Public anxieties over the quality and limitations of managed health care are fueling a new round of federal proposals to regulate the medical marketplace. The movement of a majority of insured Americans into various forms of managed care may well have helped restrain the rise in health care costs, but it also has triggered a growing consumer backlash against real and perceived incentives for third-party insurers and benefits administrators to restrict access to desired medical treatment options.
Less than four years after ClintonCare I was unceremoniously buried by a broad public uproar against a proposed federal takeover of the private health care system, voters are ambivalent about what they fear will most undermine their health care choices:
A) political mismanagement, regulatory rationing, and costly cross-subsidies; or
B) health plan coverage limits imposed by cost-conscious employers, mysterious gatekeeping principles, and crude financial incentives to undertreat patients at the margin.
Rushing in with a repackaged set of political over-the-counter "remedies" are members of Congress, led by Rep. Charles Norwood (GA) and Sen. Al D’Amato (NY) on the Republican side and Rep. John Dingell (MI) and Sen. Ted Kennedy (MA) on the Democratic side. Norwood’s bill, the "Patient Access to Responsible Care Act (PARCA)," has more than 200 co-sponsors. It is likely to provide the leading vehicle for legislative efforts this year. PARCA would substantially expand federal regulatory control of health insurance terms and medical treatment decisions, all in the name of "quality, fairness, and choice."
Not missing an opportunity to further politicize and nationalize health care, President Clinton seized upon the interim recommendations made last November by his advisory commission on consumer protection and quality in health care. The panel called for a wide-ranging consumer bill of rights, along with mandatory disclosure of detailed information on the quality of health plans (without addressing who would pay the accompanying "bill" for this latest health care entitlement). Clinton urged congressional consideration of the seemingly high-minded directives, ordered federal agencies to provide similar guarantees to beneficiaries of federal health programs, and challenged private health plans to voluntary shoulder the new burdens in advance of formal federal legislation.
The dangers posed by the above proposals should be clear. Setting loose a new round of statutory guarantees and regulatory controls at the federal level would mean imposition of more special-interest benefits and cross-subsidies, as well as tigher restrictions on innovation and experimentation in health care delivery practices. It would erode ERISA’s firewall against burdensome state government regulation and further centralize and politicize complex health care decisions. The result — higher costs, fewer choices, and reduced levels of private insurance coverage. Yet even after several top Republican congressional leaders scrambled to organize resistance to greater federal regulation of managed care, their rank-and-file members remained split on the proposals. Efforts to reassemble the business-dominated coalitions that helped sink ClintonCare in 1994 and refight the last war with similar strategies are likely to fall short. Why?
The new proposals address the anxieties of middle-class voters who already have health insurance. They play against an anecdotal groundswell of horror stories of individual consumers thwarted by "insensitive" managed care restrictions and treatment denials. Consumer rights and quality improvement measures do not explicitly redirect money from the insured to the uninsured, raise visible taxes, threaten to radically transform the health care industry overnight, or force clear tradeoffs. Instead, they subtly undermine the ability of private parties to imperfectly balance and recalibrate the never-ending tension between health care’s cost, quality, and accessibility. Once the mounting rounds of incremental regulation have crippled the effectiveness of any private-sector approach to these issues, proponents of government-based health care schemes will have a wide-open playing field.
The officeholders and business lobbyists who once successfully resisted head-on attempts to impose comprehensive federal command-and-control of health care are handicapped by their failure to fully establish a coherent counter-model of a market-based, consumer-driven system that also acknowledges the economics of scarcity. Essentially telling anxious workers and their dependents that a narrow set of restricted health insurance choices made solely by their cost-conscious employers (with little meaningful disclosure of its terms or accountability for outcomes) is "As Good As It Gets" is an unsustainable political posture. It will not withstand for long the blandishments of politicians promising to make the gatekeepers of health insurance dollars say "Yes" more often (at least until the money runs out). A more effective response to the managed care backlash and the politicization of health care quality must occur on several levels.
Defenders of private choice first must debunk some myths and establish some realities in the minds of voters.
There is no single qualitative standard of health care that can be guaranteed or imposed across-the-board. Most of us cannot afford as much as we ultimately will want, and some of us unfortunately will be unable to get as much as we need. Our range of autonomous choice is inherently limited by the high cost of care for major illnesses, dependence on the specialized judgment of medical practitioners, and the psychological burdens of cost-conscious decision making under conditions of emergency or stress.
Health care is not so special that money does not matter. That applies just as much to physicians dedicated to "best practices" and consumers facing cost-sharing as it does to profit-driven employers and cost-crunching insurers.
"Managed care" is not a uniform commodity. It embraces a range of evolving health insurance and health care delivery arrangements whose quality of care may vary just as much by other factors: the quality of their participating physicians, the plan’s practice guidelines, and geography-influenced medical treatment patterns. Currently, the marketplace seems to be pushing most health plan insurers to loosen, not tighten, restrictions on physician choice – albeit at the price of higher premiums for consumers and employer-plan sponsors plus lower profits for the insurers.
A different tradeoff open to consumers is that between first-dollar care focused more on prevention and health maintenance (HMOs) and relatively unrestricted care for catastrophic illnesses in return for more consumer cost-sharing for routine health care costs (high-deductible fee-for-service insurance) . We might prefer to rely more on this evolving marketplace dynamic to sort out varying preferences for health insurance arrangements and tradeoffs, but for another level of health policy issues requiring new responses.
Thus, public policy needs to close the gap between our rhetorical embrace of value-driven consumer choice and the existing barriers to a more level playing field for health insurance arrangements. Today, working-age Americans who would prefer alternatives to the health insurance plan offered by their employer face substantially higher costs. Federal tax policy favors employer-sponsored group insurance plans and ERISA protects self-insured employer plans from most forms of state regulation. The best options for neutral tax policy (eliminating the tax exclusion and lowering marginal income tax rates, comprehensive "flat tax" reform, establishing a capped universal tax credit for health insurance purchases) are not likely to reach the political bargaining table. The most viable fallback option is to expand tax deductibility for health insurance premiums to all individual purchasers – even those whose employer offers some form of insurance coverage. Although this approach would add to allocative distortions in health care spending levels, it would at least narrow the cost differential for employees dissatisfied with the insurance choices offered by their employer and provide them some bargaining leverage.
Even if more even-handed tax treatment was provided, individuals buying coverage outside the workplace would still face higher costs. Employer-sponsored group health plans (particularly large ones) possess significant economies of scale that make them less costly to underwrite, market, and administer. Risk pools formed outside of large firms and solely for the purchase of insurance tend to be less stable, more heterogeneous at entry, and less likely to be replenished with good risks. In addition, individuals who don’t obtain coverage through self-insured employer plans pass up ERISA-protection against the costs of state-based insurance regulation. The policy alternatives for closing this remaining set of insurance cost differentials are more limited: reducing regulatory barriers to voluntary pooling arrangements outside the workplace (so that sponsors can effectively price risk and strike long-term bargains with a variety of insurers) and extending as much ERISA-style protection as possible to many other kinds of purchasing coalitions and consumer cooperatives.
Ultimately, average Americans will most effectively exercise control over the quality of their current and future health care not by deciding about high-cost medical treatment options entirely on their own, not by passively deferring to physicians with financial stakes in the decision, and not by delegating choices to political institutions that set centralized standards. Rather, we should concentrate on improving the opportunity for individuals to have a larger voice in choosing how best to allocate authority for making health spending decisions. In most cases, that still will come down to selecting a particular insurance plan in more open markets.
Private insurers and employer sponsors of health plans do need to improve the public’s acceptance of their moral legitimacy by communicating more clearly how their plan’s decisionmaking structure and incentives for both cost containment and quality control operate. They must enlist their customers and employees as allies in a joint effort to retain the benefits of private sector innovation and flexibility against the camouflaged rigidities, distortions, and side effects of political micromanagement. If they can’t really defend and explain practices as being in the overall self-interest of plan beneficiaries, it’s time to reconsider them. Current levels of disclosure do need to be enhanced, but this process will occur more effectively through marketplace competition for consumers empowered to take their business elsewhere, rather than through a one-size-fits-all set of politicized disclosure regulations. To keep a relatively free hand in restricting the terms of insurance coverage and restraining marginally beneficial forms of health spending, managed care insurers and self-insured employers will need to accept more accountability. That means providing more relevant disclosure of plan information at periods of subscriber enrollment and reenrollment; voluntarily accepting a modified version of "enterprise" liability for negligence-based malpractice (to the extent that they control and influence medical treatment decisions) in return for the contractual ability to bargain with providers and subscribers for liability transfers, reductions, and waivers; and being held legally responsible for the representations that they do make to plan subscribers.
In such an environment, private health plans could more effectively combine the financing and delivery of health care, particularly if they are wise enough to better integrate physicians and plan administrators in more comfortable and cooperative relationships. Providing consumers choices in more manageable forms does not mean reliance on centrally prescribed standards to determine rights and obligations in all transactions. Instead, it calls for health plans to adopt more imaginative contractual strategies that use sophisticated economizing techniques to offer different styles of medical care at different prices. Involving physicians more closely in the design and implementation of a plan’s clinical policies is essential, whether structured through a plan’s direct sponsorship, equity participation, financial incentives, medical consultants, or administrative staffing.
In short, the best strategy is to modestly adjust public policy to validate the rhetoric of consumer choice, but combine it with recognition of individual responsibility for prospectively weighing resource constraints against health care wants. Regulatory overkill threatens to eliminate, not expand, insurance coverage on the margin. For many consumers, lesser levels of insurance coverage remain better than none at all under unaffordable political mandates.