Among the revelations of the latest Kaiser Family Foundation annual Employer Benefits Survey was a precipitous drop in employer-sponsored coverage. The percentage of employers offering health coverage fell from 69% to 60%, a 13% decline, in just five years. Exploding premium costs-growing at 5.5 times the rate of inflation and 2.3 times business-income growth between 1999 and 2004-are pricing individual and corporate purchasers out of the coverage market.
This will, of course, mean more uninsured Americans. But the economics are also profound. Health coverage is the financial engine that drives the health industry, and the private sector contributes half its dollars. A 4.5% (and growing) annual drop in insured private-sector employees, along with pending cuts to Medicaid, Medicare and other public-sector healthcare programs, could destabilize the healthcare marketplace.
Healthcare organizations of all types, accustomed to continuous financial growth, will experience dwindling resources but increases in service demands. Paper-thin margins and spikes in care for the uninsured and underinsured have made many hospitals vulnerable to revenue reductions. Deteriorating revenue will result in publicly traded healthcare firms having reduced margins, stock prices, market capitalization and credit.
Worse, healthcare is the largest economic sector in the U.S., representing one dollar in seven and one job in 11. Financial disruptions in this industry could cascade to other sectors, threatening our national economic security.
Addressing the healthcare crisis will require getting at the roots of the cost explosion. But what are they? American healthcare has many problems, but ultimately there are two major challenges: The first is the industry's fragmentation. Mechanisms of American healthcare encourage millions of professionals and corporations to make self-interested decisions daily, independent of their effects on the larger system. Rich reimbursements-currently $1.8 trillion-have made many industry groups wealthy and have translated into tremen- dous political influence, broadly distributed among the players. Gridlock results because every proposal threatens the interests of some constituency with the influence to kill it.
Self-interest is exacerbated by a second problem, a lack of transparency. American healthcare is excellent in many ways, but it has never developed enterprise-level standards, disciplines, tools or incentives to promote consistent processes or to make clinical and financial performance transparent.
This inability to easily see the results of healthcare processes keeps us from identifying problems and opportunities, and blocks effective cost and quality management. The lack of transparency thwarts accountability and encourages organizational opportunism and inappropriate care. Without objective information on pricing and performance of healthcare products, services and vendors, purchasers at every level of healthcare cannot buy prudently. As the economist Adam Smith observed, markets need "perfect information" to work properly. Healthcare has little information.
Addressing the cost explosion is difficult. Many influential industry groups have been well served by the approaches that underlie it. Non-healthcare organizations are focused on other, more immediate challenges. The key to overcoming resistance to change rests with corporate leaders. They must be persuaded that, left unresolved, the fallout of the healthcare crisis will be severe enough to hurt them in the short term, and that the solutions are in their self-interests.
But what are the solutions? More specifically, what is the narrowest set of changes that powerful groups can accept and that can resolve the problems, if the alternative is continued market erosion and instability?
A national healthcare reform effort should re-establish a stable and sustainable healthcare marketplace that serves all the American people.
To get the cost explosion under control, we must retool healthcare with management capabilities that have worked in other industries: standards, compatible information technology platforms, performance transparency and incentives for excellence. There are many excellent private and public sector efforts now in these areas, but the seriousness of our dilemma warrants far more attention, coordination and resources.
Next, while protecting and improving market-based healthcare, we must financially stabilize the system by establishing a floor of basic care coverage for everyone in America. This will prevent the financial collapse of safety net hospitals and clinics, which are being inundated with the newly uninsured and underinsured. In the process, we can integrate the disenfranchised, providing care that, as many studies show, will ultimately cost less than it does now.
Where is the leadership for this? Saving American healthcare will demand genuine leaders, individuals with stature, position, vision and courage who can rise above short-term gain and special interests to galvanize other influential individuals around solutions that are in the common interest.
Because healthcare is complex and seemingly intractable, Congress has avoided meaningful reforms until the corporations that drive American health policy support change. At best, they'll focus on easier surrogates for the problem, such as individual responsibility and covering the uninsured. These issues are important to a larger reform framework, but do not get at the root causes of the cost explosion.
Instead, we believe leadership will come from the business community. Only business is sufficiently powerful to break the stalemate among competing healthcare groups, and solving this crisis is as much in businesses' interests as ours. A neutral platform, free from the dominance of any one special interest, will be necessary to recruit and galvanize all constituencies. Once there, the participants can collaboratively flesh out the detail of solutions and come to a consensus on moving forward.
The intensifying crisis is our best opportunity for positive change in decades. It threatens all interests, including those that have traditionally resisted change. We should take the threat seriously and seize the opportunity.
If we fail, we should prepare for government-imposed answers, driven by powerful special interests. Those approaches will come at great cost to the rest of us, will likely not focus on the roots of the crisis and, almost certainly, will not solve the problem.
Brian Klepper is president and Patricia Salber is chief medical officer of the Center for Practical Health Reform, Atlantic Beach, Fla.