USA Today Asks, ‘Will the Managed Care Band-Aid Hold?’
With the "biggest" jumps in health insurance premiums in a decade -- 10% to 13% for large companies and more than 20% for small businesses -- predicted for next year, medical inflation has returned, "besting" managed care and raising doubts about the future of health insurance, USA Today reports in a special front-page feature on HMOs. "We are in the same mess as 10 years ago," Kenneth Sperling of Hewitt Associates said, adding, "In the early '90s, we saw these kinds of cost increases, but we had the alternative of managed care as a low-cost option." Some experts argue that managed care has failed, while others contend that Americans never gave the industry "enough of a chance," but neither side has a "good idea" about alternatives for controlling health care costs. Meanwhile, health spending continues to rise, driven by an aging population, expensive new drugs and treatments, consumer demand and a "growing ability" of doctors and hospitals to "resist" managed care cost-cutting measures. "We overestimated the capacity of managed care or the market to control health care spending," Stuart Altman, professor of national health policy at Brandeis University, said. And although Americans want a "simple solution" to the health care problems facing the United States today, none exists. "The fact is, we've never had the answer to this question," Larry Levitt of the Kaiser Family Foundation said, adding, "We just stopped looking for a few years."
During the 1990s managed care enjoyed some success, with premium increases falling and hospital costs dropping, but some HMOs "went too far," spurring patient complaints. "Horror stories" about denied care prompted lawmakers to ban short hospital stays for childbirth, refusal to pay for emergency room care and unappealable denials of experimental treatments, while juries slapped insurers with several multimillion dollar judgments for plaintiffs. "The backlash was quite real," Levitt said, adding, "A small minority of people experience these problems every year. The media fuels the backlash by covering these horror stories, causing people to worry about whether it might happen to them." In addition, Congress has debated expanding patients' ability to sue their health plans for denials of care, and lawyers have "turned their sights" on managed care companies, filing a host of class-action suits. "We conned HMOs into rationing for us. Then we said, 'Oh, sorry, we're not going to support you in this.' We've defanged managed care, but we don't have another idea about how to contain costs," author and industry consultant Ian Morrison said.
Just a Band-Aid Solution?
According to Altman and some other health policy experts, opposition from doctors, patients, the media and lawmakers "hobbled" managed care, prompting its failure. "I believed in managed care," Altman said, adding, "We gave it a chance, but then the medical community, the press fought back. Collectively, we gave a system that had problems a gigantic black eye." Still, between 1994 and 1998, managed care reduced insurance premium increases -- which rose only an average of 2% -- by cutting payments to doctors and hospitals and requiring "strict oversight" of expensive drugs and treatments, according to the Center for Studying Health System Change. Without managed care, many experts argue that the total amount spent on health care, about 13.9% of the gross domestic product, would "surely have been higher." Princeton economist Uwe Reinhardt said, "Managed care did the temporary fix we asked it to do, to break spending inflation. Still, many of those savings were one-time costs." Other experts claim, however, that managed care "failed to deliver" on promises to save money and may have increased costs. "This was a poorly thought-out scheme that was foisted on the public long before there was any evidence that managed care or HMOs in particular could save money," author Kip Sullivan, a consumer advocate in Minnesota, said. In a July-August Health Affairs article, Sullivan credited a drop in the underlying level of inflation and health plan and hospital mergers, which led to price competition, for the health insurance premium increase "slowdown." Sullivan said that many insurers set prices "well below" actual costs to gain market share, but now insurers have begun to raise rates "rapidly." In addition, Sullivan argues that while HMOs succeeded in reducing the amount of time patients spend in hospitals and lowering payments to doctors and other medical providers, rising administrative costs have offset those savings. "If you want to hire people to police doctors, you have to pay their salaries," he said.
One Word: Organization
Other health care analysts contend, however, that managed care's failure lies in its inability to change America's "fragmented" health system, arguing that a "more organized" system could better control costs by "more closely" managing patients with chronic diseases and standardizing treatment for certain illnesses. "Most of what we've experienced is price discounts, not managing care," Robert Reischauer, president of the Urban Institute, said. Stanford Professor Alain Enthoven, an early proponent of managed care, added that some managed care groups, such as Kaiser Permanente, save money by overseeing their own hospitals and doctors, rather than contracting with a number of independent hospitals and doctor groups. "Organized delivery systems can do the job for a lot less," he said, adding, "Unfortunately, for the most part, HMOs didn't reorganize the delivery system very much."
Spend, Spend, Spend
In addition, despite the "many successes" of managed care, the system has not curbed demand from patients, Dr. David Cochran, senior vice president for strategic planning at Harvard Pilgrim Health Plan, said. "There are things outside of managed care's control," he said, adding that managed care suffered because employers "insulated the individual consumer from the costs of care." As a result, many policy experts predict that the "next evolution" in health care will target consumers, forcing them to pay more of the cost of medical care, but some economists argue that Americans remain "too worried" about rising health care spending. "Health care spending will always grow as a percentage of the economy -- that's something a post-industrial society invests in. It's not a bad thing at all," J.D. Kleinke, president of the Denver-based Health Strategies Network, said. "Instead of making cars and hula hoops, we will make hospital rooms and operations. It's just a choice. Right now, we spend more on admissions to entertainment events than for prescription drugs per capita. If we spend more on drugs and less on football, that doesn't trouble me," Reinhardt said. But other experts argue that increased spending will cut into employers' budgets, drive up premiums and prevent many self-employed and low-wage workers from purchasing insurance.
Entering a 'Post-Managed Care Era'
To combat the rising cost of health insurance, some employers may have to force employees to pay more for coverage, or stop providing health benefits, although surveys conducted by major benefit consultants show that most employers this year remain wary of such a move (Appleby, USA Today, 12/8). Many large and mid-size firms have already shifted to "self-insurance," and some may move toward "disease management" programs, closely monitoring patients with costly chronic diseases to reduce hospital visits. In addition, insurers and employers may target potentially costly patients, referring them to preventive treatment programs, although critics argue that such programs raise significant privacy questions (Appleby, USA Today, 12/8). Experts predict, however, that major changes to health insurance or employee contributions probably will not occur until the United States experiences a downturn in the economy and more workers are unemployed. "You can use managed care techniques on employees only when they're running scared," Reinhardt said, adding that during a recession, "employees [are] much more worried about losing their jobs than losing their doctors" (Appleby, USA Today, 12/8). But as the United States enters the "post-managed care era," a solution to rapidly growing spending remains "elusive." According to Levitt, "We're definitely in a period of muddling along and searching for answers." While employers may drop coverage for employees, the insurance industry remains ill-equipped to handle a "massive movement" of individual health insurance purchasers. "The average consumer is not going to be able to navigate the health care system and make prudent choices," Ken Jacobsen, a Segal Company analyst said, adding, "People will make bad choices, even with good intentions, and will end up underinsured" (Appleby, USA Today, 12/8).
Insurers Still Win
Meanwhile, with health premiums rising faster than medical inflation, the nation's health insurers have enjoyed "healthy" earnings. "We haven't seen these kinds of robust increases in earnings since the early '90s," UBS Warburg analyst William McKeever said. Minus Aetna and PacifiCare, most major insurers saw "hefty earnings growth" in 2000. Experts attribute the growth to the higher premiums charged to consumers, with "underlying medical inflation" running at only about 9%. "The employers don't like it, but as long as the economy stays strong and health plans don't break ranks, I don't see any relief for employers for years," McKeever said (Appleby, USA Today, 12/8).