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The hospital of the year 2000: three scenarios.

The Forces of Changes

The most important force in the development of a national health policy is, obviously, the federal government, because ultimately it must put in place the elements of that policy. The legislative and executive branches have already put in place certain programs that could be called elements of a national heaht policy: the Medicare and Medicaid programs, programs for veterans and for members of the armed forces and their dependents, research programs through the National Institutes of Health, an income-tax preference program shielding employer-paid health insurance from employees' taxable income, and several other smaller programs. It can be argued that some or all of these programs present a barrier to the development of a national health policy, but they exist, and they have their staunch defenders in the citizenry, in the state governments, and in the Congress and the executive branch.

The federal government has other problems that affect its ability to develop a national health policy. The federal deficit leaps to mind, severely limiting the opportunity to apply the often-used federal remedy of adding money to buy consensus. Add to that the recession, and, perhaps just as significant, the propensity of American voters to put one political party in charge of the executive branch and the other in charge of the legislative branch. The resulting jockeying for political advantage is a major barrier to reaching a compromise on national health policy.

A second force is the state governments. With their own spending problems, many resist a larger role in health care for the poor, although several states are experimenting with what they can do for the poor, the unemployed, and the uninsured. As a force, however, they are unlikely to be a major player in the development of national health policy, except to resist any plan that envisions for them a greater financial role.

A third force is business. Employers have a huge stake in the present financing of health care because of the major role played by employment-based health insurance. Their overriding concern is the present cost of health insurance and the fact that those costs are rising far faster than practically any other cost of doing business, giving them competitive problems at home and abroad. They brush aside allegations that they are part of the problem because they developed the broad health insurance programs that exist today and sought the income tax-preference that fuels those programs. Instead, they seem to insist that government do something to control national health care expenditures, without understanding how that would entail the very kind of intrusive government regulation that they resist in their own businesses.

Employers have other conflicts. Those providing broad health insurance programs for their employees recognize that part of their premium costs go to pay for health care to people employed by employers who do not offer health insurance and who therefore cannot pay for care, and part of their premium costs go to make up for what government does not pay in Medicare and Medicaid programs. But employers who do provide health insurance are reluctant to advocate mandatory insurance, those who do not provide health insurance resist the mandate, and both are reluctant to challenge government to pay adequately for Medicare and Medicaid for fear government will tax them to do so.

A fourth force is organized labor. Union leaders face their own internal conflicts. They see, on the onehand, that rising costs of health insurance impair their ability to bargain for higher wages and other benefits, but the popularity of health benefits makes their protection an important matter for their members. Union leaders recognize, as do employers, that uninsured employed people add to the cost of employment-based health insurance, but they also see that a national health insurance program covering everybody would deprive unions of a substantial advantage of union membership.

A fifth force is the public at large--patients-to-be. They want access to the latest and best health care possible, and they put a high priority on broad health insurance coverage through employment. They also fear the cost of illness, hence their desire for health insurance from either private or public sources. But they also want either employers or the government to pay for it, and they send mixed messages when it comes to how much, or more accurately how little, they are willing to pay themselves. The public seems the least ready or willing to face the tough choice between insatiable demand and finite resources, and whether and to what extent they will be a force in the development of national health policy remains to be seen. One thing does seem certain; those members of the public who receive cavalier, or non-user-friendly, treatment at the hands of providers of care are most unlikely to be sympathetic to the positions taken by providers in the debate over national health policy.

A sixth force is the health industry itself. Not only are there the direct providers of care--hospitals, doctors, nurses, nursing homes, dentists, and other insitutions and professions--with their own conflicing priorities, but there are the suppliers with their own aspirations--the drug companies, the equipment manufacturers, other suppliers, etc. And of course there are the insurance companies, prepayment plans, and managed care organizations. Each part of the industry has it own suppliers with their own not-so-cost-containing motivations and its own end-users, customers, and patients with their own cost-containing concerns.

A seventh and final force is a catch-all group: the opinion-makers. It includes academicians, political theorists, pundits, strategists and tacticians of the political parties and candidates, key members of those executive departments with interests involved, key members of the relevant committees of the Congress, and a variety of others who by virtue of interest or position have created a set of adherents to their views. The importance of this force lies in the ability of its members to frame the issues and focus the debate, often in oversimplified terms that mask underlying complexities, but often, too, in terms whose very simplicity stimulates action.

Fortunately, at least for those with concerns about precipitate action and simple solutions for complex problems, the opinion-makers today vary all over the lot, and their analyses are incomplete. Some examples will illusrate the point. Some say the problem is insatiable demand for care. But they do not agree on what fuels the demand and on how to reduce it. Various ones identify different fuels: the desire of people to live forever; health insurance, which insulates insureds from the cost of care; the increase in the number of older people, who traditionally need more care; the increase in the number of people (physicians, particularly) who provide care; new technology encouraged by research and by inventors' and discoverers' entrepreneurial rewards; and others. Each of these "fuels" calls for a different remedy, hence the shortcoming of the analyses.

Some, particularly those who have priorities for public and private resources other than acute health care, say the problem is finite resources. They call for rationing of services, oblivious to the fact that this solution is not acceptable to people who have treatable conditions now or anticipate them in the future. The specter they describe, of the cost of complete access to every conceivable service by everyone with no attention to need or cost, frightens none of these people--at least not today.

Some say we have sufficient resources, if only we use them wisely. They do not identify or quantify unwise use, nor are they explicit as to how resources now used unwisely on insured and finally independent individuals can be diverted to wise use for the poor and the uninsured. In the same fashion, the advocates of rationing are quite vague as to how it would work.

Finally, arguments rage between the advocates of modest reform and the advocates of complete change of the health care system from top to bottom; between the advocates of everything for everybody and the advocates of at least something for everybody (with the standoff resulting in nothing more for anybody); and between the advocates of a one-tier system for everyone and the advocates of a two-tier system--with all the implications of economic class warfare that a two-tier system implies.

How the Forces Might Come


The following discussion is based on an analysis of the conflicts between and within the forces described above. It recognizes the possibility of a shift in the position of the several forces, particularly as the environment changes or appears to change, but it tries to proceed realistically rather than optimistically. And it assumes that adherence to economic interests will predominate, with the political propensities of the forces taking second place. It is my belief that those economic and political interests grow out of the economic and political systems of the United States, that they are different from those found in other countries, and that, as a result, the adoption of a health care system that works in another country is an economic and political impossibility here.

Scenario I:

They Do Not Come Together

If the analysis of the forces with a stake in national health policy is accurate, the possibility is good that they will not reach a consensus broad enough to ensure major action in the last decade of the 20th Century. The leading force, the federal government, will remain in standoff as long as the executive and legislative branches are split politically and as long as the deficit remains high. The states do not have enough of a stake or a unanimity of interests to push for action. Business and labor are still trying to sort out their own real interest; their only common interest lies in the fact that federal and state underfunding of government responsibilities for the elderly, the disabled, and the poor makes a large contribution to the cost of employment-based health insurance.

The public is confused, worried about any change that could hurt economically. The opinion-makers are badly split, too busy debating one another to worry about a consensus. The insurers and manufacturers are threatened by any alternative to the present system. The providers of care see the inequities of the present system at firsthand, know how much good could be done with more money, and do not understand why it is not forthcoming.

This scenario, of course, does not imply no action at all. There will be incremental change. Minor changes may be made in Medicare, Medicaid, and other federal and state programs, even perhaps to tax laws. Employers, unions, insurance companies, and people may modify behavior. But there will be no real move to a national health policy.

Scenario II:

Universal Access to a Basic Program

The forces, or enough of them to result in action, might come together in support of a limited program of basic health care services to cover the poor, the unemployed, and the employed uninsured. It would replace Medicaid for the poor and the unemployed, and it would mandate coverage on all employers, either by buying into the basic program or by paying a tax to help finance the buy-in.

The federal government, as long as it is split politically, will have trouble agreeing on anything, but that could change with the elections in either 1992 or 1996. The deficit is a problem, and it would take political courage to either raise taxes to finance additional expenditures or tax all health insurance benefits beyond the limited program, or both. The states' reaction would be likely to turn on how much more they had to spend. Business would worry about the cost of the mandate and, more important, what provision would be made in addition to curb the rising costs of employment-based health insurance. Labor might be quite supportive, as it would achieve a political goal of universal coverage and retain the opportunity to bargain benefits above the basic program.

The reaction of the public-at-large is hard to gauge. Some would benefit but would be disappointed that the scheme did not offer more; more would be taxed directly or indirectly; and most would be confused by the opinion-makers. The more liberal of the latter would complain bitterly about the inadequacy of a limited program and the inequity of a strightforward two-tier system of care, and they and the public might be neutralized, perhaps to slow progress but not stop it. Insurers and manufacturers would see more dollars flowing but would worry about details.

Scenario III:

Universal Health Insurance

The forces could conceivably converge on a universal health insurance plan. It would be controlled and operated by the federal government, with perhaps some aspects delegated to states or others but remaining under close executive and legislative supervision. It would control all benefits and services, and all expenditures, including capital and operating costs as well as education of providers and research. It is hard to imagine the current Congress being willing to share or delegate authority for any aspect of the plan, and thus it would seem to depend on the election of a Democratic President and Congress, perhaps running on a party platform advocating just this result.

The states would like be relieved of their Medicaid headaches, but they might suffer from some aspects of the plan as a consequence. Business would get the cost control it seeks but also could feel the tax pinch, whether more or less than what business pays now. Labor would achieve a long-time political goal but might also lose some bargaining clout as perceived by its members. Much of the public might feel relieved, until they feel the pinch of rationing of services; they are not as attuned as others to Congress' propensity to overpromise and underfund. And the opinion-makers would have a field day, with the losers quickly looking elsewhere for other problems to solve.

Health insurance, prepayment plans, and managed care organizations would presumably disappear, perhaps to be-created when the plan bogs down with overregulation. Manufacturers, suppliers, and researchers would quickly feel the pinch. The providers of care would feel the controls first, but presumably they would adapt as they have with other tuns in public policy. Most would be assured of survival, probably at the expense of potential new entrance to the field.

The Issues Raised

Let us now turn to a more detailed description of the three scenarios and the issues they pose. (If the reader begins to wonder how and why he or she ever got involved in the delivery of health care services, ponder the plight of those involved in savings and loans, banks, insurance companies, public school education, and other challenging endeavors!)

Scenario I

There is a distinct possibility that no new major initiatives will be undertaken. They will be advocated, of course, sometimes with the hope by the advocate that he or she will never have to produce a specific plan. Rep. Willis Gradison (R-Ohio) recently said, "We lack a federal health policy, and there is none in sight." He went on to add that it would be "unrealistic" to expect any national solutions in the 1990s. Another political figure said in my presence recently that this is a bad time for politicians to offer solutions to health care problems. People, he said, are still hoping for "more for less," and they get mad at those who offer less or who ask for more money. Those who advocate at least something for the deprived are promptly accused of advocating "two-tier medicine."

This scenario will raise, or continue to raise, a number of issues. First, Congress and the Administration are likely to continue to underfund Medicare and Medicaid, shifting the unmet cost to the private sector and increasing the cost of health insurance. Second, as health insurance premiums rise, more employers will drop health insurance, further increasing the cost to those who continue to carry it. Third, competition will increase among providers as they compete for market share, thus duplicating services, coping with a variety of insurance and managed care programs designed to contain costs, and increasing their costs to cope with these and other pressures resulting from the demands of patients with adequate health insurance or private funds. Fourth, more states will seek their own solutions to the problems created by the absence of a national policy, with potential problems both to providers asked to participate and to those asked to pay because of the loss of interstate competitiveness that may result.

All in all, these issues will continue to build pressure for real change, but the lid may not blow by the year 2000. All of the forces will make incremental changes within existing programs, but a major change will await a new consensus.

Scenario II

The plight of people without public or private coverage for health care services cries out for attention. They number in the tens of millions, and they include the poor not covered by limited Medicaid programs, the unemployed with limited income, low-income employees of employers who do not offer health insurance or who offer it only for limited categories, and dependents in all these groups. Add to this the underinsured, and the total can be 50 or 60 million people or more. The numbers are less important than the plight: postponement of health care until illness or injury creates an emergency, forcing these people to seek care at inappropriate and expensive locations such as emergency departments and imposing costs on providers who serve larger numbers of these people and who must then charge sponsors or other patients.

A number of groups have offered as a solution what can best be described as "universal access to basic health care services," financed by a variety of public and private sources. I have participated in several of the deliberations that reached this solution, and it seems to me to square more with the way Americans solve problems, but I also recognize it is complicated, involves many issues that must be faced, and will require many compromises by the forces involved if a consensus is to be reached. So far, little political support has surfaced for this scenario, and an examination of the issues may explain why.

First, universal access to a set of basic health care services entails acceptance of a straightforward two-tier system: "basic services" for the least-advantaged members of society and "all available services" for those with broad health insurance coverage or personal resources. Americans have multiple tiers in education, housing, transportation, and other services, but it is regularly alleged that health care is different. Our actions often differ from our professed beliefs, but it must be recognized that we have an emotional and political hurdle here that must be overcome.

Second, what makes up a set of basic health care services? The word "basic" implies limitations, and limitations imply restrictions on patients and providers. If basic services are too difficult to define, can dollar expenditures be limited? The latter brings on cost shifting when limits are exceeded. Or instead of basic services, does the limited program cut in only when catastrophic proportions are reached? No one, to my knowledge, has yet reached a clear resolution of this key issue.

Third, how will the program be financed? There are, of course, existing federal and state dollars in the Medicaid program, but they are far from enough to cover all the poor and the unemployed. Do we look to new taxes, sin taxes, limitation on the exclusion of broad health coverage from personal income, state taxes? The possibilities are broad, but agreement will be tough. And how will currently uninsured employed people be covered? By mandating coverage, or a "play-or-pay" requirement that taxes employers who do not provide insurance for all employees at least to the level of the basic plan, and a special tax on employees who are not covered through employment? Again, agreement will be tough.

Fourth, who will the cost of the basic program be controlled to stay within available revenues? Will the prices of provider services be set, and, if so, how will utilization be controlled? Will all basic services be put out to bids at capitation rates? What choice will patients have in selecting providers, and what choice will providers have in caring for patients covered by the basic program? How will cost shifting be avoided if the basic program pays inadequately? Will rural areas with limited providers be treated differently from urban areas with many providers? What provision will be made for cost-of-living differences between geographic regions? How will employers with employees in different locations be treated?

Many decisions must be made, and each may have implications for Medicare, other federal programs, and the regular health insurance programs now offered through employment. I urge caution with regard to any suggestion that Congress enact some kind of program with "fine tuning" to come with experience. Remember the Medicare experience: quick enactment in 1965 and incessant changes ever since. The problem of universal access to a basic program is, I suggest, far more complex and exists in an environment far more complicated than that of the mid-1960s.

Scenario III

A universal health insurance plan seems the simplest and easist to envision and understand: one financer, one payer, one controller, one set of benefits, one tier nationwide. It would operate with far less administrative overhead, and it should be easier for people to understand than the complexities of our present system. Of course, like any other program developed by the Congress, what begins as a simple scheme would probably be complicated by compromises to placate special interests, whether political or economic. The outcome would seem to require a strong Presidential hand and an executive-legislative consensus on retaining simplicity. The increasing complexities, frustrations, and the cost-shifting aspects of our present system are building pressure to change, and a single, all-inclusive system has its appeal.

A universal health insurance plan raises a number of issues. First, what happens to Medicare, the Veteran's system, and members of the armed services and their dependents? Simplicity argues for their inclusion, but special interests are involved. Second, how would the plan be financed? Presumably, the money would come from taxes on employers and individuals, be related to income or capitation, and perhaps be supplemented by point-of-service copayments. More than $600 billion flows into our present system, but there is no way those specific dollars could be captured; clearly there will be winners and losers in the new plan.

Third, there will be controls to keep spending for health care services within the money available. Will this come by setting prices for covered services? Or will it come by controlling budgets for institutional providers and incomes for individual providers? And in either approach, will money available be allocated to provider groups, such as hospitals, nursing homes, doctors, other providers, pharmaceuticals, etc.; will it be allocated by patient with providers dividing it up; or will it be some combination? Finally, how will education, research, and new technology be financed: through patient care dollars or separately? Herein lies complexity again.

Fourth, consideration should be given (although the odds are it will not be) to some built-in flexibility in the system. Any national scheme will be built on the present, and it is certain that the future will be different. Health care will change, providers will change, and the money will never be enough to meet demands.

A Concluding Comment

Caution suggests preparing for any and all developments. That preparation may include how the many issues set forth above should be resolved, but it should also include how to cope if the issues are resolved differently. Whatever happens, we toilers in the health care vineyard will make it work, through good faith and common sense, as we always have!

J. Alexander McMahon is Chairman, Department of Health Administration, Duke University, Durham, N.C. From 1972 to 1986, he was President of the American Hospital Association.
COPYRIGHT 1992 American College of Physician Executives
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Title Annotation:includes supplementary reading list; national health policy
Author:McMahon, J. Alexander
Publication:Physician Executive
Date:Jan 1, 1992
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