Aug
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My View - Health Care Reform
Filed Under Management and Beyond
What follows is “My View” on health care reform. It is an attempt to match the data and underlying problem with health care - all of which points to excessive costs — and a relevant solution. My view is that the recently passed Patient Protection Act of 2010 is not health care reform - it is “access reform.” The fundamental problems that are causing a strain on all of our government and employer sponsored plans are not dealt with by the Act. Our first priority is to make health care fundamentally more affordable and that will enable us to responsibly extend access. As one health care professional told me recently: “Our health care in the U.S. is like a broken bridge - it’s much too expensive. Why would we put more cars on this bridge?” My hope is that students can continue to debate an approach to health care reform and learn from examining the issues. I welcome your comments.
Health Care Reform—Let’s Do it Right the First Time
By Thomas E. Murphy* (Cincinnati, Ohio – Originally written in October 2009 and updated August 3, 2010)
There is one instrument in the U.S. health care system that is the driving force behind our high costs - the doctor’s ordering pen! The utilization of health care resources and their respective prices escalate with every stroke of the pen. The insurance companies can wave their swords, but until the pen is controlled, our costs will not be curtailed. Costs are our real problem and we should focus on this first before we dismantle and “reform” our current system. A provider market driven by quality and value will substantially impact our costs, make health care more affordable, and significantly enhance access. Insurance companies, big business, pharmaceutical companies, and “greed” are neither the enemies nor the root causes of our health care problem. We should stop relying on false and misleading anecdotes and have an honest debate based upon information and data that can lead us to the type of reform we really need.
The bases for promoting health care reform as defined by the Democratic-led Congress and the Obama administration included the following:
(1) The U.S. has 45.7 million uninsured and we have no system to cover them.
(2) If a person is covered at work but loses his job, he has no coverage.
(3) If a person has a pre-existing condition, the insurance company can deny coverage. Also, insurance companies drop people from coverage when they are sick.
(4) European health systems do a better job of delivering universal health care, as evidenced by their lower costs and their longer life expectancies and lower infant mortality rates.
(5) Our system costs too much. By developing a government-sponsored program, where we mandate employer or individual coverage and offer a “public option” for our citizens, we can increase access to health care for all Americans and do so at a lower cost.
(6) We can finance this by increasing taxes on the wealthy, insurers, device makers, and pharmaceutical companies, reducing the cost shifting of uncompensated care, getting rid of the waste in Medicare, and fining those who do not contribute or participate.
But, there are data that contradict these conclusions:
(1) We do have a health care system that includes Medicare for the aged, Medicaid for the poor, and employer-sponsored plans that cover over 60% of those who are employed. Some choose to buy their own health insurance. According to the U.S. Census Bureau, half of the 45.7 million uninsured are either eligible for coverage under Medicaid but choose not to enroll, or earn sufficient income to pay for health care coverage with their employer or on their own but choose not to do so. Regardless, there are too many uninsured persons and we do need to take steps to responsibly enhance access.
(2) We do have COBRA, which enables a person who loses his job to continue coverage for at least 18 months under the same health plan provided he pays 35% of the total premium.
(3) There is an existing law, HIPAA, which forbids an insurance company to deny coverage based upon a pre-existing condition for a person who recently had insurance but lost it. The law, however, has certain time limits and could be amended to include broader protection. With respect to policy cancellations by an insurance company when “someone gets sick,” rescissions do occur when there has been a misrepresentation on a health statement filed with the application for coverage. Among the millions of policies issued and continued, rescissions represent less than .005 of the total. Again, if rescissions are a problem, which does not appear to be the case, we can address this through regulatory legislation.
(4) The research by professional economists contributing to the Bureau of Economic Research have conclusively shown that lower life expectancy and higher infant mortality rates in the U.S. are not the result of our health care system, but rather a direct result of social and behavioral factors. Further, their research shows that in direct comparisons of survival rates and medical screenings with economically developed countries (OECD), the U.S. performs equally or better with respect to heart disease, cancer, and other chronic conditions.
(5) It is universally agreed in the U.S. that the cause of our problems from the uninsured to the precarious viability of our government and employer sponsored health plans is our high costs. Costs equal the rate paid for services times the utilization. The research shows our rates and in some cases our utilization are higher than OECD countries. Our physicians and hospitals are paid more, we have more technology, particularly diagnostic equipment available, and the U.S. generates about 70% of the research that leads to global medical advances. There are a number of underlying factors that lead us to higher rates and utilization: our third party payer system that removes the consumer of health care from significant financial accountability; the tax treatment of employer sponsored health insurance that discriminates in favor of high cost plans and against insurance paid for by an individual; and a rather distorted set of market incentives relating to how reimbursements are made.
Also, cost is the reason Medicare and Medicaid are near financial collapse and why many small employers are considering dropping health care. Other employers are shifting a larger percentage of their costs onto their participants. Can costs be controlled? Yes, but there are different approaches.
In OECD countries with government-run universal health care programs there are strict limits on reimbursement rates. Also, there are restrictions on utilization, usually in the form of wait times for elective procedures. Thus, their costs are lower than ours. A large percentage of OECD citizens covered by national health care, however, circumvent the long wait times by buying health insurance in the private market. So, there often is not equality in the access to and delivery of health care.
(6) It is difficult to believe with over 70 million baby boomers now applying for Social Security and Medicare the Administration’s assertion that the cost of Medicare can be reduced by eliminating $500 billion in “waste.” Further, the “waste” seems to involve a planned initiative to simply reduce provider reimbursements. This arbitrary step will inevitably lead to reductions in services, a refusal by providers to participate in Medicare programs, control of health care services by bureaucrats, and rationing. Also, the proposed fines and taxes that will be imposed on individuals, employers, and industries will be passed on to consumers.
The Congressional Budget Office estimates that we will pay about $900 billion for the new program, and reduce the number of uninsured by 29 million. It will also add considerably to our deficit. We will, however, still have 25 million uninsured that includes 8 million undocumented persons. Is anyone calculating the financial returns of this proposal? We currently have over 20 million who are eligible for Medicaid but do not enroll or who can afford to buy insurance. We are going to dismantle our current system, spend hundreds of billions of dollars, and only add 29 million new enrollees? Are some of these the same 20 million those who could be covered but choose not to? That means we are spending $900 billion to add a net 9 million persons to the health insurance rolls. This does not sound like a cost-effective approach.
This health care overhaul cannot reduce health care costs unless we ration services, suppress reimbursement rates, and create new taxes to help finance it. This is not hypothesis or hyperbole. It is an inevitable economic consequence of a national health system that seeks to cover its entire population. The evidence supporting this is irrefutable.
So what is the solution? Since the real cause of the health care problem in the U.S. is cost, we should develop a surge-like assault on our health expenses. We know how to do this and it does not require an artificial, government imposed reduction in reimbursement levels or a national health care program. In fact, we may not need any significant legislation - just effective leadership that can be exercised on a state-by-state basis. What follows are a number of approaches that would significantly reduce our health care costs and enable an orderly and financially responsible expansion of coverage and access, while ensuring the continuity of our current government and employer-sponsored programs.
· Provide new incentives that would cause our hospitals and doctors to compete in a market that is based on real quality outcomes, instead of bureaucratic protocols that are ordered by the government. Competition based upon quality and value will compel our providers to operate more efficiently and with higher quality. In private industry where customers have access to data and insist on finding real value among competitors, there have been significant advances in total quality, higher efficiency, and lower costs. Providing open access to provider clinical quality outcomes data is an essential step to creating a quality and value-based market. The result will be a dramatic reduction in health care costs. This was done successfully in Cincinnati, Ohio and is now working to reduce costs in Pennsylvania.
· We must reform malpractice litigation that causes many doctors to practice unnecessary defensive medicine. This adds a tremendous and unnecessary expense to our health care.
· We should put the doctor and the patient in charge of health care decision-making and require the patient to have some economic stake in the process.
· We should facilitate the introduction of electronic medical records (EMR) that will reduce medication and other errors and facilitate incentives for providers to “get their diagnosis and treatment right the first time.” Together with a new quality-based market system, EMR should provide good returns among providers seeking excellent clinical outcomes in a quality driven market.
Our health insurance companies are restricted by government rules in their ability to compete among various states. Allowing such inter-state competition would have a significant effect on the quality and price of health insurance; it would also enhance the portability of health care.
· We must create incentives to streamline, simplify, and standardize the provider reimbursement process and reduce our excessive administrative costs.
· We should encourage and provide incentives to sponsors and insurance companies to offer effective wellness programs that impact unhealthy life styles which lead to chronic diseases and put an expensive strain on the utilization of health care. Our behavioral, social, and cultural impediments to healthy life styles significantly increase health care utilization and costs. Comprehensive wellness programs should be integrated into the healthcare system and be a key part of the patient-doctor relationship.
The polls show that 70% of U.S. citizens are satisfied with our current health care plan, and opposed to a government take-over of health care. Rather than dismantle one of the best, if not the best, systems in the world we should closely examine the premise for change and the underlying causes of the problems apparent in our system – our high costs. By focusing on quality-based competition and other measures, we can significantly reduce our costs and preserve the current strengths of our system. The result will be to make health care more affordable and accessible for all. This is real, relevant, and responsible health care reform.
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*Thomas E. Murphy is Executive Professor, The Farmer School of Business, Miami University of Ohio, where he teaches a variety of management topics including benefits. He is the author of a recently published book, Benefits and Beyond – a Comprehensive and Strategic Approach to Retirement, Health Care and More. (Sage Publications, Los Angeles, CA. 2009). Among a number of other topics, the book deals extensively with health care and social security reform. (Email: murphyte@muohio.edu; website: www.managementandbeyond.com/)
Last update: August 3, 2010
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