MANAGED CARE February 1999. ©1998 Stezzi Communications
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We may be heading toward a single-payer health care system --
without showing the public all the uncomfortable implications.

Legislative Onslaught May Force
Conversion to Universal System

By Martin A. Hadelman

Before Aug. 17, 1998, when President Clinton testified before a grand jury -- effectively ending the 105th Congress's legislative agenda -- you could hardly open a newspaper or turn on a TV or radio without hearing or reading something negative about managed care and why something should be done about it. Legislation was proposed -- of course.

The new Congress is making the same noises. But when politicians get into the fray without letting appropriate market forces determine outcomes, regulatory fiddling often exacerbates an already difficult situation. And when that happens, who really benefits? All you need to do is look at the complexities of the 1986, 1990, and 1993 tax laws to understand why tax lawyers and accountants were able to feather their retirement nests.

Mark A. Kadzielski, a partner in Epstein, Becker, & Green, the health care law firm, predicts that with regulatory fever growing, legislators will introduce bills this year that may look suspiciously familiar.

In such an environment, it is appropriate to consider whether the United States is heading toward a single-payer universal health care system. Do we want a two- or three-tiered system, similar to those in Great Britain, Germany, and Canada? Do we want one system that is available to the masses and a separate private system available to only those who can afford a policy? Will Americans tolerate waiting lists of two months to two years for elective procedures? Will providers accept the possible extinction of their right to practice privately? Will health plans have any role at all in a single-payer system?

If the employer, provider, and health plan lose managed care techniques through excessive governmental requirements, then we will be left with only one option: A universal health care system imposed by the federal government but financed through a combination of employer taxes, employee contributions, and very little government money. The public rejected that idea in 1993 and 1994. But that embryo is again growing.

Complicating matters

Many of the proposals floating about, if enacted, will complicate health care delivery and raise costs, much as the Americans With Disabilities, Family and Medical Leave, and Health Insurance Portability and Accountability acts have done. It is estimated that these laws have added between 2 and 6 percent to health care premiums.

Consumers' desires are being distorted and used to limit managed care's ability to continue to do what it was developed to do: reduce costs and justify decisions about care.

Politicians, trying to legislate market forces, have been involved in the health care marketplace since enactment of Medicare and Medicaid in 1965. Providers and patients have watched from the sidelines as Congress raised expectations that consumers would receive the health care they wanted, but then didn't appropriate enough money to fulfill that belief. Congress has legislated cost controls, increased administrative requirements, and reduced payments for the delivery of service.

On Jan. 1, more than 440,000 Medicare HMO members lost their managed care coverage because their health plans pulled out of counties where they expected to lose money. This was a direct result of the Balanced Budget Act's stipulation that limited health plans to a 2-percent capitation increase, and the Health Care Financing Administration's refusal to reconsider the matter. Congress and the administration tried to control costs by reducing provider payments and increasing legal and paperwork requirements.

The evidence is clear: Politicians, both Republicans and Democrats, are for more regulation, which will drive the cost of health care higher. The only difference in their arguments is whether health plans should be sued for denial of care.

Vital signs

There are, of course, real issues involved. Health care inflation is rising faster than the consumer price index. MCOs and federal and state governments wrung about all of the excess expense out of health care delivery over the last five to seven years. The floor was reached near the end of 1996 or early 1997. With nowhere left to go but up, HMOs, fully insured carriers, and reinsurance carriers began raising rates during the middle of 1997.

The Census Bureau reports that 16.1 percent of the United States population -- 43.4 million people -- are without health insurance. Compare that to the reported 34 million uninsured in 1993, when the Clinton health care plan was being promoted. Today, very little is heard about the continuing and growing problem of the uninsured.

These events will cripple the advantages of managed care. Edward O'Neill, Ph.D., of the University of California at San Francisco's Center for Health Professionals, says they are driven by several factors:

With a better understanding of these drivers, the actions of constituencies that are affecting and being affected by managed care would be guided more by knowledge than reasons of political gain.

Worth protecting?

Because of this mounting assault, it is important to consider whether managed care has worked.

It has. Otherwise, there would not be the attacks on it that are seen today. Nor would the provider community jump on the bandwagon to develop managed care entities, such as provider-sponsored organizations. There is strong sentiment -- and past experience demonstrates this -- that most managed care entities developed and run by health care providers will fail. There will be rare exceptions, but the rule will apply. However, managed care can no longer control rising health care costs in the private sector.

HCFA estimates that health costs will double by 2007, partly because of accelerating health care spending in the private sector. (In the public sector, federal legislation attempts to control costs. As a result, private managed care companies are pulling out of Medicare, or are reducing benefits and increasing premiums to cover their costs and meet profit margins.)

Last year's difficult bargaining between Kaiser Permanente and the California Public Employees Retirement System was the first signal that health care costs were poised to rise, and that managed care companies were ready to serve employers notice that the days of bargain-basement health care were over. Kaiser managed to achieve a 10.7-percent premium rate increase after requesting a 12-percent increase.

The growth of managed care has spawned many other entities, problems, and opportunities:

Uncertain future

What will happen if we take a wait-and-see attitude? Managed care's supporters contend that if politicians continue along, believing that the American people want access to any provider, want any benefit regardless of whether it is covered, and want to require other people to pay for it -- then America is screeching toward a universal health system.

Put another way, managed care's detractors, with fresh memories of fee-for-service days, want to limit MCOs' decision-making powers -- in essence, neutralizing the industry's reason for being. What they don't understand is what the destruction of managed care's cost-controlling mechanisms will lead to a return to high medical inflation, cutbacks in employer-sponsored benefits, and eventually, political fodder for a universal health care system.

What could happen to managed care? The industry has been very successful in providing increased benefits for lower costs with some controls. The uncontrolled indemnity insurance system that preceded managed care grew so expensive that premiums soared and benefits declined. That is exactly what will happen if more and more legislation is approved, placing incremental mandates on the managed care industry and slowly eliminating the fundamental processes by which it grew. (In fact, it is already happening with Medicare HMOs, which are responding by slashing ancillary benefits, such as pharmacy.)

Americans do not want to live with limitations on health care availability. But we know that money and services are not unlimited. Canada, Sweden, Great Britain, and other advanced countries have learned the hard way what happens when more is promised than can be delivered. Until Americans become more educated, the problems will not be solved. Managed care will not survive for long if this legislative onslaught continues.

Martin A. Hadelman is president of Advisors for Health Care in Roswell, Ga. In 1970, he wrote the first managed care contract in the U.S.