HMO WOES

November 1998
		On January 1, almost half a million elderly and disabled Americans will lose their health coverage when several managed care plans no longer cover Medicare patients. What is the fate of Medicare? What options do people have? Experts answer your questions.

How do I know if I will lose medical coverage? Is the pullout legal? Why is healthcare so expensive? Can people just go back to Medicare? Why don't we raise rates? Does the medical industry charge too much? How can HMO's work with the government?

Harry Stern of San Francisco, CA asks : It seems to me that one of the overriding problems affecting all aspects of health care in the U. S. is that increases in the cost of health care have so greatly exceeded the rate of inflation. Why is this? Is there an explanation more credible than simple greed on the part of the health care industry? More to the point, what can be done to curb these runaway costs? Thank you for answering these questions for me. Karen Ignagni responds: You're right to focus on cost increases as an overriding problem for health care in the United States, though we should give equal priority to the need to improve the quality of care patients receive. In fact, managed care was launched to address both the cost and quality problems that plagued the old, failed system. There are many reasons for cost increases. Clearly, new and more costly medical technologies and treatments play a key role in driving up health costs. Another factor is that many treatments are overused while others are underused because our health care system doesn't do a good job of aligning the treatments patients receive with the evidence showing what works well and what doesn't work well. Legislation that mandates what benefits individuals may and may not purchase, along with the details of how health plans must operate, also contribute to cost increases-along with numerous other factors. It surprises many observers to learn that health plans often work to encourage physicians to deliver more of the services that are underused, in order to simultaneously improve quality and contain costs. For example, if patients are given the right drugs after a heart attack they're less likely to suffer another heart attack, will live longer and their care will cost less. Health plans recognize this, work with their physicians to promote the use of the right prescription drugs and, as a result, HMO members are much more likely than individuals in old-style indemnity plans to receive the right prescription drugs. HMOs have played an important role in controlling health costs over the past few years-in fact, premiums have been roughly level for about four years. Costs are now beginning to move up again, though at a much lower rate than the double digit annual increases that we came to expect in the late 1980s and early 1990s. We can continue to constrain cost increases while improving the quality of care, though the challenge of doing so should not be underestimated. Tricia Neuman responds: Health care costs have been increasing faster than inflation because inflation is only one of many factors driving the growth in health care spending. In addition to general inflation, health care costs are driven by general inflation, medical inflation and a third factor, which includes volume and intensity of services. This third factor is the component that explains the increase in the number of tests and procedures provided per person, and also the introduction of new technologies, medical procedures and medications. You might be surprised to hear that the health sector was not plagued with runaway costs in recent years, overall. According to the Office of the Actuary of the Health Care Financing Administration, health spending growth was only 4.8 percent in 1997, which was the slowest rate in more than three and a half decades. In fact, health spending, as a share of the nation's economy, actually fell in 1997 to 13.5 percent. The slower growth in health spending has been attributed to several factors: low general and medical care inflation, the one-time effect of moving insured workers to managed care plans, and excess capacity of providers, in certain parts of the country, which gave managed care plans greater leverage to negotiate lower prices. Recent press accounts have suggested that Medicare spending is out of control and that Medicare should adopt the practices of the private sector to reign in its costs. On a per capita basis, however, Medicare and private health spending have grown at about the same average annual rates since the early years of the Medicare program - until very recently. During the period between 1985 and 1991, the average annual growth rate in private plans exceeded the comparable Medicare rate by 4.5 percentage points. The success of Medicare in curbing the growth in spending was largely attributed to the introduction of the prospective payment system for inpatient hospital care. Since 1993, Medicare has been growing more rapidly than private spending on a per capita basis. To address this disparity, the Balanced Budget Act of 1997 includes a number of changes that are expected to reign in Medicare spending further. Most of these changes involve changing the way in which Medicare pays providers and health plans. For example, the Balanced Budget Act requires Medicare to establish prospective payments systems for hospital outpatient care, home health care and skilled nursing facility care. The Balanced Budget Act also changed the way in which Medicare pays managed care plans that enroll Medicare beneficiaries. Together these changes are expected to constrain the growth in per capita Medicare spending over the next several years. It is unclear how the private sector will perform, although some early reports in the press indicate that premiums may once again be on the rise, which could hasten the increase in health care spending in the future. Diane Archer responds: The easiest way to curb these runaway costs is to have the government more broadly regulate the cost of health care services. The government already limits the amount that doctors and hospitals can charge people on Medicare. However, the government does not seem to want to regulate the pharmaceutical industry, the durable medical equipment industry, the supplemental insurance industry (which offers policies to fill gaps in traditional Medicare and is allowed to make up to .35 cents on every $1.00 in premiums it collects) or the managed care industry in this way.   Click to continue...