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Wrong prescription: why managed competition is no cure.

Adurable joke has it that the late Wilbur Cohen, an architect of Social Security and later Lyndon Johnson's Secretary of Health, Education, and Welfare, once asked God whether the United States would ever have national health insurance. "Only if I live long enough," God replied. If Congress does Bill Clinton's bidding by enacting the health-care reform plan being forged by Hillary Rodham Clinton's task force, the old joke will still be pertinent when the 1996 election comes around.

Specifics of the Administration's plan won't be unveiled until May, and the task force is operating under secrecy strictures usually reserved for matters of highest national security. It is no secret, however, that advocates of "managed competition" are calling the shots. The task force is finding it tough to adhere to their philosophy and still honor the Administration's commitment to provide health insurance to the estimated thirty-seven million Americans who are now without it.

The "managed" part of managed competition is shorthand for managed care. This means that patients would not select physicians for themselves, but would be enrolled in health-maintenance organizations HMOs), and so would be locked in to the doctors who work for the HMOs and the hospitals and other facilities affiliated with them. (Preferred-provider organizations and independent-practice associations, while somewhat more flexible on this score, are variations on the same theme.)

The "competition" part of the formula means costs would presumably be kept down by having HMOs vie for customers. Large groups called health-insurance purchasing cooperatives would be set up to force HMOs to bid against each other on the basis of quality and price.

Logical as all this may appear on paper, the realities leave much to be desired.

Most of those who are now uninsured work for small businesses that insist they would go under - or at least resort to layoffs - if they had to provide the kind of health coverage paid for by big business. But big business, which is understandably indifferent to small-business concerns, generally favors managed competition. If times were good and the Federal treasury were flush enough to take much of the heat off small business (which is, after all, the nation's major source of new jobs), an accommodation could, perhaps, be reached. But under present circumstances, the best that can be expected from a managed-competition "solution" to the healthcare crisis is an uneasy and temporary truce, with the needs of the public caught in the middle.

Under managed competition, consumers would have to pay more out of pocket for health-insurance premiums than most do now. And they would have to pay still more if they wanted fuller coverage than a mandatory basic-benefits package would provide - an option particularly important to parents of young children. Equally disquieting is that the benefits in the basic health-care package could well turn out to be stingier than those provided by many current policies.

There is still another possible bite on consumers: President Clinton has talked of coupling "tax caps" to managed competition. This means that employers who agreed to a more generous - and hence more expensive - benefits package would not be able to deduct the entire cost as a business expense, as has always been permitted, but could only write off the cost equivalent of the basic package sold by the cheapest HMO in the area. And employees might be taxed for a portion of the heftier premiums as if they were a supplement to their wages, which would also be a first. Except for the self-employed, healthcare premiums are now wholly taxexempt.

What all this boils down to is that the lowest-cost HMOs, covering the fewest contingencies, would likely prevail. Managed competition would work well for the relative few with the means to buy topdollar coverage, but it would weigh heavily on those who could afford it least - those with more than routine medical needs.

The Clinton Administration is pledged to outlaw the now common denial of coverage on the basis of poor health or previous claims. The catch is that such a law is easily evaded. Insurers might refuse to contract with HMOs operating in zip codes where AIDS, tuberculosis, cancer, or other serious illnesses were prevalent. Or HMOs could keep the poor and disabled from their doors by setting up shop in places inaccessible by public transportation. Or HMOs might see to it that their physician turnover rates were high; the longer a physician practices in the same location, the more chronically ill patients he or she tends to accumulate.

It isn't likely that managed competition can be counted on to save money. For one thing, at least two managed-care setups must be present in a community if there is to be competition, and each of them needs a potential market of roughly 250,000 people to achieve economies of scale. Only about half of all Americans, it turns out, live in places densely populated enough to support two or more such programs. What's more, insurers would constantly hustle to win and retain business, because employers would constantly be shopping for better deals, just as they do now. The sales staff, recruiters, advertising personnel, and clerical staff that such "marketing" entails contribute nothing to the provision of health care.

Moreover, large insurers could afford to spend more on marketing than smaller ones. The bigger the insurer, the greater the likelihood that consumer satisfaction would be a secondary concern.

And the physicians, nurses, and others whom insurers and HMOs hire to oversee - that is, second-guess - the decisions individual doctors make with individual patients - an essential feature of managed care - have to be paid, too. They tend to fuel hassles that generate paperwork and fray tempers all around, besides adding to the overhead cost.

Administrative costs already soak up about $225 billion a year - twenty-five cents of every dollar spent on health care in this country. Under managed competition, such costs would, at best, stay the same. More probably, they would increase.

Then there is the problem of copayments and balance billing. The first is an additional charge many HMOs, preferred-provider organizations, and independent- practice associations impose on patients for actually rendering health-care services. Balance billing is the out-of-pocket expense faced by PPO, IPA, and some HMO patients if they seek care from physicians unaffiliated with their plans - the difference between the discount prices that these plans impose on their physicians and the higher fees independent doctors charge. Other HMO subscribers who obtain care from unaffiliated practitioners have to foot the entire bill themselves. Both mechanisms serve as escape hatches from cost constraints.

Far from being a new idea, managed competition is just another name for the prepaid health plans that were championed by the Nixon Administration in the 1970s, enabling it to fend off more comprehensive reform proposals then pending in Congress under Democratic sponsorship. What began as a trickle almost twenty years ago has since gained so much momentum that about 65 per cent of the insured population's care is already "managed" to at least some extent. Accordingly, the savings, if any, should be obvious by now.

Yet in the states where managed-care plans have the largest market share - Minnesota, Massachusetts, and California, for instance - health costs are no lower than in many other states and higher than in some. Prepaid-plan premiums in general have been rising just as fast as those for conventional "indemnity" policies that permit patients to see whatever physicians and go to whatever hospitals they choose without financial penalty. Small wonder, then, that even the Congressional Budget Office - usually one of Clinton's favorite authorities - has its doubts as to whether managed competition would curb healthcare expenditures by as much as its proponents claim.

Theoretically, it is possible to restrain both health-insurance premiums and providers' charges for services by imposing a global health-care budget - a lid on total health-care spending. But given not only the multiplicity of players, but also American medicine's unquenchable thirst for high technology, such a ceiling would be difficult to enforce.

The nation already has more mammography machines, open-heart surgery suites, magnetic-resonance imagers, and other big-ticket items than can be used efficiently, and they are often paid for by excessive charges and overuse. But if a facility lacks mega-gadgetry that its competitors have, it soon loses business. So it's a safe bet that despite the waste, high tech would continue to proliferate. In this sense, competition and managed care are conflicting goals.

In short, if what Americans want is more layers of bureaucracy micromanaging health care and generating red tape, managed competition is just what the doctor ordered. But if they want affordable insurance that leaves them free to choose their physicians and hospitals no matter where they live and where or whether they work, they need a system that empowers them rather than enriching the medical-industrial complex and health insurers (particularly those that own and operate networks of HMOs).

Canada's "single-payer" plan - so called because only one insurer, the government, pays the bills - has been highly touted as a desirable alternative to managed competition/managed care. In the context of the current debate, however, single-payer looks like a nonstarter, if only because it would put the health-insurance industry out of business - an unlikely eventuality, given that industry's powerful lobby. Besides, while the United States now spends more of its gross domestic product on health care than any other country, Canada ranks number two.

A better alternative - already tested in decades of real - life operation - is available, if only people searching for a solution to the nation's health-care crisis will stop ignoring its existence. One version or another of this "statutory" model is in place in Austria, Belgium, France, Germany, Japan, Switzerland, and the Netherlands.

In these systems, health insurance is under the social-security umbrella and is funded by payroll taxes or premiums that are set by law, as is a standard set of benefits that the entire population enjoys, regardless of age, health, income, and employment status. The money flows to private-sector health insurers or, as they are called in some countries, sickness funds. Individuals decide which of these nationwide plans they want to sign up with. When the insured or their dependents see a physician or go to a hospital, the bills are paid by that carrier. Choice of doctor and hospital is up to the patient.

The arrangement not only keeps commercial insurers in business, but also has two other advantages. One is that it applies to everyone, so it eliminates the need for separate health-insurance programs for the elderly and the disabled (Medicare) and for the poor (Medicaid), both of which put their beneficiaries at a disadvantage because they pay doctors and hospitals less than do private insurers, and one of which (Medicaid) has a benefit package that varies from state to state.

Under a statutory model, it would not be necessary to resort to the kind of rationing scheme Oregon is adopting for Medicaid: denying some kinds of treatment to people now covered by the program to make it possible to include others who have no coverage at all. While European statutory insurance also has gaps in coverage, they do not apply only to the poor and those of modest means; in fact, they primarily affect the affluent, who can best afford to fill them on their own. In this country, it is the other way around, and would continue to be under managed competition.

The second major advantage of the statutory model is that it can be crafted to act as a brake on costs without the regulatory headaches that a global budget - a single, nationwide health kitty - would entail, even assuming that Congress would enact one and that it could be successfully imposed. William A. Glaser of the New School for Social Research has spent the better part of his career looking firsthand at how statutory insurance systems function in Europe and is among those who believe they can be made to do the job.

Germany's system, for example, limits periodic increases in premium costs for employers and workers to the annual rate of increase of the average wage. With that as leverage, Germany's 1,100-odd sickness funds join forces with labor unions, employer groups, and other interested parties to negotiate each year with hospitals and physicians' associations to keep their prices in line. In the last five years - a period when U.S. health care expenditures soared upwards to the present 14 per cent of gross domestic product - health care's slice of the German GDP declined from 8.7 to 8.1 per cent.

Could the United States have such a system? Managed-competition proponents say no, insisting that the public wouldn't like it and the medical profession wouldn't put up with it. This country, they argue, is unique and therefore should have a system that is uniquely its own.

Perhaps. But if the Government decides that managed competition fills the bill, it will be less a system than an ideological fixation. Instead of curing what ails U.S. health care, it will leave it chronically ill.
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Title Annotation:health reform
Author:Randal, Judith
Publication:The Progressive
Article Type:Cover Story
Date:May 1, 1993
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