U.S. Bureau of the Census, reports that in 1990, 55.2 percent of the uninsured were working adults, 16.7 percent unemployed adults, 27.3 percent children, and 0.8 percent elderly. A similar number have inadequate coverage.

At the American Medical Association, John Patchett claims, "We were the first national organization to come out with a comprehensive plan. It all started about three years ago when we heard the report of 37 million uninsured people." Since insurance reform would result in more reimbursed costs for doctors, "we're accused of being self-serving," he notes. "But any association is. Physicians are genuinely concerned about how to get care to millions, and this was an opportunity to point out to policymakers that the 37 million do get care, but the costs are shifted. Defensive medicine and liability are problems," Patchett concedes, "but physicians are as fed up with the insurance industry as patients are."

At the Health Insurance Association of America, Jenckes concurs. "We began examining the uninsured issue three years ago," she comments. "We could see that 87 percent of the population had coverage, and the number wasn't fluctuating. We were surprised because we were adding a million people a year to the rolls. Then we found that two thirds of the uninsured work for small business. We also found that fewer than half the people qualified for medicaid were getting benefits."

Of the various reform proposals, Jenckes admits, "Frankly, we're nervous. We feel we have to be responsible and yield some financially or, candidly, lose the business to a government-run program." HIAA proposes a partnership in which "the federal government lives up to its commitment to take care of the poor, and the insurance industry changes how it does business with small employers. And we all do something on costs," Jenckes adds.

"Universal access is almost the easiest part. The real plague is rising costs." Among other measures, "We're bullish on managed care," Jenckes affirms.

Blame can be laid in many in-baskets--and is. Associations have several roles to play, and so far the pressure to serve member needs has prevented much consensus. Physicians, for example, will balk at control. "We've got to be sure it's health care people who develop any guidelines," declares Patchett, "not some insurance clerk or government bureaucrat saying how to care for patients."

And which "health care people" should they be? At the American Nurses Association, Barbara Redman remarks, "We have a longstanding discussion with AMA about the role of advanced nurses. The numbers back up nursing's view: In the 1980s they added lots of doctors, but the number of underserved went up."

What should change look like?

To solve the problems of cost, quality, and the uninsured, associations and groups like the National Leadership Coalition for Health Care Reform, Washington, D.C., have started by defining "basic principles on which reform should be based," as the coalition's executive director, Margaret M. Rhoades, puts it. Coalition members are mostly businesses, but also represent a number of unions and a half dozen associations. "Most people agree on seven goals: cost, quality, universal access, insurance reform, malpractice reform, simple administration, and a coordinated delivery system," Rhoades finds.

The first apparent division among reform proposals is over comprehensive versus incremental change. Advocates of comprehensive reform--nursing, for example--want to redesign financing, delivery, and quality of care. Others, such as the National Association of Manufacturers, would prefer to adjust what exists, fixing the known rather than creating the unknown; their focus is more keenly on financing.

Still, as Patchett points out, "With most bills we look at, if one has 20 points, we probably agree with 17 of them." Reformers disagree about whether universal access means federal tax credits and vouchers for the poor to purchase existing private insurance, or Canadian-style government-subsidized care for all.

Financing options

Here is a summary of the primary building blocks reformers are playing with. (Some information and figures here are drawn from Health Care Reform: Tradeoffs and Implications, published in April 1992 by the Employee Benefit Research Institute, Washington, D.C. EBRI is a nonprofit, nonpartisan organization.)

National health insurance. Every American would be guaranteed coverage, usually for a standard package of minimum, basic care.

* An all-payer system would cover the uninsured in a public plan. Sometimes dubbed "the German plan" or "Federal Reserve model," an all-payer system could be a partnership of all types of insurance payers--state and federal governments and private interests, including private insurers. In some scenarios, an independent, quasi-public board sets rates and administrates the system. Arguably, cost increases could be kept to the rate of inflation.

* A single-payer system would cover all Americans under the same public plan funded by one payer, the federal government, as in Canada. Cost estimates are inconclusive; they range from an annual drop of $26 billion to an increase of $30 billion.

Employer mandates. Three current variations lay some responsibility on employers.

* A simple mandate requiring employers to provide health insurance would cover 35-75 percent of the currently uninsured; about half of those people work for firms with fewer than 25 employees. National health expenditures overall could rise $10 billion to $15 billion annually. Government spending would drop and employer costs would rise; small employers could be hit hard, sacrificing some jobs.

* An employer mandate with medicaid expansion would bring new coverage to 80 percent of the uninsured--18 million people through employer-provided private plans and 11 million under revised medicaid qualifications. National spending could increase by $20 billion a year.

* A pay-or-play mandate would create an all-payer system, covering all the uninsured. Employers would be required to provide health insurance or contribute a percentage of payroll--possibly 7-9 percent--to a public plan. Both government and employer expenditures would increase, but small employers should be less burdened.

Tax-based reforms. Two approaches give individuals incentives to choose cost-effective providers and plans.

* A limit on exclusions from taxable income would cap the amount contributed for health care that an employer can exclude from workers' taxable income.

* Tax credits would help those with low incomes to purchase private coverage.

Insurance reform is a mixed blessing

Overhauling the insurance system itself is an approach especially germane for associations. They are helping members stay solvent by providing group plans and rapidly joining the ranks of the 65 percent of employers offering insurance that are self-funded--that is, outside the traditional private market.

"Most insurance companies have a black list of about 100 industries they don't insure," affirms Frederick D. Hunt, Jr., president, Society of Professional Benefit Administrators, Chevy Chase, Maryland. "Car dealers, industries perceived as employing gays or people who might have AIDS, lawyers because they're litigious. I read a new study by the University of Michigan School of Public Health that says private insurers routinely turn away 15 percent of industries that apply. They deny it, but I've just seen too many to doubt it." When people have problems, Hunt adds, "they call their association."

Since 39 percent of the nonelderly uninsured are employed by small firms (or have family members who are), most reform proposals take a crack at insurance industry practices that make buying coverage hard for small groups. As Linda Jenckes at HIAA admits, the industry is nervous enough about losing business to make radical changes.

"We have to limit prices and offer coverage for whole groups; and no one can be dropped for any reason," Jenckes affirms. HIAA's proposal addresses some of these common small-group market concerns:

* guaranteed access to coverage regardless of how high-risk people might be;

* limited restrictions on preexisting conditions to prevent "job lock"--being unable to change jobs if one has existing health problems, because they would be excluded from coverage under a new employer's policy;

* premium increases limited, for example, to inflation plus 15 percent;

* community rating--throwing all small groups into the same risk pool; and

* public or private reinsurance--a way for all insurers to share equally the costs of covering high- and low-risk groups at the same price, which should prevent low-risk groups from leaving the pool while high-risk groups stay.

But, even if premiums were heavily subsidized, the Employee Benefit Research Institute reports, many small firms would still find insurance unaffordable.

Singing the MEWA blues

Small-group reform, as designed so far, will not spell relief for associations, according to Hunt and others. The flip side of guaranteed access to insurance for small groups is a requirement to use an insurance company. "No employer with fewer than 50-100 employees would be able to use self-funding," Hunt explains. "The public reason is that, of course, small employers like a mom-and-pop florist shop with just a few people can't possibly have stable self-funded plans. The real reason is insurance companies have lost a huge market, and this guarantees it back for them."

At the heart of this issue are multiple employer welfare arrangements, plans that allow an association to create a policy specifically for its members and to underwrite risk itself or go outside for insurance. Self-funded MEWAs are attractive to associations because they circumvent expensive requirements that insurance companies must satisfy. "State insurance commissioners hate self-insurance because they don't have control," Hunt remarks. "About 25 states have crafted laws to prevent MEWAs from being formed. They say association plans are fine, as long as you're an insurance company. You can be an elephant, in other words, as long as you're a giraffe."

MEWAs have a bad reputation because they haven't been fully covered by federal requirements for squeaky clean management defined by the Employee Retirement Income Security Act (ERISA). Hunt calls recent investigation of MEWAs "a turf battle over state and federal regulation. There are about 4,000 MEWAs, and the government study found 200 bad ones," he argues. Hunt and groups like Ted Scallet's Coalition of Association Employee Benefit Plans lobby doggedly for MEWAs to become full ERISA plans.

"If associations were really allowed to do their stuff," Hunt emphasizes, "we could take care of a lot of the small-group problem. Damn near every employer is or could be a member of an association."

"Associations are gigantic consumers of health care," Scallet agrees. "Insurance plans are major revenue sources and a big member benefit." Both Hunt and Scallet bemoan the association community's quietude on the MEWA issue. "I've been asked a dozen times on the Hill how many people are covered by association plans," Scallet notes. An agency staffer once queried, "'How many associations are there anyway--six or seven?' Associations haven't been around much on this issue," Scallet concludes.

The state-level experiment

Sharon Canner, at the National Association of Manufacturers, predicts no comprehensive national bills will be passed this year or next. "Maybe in five years," she suggests.

"In Congress, it's more a political than substantive policy issue," Scallet says. "It's not true believers versus non-believers, it's 'what is the best political position to be in?' We could do incremental tomorrow, but Bush will veto any comprehensive bill," which is what the Democratic Congress is pressing.

The restive voting population, meanwhile, wants "Rolls Royce coverage at Yugo prices," as Hunt describes it. "Studies show people are willing to pay $600 for $4,000-$10,000 worth of coverage."

Meanwhile, a great deal is happening at the state level. "In the last 18 months, a real shift to action has occurred in the states," observes AMA's Patchett. "Florida, Vermont, and Minnesota all have comprehensive reform enacted. Every state has passed something. The states are not waiting," he emphasizes. "Their budgets may hold them back from enacting Canadian-type systems, but not from pay-or-play or employer mandates."

Patchett notes the lesson AMA has learned: "If the state medical society takes a positive approach, they're included in the process. In Minnesota they didn't, and they got cut out."

"We saw that the train leaving the station was at the state level," agrees Nancy Eldridge, director of governmental relations at the Vermont State Medical Society, Montpelier. She worked for two years to educate members on reform and feels satisfied that the association has a voice on the health care policy council now designing Vermont's program for universal coverage.

"The membership believes each state should come up with a design to meet its unique needs. But also that we need an overarching federal policy," Eldridge says, echoing other state-level associations. "We don't want 50 different systems," Patchett points out. "But let the states be laboratories. If something doesn't work, the state legislature can fix it now instead of in 24 months. There must be a national framework with flexibility for states, and we'll probably see that in the next three to five years," he predicts.

Consensus is elusive

"We're pretty flexible," claims Patchett. "What we want in a nutshell is the ability to negotiate and be part of the process." Peggy Rhoades, at the National Leadership Coalition for Health Care Reform, insists, "Having consensus is the main point. We're just saying, 'Here is a test any bill must pass to be acceptable.'"

Each group has a litmus test and a point past which it can't negotiate without sacrificing some member interests. Health care reform will affect every association and its members. For the health care industry, however, reform may mean literally remaking several professions. One solution to potential deadlock is compromise, but so far talking it over hasn't helped much.

The Iowa Leadership Consortium, organized by Blue Cross and Blue Shield of Iowa, joins all the major state players: insurance, hospitals, physicians, nursing, business big and small, consumer advocates, farmers, and state government. Consortium participants managed to agree on a document released for public and member comment in April.

"There was lots of argument over what to call the document," recalls Tim Gibson, of the Iowa Medical Society, who participated. "No one wanted to be represented as having bought in to a final position," he says wearily. "I'm very skeptical of the Blues pulling this off, because they have very shaky buy-in."

Consensus evades this group, Gibson indicates, as every side still tries to win. "Every group wants reforms that affect other people. With this proposal, the big insurers come out well; in fact, it does away with most of the competition for the two largest insurers in the state. I know the representative of independent business has said it's not a matter of whether they'll drop out but when; they're dead set against pay-or-play.

"We're willing to stay at the table and keep hammering at it," Gibson adds, "but until there's some realization that the problem is so desperate, or some entity with the power to force us all to give up a little, you won't see much happen."

Barbara Redman, of the American Nurses Association, suggests "the association community might speak with one voice. The business community is, and you'd think nonprofits would, too. By 2000 we'll use 19 percent of our GNP for health. That will get our attention."

Cost Cutters

How health care costs will be controlled depends on variables like public versus private financing. Reformers have a lot of ideas, but as Frederick D. Hunt, Jr., president of the Society of Professional Benefit Administrators, Chevy Chase, Maryland, notes, "You can't just pick a selection of the ones you like. Most have implementation problems because no one--like the IRS--has cleared anything." The Oregon state legislature approved a care-rationing system, for example, but in August the federal government found it violates the Americans With Disabilities Act. These show the range of approaches:

* Require use of managed care in any public plan.

* Create incentives for consumers and providers to use managed care in private plans.

* Improve provider market competition through consumer education about treatment outcomes and costs.

* Institute standard, paperless claims and billing processes.

* Establish payment rates for providers and enforce an annual expenditure target.

* Cap medicaid outlays by prioritizing covered treatments.

* Reform physician liability to reduce malpractice premiums.

Quality Strategies

"Many people talk only about cost," notes Barbara Redman, executive director of the American Nurses Association, Washington, D.C. "I think you have to look at values like community-based primary care, prevention, and wellness."

Quality can mean "what health care is like" or "how good care is." Some changes to the quality of health care would affect cost in the long run; more preventive and prenatal care, for example, should dramatically reduce use of more expensive care later. Other strategies reform proponents offer include these:

* managed care, in which a patient's range of health needs are centrally coordinated;

* organized delivery systems, "one-stop health care providers responsible for inpatient, outpatient, and long-term care," as one group defines it;

* decentralized delivery, allowing different communities and populations to receive alternative forms of care--nurse practitioners visiting schools, for example; and

* national practice guidelines and standards for treatments and fees.

Your Plan Is Endangered

ASAE's Government Affairs Subcommittee on Employee Benefits has fought a 15-year battle to secure association insurance programs called multiple employer welfare arrangements (MEWAs), now under attack and facing extinction. Subcommittee Cochair Frederick D. Hunt, Jr., president, Society of Professional Benefit Administrators, Chevy Chase, Maryland, says many associations "playing ostrich" will be unhappily surprised when their plans are abruptly shut down by state regulators.

While you may call your member insurance program an association plan or multiple employer trust, Hunt explains, "any plan that covers two or more separate employers not covered by a collective-bargaining agreement or common ownership is a MEWA. A health plan sponsored by an association for its members' employees is a MEWA."

Politics has left MEWAs unprotected. "The number of MEWA attackers is huge," Hunt reports, "but the good news is that finally both sides are eager for a prompt solution. The major pro-MEWA legislation is HR 2772, introduced by Tom Petri (R-WI), and as this goes to press, a compromise proposal is forming. It may pass in 1992, and in any case will be on the front burner in 1993, which gives associations an invaluable chance to educate old and new members of Congress."

Legislation will focus on three issues, and Hunt expects these terms:

* Jurisdiction. Plans will meet federal labor standards and register with one state insurance department.

* Sponsorship. Only an association with a primary activity besides providing the health plan or a designated chamber of commerce will sponsor.

* Solvency. MEWAs will have a required reserve of 25 percent plus 10 percent emergency reserve.

Here are three ways to help protect your members' health plan:

* Recognize the danger. Some 80 percent of association executives with endangered insurance plans are "blissfully unaware of the crisis," in Hunt's experience.

* Tell Congress the good news. If your MEWA is helping members to afford efficient coverage for their employees, say so. Your representative probably thinks all MEWAs are scams, Hunt says, so bring him or her to your claims office to see the operation.

* Meet fiduciary duties. Be scrupulous in ERISA compliance, filing taxes, and using a knowledgeable attorney.

Healthy Budget Tips

There are no magic solutions to cutting your health care costs, but here are three strategies some associations find effective.

1. Look at other plans, even if you are satisfied. You may find savings by joining a large group trust, such as the ASAE Group Insurance Trust. You may find other carriers will offer you lower costs to get your business.

2. Change your major medical coverage. You may save money by increasing the deductible, even if you offset employees' higher costs with salary adjustments. Also look for duplicate coverage; your employee assistance program, for example, may duplicate some of your mental health coverage. Can you reduce the annual or lifetime maximums for certain conditions without harm to your staff members?

3. Increase employee contributions. Consider asking employees to pay if they choose family rather than individual coverage. To make any higher costs more palatable, set up a Section 125 flexible spending plan for participants to pay health care costs with pretax dollars.

Kristin Staroba is senior editor of ASSOCIATION MANAGEMENT.
COPYRIGHT 1992 American Society of Association Executives
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Staroba, Kristin
Publication:Association Management
Date:Oct 1, 1992
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