Center for Studying Health System Change
Issue Brief No. 63
May 2003
Health Care Cost and Access Problems Intensify
Initial Findings From HSC’s Recent Site Visits
By Cara S. Lesser and Paul B. Ginsburg

Continued high-cost trends are threatening the affordability of health insurance and many consumers’ access to care. Early findings from the Center for Studying Health System Change’s (HSC) 2002-03 site visits to 12 nationally representative communities show the retreat from tightly managed care continues to shape local health care markets. Employers are aggressively shifting higher health costs to workers, and absent tight managed care controls to limit the use of care and slow payment rate increases, hospitals and physicians in many markets are competing fiercely for profitable specialty services. These developments have sparked growing skepticism about the potential for market-led solutions to the cost, quality and access problems facing the health care system today.

Few Bright Spots Ahead

Safety net improvements have been a bright spot in an otherwise grim picture of the health system. Although the economic downturn and state budget shortfalls have focused attention on cost control again, there appear to be few strategies developing in local markets that promise significant relief. Premium increases have helped plans to restore profitability, but they continue to grapple with limited influence over utilization and provider payment rates. Largely unchecked by countervailing pressure from plans, purchasers or policy makers, competition among providers for key specialty services has intensified, driving investment in specialized facilities and equipment that threatens to increase costs and aggravate the broader system capacity constraints already posing access problems.

Employers are generally at a loss about how to respond, other than by passing on more costs to employees. As a result, consumers are paying more out of pocket for health care at a time when many workers face stagnant or declining wages. Although higher cost sharing may help to reduce the use of inappropriate care, it also may cause people to delay needed care. And there are limits to the levels of cost sharing employers can impose on workers. While increasing cost sharing will depress trends in spending for a few years, many observers are skeptical about its potential to lower trends substantially over the long term. But if trends in health care spending are not reduced, the cost of health insurance will rise out of more people’s reach, threatening to increase the ranks of the uninsured.

Reflecting on changes in local health care markets today, health care executives, employers and state and local policy makers interviewed for this study have become increasingly skeptical about the ability of market-led solutions to rein in rapidly rising health care costs. Although there is not a strong sense of the alternatives, many stakeholders in local health systems have concluded that there are serious limits to the effects of competition and market-led efforts to constrain health care spending, especially given the poor experience in the 1990s with managed care.

Some remain committed to realizing the vision of managed care and integrated delivery systems, building on the lessons learned in the 1990s. Many more, however, see health care organizations as responding to the immediate pressures in their environment-to generate return for investors or to generate revenue to support a mission to provide health care, for example-in ways that are often at odds with the goals of controlling overall health care spending and protecting access to high-quality care.

http://www.hschange.com/CONTENT/559/

Comment: “Bleak” is an inadequate descriptive of the future of health care, unless, of course, we enact comprehensive reform. Continued mere tweaking of our system can only magnify the bleakness we face.

National Coalition on Health Care
May 19, 2003
Charting the Cost of Inaction
By Henry Simmons, MD, MPH, FACP and Mark A. Goldberg

What will happen if we do nothing to reform the health care system – nothing to secure health coverage for all Americans, nothing to contain or constrain surging costs, nothing to improve the quality of care?

First, in the absence of reform, health insurance premiums will rise rapidly. When we consider premium trends in real terms – that is, net of increases in the Consumer Price Index – the rate of rise is steeper.

Second, looking ahead, we expect premiums to continue to increase by leaps and bounds. The Coalition projects that the average annual premium for employer-sponsored family health coverage will surge to $14,545 in 2006.

Third, in the absence of reform, the number of uninsured Americans will climb rapidly over the next several years. …we now project that the number of uninsured Americans will reach 51.2 to 53.7 million in 2006.

Fourth, most Americans are apprehensive – and, as we have shown, realistically so – about the future affordability of health care.

Fifth, any reckoning of the potential budgetary impact of reform would be one-sided and incomplete without taking into account the potential effects of effective cost containment. The National Coalition on Health Care has long believed that the savings from cost containment, in a comprehensive package of health care reform, could more than offset the cost if securing universal coverage.

Lastly, and not just for that reason, time makes a difference. …the longer our nation waits to reform its health care system – to achieve universal coverage, contain costs, and improve the quality of care – the more reform will ultimately cost. Reform makes economic sense; delaying reform does not.

http://www.nchc.org/materials/studies/Cost_of_Inaction_Full_Report.pdf

Comment: At the press briefing on the release of this report, virtually all panel members, representing a broad spectrum of interests, agreed that a government solution is required. The video and the transcript of the briefing are available at:

http://www.kaisernetwork.org/health_cast/hcast_index.cfm?display=detail&hc=875

The Boston Globe
5/21/2003
Democrats must offer bolder health plans
By Robert Kuttner

With one exception, the health plans released by the Democratic presidential contenders are a set of little plans. They leave the current system largely intact and use subsidies and tax credits to reduce the number of uninsured — as if the whole system were not broken.

What is the nature of the health care crisis? For starters, coverage is eroding, even for the insured. There’s a squeeze on corporate profits in a climate of rising health costs. So health costs are being shifted from plan to individual, with the result that many people go without needed treatments that the plan won’t cover and that they can’t afford out of pocket.

The number of people without insurance is also increasing. Smaller businesses won’t provide insurance. More people are self-employed. And as bigger businesses increase the employee share costs, many lower-paid workers decline the insurance because they can’t afford it.

If we leave intact the present system, with its wasteful fragmentation, billing, underwriting, and insurance company profits, there is only one big place to reap savings — by withholding more care as nonessential and by avoiding the sick.

The best solution here is national health insurance. We already have it for one segment of the population, through Medicare. The program is easy to understand, and even fits on a bumper sticker: ”Medicare for all.”

Face it: Even incremental proposals by Democrats will be attacked as too costly and entailing too much government. They might as well do it right.

http://www.boston.com/dailyglobe2/141/oped/Democrats_must_offer_bolder_health_plans+.shtml

Comment: Why is this a partisan issue? Democrats are interested in ensuring access to affordable, comprehensive health care for everyone, or at least they should be. Republicans are interested in sound business principles which reduce administrative waste and contain costs, or at least they should be.

The one exception alluded to in Kuttner’s article that is not a “little plan” is the single payer proposal of Rep. Dennis Kucinich. It is the only proposal that offers the solutions that both Democrats and Republicans are seeking, even though the specific objectives may not be the same. But should a proposal that would successfully address the concerns or one political persuasion be rejected merely because it also addresses the concerns of the opposing party?

It is true that rhetorical disputes over abstract ideology continue to defeat rational proposals. But when we have an opportunity to adopt reform that provides a meeting ground for those advocating for a sound business approach to reform and for those advocating for health care justice, isn’t it time to set aside the superficiality of rhetorical debate, especially when so many lives are at stake?

World Socialist Web Site
10 May 2003
Britain: Parliament backs plans to privatise health care
By Julie Hyland

The Labour government’s proposals to further open up National Health Service (NHS) hospitals to the private sector were passed by parliament on May 7.

Through the establishment of Foundation Hospitals the government aims to end the system of centralised control and accountability, enabling individual hospitals to raise finance from the private sector and determine their own wage rates and clinical priorities.

The proposals, contained in a new Health and Social Bill, are a clear break with the system of universal health provision established by the post-Second World War Labour government and are widely recognised as such.

Government ministers often complain of the affection in which the NHS is held by many in Britain-citing it as an example of the kind of backward-looking nostalgia that must be overcome if the country is to step into the twenty-first century. Their own ire is directed not at the very real failings of the NHS-the long waiting lists, overworked staff and poor facilities that have resulted from decades of underfunding-but the progressive principle on which health care has been organised in Britain since the Second World War.

As the “crown jewels” of the social reforms enacted by the postwar Labour government, the NHS was deemed to be an example of egalitarianism in practice, guaranteeing health care to all regardless of their financial status and free at the point of use.

In capitalist Britain, the ideal could never match the reality. Not even the most egalitarian structure could compensate for, much less overcome, the health problems generated by a system built on social inequality. The private drug companies continued to milk the system and add enormous costs in terms of taxation, while the rich could still utilise private treatment that occupied a parasitic relationship to the NHS-using staff it had trained and usually renting access to facilities bought from the public purse.

But under conditions where prior to 1948 more than 50 percent of Britain’s population had no access to health care, the NHS was correctly regarded as a significant advance and eminently preferable to the system of health care in the US, for example, which was seen as outdated and barbaric.

In line with the right-wing monetarist policies that have come to dominate official politics in Britain over the last 20 years, successive Conservative and Labour governments have carried out a policy of deliberate sabotage against public health care-starving it of the necessary funds and introducing numerous “reforms” aimed at resurrecting the profit principle and forcing people into privately funded insurance-based schemes, creating a financial bonanza for the corporate sector.

Utilising the poor state of public provision that their policies have caused, the official parties have sought to ridicule any notion of equality as simply meaning the right of all to suffer equally.

http://www.wsws.org/articles/2003/may2003/nhs-m10.shtml

Comment: Rather than face the delicate problem of ensuring adequate public funding for health care, British politicians are turning to the private sector to provide innovative methods of limiting public spending. No amount of rhetoric about market forces can ever change the reality that private business models in health care shift funds from patient care to the business entity. This then requires an even greater amount of private funding just to maintain the same deficient level of care as would exist under public funding. And worse, greater private control of funds automatically equates with greater inequities in care.

The British and American issues are different. At 7% of their GDP, the British are not spending enough on health care. At 15.2%, we’re spending enough, but we’ve placed the control of funds in the private sector. As a result, we have the most inequitable system of all industrialized nations.

Wouldn’t it be better for politicians to be honest and face the realities that public administration benefits health care, but that funding needs to be adequate? The British don’t need privatization; they need more public funds. Americans don’t need more funds; we need public administration with equitable public pooling of our existing funds.

Beth Capell, Ph.D. responds on safety net funding and the uninsured:

Don:

Your comment may unintentionally encourage those who wish to defund the safety net in order to fund coverage expansions for other Californians.

As the CAPH report demonstrates, the current safety net is badly underfunded. If the safety net for the uninsured were funded at the same level as care for the insured, California would spend $12-$14 billion on community clinics and public hospitals—instead of the $4-$6 billion now spent.

It is important to acknowledge, as you have in other Quotes of the Day, that the uninsured get half as much care as the insured–and that they pay more for less care.

Every reputable estimate of the cost of covering the uninsured includes the cost of doubling the amount of care they receive. This is incorporated in the Lewin analysis of the various single payer options reviewed in the Health Care Options Project.

The reason that a single payer system can absorb the increased cost of providing a decent level of care for all Californians is the dramatic cost savings achieved by eliminating the administrative overhead of an insurance model of financing.

Those who say the costs are already in the system are right–but only if they are talking about money spent on unnecessary overhead and administrative costs.

It is not true that the uninsured get the care they need. Not at the emergency room, not at doctor’s offices, not at underfunded community clinics and public hospitals, not anywhere.

The cost of care for the uninsured is absorbed by the uninsured—in premature deaths, in avoidable illnesses, in misery from untreated illnesses and chronic conditions. They don’t get the care they need and we should say it.

Beth Capell, MD

Health Affairs
May/June 2003
High Out-Of-Pocket Health Care Spending By The Elderly
High spending coupled with the erosion of insurance coverage expose the
elderly to great financial risk.
by Dana P. Goldman and Julie M. Zissimopoulos

Disturbing Trends:
* Erosion of managed care – For the near-poor, who rely most on Medicare HMOs, benefits have probably eroded…
* Declines in drug coverage – The share of M+C enrollees in plans with drug coverage declined… Copayments have increased… (and 98% face caps on coverage)
* Cuts in retiree benefits – …provision of retiree benefits declined steadily… (with) a decrease in the generosity of benefits.

With the erosion of market areas and the generosity of Medicare HMO benefits, the risks of large catastrophic expenses have likely increased among a group least able to afford it. In addition to imposing additional private costs on less affluent seniors, these changes may also impose public costs. They will make Medicaid a more attractive option to the near-poor elderly, and some may spend down assets to qualify. This will increase Medicaid’s costs, while exposing other elderly people to more financial risk.

http://www.healthaffairs.org/1130_abstract_c.php?ID=/usr/local/apache/sites/healthaffairs.org/htdocs/Library/v22n3/s26.pdf

Comment: Are these our American values? We establish a health benefits program for our retired seniors. But then we gradually shift more of the costs to the beneficiaries, making health care unaffordable for many. We then drive them into poverty in order to allow them to regain affordable access to health care.

What kind of a nation are we? We already know how to provide affordable, comprehensive benefits for everyone. Why do we continue with inhumane policies that require financial ruin for so many with significant health care needs?

Health Affairs
May/June 2003
Does Universal Health Insurance Make Health Care Unaffordable? Lessons From
Taiwan
by Jui-Fen Rachel Lu and William C. Hsiao

…Taiwan’s single-payer NHI system enabled Taiwan to manage health spending inflation and that the resulting savings largely offset the incremental cost of covering the previously uninsured. Under the NHI, the Taiwanese have more equal access to health care, greater financial risk protection, and equity in health care financing.

Major Lessons

Taiwan offers an opportunity to study how an advanced economy can structure its health care system to advance societal goals. Taiwan learned from worldwide experience that while the free market can often produce products and goods efficiently, it is incapable of distributing the goods equitably because the income and wealth of households are not distributed equitably. Moreover, the health insurance market suffers major market failures from adverse selection and risk selection. When a society is seriously concerned about its people having equitable access to care and about pooling health risks efficiently, the free market is not a good choice. Evidence from the United States amply supports this conclusion also.

Taiwan established a compulsory national health insurance program that provided universal coverage and a comprehensive benefit package to all of its residents. Besides providing more equal access to health care and financial risk protection, the single-payer NHI also provides tools to manage health spending increases. Our data show that Taiwan was able to adopt the NHI without using measurably more resources than what it would have spent without the program. It seems that the additional resources that had to be spent to cover the uninsured were largely offset by the savings resulting from reduced overcharges, duplication and overuse of health services and tests, transaction costs, and other costs. The total increase in national health spending between 1995 and 2000 was not more than the amount that Taiwan would have spent, based on historical trends.

Additionally, Taiwan did not experience any reported increase in queues or waiting time under the NHI. Meanwhile, the government has taken regular public opinion polls every three months to gauge the public’s satisfaction with the NHI. It continuously enjoys a public satisfaction rate of around 70 percent, one of the highest for Taiwanese public programs.

One notable result that should interest Americans is that Taiwan’s universal insurance single-payer system greatly reduced transaction costs and also offered the information and tools to manage health care costs. Alex Preker, a leading health economist at the World Bank, came to a similar conclusion from his research of OECD countries. He concluded that universal health care led to cost containment, not cost explosion. Equally important, a single-payer system can gather comprehensive information on patients and providers, which can be used to monitor and improve clinical quality and health outcomes.

http://www.healthaffairs.org/1130_abstract_c.php?ID=http://www.healthaffairs.org/Library/v22n3/s15.pdf

Comment: Amazing! Single payer reform really does accomplish its intended goals. Taiwan now has equitable, affordable, comprehensive care for everyone. Taiwan has provided us with a real life laboratory for precisely the reform that we need in the United States.

So let’s fix our system… now!