Employment and Health Benefits A Connection at Risk (1993) / Chapter Skim
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6 HEALTH CARE COSTS: MORE QUESTIONS THAN ANSWERS
6 HEALTH CARE COSTS: MORE QUESTIONS THAN ANSWERS
Pages 202-228
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From page 202... ...
Surveys also indicate that people tend to greatly underestimate national health care spending and to greatly overestimate the portion of total spending accounted for by their out-of-pocket spending rather than by direct government or business financing (Immerwahr, 1992~. Among small employers, costs are often a determining factor in decisions about whether to offer health benefits.
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From page 203... ...
Although two decades of public and private cost containment initiatives have produced considerable institutional, administrative, and regulatory innovation and some successes, the rapid growth persists in real expenditures for medical care relative to spending for most other goods and services. Both public and private decisionmakers have viewed this result with intense frustration and a shaken faith in medical professionals and nonprofit providers of health care and health benefits as reliable agents to keep costs at "reasonable" levels.
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From page 204... ...
Adjusted for inflation, personal health care spending has risen 143 percent in the last two decades, while real disposable income rose only 74 percent (Economic Report of the President, 1992~. Inpatient hospital spending grew at a somewhat slower rate than overall spending, whereas spending for outpatient hospital services and physician services grew more quickly (CBO, 1992d)
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From page 205... ...
Only a modest portion of increased health care spending has been attributed to the aging of the population, increased insurance, or rising administrative costs (Fuchs, 1990; CBO, 1992a,d; Newhouse, 1992~. On the other hand, most observers assume that new, advanced medical technologies
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From page 206... ...
Public and private financing and management practices are also cited as major contributors to the "cost problem," although these factors may more easily explain high levels of health care spending than the recent escalation in the rate of health care expenditures. The practices commonly mentioned in this regard include provider payment systems that do not encourage the efficient use of resources (e.g., open-ended retrospective third-party reimbursement)
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From page 207... ...
Excluding public employers' premiums for employee health benefits and private employers' contributions to Medicare, private employers accounted for about one-quarter of total spending for health care services and supplies in 1990. A third development was that forceful arguments began to be made that market competition not government or community-oriented private programs should be the primary vehicle for making health care effective, efficient, and affordable (see IOM, 1975, for several early formulations of the regulation versus competition debate)
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From page 208... ...
Department of Health, Education and Welfare, 1976~. The legislation included provisions for · regulation of capital expenditures through Section 1122, which provided that health care facilities would not be reimbursed by Medicare for certain expenses associated with capital expenditures that were inconsistent with state or community health planning criteria,
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From page 209... ...
The capital expenditure provisions of the 1972 act were reenforced by the Health Planning and Resources Development Act of 1974(P.L.93-641) , which attempted to strengthen state and community capacity to plan and control major capital investments in health care (Cain and Darling, 1979; IOM, 1981; Bice, 1988~.
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From page 210... ...
. Overall, government regulations and other activities have almost certainly been a major factor behind the growth in employment-based enrollment in HMOs and other network health plans.
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From page 211... ...
Limited data suggest that perhaps one-third of private network health plans make some use of a diagnosis-related group (DRG) -based payment method (ProPAC, 1992~.
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From page 212... ...
The oil embargo in 1973 and subsequent jumps in oil prices, rising interest rates, stiffer foreign competition, and other economic shocks combined with even sharper increases in health benefit costs to overcome employer passivity. The extended wage-price controls in the health sector and other public sector actions also focused attention on alternative cost containment strategies.
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From page 213... ...
These approaches, which have been described in more general terms in Chapter 3, include · increased employee cost sharing and limits on some covered services, such as mental health care, although the range of covered services has also expanded in several areas such as outpatient, home, hospice, and preventive care;2 · utilization management programs intended to limit the volume of health care services through case-by-case review of their appropriateness; · network health plans that typically combine various kinds of direct utilization management tools with provider payment and selective contracting methods intended to control the volume of services or the price of services or both; · health promotion, which is often seen as a contributor to good employee relations and employee productivity as well as a possible means to lower health care costs through better health practices; · flexible benefits, which has as one objective the capping of the employer contribution to health benefits so that employees absorb an increasing share of increasing health care costs, either directly or through sacrifice of other benefits; and · self-insurance, which is aimed in part at avoiding the cost of statemandated benefits and in part at cutting premium taxes and other costs associated with the purchase of insurance. Tables 6.1 and 6.2 provide summary information on some employer activities in this arena.
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From page 214... ...
Small businesses, however, often lack the resources and interest needed to evaluate options and implement many of these cost containment strategies and even to participate in community coalitions. fin addition, insurers, utilization management firms, network health plans, and other organizations have aimed their products at large employers and have been less interested in marketing to small groups.
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From page 215... ...
Not only do employers differ in their ability to experiment with cost containment strategies, they also vary greatly with respect to the level and nature of their concern about health care costs. Understandably, most employers, especially if they self-insure, identify the health care cost issue with their own firm's experience.
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From page 216... ...
and otherwise retain a significant role for employers envision expanded use of the cost containment strategies described above. In particular, they rely on utilization management and regulated competition among network health plans (as described in Chapter 5~.
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From page 217... ...
Third, the ability of network health plans to achieve cost savings for 4The analysis within this report makes little or no use of simple before-after comparisons of single employer experiences. Although flawed as a basis for drawing conclusions, such "oneshot" case studies may be helpful in formulating hypotheses about the impact of cost containment programs and instructive regarding the practical challenges involved in implementing particular cost containment strategies.
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From page 218... ...
To summarize, continued innovation by employers and third-party carriers in benefit plan design may help some employers lower the level of their health benefit costs and may, in some cases, encourage more effective utilization of health care services. It is, however, discouraging to find little evidence that private sector cost containment strategies affect the long-term rate of increase in health care costs and virtually no evidence that suggests whether employer efforts to contain costs have positive, neutral, or negative communitywide or societal impacts.
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From page 219... ...
In addition, major Rochester employers, such as Eastman Kodak, have chosen not to self-insure, believing that any shortterm savings would be outweighed by higher longer-term costs from the destruction of their cooperative strategy for health care financing and delivery. Hawaii, which has among the nation's lowest costs for health care despite its pattern of higher prices for most services and goods, might also be cited as a place where employers have made a difference in overall health care costs (GAO, 1992a; Kent, 1992b; Priest, 1992~.6 It is not clear, however, whether their role has been one of direct involvement in cost containment strategies or one of more passive support for state- and insurer-initiated programs.
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From page 220... ...
In health care, however, one finds large government and private payers; organized groups of providers; some regulation of prices and substantial regulation of market entry, particularly through licensing and accreditation requirements for health care practitioners and providers; considerable doubts about the independence of supply and demand; substantial imbalances in provider and consumer information but lack of significant information about outcomes even on the part of providers; and market agents insulated by third-party insurance practices from full price sensitivity or cost minimization pressures. In many cases, the physician, not the patient, effectively decides what quantity and quality of care will be provided, and the incentives affecting physician choices, thus, need to be understood.
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From page 221... ...
Because the current incentive and market structure is widely viewed as inefficient, cost containment has become a central objective of decisionmakers even though it is not inevitably a sensible goal if high costs are producing appropriately high value. A major question for decisionmakers is whether the health care market can and should be reformed or whether the nation would be better off with a single national health plan.
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From page 222... ...
Whether such market strategies would selectively affect inappropriate spending, slow the development and introduction of expensive medical technologies, or reduce the underlying rate of growth in health care costs is unclear. Most of the formal economic analyses of markets and health insurance focus on efficiency and spending at a particular time rather than on effects across time (Newhouse, 1992~.
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From page 223... ...
Many of the basic assumptions of market reform models have never been tested, whereas real examples of single national health plans exist as a basis for analyzing the pluses and minuses of such a strategy and evaluating its relevance to the United States. TlIE QUESTION OF VALUE Whether or not the real expenditures on health care in the United States negatively affect the country's standard of living depends more critically on the return on this investment rather than on its level.
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From page 224... ...
The reasons for such differentials are not well understood but almost certainly include a mix of socioeconomic and biological factors that increased health care spending by itself could leave largely unaffected (Davidson and Fukushima, 1992; Kempe et al., 1992~. Recent decades have seen spectacular developments in biomedical science, medical technology, and medical education that hold considerable promise for future improvements in health status.
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From page 225... ...
to help determine what services health plans should cover, set payments for medical care, select providers for network health plans, and develop clinical practice guidelines for practitioners, payers, and patients (IOM, 1985, 1991, 1992a,b; ProPAC, 1986, 1992; PPRC, 1988, 1989; Rettig, 19911. Most efforts to assess the effectiveness of medical services and technologies, especially new technologies, are publicly supported, although some private organizations, such as the Blue Cross and Blue Shield Association, have become involved in technology assessment.
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From page 226... ...
In addition, better measurement of health care outcomes and performance and programs to judge and improve the appropriate use of new or existing technologies may add to the cost broadly defined of administering health benefits. Like any other costs, these should be judged by whether and how much they help improve the value of health spending,
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From page 227... ...
Without major restructuring of the current system of voluntary employment-based health benefits, certain problems, such as cost shifting, inadequate access to appropriate care for many of the uninsured, competition based on risk selection, and rapid diffusion of new technologies without evidence of cost-effectiveness, are unlikely to diminish. In its quest for a more cost-effective health care system, would the nation be better off removing the employer from any active decision-making role and leaving the field mainly to government policies and programs or mainly to the operation of some reconfigured individual market for health care services or more likely-some combination of the two?
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From page 228... ...
~ a Two E ~ ~ r4# ~ ~~ B - ~:~Co ~ ~\4TRIS~ benefit programs c~ccOv~ly arc quite uneven and narrowly focused on their own cmploycc groups, they disagreed about 1hc 1hcorcOca1 and cmpidcal case for di~ren1 stratc~ics for controlUng health care costs and 1hc philosophics underlying 1hcsc stratc~ics. The next chapter, however, oulDncs some areas in which the comments did gencraHy agree on S1CpS that could improve 1hc performance of 1hc current system of voluntary employmcn1based hcaRh besmear
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