As has become obvious, America's health insurance system is suffering from chronic, acute ailments. Remedies are available--notably the "defined contribution" approach--and probably should be the order of the day, but their implementation will carry some risks.
Our insurance system began with noble intentions. Although wages were frozen during World War II, unions were granted the right to negotiate for fringe benefits. High on their benefit shopping list was a relatively new item called health insurance.
Most employers were willing to simply absorb the cost of premiums (a fraction of payroll at the time) and offer hospital-surgical plans that demanded very little in the way of copayments or deductibles. Nonunion employers, anxious to maintain parity in a tight labor market, quickly followed suit.
Following the war, health insurance coverage expanded steadily to cover most working families. With the later adoption of Medicare and Medicaid, the elderly and many of the poor also gained coverage.
Americans came to expect that their health insurance would cover the full cost of treatment, with little or no additional out-of-pocket expense. These expectations were systematically reinforced by a stream of government mandates, increasing the types and scopes of coverage employer group plans offered.
As every health economist knows, these expectations are becoming less realistic and less supportable with each passing year.
Confronting the problem. When employers turned to managed care in an effort to control costs, consumer reaction soon became harsh. The use of HMO medical "gatekeepers" and the limitations placed on free choice of providers were hard to accept. In response, many employers turned to PPO panels, which offered a greater choice of providers and fewer restrictions.
However, with nearly 100 million Americans receiving healthcare through PPOs, providers have become increasingly concerned about both the extent and availability of the discounts they have negotiated with those plans.
The great irony here is that the financial and medical forces whose cooperation is essential to the delivery of high-quality healthcare increasingly are being pitted against each other in an effort to support unrealistic consumer expectations.
If we want to maintain our current system of employer-sponsored health insurance, with its consumer-protection orientation, we must revise our expectations downward. We cannot insist that every new finding about optimum treatment protocols be translated into a government mandate for employer-sponsored healthcare coverage.
Developments in the area of colon cancer detection can help to illustrate the current dilemma. Research now suggests that the consistent use of colonoscopy, rather than sigmoidoscopy, will allow doctors to detect far more potentially fatal colon tumors at a much earlier stage. Given the differing nature of the two procedures, the results are not surprising. A sigmoidoscopy is an office procedure performed on an alert patient. A colonoscopy is a far more elaborate inpatient procedure performed on an anesthetized patient.
The cost of a colonoscopy can exceed $1,500, while a sigmoidoscopy costs about one-fifth that amount. Cost notwithstanding, there would appear to be ample justification from a public health policy perspective for mandating coverage of annual colonoscopy screenings for all male employees over age 50.
Issuing such a mandate would immediately raise the question of funding. A predictable scenario will ensue: Under pressure from payers--which have experienced double-digit premium increases for three consecutive years--managed-care organizations will attempt to negotiate reduced fees from providers. They will be partially successful but still be forced to pass on a substantial part of the cost to employers. An increasing part of that cost, in turn, will be passed on to employees.
Repeated a sufficient number of times, this scenario will force our current free-market insurance system to collapse under its own weight.
An alternative approach. The defined- contribution movement could relieve some of the pressure on the current system. Under such programs, some payer-employers offer employees a fixed sum with which to construct customized health benefit plans. If the employer caps its contribution at, for example, $4,000 per year and the benefit plan the employee constructs costs $5,000 in total premium and employer contributions, the employee is responsible for the remaining $1,000.
Such programs can produce positive results. They give employees a direct stake in coverage decisions, forcing them to set priorities, with catastrophic illness at the top of the list. Employees must do with their healthcare what consumers of every other product must do--seek value. The use of defined contributions also places pressure on payers to issue comparisons of provider charges.
Consumers also will have a greater voice in the definition of reasonable medical practices. It is unlikely, for example, that physicians would be able to order a battery of diagnostic tests simply as a matter of course.
Ultimately, payers faced with reduced responsibility for the cost of healthcare would realize stabilized or even reduced premiums.
Although defined-contribution programs hold promise, they are still in their infancy. And it remains to be seen if these programs will be adopted and embraced by a substantial number of employers. It also remains to be seen whether those employers who do try the new system will be able to resist inevitable demands to return to the status quo (the Latin phrase meaning "the mess we're in").