Harvard Health Policy Review Fall 2000; Volume 1, Number 1 [Note: This online edition of the Fall 2000 issue is slightly modified from the original version only to accommodate formatting changes. All the content of the pieces remains the same as the original unless noted in text.]
Editor’s Note The sensitivity of this country to health care issues is without question. It was only 6 years ago that health care proposals initiated by the Clinton White House caused such controversy within our government, and such confusion and anxiety amongst the public, that the Republicans were able to re-gain control of the House of Representatives. Moreover, as this letter is being written, health care issues such as Medicare reform, prescription drug benefits, and the "Patients' Bill of Rights" continue to be central issues in the 2000 Presidential campaign. The exact direction of our health care system, however, is unclear. Many would like to see universal health coverage. As worthy as this goal may be, rumors of either the impending birth or death of a universal health care system are, to paraphrase Mark Twain, exaggerated. No one has yet to succeed in cohesively knitting together the many players in this field (the federal government, state and local governments, commercial enterprises, non-profit organizations, research institutes and individual practitioners) in a way that has motivated this country to enact and implement such a system, even in these prosperous times. In fact, there is not even a consensus as to the next steps to take. Clearly, these issues will be with us for a long time to come. Unfortunately, many health care problems are as poorly understood as they are important. In addition, there is an all-too-human tendency to view these problems from a parochial perspective, thereby creating an environment where one loses sight of the merits of contrasting views, not to mention the political hurdles to potentially achievable solutions. The Harvard Health Policy Review (HHPR) is dedicated to broadening the understanding of health policy issues, not only among those who work in this area, but also beyond the academic community to the broader public at large. Each issue of the HHPR will include papers by students, both graduate and undergraduate, and by recognized experts in their fields. In-depth analyses of particular issues and brief summaries of topical subjects will be offered. Finally, we plan to have each issue focus on a major subject through a series of articles giving different perspectives on this single theme. For this, our inaugural issue, the choice of theme was not difficult: the impending Presidential election. To help our readers develop a solid grasp of the importance of this election to the future of health care policy in this country, we have included Professor Robert Blendon's overview of the election, Junior Fellow Jacob Hacker's historical
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discussion of health care reform, and Professor David Blumenthal's article entitled, "Health Care: Does It Matter in the Presidential Campaign?" We are also fortunate to have been granted interviews by the leading health policy advisors to both the Bush and Gore campaigns. The result is, I think, a readily understandable, and relatively comprehensive, treatment of the health policy issues that are foremost in the minds of Americans today. As our readers will learn, the two Presidential candidates have substantially different perspectives on health policy issues. Both understand the problems. Both are willing to spend substantial sums of money to provide better health care for the entire U.S. population. Concerning the means to this end, however, there are major differences of opinion. To what extent should government agencies, both federal and state, be entrusted with this job? To what extent can competition and other market forces be enlisted in this effort? Who should make the decisions on such delicate matters as who should qualify for what treatments, and who should pay for them? The list goes on. Many of the issues central to the political debate are treated in separate articles. These include discussions on: the politics of Medicare prescription drug coverage, the problems of the uninsured, and the "Patients' Bill of Rights." Other critical health policy issues that have not received quite so much attention in the Presidential campaign are also analyzed. These include: improving patient safety, the composition of primary health care delivery, Medicare HMOs, ERISA as a shield against HMO medical liability, and trends in employer-based insurance coverage. Finally, to help our readers understand the many acronyms and other specialized terms without which discourse in the area of health policy is impossible, Sheila Burke has contributed a helpful Glossary. The staff would like to thank the authors for their contributions, and our faculty advisor, Dr. Frank, for his comments. We also thank our Board of Advisors and the Harvard Interfaculty Initiative in Health Policy for their participation, with special thanks to Joan Curhan for her unfailing encouragement. Lastly, we are deeply grateful to our financial sponsors. This journal would not be possible without the support of everyone above. As we go forward, we welcome all comments from our readers. Clay Ackerly Editor-in-chief Fall 2000
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Table of Contents Features: Election 2000 Health Care in the Upcoming 2000 Election Robert Blendon, ScD 5 Health Care Reform: A Century of Defeat Jacob Hacker 7 Health Care: Does it Matter in the Presidential Campaign? David Blumenthal, MD, MPP 11 Summary of the Bush Health Care Plan 14 Summary of the Gore Health Care Plan 16 Interview with Sally Canfield, Domestic Policy Advisor to the Bush Campaign Interview Conducted by Clay Ackerly 19 Interview with Sarah Bianchi, Deputy Issues Director to the Gore Campaign Interview Conducted by Clay Ackerly 28
Health Highlights The Fiscal Dynamics of Drug Coverage for the Elderly: Policymakers Face Difficult Choices Donald Moran, Kevin Kirby, Margaret Philip, Mary Jo Braid 36 Medicare Prescription Drug Coverage: Reviewing the Terms of the Debate Kristina Hanson 44 The Politics of Medicare Prescription Drug Coverage Noelle Sherber 56
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The Uninsured in the U.S.: An Issue Brief Colleen Barry and Julia Donahue 59 Protecting Patients: The Debate Over a Patients’ Bill of Rights David Sclar 66
In Focus Improving Patient Safety Donald Berwick, MD, MPP 71 Nurse Practioners and Primary Care Physicians: Complements, Substitutes and the Impact of Managed Care David Auerbach 83 UnUnderstanding Trends in Employment-based Health Insurance Coverage Patricia Keenan 95 ERISA: A Legal Shield for HMOs Michael Housman 104 Medicare HMOs: Will They Survive? Andrea Magyera 111 Glossary of Health Care Terms Compiled by Sheila Burke 125 ________________________________________________________________________ © 2000 by President and Fellows of Harvard University. All rights reserved. No part of this publication may be reproduced in any form without permission in written form from the publisher.
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Features: Election 2000 Health Care in the Upcoming 2000 Election Robert Blendon, ScD Health care will be one of the top issues in the year 2000 election, but voter interest in health care is not as great as it was in 1992. There is no single unifying theme to the health care issue. Rather, there are multiple concerns: making Medicare financially sound, providing coverage for prescription medicines for seniors, covering the uninsured, and patients' rights. Voters favor an incremental approach to expanding health insurance coverage, rather than a major new program. They express about equal levels of support for plans similar in concept to those proposed by Vice President Gore and Governor Bush. The year 2000 election is unusual in that the economy, foreign policy crises, and the federal budget deficit are all absent as dominant issues. In addition, Americans are faced for the first time in decades with the issue of what to do with a budget surplus. In the context of this environment, health care has reemerged as an important voting issue, but without a unifying theme. Providing prescription medicines for seniors may become the most visible health care issue in the election. A majority of Americans prefer to see a prescription drug benefit extended through Medicare and paid out of the federal budget surplus or taxes, rather than by seniors themselves through additional premiums. If the plans proposed to provide prescription medicines look like they are very expensive for retirees or involve a large increase in taxes, popular support for providing this benefit may decline. The issue of the uninsured will also be important in the year 2000 election. However, there does not seem to be a clear mandate for one particular type of plan to extend coverage. The reasons for this lack of consensus are not entirely clear since plans for increasing coverage have been debated for almost a decade. Two factors seem to be at work. First, the proposed plans are complex, and many people do not understand the implications of them. Secondly, there are aspects of these plans that appeal to different people according to their own ideology, demographics, and health care circumstances, and, at this stage, many people may not feel a need to rally behind one particular plan. Other priorities compete for money from the federal budget surplus or from tax revenues, so voters are more likely to favor candidates with less costly, incremental proposals. If Congress does not pass a Patients' Bill of Rights, the issue of health care consumers' rights is likely to be prominent in the 2000 election because so many people believe they would be better off if patient protections are enacted. Surveys suggest that a more comprehensive bill would be more popular than some of the more limited proposals now being considered. However, given voters' concerns about the costs of comprehensive legislation, a more modest compromise bill that includes some limited right to sue, as well as most of the other main provisions, might also be popular with voters. Â Â
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In summary, the health care issue in this election is not about the need for fundamental change in the U.S. health system. Rather, voters are seeking some incremental "fixes" to discrete health care problems that they see as important enough to be considered in the election. Robert Blendon, Sc.D., is Professor of Health Policy and Political Analysis in the Department of Health Policy and Management at the Harvard School of Public Health and the John F. Kennedy School of Government.
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Health Care Reform: A Century of Defeat Jacob Hacker The rise and fall of health care reform is the oldest story in American health politics. Time and again in the twentieth century, reformers have unsuccessfully fought for expanded or universal health insurance. Then, in the aftermath of political defeats, private market actors have rapidly transformed health care financing and delivery. After World War II, this old story gained a new twist with the passage of federal legislation to augment the technological arsenal of American medicine. Even as proposals for national health insurance languished in Congress, the federal government subsidized private health insurance through the tax code and pumped public funds into hospital construction and medical research, generating new markets, profits, and political resources for major stakeholders in the one-seventh of the American economy now devoted to health care. Only in 1965, with the passage of Medicare and Medicaid, was this pattern of defeats followed by market transformations and incremental reforms momentarily broken. Yet that rare moment of victory for advocates of extended public financing did not prove to be an entering wedge for universal health insurance, as reformers back then had hoped. By the 1970s, distrust of government, slow economic growth, and mounting fiscal constraints left reformers struggling to protect existing public programs with little hope of achieving the universal health coverage and systemic cost-containment that other nations' citizens took for granted. Today, in the aftermath of the spectacular failure of the Clinton health plan, health care reformers are once again turning to incremental alternatives to a national health plan, from augmenting Medicare, to creating new state-based programs for children, to expanding tax breaks for private health insurance. Reformers may well win important victories. But in the current environment of dwindling private coverage and enduring political opposition to public social insurance, these new campaigns are unlikely to make much of a dent in health care costs or stem the growing ranks of the more than 40 million uninsured Americans. For all the evident public dissatisfaction with American health insurance, major systemic change will require the conjunction of favorable political opportunities and the formation of an effective coalition behind reform. Nearly a century of defeated aspirations drives home just how elusive this matching of opportune moments and powerful political movements has been.
Defeat of Health Security The Health Security plan sponsored by President Bill Clinton during 1993 and 1994 aimed to break the political impasse facing post-1960s health reformers. With a window of opportunity for government-led reforms finally open, President Clinton sought to enact comprehensive federal rules that would, in theory, simultaneously control medical costs and ensure universal insurance coverage. The bold Health Security initiative was meant to give everyone what they wanted, delicately balancing competing ideas and claimants, deftly maneuvering between major factions in Congress, and helping to revive the political prospects of the Democratic Party in the process. Â Â
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But, as everyone knows, the Health Security effort failed miserably. And the electoral headway made by strong-willed conservative Republicans in the wake of the Health Security debacle has threatened to turn American health politics upside down. For more than a decade, congressional budget hawks and antigovernment conservatives have been closing in on Medicare and Medicaid, two of the fastest growing items in the federal budget. During the 1980s, hard-core conservatives within the Republican Party gained influence and visibility while developing tough new strategies for achieving their goals. After the political reversals of 1994, the new Republican majority advanced proposals to rein in the growth of Medicare and Medicaid, restructure Medicare, and devolve responsibility for determining Medicaid eligibility and benefits to the states. Those proposals ultimately provided the opening for counter-maneuvers by President Clinton, who used his veto to bury the Republicans' balanced-budget initiative and thereby position himself for victory in the 1996 presidential election. But calls for the retrenchment of public social programs did not go away with the defeat of the 1995 budget plan, and the idea of major Medicare reform remains alluring even to those conservatives who have adopted a moderate social policy agenda, such as Republican presidential hopeful George W. Bush. Despite a strong economy and healthy budget, the failure of health care reform in the early 1990s still hangs like a dark cloud over contemporary health care debates. The Clinton reform effort reflected a widespread recognition of the limits of the private health insurance market and of the corresponding need for an inclusive public framework for pooling health risks, containing medical costs, and subsidizing low-income workers. Its defeat, however, strengthened an alternative view of the government's role in the medical sector, a philosophy premised on the notions that health care should be treated as much as possible like other market goods and that large insurance pools should be split up to encourage individual cost awareness and personal responsibility. This ideological transformation has been helped along by the need for budgetary adjustments in public health programs and by dramatic changes in the private insurance market that are moving more Americans than ever into "managed care" plans. Chastened by the implosion of the Health Security campaign in 1994, politicians on the left have also backed away from the reform agenda of the early 1990s and moved to embrace minimal incremental changes in the private insurance market and modest coverage expansions, such as those contained in the Health Insurance Portability and Accountability Act of 1996 and the Children's Health Insurance Program of 1997. Even the calls for expanded health coverage touted during the 2000 primaries by former Senator Bill Bradley and Democratic presidential nominee Al Gore—modest initiatives designed to bolster private insurance and expand programs for children and the working poor—clearly bear the scars of the Clinton debacle.
Time Present, Time Past To be sure, this is not the first time health reformers have labored in the shadow of defeat. Five times in this century—during the Progressive Era, the New Deal, the Truman presidency, the 1970s, and the early 1990s—reformers saw publicly guaranteed health insurance for working class and middle-class Americans slip from their grasp. With
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vicious certainty, legislative campaigns that began with optimistic predictions about the inevitable enactment of national health insurance ended in bitter and heartbreaking despair. In each case, however, the reform movement regrouped and, after a period of legislative dormancy, restarted its Sisyphean march. Indeed, the pendulum swing has been so regular that it can be marked off in nearly perfect fifteen-year increments of defeat followed by defeat—or, in the case of Medicare, of defeat followed by triumph. In 1950, after being crushed by the American Medical Association's opposition to national health insurance, advocates of universal coverage within the Truman administration scaled back their ambitions and focused their demands on public coverage for the elderly. Fifteen years later, Medicare and Medicaid were signed into law. If past trends hold, we should be seeing the next great battle over national health insurance as the first decade of the twenty-first century draws to a close. This time, however, the road to reform looks more tortuous than before. In the past, failures to achieve comprehensive health care reform were followed by incremental but substantial government measures that simultaneously built up the private medical industry and used tax funds to extend health care to vulnerable groups of citizens not already covered by employer-sponsored health insurance. In the aftermath of the Health Security debacle, however, reformers who favor a more active use of government face defeat without the expectation of future incremental victories. There may be no repeat of the detour toward Medicare and Medicaid that national health reformers took in the aftermath of President Harry Truman's failed campaign for national health insurance in the late 1940s. Consider for a moment the contrasts between Truman's day and the present. Then, health insurance was just beginning its long postwar expansion and American medical care was comparatively simple and inexpensive. Now, however, politicians with reformist intentions must confront an enormously costly medical system and the fears of more than eight in ten insured Americans who worry that government action will imperil their private coverage. They must grapple with the dwindling availability of health coverage for low-wage workers that was caused by corporate cutbacks and the exodus of poor families from the welfare rolls. They must confront a dizzying array of private health plans eager to protect their revenues and their turf. And they must do all this in a fiscal and economic climate that has proved far less hospitable to the active use of government than the decades immediately after World War II. The ideological opposition to reform is also as formidable as ever. In the years since 1994, conservatives have shifted the terms of national political debate much farther to the right than their record of legislative accomplishment would suggest. Even if Democrats control Congress, the White House, or both, conservative Republicans will remain a formidable force in national politics by virtue of their strong Southern base, their ties to grassroots conservative groups, and their willingness to use the Senate filibuster. Although forces of the left may make a comeback, American politics is likely to be driven by the conservative agenda of the last few years for some time to come. The contrasts pile up between reformers of the past and present. Reformers of Truman's day occupied stable positions within the executive branch and worked in tandem with a
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labor movement at the zenith of its power. They largely agreed on the goals they were pursuing and the strategic means to achieve them. None of this is true today. Administrators of federal social programs have ceased to be the zealous program advocates that the Social Security Administration's heads were in the 1950s when they allied with outside advocates to push for the expansion of Social Security and the creation of Medicare. Moreover, organized labor's share of the workforce has dropped precipitously since the 1940s and 1950s, especially within the private sector, and today's labor leaders face an uphill battle to rebuild the movement and protect the gains of the past. Nor is there much agreement among the fragmented array of foundations, think tanks, and citizen groups that might make up an updated pro-reform coalition. As President Clinton's failed efforts at alliance formation painfully suggest, many of the groups that might be enlisted to support progressive reform proposals are mass-mailing organizations with limited grassroots presence and limited inclination to commit themselves fully to particular legislative initiatives. These groups can be expected to coalesce in opposition to cutbacks in existing programs and to flex their muscles in Washington politics when their policy priorities are threatened. But they find it much more difficult to display the kind of unified front in support of positive goals that characterized the reform alliance of the 1950s and 1960s, much less to work at the local level to build stable majority coalitions from the ground up.
Looking Forward Perhaps enlarged opportunities for comprehensive reform will emerge again. Popular commentators have proclaimed the coming of a new wave of progressivism in American political life, as the public reacts against a conservative policy agenda that many Americans see as divisive and tilted toward the well-off. The strong economy notwithstanding, the public remains worried about their economic future and the decline of the lavish fringe benefits upon which America's postwar health insurance complex was built. By most measures, Americans are as concerned about the availability of affordable health insurance today as they were before President Clinton launched his reform effort. They also have new concerns about the practices and procedures of managed care plans. It is likely that over the next couple of decades there will be repeated waves of public calls for regulatory reforms, fueled by middle-class anger about insurance company practices and managed care. But these trends will not by themselves revive the extension of coverage to the growing ranks of the uninsured as a compelling political issue. Serious movement toward universal coverage will require not only the recognition of problems and the support of a receptive public, but also the ascendance of reform-minded political majorities with the strategic acumen to build support for a particular policy remedy and place it on strong organizational footing. If reformers are to rebuild momentum toward universal insurance, they will need to invest political capital in the improvement of existing public programs that might serve as the basis for future coverage expansions. Equally important, they will have to work with like-minded organizations and movements to construct a public philosophy of government on which a renewed campaign for reform could rest. Without  Â
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this broader effort, popular sentiments in favor of comprehensive change might resurface. Yet the fate of universal health coverage would be scarcely more secure than during the fierce and unsuccessful struggles of the past. Portions of this article were drawn from Jacob S. Hacker and Theda Skocpol, "The New Politics of U.S. Health Policy," Journal of Health Politics, Policy and Law 22:2 (April 1997): 315-38. The author thanks both his co-author and the Journal of Health Politics, Policy and Law for allowing those portions to be reprinted here.
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Health Care: Does it matter in the Presidential Campaign? David Blumenthal, MD, MPP Seen through the prism of health care issues, the 2000 Presidential campaign is shaping up to be a closely fought struggle that reflects both the economic contentment and the gnawing anxieties of the American people. The battle over health care will be waged, like the campaign generally, in the center of the political spectrum, with quick jabs and body clinches rather than decisive blows. The Democrats, as always, will win the fight to convince Americans that they are the party that will work hardest and smartest to protect their health care security. However, they will win on points, not by a knockout, and that likely outcome suggests a central dilemma for Democrats and for health care reformers generally in the early years of the third millenium. To understand how health care will play out in the coming campaign, a few basic points are useful to keep in mind. First, health care has historically been a Democratic issue. The American people assume, based on long experience, that Democrats will take the lead on health care problems, will propose more aggressive solutions, and will honor their campaign commitments. Virtually every major health care initiative in our nation's history, from Medicare and Medicaid in the 1960s to the Clinton plan of the 1990s and the recent efforts to extend coverage for children, has been conceived of and championed by Democrats. Recognizing their disadvantage on health care terrain, Republicans have often avoided health care altogether in presidential contests. Not infrequently, Republican candidates have gone into the first presidential debates without ever releasing a formal health care position paper. When I served as health policy adviser to Governor Michael Dukakis during his 1988 presidential campaign, I traveled the country responding to invitations from health care groups to debate representatives of Vice President George Bush on health care issues. As often as not, the Bush campaign did not even bother to send a spokesperson, and they rarely sent the same person twice. The message was clear: the less said about health care, the better. Second, for most of the twentieth century, Presidential campaigns provided an opportunity for Democratic candidates to promote comprehensive solutions to national health problems, and especially to rally support for universal health care coverage. Starting with Harry Truman's proposal for comprehensive national health insurance in the 1948 campaign against Republican Thomas Dewey, virtually every Democratic party platform and every presidential contender has advocated one or another proposal for national health insurance. Third, and this is often hardest for health care policy aficionados to hear, health care issues are rarely decisive in Presidential elections. The reason is that the voting groups for whom health care is most salient—the uninsured, the poor and minorities—are less likely to vote than better off Americans, and when they do vote, they are firmly in the Democratic camp. Thus, health care sensitive voting blocks are rarely in play during Presidential election campaigns. Democrats' emphasis on health issues is usually
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designed to motivate their traditional base rather than to attract independent and swing voters who provide the critical margins in so many Presidential elections. Of course, health care is vital to the elderly, who have the greatest burden of illness and the greatest need for service of any population group. And the elderly vote. However, since 1965, they have not been active in health care debates because most believe their health care security has been assured by the Medicare program. These three general considerations provide essential background for understanding the role that health care seems to be playing in the 2000 Presidential campaign, and how that role differs from past precedents. First, health care will continue to work better for the Democrats than for the Republicans in this presidential election. Vice President Gore's positions are generally more detailed and far-reaching than Governor Bush's. Gore prominently mentioned health care in his acceptance speech for the Democratic nomination, unlike Bush (who covered few specific issues of any type). However, the health care debate will be less asymmetric this year and will provide less advantage for Democrats than it has in many preceding campaigns. The experience with Clinton's health care reform, rightly or wrongly, has left Americans extremely cautious about comprehensive federal solutions to health care problems. This has forced Gore to advocate a series of cautious, incremental steps toward eliminating the problem of uninsurance in the U.S. His principal proposal has been to assure that all children have access to health insurance by the year 2005. He has also advanced limited ideas to cover the parents of uninsured children, and working Americans between the ages of 55 and 64. Though laudable, these concepts are conservative by traditional democratic standards and place Gore firmly in the center of the American political spectrum. In 1972, when Richard M. Nixon advocated a plan called the Comprehensive Health Insurance Program that would have insured all Americans, the Gore proposal would have placed him at the conservative extreme of American health care politics, far to the right of mainstream Republicans of the time. Another reason that the health care debate will be less favorable to the Democrats this year than it has been traditionally is that Governor Bush has refused to concede health care issues to the Gore camp. He has advanced proposals that, while modest and sometimes vague, are better developed and more carefully crafted than is typical of Republican presidential candidates. He has supported an income tax credit for low income Americans to help them purchase private health insurance (echoing Bill Bradley's proposal in the Democratic primary), and he has also proposed increasing support for a traditional Democratic safety net program: community health centers, which provide services to indigent populations in inner city and rural areas. Democratic analyst Kenneth Thorpe of Emory University has estimated that the Gore access provisions would cover 11-16 million uninsured Americans, while Bush's would aide only 5-6 million. For health policy analysts, this difference is notable. However, for the average voting American, the Republican and Democratic positions on health care access are likely to seem closer than at any time in recent history. A second notable characteristic of this year's presidential campaign, implied in the above discussion, is that the Democratic candidate is not currently advocating universal health  Â
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insurance. This point bears emphasis for what it says about the politics of health care in the U.S. at the current time. The perceived mishandling of the Clinton health care reform is one reason for Gore's caution in this regard, but there are other, more politically important reasons. Americans' suspicion of government and its ability to solve people's problems has never been greater than it is today. When Clinton announced in his last State of the Union address that the era of "big government" was over, he unwittingly sounded a moratorium on comprehensive health insurance proposals. The economic contentment of most Americans adds to a generally cautious political culture at the current time. The result is to rob Democrats of a vital opportunity to show leadership and to differentiate themselves from Republicans. If Bush makes leadership and vision an important dimension of the 2000 election, political constraints on Gore's ability to take aggressive stands on health care coverage rob him of one potential response to the implicit Bush accusation that the Democratic candidate lacks the "vision thing." The one bright spot in the health care picture for the Democrats this year has to do with the extra leverage that health care may have for one critical group in this year's election. I noted earlier that although Democrats usually "win" the health care debate, this often fails to benefit them significantly in presidential elections because the issue doesn't matter that much to swing voters. In one very important respect, the 2000 campaign may depart from this rule. For the first time in recent memory, the elderly are once again in play as an electoral group, and the reason is prescription drugs. Reduced coverage of prescription benefits by employers on behalf of retirees and by managed care organizations, together with the soaring costs of pharmaceuticals, have made paying for vital drugs increasingly difficult for the elderly. This long-brewing problem has burst onto the political scene, much to the delight of Democrats. The Republican congressional response—federal contributions to the purchase of private drug insurance policies for low-income elderly— is transparently inadequate. Gore's proposals are generous in comparison. Bush has supported the Republican congressional position, which makes him vulnerable with elderly voters, especially from middle income groups. Gore will undoubtedly push hard on this potential advantage, and we can expect to hear Gore and Lieberman talk about drugs often, much more than they talk about access generally. Both Gore and Bush have done what they have to do to position themselves on health care for the fall campaign. Gore has outlined conservative centrist positions that reassure independents and suburban voters while appealing to his liberal base and to anxious elderly voters. Bush has moved closer to the political center in health care than any Republican presidential candidate in recent memory, adding to his credentials as a compassionate conservative and minimizing the Democrats' health care advantage. The fact that the political center in health care debates is now decidedly closer to traditional conservative views has made Bush's job a lot easier. The stage is set for close combat in health care, as in almost every aspect of this year's electoral contest. Perhaps only one thing is certain: regardless of who is elected, the next president will not have received a mandate from the voters for comprehensive health care reform or for the provision of universal access.
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[Editor's Note: In early September, after this article was written, Governor Bush announced his MediCARxES proposal for helping the elderly afford prescription drug coverage.] David Blumenthal, MD, MPP is Director of the Institute for Health Policy at the Massachusetts General Hospital and Professor of Medicine and Health Care Policy at Harvard Medical School.
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Summary of the Bush Health Care Plan Summary Compiled by David Sclar Governor George W. Bush has made proposals aimed at helping low-income families to afford health insurance, small businesses to insure their employees, and the elderly to afford prescription drugs. He also supports increased choice and flexibility in health insurance arrangements through reforming Flexible Savings Accounts (FSAs) and Medical Savings Accounts (MSAs). His health care positions emphasize consumer choice, reducing uninsurance, and lowering health care costs. Bush's main proposals are as follows: A refundable health credit for low-income families and individuals Bush proposes a refundable health credit for every family making less than $30,000, and individuals making less than $15,000. Families receiving this credit would be otherwise ineligible for government programs such as Medicaid, and they would not be covered by their employers. Bush would provide families with a health credit of up to $2,000 ($1,000 for individuals) or up to 90 percent of the cost of health insurance. The size of the credit declines with increases in the income of the recipients, so that those with lower incomes receive the largest credit. The goal is to help more Americans purchase health insurance on their own by lowering its cost. Help small businesses to provide insurance through associations Bush supports Association Health Plans (AHPs), such as the Chamber of Commerce, which allow small businesses to join together for the purchasing of health insurance so that they can enjoy the benefits of economies of scale. Reducing federal regulations on state health programs Bush would "remove federal regulations that restrict state flexibility in designing and implementing programs for the uninsured." At the community level, Bush also supports Community Health Centers (CHCs) that care for underserved communities. Making FSA's More Flexible Flexible Savings Accounts (FSAs) allow employees to save pre-tax wages for unexpected health expenses. However, remaining FSA funds return to the employer at year-end, "creat[ing] a perverse incentive for working families to spend all the funds in the FSA, even if the medical services they purchase are only marginally beneficial." Thus, Bush proposes that up to $500 should "rollover" from one year to the next. Expanding and Reforming MSAs Medical Savings Accounts (MSAs) allow individuals to save up tax-favored funds to pay off high deductibles when they need catastrophic coverage. Governor Bush would: Â Â
make MSAs permanent, as the law authorizing them is set to expire this year eliminate the cap of 750,000 on the number of accounts allow all employers to offer an MSA 16 Â
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allow both employer and employee contributions to MSAs allow MSA funds to contribute to a lower minimum deductible as well as to pay the full cost of that deductible
Bush's plan for Prescription Drug Coverage ($158 billion + $40 billion for healthcare providers over ten years) Bush's plan, called MediCARxES, covers all costs for seniors with incomes at or below 135% of poverty. Seniors with incomes between 135% and 175% of poverty would receive a subsidy to pay for drug coverage - the lower their income, the greater the subsidy. For all other seniors, the government would provide a 25% subsidy towards the cost of premiums and would pay for all costs above a stop-loss of $6,000. Premiums would be determined by private health insurance companies, and seniors would be able to choose which plan to join. Of the $158 billion cost of the plan, $48 billion would provide an "immediate helping hand" to states over the next four years. Bush emphasizes the simplicity of his plan (enrollees pay one premium as opposed to enrolling in multiple parts of the Medicare program), its 2001 start date, and the flexibility given to seniors to choose the health plan that's right for them.
Bush's Record as Governor of Texas • Bush funded increased emergency medical services and trauma care. • Bush enacted tobacco education programs for children and young adults to teach them about the hazards of tobacco use. Bush also funded enforcement activities to restrict youth access to tobacco. • Bush directed $1.8 billion dollars to fund health care initiatives in Texas. These funds were in addition to the $4 billion Texas spent on health care for the uninsured in 1999. • Under Governor Bush, Texas enrolled in the Children's Health Insurance Program. He also created an optional program for immigrant children. The two programs have improved access to health insurance for 423,000 children. • Under Governor Bush, Texas passed a Patients' Bill of Rights that ensured coverage for women for a minimum of 48 hours in the hospital after giving birth or undergoing a mastectomy. The bill also created an independent review panel for patients to appeal care denied. Patients were given the right to sue their health plan, though without the governor's signature. And employees were given the right to choose doctors outside their health plan, though they need to pay extra for the privilege. Information on George W. Bush's health care proposals was gathered from www.georgewbush.com
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Summary of the Gore Health Care Plan Summary Compiled by David Sclar Vice President Gore has made proposals aimed at preserving and strengthening Medicare and Medicaid, expanding healthcare to children in working families and their parents, and helping the elderly to afford prescription drugs. He also supports passing a Patients' Bill of Rights and increasing efforts to fight diseases. His health care positions cover a wide range of health issues and emphasize strengthening the existing Medicare and Medicaid program, increasing health insurance coverage, and protecting patients. Gore's main proposals are as follows: Ensuring Medicare's solvency by cutting costs and creating an off-budget Medicare "lock-box" Gore intends to ensure that Medicare payroll taxes (an expected $400 billion over the next ten years) are placed in a "lock box" so that they cannot be used for other spending initiatives. Gore's plan would extend the life of the Medicare Trust Fund "until at least 2030." In order to reduce Medicare's costs, Gore supports price competition among Medicare managed care plans and cost savings for competitive pricing. Helping retired Americans pay for health insurance and long-term care Gore would provide Americans ages 55 to 65 with a "25 percent tax credit to buy into Medicare." In addition, Gore proposes a $3,000 tax credit to go towards long-term care including home care.
Expanding the Children's Health Insurance Program (CHIP) In order to "provide access to affordable health care to the more than 11 million uninsured children across the nation," Gore would expand CHIP to cover all children living in families with incomes up to 250 percent of poverty by the year 2005. He would also extend eligibility in the CHIP program to 7 million parents. Finally, Gore would "require health insurers to offer full mental health parity for children" enrolled in the CHIP program. A tax credit to help small businesses pay for health insurance To make insurance more affordable, Gore would offer small businesses a 25 percent tax credit for the premium costs of each employee. Patient protections Gore calls himself "a strong supporter of the Patients' Bill of Rights." In particular, Gore  Â
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supports "strong medical privacy protections" that keep medical records confidential. He also supports legislation that would prevent genetic discrimination by employers and insurance companies. Increased research and prevention efforts to fight Cancer, HIV/AIDS, and other diseases Gore proposes spending that would "double our investment in cancer research over five years" and includes increasing access to clinical trials. Facilitating enrollment in Medicaid Gore wants to make it easier for states to enroll citizens in Medicaid by expanding Medicaid programs to cover community based care in addition to nursing home care. Gore's plan for Prescription Drug Coverage ($253 billion over ten years) Gore's plan covers all costs for seniors with incomes at or below 135% of poverty. Seniors with incomes between 135% and 150% of poverty would receive a subsidy to pay for drug coverage - the lower their income, the greater the subsidy. For all other seniors, the government would pay for 50% of the cost of drug coverage up to $5,000 and Medicare would pay all costs after a beneficiary has spent $4,000. Premiums would be set at $25 per month and would increase to $44 per month by 2008. Gore emphasizes that his plan not only fully covers drug costs for low-income seniors, but it also pays half of drug costs for the large group of middle-class seniors with incomes over 150 percent of poverty.
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Gore's Record as Vice President • The Clinton-Gore administration increased the portability of health insurance. To prevent workers transitioning between jobs from losing their coverage, the administration supported the passage of the Health Insurance Portability and Accountability Act (HIPAA). • The Clinton-Gore administration provided federal employees with a Patients' Bill of Rights in 1998. Gore has also fought for passing a strong Patients' Bill of Rights that would protect all Americans. • Gore and the administration made what he calls "the largest investment in children's healthcare since 1965" by increasing childhood immunizations, protecting infants from malnutrition through better nutrition standards, and insuring two million children (as of September 1999) through the ChildrenÕs Health Insurance Program. • Gore opposed efforts to increase the eligibility age for Medicare from 65 to 67. • Gore and the administration worked to restore funding for hospitals and nursing homes.
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• Gore and the administration increased funding for breast and cervical cancer research. Gore also fought for Medicare to cover cancer clinical trials and fought for access to high-quality cancer detection and treatment for women. Information on Al Gore's health care proposals was gathered from www.algore2000.com
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Interview with Sally Canfield, Domestic Policy Advisor to the Bush Campaign Interview conducted by Clay Ackerly HHPR: How did you get interested in health care? SC: I was working as the Government Relations Representative for Caremark International out of their corporate headquarters in Chicago. That was during the height of the "Hillary Care" bill. It was a baptism by fire for both the company and for me. Ever since then, I've been really interested in the topic. Then, I moved to D.C. and started working for a member of Congress, Mac Thornberry from Texas, who was a Freshman elected in 1995; I did his economic work: health, tax, social security and the budget. Then, six months later, I got a job with Jim McCrery, a member of the House Sub-Committee of Ways and Means that dealt with Medicare. So, it has been an evolving issue for me. Since I've gotten into it—from the business side as well as the government side—it has been one that has intrigued me and continues to intrigue me. HHPR: What is your position in the Bush Campaign? SC: I am a domestic policy advisor. I cover health, veterans' issues, Native Americans, agriculture and a few others. But, my primary portfolio is healthcare: Medicare, the uninsured, and long-term care issues - really, all the health care world entails. HHPR: Are there additional resources at your disposal to help you? For example, I just read an article that mentioned John Goodman of the National Center for Policy Analysis as an advisor to Bush. SC: Well, that's an interesting question. I view [the other Bush advisors] as an ad hoc group—people like Bill Roper, who was head of the Center for Disease Control (CDC) and Health Care Financing Administration (HCFA). He's a guy I talk to a lot. I also talk to former Hill people, as well as physicians and providers from across the country. As for some of the big names in the health care world, such as John Goodman, Debbie Steelman, and Gail Wilensky, they're people I turn to for advice depending on the issue. But, at the end of the day, it's really all me, unfortunately. It's a lot of work.
Three Most Important Issues HHPR: What are the three most important health policy issues facing the country today in the Governor's mind? SC: One critical issue is the aging of the Baby Boomers and how our existing
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government programs are going to cope with that. Long-term care is a sub-set of that issue and will prove to be very difficult as the Baby Boomers start to age. In fact, we're already facing the challenge of an aging population as the Baby Boomers start having to take care of their parents. We no longer live like my grandparents did, where you had several generations of people in one building or on the same block, where everyone took care of everyone else. Instead, you've got situations where families are spread across the United States. You're also dealing with natural aging issues: should Mom and Dad live at home? Do they need a nursing home? How do I pay for it? So, I think that the aging of Baby Boomers is going to prove to be a big issue - an enormous challenge - as we go forward, from both public health and financing perspectives. I think a second important issue is the growing number of uninsured people. What are the causes? The solutions? It's something that has perplexed both Republicans and Democrats. It's also something that will continue to grow, because of financing as well as choice issues. For example, more and more younger folks, or even middle-aged people, take jobs that don't have benefits. Benefits are not a big issue in some cases. Take the kids at these dot-com companies. [Health insurance is] the last thing they're thinking about. But for a viable insurance market to work, you have to have both the young and the old, the healthy and the sick, and there has to be a large enough pool so that costs can even out. If you don't have the younger component, you're going to have an insurance market that's out of whack. So, we have to deal with these issues in a rational way - one that doesnÕt involve a continued expansion of government programs. As we've seen overseas, you run into an enormous number of issues if there is too much government involvement. Then, I think the third big issue is the direction of medical technology. I think that with the cracking of the human genome and mapping the genetic code, we're going to have a lot of ethical, financial, and public health issues.
Main Differences with Gore HHPR: Where do you see the Governor and the Vice President differing the most in their views? SC: I think it is this: I call Vice President Gore's plan, "Program Creep." It would expand the Children's Health Insurance Program, which is a federal block grant program established to help states cover uninsured children. You can call the Gore plan the devolution of the CHIP program, if you want. He's expanding the CHIP program to include parents. Half of the states in this country have chosen Medicaid expansion as their CHIP program. Gore has, in effect, just expanded Medicaid to cover the CHIP population. He would also expand Medicare down to 55 year-olds. There are two problems with this
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approach: first, you have not helped the people in the center who must rely on the private sector; second, you are relying on public sector financing to be the panacea for health care problems. Governor Bush has a 180-degree opposite view. Governor Bush believes that weÕve got to re-engage the private sector constructively in this effort, and he also believes that we need to help those people who are above the poverty level, but who either do not qualify for, or cannot afford, adequate health care coverage. The Governor calls these people "between poverty and prosperity." We need to assist them in buying a private sector plan that is their own: a plan they can pick and can "own," if you will.
Position on Medicare HHPR: How would the Governor reform Medicare? SC: Medicare today is basically one big HMO - of the worst kind. For individuals, Medicare decides what will be covered and then doesn't let people go outside the system. For doctors, Medicare decides how much they will be paid, if it pays for the procedure at all. Governor Bush believes that Medicare should be reformed to reflect the fact that the senior population is a diverse population, and one size does not fit all. He wants to reform the program so it's both financially stable and also structurally stable. He believes that we should look at a model like the Federal Employee's Health Benefit Program (FEHBP), where each person gets a menu of options. The government says, "this is the chunk of money you get this year. Some of the choices are subsidized fully by the government. If you like one of these, fine. However, you can also choose one where you have to dump in, say, fifty bucks more per month of your own." So, the Governor's plan is based on a model not of the government controlling the health care choices, but offering the ability for seniors to make the choice for themselves. HHPR: I know that a lot of seniors don't want to make that choice. Some are happy with what they have, and some are afraid they won't make intelligent decisions. SC: That's right, and that's why Medicare, in it's current form, would remain a choice. The current Medicare program would be on the menu of options. Under the Governor's plan, Medicare, in its current form, would submit a plan to what we call the Medicare Board, which would operate somewhat like the Office of Personnel Management does today for FEHBP. They look at the structure of each plan, whether or not it is financially stable, and whether or not it is offering the benefits it is supposed to be offering. So, the current Medicare plan would have to go through the same process as the rest of the health care plans would. For those seniors who want to keep their Medicare program, there's no problem. They can certainly stay in the present system.
Medicare+Choice HHPR: Medicare+Choice was an attempt to save the government money by offering
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Medicare participants the chance to join an HMO that was funded by the Medicare system. The way HCFA first financed it was to pay the HMOs a certain percentage - 95% - of the average per-patient cost under the old fee-for-service method. It actually ended up costing the government more because many of the healthier patients went to the HMOs. The HMOs made money, but Medicare had to pay for the sicker patients under the old fee-for-service system. Does the Governor think that some combination of HMOs and Medicare offers a possibility for the future? SC: I think there is an even more fundamental problem with Medicare+Choice. The feefor-service system, called AAPCC, was based on different prices for each of three thousand different counties. That's ridiculous. Let's take my dad. He gets his medical care in Cook County, but he and my mom live in Lake County. Cook County is the city of Chicago, and they live in a suburb. My dad's doctor gets reimbursed on the Lake County schedule rather than the Cook County schedule because, according to Medicare, the residence of the patient makes a difference. What Medicare reform does is drive out the AAPCC. Instead, it calculates fees more like the private, under-65 market, where they look at current prices by metropolitan statistical areas, and they price their product based on what current medical costs are. HCFA is so far behind on what the medical costs actually are that it's no wonder the Medicare+Choice program didnÍt work. It's a comprehensive model, just like the under65 get. But, it's based on an outdated, antiquated financing system. I think the thing was doomed to fail from the beginning. HHPR: Do you have any reaction to the fact that many HMOs are dropping out of Medicare+Choice? SC: I'm not surprised because, as I said, since the financing structure of Medicare+Choice was based on the fee-for-service model with the old, county-by-county pricing (three thousand different counties and ten thousand prices), it doesn't shock me if the program is going to fail. Plus, I have to say that the changes that were made in the Balanced Budget Act of 1997 - where the baseline kept changing - meant that HMOs actually got reimbursed at even less. They weren’t getting reimbursed at 95% of the AAPCC level. They were getting reimbursed at 80%! I mean, at some point, realistically, from just a purely cost-benefit analysis, the companies have to look at that and say, "We can't continue to provide service." This is fundamentally what we're dealing with. For the last twenty years, the way they have been able to balance the Medicare books has been to ratchet down payments to providers, to hospitals, and now to Medicare+Choice plans. You can't continue that model, because pretty soon no one is going to want to be a part of it. As you know, doctors are already dropping out of Medicare. They're not taking Medicare patients. Under the Bush plan, Medicare payments would be based on the current costs of
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providing health care today. Basically, the health plan would bid for business; they would put their plan in and say, for example, "Okay, this year, medical costs have gone up 5%. We are willing to participate at that level." So, it's not based on what the government decides. Truly, it's what the market decides.
Technology and Costs HHPR: There is a theory that technology is the main driver of increased health care costs. Do you have faith that modern technology will bring down costs? SC: Yes, I do. The question is, can the financing structures keep up with it? I mean, right now, I think we're really caught in this limbo. The health care marketplace is evolving so quickly that I don't know if the financing structures can keep up. Today, it might make more sense to have a health insurance plan that offers more of a prescription drug benefit than it does hospital care: less hospital coverage for more physician coverage and pharmaceutical coverage. Because that's where the people are getting more and more of their care. So, the question is: can the financing structures keep up with technology? That's really the challenge not only for the private sector, but also for the government programs as well. Ten years ago, pharmaceuticals were a component of the treatment. Now, many times they are the treatment. You know, ten years ago, if I had an ulcer, I may have had to go to the hospital for surgery and that would have been a huge cost in patient/hospital care. Now, I go home and take a pill, and the pill costs $25, which is a lot, but I'm not in the hospital and I get a better course of treatment. So, now, going forward (and I think this is what the human genome promises), we may have drugs designed completely for "me." I get a better course of treatment that is designed exactly for something I need, so at the end of the day I'm not in the hospital. There are fewer hospitals and fewer physicians because dotors can pick out the problem and give me something that will hopefully cure me. That's going to cost.; there's no doubt about it. That is going to be a significant cost to the system, but, at the end of the day, in the global scheme of things, in terms of total costs to the system, is it less? Or is it more? I think we're going to find that it's less.
Government Encouraging Personal Responsibility HHPR: It seems a lot of health care expenses could be eliminated with a little bit of personal responsibility, by simple lifestyle changes. Do you think there's a role for government to encourage personal responsibility? SC: Absolutely. That's where public health services can play a useful role. We have a ton of programs that are funded through the Public Health Service; but the question is, "Are they spending the dollars wisely?" Where is the money going? Is it being spent on bureaucracies just to hold a lot of internal meetings? Or, should they be spending the money on, let's say, a national advertising campaign? Â Â
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You know—and this is sort of a pet peeve of mine—people should get an annual physical, because you can catch a lot of "stuff" in its early stages. Medicare doesn't pay for an annual physical. That is a piece of preventive medicine that Medicare should pay for - especially for older people! Imagine if you were able to get a 65-year-old to walk in the door, and you get him in the early stages of cancer. There is a lot you can do. So, I think there is absolutely a role for public health services to play in encouraging people to lead healthy lives.
Health Care as a Right HHPR: Does the Governor believe that access to health care is a right? SC: That's a good question. To be honest with you, I have no answer to that question. I don't remember us ever discussing that. He does believe that, when you say a "right," the real question is, what does that mean? Governor Bush absolutely believes that people ought to have access to health care and health insurance. The question is, "Are people getting quality care?" That's really the question.
Areas of Agreement HHPR: Are there any major health policy issues on which the Governor and the Vice President agree? SC: You know, it's funny. I had to do a satellite interview with the American Hospital Association, and the Gore person went before me and he was like, "Governor Bush doesn't care, Al Gore cares." But they both believe that uninsurance is a serious issue, they both believe that Medicare should be reformed, and they both believe that we're going to have to deal with these issues as we go forward. The question is how you get there. They both see the same problems out there, but, at the end of the day, it's how we deal with them. You can say that Bush and Gore both agree on a set of concerns, but we just have different ways of dealing with them. For example, on the Patients' Bill of Rights, Governor Bush believes that there should be some way for people to have adjudication if and when their HMO or their health plan does something wrong. The question is, though, what that adjudication should be. Al Gore would like to have you go into court in two seconds, and Governor Bush believes that there should be a process, an independent review, if you will, before you go to court. In Texas, we have a law that allows you to go through an internal and an external review—an independent review—before you go to court. The last time I talked to the Health Department, they had about 900 cases go through their review process, and only 5 of them ended up going to court. So, the answer really isn't going to court. It's just that people want to get the benefits that they've been promised; there is a way to do that. You can't sue your way to better healthcare. I think, though, that both Governor Bush and Al Gore believe that people ought to have some sort of mechanism to adjudicate their grievances. The question is, how do you get there?
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Reaction to the Failure of Bipartisan Reform Initiative HHPR: What is the Governor's reaction to the failure of the Clinton White House to support the plan of the Bipartisan Commission on Medicare? SC: He sees it absolutely as a missed opportunity. This kind of reform is what President Clinton, as Governor, had talked about. This is the kind of reform that came out of the Democrat Leadership Council that Clinton chaired himself. So, really, there is a lot of politics going on, and Governor Bush believes it was a missed opportunity. We could have passed bipartisan reform. HHPR: Does Governor Bush support one of the Medicare bills? SC: Well, not necessarily. In his speech on May 17,1999, Governor Bush laid out six principles of reform. He learned from what the Clintons did in 1993, when they just basically went into a room, wrote a plan, and came out and said, "Here it is. Voila. Like it!" Governor Bush said that when we are talking about fundamental bipartisan reform, we need six principles of reform. He said, "Look, the Bipartisan Commission was a good start, and so was legislation introduced by Senators Breaux and Frist in the Senate. We ought to build on that, and we ought to have bipartisan reform based on his six principles but also reflective of what the Commission came out with." So, it's not like we've embraced all the positions of the Commission, and we've certainly not embraced all the positions of the Breaux/Frist bill. However, he certainly supports the concept of reforming Medicare modeled after the FEHBP system, where you have a wide variety of choices along a spectrum that give seniors an opportunity to choose their own health plan.
Public System v. Private Market HHPR: I know that Governor Bush is for states' rights, generally, and the ability of states to control their own fate in a lot of ways. He has also proposed to change the S-CHIP Program to give the states more freedom. Is that correct? [EditorÕs Note: S-CHIP - an alternative acronym for CHIP - stands for the "State Children's Health Insurance Program."] SC: Yes. That's all part of the package that we unveiled in April. HHPR: Have you heard of the recent problems with Tenncare? Given those problems, what basis is there for believing that the mere freedom to innovate without increased funding... SC: That was essentially the problem with the Tenncare Program. They did a Medicaid
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expansion to 400% of the poverty. Because they kept the current structure of the Medicaid system, however, it was doomed to failure. What we talked about with the SCHIP program were things like this. I'll give you a good example. When S-CHIP was originally passed, it was designed to be a flexible block grant program for the states so that they could create their own plan designed mainly for children to help them get health coverage. The regulations, however, have left the states without a lot of flexibility. They have imposed artificial restrictions on the ability of states to use that money in the most appropriate way possible. Wisconsin is a good example. Wisconsin wanted to use their S-CHIP allotment to help families that are working but can't afford their employee share of the health plan. Wisconsin said, "We did an analysis of our uninsured population under 250% of poverty. A lot of these folks are single parent households. They're working, but they can't afford their employee share." However, the way the regulations are written, the state of Wisconsin would have had to do a case-by-case analysis each time they wanted to help one of these people to make sure that the cost-benefit was there. This was so grossly time-consuming that Wisconsin couldn't do it. The Governor thinks an appropriate use of the CHIP money would be to help families buy the family policies that the employer is offering. HHPR: So, is faith in the marketplace's ability to deliver health care the philosophical centerpiece of the Governor's health care policies? SC: Yes, that's true. There is a faith in the marketplace to help deliver health care and a belief that the appropriate role of the government is to help people who, as Governor Bush says, are "between poverty and prosperity," to buy a private sector plan. HHPR: The White House objected to the Medicare Prescription Drug package that the Republicans put forth, claiming that it wasn't a meaningful benefit because it built upon the "unstable and unreliable" private insurance market. What is your reaction to that? SC: Look, the insurance market is "unstable and unreliable" only because of what governments have tried to do to. Clinton had the government controlling the prescription drug benefit, as opposed to giving seniors some choice in the marketplace. The reality is that the Clinton plan would have picked one Pharmacy Benefit Manager (PBM) in each area of the country to control the benefits, and that's the only choice that seniors would have had. The Clinton Administration said, "Oh, we're going to use the marketplace and let people pick from the private sector option." But they tried to do it with one hand tied behind their backs. The Republican plan would have allowed choice in the marketplace. There has to be at least two choices in every area and if not, then the government would come in and offer the benefit. It was, "Let's see what the market can do. Let's not assume that the market can't provide this product. Let's see what they can do, and, if not, the government is there  Â
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to back you up." I direct you to the Congressional Budget Office and their analysis of the prescription drug benefits. They go through all the problems with prescription drugs, and they talk about the problems that arise when you have one PBM in each area managing the benefit. The reason PBMs work is that they operate almost like a PPO. They say, "We've cut a deal with a private pharmaceutical and, because they've given us a discount and because we pass the discount on to the consumer, the consumer gets the cheap drugs." But if you say, "You have to offer every single drug out there," it just doesnÕt make sense. HHPR: How does the Governor propose to address the issue of the uninsured? SC: We broke the problem down into who are the uninsured and why [are they without coverage]? Who has choice and who doesn't? Under what circumstances are people choosing to be uninsured? Then, to help reduce the number of people "between poverty and prosperity" who are making the financial decision not to purchase a health policy, the Governor offered a health credit of $2,000 per family, and $1,000 for an individual. These are folks who are working, but may have a job that does not offer health insurance, or they make too much money to qualify for government programs. In their minds, they're not poor, but they are not wealthy by any stretch. However, when it comes down to how you divide the monthly check, health insurance just isn't a part of it. So, Governor Bush is offering a health credit so that those people can purchase a policy of their own—whatever they want to choose, be it a Health Maintenance Organization (HMO), a Medical Savings Account (MSA), an old-fashioned indemnity plan, or a Preferred Provider Organization (PPO). However they decide to use that $2,000 health credit, they can go and purchase it. In some states, that will cover the whole cost Ð especially the states with a thriving insurance market. In other states, it will cover the majority of the costs. But again, this is not a population who isn't working. This is a population who can't afford perhaps $190 a month for medical insurance, but maybe they can afford $50 a month. We looked at many different models—including Al Gore's plan to expand the CHIP program. We also considered a block grant to states to help them cover their uninsured population. We also considered some sort of standard plan that people would have the ability to buy into. But at the end of the day, we decided: "No, these people should have the opportunity to choose their own health plan," and the best way to do that is to offer them a credit. HHPR: Let's get back to faith in the public market. The public services use the private market, so the Governor is trying to expand the private system; that is, trying to get the private market to help with Medicare. At the same time, however, he has supported Community Health Centers, which are definitely government funded. Ideally, if he could draw the line between where the private sector should be and where the public sector should pick up the slack, where would that line be?
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SC: The Community Health Centers are a good example. They take everybody: Medicaid patients, Medicare, private insurance, even the uninsured. Some of the financing comes through the Public Health Service Act, so that the Community Health Center is there for folks who aren't able to pay. But if you can pay, it's on a flat, sliding fee schedule. So, this is a good example of where Governor Bush believes the government can help out: the government will provide some funding, with the people putting up some of their own resources, as well. The Governor's basic tenet is that the marketplace is always going to be faster than the government. We want to make sure that the government helps provide access to quality health care for all, but that it doesn't impede the advancement of health. It should be there to help out, but not create any roadblocks.
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Interview with Sarah Bianchi, Deputy Issues Director to the Gore Campaign Interview conducted by Clay Ackerly HHPR: What is your position in the Gore campaign? SB: I am the Deputy Issues Director. HHPR: Do you have any advisors to help you out? How is your system structured? SB: We have lots of different advisors both inside the campaign and outside the campaign. On health care, we rely on advice from lots of experts from around the country, from Laura Tyson to Ken Thorpe, and others that are sort of outsiders. Then, there are different people who work on health care here, both from the policy side and the communications side. It's not a formalized structure. It's just a lot of people we've been working with for a long time. HHPR: How did you get interested in health care? How did you get tapped for this position in health care? SB: I had worked in a number of different health care positions in the government, at the Office of Management and Budget, and at the President's Domestic Policy Council. I moved over to work for Gore at the end of '98. So, I've done it for awhile. Then, earlier this year, I began working full-time for the campaign.
Three Most Important Issues HHPR: What do you consider to be the three most important health policy issues facing the country today in both your mind and the Vice President's mind? SB: Well, there are a lot of issues out there. First, the challenges facing our seniors: With the retirement of the Baby Boomers, it's important to assure that Medicare is strong for the future. That includes making sure both that the program continues to provide quality care and that it is improved to add a pharmaceutical benefit. This is an extremely important challenge in making sure that we are ready for the Baby Boomers' retirement. Then, clearly, the problem of the uninsured is a very important issue. Too many Americans in this country are uninsured, and Gore has what we think is a really good plan. It's ambitious. It would be the largest health care coverage expansion since the Medicare program was enacted. It's $146 billion, but it is a step-by-step approach to get toward universal coverage, acknowledging that the country is not now ready to take one big giant step. However, we can go step-by-step and improve the confidence in the health care system and in our ability to help people find affordable coverage. It has the goal of getting there, so it expands access to health insurance to all children and their parents. It  Â
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makes it easier for small businesses to provide coverage. These are a number of important steps. Then, I think that there is the importance of assuring that health insurance coverage is worth the paper its written on, and that we have a quality health care system. With the completion of the human genome project, we're making enormous strides in the kind of health care we can provide. That is important. We should support that work and medical research in general. But we should make sure that Americans have access to quality health care, and that includes patient protections. With more people moving into managed care, we need to make sure there are adequate protections. We believe that managed care, when managed well, can provide quality care and sometimes more preventative care. However, we need to make sure people have protections, such as access to specialists, access to emergency room care, and privacy. These are the kind of challenges that will continue to be important as we move ahead.
Main Differences With Bush HHPR: Where do you see the Vice President and Governor Bush differing in their views? Can you point out one or two major areas where they differ? SB: There are huge differences. In fact, it's an area where they have their biggest differences. Certainly, one area is their records on health issues. Gore has been working on health care issues for his whole career, from everything from the organ transplant system to strengthening Medicare, to expanding coverage. Today, he has what we think is an ambitious agenda. Governor Bush's own advisors have acknowledged that he has given only a couple of speeches in his career. Moreover, when the CHIP program, the Children's Health Insurance Program, was passed, he was slow to take it up in Texas and pushed for a less generous expansion. Many in the state legislature wanted only 150% of poverty rather than 200%, and they erected some significant barriers that prevented children from signing up for coverage in Texas, such as requiring Medicaid kids to have face-to-face interviews before they were eligible to be enrolled. They were the kind of barriers that are significant in terms of preventing low-income families from signing up. So, there is certainly a difference in record and a huge difference in approach.
Position on Medicare HHPR: What is the Vice President's position on Medicare reform? SB: Medicare is a great example of the differences between the Vice President and the Governor. When Gore and Clinton took office, the Medicare program was scheduled to go broke in 1999. Because of changes we made, as well as the good economy, it is now strong through 2025, but there are important challenges left. With the Baby Boomers retiring, the Medicare population is expected to double from 40 million to 80 million over the next three decades. Gore believes that we ought to use this time of prosperity to prepare and save for tomorrow. He proposed taking Medicare off budget and putting it in  Â
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a lock box, so that if the Medicare program is creating surpluses, we don't count thm as part of the budget surplus and spend them on tax cuts or other spending. Rather, we should save that money for Medicare and debt reduction for the future. Lots of Democrats and Republicans have endorsed this kind of idea. Governor Bush has not. Gore has also been talking for a couple of years now about the need to provide a prescription drug benefit that is affordable and accessible to all Medicare beneficiaries. If you were designing the Medicare program today, you would never design it without a drug benefit, as they did in 1965. With more seniors and more progress in the health care system in terms of research and the available medications, we ought to make sure our seniors have access to these kinds of drugs. Gore has gone around the country and met people who tell him stories about cutting pills in half or skipping drugs and telling their doctor they don’t need the pain medication because they can't afford it. That is unthinkable in this country and is not part of the guarantee, not consistent with the fundamental commitment and guarantee that Medicare should be. Therefore, Gore has invested $253 billion in the drug benefit that is a part of Medicare and is both affordable and accessible to all beneficiaries. Governor Bush has yet to put out a plan, although he does now say he is going to put out one tomorrow. So, we are still waiting, but the kind of approach he has endorsed is run by private insurance companies who themselves say that they wouldn't provide an affordable benefit to the sicker population. Thus, Bush's program is going to leave out millions of people and leave millions without coverage. [Editor's Note: This interview was conducted just before Governor Bush announced his MediCARxES plan in early September 2000.] HHPR: I believe your plan says that it will take over eight years to phase in. Why did you decide to do that, and what are you going to do to protect seniors today? SB: Well, first of all, in the very first year seniors would get half of their coverage paid for up to $2,000 of their cost, and they would get the $4,000 catastrophic benefit, with low-income seniors getting the full protection. So, even in the first year, it's a strong benefit and far better than most seniors have today. We did phase it in to make it affordable, and to make sure it's working right, but even in the first year it provides seniors far more protections than are currently available to them. HHPR: A few more questions about Medicare: You said that Medicare is projected to be solvent until 2025. Has Gore proposed anything to increase the long-term solvency of Medicare? SB: He has proposed taking Medicare off-budget and putting it into a "lock-box," so that all the surpluses go towards strengthening the program. That plan is projected to strengthen the program until at least 2030. HHPR: The Lewin Group recently came out with a study about HCFA and Medicare and
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how the latest technologies take 15 months to about 5 years to get into the hands of seniors while they are available today to most people in private insurance plans. What is your reaction to the study? SB: I haven't heard about the study, but I think it's an important issue. I think that we ought to look at how efficiently run the program is. One of the things Gore has proposed relates to preventive benefits. It is sort of the same situation when we get a new technology (like colorectal cancer screening) that we know is incredibly effective and will impact the elderly. We don't enact the program quick enough, even though we know it can save lives and has the potential to save costs, as well. Gore has proposed what we call a "fast-track hurdle" for prevention. If there is a benefit that appears cost-effective, the Secretary would appoint a group of scientists and medical experts to make the determination that it is cost-effective and also an effective prevention technique. Then, Congress would have 90 days to vote up or down on it. If they don't vote at all, it would automatically become part of the Medicare program. That's an effort to make Medicare more responsive to some of the changes that we've seen in health and technology and biomedical research. Gore certainly would be open to looking at other issues, as well. HHPR: Why limit these plans to preventive medicine? SB: I think we were trying to do something that would be cost-effective. You don't want to have too many changes, but I think the Vice President would be open to looking at other parts of the program, as well. You always have to evaluate these technologies in terms of the affordability of the program and whether they're good for the program. However, if there are technologies that would improve health, then we certainly ought to look at quicker ways to make HCFA look at them.
Medicare+Choice HHPR: What is the Vice President's view of Medicare+Choice - where it has succeeded and where it has failed, and why? SB: Well, I think his views are that choice is a good thing, and giving seniors more choices in the program has been a good thing. We ought to have options for people. He acknowledges some of the instabilities in the Medicare+Choice program. Actually, one of the things his drug benefit proposal would do is finally to reimburse managed care for the benefits of their providing prescription drugs. This would help stabilize the market to some degree. He also acknowledges, though, that managed care for Medicare is never going to be universally available. It may never be available in some rural areas and other places; you need to have a strong fee-for-service program there. He was concerned about a number of the premium support ideas that were designed to encourage more people into managed care, to force people into managed care, because it would have the impact of making traditional premiums higher. He thinks that we need to have a strong fee-for  Â
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service program, but that we need to work to stabilize managed care and give beneficiaries choice where it makes sense.
Technology and Costs HHPR: Many economists believe that technology is the main historical driver of increased health care costs. Do you have faith that modern technology might actually bring down costs? SB: Al Gore is a big fan of the potential that technology can bring, and if you think of the progress we've made in this century, it is significant in terms of everything from penicillin to critical technology. He believes that with the completion of the genome project and enhancements in technology, there is potential for lower costs, because one of the things that new technologies are going to be able to do is to help us diagnose and detect things earlier. One of the things he has focused a lot on is cancer. The potential in cancer is that you are going to be able to treat it far more significantly with technology and diagnose it much earlier when it's much more treatable. So, I think there are potential cost savings. Obviously, there will continue to be technologies that are developed that will be expensive. But I think that it can cut both ways. Government Encouraging Personal Responsibility HHPR: Many health problems can be helped or prevented by simple lifestyle changes. Do you think there is a role for the government to encourage personal responsibility? SB: I think that the government needs to get out information about good health and good prevention. I think that schools and communities ought to be doing more to encourage healthy lifestyles, to get the message out about good eating habits and good exercise habits. The Gores have practiced that in their own lifestyles and are very committed to healthy diet and exercise. There is a responsibility of the government to help make sure people have the information about what science and research show again and again. Much of it is preventable, and we all have a responsibility through schools and communities and senior centers to help people to adopt a healthy lifestyle.
Health Care as a Right HHPR: Do you believe, or does the Vice President believe, that access to health care is a right? SB: Gore believes that everybody in this country ought to have access to affordable health care coverage. That ought to be our goal. That is his goal. He believes, based on what he has learned with his vast experience in public service, that the best way to get there is to move step-by-step, aggressively and ambitiously, while improving the confidence of Americans that we can effectively expand coverage in a way that meets a balanced budget and in a way that is efficient and targeted. He believes that we should all work to the day when every single American has access to affordable coverage. Â Â
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Areas of Agreement HHPR: Are there any major policy issues on which the Vice President and the Governor agree? SB: Well, I noted that the Governor praised Gore when he put out his mental health agenda. But, I don't really know whether he would endorse it. Cost of Gore's Plan HHPR: The Vice President has proposed several health care plans. Do you know how much all of them would cost? SB: He has invested $338 billion in Medicare. That includes the prescription drug benefit, and it also includes some money to extend the Trust Fund. It also includes some money for health care providers. That is in addition to taking Medicare off-budget. On the coverage side, he has proposed $146 billion and then another $50 billion for longterm care, research, mental health, those kinds of things. So what does that add up to? $534 billion, plus taking Medicare off-budget.
Reaction to Failure of Bipartisan Reform Initiatives HHPR: What is the Vice President's reaction to the failure of the Bipartisan Commission on Medicare to produce Medicare reform? SB: Governor Bush has criticized us quite a bit for our failure to endorse those controversial structuring reforms. The Vice President is for bipartisan reform, and he has worked in a bipartisan way to strengthen Medicare for 26 years since he has been in office. However, he had a lot of concerns about those restructuring proposals, including the proposal to increase the age eligibility at a time when Americans aged 55 - 65 are the fastest growing group of uninsured. He doesnÍt think we should raise the eligibility age without good alternatives for most people to get affordable coverage. We need fewer uninsured people in this country, not more. He was concerned about the premium support idea that reimbursed average health plans and had the impact, according to our actuary, of raising traditional fee-for-service premiums up to 47%, thereby coercing some beneficiaries to be in managed care. He had concerns about that. He wants managed care to be an option, but he doesn't want people to have to go in because we are raising traditional premiums. He was concerned about a drug benefit that was a low-income-only benefit, because we know that 50% of those without coverage are in the middle class, and he was concerned that there were no proposals to extend the life of the Trust Fund. After the Bipartisan Commission failed, the Administration did put out a policy. So we want to get Medicare reform, but we want to do it in ways that would strengthen the program.
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HHPR: Does the Vice President not support any of the bipartisan bills as they stand today? SB: There are bills that he supports. I mean Senator Graham's prescription drug bill has some Republicans on it. But he does not support the Breaux/Frist model or the Medicare Commission model.
Public System v. Private Market HHPR: Does the Vice President have faith in the Government's ability to deliver health care adequately? SB: His plan reflects his belief that in some places it is appropriate for the Government to be involved, and sometimes there are other ways to promote good health. When you have private insurance saying they are not going to provide a Medicare drug benefit, you have to take them at their word, and I think that the Vice President believes that through Medicare we can offer an affordable benefit. It is the same analogy as before we had Medicare. Only about 50% of seniors were insured at all because the private insurance market was not responding well to a population that was sick and unhealthy. In other areas, it needs to be state and federal governments working together, such as in the case of the Children's Health Insurance Program, and in still other areas, such as in his small business proposals, Vice President Gore would give tax incentives to help employers provide more affordable coverage. So, in certain places he thinks the federal government plays a very strong role, and in other areas it is more appropriate for other actors. HHPR: What is the Vice President's view of the involvement of the private market in health care? Does he believe that the market alone can deliver health care? SB: No, I don't think alone it can. I think that, particularly for sicker populations, it is very difficult. HHPR: The Vice President is trying to expand the public system by both creating a children's benefit and extending Medicare to 55-year-olds, but he has not proposed any universal benefit at this time. Therefore, if he could ideally draw the line between where the private and public sectors' involvement meet, where would that line be? SB: Well, I think it's hard to draw a straight line. For the low-income children, we know that most of their parents aren't offered private coverage. In fact, he has proposed extending the CHIP program to the parents of these children, which is actually a pretty large population. The reason is that we know that 85% of those people are uninsured today. They are obviously not getting affordable coverage through their employers. Therefore, a state and federal partnership for those low-income families probably is the best way to go. Similarly, 55 and 65 year-olds tend to have pre-existing conditions, tend to get sicker, Â Â
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and then to get priced out quite high in the individual insurance market with premiums of up to $1,000 a month. So, allowing that population to buy into Medicare in a way that keeps Medicare strong gives them a more affordable premium and a way for a sicker population to get coverage. For a healthier population, he thinks it is appropriate to provide market-based incentives. For instance, there are some things you can do to strengthen small businesses within the private insurance market. One of their problems is that they don't have the leverage to buy affordable coverage; they don't have ways to spread their risk. So, if you help them band together into voluntary purchasing coops and give them tax incentives to make premiums more affordable, then the private insurance market works quite well for that market. So, Vice President Gore looks at each problem in a targeted way. He thinks that the private insurance system that we have today works quite well for a lot of people, but he wants to make sure that we don't propose it for the places where it's not going to work. I would argue that the Republican prescription drug benefit that gives seniors a small subsidy to go buy private prescription drug coverage, when the insurance companies themselves say there is no way they would offer it, is an empty promise. That's an example of where Gore thinks the private insurance market won't work, and, incidentally, the industry agrees. HHPR: When Medicare was passed, a lot of people who were supporting the bill wanted universal coverage, but they thought it was not politically feasible at the time. So, they looked at the most politically viable sub-sector of the population, the elderly. You said earlier that the Vice President was hoping for universal coverage eventually, but that he is not proposing it now, because it is not politically feasible. If he could get any health plan he wanted enacted today, what kind of health plan would it be? SB: That's a good question. That is something you would have to ask him. It is hard outside of the context of politics and the campaign to sort it out that way. I think that what he wants to do is to move as fast as we can within the context of what is politically realistic, what's feasible. That means being aggressive and ambitious. It means moving step-by-step as quickly as we can and improving confidence that we can, so that we can keep moving forward. But, in a world without politics, the steps would probably come even quicker.
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Health Highlights The Fiscal Dynamics of Drug Coverage for the Elderly: Policymakers Face Difficult Choices Donald Moran, Kevin Kirby, Mary Jo Braid, Margaret Phillip The prescription drug spending of the elderly is likely to remain an important public policy issue, both for the coming Presidential and Congressional elections and the coming years. As drug spending continues to rise, policymakers will need to determine how to deal with a spending curve that could rise at unsustainable levels. While some would argue that it has already done so, all signs indicate that spending will continue to rise. This paper will explore the fiscal dynamics that policymakers will need to take into account when approaching drug coverage issues. It will discuss the roles of coinsurance, benefit caps, and deductibles, both in the current system and as elements of the design choices that must be made if Congress and the President decide to intervene. Finally, we will note that policymakers are essentially left with a choice between outpatient drug coverage and administered drug prices—a choice that should be made with the fiscal dynamics we will discuss in mind. Introduction Recent rising drug expenditures have caused drug coverage and pricing issues to be a concern to private sector health insurers and an increasingly important issue in the public policy debate. Prescription drugs are now a more important part of the health care system than when Medicare was enacted in 1965. When Medicare was enacted, prescription drug coverage was not typically included in the private health insurance benefits that the Medicare program was modeled after. As the importance of prescription drugs has risen, so has coverage in the private sector, but the Medicare benefit structure has remained essentially as it was in 1965. While many Medicare beneficiaries have drug coverage from other sources (Medigap plans and retiree benefits), nearly a third of Medicare beneficiaries lack prescription drug coverage.1 It is clear that prescription drugs are an out-of-pocket expense for many seniors who may lack the resources to sustain high levels of prescription drug spending. Nearly 45 percent of beneficiaries without drug coverage have incomes at or below 200 percent of the federal poverty level (FPL).2 In addition, per capita spending on drugs among the elderly is over three times higher than among the non-elderly adult population. The elderly comprise 12 percent of the population but account for nearly one-third of total drug spending.3 As drug expenditures have gone up, much of the increase has been borne by Medicare beneficiaries themselves through out-of-pocket spending. Growing out-of-pocket costs are a particular problem for beneficiaries without drug coverage. In 1996, those with coverage spent an average of $253 out-of-pocket for drugs, compared to the average
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spending of $463 by those who did not have coverage, while those in poor health without coverage spent an average of $749 for drugs, compared to $423 in out-of-pocket spending for their covered counterparts.4 Out-of-pocket spending on prescription drugs is forecasted to further increase. This increase is attributed to both increasing expenditures and decreasing coverage. Expenditures for prescription drugs will continue to increase due to many factors, including the increasingly rapid introduction of new drug therapies, increased utilization, and increased prices. Decreasing coverage is taking the form of imposition of higher cost sharing requirements, both decreasing benefits limitations (caps), and higher deductibles and co-payments.5 Decreasing coverage exacerbates out-of-pocket spending by limiting the total amount an insurer will spend on drug benefits, leaving the consumer to absorb the rising cost of drug therapies. The Distribution of Drug Costs Among the Elderly One fact about drug spending by the elderly that is often ignored is that the amount spent on drugs is not distributed normally among the population. While the average annual amount spent on drugs for the entire elderly population is around $1,500 this year,6 it is the distribution of drug costs among the elderly that is most important to consider. As shown in Figure 1, approximately 15% of the elderly have no annual drug costs at all, and nearly 75% now spend less than $2,000 per year. In fact, ten percent of elderly beneficiaries account for more than 40% of all drug spending by the elderly. A high proportion of the risk associated with increased drug spending is concentrated in a small portion of the elderly population.
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Figure 1. Such uneven distribution of costs in a population is exactly the type of case where insurance provides a social benefit. For example, the number of people who lose their house to a fire is very small, but the loss can be very great. As a result, many people purchase insurance. This works because no one can predict if they will be the unlucky one and most people are willing to pay a small amount to insure against that risk. The problem with insurance for drug costs is that high drug spending is not an entirely unpredictable event. Persons with chronic diseases can predict their drug costs from year to year. Conversely, generally healthy persons have a low probability of having high drug costs. This ability to predict your risk for needing a benefit causes what is called 'adverse risk selection' for insurance plans that offer a benefit that high-risk persons predict they will use. The way that this works in the case of prescription drug coverage is as follows. For example, suppose that the average spending for prescription drugs for the entire population is $1,500 and a health insurer sets the premium at the average for the entire population. A consumer who expects to pay $750 per year for prescription drugs is unlikely to purchase a benefit costing $1,500 to insure against the likelihood that he or she will present a greater demand for drug usage. Assuming perfect knowledge, only those beneficiaries who believe they will spend $1,500 or more on drugs will purchase drug coverage that costs $1,500. Crowd-out  Â
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As Figure 2 makes clear, when this happens, the average spending for the persons that actually purchase the insurance is much higher than the average for the total population. In our example, still assuming perfect knowledge, when premium costs reach $1,500, we can expect that more than 60% of the population will chose to remain uninsured relative to prescription drugs. As a result, a hypothetical insurer for the remaining population would be forced to raise premiums to the average projected spending of remaining beneficiaries—in this case, more than $3,500.
Figure 2.
In order to mitigate this premium increase, the insurers might impose a cap on spending or lower an existing cap. Of course, this leaves the beneficiaries who remain in the plan with poorer coverage. As a result, out-of-pocket spending becomes an even larger portion of the spending of these highest-spending beneficiaries. These are precisely the trends seen in the Medigap and the Medicare HMO plans (Medicare+Choice) that offer prescription drug coverage. In 1998, between 70 and 75 percent of HMO plans with drug benefits had caps either on brand name medications or on all prescriptions.7 Ultimately, the dramatic growth in prescription drug expenditures is affecting a small, select number of beneficiaries with the poorest coverage and the greatest need for prescription drugs. As spending continues to goes up, insurers will be forced to further
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lower their benefit caps, causing the portion of this spending that beneficiaries pay out of their own pocket to go up. Thus, those beneficiaries that need coverage the most will be left uncovered for the highest portions of their drug expenditures. And this situation will only continue to get worse as drug expenditures continue to rise. It is this dynamic that has made Medicare drug coverage issues such an important part of this year's Presidential campaign. Benefit Plan Design Choices: Dealing with Risk Selection As the foregoing analysis makes clear, policymakers wishing to address the issue of drug coverage for the elderly will have to deal not only with problems of risk selection, but especially with those beneficiaries at the highest end of the drug spending distribution. This in turn leads to a number of design choices. Clearly, the way to mitigate risk selection problems is to drive participation in drug coverage to as close to 100% of the population as possible. If 100% of Medicare beneficiaries are covered, then drug costs are spread among a larger group of people, making it possible to provide drug coverage at a cost per beneficiary about equal to the mean drug spending of all beneficiaries (instead of the most expensive beneficiaries). Various plans being discussed have attempted to do this in different ways. A one-time lifetime election is one mechanism that has been discussed to drive up participation in a Medicare drug benefit. By requiring beneficiaries to decide whether they will need coverage earlier in life, they are less able to predict their future costs and more likely to insure against future risks. While this does not mandate that Medicare beneficiaries purchase a drug benefit, requiring beneficiaries to make this election earlier and not allowing future elections for coverage if declined, is a rigid regulatory mechanism which has the ultimate effect of having elderly with lower drug costs subsidizing those with higher costs. This type of cost spreading is a feature of most of the plans now being discussed. Policymakers must also decide the level of government subsidy that will go into the plan. Higher levels of subsidies can make it possible to drive up participation by making coverage relatively affordable for even those beneficiaries with relatively low spending. Of course, in this situation, taxpayers will be helping to subsidize the cost of prescription drugs for the elderly. In short, there are several ways to minimize the per-beneficiary cost of a drug benefit by increasing participation, thus making it more affordable for each beneficiary to obtain coverage. While this forces some beneficiaries to bear costs they might not otherwise be responsible for, it also makes it more affordable for all beneficiaries to insure against the risk of drug expenditures at the highest end of the distribution. Other Design Choices
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In addition to maximizing participation to spread the costs of drug coverage, there are other design mechanisms that policymakers can use to minimize the costs of drug coverage. In addition to the caps discussed earlier, deductibles and other beneficiary cost sharing also play a role in mitigating costs. In the current private insurance market, many plans include a cap on benefits, a deductible, and some sort of other cost sharing. Other cost sharing is usually in the form of coinsurance—a percentage of drug spending under the plan is borne by the beneficiary or copayments—a flat amount per prescription, usually paid at the pharmacy. While the interplay of these mechanisms has grown increasingly more complex, their interplay with the fiscal dynamics of drug coverage is illustrated by a simple example in Figure 3.
Figure 3. Assuming a $250 deductible, 20% coinsurance and a cap of $2,000, one can see how the "risk corridor" for which a drug coverage plan is responsible can be limited. Of course, the problem is that such a plan will leave beneficiaries at the highest end of the distribution subject to the same spiraling costs that we discussed earlier—even if risk selection can be mitigated to keep costs down. As a result, many plans now being considered in Congress include some sort of "catastrophic" or "stop-loss" coverage, which provides protection only for the very highest costs but can operate as insurance against the financial costs of chronic or catastrophic illness. In fact, as policymakers on both sides of the aisle have recognized, plans that offer coverage at the highest end of the drug spending distribution curve can
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actually be relatively affordable. While the average annual costs for the elderly at this end of the curve is very high, the number of persons with catastrophic spending is very low, resulting in a total cost that is relatively affordable. The Ultimate Decision: Drug Coverage or Price Controls? Figure 4 illustrates the growing drug spending curve as we have estimated it based on CBO's Winter 2000 baseline. This shows the rising size of the problem that elderly Medicare beneficiaries will be facing in the coming years—and puts in stark relief the issues that policymakers face in attempting to solve this problem.
Figure 4. As Figure 4 shows, the average drug costs of Medicare beneficiaries in the 99th percentile are expected to more than double over the next ten years based on the CBO baselines. While the speed of new product introductions and other assumptions that may be underlying the baseline could potentially be overstated, it is clear that new products will continue to be introduced, and will most likely be marketed at higher prices than the products that they are attempting to replace. These new products will bring therapeutic benefits for some patients, but one can imagine that they will be marketed to the widest possible populations. Drug expenditures under these assumptions could continue to rise quite rapidly, and these increases would continue to be suffered most directly by those Medicare
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beneficiaries with the highest overall expenditures. Of course, at some level, this spiral of increasing costs will be its own solution. If caps on expenditures remain flat, they will begin to affect an increasing percentage of the population. For instance, based on CBO's baseline assumptions, a $2000 cap will affect nearly 50% of the population in 2010. When more and more elderly consumers begin paying for increasing amounts of prescription drugs on an out-of-pocket basis, the spending curves in Figure 4 would be expected to decrease due to lower demand by beneficiaries who cannot afford the higher costs. However, it is unlikely that policymakers would be willing to accept the social consequences of this scenario. No matter what happens, the facts that we have just described will place tremendous pressure on policymakers. They have a choice of instituting drug coverage for the elderly in the short-term or delaying this decision to a later time. Instituting coverage in the next year to 18 months will almost inevitably lead to some sort of controls on prescription drug reimbursements. All plans currently being considered have private market cost controls, but as the costs to the government of Medicare drug coverage go up, there will likely be pressure to institute other controls on drug prices. On the other hand, if policymakers delay the drug coverage decision, they will later face a difficult decision between even more expensive drug coverage or instituting a direct system of government price controls. The dilemma we have posed has no obvious right answer. Increased government coverage now with resulting reimbursement controls could have substantial implications for the ultimate innovation in the pharmaceutical and biotechnology arenas. Delaying this decision could avoid market distortions in the short-term but might be politically unsustainable. Whatever decision policymakers reach, we hope that they will take into account the fiscal dynamics of the problem they are facing. Endnotes 1 Fuchs et al., "Analyzing Options to Cover Prescription Drugs for Medicare Beneficiaries." The Henry J. Kaiser Family Foundation (July 2000): 2-3. 2
Normandy Brangan and David Gross, "Medicare Beneficiaries and Prescription Drug Coverage: Gaps and Barriers." AARP-Public Policy Institute (June 1999): 4-5. 3
The National Economic Council, Domestic Policy Council. "The Facts About Medicare Beneficiaries and Prescription Drug Coverage." (July 22, 1999): 5-6. 4
Fuchs et al., "Analyzing Options to Cover Prescription Drugs for Medicare Beneficiaries." The Henry J. Kaiser Family Foundation (July 2000): 2-3. 5
Ibid.
6
This number and the spending curves used throughout this paper are based on The
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Moran Company's analysis of 1996 Medicare Current Beneficiary Survey (MCBS) data, updated using the assumptions of the Congressional Budget Office (CBO) Winter 2000 baselines. Data derived from the MCBS are the result of a continuous survey of a nationally representative sample of more than 16,000 Medicare beneficiaries. The survey focuses on several socioeconomic and demographic characteristics of the Medicare population. 7
Normandy Brangan and David Gross, "Medicare Beneficiaries and Prescription Drug Coverage: Gaps and Barriers." AARP-Public Policy Institute (June 1999): 4-5. Donald Moran is founder of The Moran Company and a former Senior Partner at The Lewin Group. Kevin Kirby, Mary Jo Braid, and Margaret Phillip are his colleagues at The Moran Company.
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Medicare Prescription Drug Coverage: Reviewing the Terms of the Debate Kristina Hanson The traditional Medicare benefits package does not include cover age of outpatient prescription drugs. This gap is significant because the Medicare population is disproportionately likely to need such coverage; the elderly account for one-third of all prescription drug expenditures, and 85 percent of Medicare enrollees receive at least one prescription drug each year.1Spending on prescription drugs is increasing faster than any other single national health spending category, with some estimating the annual growth rate at 18 percent for the 1997-98 period.2 In many ways, this rise in spending is not surprising given that pharmaceuticals are playing an increasingly prominent role in health-care treatment, with prescription drugs often serving a preventive purpose or substituting for inpatient care altogether. More detailed research on rising prescription drug expenditures has cited a number of causal factors, including higher utilization stemming in part from demographic changes in the population, drug price inflation, the proliferation of new and more expensive drugs, increases in direct-to-consumer advertising, and the greater ease with which prescriptions may be administered due to improved electronic claims processing. Currently, enrollees may obtain assistance with the cost of outpatient prescription drugs in several ways. They may rely on employer-sponsored supplemental coverage included in their retiree benefits package. They might enroll in Medicare managed care plans that include a prescription drug benefit, thus building on the traditional Medicare benefits package. They may, at their own expense, purchase "Medigap" coverage, which provides financial assistance with some of the out-of-pocket costs incurred through traditional Medicare and may also pay for new services altogether (e.g., prescription drugs). If eligible, Medicare enrollees may also obtain coverage through the Medicaid program (while not mandatory, prescription drug coverage is included in every state's Medicaid benefits package) or other public programs offered by the Department of Veterans' Affairs, Department of Defense, or State Pharmaceutical Assistance. Enrollees who do not, or cannot, take advantage of any of these alternatives must pay out-of-pocket for prescription drugs. In addition, many of those with the sources of coverage described above only enjoy partial coverage. Approximately one-third of Medicare beneficiaries lack prescription drug coverage altogether. As a result, about 50 percent of annual expenditures on prescription drugs for the Medicare population were paid out-of-pocket by the beneficiaries themselves in 1995. This share dropped to 34 percent among beneficiaries with some prescription drug coverage.3 In regard to total out-of-pocket health-care spending by the noninstitutionalized elderly population in 1997, prescription drugs accounted for 16 percent of those costs across all program beneficiaries.4 Meanwhile, many existing sources of coverage (e.g., employers who offer retiree health benefits) are scaling back these benefits or dropping them altogether in response to rising costs of prescription drugs and growing concerns about adverse selection. (The elderly most likely to need coverage for these costs are also most likely to  Â
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choose supplemental plans that provide it.5) As might be expected given the many changes in the health-care delivery system, the insurance market and the demographics of the population at large, we are witnessing a renewed attempt to add a prescription drug benefit to the standard Medicare benefits package. Presented below are detailed data concerning the existing state of affairs with respect to coverage and an overview of some of the many proposals that have been offered as a means of addressing this critical gap in the Medicare program serving 39 million elderly and disabled Americans. Variations in Supplemental Coverage Beneficiaries supplement the standard fee-for-service Medicare benefits package in various ways. And, as suggested above, the ease with which enrollees may obtain prescription drug coverage varies as a function of the type of supplemental coverage they have (see Figure 1).
Figure 1. Given the benefits included in the traditional Medicare benefits package, enrollees without supplemental coverage of any kind have no prescription drug coverage whatsoever. This benefit is relatively uncommon among those with individually purchased Medigap coverage as well. While Medigap policies are sold by private insurers, the benefit packages offered fall into one of ten standardized plans (A through J) that are defined by law. Given that only three of the ten provide outpatient drug benefits—and that their costs are comparatively high—only 29 percent of those with
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individually purchased Medigap policies in 1995 had drug coverage. Of the 68.8 percent of Medicare beneficiaries with some drug coverage in 1996, 44.6 percent had supplemental coverage provided by a previous employer, 11.9 percent were enrolled in Medicare HMOs that provided it, 15.2 percent were enrolled in private Medigap plans, 15.3 percent were dually eligible individuals qualifying for Medicaid, and 13 percent fell into an "other" category composed of those who had switched sources of coverage within the year or were enrolled in other public programs.6 It is also important to note that, while 65 percent of enrollees have some prescription drug coverage, this number conceals a wide diversity in coverage in terms of benefit caps, deductibles, copayments, and continuity of coverage. Generally speaking, while coverage offered through retiree benefit packages and Medicare managed care plans tend to include relatively generous coverage, those offered by individually purchased Medigap plans often involve high copayments and deductibles. Disparities in coverage by income level are particularly dramatic given that individuals who cannot afford supplemental coverage are not only going to incur prescription drug costs that consume a larger share of their incomes than are their wealthier counterparts, but they are also less able to purchase drugs at the volume discounts available to health plans. As a result, they are likely to pay more in absolute terms for prescription drugs as well. Coverage Under Medicare Managed Care The Balanced Budget Act of 1997 established the Medicare+Choice program, which broadened the array of managed care products available to the Medicare population. While prescription drug coverage is not included in traditional, fee-for-service Medicare, these benefits are relatively common among the 6 million beneficiaries (16 percent of the Medicare population) enrolled in some type of managed care plan. In 1998, 74 percent of Medicare beneficiaries enrolled in HMOs were offered at least some prescription drug coverage.7 The generosity of prescription drug benefits offered by Medicare managed care plans varies dramatically across plans, managed care products, and market areas. As suggested above, the presence of some level of coverage does not necessarily protect enrollees from shouldering substantial out-of-pocket costs. While 25 percent of Medicare enrollees in managed care plans that provide prescription drug coverage enjoy an unlimited benefit, 11 percent are limited to $600 of coverage annually. In 1999, the average limit imposed by managed care plans serving the Medicare population was $1,149. Copayments for prescriptions also vary across plans, ranging from $5 to $10 for generic drugs. The average copayment for brand-name drugs is $13.15 per prescription.8 Expanding the use of managed care to the 84 percent of enrollees who remain in fee-for-service Medicare has figured centrally in proposals to expand prescription drug coverage and Medicare coverage in general. Proposals and Prospects for Reform  Â
50 Â
As the cost of prescription drugs continues to rise, and as existing sources of such coverage scale back benefits or raise their premiums, this gap threatens to become even more problematic for beneficiaries. While there have been attempts recently to add prescription drug coverage to the Medicare benefits package, the debate is not without historic precedent. Proposals for including a prescription drug benefit in the Medicare benefits package were considered during the program's initial design and soon thereafter by President Johnson's Task Force on Prescription Drugs. Although these plans were ultimately shelved, the issue of prescription drug coverage was to be raised again amidst debate over the Social Security Amendments of 1972, over national health insurance in the 1970s, and again over the Clinton Health Plan. While the Medicare Catastrophic Coverage Act (MCCA) of 1988 succeeded in providing a drug benefit to Medicare enrollees, its impact was short-lived as the legislation was repealed one year later amidst opposition among the elderly and various interest groups concerned about the financial burdens to be imposed. More recent proposals for reform have differed in terms of what such a benefit would include, how it would be structured (particularly with respect to the role played by privately run managed care plans and pharmacy benefit managers [PBMs]), and how it would be financed. For instance, while some have proposed folding a drug benefit into Medicare's Part B, some have advocated the creation of a Medicare Part D for prescription drugs alone. Still others have proposed that, in lieu of creating a separate financing mechanism altogether, beneficiaries and/or pharmacies serving Medicare beneficiaries be allowed to purchase drugs at the same discounts currently offered to the federal government and the many managed care plans that are offered volume discounts for prescription drugs. Compounding these fundamental structural decisions are the many hard choices to be made regarding levels of coverage, whether the necessary additional public dollars should come from payroll taxes and/or general revenues, and which specific populations will be eligible (e.g., all Medicare enrollees versus only low-income enrollees). Many plans have been introduced by Members of Congress in both the House and the Senate over the past couple of years in the wake of the creation and subsequent dissolution of the National Bipartisan Commission on the Future of Medicare. This group, which failed to achieve consensus on an overall approach to Medicare reform before its final meeting in March 1999, issued a plan sponsored by Senators John Breaux (D-LA) and Bill Thomas (R-CA). This plan was based on the premium support model used by the Federal Employees Health Benefits Program (FEHBP) and would have provided for a voluntary benefit available to all beneficiaries.9 Not surprisingly, with the 2000 elections approaching, while little substantive progress has been made, multiple plans have been put forth for debate. While all of the existing proposals are voluntary— reflecting one of the many lessons learned from the MCCA debacle—they vary significantly in terms of their structural, financial, and administrative details. The Medicare Modernization Act (S. 2342), based on the plan initially offered by the Clinton Administration, advocates the creation of a Part D Trust Fund that would be earmarked for prescription drugs alone. To be voluntary in the spirit of Medicare's
51
existing Part B for physician services, this benefit would cover 50 percent of beneficiaries' prescription drug costs up to an annual cap of $2,000 in 2002, with the federal government paying 100 percent of costs above the stop-loss threshold ($5,000 in 2002).10 Allowing for the out-of-pocket costs to be levied in the form of copayments and premiums, enrollees would be responsible for approximately 50 percent of their prescription drug costs up to this cap. Like the Breaux-Thomas plan, the Medicare Modernization Act would provide subsidies for low-income beneficiaries, with premiums and cost sharing being entirely subsidized for enrollees up to 135 percent of the federal poverty level. In order to keep drug prices affordable, this proposal's benefit would be administered by private PBMs that would compete for these contracts, with a single PBM responsible for each geographic region. In terms of how the Clinton plan would interface with the existing system, employers would be given an incentive to continue providing prescription drug benefits in the form of direct payments from the federal government worth 67 percent of the premium subsidy. Managed care plans would in turn be paid directly for those enrollees opting for the Part D benefit.11 12 The Medicare Rx 2000 Act, passed by the House on June 28, 2000, would also create a Medicare Part D and would guarantee enrollees a choice of two or more plans offering a standard (or actuarially equivalent) drug benefit. While the government would provide premium subsidies on a sliding scale under this plan as well, premiums would be set by the plans themselves and would be paid directly by individual enrollees. This proposal would require a $250 deductible and then cover 50 percent of costs up to $2,100 (in 2003), with all costs covered above a $7,050 stop-loss threshold.13 On the Senate side, while the Medicare Prescription Drug and Modernization Act sponsored by Senators John Breaux (D-LA) and Bill Frist (R-TN) is similar to the aforementioned bill passed in the House, the Medicare Outpatient Drug Act of 2000 (sponsored by Senators Richard Bryan (D-NV), Bob Graham (D-FL), and Chuck Robb (D-VA)) marks a significant departure in a number of ways. This plan proposes an integrated benefit—in lieu of creating a separate Medicare Part D. In addition, there is no annual benefit limit and the stop-loss threshold is substantially higher than that of the proposals discussed above ($8,750 in 2003).14 Conclusion The plans detailed above do not include all of the proposals that have been put forth as part of the current debate over prescription drug coverage under Medicare. Indeed, the salience of this issue is reflected in the fact that both major Presidential candidates are in the process of designing plans of their own. As the range of proposals for a Medicare prescription drug benefit and the inability to garner sufficient support for any of them make clear, the design of an effective and politically viable plan will require a substantial amount of political capital. Indeed, as the passage and subsequent repeal of the MCCA demonstrated, building and maintaining popular support for additional coverage from which only some individuals will benefit and for which all may have to pay is no easy task. In addition to the fact that the majority of enrollees already enjoy at least some coverage for outpatient prescription drugs, many find it hard to justify expanding the
52
Medicare benefits packages when program resources are scarce and promise to become more so as the population ages. Compounding these conceptual obstacles is the opposition of the pharmaceutical industry, lobbyists for which argue that the integration of prescription drug coverage into the Medicare benefits package may lead to government price controls, which would in turn force a reduction in the research and development of new drugs. With these arguments in mind, if this particular gap in Medicare's coverage is to be filled, the challenge remains to craft a prescription drug benefit that provides: 1) meaningful levels of coverage for Medicare beneficiaries across a range of health-care needs and income levels, 2) a viable strategy for balancing public and private-sector entities' responsibilities for delivering and administering these benefits, and 3) a fiscally and conceptually sounds means of accommodating the existing patchwork of benefits, funding sources, and service-delivery mechanisms. Endnotes 1
Soumerai, Stephen B., and Dennis Ross-Degnan. "Inadequate Prescription Drug Coverage for Medicare Enrollees—A Call to Action." NEJM (March 4, 1999): 722-728. 2
Smith, Sheila, et al. "The Next Ten Years of Health Spending: What Does the Future Hold?" Health Affairs (September/October 1998): 128-140. 3
Davis, Margaret, et al. "Prescription Drug Coverage, Utilization, and Spending Among Medicare Beneficiaries." Health Affairs(January/February 1999): 231-243. 4
Rowland, Diane. "The Challenge of Meeting the Diverse Needs of Medicare's Beneficiaries." Testimony before the U.S. Senate Committee on Finance, May 5, 1999. 5
Rother, John. "A Drug Benefit: The Necessary Prescription for Medicare." Health Affairs (July/August 1999): 20-22. 6
Poisal, John, and George S. Chulis. "Medicare Beneficiaries and Drug Coverage." Health Affairs (March/April 2000): 248-256. 7
"Medicare Managed Care." The Henry J. Kaiser Family Foundation. Fact Sheet, September 1999. 8
"Analysis of Benefits Offered by Medicare HMOs, 1999: Complexities and Implications." Report prepared by Barents Group LLC, for The Henry J. Kaiser Family Foundation, August 1999. 9
"Prescription Drug Coverage for Medicare Beneficiaries: A Side-by-Side Comparison of Selected Proposals as of September 20, 1999." Report prepared by Health Policy Alternatives, Inc., for The Henry J. Kaiser Family Foundation, October 1999.
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10
The original plan proposed by the Clinton Administration did not include this stop-loss provision. 11
"A Side-by-Side Comparison of Selected Medicare Prescription Drug Coverage Proposals." Report prepared by Michael E. Gluck for the Henry J. Kaiser Family Foundation, August 2000. 12
Cunningham, Robert. "Clinton Plan Offers Drug Benefit, New Outlook on Managed Care." Medicine & Health Perspectives (July 5, 1999): 1-4. 13
"A Side-by-Side Comparison."
14
Ibid.
References American Association of Retired Persons, 1999 Public Policy Agenda. "Analysis of Benefits Offered by Medicare HMOs, 1999: Complexities and Implications." Report prepared by Barents Group LLC, for The Henry J. Kaiser Family Foundation, August 1999. Copeland, Craig. "Prescription Drugs: Issues of Cost, Coverage, and Quality." EBRI Issue Brief, April 1999. Crippen, Dan L. Statement on the President's Proposal for Medicare Reform Before the Committee on Finance, U.S. Senate. Congressional Budget Office, July 22, 1999. Cunningham, Robert. "Clinton Plan Offers Drug Benefit, New Outlook on Managed Care." Medicine & Health Perspectives (July 5, 1999): 1-4. Davis, Margaret, et al. "Prescription Drug Coverage, Utilization, and Spending Among Medicare Beneficiaries." Health Affairs(January/February 1999): 231-243. Etheredge, Lynn. "Purchasing Medicare Prescription Drug Benefits: A New Proposal." Health Affairs (July/August 1999): 7-19. "Factors Affecting the Growth of Prescription Drugs Expenditures." Issue brief published by the National Institute for Health Care Management Foundation, July 1999. "Medicare Managed Care." The Henry J. Kaiser Family Foundation. Fact Sheet, September 1999. Poisal, John, and George S. Chulis. "Medicare Beneficiaries and Drug Coverage." Health
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Affairs (March/April 2000): 248-256. "Prescription Drug Coverage for Medicare Beneficiaries: A Side-by-Side Comparison of Selected Proposals as of September 20, 1999." Report prepared by Health Policy Alternatives, Inc., for The Henry J. Kaiser Family Foundation, October 1999. Rother, John. "A Drug Benefit: The Necessary Prescription for Medicare." Health Affairs (July/August 1999): 20-22. Rowland, Diane. "The Challenge of Meeting the Diverse Needs of Medicare's Beneficiaries." Testimony before the U.S. Senate Committee on Finance, May 5, 1999. "A Side-by-Side Comparison of Selected Medicare Prescription Drug Coverage Proposals." Report prepared by Michael E. Gluck for the Henry J. Kaiser Family Foundation, August 2000. Smith, Sheila, et al. "The Next Ten Years of Health Spending: What Does the Future Hold?" Health Affairs (September/October 1998): 128-140. Soumerai, Stephen B., and Dennis Ross-Degnan. "Inadequate Prescription Drug Coverage for Medicare Enrollees—A Call to Action." NEJM (March 4, 1999): 722-728. Strongin, Robin J. "Providing Outpatient Prescription Drugs Through Medicare: Can We Afford To? Can We Afford Not To?" Background paper prepared for the National Health Policy Forum, The George Washington University, March 1999. Kristina Hanson is a doctoral candidate in the Political Analysis track of the Ph.D. Program in Health Policy at Harvard University.
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The Politics of Medicare Prescription Drug Coverage Noëlle Sherber During the recent debate over the possibility of a Medicare pharmaceutical benefit, partisan party politics have unfolded. On the Republican side, the House leadership put forth a private insurance market approach in H.R. 4680, The Medicare Rx 2000 Act, narrowly passing it in the House by a largely party-line 217 to 214 vote. Across the aisle, the Democratic Congressional leadership and the Clinton administration have rallied behind a federally-sponsored program with a set benefit package - S. 2342, The Medicare Modernization Act. Despite the divisive nature of the debate, the political pressure to legislate may open the door for compromise. Presidential candidates George W. Bush and Al Gore have also proposed Medicare pharmaceutical benefit plans; these proposals evidence the same strong party ideologies as their Congressional counterparts. [Note: We apologize for the absent chart here. We will hope to add that ASAP.] The key differences between H.R. 4680 and S. 2342 are as follows:1 The Republican critique of the Democratic plan centers on three policy areas:2 1. The Democratic plan would increasingly insert government control into the physician-patient relationship and the treatment decisions that physicians and beneficiaries currently make independent of government. 2. The Democratic plan would not respond to differences in beneficiary needs and preferences because of its one-size-fits-all premise. 3. The Democratic plan would replace the good prescription drug coverage already possessed by many beneficiaries through Medigap and other policies. The Democrats and the Administration criticize the Republican proposal on the following three grounds:3 1. The Republican plan would not provide a reliable benefit to seniors due to the lack of availability of coverage. 2. The Republican plan would not be affordable, and gives the Federal subsidy to insurers. 3. The Republican benefit would be ill-defined by having neither a guaranteed premium nor co-payment structures. While President Clinton may want to broker a compromise, the upcoming Presidential and Congressional elections dictate that a compromise would be appealing to him only if it could be cast as a major Democratic victory. In any compromises that may be discussed, Republicans are unlikely to accept a plan that lacks a major private market presence, limits the government's ability to assume full risk, or permits the governmentrun plans to retain an unfair advantage against private plans. The Democrats and the Administration will be unlikely to accept a compromise that will not include guaranteed beneficiary access to a standard benefit with a premium stream similar to that proposed in the President's plan. However, Democrats might accept a compromise that includes multiple PBMs - pharmacy benefit managers - and increased assumption of risk by private entities, and they also might accept significant reform of Medicare+Choice, as long as a set benefit is available through the fee-for-service program.4
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Al Gore and George W. Bush's Medicare prescription drug benefit proposals display the partisan politics of the Congressional proposals. The key differences between the two Presidential candidates' plans are as follows:5
BUSH - Republican
GORE - Democrat
Premiums Government would pay 25% of health Government would pay $25 per month plans' monthly charge. starting in 2002, increasing to $44 by 2008. Copayment for each prescription Not specified - would be determined Government would pay 50% of drug by each individual health plan. costs up to a maximum of $2,000 when the program is implemented, increasing to $5,000 by 2008. Coverage for catastrophic expenses Goverment would pay all costs above Government would pay all costs above $6,000 per year. $4,000 per year. Deductible Not specified - would be determined None. by each individual health plan. Help for low-income elderly Government would give money to the Same, but partial subsidies would be states for covering premiums and all available for those with incomes up to other costs incurred by individuals 150% of the poverty line. HCFA, with incomes less than 135% of the rather than the states, would administer poverty line ($11,300 or couples with this uniform benefit. incomes less than $15,200), and would pay partial subsidies for those with incomes up to 175% of the poverty line. Plan particulars would vary by state implementation. When benefits would start Assistance for low-income people and January 2002 catastrophic coverage would be administered by the states, beginning in January 2001. Premium subsidies for others, and broader Medicare reforms to make the program rely more heavily on private HMOs would begin in 2004. Cost $158 billion by 2010 $253 billion by 2010
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During the remainder of the Presidential and Congressional campaigning, both parties will be focused on assessing whether the Democrats are successful in eroding political support for the Republican plans. Only if the Republican plans appear vulnerable will sufficient interest be motivated on the Democratic side to engage in serious policy discussions over compromise bills.6 Until such debates over compromise provisions may occur, Medicare prescription drug coverage remains a politically divisive issue that taps into fundamental ideological differences between the parties and their candidates. This article was written with input from Daniel N. Mendelson, MPP. Mr. Mendelson is the Managing Director of The Health Strategies Consultancy in Washington, D.C. Mr. Mendelson serves as Adjunct Professor in the Fuqua School of Business, Duke University. Prior to founding Health Strategies, he spent two years as Associate Director for Health at the Office of Management and Budget, and, prior to this appointment, he was Senior Vice President of The Lewin Group. Endnotes 1
"A Side-by-Side Comparison of Selected Medicare Prescription Drug Coverage Proposals." Report prepared by Michael E. Gluck for the Henry J. Kaiser Family Foundation, August 2000. 2
Daniel N. Mendelson.
3
Ibid.
4
Ibid.
5
Adapted from The Washington Post, September 5, 2000, A6.
6
Daniel N. Mendelson.
Noëlle Sherber is a senior at Harvard College.
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The Uninsured in the U.S.: An Issue Brief Colleen Barry and Julie Donohue Despite strong economic performance in recent years, the proportion of people lacking health insurance coverage in the U.S. continues to grow. Since the failure of President Clinton's effort to enact comprehensive national health reform, the number of non-elderly uninsured Americans increased from 39.4 in 1994 to 43.9 million in 1998, according to the most recent Current Population Survey data (EBRI, 2000). This issue brief summarizes the current research on the numbers of uninsured, the characteristics of people without insurance, and the impact insurance has on access to health care. In addition, this paper points to some of the trends with regard to employment-based health insurance, publicly financed health coverage, and the network of providers that makes up the "safety net" for people without health insurance. How many people are uninsured in the U.S.? An estimated 18 percent of the non-elderly population lacked health insurance coverage in 1998 (EBRI, 2000). Given the importance of health insurance in gaining access to care, the problem of the uninsured presents a significant challenge to improving the health of Americans (Ayanian, et al., 1993; Ford et al., 1998; Newacheck, et al., 1998). In addition to the millions of Americans lacking insurance altogether, a growing number are "underinsured." Although one of the primary functions of health insurance is to protect people from the financial risk of catastrophic illness, a recent survey conducted jointly by the News Hour with Jim Lehrer and the Kaiser Family Foundation reports that 18 percent of those with insurance indicate having problems paying medical bills (Hoffman and Schlobohm, 2000). Who are the uninsured? Since 97 percent of Americans over the age of 65 receive health care through the Medicare program, lack of health insurance is primarily a problem for the non-elderly. Five major characteristics differentiate people lacking insurance: family income, employment status, age, race, and geographic region of residence.1 Family Income Insurance coverage rates are positively associated with family income. The percentage of people lacking health insurance ranged from 8.3 percent among households with incomes of $75,000 or above to 25.2 percent among households with incomes below $25,000 (Campbell, 1999). Employment status and firm size Full-time workers and workers employed by large firms are more likely to be insured  Â
59 Â
than those employed on a part-time basis or working for a smaller firm. Among individuals 18 to 64 years old, 16.9 percent of full-time workers and 23.2 percent of parttime workers were not covered by health insurance in 1998 (Campbell, 1999). However, full-time employment far from guarantees insurance coverage as evidenced by the fact that three-quarters of the uninsured are full-time workers or their dependents. For the working uninsured, the size of the employer is a significant factor in determining whether a worker has health insurance. Only 29.3 percent of workers in firms with less than 25 employees were covered by their own employment-based insurance in 1998. In comparison, 89 percent of workers in firms with 500 or more employees were covered.2 Age Non-elderly adults are more likely than children to be uninsured. Twenty-one percent of non-elderly adult males and 18 percent of non-elderly adult females were uninsured, while 16 percent of all children under 18 were uninsured in 1998. However, among children below the federal poverty level, 27 percent were uninsured, and 24 percent of children between 100 and 200 percent of the poverty level were uninsured. Race Non-white Americans are at a higher risk of being uninsured. Thirty-seven percent of Hispanics, 24 percent of Native Americans, 24 percent of blacks (non-Hispanic), and 22 percent of Asian/South Pacific Islanders are uninsured. In comparison, only 14 percent of whites (non-Hispanic) are uninsured. The Kaiser Commission analysis notes that differences in insurance rates across racial and ethnic groups are only partially explained by disparities in income. Geographic variation The proportion of uninsured varies widely across the states. Uninsurance rates, on average, ranged from 8.7 percent in Hawaii to 24.4 percent in Texas from 1996 through 1998 (Campbell, 1999). This variation results from differences in the types of jobs available, the state-level eligibility requirements for cash assistance programs, and the availability of individual and small group insurance options (Swartz, 1998). Access to care and health outcomes among the uninsured Health insurance coverage affects both access to care and health outcomes. The uninsured are more likely to postpone or forego needed medical care than those with insurance (Hoffman and Schlobohm, 2000). For instance the Kaiser Commission on Medicaid and the Uninsured notes that uninsured children are at least 70 percent more likely than insured children not to receive medical care for problems such as ear infections, sore throats, and asthma. Likewise, uninsured adults are more than 30 percent less likely to have had routine medical care in the past year (Hoffman and Schlobohm, 2000). Diminished access to preventive care and delays in seeking acute care can  Â
60 Â
sometimes lead to otherwise avoidable hospitalizations. The uninsured are significantly more likely than insured patients to be hospitalized for avoidable hospital conditions such as asthma (Weissman, Gatsonis and Epstein, 1992). Health outcomes vary significantly by insurance status. For instance, evidence suggests that the uninsured have a significantly higher risk of mortality at the time of admission to the hospital than those with insurance (Hadley, Steinberg and Feder, 1991). Higher risk among the uninsured has also been found for specific conditions. Ayanian et al. (1993) reported that risk of death for women with breast cancer was 49 percent higher for the uninsured after controlling for age, income and other factors. Lack of insurance has also been found to be associated with a higher risk of adverse birth outcomes (Braveman et al., 1989) and cardiovascular disease (Ford et al., 1998). Trends in employment-based coverage The proportion of the non-elderly population in the U.S. receiving employment-based health insurance coverage dropped from 69.2 percent in 1987 to 64.2 percent in 1997 (Fronstin, 1999). This decline is mainly due to fewer workers taking up coverage offered by employers rather than employers not offering health insurance (Cooper and Schone, 1997). The reduction in employment-based coverage can be partially accounted for by the fact that per capita health care spending has risen much more rapidly than personal income over the past two decades (Kronick and Gilmer, 1999). In order to compensate for these cost increases, some employers have increased the cost sharing requirements of employees over this period. Employees assumed 27 percent of the cost of monthly premiums in 1998, compared with 20 percent in 1988, and this increased cost sharing has led some employees to refuse coverage offered by their employer (Gabel, 1999). In fact, workers cite the high cost of insurance most often as the primary factor for refusing coverage (Thorpe and Florence, 1999). Other factors frequently cited for the decline in employment-based coverage include fewer employers offering health insurance, a trend toward part-time and temporary employment, small business job growth, a decline in union participation, and the movement of workers across industry sectors. However, each of these factors account for only a small proportion of the decline in coverage.(Kronick and Gilmer, 1999). Trends in publicly financed health care coverage The problem of the uninsured has been addressed in part by expansions of coverage through the Medicaid program. According to the Health Care Financing Administration (HCFA), the proportion of Americans enrolled in Medicaid increased from 8.6 percent in 1987 to 14 percent in 1996 largely as a result of program expansions that took place in the 1980s and early 1990s. More recent data from the U.S. Census Bureau, however, shows that Medicaid enrollment has begun to decline Ð by 2.5 million in 1997 and 1.1 million in 1998 (Campbell, 1999). These declines are attributed primarily to state and federal reforms of the welfare program and an improved economy with lower rates of unemployment (Ku and Garrett, 2000).3 Federal and state governments have recently attempted to expand coverage to uninsured children through the State Children's Health Insurance Program (CHIP). Enacted as part of the Balanced Budget Act of 1997, CHIP is
61
designed to cover children in families with incomes below 200 percent of the federal poverty level. A total of $39.7 billion has been authorized for the CHIP program for FY1998 through FY2007 to provide health insurance coverage to low-income children not already eligible for Medicaid. During FY1999, nearly 2 million children were enrolled in CHIP (Herz, 2000). Crowd-out Health policy experts have examined how expansions in publicly funded health insurance coverage might impact the private insurance market. The term "crowd-out" refers to the extent to which people may drop their private insurance and switch into public programs as eligibility for public health insurance expands. Crowd-out is a critical issue to address for a number of reasons. By simply replacing one type of insurance coverage with another, gains in coverage may not be realized. The crowd-out issue also raises questions about the roles of the private and public sector in providing health insurance coverage. There has been considerable debate among health policy experts over whether Medicaid expansions have contributed to the decline in employment-based coverage. One estimate suggests that between 13 and 34 percent of the drop in employment-based coverage between 1988 and 1993 can be attributed to the increased availability of Medicaid (Holahan, 1999). The issue of crowd-out was raised during the debate over the CHIP legislation and will continue to be a focal point of subsequent debates over expanding public health insurance programs. What is happening to the safety net? Physicians, hospitals, community health centers, and other community-based organizations have traditionally used private insurance dollars to cross-subsidize uncompensated care delivered to the uninsured. Market competition and managed care in both the private sector and Medicaid are drying up resources that these "safety net" providers have historically used to provide care to the uninsured. Under managed care, insurers use their market power to negotiate discounted rates from providers. Discounting by private insurers eliminates the financial margins necessary to cover uncompensated care for the uninsured (Markham Smith, 1997). In addition, reduction in Medicare spending enacted under the Balanced Budget Act of 1997 slowed the rate of growth in payments to hospitals, physicians, and other providers. The Congressional Budget Office estimated that the amount of uncompensated care provided by hospitals and physicians totaled $20 billion in 1991. As the uninsured population increases and medical cost pressures in the private insurance market intensify, excess private and public funds to cross-subsidize care for the uninsured are likely to further decrease. As a result, community health centers, safety net hospitals, academic health centers and other community-based organizations may find it more difficult to provide free care in an increasingly competitive marketplace. What does the future hold? The increase in the number of the uninsured amidst sustained economic growth and low  Â
62 Â
unemployment has led some policymakers to consider ways to supplement employmentbased coverage. A variety of strategies remain on the table for combating the problem of the uninsured, ranging from universal coverage proposals and program expansions to subsidy and tax incentive plans. Several options for confronting the problem of the uninsured have emerged in the context of the 2000 election campaign. Each of these options ascribes different roles to the public and private sectors in terms of financing and delivering care to the uninsured. Once state and federal governments adopt a general approach to covering the uninsured, policymakers often face a number of challenges associated with implementing programs. For instance, now that states have implemented the CHIP program, it will be important for both state and federal policymakers to evaluate its success in terms of outreach and enrollment. Expanding eligibility for a program does not always guarantee that enrollment will increase. Moreover, CHIP and other public programs will be evaluated on the basis of their effects on the broader insurance market and most importantly their effect on childrenÍs health status. Finally, any strategy for expanding insurance coverage must gain the support of the public. Recent public opinion data indicate a growing interest among registered voters in the problem of the uninsured. However, public support is divided among a diverse set of policy options. Furthermore, the majority of voters do not favor a plan that would require a tax increase (Blendon, 2000). Building consensus among the public on the best ways to insure all Americans represents a major challenge to policymakers. Endnotes 1 Unless otherwise noted, the following demographic information from the 1999 Current Population Survey (CPS) was analyzed by the Urban Institute and published in the Kaiser Commission Uninsured in America Chart Book (Hoffman and Schlobohm, 2000). 2
Smaller firms may be more likely to not offer coverage or to require high levels of cost sharing for their employees because premiums in the small group insurance market tend to be based on the claims experience of the group and are often higher than those for larger groups with greater capacity for risk pooling. 3
Federal welfare reform legislation passed in 1996 decoupled Medicaid and the Aid to Families with Dependent Children program. Although the intention behind this decoupling was to allow people moving from welfare to work to maintain their health care coverage under Medicaid, the result of the policy was actually a decrease in Medicaid enrollment. References Ayanian J.Z., Kohler B.A., Abe T., and Epstein A.M. "The Relation between Health Insurance Coverage and Clinical Outcomes among Women with Breast Cancer." New England Journal of Medicine329(5): 326-331.
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Blendon, Robert et al. "Health Care in the Upcoming 2000 Election." Health Affairs(July/August 2000). Braveman P. et al. "Adverse Outcomes and Lack of Health Insurance among Newborns in an Eight-County Area of California."New England Journal of Medicine 321: 508-512. Campbell, Jennifer A. "Current Population Reports: Health Insurance Coverage: 1998." U.S. Census Bureau, The Official Statistics (October 1999). Cooper, Philip F. and Barbara Steinberg Schone. "More Offers, Fewer Takers for Employment-based Health Insurance: 1987 and 1996." Health Affairs (November/December 1997). Employee Benefits Research Institute (EBRI), "Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 1999 Current Population Survey." (January 2000) Issue Brief, No. 217. Ford E. et al. "Health Insurance Status and Cardiovascular Disease Risk Factors among 50-64 Year-Old Women: Findings from the Third National Health and Nutrition Examination Survey." Journal of Women's Health 7(8): 997-1006. Fronstin, Paul, "Employment-Based Health Insurance: A Look at Tax Issues and Public Opinion." EBRI Issue Brief (July 1999). Gabel, John R. "Job-Based Health Insurance, 1977-1998: The Accidental System Under Scrutiny." Health Affairs 18(6): 62-74. Hadley J., Steinberg E.P., and Feder J. "Comparison of Uninsured and Privately Insured Hospital Patients." Journal of the American Medical Association 265(3): 374-379. Herz, Elicia and Evelyne Baumrucker. "State ChildrenÍs Health Insurance Program: A Brief Overview." Congressional Research Service: Report for Congress (March 2000). Hoffman, Catherine and Alan Schlobohm. Uninsured in America: A Chart Book, The Kaiser Commission on Medicaid and the Uninsured, Second Edition (May 2000). Holahan, John. "Crowding Out: How Big a Problem?" Health Affairs(January/February 1997). Kronick, Richard and Todd Gilmer. "Explaining the Decline in Health Insurance Coverage, 1979 Ü 1995." Health Affairs(March/April 1999). Ku L. and Garret B. "How Welfare Reform and Economic Factors Affected Medicaid Participation: 1984-1996." Urban Institute Assessing the New Federalism Project
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(February 2000). Markham Smith, Barbara, J.D. "Trends in Health Care Coverage and Financing and their Implications for Policy." New England Journal of Medicine (October 2, 1997). "Medicare and Medicaid Statistical Supplement, 1998." Health Care Financing Review Health Care Financing Administration. Newacheck, P.W. et al. "Health Insurance and Access to Primary Care for Children." New England Journal of Medicine 338(8): 513-519. "Responses to Uncompensated Care and Public-Program Controls on Spending: Do Hospitals Cost-Shift?" Congressional Budget Office (May 1993). Swartz, K., and Ed. Altman et al."All Insured Are Not the Same."The Future of the U.S. Health Care System: Who Will Care for the Poor and the Uninsured? 1998. Thorpe, Kenneth and Curtis Florence. "Why are Workers Uninsured? EmployerSponsored Health Insurance in 1997." Health Affairs (March/April 1999). Weissman J.S., Gatsonis C., and Epstein A.M. "Rates of Avoidable Hospitalization by Insurance Status in Massachusetts and Maryland." Journal of the American Medical Association 268(17): 2388-2394. Colleen Barry and Julie Donohue are doctoral candidates in the Political Analysis track of the Ph.D Program in Health Policy at Harvard University.
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Protecting Patients: The Debate over a Patients' Bill of Rights David Sclar You need not follow health care policy on a regular basis to be aware of the Patients' Bill of Rights debate taking place on Capitol Hill. The debate over a Patients' Bill of Rights is receiving national attention, and both parties are speaking to the need for laws that will protect patients. Support for such legislation was featured prominently in a number of speeches at the Democratic convention, including those of former senator Bill Bradley and Vice President Al Gore. Meanwhile, Governor Bush is openly taking credit for enacting a Patients' Bill of Rights in Texas three years ago. His campaign website boasts that Texas' reforms "led the nation in patient and provider protections."1 Yet, despite the vocal support both presidential candidates are giving to patient protections, proposals for a Patients' Bill of Rights have languished in Congress for over two years. It has proven difficult for legislators to agree on what provisions constitute a desirable and effective Patients' Bill of Rights. To date, Congress has yet to agree on a course of action. The debate over a Patients' Bill of Rights has dramatic implications for the millions of Americans enrolled in managed care plans. The shortcomings of managed care plans have been well publicized, and instances of HMOs mistreating patients have made headlines: Last fall's November 8, 1999 Newsweek dubbed the suffering of managed care enrollees "HMO Hell." Some common anecdotes tell of patients in need of emergency care who may be told to go to a far away hospital because their HMO does not contract with the nearest hospital.2 Others tell of patients who are withheld care because it is not considered "medically necessary."3 These types of restrictions on patients have compelled Congress to construct varying versions of a Patients' Bill of Rights. Legislators appear to be moving toward a shared desire to pass a Patients' Bill of Rights (as well as to take credit for it); however, the proposed bills differ widely. In particular, the Norwood-Dingell Bill, which passed the House of Representatives in October of 1999, and the Patients' Bill of Rights Plus Act, which passed the Senate in July of 1999, are quite different in form. The question is perhaps not whether a Patients' Bill of Rights should be passed, but rather what contents should an effective Patients' Bill of Rights contain? What measures are necessary to protect HMO enrollees around the country? On the other hand, could some measures, while well-intentioned, be overly restrictive or cause problematic unintended consequences? Some of the most significant provisions that have been put forth in proposed legislation include: • An internal and an independent external review process. Patients would appeal to these reviews when they are denied care they believe they need. Legislation would require such a review to be prompt because a patient's health may depend on the speed with which a decision is made on his appeal. • Access to emergency care. Patients would have the right to receive emergency care that
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a "prudent layperson" would deem appropriate in any hospital emergency room, not just those hospitals dictated by one's HMO. • Access to specialists. Patients with diseases such as cancer that require care beyond that of a general practitioner would have the right to see a doctor who specializes in treating their affliction. Women would also have the right to designate an OB/GYN as their primary care physician. • Access to confidentiality info. Patients would have the right to know their HMOs confidentiality policy with regard to their health records. • Continuity of care. Because the doctor-patient relationship is essential to quality health care, patients who are in the middle of a course of treatment when their doctor leaves their health plan would continue to be covered by the plan. • Access to non-formulary drugs. Patients would have a right to the medication their doctor prescribes. If a doctor believes a patient needs a particular drug or if a patient has an allergy to the drugs covered by a plan's formulary, he would have a right to a non-formulary drug, and he wouldn't pay more for the medication.. • A guaranteed point-of-service (POS) option. Patients, like any other form of consumer, need a choice - of health plans and of doctors. Giving them the option of joining a POS would aim to preserve this choice. A POS option would be especially important for HMOs with enrollees from small businesses, which may only offer one plan. • Patients' right to sue. Patients would have the right to hold their health plans accountable when they are harmed by a plan's decision not to approve care. Currently, the 1974 Employee Retirement Income Security Act (ERISA) only allows patients to recover "the cost of the benefit denied." However, when HMOs refuse to approve care and patients suffer and sometimes even die as a result of those decisions, patients arguably deserve more than simply the "cost of the benefit denied." Patients would have the right to hold plans accountable for their negligence. • Prohibition of "gag clauses." Doctors would have the right to discuss any and all treatment options with their patients, not just those treatments covered by the patients' health plan. "Gag clauses" that prevent doctors from fully informing patients about their plan's coverage would be eliminated. • Scope. A Patients' Bill of Rights would apply to varying numbers of Americans. In its most comprehensive form it would apply to all privately insured Americans. The larger the scope of the bill, the more patients it would protect. Among these many provisions, some are more controversial than others. While some patient protections may make common sense, others are more complicated. Critics believe that certain aspects of proposed legislation could have unwanted consequences that ultimately do patients a disservice. Critics argue that a Patients' Bill of Rights, though well-intentioned, would raise the costs of health care as well as premiums, causing employers to drop coverage and uninsurance to rise. With health care spending already around 15 percent of GDP, pressure to resist further cost increases is great. Furthermore, those who followed the plight of Harvard Pilgrim, which was forced into state receivership in January of this year, might reasonably be worried about HMOs running into financial troubles. Some worry that new regulations forcing changes in the way HMOs do business could
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contribute to existing financial problems. Other opponents of new legislation argue that because of the varying methods of health provision in different states (Alaska, for example, does not even have any HMOs), states are better suited to pass patient protections. Many states have issued their own patient protections that include access to non-formulary drugs in 20 states and a right to emergency care in 37 states. However, that same variance between states can be considered a weakness in state-level patient protections since many states may lag behind others in passing legislation. Moreover, state-level provisions may not be as comprehensive as a federal law would be. To date, no state has passed legislation containing all of the above measures. Finally, critics worry about the right to sue leading to unwarranted lawsuits and helping trial lawyers not patients. In the state of Texas, where patients were given the right to sue in September of 19974 , fewer than 10 lawsuits have been filed to date. However, while it hasn't produced many frivolous lawsuits, the right to sue has not been tested on a wider scale or for a long period of time. Moreover, surveys have found that a significant number of employers would "consider dropping health insurance coverage for employees" if employees were given the right to sue their HMO.5As a result, the right to sue remains controversial as recourse for patients wronged by their HMO. To put the above patient protections in context, they are part of a response to the growth of managed care since it was first introduced in the 1970s. Over the years, complaints over the quality of managed care have risen rapidly. But managed care, which generally refers to care for a defined population with an emphasis on preventative care and cost-control, is not necessarily problematic. A system of managed care can arguably induce doctors to provide health care more efficiently and can help control the already high costs of health care. Many patients have positive experiences with their HMOs. However, on occasion, managed care plans may fail their patients. In its quest for efficiency and cost control, and of course profits, managed care must still put the health of patients first. A Patients' Bill of Rights containing many of the above provisions, may be what's needed to protect patients and ensure that a system of managed care provides quality health care. Yet, Congress has been unable to agree on whether a Patients' Bill of Rights is the right solution, and if so, which provisions are desirable. For two years of complicated legislative history and debates over patients' rights, Congress' attempts at finding a consensus have been unsuccessful. Most of the above provisions were included in the Norwood-Dingell bill which passed the House of Representatives in October 1999. However, the Senate decided to remove or weaken many provisions from the House bill when it passed its own bill in June 1999. But the Senate-passed bill only applied to approximately 48 million Americans, as compared to about 161 million Americans covered by the Norwood-Dingell Bill. It was pared down so much that legal scholars from George Washington and Rutgers  Â
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Universities concluded that the Senate-passed bill would be "far worse than were Congress to enact no measure at all."6 Since last year's bills were passed, Congress has debated the merits of both bills and made efforts to find common ground, but to no avail. A conference committee was created to find agreement between supporters of the two bills. However, a year after the passing of the House and Senate bills, it still has not reached a compromise. This failure to find a solution on how best to protect patients has left them unprotected. Unfortunately, party politics and monied interests may be getting in the way of the necessary debate over the finer points of a Patients' Bill of Rights. They are seemingly behind much of the delay in passing legislation. Both parties are reluctant to lose favor with the insurance industry, which gave over $11 million in soft-money contributions in 1998. And the pressures of the upcoming elections seem to have calcified the positions of each side of the Patients' Bill of Rights debate. However, the support for patient protections voiced by both presidential candidates may signify a change in the political atmosphere. Despite their differences, legislators may agree that the stalemate in Congress has only hurt patients and heightened the need to find agreement. The many provisions on the table require open-minded consideration so that Congress can agree on whether to pass a Patients' Bill of Rights, and more importantly, what provisions to include. Resolving their differences and choosing the right course of action has proven difficult, but many legislators appear to be taking an interest in protecting patients' rights. There are a number of challenges for Congress to address - from providing patients with choices of health plans and care providers, to preventing HMOs from placing unfair restrictions on patients, to controlling costs and maintaining flexibility in our health care system. But these are challenges Congress must face. Endnotes 1 http://www.georgewbush.com. Viewed on September 7, 2000. 2 Jamie Court, the Advocacy Director for the Foundation for Taxpayer and Consumer Rights in Santa Monica, California, tells the story of 6 month-old James Adams: James went into cardiac arrest, but his parents were told to take him to a hospital 40 miles away. Doctors saved James, but he lost his arms and legs due to the time elapsed and the lack of blood flow to his extremities. James' parents took his case to Congress last fall to argue for a Patients' Bill of Rights. Mr. Court related James's story and discussed other aspects of managed care in a recent interview with MSN Health. The interview can be found athttp://content.health.msn.com/content/article/1700.50356. Mr. Court is also the coauthor with Francis Smith, a Senior Fellow at the Institute for Civil Society, of a recent book entitled Making a Killing: HMOs and the Threat to Your Health. 3
"In a 1999 survey conducted by the Kaiser Family Foundation and the Harvard School of Public Health, 87% of doctors said that health plans had denied coverage for medical services they felt were medically necessary." - Loren Stein. "Can You Sue Your HMO?" http://content.health.msn.com/content/article/1691.50310. Viewed on September  Â
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8, 2000. 4
This aspect of a Patients' Bill of Rights became law without Governor Bush's signature.
5
"Patients' Bill Of Rights Could Mean Big Changes."http://www.healthcentral.com/drdeandeanfulltexttopics.cfm?ID=26235& storytype=DeanTopics. Viewed on January 24, 2000. 6
"White House Fact Sheet on Patients¹ Bill of Rights." U.S. Newswire. July 6, 2000.
David Sclar is a junior at Harvard College
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In Focus Improving Patient Safety Donald Berwick, MD, MPP For well over a decade, I have participated in an effort to develop and encourage a new level of investment in quality improvement in American health care. This has been in many ways a very gratifying process, but it has also been frustrating. Despite many decades of research and literally thousands of journal papers documenting how much improvement is scientifically possible in health care, neither the professionals nor the public have become truly energized to tackle the challenge. Issues in quality of health care have remained largely background issues; few people have regarded quality as a central problem. On November 29, 1999, that changed. That day, perhaps the most dramatic single event in the recent history of the American health care quality movement occurred. It was the release by the Institute of Medicine of the National Academy of Sciences of a report on problems in patient safety. The report was called: To Err Is Human. The day it appeared, it became headline news on every major American television network, in every major American newspaper, and in thousands of public and professional gatherings. The wave of interest that began on November 29 has not yet ended. Meetings on patient safety continue everywhere in the U.S. today on nearly a daily basis, and hundreds, if not thousands, of safety improvement projects are now underway in hospitals and clinics throughout America. The IOM's Committee on Quality of Care in America, on which I serve, and which wrote the report To Err Is Human, issued, basically, six major findings, as follows: • First, safety problems in health care and preventable patient injuries are common and serious. Based on thorough review of dozens of research papers, the Committee found, for example, that almost seven percent of patients in American hospitals are exposed to a serious or potentially serious medication error, almost four percent suffer from an "adverse event," defined as injury from the health care that was supposed to help them, and, most alarming of all, between 44,000 and 98,000 Americans die each year from adverse events in hospitals. Thousands more probably die from errors in care in nursing homes, home health care, and officebased surgery, but these are areas about which we have little scientific information. Deaths from adverse events in hospitals are so common that they rank in the U.S. as at least the eighth leading cause of death, more common than deaths from breast cancer, motor vehicle accidents, or AIDS. • Second, the Committee found that safety problems and injuries in health care are not generally due to bad doctors or bad nurses, or to carelessness or incompetence in individuals. They are due to systemic flaws - hazards that are built into work processes, job descriptions, and equipment designs, for example. To put it simply,
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•
•
•
•
if we simply fired from their jobs today every single health care worker who was involved in an error, we would have exactly the same frequency of errors tomorrow. It is not bad people who injure patients; it is bad systems. If the systems do not change, the injury rates will remain the same. Third, the Committee found that safety could be vastly improved in health care if we were to incorporate basic principles of human factors engineering, industrial engineering, and other safety sciences into health care designs. As of now, many health care designs violate basic safety principles, and thus the patients and the clinicians get trapped in unsafe, accident-prone circumstances. Fourth, the Committee found that incorporating safe designs into health care will require major cultural change, not just technical changes. We need to adopt a "culture of safety" throughout health care. One of the most important aspects of such a culture is that issues of error, hazard, and safety can be discussed openly, and that people can talk freely about their own errors and the hazards they encounter, without fear of blame or punishment. The Committee found that the current health care culture is nearly the opposite of this in the U.S. today; conversations about safety and error provoke fear, resistance, punishment, and secrecy. People hide their errors instead of revealing them. Fifth, the Committee found that the public ought to be much better informed than it is today about hazards in health care. This openness would both help patients and families to participate more effectively in making the system safer, and would improve trust by showing people that health care is honest and serious about improving its own safety. Sixth, and finally, the Committee recommended a strong investment in new research on patient safety, both to assure incorporation of existing scientific knowledge about safety from other industries, and to develop new designs and theories directly relevant to health care. For the U.S., we recommended a patient safety research budget of $30 million per year, rising quickly to $100 million.
Patient Safety: A Dimension of Quality My area of work is not mainly in the field of human error and safety, but rather in "improvement," or "quality of care." I want to make care better. My personal definition of the word, "quality," is very broad. It incorporates all of the dimensions of performance of a system that the people who depend on that system care about. Actually, the concept is better expressed by the word, "qualities," plural, instead of "quality," singular. The qualities of care that we care about include, of course, the obvious main objectives of care: to save life, restore health, prevent disease, and ease pain, for example. But, they also include factors in the total experience of care— dignity, responsiveness, timeliness, and emotional support—for example, and the determinants of efficiency, especially the capacity to avoid waste and thereby to reduce costs. According to the theory and practice of quality improvement in health care as in other industries, improvements in many qualities of performance are achievable simultaneously in a complex system if one is bold enough, committed enough, and creative enough to design and redesign that system continually, sometimes involving even the first principles—the basic, original design of the system at its core.
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One of the unfortunate, and potentially divisive, misperceptions in the snowballing effort to reduce errors and improve safety in health care—the effort that the IOM Report has launched—is that that campaign is somehow different from or even in competition with the rising tide of will in the U.S. to improve the quality of health care. In my opinion, nothing could be farther from the truth. I have heard more than one leader in the field of patient safety lament that the energy going into quality improvement in health care was distracting people from the important agenda of improving patient safety. This concern reflects a basic misunderstanding. According to the proper, modern notion of quality, the search for safety and the reduction of errors can be seen as absolutely central—an ideal starting place for the quest for improved care—not a distraction, but a threshold issue and a perfect test-case for improvement of all we do. If we cannot improve safety, then what, after all, can we possibly mean by the term "quality improvement?" Patient Safety and Systems Thinking The specific search for safety and the more global search for improvement in all of the effects of our work are united by the concept of a system. The fundamental theoretical foundation for both improvement of safety and improvement in general lies in the notion that performance—something like an error or an error rate—is a property of a system. If the system is stable, the performance is predictable. Let me give you an example. I drive a Ford Windstar van. If I floored the accelerator on an open highway, its speed would climb to some maximum—say, 94 miles per hour. That is all. Depending on the road, the weather, the wind, and the gas, that top speed might vary a little—between, say 91 and 98 miles per hour, but, in general, we can make a pretty good prediction of the top speed㭚, give or take a few. My Windstar van is a system, and its top speed is a predictable property of that system. Suppose I would like my Windstar to go 130 miles per hour. I could scream at it very loud, or put an incident report in its file when it failed, but that would be stupid. Screaming at a system is a very interesting comment on the screamer, but tells us nothing at all about the system. I could go faster, but I would need a new system. I could buy a Ferrari, for example. There would still be a top speed—maybe 194 miles per hour—but it is a different top speed, because the system is different. New system, new speed. One example of a system is illustrated by a photograph of two vials of medication from an article in The New England Journal of Medicine some two decades ago. One vial is a bottle of racemic epinephrine, which was put down the nasotracheal tubes of some premature infants to help them breathe better. The other is a bottle of Vitamin E, which was put down the nasogastric tubes of premature infants who were Vitamin E deficient. The two bottles look nearly identical, with similar size and very similar labels. The article was about an outbreak of deaths in a neonatal intensive care unit. Babies were dying. You can guess why. The racemic epinephrine was being put into nasogastric tubes, causing
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gastric hemorrhage. This is a system perfectly designed to kill newborn babies. Not all babies. Just a few. Predictably. Properties like errors are system properties. And rates of error are predictable properties of the systems in which those errors occur. The fundamental law of improvement is this: "Every system is perfectly designed to achieve exactly the results it gets." If we want a new level of performance, we must get a new system. This applies equally to all forms of performance—the functional status outcomes of care, hemoglobin A1C levels in diabetics, immunization rates in children, waiting times, pain relief, answering questions, maintaining privacy, easing death, closing the racial gaps in health status, and—in the case at hand—improving patient safety. What a wonderful place to start! If we can figure out how to change to new systems, so as to reduce errors and mitigate their effects, then we are bound to learn generalizable lessons about change, itself. Errorreducers and quality-improvers are in exactly the same boat. In fact, they are pulling the same oar. Now, if we understand that performance features—features like safety—are system properties, then we get curious about systems. What is a "system" after all? Formally, a system is a set of interdependent elements interacting to achieve a common aim; a set of things that work together to get to a goal. Now, it gets a little more complicated. Systems thinking is not easy. In fact, for many people it is an unnatural act. Worse, if we really want to think in systems terms, it is important to realize that we have to worry not about one kind of system, but about two. First, we have to worry about the system of work—the thing that gets the job done, and whose performance—top speed or safety level—is the property we care about. What's the difference between a Windstar and a Ferrari? The answer is complicated, and, if we really wanted to turn a Windstar into a Ferrari, we would have to know a lot about cars as a system. We would be talking about carburetors, metal alloys, fuel injection designs, and such. The same thing applies to medication errors and patient safety. If we want Ferrari safety levels instead of Windstar safety levels, then we would have to be talking about designs. For example, what does a safe medication system look like? What are the differences between a safe medication system and the one we have now? But, that is not enough. If our current system has a performance level that we do not like, then we have to get a new one. And, that means that we have to change. Maybe one rich person can switch, all by himself or herself, from a Windstar to a Ferrari—just go and buy one. But, it is hard to buy a safety system. Probably, it is impossible. Hospitals or clinics are just too complicated. The elements and interdependencies in the system of care whose property is a specific level of safety involve people, departments, habits and traditions, rules, equipment, hierarchy and sociology, patients with varying needs, constantly evolving technologies and medications, and much more. This system makes a Ferrari look very simple.
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That brings us to the second system level. The first is the work system—the car itself. The second is the management system—the one that designs and creates the car in the first place, maintains it when needed, and, most importantly, redesigns and changes it when the old one is not good enough any more. If we want to achieve new levels of patient safety, we must change at two levels. We must change the way we do our work—to a work process that is safer; and, we must change the way we manage that system of work—so that it, itself, can change and become safer. The First Level of System: the System of Work—Safe Medication Designs Now, at the first level—the Ferrari level—we know a lot. In my own organization, the Institute for Healthcare Improvement, we have formed and managed three separate national collaboratives of health care organizations trying to reduce error rates and to improve patient safety dramatically in less than one year. Our Patient Safety Collaboratives have now involved over 150 organizations, and we have learned a great deal about the difference between a Windstar and a Ferrari, when it comes to improving patient safety. My close colleague, Tom Nolan, has been working with Harvard Professor Lucian Leape, other IHI Faculty, and the participating teams in the Patient Safety Collaboratives to help specify the design of a safe medication system, as one example of a system relevant to patient safety. I will describe very briefly a few of the ideas that they have come up with so far. At our current state of knowledge, we divide the attributes of a safe medication system into three categories: 1. Prevent errors when possible (make them less likely); 2. Make errors more visible when they do occur; and 3. Mitigate the effects of errors when they do occur and reach the patient. Note, first, that all three elements must be present in the "Ferrari" system. The reason is quite simple: no system is perfect. The search for zero error rates is doomed from the start. Every new technology, even one whose sole purpose is to prevent errors, introduces its own, new forms of error. Human beings, even when they are very careful, have natural limits to their performance: limits of memory, fatigue, and vigilance, for example. All modern safety systems accept that some human errors will occur, and, even while they seek to reduce the intrinsic rate of error, they have the additional aims of making errors visible and of mitigating, blunting, and recovering from errors that do occur. The proper name of our quest for patient safety is not just to reduce errors, but to reduce errors and mitigate their effects. Prevention of errors—the first level of defense—is most effective when it is informed by knowledge of the causes of errors in the first place. The most powerful cause is, at bottom, complexity. Complex systems break down more often than simple ones. The statistics are quite simple. Imagine a system with, say, 25 elements, each of which
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functions properly—no errors㭟% of the time. If the errors in each element occur independently of each other, then the probability that the entire system of 25 elements will function correctly is (0.99)25 or about 0.78. With 50 elements, the probability is 0.61; with 100 elements, it is 0.37. Make the reliability of each element higher, say 0.999, and the overall success rates are 0.98 for 25 elements, 0.95 for 50 elements, and 0.90 for 100 elements. We can, indeed, improve the reliability of a system by perfecting its parts and hand-offs, but reducing complexity is even more powerful. Using complexity, and its reduction, as design themes, here are some specific changes that have reduced errors in the IHI's Patient Safety Collaboratives. Reducing the Probability of Medication Errors 1. Use "Computerized Physician Order Entry" systems for medication systems to reduce handoffs, and to provide instant information on drug interactions, allergies, and prescribing errors; 2. Limit hospital formularies to essential drugs and doses, with few duplications. Continually eliminate hazardous drugs as safer alternatives become available; 3. Have clinical pharmacists work in patient care units and periodically join in rounds to smooth information flow; 4. At change of shift, have nurses brief each other on circumstances that increase risks of error, such as unusual patients, unfamiliar attending physicians, or unusual chemotherapy regimens, and on ways to reduce those risks; 5. Remove high-risk medications, such as concentrated electrolyte solutions, from patient care areas, and label high-risk drugs to indicate their danger; 6. Remove or differentiate look-alike drugs and packages; 7. Move certain tasks, such as calculating, drawing up, and admixing doses, to the pharmacy or to the drug manufacturer; 8. Standardize equipment and supplies, such as intravenous pumps, across all units; 9. Involve patients as active partners in checks, such as identifying themselves, assessing drug choices and doses, and reviewing allergy information. After reducing the probability of error, the next line of defense is to make sure that errors are visible when they do occur. Modern, complex systems often make their own "state" invisible to the user, and so errors go unnoticed that, in a simpler system, would be obvious. This invisibility was one of the causal factors in the Three Mile Island nuclear power plant accident in the U.S. A modern approach to errors makes them noticeable as quickly as possible, so that people can provide a safety net to intercept them before they cause harm. Making Medication Errors Visible In order-entry systems, provide screens to check against rules, such as dosage limits, allergy checks, and drug interaction alerts; Have a pharmacist review all orders before dispensing; Use bar coding to detect errors at the point of administration; Explain medications and their purposes to patients before administration; Use "hearback" for oral orders and instructions; Use proper monitoring systems—such as for laboratory tests and vital signs—for patients receiving hazardous drugs;
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Use double-checks sparingly. When using double-checks, make the process serious and truly independent. The third line of defense, after prevention and visibility, is error-mitigation, the process of reversing or recovering from an error that actually does reach the patient. Once error rates are very low, it becomes increasingly difficult to make additional reductions in rate, and improving recovery processes becomes a more and more important component of the complete safety system. Mitigating the Effects of Medication Errors that Reach the Patient 1. Keep antidotes for high-risk drugs closely on hand and updated at the point of administration; 2. Standardize and train through simulation in procedures for rapid response to adverse events, such as anaphylaxis; 3. Avoid giving potentially lethal medication in bolus form; 4. Assure that, in failures, equipment defaults to the least harmful modes. For example, intravenous administration devices should default in failure to cut-offs, not to free-flowing mode. By careful, shared, ongoing study both of safety-improvement efforts in health care systems, and by learning from successful designs from human factors engineers and cognitive psychologists in other industries, anyone interested can add nearly endlessly to the list of interesting and plausible ideas for redesigns that improve safety. The above list is only a suggestion of some places to start. What we really need over the next few years is to clarify such designs for various hazardous systems in health care, such as medication administration, for organizations of different levels of size, wealth, and task. What, for example, is the best known safe medication system for a nursing home? A small community hospital? A large teaching hospital? If we define and address this as a serious research agenda in health care for as few as five years, we make tremendous progress. The Second Level of System: the System that Designs and Manages the System of Work—a Study from NASA Sadly, however, design of the work system is only half the battle. There is a system above the work system that must be equally carefully designed—the management system—and, compared to the work system, it may need even more overhauling in American health care if we are to reach the safety goals we ought to. I learned this lesson early in my journey into quality as my obsession. It came to me first from a man named Guy Cohen, at the U.S. National Aeronautics and Space Administration (NASA). I am sure that you recall the accident involving the Space Shuttle Challenger in 1986. The loss of life was, of course, tragic, but behind the tragedy were serious managerial and system breakdowns that led to that disaster. Those breakdowns occurred in an organization, NASA, that, only five years earlier, had been at the very pinnacle in the world in the management of quality, respected by all, and breaking new ground in the total management of quality at the world-class level. When President John F. Kennedy first set traveling to the moon as a national goal, NASA commissioned a consultant report on the probability of success. The estimated chances of success were less than 2%.
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NASA threw the report out, and managed to a level of reliability and excellence in a complex organization never before seen on the planet. Guy Cohen was part of that story. By the time I phoned him, he was about to retire as the Director of Quality, Safety, and Reliability at NASA. I called him first when I was the Vice President for Quality-of-Care Measurement at the Harvard Community Health Plan, searching for hints about how to help improve care faster than I had been able to. To my surprise, Guy immediately understood what I was asking, and 48 hours later, he was in my office in Boston, alone with me, with about 200 overheads and what turned out to be a five-hour one-to-one teaching session on how NASA, at its height, made quality real. Guy's session with me changed my life and my career. It is extremely difficult to convey the richness of what he showed me. In one sense, that is the first point. It took him five hours, and he hadn't even really begun. In response to the question, "How do you get good enough to get to the moon?" Guy Cohen had no one-liners to offer me. He didn't say, Report Cards," or "Market Forces," or "Incentive Pay," or even "Accountability." In fact, as I recall it, not one of those words came up in the time we spent together. His views of human nature, organizations, systems, and change would not permit one-line answers. I do remember the first thing that caught my attention. It was the organizational structure within which he worked. "I report to the NASA Administrator," Guy said, "and he reports to the President of the United States. I'm two levels below the President." That, he told me, was the importance NASA attached to his assignment: "Quality, Safety, and Reliability." I would later learn, in different words, the same lesson from experts in improvement: improvement is never an accident. It requires strong, clear, specific, and visible attention, best of all from the top of an organization. Of the many lessons from Guy Cohen, I will describe only the very strongest, which came in the form of a story—a true story—from the days of NASA's Titan rocket program, the predecessor of the Gemini Program that first put Americans in space. The Titan rocket was a liquid-fueled rocket whose two enormous tanks, one of liquid hydrogen and the other of liquid oxygen, supplied fuel through pumps at the bottom of the tanks to a rocket motor chamber where a controlled explosion occurred. On the day in question, with a Titan launch scheduled for the next day, NASA was worried because a problem had developed with the liquid fueled system, and a prior mission had been lost. NASA knew why. Here was the problem. The design of the rocket required great precision in the use of fuel—every drop of liquid oxygen and hydrogen had to be consumed before engine shutdown, not a bit less or more. Like the water in your bathtub, the liquid in the huge oxygen tank had a tendency to swirl as the level got low, which led to a problem called "cavitation," as the swirling oxygen formed a funnel with a hole in the middle. The high pressure pump would suck on the center of that funnel, sense in error that there was no more liquid oxygen, and shut the engine down too early, leaving swirling oxygen unconsumed in the tank.
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The solution to the cavitation problem was to place four small vertical metal baffles at the bottom of the liquid oxygen tank, to keep the liquid from swirling. Unfortunately, the baffles were a little too big, and NASA knew that a little liquid oxygen was being kept away from the pump. NASA had substituted damming for cavitation, and a rocket exploded as a result. Please notice, first, at this point how much NASA knew and could find out about its problems. This is at the Ferrari level—the design level—and it was simply amazing to me how thoroughly NASA could examine a problem—loss of a rocket—and trace its cause back to such a simple, although powerful, design flaw. That is a characteristic of a great safety system—to find the roots of defect, beginning, sometimes, with a disaster—but it is not the lesson I want to focus on right now. NASA had a way to fix the problem. It was expensive, but necessary. For the next day's launch, empty the tank of liquid oxygen, lower a man on a harness in a diving suit into the highly toxic gaseous environment of the empty tank, have him trim some metal from the four baffles, and haul him back up. He would carry metal shears, plus a small cloth bag into which he would put the trimmed metal and the four bolts, one removed from each baffle, that would become redundant when he trimmed the metal. This little cloth bag was important, because, if any metal fragments were left behind at the bottom of the tank, they would undoubtedly be sucked into the high-pressure pump along with the fuel, and the rocket would explode in flames. They did it. The man lowered into the tank was a front-line worker. The NASA officials, including Guy Cohen, were there to watch as the man carried out his assignment. It went like clockwork. He finished, and, while he unsuited, they began closing the tank hatch for refueling. But then, a problem developed. The employee emptied the contents of the cloth bag onto a table, and out fell the metal fragments, and three bolts, not four. The worker thought hard. He tried to remember removing the four bolts, but couldn't. "There must have been only three," he said. But that wasn't good enough. Risking more delay and expense, the team decided to unbolt the hatch and look for the missing bolt. One after another, the officials took a flashlight, leaned far into the tank (one passed out from the toxic fumes), and peered to the bottom, looking for the missing bolt. It wasn't there. "There must have been only three bolts," said Jerry Gonsalves, a front-line NASA employee who had searched carefully for the bolt. And they all agreed. That night, Guy Cohen was sleeping peacefully at home—the man two levels below the President of the United States—when his phone rang. It was Jerry Gonsalves. This is what he said. He could not sleep, he said. On his own initiative, he had dressed at midnight, driven an hour to the storage facility where another Titan liquid oxygen tank was resting on its side, empty, awaiting a future assembly. Jerry had taken a bolt and a flashlight, and crawled around in and out of the hatch, down to the bottom of the tank, placing the bolt in different locations, trying to see if there was anywhere at the bottom of the tank where the bolt could have hidden from the probing light of the flashlight peering
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down from the open hatch. "I found two places," Jerry told Guy Cohen. "We could have missed it." That was enough. Guy Cohen's next call was to the flight director, and, at 5:00 a.m., they were all assembled at the launch pad, not preparing for the launch, but emptying the fuel tank, at extremely high cost, suiting up a man in a diving suit, and lowering him back into the tank. He went to the first of the two hiding places that Jerry Gonsalves had found, reached his hand down, and picked up the missing bolt. Guy Cohen asked me a question at that stage in his story. "Suppose the worker who removed the bolts and the employee who said they were not in the tank, Jerry Gonsalves, had been nurses," he asked, "and we were talking about a serious drug error. What would happen in one of your hospitals?" I knew the answer very well. "There would be an incident report," I said. "And, the nurses would have some sort of warning put in their files. If the patient had died, they probably would be fired or worse." "Then you'll never be safe," he said. "That's not what we did. We saved that bolt, and we had it gold plated and mounted on a plaque. And we had the NASA Administrator come to the launch of that rocket a couple of days later. And in full view of everyone there, we gave that plaque to Jerry Gonsalves and his colleagues, and we dedicated the launch to them." I think the point is clear. You have to be very smart to design a rocket right, and even smarter to figure out what happened and correct it when something goes wrong. But you have to be even smarter still to design and lead the supraordinate system—not the system of work, but the system of leadership and management in which the work system will thrive or wither. That is what Guy Cohen taught me, and it took him five hours to show me even the outlines of world-class management. Eight Guidelines for Managing and Improving Safety Systems in Health Care Compared with NASA in its heyday, and with respect to safety as a goal, health care is now barely on the track. We are beginners. That is good news and bad. The bad is that we have a long way to go. The good is that it almost does not matter where we start now—the fine-tuning isn't the issue, starting is the issue. Let me suggest the outlines of the steps we should be taking now on the meta-system—the management system in which the Jerry Gonsalves' of our future will either thrive or be silenced. First, improved safety must be our specific, declared, and serious aim, beginning at the top of our organizations. Boards of Directors must show that they are committed to this aim by regular, close oversight of the safety of the institutions they shepherd, and their reviews of progress in results and system design should be frequent, detailed, quantitative, and demanding. Safety improvement aims should be quantitative and
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annual. Perhaps the organization's Annual Report could contain a regular section on safety improvement, highlighting involvement of staff; Second, executives, both clinical and non-clinical, should make regular review of safety systems part of their work and schedule.Such reviews would include monthly audits of the safety system, "walk-throughs" to evaluate hazardous areas and designs, incorporation of safety improvement goals into annual business plans, with clear reporting and assessment of progress, and intolerance of serious procedural violations by people, including doctors, in high-risk settings. In a walk-through, safety-conscious executives might, for example, notice and direct attention to disorder in medication areas, illegible charts, unlabeled medications, or confusing signs, asking that work plans be established to reduce specific hazardous conditions. All senior leaders should be especially watchful for complexity in work systems, and offer support for sensible forms of simplification; Third, a non-punitive hazard and error reporting system should be in place, with all personnel expected and encouraged to report errors and hazards, including "near misses." This stimulated reporting system should be supplemented and calibrated by independent audits of hazardous circumstances, such as through chart reviews and "walkthroughs;" Fourth, processes should be in place for the thorough investigation, review, and analysis of errors and near misses, so as to identify patterns of hazard and vulnerable designs. Discussions of near-misses, reported errors, hazardous conditions, and potential system changes might occur as a regular part of all nursing and pharmacy staff meetings. I think that all modern safety systems must have the ability to study cases in detail and learn wise lessons from that study; Fifth, responsibility for oversight of hazardous systems as a whole should be clearly located in an individual with the time to discharge this duty. For example, oversight of a hospital's medication system as a whole, including its safety and its improvement, may be placed under a single physician, with 50% or more of his time devoted to that role; Sixth, the organization should maintain an ongoing process for the discovery, clarification, and incorporation of basic principles and innovations for safe design, searching the health care industry, other industries, and research on human factors engineering, organizational and social psychology, and cognitive psychology for potentially fruitful concepts. Organizations need sound, scientifically-grounded theories about errors and safety; Seventh, cultural supports to safety and its improvement should be continually reinforced, such as through recognition systems for individuals and departments who contribute to safety improvement,and through repeated public recognition—a "relentless drumbeat"—of the importance of improving safety as an organizational imperative. Communication should be repeated and multi-channel: thank-you notes from executives, reports in newsletters of specific improvements in system safety, bulletin board displays
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recognizing safety innovations each week, and more; Eighth, and finally, as organizational knowledge about safety grows, so also should grow a more and more specific, organization-wide conceptual base for the principles of safe design. Some of these principles, such as the value of wise simplification and standardization, the importance of complete information exchange and communication, the value of teamwork, the unwillingness to accept any hazard as inevitable, the avoidance of blame in the search for hazard, and the commitment to strong and immediate recovery procedures when errors do occur, become, in the organization truly committed to safety, matters of day-to-day values in work. They become, "The way we do things around here," and not topics for repeated struggles for control, battle-by-battle. Safety, and its associated design principles, are in the very marrow of the organization, and, rather than treating each error and hazard as a unique, surprising, separate, and sometimes-tragic event, people view the entire organization as system, and the search for improved safety as a life-long, shared journey. I learned a lot from Guy Cohen, but his approach is not a secret. It is grounded in strong and interesting sciences, tested by long and well-documented experience, published, and motivated by the very best forms of faith in the nature of humans and in the unending possibility of doing things better. As we pursue safety in health care, we are on a wellworn path, and, if we have the wisdom and good will to follow it, our improvements will know no bounds. Donald Berwick, MD, MPP is President and C.E.O. of the Institute for Health Care Improvement and Clinical Professor of Pediatrics and Health Care Policy at Harvard Medical School. This article is adapted from the text of the Plenary Address which Dr. Berwick delivered at the 79th Symposium of the Japanese Society for Quality Control on September 23, 2000.
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Nurse Practitioners and Primary Care Physicians: Complements, Substitutes and the Impact of Managed Care David Auerbach Non-physician clinicians (NPCs) is a general term given to many categories of professionals who perform duties in medical care that have traditionally been relegated to physicians. Some NPCs perform duties most similar to the traditional scope of primary care physicians (Nurse Practitioners (NPs), Physician Assistants (PAs), others are trained in specialty care such as Nurse Midwives, Certified Nurse Anesthetists (CRNAs), and Optometrists, and still others perform what might be deemed alternative care (Chiropractors, Acupuncturists, Naturopaths). State regulations concerning the practice of these caregivers vary widely in terms of licensing (whether licensing is required to practice as NPC), with respect to autonomy (whether NPCs are permitted to practice independently or only under the supervision of a physician), with respect to reimbursement from private and public insurance programs, and with respect to prescriptive authority (whether NPCs can prescribe drugs independently, or at all). In two recent articles appearing in the Journal of The American Medical Association, Richard Cooper et al., discuss recent workforce trends of 10 categories of NPCs whose roles consist of at least some overlap with various physician specialties. The greatest wealth of available information and apparent interest is for the pair, Nurse Practitioners and Primary Care Physicians (henceforth, NPs and PCPs, respectively). At the current time, the numbers of NPs licensed to practice primary care in the U.S. exceeds 80,000 (Moses, 1996), is increasing by more than 10% per year and will probably overtake the number of practicing PCPs over the next decade, depending on how one categorizes physicians (Cooper et al., 1998). These groups of practitioners have roles which overlap considerably despite large differences in training and salary. Thus, one is inevitably led to questions of substitution - Can money be saved by private health care organizations and public budgets in substituting NPs for PCPs without sacrificing quality of care? Is this substitution happening now? Toward answering the first question, a pioneering study was performed in Colorado among a largely ethnic Latino population in which patients were randomized to either NPs or PCPs as their primary care providers over a 1.5 year period and physiologic and subjective outcomes were assessed at a 6-month follow-up period (JAMA, 2000). No significant differences were found among the groups on any of the measures. While the study was criticized in a series of letters (JAMA, 2000) claiming that, e.g., the study population was a healthy one unlikely to suffer enough adverse events in 6 months to show a difference among practitioner types even if there were a real difference, there have been other studies also showing no difference in outcomes by practitioner type (e.g. Safriet, 1992). Complements or Substitutes?
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With the question of the implication of substitution of NPs for PCPs on quality of care necessarily left open, in this paper, I will focus on whether the two groups actually do, in fact, seem to act as substitutes. The question is an important one. If substitution is occurring on a wide scale, those involved in workforce planning for physicians in the future would well want to take this substitution into account. Also, since NPs provide primary care at a lower cost than PCPs do, one would expect more cost-conscious health care organizations (such as managed care organizations) to capitalize more strongly on this substitution (quality considerations aside). The result would be a different mix of care across institutions, and potentially a subsequently different health care experience for patients across institutions if there were any differences in the quality or scope of care provide from the two groups. Further, if increased use of NPs were associated with managed care, as managed care becomes more prevalent in the U.S., trends associated with more prevalent NPs would be expected to continue into the future. Finally, if it can be established that states can influence the numbers and roles of their NPs through myriad practice regulations, then any change in numbers of NPs would also have an effect on PCPs if there exists an interaction between the two. I first discuss some past thinking on the issue of complementation vs. substitution before embarking on a brief empirical investigation of this question using data from all 50 states from the years 1987 to 1996. In a companion letter to his trend study noted above (JAMA, 1998), Richard Cooper addresses the complement-substitute question mainly out of concern for a possible decreaseddemand for physicians given the possibility of substitution of non-physician clinicians such as NPs. Displacement vs. Supplementation—The growing numbers, increasing prerogatives, and expanding participation of NPCs will surely affect the demand for physicians, particularly those involved in simple licensed general care and routine licensed specialty care. However, the interrelationships between the demand for physicians and the availability of NPCs are complex. For example, while the need for physicians will be directly affected when NPs or naturopaths provide primary care, when CNMs perform deliveries, CRNAs administer anesthesia, services such as acupuncture, spinal manipulation, and herbal therapy may supplement rather than supplant the care provided by physicians. Counseling, patient education, and care management may also be adjunctive. However, it is likely that even these groups of services will decrease the demand for physicians, although they may not directly overlap the services that physicians provide. He hints at the notion that the two have overlapping roles, and thus it may not be clear whether the substitution or complement effect is stronger. In commentary on the roles of NPs and primary care physicians, Cooper states, "the practices of NPCs are largely limited to wellness care and the treatment of uncomplicated acute and chronic conditions, a range of care that encompasses approximately 50% to 75% of the office visits to primary care physicians." Diane Mahoney visited this issue 10 years earlier in Nurse Practitioner (Mahoney, 1988), noting that while nurses traditionally are complements to physicians, nurse
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practitioners can function as an attractive substitute to physicians, especially in a world of increasing managed care. She cites several studies showing the cost-savings potential of NPs vs. primary care physicians, based on their lower salaries and their differing practice emphases, specifically, that NPs are more oriented toward wellness care, treatment compliance, healthy lifestyles and attention to chronic conditions. NPs were also found to favor non-drug therapies over drug prescriptions in another cited study. These qualities all would be likely to reduce long-run costs via readmission and hospitalization, and such cost savings would be more attractive to managed care organizations which would benefit directly from such savings. The complement-substitution issue is also discussed recently in a letter to JAMA, "Physicians and Nonphysician Clinicians: Complements or Competitors?" appearing in 1998 (Grumbach and Coffman, 1998). Noting the expected 10% per capita rise in physicians between 1995 and 2005 along with Cooper's projected 60% rise in NPCs in the same period, they ask, "Will there be room for this proliferation of physicians and NPCs? Will physicians and NPCs complement each other, fostering pluralism and collaborative teamwork, or will these groups primarily be competitors, tussling within the confines of a budget-limited system that cannot financially accommodate this many practitioners?" Speaking mainly of the Nurse Practitioner-Primary Care Physician groups, they again describe complementary scenarios, with NPs proving more 'wellness' care and physicians providing more 'illness' care, and with NPs providing more care in rural, 'underserved' areas while physicians stay in the larger markets. Supporting the complement model is evidence from an exploratory study by Jacobson et al., (1998) who conducted interviews of NPs, PAs, and primary care physicians at 8 sites representing differently organized health care provision settings where the types of providers worked in close proximity. He notes that, "Regardless of whether the management style was independent NP and PA patient panels or the more traditional delegatory style seen in MSCs [multi-specialty clinics], the vast majority of NPs and PAs described their interactions with physicians as collaborative and collegial. The vast majority of physicians described professional interactions with NPs and PAs similarly." They do caution, however, that "Our finding the NPs and PAs had a largely collegial relationship with physicians may reflect our selection of institutions that have integrated NPs and PAs into their clinical practice." Further, they emphasize that managed care organizations could tip the balance toward NPs over PCPs, noting: NPs...in our sample had greater autonomy and a wider scope of practice at institutions with a larger managed care population, where the tendency was to create teams of primary care practitioners (including physicians, NPs and PAs) or to assign patients to NP or PA panels. In the HMOs we visited, NPs and PAs tended to practice primary care as equal team members, whether or not they had their own patient panels. This appeared to be much less true at the MSCs we visited, where NPs and PAs performed functions delegated by supervising physicians, or at the hybrids, where the NP or PA scope of practice and autonomy varied considerably within the organization. One possible explanation for these results is that an organization with a larger percentage of managed care patients focuses on managing available resources to treat the needs of the patient population, which compels a different mix of providers than traditional fee-for-service  Â
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practice.In either case, it is reasonable to expect that an organization with an extensive managed care (especially capitated) patient population will have greater incentives to incorporate NPs and PAs into an expanded primary care role. [emphasis added] The potential for enhanced roles of NPs relative to PCPs in managed care organizations seems enormous. Finally, Grumbach and Coffman (1998) describe the potential for wide variation in the rules and functions among the various states. They note that NPs have independent practice authority in 21 states as of 1998, allowing them to function, more or less, as a complete primary care provider—and that clearly all NPs in these states do not work in underserved areas. They cite the fact that strong lobby groups exist on both sides of the legislation battles, with nursing groups pushing for more independence and education subsidies, and with physician groups spending large sums of money to defeat legislation that would expand NPC scope of practice authority, as further evidence that substitution is at least perceived to be a strong reality. In all, models can be envisioned with NPs and PCPs working as complements or as substitutes. The following sections will use quantitative descriptive and analytical analyses taking advantage of variations across the states and the years 1987-1996 to attempt to answer which mode seems to more dominant in the aggregate. Empirical Investigation The closest attempt to answering the complement-substitute question quantitatively took place in a paper by Sekscenski et al.in 1993. Their main focus was in learning whether a favorable state practice environment toward NPs was, in fact, associated with larger numbers of these providers in that state. They developed a method to 'score' the favorability of the state environment toward NPs based on the legislative record on a 0-100 scale and indeed found significant correlations between these practice environment scores and numbers of NPs and PAs—specifically, 0.41 in the case of NPs. As a secondary aspect of the study, they note that the supply of generalist physicians was also positively correlated with the supply of NPs in a state, and conclude a lack of a finding of substitution among these groups of providers. Nevertheless, a single point-in-time investigation is not extremely helpful in answering this question—many factors would be expected to influence the supply of NPs and PCPs both. Ideally, to investigate questions of substitution, one would pose the question: does a rise in the wages of NPs result in an increase in the demand for PCPs? This is the traditional definition of substitutes—that when the cost of one product increases, demand for its substitute increases. However, accurate data on NP wages is very difficult to obtain, as is proxies that would be related to such wage changes. Thus, I will resort to several alternative strategies that are slightly more indirect. First, it has been shown that growth in managed care organizations is associated with decrease in demand for physicians (Escarce et al., 2000). If a concurrent increase in demand for NPs occurs, this can be indicative of substitution. A second strategy will focus on whether numbers of PCPs increase not as a function of NP wages, but as a function of NPs themselves. If the factors that jointly affect numbers of NPs and PCPs can be controlled, it is possible to tease out a true causal association between the two groups—this will be attempted using
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an instrumental variable method that is designed to eliminate the bulk of these factors that would result in observed, but not causal, correlations. Data Data were collected for the following variables for all states and years from 19871996 (where available) as described. Practitioners Data on NPs were obtained from the National Sample Survey of Registered Nurses (NSSRN) for the years 1988, 1992 and 1996. All those who had obtained NP certifications via programs lasting longer than 3 months and who were currently employed in nursing were considered NPs for the purpose of this study. Data for years 1995, 1991, and 1987 were readily derived via the set of questions involving employment in nursing a year prior to the survey date and questions concerning when the NP degree was received. Data for the years 1993 and 1989 were estimated using the 1995 and 1991 distributions respectively as well as additional survey questions concerning length of time since the individual last worked as an RN as well as questions about the year the NP degree was obtained. Data on PCPs were obtained from the AMA series, Physician Characteristics and Distribution in the United States. Data were not available from 1987, 1990 and 1994. Only physicians in the category 'general and family practice' were included as primary care physicians in order to obtain the group that might most closely substitute for NPs and thus, total numbers are likely considerably lower than many estimates of numbers of PCPs in the U.S. (for example, 'internal medicine' as a subspecialty was not included). Nurse practitioner environment favorability scores Data on the favorability of a given state's legislative environment toward NPs were derived after a method developed by Sekscenskiet al. They develop arbitrary 100-point scales based on legislative summaries of each state's relevant regulations as contained in each year's January issue of the journal, Nurse Practitioner. Legislation is broken down into three categories: legal authority, reimbursement, and prescriptive authority—e.g., full authority to prescribe drugs independently of a physician is 'worth' 40 points. Scoring of the same year as Sekscenski et al. was performed blindly and compared to ensure consistency with the derived method. Data on HMO enrollment were obtained from three sources, 1987-1990 from Kraus (1991), 1992 and 1993 from data from the Group Health Association of America, and 1994-1996 from Interstudy reports. Data for 1991 was interpolated linearly based on 1990 and 1992. Other health care demand variables From the study of Escarce et al., (2000) several demographic variables that are related to overall health care demand were expected to influence the numbers of PCPs as well as of NPs including total population, the proportion of the population that is female, infants (aged 0-4), young (aged 5-19), elderly (65+) and female. These data were obtained from the U.S. Census website,www.census.gov Other key variables were the proportion of the population of a state that lives in rural areas, Medicaid and Medicare spending per capita, and Median household income, which were obtained from the U.S. Census or the Statistical Abstracts.
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Methods In addition to descriptive work, multiple regression analysis was used to attempt to separate true substitution/complementation relationships from the factors which would be expected to influence both NPs and PCPs jointly. In these regressions, fixed state and year effects were employed such that year-to-year time trends were accounted for as were idiosyncrasies of the individual states that might affect both quantities. In some regressions, the technique of two-stage least squares was used to estimate the impact of NPs on PCP supply directly as well as a direct ordinary leastsquares regression. This technique was employed to attempt to further control for spurious correlations between quantities of the two types of providers due to factors that could not be controlled for in the regression. Due to limitations in the numbers of NPs sampled in the NSSRN, states with populations of less than 3,000,000 in 1987 (22 states) were dropped from the regression analyses. Analysis
In figure 1 is shown the state of New York as an example to illustrate some typical trends as well as the difficulties of uncovering true causation from correlation. The number of NPs per 100,000 New Yorkers more than doubled, from 13 to 30 over the period. This rise was closely mirrored by a rise in the percentage of residents enrolled in HMOs (expressed as percentage points on the Y-axis). Yet also shown in the top curve is the increase in the favorability of the legislative environment in New York toward NPs resulting from legislation passed in 1989-1990 and 1992. The 100-point scale in this case has been rescaled to a 50-point scale for illustrative purposes. Finally, the numbers of PCPs per capita shows nearly no growth in this 10-year period. It is possible that the HMO growth in the state resulted in a greater use of NPs at the expense of PCPs. Alternatively, perhaps the legislative changes were ultimately responsible, or even more
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complicated—perhaps HMO interest groups pushed for the legislative changes and were therefore, ultimately the cause of the increase in NPs. It is difficult to assess these changes without looking at the experience of other states. Figures 2 and 3 isolate the relationships between NPs, PCPs and managed care in all states for the year 1996. [Editor’s Note: We apologize for not being to upload figure 2. We will try to have this resolved soon.] In Figure 2, we see that at least the apparent correlation between HMO enrollment and NP density observed for New York in Figure1 generalizes to all states in 1996. The relationship is significantly positive (p<.01). In Figure 3, the opposite relationship is found for PCP supply and HMO enrollment also in 1996. This inverse relationship between PCPs and HMO enrollment shown in Figure 3 is also significant (p<.01).
Thus, the two figures do provide evidence that managed care is associated with high numbers of NPs and low numbers of PCPs, but without analyzing changes over time, it is difficult to make a strong conclusion because there may be many factors which influence both managed care enrollment and the supply of providers in a state.
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Thus, we turn to regression analysis to simultaneously account for the experience in all states across all years of data. Table 1 shows the results of regressions for both NPs and PCPs where other control variables are included as well as managed care enrollment and regulatory environment. In the first column are coefficients from the regression where PCPs are the dependent variable. NPs as the dependent variable are shown in the third column with the same set of independent variables. The second and fourth columns are shown to aid in the interpretation of the coefficients. The first independent variable shown, HMO enrollment, confirms the results seen in Figures 1-3. Again, when other factors are controlled, managed care appears bad for PCPs and good for NPs. The PCP results confirm results found in Escarce et al. (2000), while the NP results are quite new, but are as expected. Magnitudes are such that a 10% increase in managed care enrollment in a given state is associated with a small decrease of .3% in numbers of PCPs in a state and a much larger increase (~5%) in NPs. The NP regulatory environment also has a positive impact on NP numbers in a state—such that a typical passage of new legislation which might increase the regulatory score by 20 points is associated with a 10% increase in NPs. Interestingly,
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PCPs also appear to be positively affected by such legislation. Other factors exerting a positive influence on numbers of NPs in a state are having rural, poor, and middle-aged populations with low Medicare and Medicaid spending. PCPs, on the other hand are positively influenced by more urban and wealthy populations. Finally, in a more direct attempt to investigate whether NPs and PCPs act as complements or substitutes at the state level, two regressions were performed with PCPs as the dependent variable and NPs as the independent variable. Only the coefficient of the nurse practitioner variable from these regressions are shown in Table 2.
The result from the direct regression implies that the two groups are complements, although the finding is not strong since, again, many factors likely cause numbers of NPs and PCPs in a state to move in the same directions. The 2-Stage Least Squares (2SLS) regression attempts to eliminate these factors by, rather than using actual numbers of NPs directly in the equation, using something that is correlated with numbers of NPs, but should not be correlated with numbers of PCPs, thus attempting to derive a more pure relationship uncontaminated with factors that influence both NPs and PCPs. The variable used as the 'instrument' in this case is the regulatory score variable described earlier. Unfortunately, from the results shown in Table 1, this variable is indeed correlated with the PCPs—for some reason, more PCPs in a state are associated with higher regulatory favorability toward NPs. Thus, the 2SLS regression is not free from contamination, yet if one believes that it is at least 'more' pure than the direct regression, the fact that the coefficient on NPs is even higher in the 2SLS regression provides more evidence for complementary scenarios between NPs and PCPs being the dominant mode of practice. Discussion On the whole, the complementary effect appears most supported by the regression analysis presented above. When instrumental variables are used for NP supply, the overall effect is roughly of the order that a 10% increase in NP supply in a state is associated with a 1-2% increase in PCP supply. A 10% increase is hardly out of the ordinary—many states experienced over 50% increases in overall NP supply between the observed years of data, 1987-1996. However, when one considers the graphical results and the regression results from the first table in which NPs and PCPs are considered separately, the effect of managed care appears to work more toward substitution. The simple fact that increased managed care enrollment in a state is associated with increased
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NP density and decreased PCP density suggests substitution at some level. How could these two stories be true at the same time? Perhaps at the level of the institution or the specific hospital, the dominant mode of practice involves NPs and PCPs working together as teams where their fates are tied. Yet, in the larger scale, as HMO penetration increases, more NP-heavy institutions are formed while PCP-heavy institutions are more likely to move, close, or integrate more NPs rather than using direct substitution of NPs for PCPs. Whatever the mechanism, more localized qualitative and quantitative investigations could shed light on these and alternative hypotheses in explaining the aggregate trends. Worthy of note also is the coefficient on the % rural variable. With PCPs as the dependent variable, the rural coefficient is always strongly negative, of approximate magnitude such that a 10 percentage increase in the proportion of a state's population that is in urban areas is associated with an approximately 5% increase in the per capita PCPs in the state. The NP regressions indicate the opposite though the coefficient is not significant. Still, this opposite tendency is expected, as it is generally believed that NPs do much to fill the gaps in primary care left in rural areas, areas which have difficulty attracting PCPs due to the prospects of lower pay and lack of the challenging, technology-rich medical environment of the urban areas. Finally, the effects that are being measured are likely diluted by timing problems. If PCPs are to be affected by numbers of NPs, which are in turn affected by legislation, one might think that these impacts do not all take place perfectly contemporaneously. In attempt to account for this, some regressions were performed using time lags between the variables, but no significant differences were found. Conclusions The use of 8 years of state-level data on primary care physicians and nurse practitioners with appropriate controls has helped to shed light on the question of whether the two types of providers act as complements or substitutes at the grand scale—where previous work had consisted mainly of case studies at the institution level or simple correlations between the two types of providers. Semi-quantitative trend analysis and regression evidence both lend support to the notion that PCPs and NPs are, on balance, complementary rather than antagonistic in the aggregate. However, it also appears that the growth of managed care is associated with heightened use of NPs and diminished use of PCPs. Thus, as the prevalence of managed care increases in the US, we might expect to look forward to greater roles of NPs in primary care provision, perhaps at the expense of PCPs, or perhaps in tandem with PCPs who find themselves in more specialized roles. References The American Association of Retired Persons, Reforming the Health Care System: State Profiles, 1996, The Public Policy Institute.
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The American Medical Association: Physician Characteristics and Distribution in the US, 1987-1998 eds. Cooper, Richard A.; Henderson, Tim; Dietrich, Craig, "Roles of Nonphysician Clinicians as Autonomous Providers of Patient Care," JAMA, Vol. 280 (9), p795-802. Cooper, Richard A.; Laud, Prakash; Dietrich, Craig, L., "Current and Projected Workforce of Nonphysician Clinicians," JAMA, Vol. 280 (9), p.788-794. Grumbach, Kevin; Coffman, Janet, "Physicians and Nonphysician Clinicians: Complements or Competitors?," JAMA, v.280, no. 9, 1998, p.825-6. Institute of Medicine, The Nation's Physician Workforce: Options for Balancing Supply and Requirements, National Academy Press, 1996. Jacobson, Peter, D.; Parker, Louise, E.; Coulter, Ian D., "Nurse Practitioners and Physician Assistants as Primary Care Providers in Institutional Settings," Unpublished, 1998. JAMA, "Health outcomes among patients treated by Nurse Practitioners or Physicians," Letters, many authors, V. 283 (19), May 17, 2000. Kraus, Nancy, Managed care : a decade in review 1980-1990. Excelsior, InterStudy, 1991. Mahoney, Diane, "An Economic Analysis of the Nurse Practitioner Role," Nurse Practitioner, March, 1988, pp. 44-54. Moses, Evelyn, "The Registered Nurse Population: Findings from the National Sample Survey of Registered Nurses" The Health Resources & Services Administration, 1996. Mundinger, Mary O; Kane, Robert L.; Lenz, Elizabeth R.; Totten, Annette M.; Tsai, WeiYann; Cleary, Paul D.; Friedwald, William T.; Siu, Albert L.; Shelanski, Michael L., "Primary Care Outcomes in Patients Treated by Nurse Practitioners or Physicians: A Randomized Trial," JAMA, v. 283, (1) p. 59-68, 2000. Nurse Practitioner, "Annual Update of How Each State Stands on Legislative Issues Affecting Advanced Nursing Practice," Linda Pearson, Ed., v. 14, no. 1, 1989-1998 (several issues used). Escarce, Jose J; Polsky, Daniel; Wozniak, Gregory D; Kletke, Phillip R, "HMO growth and the Geographical Redistribution of Generalist and Specialist Physicians, 1987-1997," Forthcoming inHealth Services Research, October, 2000.
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Sekscenski, Ed.; Sansom, Stephanie; Bazell, Carol; Salmon, Marla; Mullan, Fitzhugh, "State Practice Environments and the Supply of Physician Assistants, Nurse Practitioners, and Certified Nurse-Midwives," The New England Journal of Medicine, Nov. 10, 1994, pp. 1266-1271. David Auerbach is a doctoral candidate in the Economics track of the Ph.D. Program in Health Policy at Harvard University.
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Understanding Trends in Employment-based Health Insurance Coverage Patricia Keenan Many have documented that employment-based coverage has declined since the 1980s. However, coverage levels have been increasing in recent years. As the primary source of health insurance coverage for non-elderly Americans, employment-based coverage has a large impact on trends in rates of coverage and lack of insurance in the United States. This paper compiles the results from analyses of several surveys to assess trends in employment-based coverage since the 1980s and possible explanations for coverage trends. Trends in coverage are reviewed first, differentiating by time period and among population subgroups. Next, potential explanations for the decline in insurance coverage between the 1980s and 1990s are identified and evaluated. The paper concludes with a brief discussion of the implications of research for health policy. It shows that while coverage declined between the 1980s and 1990s, particularly among low-income workers, overall, employment-based coverage has increased since 1994. Furthermore, rising health insurance premiums and slow wage growth, rather than labor market shifts or crowd out, are cited as the primary reasons for the decline in coverage between the 1980s and 1990s. Comparable evidence is not available to assess the factors behind the recent upturn in employment-based coverage. Trends in Employment-based Health Insurance Coverage By all accounts, the share of the non-elderly population covered by employment-based health insurance has declined since the 1980s.1 Between 1987 and 1996, coverage rates for the non-elderly population declined by 6 percentage points, from 70.9 percent to 64.1 percent (Gabel, 1999). Another set of estimates suggest that the decline since 1979 is greater. From 1979 to 1997, coverage for adult workers (ages 20 to 64) declined by 7.4 percentage points (Farber and Levy, 2000). Some groups have experienced relatively larger declines in employment-based coverage. Between 1989 and 1993, employment-based coverage among children declined from 62.7 percent to 56.5 percent, or 6.2 percentage points, reflecting a decline in dependent coverage (Holahan and Kim, 2000). Among adults (both employees and dependents), coverage rates declined by 5.0 percentage points, to 62.4 percent in 1993 (Holahan and Kim, 2000). Furthermore, trends by wage show a greater effect on low wage (< $7.00 per hour) as compared to higher wage (>$7.00 per hour) workers. Low wage workers experienced a 6.9 percentage point decline in employment-based coverage between 1987 and 1996, while rates of coverage for higher wage workers remained essentially flat (Monheit and Schone 2000). In addition, the gap in coverage for adult workers with and without a college degree widened between 1979 and 1997 (Farber and Levy, 2000). Assessing trends between the 1980s and 1990s, however, masks increases in coverage that have occurred within the 1990s. Estimates of employment-based coverage for adults  Â
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and workers from the March CPS (Current Population Survey), the CPS Supplements, and the SIPP (Survey of Income and Program Participation) show increases in coverage since the mid 1990s (Currie and Yelowitz, 1999; Farber and Levy, 2000; Long and Marquis 1999; Fronstin 2000, Holahan and Kim 2000). Because income is a strong predictor of employment-based health insurance coverage, as incomes have risen, rates of employment-based coverage have also increased in this period (Holahan and Kim, 2000). Among the non-elderly, rates increased by 1.5 percentage points, to 65.8 percent, between 1994 and 1998 (Holahan and Kim, 2000). This trend extends to vulnerable subgroups. Employment-based coverage among children increased 2.7 percentage points between 1994 and 1998 (Holahan and Kim, 2000). Furthermore, rates of employmentbased coverage increased slightly, by 0.7 percentage points among those with income below 200 percent of the poverty level (although this increase reflects a reduction in the number of people in this income category, not an increase in the number insured). Coverage rates decreased among the 200 to 399 percent of poverty and the 400+ percent of poverty groups, by 1.5 percentage points and 0.9 percentage points, respectively. Within the 400+ percent group, a gain in health insurance coverage by 11 million individuals between 1994 and 1998 did not outweigh an overall growth in this group of 13 million persons in this time period. Assessing these trends by worker education level reveals that although the differential in coverage between workers with and without a college education increased from 6.3 percentage points to 13.4 percentage points between 1979 and 1993, it narrowed to 12.9 percentage points by 1997 (Farber and Levy, 2000). To better understand the mechanics behind coverage trends, rates of coverage can be broken into three steps: whether the employer offers coverage, whether the employee is eligible for coverage, and finally, whether eligible employees take up coverage. Analyses of these components show that declines in employment-based coverage are largely attributable to declines in employee takeup of health insurance, though less skilled workers have faced reductions in offer rates and eligibility as well. Between 1987 and 1996, employer offers of health insurance increased by three percentage points, while employee takeup declined by eight percentage points (Cooper and Schone, 1997). Farber and Levy (2000) find that declines in takeup by workers in long term full-time jobs and declines in eligibility for part-time workers are the major contributors to a 4.4 percentage point decline in employment-based insurance coverage between 1988 and 1997. Again, notably, the results show that employer offers of coverage actually increased over this period.2 Assessments of these trends by worker income indicate departures from this overall trend. Estimates of whether workers have "access" to coverage, i.e., whether a worker is eligible for coverage through their own or a family member's job, show increases in the access rates for high wage workers, but a decline among low wage workers. Between 1987 and 1996, the "access" rate increased from 92.2 percent to 96.1 percent for high wage (>$15.00/hr) workers, but declined by 4.9 percentage points for low wage workers, from 60.3 to 55.4 percent (Cooper and Schone, 1997, see also O'Brien and Feder, 1998). Furthermore, while takeup rates for workers with access declined only slightly for high wage workers (from 94.1 percent in 1987 to 93.9 percent in 1996), takeup rates declined by 13.6 percentage points for low wage workers over this time period. Â Â
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Similarly, trends among the less educated reflect reductions in employer offer and eligibility, as well as takeup. Among workers with less than a high school education, the 8.6 percentage point decline in coverage between 1988 and 1997 is attributable to reductions in offer, eligibility, and takeup (Farber and Levy, 2000). For college graduates, the much lower 2.9 percentage point decline in coverage is primarily attributable to reductions in takeup and, to a lesser extent, in eligibility. Among college graduates, availability of spousal coverage offsets some of the decline in coverage, while for those with less than a high school degree, spousal coverage contributes to the decline. Furthermore, among part-time workers, declines are explained entirely by reductions in eligibility for employer coverage—takeup among part-time workers actually increased among these workers (Farber and Levy, 2000). Thus, various mechanisms operate in the coverage decline within subgroups of workers. Estimates of insurance coverage and trends differ based on the survey used, the time period, and the population of focus. The survey most commonly used for estimating health insurance coverage is the Current Population Survey (CPS), a household survey intended to collect monthly employment statistics. In March of each year, the CPS includes questions on health insurance coverage in the prior year. These questions have been changed periodically, creating difficulty in assessing trends over time. For example, in 1988, changes were made to questions and to the number of people asked about employer or union-sponsored coverage (Swartz 1997). Next, changes to question wording, sequencing, and sampling weights occurred in 1995, along with the addition of new questions (Swartz 1997). The question changes altered estimates of those who hold employment-based as opposed to individually purchased private insurance, affecting estimates beginning in 1994. For these reasons, some CPS trend estimates focus on subgroups for whom estimates were expected to be less affected (Kronick and Gilmer 1999) or on a limited time period (Acs 1995; Holahan et al., 1995; Holahan and Kim, 2000). Another source, the CPS Benefits Supplement and Contingent Worker Supplements, analyzed by Farber and Levy (2000) and Currie and Yelowitz (1999), asks more detailed questions than the March CPS regarding coverage, employer offer of coverage, employee eligibility, and takeup. Although these supplements also differ over time, estimates of trends in coverage of adult workers by their own employer from these supplements are similar to estimates from the Survey of Income and Program Participation (SIPP). The comparability of results provides some indication that data in the supplements tracks with that of other surveys (Currie and Yelowitz, 1999). Finally, the Medical Expenditure Panel Survey (MEPS), analyzed by Cooper and Schone (1997) and Monheit and Schone (2000), collects detailed information on health insurance coverage, health care use, and expenditures, but the survey is conducted infrequently. The two most recent years for which data are available are 1996 and 1987 (through the MEPS' precursor, the National Medical Expenditure Survey). Possible Explanations for Coverage Declines A number of theories have been proposed to explain the decline in employment-based
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insurance coverage between the 1980s and 1990s. Trends in insurance coverage could reflect changes in labor patterns, in demographic characteristics of workers, crowdout, or changes in structural aspects of health insurance markets, such as increases in premium costs. The evidence points to structural aspects of health insurance coverage, rather than to changes in labor markets, as the more important factors in the declines in private coverage. One set of possible explanations for the decline in coverage centers around changes in labor markets, such as industry shifts, use of part-time workers, and declines in unionization. These factors contribute partially to the decline. One study found that roughly a quarter (23%) of the decline in coverage for workers between 1988 and 1993 was due to the shift from manufacturing to service industries (10%), increased reliance on part-time workers (7%), and reduced unionization (6%) (Fronstin and Snider, 1996). Results from another analysis indicate that shifts in part-time and self-employed workers do not contribute to the decline in coverage, and that industry shifts explain up to 15 percent of the decline between 1980 and 1987 (Long and Rodgers, 1995). Trends in wage levels are another important consideration in coverage rates, but also do not provide a full explanation.3 ACS (1995) finds that falling family incomes account for the bulk of the overall decline in insurance coverage between 1988 and 1991, but that a "secular" decline across all demographic, industry, and firm characteristics accounts for the decline in coverage among workers. Fronstin and Snider (1996) find that declines in real wages account for 23 percent of the decline in coverage between 1988 and 1993. However, if income trends were a primary explanation for coverage declines, one might expect to see a similar decline in pensions, a benefit similar in terms of value, tax preference, and risk pooling. Currie and Yelowitz (1999) make this comparison and show that unlike health insurance, pension benefits are more likely to be offered to and accepted by workers over time, particularly among workers with a college degree. In contrast, rates of health insurance coverage declined among college educated as well as less skilled workers. These results suggest that additional factors are contributing to coverage declines. Another possibility is that expansions in public insurance programs, primarily the Medicaid program, have resulted in "crowd out" of privately insured individuals into public programs. While crowd out may be measured to answer several distinct questions, in the context of this paper, the relevant question is the extent to which Medicaid expansions contributed to declines in employer coverage. Generally, crowd out is a small to moderate factor in explaining declines in insurance coverage. Cutler and Gruber (1996) estimate that expansions of Medicaid coverage are associated with a decline in private insurance of 1.7 million persons, or 17 percent of the 9.9 million person decline in private insurance between 1987 and 1992. Currie and Yelowitz (1999) find that crowdout is a minor component of trends in employment-based insurance coverage but does not fully explain the decline. Furthermore, the mechanisms by which crowdout may occur are not well understood. Shore-Sheppard et al. (2000) investigate whether the likelihood of a firm offering  Â
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insurance is related to the share of firm employees or their dependents who are eligible for Medicaid. The results suggest that Medicaid is not a significant determinant of employers offering health insurance, and that the primary way Medicaid expansions reduced private coverage was through employee takeup of coverage. This effect was concentrated among workers in firms that had to pay toward the premium (ShoreSheppard et al., 2000). Crowd out may also reflect reliance on safety net institutions as a substitute for insurance, whether by employers not offering coverage or employees not taking up coverage. Some evidence suggests, for example, that for people with low incomes, the likelihood of having private coverage is lower, and of being uninsured is higher, in areas with (as opposed to without) a public hospital (Rask and Rask 2000). Together, these results suggest that the cost of health insurance may be a factor in coverage rates, particularly among people with low incomes. In fact, increases in health insurance premium costs are commonly cited as the major explanation for health insurance declines (Currie and Yelowitz 1999; Kronick and Gilmer 1999; ACS 1995; Gabel 1999), particularly in the context of declines in real wages.4 For example, Gabel (1999) identifies three main underlying factors in declines in employment-based coverage from 1977 to 1998: 1) decline in real wages among low skill workers; 2) a 2.6 fold increase in insurance costs and 3) a 3.6 fold increase in workers contributions for coverage. The effect of premium costs on coverage rates has attracted attention in policy debates in the context of potential effects of consumer protections legislation on premium costs and coverage rates (see, e.g., CBO, 1999; GAO, 1999). Despite the importance of this question, research on the relationship between premium increases and coverage levels is at a relatively early stage. Kronick and Gilmer (1999) find that the bulk of the decline in employer coverage between 1979 and 1995 can be attributed to the increase in health care expenditures relative to personal income. Due to lack of data on health insurance premiums, this analysis relies on a single estimate of per capita spending per year, which the authors acknowledge is a limited measure upon which to base these calculations. Currie and Yelowitz (1999) attempt to investigate the effects of health insurance premium costs on coverage rates across states but, due to limited premium data, are not able to conclusively identify an effect. Finally, in a report for the AFL-CIO, the Lewin Group (1999) found that real increases in premium costs and increases in employee contributions explain three quarters of the decline in employment-based insurance among workers and dependents between 1988 and 1996, adjusting for industry and demographic shifts, income, and Medicaid expansions. However, this analysis relies on imputed data for premium information, analyzes the CPS across a period in which the CPS was modified, and does not control for changes in labor force participation or changes in the economy. Thus, though the evidence is suggestive, a clear link between premium costs and coverage rates is difficult to establish. Although employers did not reduce offer rates for most workers, they responded to premium increases in other ways that led to reduced employee coverage rates. Employers have increased employees' share of premium contributions for workers and/or dependents or dropped dependent coverage, shifted to a more managed health plan, reduced plan choices, and reduced eligibility for some workers (GAO, 1997; Rice et al., 1998; O'Brien  Â
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and Feder 1999). A multivariate analysis comparing firms with high, medium and low premium increases provides some evidence that firms with high increases are more likely than other firms to drop conventional coverage, reduce eligibility for part-time workers, and reduce the market share of the high cost plan within the firm, but were not more likely to increase deductibles or copayments (Rice et al., 1998). O'Brien and Feder (1999), in a literature review, conclude that employer efforts at "cost containment," including eligibility restrictions and increased employee premium contributions, are a main explanation for the declines in employment-based coverage. Indeed, in the context of increases in the share of premiums paid by employees, and trends toward more managed coverage, employee takeup has been declining. Declines in takeup may reflect a rational decision by employees to forego health insurance in response to increased employee premium contributions, particularly among those who are lower income—despite the potential financial and health consequences that lack of insurance poses (Donelan et al., 1997; Hoffman, 1998). In fact, increases in contribution requirements may fall particularly heavily on low-wage workers. The models developed by Levy (1999) and Dranove et al.(2000) suggest that premium contribution requirements are more likely for workers of lower tax rates (although these workers are least able to afford this cost). The current literature on the relationship between premium increases and coverage rates faces limitations that highlight the need for further research. First, limited data are available that track premium costs over time, particularly in a way that reflects a standard (comparable) benefit package. Also, there is a need for additional studies that assess possible reasons for coverage declines while controlling for structural changes in the economy and the business cycle. Furthermore, the explanation of premium increases as a cause of coverage declines is not consistent with economic theory. In theory, people's demand for the protection afforded by insurance would increase as medical spending increases, assuming the care is of value, because the financial risk of being uninsured has become larger (Cutler and Zeckhauser 1999). While it appears that affordability considerations have prevented such a response, further investigation is needed to pinpoint the relationship between health insurance premium cost increases (or decreases) and coverage rates among workers of various income levels. Conclusion This paper has shown that while employment-based coverage has declined between the 1980s and 1990s, within the latter half of the 1990s there is some evidence that employment-based coverage has increased. Explanations including labor market factors such as industry shifts and increased reliance on part-time workers, or crowdout due to public insurance expansions have been shown to contribute relatively little to the decline in employment-based coverage between the 1980s and 1990s. Instead, the literature shows that factors such as rising health insurance premiums and stagnating wages are the main explanations for the decline in coverage. Further work is needed to better understand this relationship and to document and explain the change in trends in the latter half of the 1990s, as this was a period characterized by rapid economic growth and
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several years of uncharacteristically low growth in premiums. This understanding will be particularly valuable since premium costs again appear to be on the rise. A richer understanding of the trends in employment-based coverage, as it is the predominant source of coverage for the non-elderly, will also further understanding of trends in the share of the population that is uninsured. In particular, it will provide information to assess which approaches to reduce the number of uninsured, whether public or private, may be most effective at reaching particular groups. Endnotes I would like to thank Ellen O'Brien for helpful suggestions and David Cutler and Kathy Swartz for helpful conversations and comments on earlier drafts of this paper. 1
See Cooper and Schone, 1997; Kronick 1999; Currie and Yelowitz 1999; Holahan 1999; Farber and Levy, 2000; GAO, 1997; Carrasquillo et al., 1999; Fronstin and Snider, 1996; Acs, 1995. 2
Fronstin (1999) finds that offer rates decreased by 1 percentage point over the same time period. 3
From 1979 to 1987, real earnings growth declined by 15 percent for the 10th percentile of earnings, declined slightly at the median, and increased by approximately 5 percent at the 90th percentile of the distribution. In contrast, trends from 1989 to 1997 show evidence of a "sagging middle," with a roughly 5 percent decrease at the median, but small increases at the 10th and 90th percentiles (Wilson, 2000, from Krueger, 1997). 4
The National Health Expenditures show double digit average annual increases in premium costs in 1970, 1980, and 1990. Average annual increases dropped below 4 percent in 1995 through 1997, but rose to 8.2 percent in 1998 (Levit et al., 2000). Furthermore, the share of employees enrolled in employer sponsored health plans that are fully paid for by the employer has declined since 1980, from 49 percent to 33 percent of single enrollees and from 44 percent to 26 percent of enrollees with family coverage (Levy, 1999). References Acs, G. 1995. Explaining Trends in Health Insurance Coverage Between 1988 and 1991. Inquiry (Spring 1995): 102-110. Congressional Budget Office. 1999. Health Care Costs and Insurance Coverage. Statement of Dan L. Crippen before the Subcommittee on Employer-Employee Relations, Committee on Education and the Workforce, U.S. House of Representatives, June 11, 1999. Cooper, P.F., and Schone, B.S. 1997. More Offers, Fewer Takers for Employment-Based Health Insurance: 1987 and 1996. Health Affairs (November/ December): 142-149. Â Â
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Currie J. and Yelowitz A. 1999. Health Insurance and Less Skilled Workers. National Bureau of Economic Research Working Paper 7291. Cutler D.M. and Gruber J. 1996. Does Public Insurance Crowd Out Private Insurance? Quarterly Journal of Economics 111(2):391-430. Cutler D.M. and Zeckhauser R.J. 1999. The Anatomy of Health Insurance. NBER Working Paper Series, Working Paper #7176. Donelan K., Blendon R., Hill C., and Hoffman C. 1996. Whatever Happened to the Health Insurance Crisis in the United States?JAMA 276(16): 1346-50. Dranove D., Spier K.E., and Baker L. 2000. "Competition" Among Employers Offering Health Insurance. Journal of Health Economics19(1):121-140. Farber H.S. and Levy H. 2000. Recent Trends in Employer-Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse? Journal of Health Economics 19(1):93-119. Fronstin P. 2000. Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 1999 Current Population Survey. EBRI Issue Brief Number 217. Washington DC: the Employee Benefit Research Institute. ———. 1999. Employment-Based Health Benefits: Who is Offered Coverage vs. Who Takes It. EBRI Issue Brief Number 213. Washington DC: the Employee Benefit Research Institute. Fronstin P., and Snider S.C. 1996. An Examination of the Decline in Employment-Based Health Insurance Between 1988 and 1993.Inquiry (Winter 1996/1997): 317-325. Gabel J. 1999. Job-Based Health Insurance, 1977-1998: The Accidental System Under Scrutiny. Health Affairs 18(6):62-74. GAO. 1999. Private Health Insurance: Impact of Premium Increases on Number of Covered Individuals is Uncertain. GAO/T-HEHS-99-147. GAO. 1997. Employment-Based Health Insurance: Costs Increase and Family Coverage Decreases. GAO/HEHS-97-35. Hoffman C. 1998. Uninsured in America: A Chartbook. Washington DC: The Kaiser Commission on Medicaid and the Uninsured. Holahan J. and Kim J. 2000. Why Does the Number of Uninsured Americans Continue to Grow? Health Affairs 19(4):188-196.
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Holahan J., Winterbottom C. and Rajan S. 1995. A Shifting Picture of Health Insurance Coverage. Health Affairs 14(4): 253-264. Kronick R. 1999. Explaining the Decline in Health Insurance Coverage, 19791995. Health Affairs 18(2): 30-47. Levit K., Cowan C., Lazenby H. et al. 2000. Health Spending in 1998: Signals of Change Health Affairs 19(1): 124-132. Levy, H. 1999. Who Pays for Health Insurance? Employee Contributions to Health Insurance Premiums. Unpublished manuscript. Long S.H. and Marquis M.S. 1999. Stability and Variation in Employment-Based Health Insurance Coverage, 1993-1997. Health Affairs 18(6):133-139. Long, S.H. and Rodgers, J. 1995. Do Shifts Toward Service Industries, Part-time Work, and Self Employment Explain the Rising Uninsured Rate? Inquiry (Spring 1995): 111116. Monheit A. and Steinberg Schone B. 2000. Assessing the Decline in Employment-Based Health Insurance: An Analysis of Low Wage Workers. Unpublished AHRQ manuscript. O'Brien E. and Feder J. 1999. Employment-Based Health Insurance Coverage and Its Decline: The Growing Plight of Low-Wage Workers. Washington DC: Kaiser Commission on Medicaid and the Uninsured. ———. 1998. How Well Does the Employment-based Health Insurance System Work for Low-Income Families? Washington DC: Kaiser Commission on Medicaid and the Uninsured. Rice, T., Gabel, J., et al. 1998 Trends in Job-Based Health Insurance Coverage. Policy Report, UCLA Center for Health Policy Research. Shore-Sheppard L., Buchmueller T.C., and Jensen G.A. 2000. Medicaid and Crowding Out of Private Insurance: A Re-examination Using Firm Level Data. Journal of Health Economics 19(1):61-91. Swartz K. 1997. Changes in the 1995 Current Population Survey and Estimates of Health Insurance Coverage. Inquiry 34 (Spring 1997): 70-79. Wilson W.J. 2000. Rising Inequality and the Case for Coalition Politics. Annals of the American Academy of Political and Social Science Mar: 78-99. Patricia Keenan is a doctoral candidate in the Political Analysis track of the Ph.D. Program in Health Policy at Harvard University.
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ERISA: A Legal Shield for HMOs Michael Housman After taking 7 years to clear Congress, the Employee Retirement Income Security Act of 1974 (ERISA) was signed into law, as amended, by President Ford. Soon thereafter, Business Week ran an article on ERISA, which began, "No one, not even the most knowledgeable pension expert, can read the 208-page Employee Retirement Income Security Act of 1974 without trepidation. Ten years in the legislative mills, the act is so complex and broad that its full significance may not be known for another decade."1 At the time, few could have realized that the effects of ERISA on health care reform would still be developing more than two and a half decades after it was originally passed. Congress enacted ERISA in 1974 to remedy severe problems of pension fraud and mismanagement, such as the failure to create or adequately fund pension plans, and the prevalence of theft and poor investment practices. The detailed and lengthy statute sets out a comprehensive scheme to regulate employee pension programs, including requirements for disclosure of plan information to employees, reporting of plan operations to the federal government, employee plan eligibility and participation, pension vesting, pension funding, plan fiduciary and management standards, and a federal insurance system to fund insolvent pension plans.2 Though its monumental effects on the administration of pension plans are obvious, one might be tempted to ask how it has gained such a pivotal role in the regulation of managed health care. Under ERISA, an enrollee bringing an action against a health plan is limited to the actions and remedies enumerated in the law itself. Section 502(a) permits the participant to sue the plan fiduciary to recover the benefits that were denied or to enforce rights under the plan.3 However, it does not permit other types of compensation, such as lost wages, additional medical expenses to treat an injury, or punitive damages for pain and suffering. Such forms of compensation are provided for in medical malpractice law that resides under the jurisdiction of state tort law. If an ERISA plan makes an error and is sued under section 502(a) in federal court, it is potentially liable only for the amount of benefits that it should have provided in the first place.4 Ironically, instead of acting as a protector of employees, it has become a shield that protects plans and employers from accountability for their own wrongdoing.5No other organizations are exempt from lawsuits for business decisions they make that result in harm to people. In the face of such a glaring lack of accountability, one might wonder why the conference committee crafted section 502(a) as it did. However, one must first consider the circumstances under which ERISA was passed in 1974. At the time, almost all health insurers were fee-for-service and for all intents and purposes, managed care didn¹t exist. Benefit coverage decisions were made retrospectively and enrollees were usually forced to pay for the services out of their own pockets, after which the insurer would decide whether or not to reimburse the enrollee. Under this scenario, denying coverage of a medical service would only result in the enrollee losing what he had paid for the procedure in question. Under section 502(a), the enrollee could file a grievance in federal
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court to recover the cost of the service that had been denied and could be awarded the benefit on the basis of the merits of his case. Such a remedy was appropriate for the state of U.S. health care delivery at the time that ERISA was passed. However, the rise of managed care is a relatively recent phenomenon that has grown rapidly only during the last decade. Its emergence has been accompanied by new methods to control health care costs. Since the 1980s, employers have shifted to offering managed care plans that use such techniques as prospective utilization review. Commonly, prospective utilization review takes the form of authorization for expensive diagnostic testing or procedures. As a result, benefit coverage decisions have increasingly shifted away from being made after services are provided to before. In this case, the plan participant who requests a service that is denied by his health maintenance organization may be unable to obtain the services recommended by his physician.6 If the disputed service is not provided, it is clearly inappropriate that filing a lawsuit can only result in the plan compensating the enrollee for the cost of the requested service and not for any injuries or damages that may have occurred. Returning to the original question, the circumstances of health care delivery in the U.S. have changed such that while section 502(a) may have been justifiable when ERISA was passed in 1974, its applicability to managed care is extremely limited in the present. Almost no one disputes the fact that the system of liability for managed care organizations, as established by ERISA, is seriously flawed. However, there is little agreement as to what should be done to remedy the situation. For years, the House of Representatives and Senate have been hearing several legislative proposals concerning the passage of a Patient's Bill of Rights. Yet, the most debated portions of each bill are those that propose to modify or otherwise amend ERISA with the hopes of achieving liability for health plans. Opponents and proponents of such reform strongly disagree regarding the effects of creating liability for health plans, with little evidence to back up their claims. In 1997, Texas passed some of the most far-reaching patients' rights legislation in the country, which included Senate Bill 386 (SB 386), a law that gave consumers the right to sue their health plan for medical malpractice. Before returning to a discussion of legislative proposals that are being considered on a federal level, it is necessary to look at a state such as Texas and examine its experience with managed care liability. Understanding this legislation at the state level can help one to decipher the complexities involved in passing similar legislation at the federal level. The Texas Health Care Liability Act The Texas Health Care Liability Act, also known as Senate Bill 386, was drafted specifically to avoid ERISA preemption. It holds health plans liable for practicing the "ordinary standard of care" when making "health care treatment decisions" that involve  Â
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quality of care and not those that deal with benefit coverage decisions, an area of exclusive federal concern. However, the distinction between medical decisions that affect plan administration and those that solely involve the quality of care is blurry.7 Therefore, Texas legislators realized that a cause of action brought under SB 386 would most likely be decided based upon the factual situation presented in a given case. Its purpose, as explained by Senator Sibley, is that, "If the HMOs choose to make medical decisions— stand in the shoes of the doctor, as it were—they ought to stand in the shoes of the doctor in court, too."8 During the course of its passage, two major provisions were added to address business concerns. The first specifically exempts employers from liability for the actions of managed care entities that administer their employee health plans.9 The second creates an independent review process that allows patients to appeal HMO decisions to a third party. Under this section, all contested treatment denials go through an internal review process before being submitted to an independent review organization or IRO. Only after both reviews can a suit be filed in state court. The Texas Department of Insurance implemented the independent external review program; its decisions are binding on all parties and are admissible in court. However, it permits enrollees to bypass the Independent Review Organization (IRO) process if harm has already occurred or if exhausting the process places the "insured's or enrollee's health in serious jeopardy."10 Thus far, SB 386 is being called a tremendous success as the litigious doomsday predictions of HMO lobbyists have yet to be realized. Only two lawsuits have been brought forth as causes of action under the new law, and both suits have survived the test of ERISA preemption in U.S. District Courts. Nevertheless, many attribute the remarkably low number of lawsuits to several possible explanations: (1) Patients who have suffered injuries may need more time to learn about their options under SB 386, contact lawyers to file suits, and thus have an impact on litigation since the bill was passed just over two years ago;11 (2) The uncertainty over the final legal status of the liability provision may have temporarily discouraged lawsuits;12 (3) Insurance companies in Texas may be changing the way they handle patient care decisions to avoid lawsuits; (4) The independent external review program may be effectively screening lawsuits that need not reach the state court; (5) In the past, Texas HMOs may have done a better job at providing medical care than they were given credit for and there may not be an impending increase in lawsuits at all. Many of the original proponents of the bill make a convincing argument that HMOs are currently being much more careful to practice an ordinary standard of medical care when making utilization review decisions. Most indicators, including report cards, have shown gradual improvement on the part of Texas HMOs since the passage of SB 386. However, distinguishing the quality-improving effects of SB 386 from those of Senate Bills 382-385, all of which involve HMO consumer protections, is difficult, if not impossible. Many have hailed the independent external review program's establishment as one of the most successful accomplishments of the patient protection legislation that was passed during the 75th legislature. It has received such praise despite its ambiguous legal status in the eyes of the courts. Furthermore, the scope of the review process had been
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questionable until the Texas Department of Insurance agreed with insurers that consumers could only appeal denials of care while they were being made and not afterwards. This concession was in line with the provision of the bill that permitted enrollees to bypass the IRO process if harm had already occurred but needed some clarification in practice.13 Texans for Quality Health Care summed up the HMOs' argument against SB 386 when it argued loudly that the measure would increase litigation, encourage frivolous lawsuits, and drive up HMO costs by as much as 5%.14 Fortunately, none of these predictions has come true and these predictions have since been characterized as scare tactics that were used by HMO lobbyists to sway legislators when the fate of SB 386 was in limbo. There is little agreement regarding the potential costs of SB 386, but an actuarial study by Scott & White estimated that liability provisions would increase costs only 34 cents per member per month.15 With only two lawsuits filed to date, another study confirmed these results and has observed only a minute increase (seven-tenths of 1%) in the amount of medical expenses per HMO member.16However, managed care organizations are quick to point out that increased liability has forced them to increase dramatically the number of treatment requests that are approved. Often, these costs are often not included in current estimates, and Scott & White admit that their estimate did not take into account the "indirect effect," which becomes apparent only over time.17 If such escalated costs manifest themselves through higher premiums and reduced benefits, no significant change has been observed as of yet. Time will tell whether such dire predictions will ever be realized. Applications to Current Federal Proposals Those familiar with the politics of health care realize the importance of waiting for a "window of opportunity." Only recently has the issue been brought to the attention of federal legislators and, even then, politicians haven¹t been galvanized to act until now. On October 7, 1999, the U.S. House of Representatives passed a Patient's Bill of Rights sponsored by Representatives Norwood (R-GA) and Dingell (D-MI). The bill amends section 514 of ERISA to prevent its preemption provision from interfering with state law that allows for the recovery of damages for personal injury or wrongful death resulting from acts connected with or arising out of an arrangement for the "provision of insurance, administrative services, or medical services" by or for a group health plan.18 However, in July of 1999, the U.S. Senate passed a somewhat more limited patient protection bill that does not change section 514's preemption of state laws. The Senate Bill maintains current law remedies for equitable relief in state or federal court and gives patients no new right to sue their health plans. This conflict highlights the controversy surrounding the creation of new liability for health plans, which has been the most debated provision of any similar legislation that has been proposed. In the upcoming congressional year, Senate and House leaders will begin to negotiate in a conference committee in order to reconcile the differences between the two bills. Given the wide differences between the chambers' approaches, key members of Congress have been skeptical of success.19 Moreover, President Clinton has
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already indicated his support for allowing patients the right to sue their health plans and hinted at the fact that any bill reaching his desk that falls short of that provision may risk a presidential veto. Which route should the conference committee take and how can legislators apply their knowledge of the Texas experience to the likely effects of this federal legislation? The bills have drawn strong opposition from both political parties, and much of it has centered on ideological debate over additional federal regulation of business activities.20 Correspondingly, the vote in the Senate was strongly divided along party lines, but that of the House was somewhat bipartisan as five dozen Republicans broke ranks to come out in favor of the Norwood-Dingell bill. Nevertheless, the primary arguments against exposing health plans to civil litigation and tort liability remain economic. Proponents of expanded liability describe these tactics as "the sky is falling" arguments because they are largely based on emotional appeal with very little documentation to support their claims. A number of studies have been conducted to estimate the potential costs of extending liability to health plans. Not surprisingly, the results of each study usually vary by organization that sponsors it. These studies predict cost increases that range from 0.2 to 8.6 percent of current premiums. One could sort through such predictions for hours without arriving at any conclusion because the figures in each are almost entirely speculative. However, there are two analyses that are based on real-world evidence. A study by Coopers and Lybrand examines litigation rates among the 18 percent of employer-insured workers to which ERISA's provisions do not apply; namely, those insured under governmental and church plans. Applying a unit cost of $100,000 per case to an annual incidence of 0.3-1.4 lawsuits per 100,000 enrollees, investigators calculated that similar rates in the ERISA population would add direct litigation costs of between three and thirteen cents per enrollee per month.21 Furthermore, the experience with SB 386 in Texas yielded premium increases of only seven-tenth of one percent, a very small amount. The economic effects of the bill have had two years to manifest themselves and, although some would argue to the contrary, it seems unlikely that any major pricing changes will be observed in the future. Having observed that the more factually-based cost analyses of health plan liability concur on the minimal effect it is likely to have, one is inclined to believe that the same would be true on a national scale. As explained earlier, the movement to expand managed care liability is driven by three goals: (1) Providing consumers the right to seek compensation for their injuries; (2) Making MCOs (managed care organizations) accountable for their decisions; and (3) Improving the quality of care provided by MCOs. If the Texas experience is any indication of what might be observed on a national scale, it would appear that federal legislation to amend ERISA will most likely accomplish all three. Ironically, while the right to sue health plans is the most contentious part of either bill, the establishment of internal and external appeals processes is certainly the most agreedupon provision. Both versions of the bill require insurers to establish and maintain a system for resolving grievances. This system would allow participants to present  Â
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grievances regarding the availability of services, the quality of care provided, the choice and accessibility of providers, network adequacy, and compliance with the Act.22Furthermore, both versions grant enrollees the right to appeal plan coverage decisions to an independent external reviewer. This external appeal entity must be an independent medical expert who has expertise in the diagnosis or treatment under review and is certified by the appropriate government agency. In both bills, the claimant must have exhausted internal appeals processes to be eligible for external review, and the decision of the independent reviewer is binding. Though there are still some details to be ironed out, it would appear that in the case of internal and external review processes, Congress will achieve tangible successes similar to those of Texas pending the final decision in a conference committee. However, with regards to the larger issue of MCO liability, the time has come for federal legislators to learn from the example set by Texas and to establish liability and accountability in a sector of health care where there is currently none. No one argues that HMOs deserve immunity from the law but rather that the costs of such liability will increase premiums and therefore increase the number in the ranks of the uninsured. The lack of compelling documentation makes one rely more heavily on estimates that are indeed based upon real world evidence, which predict no significant cost increase as a result of amending ERISA. With the upcoming election year, Congress will have to reconcile the differences of the House and Senate bills in a conference committee. In addition to establishing internal and external review processes, they must take the legal protection that ERISA gives to health plans and give the protection to those who need it most—the consumers. Endnotes 1
"Reforming Pension Reform," Business Week, March 24, 1975: 160.
2
Butler, Patricia A. Roadblock to Reform: ERISA Implications for State Health Care Initiatives. Washington, D.C: National Governors' Association, 1994: 2. 3
Employee Retirement Income Security Act, 502(a)(1)(B), 29 U.S.C. 1132(a)(1)(B)
4
Mariner, Wendy. "Liability for Managed Care Decisions: The Employee Retirement Income Security Act (ERISA) and the Uneven Playing Field," American Journal of Public Health, June 1996; 86 (6): 864. 5
Carr, C. "Wrongs Without Rights: The Need For a Strong Federal Common Law of ERISA," Stanford Law Policy Review, 93 (1992): 225. 6
General Accounting Office Report to Congressional Requesters: 4.
7
Hummel, Blaine. "The Duty of Ordinary Care for HMOs: Can Texas Senate Bill 386 Weather the Storm of ERISA Preemption?"The Review of Litigation, The University of Texas at Austin School of Law Publication, Rev. Litig. 649, 1999: 16, 18.
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8
Guglielmo, Wayne. "Sharp Shootin' Texas Doctors Put HMOs in the Malpractice Target Zone," Medical Economics, December 1997; 74 (25): 92. 9
Ortolon, Ken. "Coming In First," Texas Medicine, September 1997; 93 (9): 29.
10
Tex. Civ. Prac. & Rem. Code. Ann. 88.003 (g)
11
D'Ambrosia, Robert. "Suing HMOs: Patients Should Have the Right," Orthopedics. November 1998; 21 (11): 1169. 12
Paterson, Ron et al.: 36.
13
Guglielmo, Wayne. "Sharp Shootin' Texas Doctors Put HMOs in the Malpractice Target Zone," 97. 14
Ortolon, Ken: 27.
15
Paterson, Ron et al.: 41.
16
D'Ambrosia, Robert: 1169.
17
Paterson, Ron et al.: 41.
18
Hearne, Jean et al. Side-by-Side Comparison of Selected Patient Protection Bills: H.R. 358/S. 6, H.R. 448, S. 300, and S. 326, CRS Report for Congress, April 13, 1999: 18. 19
Goldstein, Amy. "House Votes to Increase Rights of HMO Patients; GOP Leaders Lose Battle On Lawsuits," The Washington Post, October 8, 1999: A01. 20
Ortolon, Ken: 33.
21
Coopers and Lybrand LLP, "Impact of Potential Changes to ERISA: Litigation and Appeals Experience of CalPERS, Other Large Public Employers, and a Large California Health Plan" (Report prepared for the Kaiser Family Foundation, June 1998). 22
Shimabukuro, Jon. Patient Protection and Mandatory External Review: Amending ERISA's Claims Procedure, CRS Report for Congress, July 9, 1999; 3. Michael Housman is a junior at Harvard College.
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Medicare HMOs: Will They Survive? Andrea Magyera In 1965, President Johnson proposed Medicare, and Congress enacted it. Medicare is a public program designed to help the aged and the disabled with their medical care expenditures, consisting of two parts, A and B. Part A covers inpatient hospital care, a limited amount of home care, and a limited number of days of skilled nursing care. Part B covers outpatient care, physician services, lab services, and additional home care.1 Medicare covers neither the cost of pharmaceuticals nor that of long-term nursing care for its beneficiaries, and therefore fails to protect the elderly against large bills for these items. Even though Medicare is the United States' most popular social welfare program, it is facing serious problems with funding. The population has bigger and more extensive health needs with age. There are 39 million beneficiaries currently enrolled in the Medicare system. One in seven Americans gets health coverage from this public source. Twelve percent (12%) of Medicare beneficiaries are under the age of 65 and are disabled, leaving 34 million beneficiaries over the age of 65, with eleven percent (11%) of them over the age of 85.2 As the population ages, it also is facing having less income and personal wealth. This leads to problems with financing medical expenses for seniors' large health bills. Medicare HMOs are a potential solution to these problems and could lead Medicare to a strong and efficient future as the Baby Boom population continues to age. Medicare Managed Care was introduced in 1985. It was created as an option for Medicare beneficiaries to gain additional benefits and aid outside of traditional Medicare. In the past few years, Medicare HMOs have been made highly visible for dropping seniors from their coverage. This paper will attempt to explain possible reasons for this dropping of coverage, and will also examine how Medicare HMOs could be a success for the future of our elderly population. The goal of Medicare HMOs is to reduce waste in the system by trying to eliminate unnecessary and inappropriate care, while giving providers incentives to use costefficient care.3 In this combination, the HMO acts as the insurer, controlling the providers, their services and their payment rate. The HMO attempts to provide care in the least expensive and most appropriate way. The main objectives of combining Medicare with an HMO plan are to reduce costs and to be more efficient in health care delivery, while upholding and improving the quality of care given.4 Some judge the outcomes of Medicare HMOs to be positive; Medicare HMOs emphasize preventive and coordinated care, lower out-of-pocket costs to their enrollees, and keep costs down by limiting care. Medicare HMOs have shown in recent years that they may be the direction of the future in providing health care at a less expensive rate for our elderly population. It has been shown that enrollment in Medicare HMOs has increased by about fifty percent (50%) between 1994 and 1997.5 In 1994, the rate of enrollment growth for Medicare HMOs was  Â
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more than double the enrollment in HMOs for those under age 65. Between 1995 and 1996, enrollment in traditional plans remained unchanged because most of the members were enrolled through employee benefits. In comparison, the enrollment for Medicare HMOs grew by twenty-five percent (25%).6 In July of 1997, the total number of beneficiaries enrolled in Medicare HMOs was 4.8 million.7 Preventive medicine is a key aspect of the Medicare HMO plans. Compared to traditional Medicare beneficiaries, those in a Medicare HMO were more likely to receive preventive procedures such as a flu shot last winter (66 percent vs. 58 percent) and a mammogram in the past year (62 percent vs. 39 percent).8 The incentive of the Medicare HMO is to reduce the number of patient visits in order to limit costs, while encouraging enrollees to receive preventive care in order to guard against larger costs in the future.9Despite the positive outcomes of preventive care, it has been found that Medicare HMOs have gaps in the quality, accessibility, and amount of care given to vulnerable beneficiaries, particularly the frail and the sick elderly. In order for the Medicare HMOs to continue to succeed, they will need to address this problem, and the needs of their most vulnerable beneficiaries, more efficiently and effectively.10 From 1985, when Medicare first joined with managed care plans, until 1997, before the Balanced Budget Act, capitation was the means of payment to the Medicare HMO plans. The payments were set using an Adjusted Average Per Capita Cost (AAPCC) method.11 The AAPCC method assigned varying amounts of money to each of the different counties of the United States depending on the costs of living there and their average cost experience with fee-for-service Medicare. Under this payment method, HMO plans received ninety-five percent (95%) of the traditional Medicare payments. The five percent (5%) reduction took place since the managed care plans are supposed to practice more efficiently by providing preventive care and coordinating care to a higher degree. This payment schedule was profitable only if the Medicare enrollees were healthy, since they would not use up the ninety-five percent (95%) of allotted care. However, if an HMO suffered from adverse selection it would lose money. Since the Medicare HMOs seemed to be recruiting healthier patients, it was not surprising for the auditors of the Department of Health and Human Services to find that Medicare had overpaid an estimated $23 billion in 1996.12 These high figures were strongly reproached by politicians and the general public, and so, during the Balanced Budget Act of 1997, several revisions were made to Medicare and its link with managed care organizations. Until 1997, Medicare had not been revised much from its original 1965 form. Changes were needed both on the financial and organizational levels in order for the Medicare system to function properly in the 21st century. The Balanced Budget Act of 1997 (BBA of 1997) set out to accomplish these goals, and as a result it produced more changes in the Medicare system than had been made in its previous thirty years. As a result of the BBA of 1997, an estimated $115 billion will be saved over five years. The savings are a result of limiting care given and emphasizing prevention. This amount would otherwise have been spent on traditional Medicare spending. New preventive care benefits were  Â
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also offered, and more Medicare replacement programs were made available to seniors. Also because of the BBA of 1997, a modification in the calculation of capitation rates occurred to reduce variation among counties, physician fee schedules were recalibrated, and there was a shift of funding from Part A to B for home care visits.13 The change in the relationship between traditional Medicare and Medicare plus supplemental care for seniors changed dramatically after this act. These supplemental care plans became known as Medicare+Choice. The additions to regular Medicare HMOs were made in 1997 and still are in place in 2000: Medicare Preferred Provider Organizations (PPO), a private fee-for-service plan, a Provider Sponsored Organization (PSO), and a Medical Savings Account (MSA). Beginning in January of 1999, 390,000 Medicare recipients had the option to enroll in an MSA.14 All of these plans vary in the additional benefits that they offer, and the option of choice leads to competition in the insurance market. The minimum enrollment requirements for plans that are in urban areas are as follows: 5000 for HMOs, PPOs, and FFS plans, and 1500 for PSOs. For plans that are in rural areas, the minimum is 1500 for HMOs, PPOs and FFS and 500 for PSOs.15 In order to allow the plans to develop, these requirements have not been put into practice until the year 2000. For some plans, the new enrollment minimums may be problematic. Realistically, it will be difficult for all of these plans to adapt to the strict guidelines. However, it is possible that there will be a significant increase in the number of beneficiaries enrolled in some form of Medicare+Choice plan. As of January 1, 1998, plans under the Medicare+Choice were no longer paid in the old AAPCC format because payments between counties were varying significantly, and it was considered to be unfair. The new capitation rates were composed of the adjusted national rate and an area-specific calculated rate, all of which were adjusted by the budget neutrality factor.16 The new area-specific aspect of the calculation was devised by studying both prices and practice patterns in the various regions.17 As with other aspects of living such as real estate or food prices, costs differed by geographical location. To reduce the differences in the payments that were given to the plans, the BBA of 1997 placed a payment floor of $367 per senior per month. Prior to this change, payments could have dropped as low as $225 per senior per month.18 Strict regulations were implemented on how plans and physicians were to be paid, covering at least the same services as traditional Medicare. Congress also claimed that it would implement a two percent (2%) per year rate increase for each county.19 Another restriction placed on the Medicare+Choice plans was that the plans must provide a clear and accurate information sheet for their beneficiaries. The information is to include the plan's service area, its benefits, providers, coverage provisions when out of the area, emergency coverage, and appeals program. The plans are also to provide a form of comparative literature showing the number of grievances that have occurred, the plan's utilization rates, and an explanation of the compensation rates for physicians.20 Some feel that this distribution to beneficiaries in a clear and simple manner is a good idea, since it gives the enrollees the information they need to research the different plans on their own. As they learn about the differences among plans, they will be able to  Â
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appreciate the full benefits of Medicare along with a supplemental form of coverage. The Medicare+Choice plans need to provide not only internal information to the beneficiaries, but they must also be externally reviewed by an independent organization. It is important for beneficiaries to become educated, because HMO plans vary widely within and across different markets. There is great variance in the premiums, co-payments and prescription drug coverage offered. The differences among the plans are complicated and hard to understand, but the information that the BBA of 1997 has implemented should help the beneficiaries.21 Two main aspects of a Medicare+Choice plan are vitally important to both the plan and its beneficiaries: premiums charged and prescription drug benefits. About sixty-four percent (64%) of Medicare HMO enrollees receive a plan's basic package without having to pay a premium. Of those who have to pay a premium, two percent (2%) are charged $10 or less, and eleven percent (11%) pay more than $45 per month. The average premium is approximately $15.50.22 Calculations and predictions have been made in regard to premium growth and coverage for the future, and it is clear that costs will rise. Today, eighty-five percent (85%) of Medicare managed care beneficiaries live in an area where they are not charged a premium. In the year 2000, this figure will drop to seventy-seven percent (77%).23 Currently, about 55,000 beneficiaries have premiums of over $80. It is predicted that, by the end of 2000, there will be about 207,000 beneficiaries living in an area where $80 will be the premium charge.24 The American Association of Health Plans predicted that approximately 930,000 beneficiaries of Medicare will have premiums increase by more than $20 per month, and 400,000 will have their premiums raised to at least $40 per month.25 This increase will be due to larger charges imposed on some beneficiaries in order to cover the expenses of all. One of the main expenses that plans face is the prescription drug benefit that they offer to their members, which is not available under traditional Medicare. About twenty-five percent (25%) of Medicare HMOs have plans with unlimited drug benefits, accounting for 1 million of the 6.3 million seniors enrolled in Medicare HMO plans. Most beneficiaries have limits placed on them, and fifty percent (50%) of those with prescription drug coverage have a limit of $1,000 to $2,999.26 The average limit is $1,100, but ten percent (10%) of beneficiaries have plans with limits as low as $600.27 Some seniors spend hundreds of dollars a month on prescription drugs, so this low limit is not feasible. As the cost of premiums for seniors has been predicted to change, so has the amount of prescription drugs benefits. More than 2 million seniors will have a reduction in their plan for coverage of prescription drug benefits, and will have an increase in the amount of their co-pays.28 Today, twenty-three percent (23%) of seniors living in rural areas has access to a Medicare HMO offering prescription drug coverage, but, by the end of 2000, it is predicted to drop to only four percent (4%).29 A report completed by the Department of Health and Human Services predicts that, in the year 2000, all Medicare HMOs will have to charge a prescription drug co-pay. This will be the first time ever that such a universal move will be made by plans. Â Â
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Sadly, at the end of 1998, 400,000 beneficiaries were involuntarily disenrolled from their Medicare HMOs, constituting seven percent (7%) of all Medicare HMO enrollees. This disenrollment occurred when 43 of the 347 Medicare risk contracts terminated their service to Medicare beneficiaries. In addition to plans that withdrew, 54 contracts reduced their service areas, limiting even further the number of Medicare HMO plans available. The reductions of service didn't end in 1998, since, by the end of 1999, it was predicted that another 327,000 of the 6.2 million Medicare HMO beneficiaries would be dropped from their plans as 41 additional plans withdraw from this system. In 1999, another 58 plans limited their services in certain areas.30 This two-year total shows 727,000 beneficiaries dropped from Medicare HMO service, as 84 plans dropped out and 112 plans limited their service. The problem of Medicare HMOs dropping coverage to their beneficiaries is very visible to the public. Seniors are worried that if they join an HMO that they will lose their coverage after a few months or years of membership. Several questions are being raised as to why plans are dropping seniors, and for how long these trends could possibly continue. What is causing the Medicare HMOs to drop their service after they were productive and profitable in this market in the past? The main causes are the strict regulations and demands that were put into place by the BBA of 1997. Additional administrative requirements and costs, along with little growth in payments, and an uncertainty about the new implementations of the Act forced several plans to evaluate their involvement in this market. Some chose to stay, others to reduce offerings, and some others exited completely.31 These Medicare+Choice plans are now facing unanticipated and unintended problems. In the future, limited choices may hurt beneficiaries. The changes demanded by the BBA of 1997 were very strict, and were implemented in a short period of time. Therefore, some plans withdrew.32 It is easy to see how competition for beneficiaries and the rising costs of health care and prescription drugs could reduce a plan's profit, making it not worthwhile economically to remain in a market.33 There are two sides to the argument about what is to blame for these exits besides the harsh demands of the BBA of 1997. The first side is the position of the health plans that are withdrawing. Their main complaint concerns the new payment structure since the BBA of 1997. HMO payments are tied to their beneficiary population, which leads to greater risk than before, and several plans also complain that they are receiving an unequal amount of money for financing from HCFA.34Karen Ignagni, President and C.E.O. of the American Association of Health Plans, was outraged when the report issued by the Government Accounting Office claimed that Medicare overpaid HMOs by $1.3 billion. She argued that overpaid plans do not exit the market or cut benefits.35 Mistakes were made in the past relating to the overpayment to Medicare HMOs, but they are understandable, and, as Joseph Newhouse argues, it is "difficult to get prices 'right', especially in industries with rapid technological change."36 The other side of the argument lies with the government, which points to market forces  Â
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and business decisions as reasons for the exits.37 The government argues that the calculated rates of payments are adequate for the specified counties, and that the plans are not able to adapt successfully due to their own economic strategies. The government points out that in highly reimbursed counties in Florida and California, plans are dropping out, and therefore it is not due to low payments, but rather to competition and other market forces. In 1998, 16 plans dropped out in California, and 8 withdrew in Florida.38 The problem of different payment rates in different areas of the country is difficult to quantify. It is understood that housing and other living expenses differ in costs in different areas, but should medical prices be forced to fit into this economic mode as well? Plans that have to withdraw from rural areas complain of the inadequate amount of compensation. Therefore, they either have to exit or reduce the coverage they offer, as well as increase the premiums. Larry Rambo, the President of PrimeCare, an HMO that used to provide benefits to Medicare recipients in rural areas of Wisconsin, claims that the government needs to wake up and give plans adequate reimbursement.39 HCFA official Dr. Robert Berenson argues that the administrators are always working to make medical payments fair across the country, and to produce quality care for the beneficiaries.40 One point that should be clearly understood is that even high payment rate areas lost plans, showing that the problem rests not solely within the payments allotted, but lies deeper in the sphere of economic competition. Other dropouts around the country have made it challenging to get a clear understanding of why some plans are facing difficulties and for what reasons. The state of Minnesota has been having difficulties with some of its plans, and as a result it has decided to sue Medicare. The state is seeking no monetary damages, but is asking only for a court order to force the government to reduce above average rates and increase below average rates.41 Seniors in Minneapolis and St. Paul are allotted an average of $416 a month. What angers some is that seniors in Miami are getting as much as $778, and nationally the average is $456. Residents in the Twin Cities find it unjust that their seniors also have to pay the large premiums for coverage and drug benefits of $200 to $250 a month, while seniors in Miami or Los Angeles pay no premiums for equivalent coverage.42 Minnesotans do not find these numbers fair, so they have decided to stand up and fight for a more equanimous payment system. In June of 1999, nine other health plans dropped out of the Medicare HMO market, leaving 162,000 seniors in 16 states with no coverage. These nine plans qualified for the July 1, 1999 cut off date to withdraw service for the upcoming year. With previous exits in 1999 included, a total of 250,000 seniors will have to find new coverage in 2000. Twenty-eight percent (28%) of Medicare HMO plans are withdrawing from the market or reducing service, affecting 396 counties, most heavily in the South and West regions.43 Last year, 400,000 seniors had their coverage dropped.44 The states in which these withdrawals took place vary in size and in payment amount. Some of the states with Medicare HMOs exiting were California, Florida, New York, Pennsylvania, Arizona, Maryland, Colorado, Texas, New Jersey, Missouri, Minnesota, and Wisconsin. The dropouts in California, Florida, Pennsylvania, New York, Arizona, and Texas, may seem surprising, since these six states have the largest number of Medicare beneficiaries, and  Â
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they account for seventy percent (70%) of all Medicare HMO contracts.45 This illustrates that the level of payment a state receives is not the key to a successful plan; it may help, but not every plan will succeed, even if the plan receives high payments. So, the question is what do seniors do if their plans are dropped? How are they notified of the change of coverage, and where can they turn for help? Part of the answer is found in two similar six-page letters sent in August of 1999 to beneficiaries whose plans were discontinuing coverage after December 31, 1999.46 One letter was sent to beneficiaries who had no other Medicare HMO option in their area, and another to those who had another Medicare HMO plan available.47 The letters were confusing, with topics in bold face, capitals, some underlined, and with different points in italics. For a senior citizen, such a letter could bring on stress, anxiety, and confusion. In neither letter was there a mention as to why the plan was discontinuing care and dropping out of the market. Also, there was only one short paragraph of apology in the closing, leaving a harsh and cold imprint on the reader. One must wonder, don't they care? But, as John Rivers, president at the Arizona Hospital and Healthcare Association put it, "It is not a big deal for providers, but if you are one of the people who lose their coverage, it's a big issue."48 Once a senior's plan was withdrawn from the market, it is interesting to see where the senior sought coverage and what effects it had on his or her benefits. It was found that those involuntarily disenrolled from their Medicare HMO met with a decline in supplemental benefits, an increase in their premium payments, and some form of aggravation with their new medical coverage.49 The beneficiaries who reported the greatest number of problems after their Medicare HMO withdrew their coverage were those in greatest need of coverage: the under-age-65 disabled, racial or ethnic minorities, and those with poor or near-poor health status. The decline in supplemental benefits was reported by more than one-third of beneficiaries needing to find new coverage. The main complaints related to a decline in prescription drug benefits, dental care, and vision and hearing exams.50 Prescription drug coverage was the most frequently lost benefit, with a change from eighty-four percent (84%) of beneficiaries covered to seventy percent (70%).51 Five percent (5%) of beneficiaries did not get a prescription filled after they were dropped because they could not afford it.52 Thirty-nine percent (39%) of recipients reported having to pay higher premiums. The number of beneficiaries who reported paying no premium for supplemental benefits was reduced from sixty-seven percent (67%) to fifty-three percent (53%). On the other hand, the number reporting that their premiums per month were $75 or more increased from three percent (3%) to twenty-one percent (21%).53 These statistics illustrate that the dropped beneficiaries are receiving less care for higher prices. So, what did all of the turmoil caused by decreased benefits and increased premiums do to the beneficiaries' choice about where to get new coverage? In general, those who lost coverage had few options. They could either go to another Medicare HMO, if available, go back to regular FFS Medicare with no supplemental coverage, buy Medigap coverage, or get coverage from a previous employer. In the market of supplemental coverage for Medicare, seventy-one percent (71%) of beneficiaries have access to at least one Medicare HMO plan. Twenty-five percent (25%) of Medicare beneficiaries have the  Â
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option of six or more HMO plans available.54Of those who had a plan drop their coverage, eighty percent (80%) had another Medicare HMO available. Of those with another Medicare HMO available to them, fifty-four percent (54%) chose to re-enroll in a plan. Of those with five or more Medicare HMOs available to them, eighty-nine percent (89%) joined another plan.55This shows a positive correlation between the number of beneficiaries enrolling in a plan and the number of Medicare HMOs available to them. This correlation exhibits that beneficiaries were satisfied with the care and the benefits that they were receiving from the Medicare HMOs before their withdrawals. This data is important for future plans and changes. For the twenty percent (20%) of dropped beneficiaries with no other Medicare HMO available to them, forty-one percent (41%) purchased a Medigap plan and twenty percent (20%) did not opt for other supplemental coverage.56 Along with subsequent Medicare HMO re-enrollment depending on the availability of plans, it was also directly related to the region of the country. This relationship occurs since the availability of plans is highly concentrated in certain geographic locations. Less than half of the Mountain or South region beneficiaries enrolled in another Medicare HMO. States that have little to no interaction with Medicare HMOs tend to be in the northwest and northeast mountain states. A combination of low population density, rural areas, and low Medicare payments make it not worthwhile for plans to enter these markets. In the Midsouth region, eighty-seven percent (87%) reenrolled. This was due directly to the availability of plans, since the Mountain region had only twenty-five percent (25%) of disenrollees with an additional Medicare option, the South had fifty-four percent (54%) of disenrollees with this option, and the Midsouth gave one-hundred percent (100%) of their disenrollees another Medicare HMO option.57 This illustrates again that when the plans are available, they will be used. Over two years, 734,000 beneficiaries, mainly seniors, were left with no supplemental insurance to Medicare. More than 30 states had plans to exit the market. Congress responded to the exits by gathering $4.8 billion in order to encourage participation in the Medicare+Choice program. Under this proposal, if a plan enters an area in which no preexisting Medicare HMO is practicing, the plan would receive a five percent (5%) payment bonus in the first year and a three percent (3%) bonus for the second year.58 This is intended to encourage plans to enter undiscovered markets and to receive compensation for their new ventures. Entering a new market or one with low payment rates is difficult, and time is needed to solve the administrative and delivery system problems. Success is possible if the plans receive financial support and there is time to learn from other plans' failures. Another change that has been made is in regard to the time limit in which a plan can reenter an area that it previously abandoned. This time restriction used to be five years, but now it has been reduced to two.59 This encourages participation even in an area that failed the plan on its first attempt. One negative aspect of time reductions is that it is not beneficial to the Medicare recipients to have plans entering and exiting their market while following the pre-determined regulations. In order to prevent this constant movement, plans should be regulated in the number of years that they are required to remain in a certain area.
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Some argue that giving additional financial incentives for plans to enter the Medicare HMO market is superfluous. They believe that plans dropped out because they could not withstand the competitive pressures from the other plans. Therefore, they argue that this additional spending of $4.8 billion could be spent in a better and more efficient way. It is unclear whether the Medicare HMO withdrawals were primarily due to market forces or to low payment rates. Most likely, both are implicated depending on where a plan is located. If a plan is located in an area with lower payments, it will be uneconomical to offer coverage there. However, when plans drop cover age in states such as California and Florida, it is not because the payments are too low, since they receive the greatest amounts, but rather that the competitive market pressures force the plans to leave. These are valid arguments since location is of great importance for the success of a plan. So, what is the prognosis, and what does the future hold as Medicare nears bankruptcy and the elderly population is growing at the fastest rate ever? What is the future of Medicare+Choice? In 1995, Medicare spending was two and a half percent (2.5%) of the gross domestic product (GDP), and it is projected to grow to six percent (6%) by the year 2030.60 As this growth continues, additional serious problems are certain to arise. By the year 2008, there will not be enough money to cover all of Part A's cost, as the system is structured today, so change is needed.61 What is the cause of all of these financing problems? The two main causes are that people are living longer, and that the baby boom population is aging; the future bodes marked growth in the elderly population. The number of seniors over the age of 65 will increase from thirteen and a third percent (13.3%) in 2010 to eighteen and a half percent (18.5%) in 2025.62 In 2030 it is projected that Medicare will need to cover 76 million seniors, more than double today's amount.63 In 1993, seven and one-tenth percent (7.1%) of Medicare enrollees were signed into health plans.64 By 1995, there were 1.8 million Medicare enrollees in Medicare HMOs.65 This 1.8 million is nine percent (9%) of beneficiaries enrolled in Medicare HMOs.66 In September of 1998, the number of beneficiaries enrolled in Medicare HMOs rose to 6.5 million, seventeen and one-fifth percent (17.2%) of the Medicare population.67 Estimates have been made that by 2001, more than twenty percent (20%) of Medicare beneficiaries will be enrolled, and by 2030, it will be fifty percent (50%).68 In 1997, enrollment in plans increased by 200,000 beneficiaries at a rate of 50,000 a month.69 In the first nine months of 1998, the rate of enrollment increased to 70,000 a month.70 The number of seniors is growing, and it is clear that their desire for coverage to supplement their Medicare package, particularly in Medicare HMOs, is also rising. Despite the plans that have recently dropped coverage to seniors, Medicare HMOs could be the wave of the future. It has been shown that they could help the system survive financially and provide efficient, quality care for the large boom in the senior population. Medicare+Choice could be the best way to stabilize Medicare for the future and to improve health delivery in the next millennium. There are a number of problems with the system currently, as the BBA's restrictions of 1997 were imposed harshly and swiftly, but all of these challenges could be conquered. Medicare managed care seeks to provide care for the future in a cost efficient way with improved quality and availability to all. Since April of 1999, 12 new Medicare+Choice contracts were approved and 24 more are  Â
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pending. 11 service areas expanded and 16 other expansions were under consideration.71 It can be hoped that this growth will continue since it could be the most efficient way to give continued care to seniors. Currently, only about ten percent (10%) of Medicare beneficiaries do not get any form of supplementary coverage.72 This exhibits clear desires on the part of seniors to have additional coverage and benefits, and their willingness or ability to pay for it. Approximately seventy-five percent (75%) of all Medicare costs are incurred by only ten percent (10%) of the beneficiaries.73 This fact should help convince the plans that it is economical to enter the Medicare market since the majority of beneficiaries do not require large amounts of funds. Medicare HMOs could be our means to providing quality medical care at an efficient rate to our growing elderly population. Notes 1 Joseph P. Newhouse, Gail R. Wilensky. "Medicare: What's Right? What's Wrong? What's Next?" Health Affairs, Jan/Feb 1999. 2 Diane Rowland, "Challenge of meeting the diverse needs of Medicare's beneficiaries." Kaiser Family Foundation. May 5, 1999. 3
JoAnn Lamphere, Kathryn Langwell, Patricia Neuman. "The Surge in Medicare Managed Care." Health Affairs, May/June 1997. 4
Randall S. Brown, Jeanette W. Bergeron, Dolores G. Clement, Jerrold W. Glill, Sheldon M. Retchin. "Do Health Maintenance Organizations work for Medicare?" Health Care Financing Revie, 15(1). 5
Randall Brown, Anne Ciemnecki, Elizabeth Docteur, Marsha Gold, Lyle Nelson. "Access to care in Medicare HMOs, 1996."Health Affairs, 16(2). 6
Ibid.
7
Peter D. Fox. "Applying Managed Care techniques in traditional Medicare." Health Affairs, Sept/Oct 1997. 8
Randall Brown, Anne Ciemnecki, Elizabeth Docteur, Marsha Gold, Lyle Nelson. "Access to care in Medicare HMOs, 1996."Health Affairs, 16(2). 9
Randall S. Brown, Jeanette W. Bergeron, Dolores G. Clement, Jerrold W. Glill, Sheldon M. Retchin. "Do Health Maintenance Organizations work for Medicare?" Health Care Financing Review, 15(1). 10
Randall Brown, Anne Ciemnecki, Elizabeth Docteur, Marsha Gold, Lyle Nelson. "Access to care in Medicare HMOs, 1996."Health Affairs, 16(2). 11
Executive summary, http://www.hcfa.gov /ord/rpt2cong/pdf. 120
12
Peter D. Fox. "Applying Managed Care techniques in traditional Medicare." Health Affairs, Sept/Oct 1997. 13
Joseph P. Newhouse, Gail R. Wilensky. "Medicare: What's Right? What's Wrong? What's Next?" Health Affairs, Jan/Feb 1999. 14
Bruce Merlin Fried. "Operational Policy Letter #55, Medicare+Choice Program." Department of Health & Human Services Center for Health Plans and Providers, Health Care Financing Administration, Medicare Managed Care. September 5, 1997. 15
Ibid.
16
Ibid.
17
Sandra Christensen. "Medicare+Choice provisions in the BBA of 1997." Health Affairs, July/Aug 1998. 18
Joseph P. Newhouse, Gail R. Wilensky. "Medicare: What's Right? What's Wrong? What's Next?" Health Affairs, Jan/Feb 1999. 19
Bruce Merlin Fried. "Operational Policy Letter #55, Medicare+Choice Program." Department of Health & Human Services Center for Health Plans and Providers, Health Care Financing Administration, Medicare Managed Care. September 5, 1997. 20
Ibid.
21
Barents Group and Kaiser Family Foundation Report. "Analysis of Benefits Offered by Medicare HMOs 1999, Complexities and Implications." August 1999. 22
National Journal Group, Inc. "Studies Analyze Benefit Complexities." American Health Line. October 15, 1999. 23
Geri Aston. "Seniors will pay more for less; who's to blame?"American Medical News. October 11, 1999. 24
Ibid.
25
Jill Wechsler. "Clinton plan jeopardizes Medicare Managed Care." Bell&Howell Information and Learning, Managed Healthcare.August 1999. 26
National Journal Group, Inc. "Studies Analyze Benefit Complexities." American Health Line. October 15, 1999. 27
Jill Wechsler. "Varying co-pays, premiums make it hard to compare Medicare 121
benefits." Bell&Howell Information and Learning,Managed Healthcare. October 1999. 28
Jill Wechsler. "Clinton plan jeopardizes Medicare Managed Care." Bell&Howell Information and Learning, Managed Healthcare.August 1999. 29
Geri Aston. "Seniors will pay more for less; who's to blame?"American Medical New. October 11, 1999. 30
Barents Group, Kaiser Family Foundation, Westat Report. "How Medicare HMO withdrawals affect beneficiaries benefits, costs, and continuity of care." November 1999. 31
Jill Wechsler. "Medicare drop-outs are an ominous sign." Bell&Howell Information and Learning, Managed Healthcare, June 1999. 32
Karen Ignagni. "Statement on Medicare+Choice implementation." Presented to the House Committee Subcommittee on Health and Environment. Washington, D.C. October 2, 1998. 33
Geri Aston. "Seniors will pay more for less; who's to blame?"American Medical New. October 11, 1999. 34
Stanley A. Miller II, "500 seniors seek answers, help as they lose insurance." Milwaukee Journal Sentinel. August 14, 1999. 35
Ron Shinkman, "Nine health plans drop Medicare markets."Modern Healthcare Magazine. July 5, 1999. Pages 3 and 10. 36
Joseph P. Newhouse, Gail R. Wilensky. "Medicare: What's Right? What's Wrong? What's Next?" Health Affairs, Jan/Feb 1999. 37
Geri Aston. "Seniors will pay more for less; who's to blame?"American Medical New. October 11, 1999. 38
"Medicare State Profiles." Kaiser Family Foundation Report #1474. September 1999.
39
Joe Manning. "Rate squeeze hits Medicare HMOs." Milwaukee Journal Sentinel. July 3, 1999. 40
National Journal Group, Inc. "Minnesota: sues Medicare over 'unfair' payment rates." American Health Line. November 18, 1999. 41
National Journal Group, Inc. "Minnesota: sues Medicare over 'unfair' payment rates." American Health Line. November 18, 1999.
122
42
Ibid.
43
Barents Group, Kaiser Family Foundation, Westat Report. "How Medicare HMO withdrawals affect beneficiaries benefits, costs, and continuity of care." November 1999. 44
Ron Shinkman, "Nine health plans drop Medicare markets."Modern Healthcare Magazine. July 5, 1999. Pages 3 and 10. 45
JoAnn Lamphere, Kathryn Langwell, Patricia Neuman. "The Surge in Medicare Managed Care." Health Affairs, May/June 1997. 46
HCFA, "Aged and Disabled (Abandoned County) Letter for Beneficiaries Without a Medicare+Choice Option." August 12, 1999. 47
Ibid.
48
Ron Shinkman, "Nine health plans drop Medicare markets."Modern Healthcare Magazine. July 5, 1999. Pages 3 and 10. 49
Barents Group, Kaiser Family Foundation, Westat Report. "How Medicare HMO withdrawals affect beneficiaries benefits, costs, and continuity of care." November 1999. 50
Michelle S. Kitchman, Kathryn M. Langwell, Mary Laschober, Laura Meyer and Patricia Neuman. "Medicare HMO Withdrawals: What happens to beneficiaries?" Health Affairs. Nov/Dec 1999. 51
Barents Group, Kaiser Family Foundation, Westat Report. "How Medicare HMO withdrawals affect beneficiaries benefits, costs, and continuity of care." November 1999. 52
Ibid.
53
Ibid.
54
Barents Group and Kaiser Family Foundation Report. "Analysis of Benefits Offered by Medicare HMOs 1999, Complexities and Implications." August 1999. 55
Michelle S. Kitchman, Kathryn M. Langwell, Mary Laschober, Laura Meyer and Patricia Neuman. "Medicare HMO Withdrawals: What happens to beneficiaries?" Health Affairs. Nov/Dec 1999. 56
Ibid.
57
Ibid.
123
58
National Journal Group. "Congress Offers Incentives to Insurers." American Health Line. Nov 23, 1999. 59
Ibid.
60
Joseph P. Newhouse, Gail R. Wilensky. "Medicare: What's Right? What's Wrong? What's Next?" Health Affairs, Jan/Feb 1999. 61
Kaiser Family Foundation. "Medicare: The Basics." Report #1425. October 20, 1998.
62
Joseph P. Newhouse, Gail R. Wilensky. "Medicare: What's Right? What's Wrong? What's Next?" Health Affairs, Jan/Feb 1999. 63
Kaiser Family Foundation. "Medicare: The Basics." Report #1425. October 20, 1998.
64
Karen Ignagni, "Statement of Medicare+Choice Implementation." Presented to the House Committee Subcommittee on Health and Environment. October 2, 1998. 65
Barents Group and Kaiser Family Foundation Report. "Analysis of Benefits Offered by Medicare HMOs 1999, Complexities and Implications." August 1999. 66
Diane Rowland, "Challenge of meeting the diverse needs of Medicare's beneficiaries." Kaiser Family Foundation. May 5, 1999. 67
Karen Ignagni, "Statement of Medicare+Choice Implementation." Presented to the House Committee Subcommittee on Health and Environment. October 2, 1998. 68
JoAnn Lamphere, Kathryn Langwell, Patricia Neuman. "The Surge in Medicare Managed Care." Health Affairs, May/June 1997. 69
Mary Jane Fisher, "Medicare+Choice losing more numbers than earlier thought." Bell & Howell Information and Learning. July 26, 1998. 70
Karen Ignagni, "Statement of Medicare+Choice Implementation" before the House Committee Subcommittee on Health and Environment. October 2, 1998. 71
Jill Wechsler, "Medicare Drop-outs are an ominous sign" Bell & Howell Information and Learning, Managed Healthcare. June 1999. 72
Joseph P. Newhouse, Gail R. Wilensky. "Medicare: What's Right? What's Wrong? What's Next?" Health Affairs, Jan/Feb 1999. 73
Diane Rowland, "Challenge of meeting the diverse needs of Medicare's beneficiaries." Kaiser Family Foundation. May 5, 1999.
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Glossary of Health Care Terms Compiled by Sheila Burke Adjusted Average Per Capita Cost (AAPCC): The estimated average cost of Medicare benefits for an individual in a county, based on the following factors: age, sex, institutional status, Medicaid, disability and end-stage renal disease status. HCFA uses the AAPCCs to make monthly payments to risk and cost contractors. Adverse Selection: Insurance plan with disproportionate share of people who are more prone to suffer loss or make claims than the average person. It may result from the tendency for those who are older or sick to seek or continue insurance to a greater extent than do healthy people, or from the tendency for the insured to use the favorable options in insurance contracts. Balanced Budget Act of 1997: Included the most substantial changes to Medicare since its inception as well as changes to Medigap rules, the Medicaid program, and the creation of a new children's health program. Capitation: A method of payment for health services in which an individual or institutional provider is paid a fixed, per capita amount for each person served without regard to the actual number or nature of services provided to each person. Capitation is a common method of paying physicians in health maintenance organizations. If the cost for caring for the patient is less than the fee, the provider keeps the difference. If medical bills exceed the fee, the provider must absorb the extra cost. Carve Out: An arrangement whereby an employer separates coverage for a specific category of services (e.g., vision care, mental health services and prescription drugs) and contracts with a separate set of providers for those services according to a predetermined fee schedule or capitation arrangement. Carve out may also refer to a method of coordinating dual coverage for an individual. Case: 1) The group purchasing insurance (i.e., an employer or union) and 2) a covered instance of sickness or injury. Catastrophic Coverage/Illness: Benefits included in certain insurance plans to protect insured individuals from extraordinary expense incurred as a result of serious or prolonged illnesses or injuries. Many plans with catastrophic coverage place maximum dollar ceilings on how much the plan will pay during the individual's lifetime. CHIP: The State Children's Health Insurance Program. Passed in 1997 as part of the Balanced Budget Act, the program provides federal funding to states to expand health insurance coverage to low income children. Claim: A request for payment for benefits received or services rendered. Coinsurance: An arrangement under which the insured person pays a fixed percentage of  Â
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the cost of medical care. For example, an insurance plan might pay 80% of the allowable charge, with the insured individual responsible for the remainder. Community Rating: A method of determining premiums for health insurance which ensures that all subscribers or a particular class of subscribers pay the same rate for the same level of benefits and that anticipated costs are spread evenly among all contracts; setting health insurance premiums based on the average cost of providing medical services to all people in a geographic area, without adjusting for each individual's medical history or likelihood of using such services. Compulsory Health Insurance: A series of state and national health insurance reform proposals, beginning in the 1880's in Europe and in about 1912 in the United States. It also denotes a government requirement of universal coverage and is used to describe reform proposals in the 1930s and 1940s as well. Copayment: A type of member cost sharing that requires a flat amount to be paid per unit of service or unit of time. This is usually a percentage of the charges but may also be a dollar amount for specified services. Copayment Maximum: The limit on the total amount that a member might have to pay in copayments during any one calendar year, after which the health plan pays 100% of allowed charges up to specific benefit maximums. Cost Containment: A set of strategies to reduce use of services and to encourage the substitution of more cost-effective services where appropriate. Some people also consider it to include efforts to reduce the unit price of medical services. Cost Sharing: Provisions of a health insurance policy which require the insured or otherwise covered individual to pay some portion of covered medical expenses. Forms of cost sharing are deductibles, coinsurance and copayments. Cost Shifting: A phenomenon occuring in the U.S. health care system in which providers are reimbursed for their costs and subsequently raise their prices to other payers in an effort to recoup unreimbursed costs. In the past, low reimbursement rates from government health care programs often led providers to raise prices for medical care to private insurance carries. Deductible: An amount the insured person must pay before insurance payments for covered services begin. For example, an insurance plan might require the insured to pay the first $250 of covered expenses during a calendar year. Defined Benefit Plan: A pension plan that pays retirees a fixed income based on years of service and salary. Participants make no investment decisions. Employers are obligated to fund the plan to pay projected benefits. Â Â
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Dependent: Person (spouse or child) other than the subscriber who is covered in the subscriber's benefit certificate. Devolution: The process of delegating power from the central or federal level to the state or local level of government. Diagnostic Related Group (DRG): An inpatient or hospital classification system used to pay a hospital or other provider for their services and to categorize illness by diagnosis and treatment. Differential: Refers to preferential rates charged by providers to insurers as compared to other insurers, in consideration of the benefits providers receive in terms of patient volume, comprehensiveness of coverage, and promptness and reliability of payment. Also referred to as "provider discount." Drug Formulary: A list of preferred pharmaceutical products that health plans, working with pharmacists and physicians, have developed to encourage greater efficiency in the dispensing of prescription drugs. Formularies can be classified as: (1) "Open," in which doctors are encouraged to prescribe medications on the formulary but which allow nonformulary drugs to be covered without prior authorization, (2)"Restricted," in which only medications on the HMO's formulary list are covered: and (3)"Managed," in which doctors are encouraged to prescribe medications on the formulary, but nonformulary drugs are covered with prior authorization. Employee Retirement Income Security Act (ERISA): A federal act passed in 1974 that established new standards and reporting/disclosure requirements for employer-funded pension and health benefit programs. To date, self-funded health benefit plans operating under ERISA have been held to be exempt from state insurance laws. This law essentially displaces state laws or regulations that "relate to any employee benefit plan." Fee-for-service: Method of charging whereby a physician or other practitioner bills for each encounter or service rendered. This is the traditional method of paying for health services and contrasts with salary, per capita, or prepayment systems where the payment is not changed with the number of services actually used. Federal Employees Health Benefit Plan (FEHBP): A health benefit program covering federal government employees. Gag Rules: Rules within HMO contracts with providers that limit what providers can discuss with their patient. Through these contracts, HMOs could keep providers from disparaging the HMO, discussing expensive treatment alternatives, or revealing how the HMO pays the provider. Gatekeeper: Term given to a primary care provider responsible for managing all referrals for specialty, ancillary, and hospital services. Â Â
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Health Care Financing Administration (HCFA): Federal government unit within the Department of HHS that administers Medicare and Medicaid. Web site address is www.hcfa.gov. Health and Human Services (HHS): A cabinet level agency within the Federal government that oversees the majority of health programs. For example: NIH, public health service, Medicare, Medicaid, Center for Disease Control, as well as many of the human services programs such as welfare cash assistance. Health Insurance Portability and Accountability Act (HIPAA): A federal health benefits law passed in 1996, effective July 1, 1997, which restricts preexisting condition exclusion periods to ensure portability of health-care coverage between plans, groups, and individuals; requires guaranteed issue and renewal of insurance coverage; and prohibits plans from charging individuals higher premiums, co-payments, and/or deductibles based on health status. The legislation also establishes a four-year medical savings account (MSA) demonstration project. Health Maintenance Organization (HMO): An organization that provides a wide range of comprehensive health care services for a specified group at a fixed periodic payment; prepaid health care plan under which people enroll by paying a set annual fee. They then receive all the medical services they need through a group of affiliated doctors and hospitals, often with no additional copayments or fees. Inpatient Services: Services provided while the patient is admitted to the hospital. Job Lock: A situation in which unhappy employees maintain they are trapped in unfulfilling jobs because they can not afford to give up their health benefits. Kaiser Permanente: Founded in 1945, it is a non-profit, group-practice prepayment program with headquarters in Oakland, California. Kaiser Permanente serves the health care needs of approximately 7.4 million members in 17 states and the District of Columbia. Today, it encompasses Kaiser Foundation Health Plan, Inc; Kaiser Foundation Hospitals; and the Permanente Medical Groups. Nationwide, Kaiser Permanente includes more than 90,000 technical, administrative, and clerical employees, as well as 10,000 physicians representing all specialties. Long Term Care: Non-acute, usually nonhospital based care of a custodial nature. These services are usually required by persons who are chronically ill, aged, or disabled, either physically or mentally, and in an institution or home on a long-term basis. Major Medical Insurance: Health insurance to finance the expense of major illness and injury. Characterized by large benefit maximums, the insurance, above an initial deductible, reimburses the major part of charges for hospital, doctor, private nurses, medical devices, prescribed out-of-hospital treatment, drugs and medicines. The insured person as co-insurer pays the remainder.
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Managed Care: Any form of health plan that initiates selective contracting to channel patients to a limited number of providers and that requires utilization review to control unnecessary use of health services. Managed Competition: A health insurance reform proposal (developed by the Jackson Hole Group), whereby the purchasing power of consumers is increased or strengthened by enrolling the consumers in large cooperatives, each representing thousands of people. These cooperatives would be able to negotiate favorable deals with hospitals, doctors, and insurers. Management Services Organization (MSO): Any of the group practices, such as PPO, IPA, GPWW, or FIMG may decide to spin off its administrative and management functions into a separate entity called an MSO. An MSO may be owned by the physicians, by an insurer, by a hospital, or it may be a joint venture undertaken by a combination of these players. When the MSO is owned by the hospital, economic ties between the hospital and physicians are established, and a form of integrated delivery system (IDS) appears. Although the MSO may own the physician group's assets and run the businesses, the physicians remain the providers of care, and they retain the managed care contracts. Medicaid: Title 19 of the Social Security Act. A program financed jointly by the federal government and the states that provides health coverage for mostly low income women and children, as well as low income elderly and low income disabled individuals. Funding, benefits, and the eligibility of low income people covered vary widely from state to state. Medical Savings Account (MSA): An authorized federal government experimental program to allow people to accumulate taxfree funds to pay for their own medical care. The demonstration will last four years and is capped at 750,000 participants nationally. Contributions to the MSA, whether made by the employer or the employee, earn interest and are not subject to federal income taxes. The plan allows people to put pretax dollars into special medical savings accounts to pay their deductibles. Participants in the plan must be covered by insurance policies with annual deductibles of $1,500 to $2,250 for individuals and $3,999 to $ 4,500 for families. Both employers and employees could make tax-deductible contributions to the MSA (though not in the same year) of up to 65 percent of the amount of the deductible for individuals, 75 percent for consumers with family policies. Cash contributions into an MSA are tax deductible and interest earnings accumulate tax-deferred. Withdrawals from an MSA account for qualified medical expenses are free from federal income tax. Any money not used for medical expenses in one year can be carried over and invested, like money in an IRA. Medically Necessary or Medical Necessity: A contractual term insurers use to determine what to cover. The following are examples of definitions of medical necessity or medically necessary benefits: (1)appropriate for the symptoms, diagnosis, or treatment of a medical condition; (2) provided for the diagnosis or direct care and treatment of the medical condition; (3) within the standards of good medical practice within the organized medical community; (4) not primarily for the convenience of the patient's physician or other provider; and (5) the most appropriate procedure, supply equipment or  Â
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service which can be safely provided. Medicare: The federal government's hospital and medical insurance program for the aged, totally disabled, and those with end-stage renal disease. There are three parts—A, B, and C. Part A is the hospital portion and is mandatory for all eligible. Part B is the physician portion and each eligible beneficiary can decide to participate in or not. Those who elect part B coverage pay an additional premium to the federal government. Part C is the managed care portion of the program and is referred to as Medicare and Choice. Medicare Catastrophic Coverage Act: Federal legislation enacted in 1987 to provide full coverage under Medicare for high cost hospital care after calendar year stop-loss. It also included a phase-in of coverage for outpatient prescription drugs. This act represented departure from earlier financing, because legislation required full cost to be covered by mandatory beneficiary premium and income surtax. It was repealed in 1989. Medicare Part A: The hospital coverage portion of the Federal Medicare program. It covers inpatient hospital and physician services subject to an annual deductible. Coverage is mandatory for all Medicare eligibles and is financed through Federal revenues. Medicare Part B: The physician and other nonhospital benefit portion of the Federal Medicare program. It covers physician services up to an allowable amount, determined by the government. Coverage is voluntary and financed primarily by premiums paid by participating baneficiaries. Medigap Policy: A private health insurance policy designed to pay for the copayments and deductibles required by Medicare. Some additional non-covered services may also be paid for. Also known as Medicare Supplement Policy, or Medicare Wrap. The design and content of these plans are regulated by federal law. Moral Hazard: Evidence of information market failure within the health insurance market. The more complete an insurance coverage package the less individuals must bear the financial consequences of their consumption decisions thereby reducing the incentive to economize in consumption of health services. National Health Insurance: A term generally used to describe any system that would provide a government financed system providing all Americans access to an agreed upon standard of health care benefits. Nurse Anesthetist: A registered nurse, educated and certified to practice anesthesia. Nurse Anesthetists administer more than 60 percent of all anesthetics in the country. Nurse anesthetists are not required to be supervised by an anesthesiologist, however, more than half the states mandate that they work under the direction of a surgeon or other physician. Outpatient Services: Services provided for a patient who is receiving ambulatory care at
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a hospital or other health facility without being admitted to the facility. Pharmacy Benefits Manager: Designs and manages the pharmacy (drug) benefits for an HMO. Develops pharmacy networks, negotiates prices with manufactures, establishes drug formularies, monitors physician prescribing patterns and patient compliance, designs benefits, and manages outcomes. Point of Service (POS): A benefit plan design that combines HMO and PPO features to permit the member to select the desired provider-payment combination each time the member seeks care. The highest level of benefits is received when the member obtains services at the direction of his or her designated primary care physician. Pre-Existing Condition: A physical and/or mental condition of an insured individual which first manifested itself prior to the issuance of his/her policy. Some pre-existing conditions may be excluded from coverage. Preferred Provider Organization (PPO): A delivery system where providers are under contract to an insurance company to provide care at a discount or for a fixed fee, and the insurance company provides incentives to patients to use the contracting providers. The PPO does not assume insurance risk, and it does not facilitate the sharing of risk by its members. Premium: The periodic cost of an insurance policy for a covered individual or specific risk; may be monthly, quarterly, semi-annually, or annually. Primary Care: Basic care including initial diagnosis and treatment, preventive services, maintenance of chronic conditions, and referral to specialists. Primary Care Physician or Practitioner (PCP): A doctor designated by an HMO or other managed health care company to be the first physician a patient contacts for any medical problem. The doctor acts as the patient's regular physician and as a gatekeeper who determines if the patient needs to see a specialist or requires hospitalization. Provider Sponsored Organization (PSO): A cooperative effort between hospitals and doctors, similar to HMOs except they are run by doctors and hospitals. They are touted as particularly valuable for rural areas, which have not attracted HMOs. Risk Adjustment: The mechanism for compensating plans for differences in risk, as measured by risk assessment. Risk Assessment: Measuring the expected health care costs of an individual's enrollment in a plan, frequently through the use of demographic variables and health status information. Risk Selection: Insurers attempt to exclude or discourage enrollment by refusal to renew  Â
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coverage based on health status or claims experience, targeted advertising and marketing, benefits design, and plan operation. Skilled Nursing Facility (SNF): An institution (or a distinct part of an institution) that is primarily engaged in providing skilled nursing care and related services for patients who require medical care, nursing care, or rehabilitation services. Staff Model HMO: This health care model employs physicians to provide health care to its members. All premiums and other revenues accrue to the HMO, which compensates physicians by salary and incentive programs. Stop-Loss Provision: Any arrangement where the insurer provides coverage for claims in excess of predetermined limits. Such coverage may be aggregate (e.g., 125% of expected) and/or specific (e.g., $25,000 per case).
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