Healthcare Reform Paper Fall1994

8/14/2019 Healthcare Reform Paper Fall1994

1/9

ealth care reform:a free marketperspectiveJEfTREY S. FLIER, MD, AND ELEFTHERIA MAR/\TOS-FUloR, MD

Problems with the U.S. health care system have been topics o[ discussionfor many years. Escalating e x p e n d i t u r c ~ on health and increased numbersof uninsured individuals ar e generally accepted as th e major symptoms ofthese defects. Health care reform became paramount among social policyissues during the presidential campaign oflll91, and in early IlI!)3, HillaryRodham Clinton was appointed to head a task force charge I Withpreparing legislative proposals designed to resolve the crisis. The taskforce met mostly in secret [or months, and in September 1993 the WhiteHouse released proposals for unprecedented change in the trillion-dollarhealth care industry. The dominant theme of this complex legislationinvolved increased regulation and control of the medical an d insuranceindustries.

Th e next year witnessed intense and broad-based discussions of thenature of the problem and the merits of the specific legislation, as well asalternative approaches. Th e initial debate focused on both cost andaccess; however, over time the focus shifted to assuring universal coverage. The dominant theme of proposed legislation was to introducesweeping new regulations and taxes. Cost estimates of the proposed planswere disputed, and no consensus could be reached regarding basic aspectsof the legislation. The attempt to produce legislation in 1994 has largelybeen abandoned, and the focus ha s narrowed to incremental reform.However, the basic premise of leading proponcnts of refurm, thatimprovements in the health care system ca n be accomplisheJ by government regulation, remains unchanged.

We present this paper from an alternative perspective that vicwssymptoms of cost and access as resulting to a substantial degree fromdecades of flawed public policy, rather than government inaction. However well intentioned, prior policies have caused economic distortionsthat raised the cost of medical care an d reduced the availability ofaffordable insurance for a majority of the population. hom this perspective, further regulation is likely to exacerbate more problems than it willsolve, bringing relief to some individuals while reducing availability toFrom tl1e Department or Medicine U.S.F.). Beth lSI el Hospital. Boston. the Department or Meel,clnc(E.M.F.). Brigham & Women 's Hospital nd Res arch Division. Joslin Dt betes C nler. Boston: and tl1eDepartnlcnl of MediCine (JS.F. and E.M.F.), Harvard Medical SchOol. SoslDn. M ~ s < ' C n u s ~ e l l s

Address correspondence and rep"nt requests to Jeffrey S. Filer. MD, 6eth Isro I Hospital. 3::10Brookline Ave.. 80';ton. MA 0221H 0, heall m InlenanCe org nI7'1tlon; GIlP. gr ss dOlTIes II,; proch,"!: IRA. Ind,vtd\l" rellt""' ' ' ' ' laccount

Problems with inflation of medicalcosts and inCI'eased numbers ofuninsured individuals have resultedin widespread calls for reform ofthe U.S. health care system.Proposed refor'ms have generallyemphasized increased regulation ofthe medical and insuranceindustries, but disputes over thecost and consequences of theseproposal has so far preventedlegislation fmID being passed. Thispaper' is pr'esentcd from analternative perspective that viewsthe current symptoms on cost andaccess as the results of decades ofHawed public policy, rather thangovemment inaclion. Wc lrace theorigins of dysfunclional hcalth carcmarkcts in prior public policy, andoutline an approach to healing theheallh care system based on a newdedication to frec market principlesand individual choice.

DIABETES REVIEWS, Volume 2, Number 4, Fall 1994 _ 51) I


2/9

- - - - - - -TI18 free market and IlealUl care rcrarnlmany others of the healtl1 care they desire, This p


3/9

Flier anel Maratos Flier

SOME HISTORICAL ROOTS OF THE PROBLEMSOF COST AND ACCESSIt is frequently asserted that the U.S he,tlth caresystem spends an excessive fraction of gmss domesticproduct (CJDP) on health. Although thc I IS . spends,I greater fraction of GOP on health than any othercountry, the unaceepwbility of the 14 r/r, of GT P spenton heallh care is not self-evident. People in ,lmuelltsocieties will spend more for innovative and etfeetivediagnostics and therapies. An a, mg population ,tlsoIllereaSes hCC1lth expenditures. M,lny other factmshave been discussed (13). While the fact th,lt medie


4/9

The free market and health carE: reforrn

by patients as opposed to l lmd party payers. Dissociation of cost and service is sometimes eJcslrablc,allowing patients to avoid thc stress of flnancialdccisions whcn ill. fIowcver, in the absencc of costconsideration, utilization increases, some of it in thecategory of medically unnecessary utilization (21).Palients will more likely seck medical ({lrc fo r minorproblems, and may accept low-risk (but cxpensive)diagnostic procedures wherc pathology IS unlikely. Inhopeless situations, patients {lnd physicians morcoften grnsp at experimental or useless treatments.

We tind no moral fault in individuals seeking care,even exceeding that which mcdical authuritic's findappropriate, especially if spending their own resources seeking hcalth and peace of mind. IlowevCl,we belicve that globally incrclsed demand for carewithout cost consciousness is Iitcrelily ullsustalIlable.Itimately spending will either be l imited hy IIHlividuals acting in their own interest (i.e., choosing to usctheir resources on somethlIlg other than he,lIth care)or by bureaucracies reacting to global budget,lrvconcerns. The transfer of such Important personaldecisions to bureaucracies wi II encou rage the poli ticiLiltion of health ,mel will dcprivc individmds of~ l L I t o n o l l l Y in a critical sphere of their lives.

Mandated CoverageMandated benefits requiring insurance to cover specific diseases, disabilities, and scrvices make Insurance expensive (j 5,23). Most states mandate coveragefor specific therapies, including pastoral counseling,hairpieces, in vitro fertilization, and Hcupuncture. Thenumber of such laws increased frum 40 10 nearly1,000 between 1970 and 1991 (I."i,n). TypiGdly, peupic view such mandates as addressing specific needs,and they typically enter thc law quietly, throughspecial interest pleading, without much public debate.Unfortunately, the unintended adverse consequencesof such mandates arc rarely scrutinized, as t h ~ ' victimsarc less readily identified than the bcneflciaries. [naddition to raising the costs of Insurance, these requirements only apply to a minority of th ' ropulation,because Medicare, Medicaid, most HMOs, and sellinsured companies (70% of largc corporations), Meexempt (J5.23). lience, those individuctls fo r whomhigh deductible, low cost catastrophic insurancc ismost appropriate, i.e., the self-employed clnd employces of small husi nesses that do not otle r I nsu rance, arecJeprived of that choice through government-lIlducedcost inJlation, and as it result. the I t k ~ ' l i h o o d th;lt theseindividuals will be uninsured increases.

Government Responsibility for the UninsuredThe problem of unmsured Americans has beenbrought to wide attention through thc storics oftragically il l individuals who suffered as a result ofheing uninsured because of preexisting conditions,inability to afford policies, or loss of employer-basedInsurance hecause of Joh loss. It is therefore important to undcrst;lnd the nature and causes of thiSproblem. [t is estimated tllat :17,000,000 people arcunillsured at any roint in time, and about half of themrcmain chronically uninsured. However, of the2[)(l,()()() rcople who become uninsured in any givenmonth, SWlr, arc uninsured for less lhan 5 months andonly 15% lack insurance continuously fo r morc than 2years (24). Many h,lve recently elwngecJ employmentS[,ltUS, and so a Illajor part of this vexing problemresults from lack of portability of employer-providedinsurance. Most uninsured individuals, whether employed (about 50%) or not, are young (50% below,1ge 34) and healthy (25). Many fmego expensiveInsurance ,It it tllne when they (correctly) view majorillness as unlikcly Less than I% of the populationbelow ,\ge (15 is both uninsured and uninsurablcbecause of a preexist ing condltlon (26).t lnforlunately, ou r government tax policy penalIzes those I/ldividuals who are least able to affordinsurance At present only 25'); of premiums aredeductible by self-employed individuals (after deductII1g 7% of adlusted gross income), while those employed by small businesses or the temporarilyu n e m p l ~ ) y t ' d get no tax break. Thus, while health costsrise because of the policies described above, taxtreatment that would make Insurance more affordable is unfitirly and selectively denied to the selfemployed, many cmployees of small businesses, andthe unemployed. Government further contributes tothe insurance deficit by reql1lring hospitals to bear thecost of ' i ~ ' l v i c e s to tvIedicare and Medicaid patients.despitc the decision of government to explicitly undcrfund these programs (27). These governmenlm,lndated but unfunded costs are shifted to thosewith cOllventlonal Insurance who are often Icast ableto pay.

THE RIGHT TO HEALTH CAREI ' health care a right" While many have argued thatthere is a "righl to health care" (28) only limitedattempts have been made [0 define the nature of thisright. Unlike negative rights that establish boundariesthat others must respect. "need confers rights onlywhen what is needed is recognizable as a need by theone who is lu meet it " (2li). Should health care bcconsidered a "right," a system of defining medical

DIABETES REVIEWS, Volume 2, Number 4, Fall 1994


5/9

Filer Clild Maratos-Flier

needs would therefore be necessary. LJltim,ltely needwould be determined by the political process andenforced by the state. Since everyone must have equalacccss to things that arc viewed as rights, fair distribution is important. Individuals may find that In theInterest of "fairness," it would not be russlble topursue, even with their own funds, hcalth Glre thatthey want. A "right to health care mcly actuallydiminish what is available

THE ROLE OF THE PHYSICIAN IN HEALTHCARE REFORMIncreased g.overnment involvement thre,llens what wcview as several valuable dttributes of thc mcdicalpro!'ession, including the Independence or' rractitloners and the ccntral view that physicians must serve asadvoC


6/9

The free market and health care reform

or government would slow or be reversed. Third, Ihetrend toward hospitals being agents tm the Interestsof physicians and insurers would end, and hospilalswould increasingly compete fo r ratlents by impmvlngquality and lowering prices. Fourth, health insurancecompanies would be in the business of insuringagainst risk, rather than buying, managing, and 1',1-tioning health care, Fifth, employers, would


7/9

Filer and Maratos-Flier

well, whik authorizing lncre(lsed services Irom an"rray or Ilon-MD practitioners (37).

Regulatory BarriersNumerous federal and state regulations are barriersto efficient medical services. Examples ,lrC pullcic"thal discriminate ,lg,lInst rural heaJth care facilities(Ji'UlJ). Medicare/Ml:dicaid regulations un Icvcb 01sl"ll1ng "nd other dctails ot' service are hard to meetin rural economic environment, thus limiting careavail,1ble to ruraJ residents. Other examples arc taxlaws and antitrust provisions that impede cost-saving(Illiances between institutions and physicl,lns ,Indmandated benetit laws that raise costs of catastrophicInsurance. Since many qualitied applicants to U.S.medical schools are turned away, while thousands 01foreign school graduates gain licensure through examination, it seems logical that new modes of lowercost mcdlcal education should hc allowed to developIn this country.

Aid for Those in NeedA free market ror medicine wilJ remove many ,utilici,t! impedimcnts to affordable insurance and care,but some individuals will remain unahle, t h r o u ~ h misfortune, poor planning, or irresponsihility, to ,Ifrord the medical care they need. AlthouiJ,11 we viewthe position that medical care should be considered aright as inconsistent with a proper conception of h,1sicrights (10), thoughtful means for providing assistancearc hroadly desired. However, reasofl(lble efforts tofulfill this need do not require regulation, fT]Jndalcs,price controls, or outright government takeovcr, anymore than efforts to house the homeless or ked thehungry require government control of the markets 101rOOlI and shelter.

Th e uninsured and uninsurahle can he givenvouchers or tax credits enabling purchase of insurdIKe (40) ano [unding of medical IRAs. This approach acknowledges that Individuals, even whenneedy, have diverse desires reg,lrding health ,melavoids unnecessarily regulating and homogenizingcare for dll !\mericans.FI,iWS in the dcsign and funding of Medicare andMedicaid have fueled the current Crisis of cost andaccess, and keeping these programs fiscally soundover the next two decades will require fundamentalreform. It is frequently noted that, despite the threatthat Medicare will have a fiscal crisis within the nextlO years, this program is popular with its beneficiariesand the public at large, and is beyond reform forpolitiCid rcasons. To the cxtent that this is true:. Itidentifies the real threat imposed by "entitlemcnts"

DIABETES REVIEWS, Volume 2. Number 4. Fall 1994

on a vast scale that, oncc enacted, are ditlicult to11l0dily or limit. And it may be the case that thepolitical Impossibility of modifying Medicare willchange at the point at which the next generationbegins to doubt that, despite ever-increasing taxes,they will nevcr receive henefits compdl'ahle to thoseof the current elders. A complete discussion of shortand long-term solutions to the edlcdl'e prohlemexceeds the scope of this paper. Ilowcver, onc approach to a long-term solution would involve creatlrlgincentives ror individuals to save [or future healthneeds through Medisavc ,lecounts, since the presentsystem encoura 'e s dependence on benefits th(lt maybe tiscally insupportable in 10 to 20 years. This isneither sound poliCy nor ethical. After tr'lnsition to dMedisave approach, clderly individuals with insuJlicient lunds could be given mt':ans-tested vouchers forthe purchase of health insurance. Regarding Medicaiel, Introduction of markct principles inlo the proVI-SllH1 of medical services to the indigent throughvouchers andlncentivL's to managed care would movein the right direction. Private options for long-tcrmcare should be enhanced by ,dlowing usc or rRAs forthis purpose LIS well as changing the tax status orinsur,lnce premiums for long-term care.

IMPLICATIONS OF HEALTH CARE REFORM FORDIABETES CAREAs discussed edl'ller, the original Clinton ,ldministratlon health care plan and the follow-up plans forhealth carc reform 11,IVC sought to l'ind a me,lns forproviding universal dccess [0 comprehensive bent':fitswhile sirnultdncuusly controlllf1g he,llth [(Ire costs.Although these plans now aprear to be stalled incongress, future attempts al health care Idorm arecertain. Prolessionals concerned with diabetes caremust therefore wonder whether efforts to attain bothor these goals through government regulation, if cverenacted, would actually permit most people withdiabetes to have access to the I-ange of options Cordiabetes managemcnt thdt they now have, includingthe high intensity of diabetes care currently recommended for optim,11 therapy of their disorder. Wethink nol, for severdl reasons.

It is Important to recognize that therapy necessaryto limit complications is expensive initially, and thatSdVlrlgS brought about through reduced morbidity arelikelv to be recognizcd only in the long term (afterclose to two decades of treatment). It is diQicult tobelieve lhat in environmcnts such as HMOs, prekrred-providcr organiz,ltions, or other capitatecl systems, where toral dollars are limited on a day-to-dayhdSis, or In the prescne' of govell1f11cnt-enrmced


8/9

-------------- - - - - - -The free market and health care reformpremium caps, maximal emphasis would bc placed onfunding expensive therapies of chronic dise(lscs wherebenefits accrue over a long terrn. AdditJOnally, withincreased government involvement in distribution ofhealth carc dollars, decisions on funding for specificprograms or benefhs will become Irlcreasingly subjectto special interest politics. an d the allocation ofresources will be unpredictable.

Finally, most reformers emphasiz.e th e necessity, ifcost control is to result from capitated plans, ofhaving primary C8re physicians as providers, withlimitations on the access of patients to specialists.Discouraging or prohibiting specialists Irl chronicdiseases such as diabctes or rheumatoid arthritiS fromserving the role of primary carc giver has also heendiscussed. It is difficult to be optimistic about thisfocus from the perspective of the patient or the healthprofessional interested in diabetes. Primary carc physicians do not typically have either the training, theresources, or the time to implement the therapeuticregimens required for optimal diabetes control (4 \).

Th e original I !ealth Security Act as proposed bythe Clinton administr8tion placed particular emphasis on the role of primary earc providers acting as'gatekeepers." In such a paradigm for medical care,self-referral by patients to specialIsts woulu he .... x-pected to be extremely difficult. P8r'I


9/9

Flier and Maratos-Flier

10 Stoline AM, Weiner JP: Costs: the payers perspective. In 7heNew I'vledical Markel Place: A Physic ians Guide 10 "Ie IIealll,Care System of Ihe 1990s. Baltimore, MD. John, HorkinsUniversity Pre'ss. 1993

19 F.nthoven AC, Singer SJ: Health care is healing itself. New YnrkTimes 17 August 1993:AD20. Fein R: Medical Care. Medical COSls. Cambridge, MA, HarvardUniversity Press, 1989, p. 122-123

2J Brook RH, Warc JE Jr, Rogers WH. Keeler EB, Davies AR.Donald Ca, Goldherg GA, Lohr Ki''', Masthay P _, NewhouseJP: Does free care improve adults health 1 Results from arandomized control trial. N Engl} Med 309:4Zfi 34, 1'103

2.1. JC Goodman JC, Musgrave CiL: Regulation of health insurance by state governments. In Palient Power: Solvin" America's/-fe"Ilh Care Crisis. Washington. DC. CillO Institute. I 9CJ2

24. SWJrtz K and McBride T Src:lls without health insurance.Distrihutions of durations and their link to point-iu-timcestimates of the uninsured. Inquily 27:21\1-21)0,1'190

2'). Foley JD: Uninsured in the Uniled Sllltes: the Non-ddal ..1'0pul"I/.On Willioul Healtlt Insurance. Washington. DC, fm plovee Benefit Research Institute, 1991, p. Ui

26. Beauregard K: Persons Denied Privale Healili IIlSllmll,., due 10Poor /-Iea/lh. Rockville. MD. Agency for Health Carc Policyand Research, 1991 (ACHPR report #92-0(10)

27 Feldstein PJ: The Market for Medical Services In /-Iealtl, CoreEcollomic.>. Alhany, NY. Delmar, 19C)3

28. Brennan, TA: Just DoclOn:ng: lvfedical Ethics ill a Liheml Sill/e.Berkley, University of California Press, 1

Documents

Healthcare Reform Paper Fall1994