Practicing medicine has become a frustrating vocation. While physicians continue to learn new therapies and advanced surgical techniques to improve the lives of their patients, a constant drumbeat by both the government and the private sector to control costs is turning medicine from the art of healing to the art of battling byzantine bureaucracies. Meanwhile, more and more patients are falling through the cracks—even in supposedly good economic times—as health insurance costs escalate. Forty-one million Americans, 17.6% of the under 65 population, are uninsured, the highest in recent history. (1)
The primary response of the medical community to this disturbing trend has been either to fight the bureaucratic excesses of managed care or to attempt to organize health insurance plans controlled exclusively by physicians. Neither of these approaches will address the underlying reason for the unaffordability of health insurance: the wages of workers have not kept pace with the escalation in health-care costs. Per capita health-care costs have increased 23-fold since 1970 while wages have increased only 4-fold. The problem is further compounded by increasing disparities of wealth. Over the past 25 years, the poorest 5% of the population have seen their inflation-adjusted wages plummet 34% while the wealthiest 5% have realized a 43% increase. (2) Low-income families (less than $12,841 annually) spend 9.4% of their income on health care, whereas high-income families (greater than $96,122 annually) spend 1.2%. (3) It is not unusual for a working-poor family to earn $12,000 annually but be expected to come up with $4,000 for health insurance – 33% of their income. It is small wonder that so many are uninsured.
Rather than battle managed-care conglomerates, the medical community should ally itself with their patients to establish a more equitable way for financing health care by endorsing single-payer catastrophic coverage for all Americans.
For most of the country’s history, health care has been a private contract between the doctor and patient, with Adam Smith looking over the shoulders of both. But during the first half of the 20th century, medical advances changed public perception. The advent of antibiotics and advancing surgical techniques made the public realize that doctors could also cure them, not just comfort them. In 1900 the life expectancy in the United States was about 45 years, and the biggest killers were tuberculosis, pneumonia, and diarrheal diseases. By 1950, life expectancy had increased to 65 years and these three diseases were coming under control.
After World War II, health insurance was offered as a benefit of employment, allowing a significant percentage of the population to have unfettered access to physicians. This resulted in a disparity of care. The retired elderly and the poor were unable to obtain affordable health insurance. This was remedied in the 1960s by legislation that established Medicare for the population over 65 and Medicaid for the poor. Concurrently, technological advances in medicine were moving exponentially, and there was a 38-fold increase in health-care spending between 1960 and 1996. Selective antibiotics, anti-hypertensives, tranquilizers, cardiac by-pass surgery, cataract surgery, point replacement along with diagnostic tests such as computed tomographic scans, angiograms, and magnetic resonance imaging resulted in increasing physician specialization and the need for highly-trained support staff. Price escalation was a natural consequence. Insurance companies, employers, and the government began to question the blank check that the medical community had previously enjoyed. Medicine had become a victim of its own success.
The Failure of Managed Care
Scattered examples of managed care have been around for decades, the most successful being a plan started by the Kaiser Foundation in 1945. For a fixed price, patients were offered comprehensive care but had to use doctors employed by Kaiser and abide by their decisions. While several imitations of the Kaiser system were developed, it was not until the 1980s that health maintenance organizations became popular. In general, these consisted of panels of physicians who agreed to care for patients at set fees. To control costs, physicians agreed that the insurers had the right to preapprove certain procedures and to control specialist referrals, hospital admissions, and access to emergency rooms—managed care.
The underlying theory of managed care was that both physicians and patients were over utilizing the health-care system. By decreasing prolonged hospital stays, unnecessary office visits, and unnecessary surgery, health-care costs could be contained. The system seemed to work, at least ostensibly. In 1986, health-care costs increased by 8% over the previous year even after correcting for inflation, but by 1996, the rate of increase was a mere 1.9%. (4) These savings gave most patients little choice but to join managed-care plans, with many employers not offering them other options. Forty-nine percent
of firms with less than 200 employees offered their workers only one health insurance plans By 1997,80% of workers were in managed-care plans. (5)
While physicians voiced anecdotal complaints of patient abuse, these fell on deaf ears. But as time passed, patients began to complain too. Mothers bringing their crying infants to the emergency room were denied approval for payment unless a serious problem was noted. The mother of a crying infant who was teething may have been presented with a bill for hundreds of dollars. Patients who presented to emergency rooms with chest pain that was found to be heart burn met a similar fate.(6)
Meanwhile, managed care became draconian in denying prolonged hospital stays for childbirth and surgical procedures. For example, some companies mandated that a woman undergoing cesarean section had to be discharged although the obstetrician remained liable for any complications to both mother and child even though faceless managed-care bureaucrats were calling the shots.
The insurance companies have had the ability to exclude patients with pre-existing conditions. In 1996, federal legislation, the Kassebaum-Kennedy law, attempted to end this practice. But vague regulations and lax enforcement of the law have enabled the insurers to raise premiums on sick patients to unaffordable levels, in some cases eclipsing $10,000 annually. (7) As stated by Mr. James
Tallon, President of United Hospital Group, “The best way to make a buck in insurance is to sell it to healthy people.” (8)
Patients were further lured by gimmicks such as $2 copays for doctor visits along with free eyeglasses, hearing aids, and prescriptions. Once captured, copayments were rapidly increased and benefits were quickly reduced. Patients with pre-existing conditions were stuck. To control costs, managed care initiated various policies. The concept of capitation was devised, whereby physicians were paid a fixed amount per patient whether care was provided or not. Primary-care physicians were given the title of “gatekeeper” and paid bonuses for not referring patients to specialists. Academic centers, the training ground for future physicians, were forced to care for patients for less than their overhead. Some companies went further, instituting “gag rules” that specifically prohibited physicians from telling patients of uncovered treatment options!
Meanwhile, the true nature of managed care was revealed as executives began taking payolas that would embarrass Croesus. Leonard Abrahamson sold the company he founded, U.S. Health Care, to AETNA for stock valued at over $1,000,000,000 (your eyes are fine, that is a one with nine zeros after it).(9) Former Oxford Health Plans CEO, Steven Wiggins sold a large number of his shares worth millions several weeks before the stock crashed 62% in a single day.(10)
It became obvious that the name of the game in managed care was to sign up enrollees, show high short-term profits to Wall Street, and inflate the price of the stock. Once this occurred, the managed-care executives exercised lucrative options or sold out and walked away with millions. Oxford, with its stock now languishing at a sixth of its previous value, is threatening to increase the cost of individual policies by 69%, and huge premium increases are occurring in managed-care plans all over the
The failure of managed care is due to an incorrect underlying assumption: by wringing out waste and abuse in the health-care system, costs can be controlled. In actuality, it is advancing technology and the increasing ability of the medical profession to solve what were previously untreatable medical problems that has caused costs to increase. In fact Professor John Newhouse of Harvard’s Kennedy School of Government estimates that over 50% of health-care cost escalation is due to advancing technology. (11) Taking care of sick people costs money—lots of money. The only way to cut costs is to deny care. Yet, managed care continues to march forward. The reason: the medical community has not yet offered a viable alternative.
Single-payer Catastrophic Coverage
Single-payer catastrophic coverage would insure all Americans for medical bills that exceed a certain annual amount. For the sake of this discussion, the number $10,000 was chosen for individuals and $15,000 for families. While an entirely new government program could be proposed to administer this plan, it would seem more logical to extend Medicare, which is financed by a 2.9% payroll tax, to all Americans. Care must be taken to simplify Medicare’s coding system. Treatments should be placed into three categories
The first category would consist of known effective treatments such as appendectomies and medications for hypertension. This category would be covered 100%. The second category would consist of treatments deemed experimental or those of uncertain benefit such as bone marrow transplants in some types of cancers. Coverage would be between 50% and 75%. Patients could buy supplementary insurance for such treatments. A third category would consist of non-covered items such as cosmetic
surgery. Because such a classification system would be fluid based on new developments, a committee of physicians including epidemiologists would oversee the program.
Predicting the cost of such a program is a formidable task as it requires projections on population growth, medical advances, and changing human behavior patterns. In 1996, health-care costs passed $1 trillion dollars for the first time. Of this amount, $481.3 billion was financed from the public sector (e.g., Medicare and Medicaid) and $552 billion from private funds (e.g., private insurance and out-of-pocket expenses). (12) Thus it can be seen that already, almost 50% of health-care cost is financed by the taxpayers. Raising the Medicare tax from 2.9% to 4.1 would bring approximately $80 billion. While more research is needed for conformation, this should be adequate in protecting all Americans for catastrophic medical expenses who are not already covered by Medicare and Medicaid.
The benefits would be immediate. Many patients, no longer faced with the specter of bankruptcy, would be empowered to choose polices that meet their needs rather than meekly accepting the mandates from their employers and the insurance companies. Those with pre-existing conditions would not run the risk of financial ruin by attempting to obtain improved coverage. Companies would no longer be in a position to make patients jump through hoops to see a specialist or go to the emergency room. Ethical insurance companies could concentrate on producing a quality product rather than trying to figure out how to exclude sick patients. The market place would determine how patients cover this large deductible. Most patients would opt to purchase insurance. Some patients may prefer medical savings accounts. Some will decide to go without insurance but public policy makers could consider requiring employers to give low-wage workers health benefits. Large savings would materialize in that hospitals would not need so many administrators to battle with the different companies. Most important, the doctor-patient relationship would improve, as physicians no longer have to grovel for permission to take care of their patients. The use of capitation, gatekeepers, and gag rules would diminish.
It will be argued that the introduction of single-payer catastrophic coverage is the first step towards socialized medicine and the demise of the most advanced health-care system on the planet. After all, other countries who developed socialized systems have found themselves without capital investment from the private sector, leaving their hospitals as large wards.(13) It is no surprise that the majority
of medical developments—small-incision cataract surgery, small-incision abdominal surgery, drugs to slow the progression of AIDS—were spawned in the United States.
What must be realized is that the United States already has a hodgepodge of programs to protect its citizens from financial ruin. Medicare protects the senior citizens (65 and older) and the disabled. Medicaid protects the unemployed poor. For the uninsured, there is a patchwork of programs available. In New York City, eleven public hospitals serve the uninsured. In Connecticut, a 17% tax is placed on
hospital bills of the insured to cover the hospitalized uninsured.
During its last session, the most conservative Congress since World War II authorized programs to insure the children of the working poor. In this year’s State of the Union address, President Clinton proposed that those over55 be allowed to buy into Medicare. These developments reflect the overwhelming majority view of the American people that the government should protect its citizens
from large health-care bills. Those who oppose single-payer catastrophic health insurance must ask themselves: What is the alternative? Some may wish to return to the previous fee-for-service
arrangement. This is not going to happen. The insurance companies will not allow it and individuals cannot afford it. Others may feel that physician-run managed-care companies are the wave of the future. Yet, past history demonstrates that physicians who are successful in establishing such companies quickly trade in their stethoscopes for pre-Castro Cohibas. Columbia CEO Thomas F. Frist exercised
stock options that netted him $125,000,000 (14) When Norman Payson, the CEO of New Hampshire’s
Health Source Inc., cashed in his chips, he walked away with $90,000,000. (15) Both Frist and Payson are physicians.
Some are of the opinion that physicians need to unionize. But it unlikely that steelworkers and coal miners will be willing to march hand-in-hand with physicians whose annual incomes average $189,000.6 Others feel that with effective lobbying, antitrust provisions can be repealed; thus, improving the bargaining position of the medical community when dealing with the insurance companies. Presently, physicians who discuss fees with other physicians are committing a felony and are subject to fines of
$350,000 and three years of jail. (16) Even in the unlikely scenario that physicians could muster the political clout to change this, court challenges would tie up the issue for years if not decades. Furthermore, such action would not make health insurance more affordable for the average
citizen. It may be argued that physicians should continue to muddle through the managed-care trend and hope that it eventually ends. This is hopelessly naive. Managed care is just scratching the surface of cost-cutting measures. Through the use of genetic screening and sophisticated data bases, insurance companies will even further perfect the art of insuring the healthy. They will establish networks of paraprofessionals, physician’s assistants, nurse practitioners, naturopaths, and chiropractors who are willing to work for a fraction of the salaries physicians now enjoy. Physicians who believe that the public will never accept such an arrangement must ask themselves: How many patients remained in your practice when you were no longer covered by their insurance? The only healthcare change that the public will not tolerate is one that results in large out-of-pocket expenses.
Physicians have a choice: they can either be cannibalized by insurance conglomerates who have mastered the art of caring for the healthy and punting the sick to the taxpayers while making obscene profits, or they can support a system that evenly distributes the risk of caring for the unfortunates with illnesses.
Physicians must unite and fight for a plan that makes insurance affordable while preserving the market forces that have made health care in the United States the envy of the world. Single-payer catastrophic coverage is a reasonable alternative to the patchwork of private and public health care plans that attempt to prevent patients from falling through the cracks. Furthermore, by proposing
such a plan, physicians will be seen by their patients as their advocates, rather than just another special interest group trying to preserve its income.
1. Fisher I: Even as economy booms, more people are going without insurance. New York Times. 12 February 1998:B1.
2. Lane C (ed): Wages. The New Republic. 30 September 1996, p.16.
3. Rasell E, Bernstein J, Tang K, et al: The impact of health care financing on family budgets. lnt J Health Studies 1998; 24:699-704.
4. Levil K, Lazenby H, BFadley B: Health care speeding. Kealth Affairs 1998; 17:35-51.
5. Ginsburg P, Gabel J, Hunt K: Tracking small-firm coverage. Health Affairs 1998, 17:167-71.
6. Samuelson R: The backlash against HMOs. Newsweek. 9 March 1998, p.46.
7. Pear R: High rates hobble law to guarantee health insurance. New York Times. 17 March 1998:A1.
8. Finkelstein K: The sick business: The New Republic. 29 December 1997, p.23.
9. Anonymous: U.S. healthcare chief will get $1 billion. New York Times. 15 June 1996:A32.
10. Abelson R: Oxford health may be facing deep changes. New YorkTimes. 25 February 1998:D1.
ll. Fisher I: State to bear Oxford’s plea for rate hike. New York Times.
10 March 1998:B ] .
12. Brody J: Health Care Fever: Not so high for some. New York Times.16 May 1993:E3.
13. Ands ER: Code blue: He¢lth Care in Crisis. Washington, D.C.: Regnery Gateway; 1993, p.116.
14. Service R (ed): Tt~e plot thickens at Columbia. Business Health. 1998; 1:11.
15. Abelson R: True believer hopes to salvage a reputation. New York Times. 25 February 1998:D3.
16. Personal communication from the legal firm of Murtha, Culling, Richter and Pinney. 3 December 1997
240 CONNECTICUT MEDICINE, APRIL 1998