Comment: Incremental Reform Toward What?

How to cure the American health care system depends on what you think ails it. The center and the right identify three basic maladies. First, there is a cost crisis. This view reflects the concerns of "payers"--employers who face rising premiums, federal budget balancers projecting Medicare deficits, and insurance companies whose profits are squeezed by new drugs, more complex technologies, and patients who live longer.



Second, there is a coverage crisis. Some 44 million Americans are uninsured, a million more than last year. In addition, prescription drugs are not adequately covered by many plans, including Medicare.



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Third, managed care has become too heavy-handed. Both the center and the right would add new patients' rights legislation and rely on greater market competition to reward virtuous and efficient plans, and discipline the harsher ones.



Indeed, Republicans and centrist Democrats alike would use market forces, to deal with all three perceived problems. Federal budget balancers would resolve the Medicare shortfall by converting Medicare into a "premium support" program that herded the elderly into managed care plans.



This basic strategy is also the centrist solution to the problem of the uninsured. Bill Bradley would give low-income people the right to buy private insurance, assisted by a government subsidy. The health insurance industry, seeing a new market of 44 million Americans, is suddenly very solicitous of the uninsured.



President Clinton's new $110-billion proposal would expand coverage but worsen the fragmentation. He would help parents of eligible children to get coverage under the CHIP program, which has income limits and which partly overlaps Medicaid. The Clinton plan is a patchwork of tax credits and subsidies for different population groups. It proliferates programs but does not lead to secure, seamless coverage.



What the various approaches have in common is that they reinforce the present system of private insurance and managed care. If anything, they rely even more heavily on market forces to contain costs and, in theory, to hold plans accountable to consumers.



Herewith a very different view of the crisis in health care: Greater reliance on market forces cannot be the solution because marketization is the main problem. In a free market, prices are efficiently set by private supply and demand, consumers are adequately informed and have plenty of choices, and there are no significant social benefits or costs external to the transaction.



But health care is not, and cannot be, a free market. For one thing, we subsidize demand because we don't let people die if they can't pay the doctor. We necessarily subsidize and regulate supply (of doctors and hospitals). Recognizing that health care has significant externalities, we invest socially in sanitation and health, even for the indigent, to prevent epidemics. The health market has significant, structural failures of information and free choice. Sick people lack the knowledge, and often lack the right, to "shop around" for health plans, doctors, and hospitals. We further complicate the whole affair with insurance, which is a cross-subsidy from well to sick and from young to old.



By marketizing something that cannot be an efficient market, our system has created crazy inefficiencies. An ordinary industry maximizes profits by attracting and keeping satisfied customers. But the "customers" of health insurance are often sources of loss, not profit, because they have the effrontery to get sick. Profit-maximizing health plans, therefore, seek to market their products to consumers with above-average health, to minimize the costs of treatment, and to drive away people with expensive or chronic conditions. These outlays on risk selection, marketing, and second-guessing of doctors drain tens of billions of dollars that could otherwise be spent on care. They fragment insurance pools. The cost of claims processing wastes tens of billions more. Additional billions are squandered in a cops-and-robbers game between nimble health entrepreneurs and fraud-and-abuse inspectors.



So the crisis of health care is not really one of budget escalation and under- insurance, but of a perverse system. Managed care itself has become a complete perversion of what was originally intended by the radicals who invented prepaid group health insurance half a century ago. Originally, the idea was that people would pay a flat fee to a health plan that welcomed all comers. In exchange, all health expenses would be covered. Salaried doctors would have no financial incentive either to overtreat or undertreat. Money saved from unnecessary treatments could be redirected to prevention. Physicals, screenings, inoculations, and sick care were covered. Because the group health plan had a long-term relationship with the patient, the plan could emphasize a lifelong strategy of wellness. Different specialists in the group functioned as a team. Best practices could be broadcast to the system.



Under the Nixon administration, prepaid group health mutated into managed care. Nonprofits became for-profits. An agency of wellness became mainly an agent of cost containment. Managed-care companies began devising payment systems that rewarded doctors for denying treatment and hospitals for ordering early discharges. Insurance companies that once used community ratings--charging all subscribers the same premium--began discriminating against the sick and marketing to the well.



By the 1990s, so-called health maintenance organizations (the Nixon administration's new name for prepaid group health plans) were nothing of the sort. Mostly, they had become conventional health insurance plans with stringent discounting and financial incentives to deny treatment. They had become private bureaucracies, hated by doctors and patients alike. Most absurdly for the idea of coordinated case management, they had ceased to be group plans. Typically, local doctors were cross-registered with every health plan in town. Rather than a coherent system of close teamwork, the several plans simply presented doctors with a bewildering proliferation of payment formulas, treatment protocols, and medical records systems. The only difference between plans was different business strategies of physician payment, hospital contracting, and patient marketing. The cynical and unsentimental plans prospered.



The casualty of this system is care. As Suzanne Gordon recounts [see "Nurse Interrupted"], managed care under for-profit auspices is stripping out the care by depressing the ratio of nurses to patients while decreeing that hospital patients be "sicker and quicker." Doctors, likewise, are seeing more patients and spending less time per patient.



Moreover, the bad health plans are driving out the good. Here in Boston, Harvard Pilgrim Health Care, one of the pioneer group health plans, just went into receivership. It attempted to compete in a marketized environment, got itself overextended, and was not quite as ruthless as its competitors. In California, with the highest penetration of for-profit plans, nonprofit, community-oriented Kaiser Permanente finds itself under similar pressures to behave just like the industry's sharks, or go under.



In an era of incrementalism, reformers face a crossroads. Do we just attempt to fill in the cracks in coverage, thereby increasing the fragmentation and reinforcing the logic of a bad system? Or do we pursue incremental reforms that build toward universal coverage and turn the system in a different direction?



There are currently two oases of universal social coverage--Medicaid and Medicare. But the Bradley plan would turn the Medicaid population over to the tender mercies of private managed care, leaving some people unable to afford even the present level of Medicaid coverage. The Clinton "premium support" plan for Medicare would push more elderly people into the arms of private insurers, leaving some with inadequate coverage, fragmenting the risk pool, and inviting the industry to spend billions more on marketing and risk selection.



Instead, we should preserve and expand these realms of genuinely socialized health care. One simple proposal with wide appeal is universal health care for children. Instead of the present patchwork, every American child would get comprehensive coverage. Kids are relatively cheap to insure. They are the most important population for universal early screening and prevention. Having demonstrated that a universal program works efficiently for children, we could next extend universal care to young adults.



The Congressional Budget Office now projects that the federal surplus may be a trillion dollars more than previously forecast. This may be the only time in decades when there are the resources to significantly expand social provision. President Clinton has framed the policy choice as preserving Social Security and Medicare versus a tax cut. But as we have previously argued in these pages, there is a third choice: expanded social investment. However, the form of that investment is as important as the scale. Any increases in government health outlay should move us toward universal, social provision, and away from the false idol of "competitive reform" and the travesty of private, for-profit managed care. Some forms of incrementalism are worse than nothing.



What about cost containment? Maybe we have contained health care costs too much. At the turn of the new century, our society is drowning in private luxury consumption, while social investment lags, most notably in education and health. As luxury condos and shopping palaces go up, hospitals come down. Our affluent and democratic society has every reason to choose to invest more, collectively, so that an aging population can avail itself of new miracle medical technologies and the young can begin life in good health. ยค





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