NCHC Writer
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The Changing Health Care System and Its Impact on the Middle Class

Hilton Hotel
Pittsburgh, PA
September 4, 1997

     Good morning and thank you for this, my second opportunity to address an IBEW/NECA conference on the subject of health care. My first opportunity came as the national health care debate was beginning around the President’s proposal in 1991. As you know, that attempt at reform failed, and many in the small business community breathed a sigh of relief assuming their problems had been solved. Only one thing has changed since then. That is: all the problems I then described have grown worse and because of that, you and those you serve now face more serious problems than would have been the case if necessary reforms had been enacted six years ago. But more on that in a few minutes.

     As health fund trustees you have a special responsibility and mission: the protection of the benefits of your employees and members. As trustees and as citizens, you are also stakeholders in the nation’s health care system. For both reasons and because these problems are serious, I believe you must become advocates for necessary change and reform. Otherwise, you will fail in your responsibilities to those you are entrusted to serve.

     I have been asked to do three things today: first, to give you an update on the health system’s problems; second, to describe how these problems will affect you and those who depend upon you; and third, to describe the reforms which will be necessary to address the problems. This last charge is most important because it will suggest what you can, and must do if we are to build a better, more affordable and more equitable health care system for your own families and for those you represent. In doing so, I will share with you the views of the National Coalition on Health Care, the nation’s largest and most broadly representative non-partisan alliance working to achieve necessary health system reforms.

     Our members include over 90 organizations, businesses large and small, ranging from giants such as Ford and Chrysler, to the 30,000 small business members of the National Community Pharmacy Association, labor unions, including our charter member the International Brotherhood of Electrical Workers, ably represented by Dale Dunlop, the nation’s three major religious faiths, our largest consumer organizations and all of the nation’s primary health care providers. Our members either represent or employ over 100 million Americans. Our honorary Co-chairs are former Presidents Jimmy Carter and Gerald R. Ford. Our Co-chairmen are former Republican Governor Robert D. Ray (R-Iowa) and former Democratic Congressman Paul G. Rogers (D-Florida). We also have many prominent individual supporters including former Surgeon General Koop and Ann Landers.

     Now to the problems. We believe you and your beneficiaries face three serious, interrelated and growing health system problems. First, costs continue to rise at 2_ times the inflation rate and are far higher than they need to be. We spend twice as much per-capita as any other nation and yet achieve no better health outcomes. All other developed nations are providing necessary health care services to their citizens at about one half our costs and their people are as healthy, or healthier, than we, and far more satisfied with their system of care.

     Despite the growth of managed care, a study we released recently, and other studies, indicate that our huge costs, already a trillion dollars yearly, will over the next five years increase 50%, rising to $1.5 trillion dollars by the year 2000. Due to a lack of purchasing leverage, you and other small businesses will be particularly hard hit with this cost escalation. In one way or another, your health funds will bear a share of those new costs.

     Middle-income families, those with children and incomes between $20,000 and $60,000–and that is half of all Americans–will lose the highest percent of their income due to health care inflation. This large and inequitable hidden income tax will adversely effect the standard of living and take home pay of our middle class and many of those you represent.

     So, major problem number one is rising cost, which has risen by over 330 billion dollars since reform efforts foundered just a few short years ago.

     Rising costs, in turn, lead us to our second major problem which is decreasing health insurance coverage. We are already at a point where almost 80 million Americans–that’s one in three people under 65–are either totally uninsured or underinsured–this is 10 million more than when the health care debate began only six short years ago. In large part, due to rising costs one million more Americans are being added to the ranks of the uninsured each year and many of these are from working middle class families. Because of cost increases, more contingent workers are hired and fewer and fewer employees are provided with health insurance coverage. In fact, the fastest growing segments of our economy are small businesses in the service sector, and fewer and fewer of these jobs come with health insurance coverage.

     Because of rising costs and other economic forces, our present dominant employment based health insurance system is deteriorating. And since we have nothing ready to replace it, the number of uninsured and underinsured will inevitably grow. The growing burden of covering the uninsured will be transferred even more to groups such as yours, to the NECA’s and IBEW’s of the world.

     This is a classic example of the systemic and interrelated nature of the problems we face and how they disproportionately hit private payers – especially small business payers such as yourselves. As costs increase, more and more businesses and governments, federal and state, have to cut coverage. As government’s health care subsidies are cut back and the larger private sector payers with leverage try to pay less, the costs of the uninsured are shifted to private sector payers such as yourselves, and you in small businesses are hit far harder than your large business brethren. So, you pay twice, once for rising costs and then for your disproportionate share of a larger and larger cost shift. In the absence of major reforms, this cost shift to you is inevitable and will grow. In addition, because of your higher employment costs, you will become less and less competitive as you bid against competitors who do not provide or who cut back on coverage.

     The worrisome thing is that this cutback in employer based coverage is occurring in spite of the best economic times in our history, questioning the views of those who claim a rising economy will grow us out of our problem. Just imagine what will happen to the number of uninsured and to the magnitude of cost shifting when we experience the next economic downturn.

     Given our cost problem, it is understandable why government and private sector payers, such as you, are focusing on cost control. But that then compounds our third problem, the quality of our care. We should all be concerned that despite the close relationship between cost and quality, and the known difficulty in containing costs if quality is poor, to this point, the health care debate and your efforts have focused almost exclusively on cost issues. This has led to efforts by government and the private sector to control costs, predominantly by limiting fees, increasing beneficiary cost sharing, and increasing the use of managed care.

     However, a large and growing body of evidence raises questions as to whether any or all of these approaches will, over the long term, contain costs. For the evidence shows that the major driver of rapidly rising cost is increasing intensity of care and a sharp increase in our use of technology, especially for care of the growing number of elderly. This fact raises the critical question: Just how good is the quality of our care and what do we health professionals and you, the payers and consumers, know about this technology?

     Indications are we don’t know nearly enough. There are major gaps in our knowledge base which contribute to medical uncertainty. Much of our medical technology has been adopted and widely utilized without adequate evaluation. The evidence to justify treatment of even the most common medical and surgical conditions is often questionable. This includes such common conditions as prostate cancer and low back pain, which affects millions.

     At the same time, there is no credible national database on quality and no national technology assessment or standard setting mechanism. This makes it very difficult for health professionals to practice as well as they would like or as well as you would like.

     Medical uncertainty leads to enormous regional variations in health care with no evidence that people in regions with access to more care have better outcomes than people in regions with less care.

     Such huge variation is scientifically indefensible. When you next hear someone state that we have the finest health care system in the world, you can reasonably ask: Which one? For medical care is delivered substantially differently from region to region, hospital to hospital, doctor to doctor. In fact, the literature is replete with studies that show that we physicians disagree with each other and even with ourselves a high proportion of the time. Often no one knows who is right. Because of that, too often neither consumers nor health care professionals are able to make rational decisions. This is not to infer that my fellow health professionals are trying to harm people; they are not. But the fact is that they work in flawed systems. These flaws have to be acknowledged and fixed in a no-fault environment.

     In a speech to the American College of Surgeons, Dr. David Eddy, a noted expert, summarized our situation as follows:

     “For centuries, the practice of medicine has been based on one huge assumption. The assumption that physicians instinctively know the right thing to do. Somehow, the assumption goes, physicians are able to assimilate all they have learned, process all the information they generate and make the right decision. That myth has been shattered. We are all coming up with different answers and it is impossible for all of us to be correct. Our practices are way out in front of our intellectual lines of supply.”

     Finally, there is the problem of treatment error. Because our quality control mechanisms are so rudimentary, mistakes are much more common, costly, and harmful than generally realized. There are distressingly high error rates reported in a wide range of medical practices with serious, and sometimes fatal consequences. For example, autopsy studies show high rates (35 to 40 percent) of missed diagnoses, often resulting in death.

     Tragedies such as these are not isolated events. The “Harvard Medical Practice Study in the State of New York” has demonstrated this dramatically. If the New York rates can be extrapolated to the country as a whole, then the Harvard researchers estimate that over a million patients are injured in our hospitals every year, and approximately 180,000 people die each year as a result of medically induced injury or negligence. One-half of these deaths, or 90,000 each year, are considered preventable. The Harvard team concluded that medical injury and malpractice constitute the nation’s “hidden epidemic.”

     There is no other business or industry in this country, including yours, that would be allowed to continue to operate even a day with quality problems of that magnitude, nor would society pay almost a trillion dollars a year for its services. Yet this is now the case in today’s health care system. The executive editor of the New England Journal of Medicine has written that: “far from being beneficial, much of the medical care in this country is unnecessary, is of no demonstrated value to those who receive it, and some of it is harmful.”

     These are the problems health professionals, you purchasers and consumers face. They are large, they are serious, they are growing worse, and there is no end in sight. These problems are already affecting you and the tens of thousands of employees you represent.

     Unfortunately, it appears that none of the incremental approaches government and private sector payers such as yourselves are using will be powerful enough to do the job. This includes prevention, beneficiary cost sharing, cost shifting or managed care, where we are already seeing a significant increase in premiums with more predicted to come. The huge public and congressional backlash against managed care is going to make it much more difficult to capture further managed care efficiencies and savings or even to preserve the ones we have gained.

     In fact, we already have evidence that incremental fixes can ultimately and inadvertently make a bad situation worse. Why is it, then, we keep hearing about step-by-step reform and that Congress, this session, seemed to have its health care mandate of the day? Well, it is natural, I think, in the face of an overwhelming and complicated crisis, to look for something simple you can do to solve at least a piece of the puzzle. The thinking goes: “doing something is better than doing nothing at all.” Unfortunately, on close scrutiny, the incremental fix may have unintended consequences. Let me give you two examples.

     Last year, on the eve of her departure from the Congress, Senator Nancy Kassebaum, along with Senator Kennedy, to their credit, succeeded in winning congressional passage of the Health Insurance Portability and Accountability Act, frequently described as the Kassebaum-Kennedy bill or the HIPAA bill. President Clinton and many in Congress hailed this legislation as one of the most significant reform measures in recent memory.

     For many, the bill’s reforms – addressing pre-existing limitations, guaranteed issue and guaranteed renewability – opened new job opportunities. Now, when a worker goes from one group insurance plan to another, his new plan may not deny him coverage based on a pre-existing condition. But what happens when he leaves a group health insurance plan to join an employer with no insurance, or when he decides to become self-employed? Under the law, he’ll be guaranteed access to two or more individual policies whose premiums he’ll have to pay. But the law allows the premiums charged to be “actuarially fairly” priced. As noted financial columnist Jane Bryant Quinn said in a column last September, “Family coverage normally costs about $4,000 to $5,000, and the price could be double if you have a medical problem. If the average worker had that kind of money, there wouldn’t be 40 million people uninsured.”

     What is the unintended consequence? Many American workers might have believed that they could take the insurance they now have wherever they go. But it’s not true. And for those workers who thought insurance might become more affordable, wrong again. Further, the law only applies to transition from group insurance to another group or from group to individual insurance. If you want to switch from one individual policy to another, you’re out of luck. And finally, if you’re currently uninsured, you’re no longer better off under HIPAA than you are now. In addition the bill has in it provisions and new reporting requirements that could become an administrative nightmare for payers, providers and beneficiaries, adding new costs that could wipe out any advantages obtained, while the basic problems of cost, quality and coverage remain.

     There are other examples of well-intentioned legislation that may have unintended consequences. Congress included a demonstration program for Medical Savings Accounts (MSAs) in the Kassebaum-Kennedy bill. Advocates believe MSAs will empower consumers and foster a competitive climate. But not everyone is guaranteed to win.

According to Gail Shearer, Director, Health Policy Analysis at Consumers Union:

     “Economists predict that premiums for traditional health insurance (which typically charges $250 up front as deductible) will increase by as much as 300% if MSAs are allowed without limits into the health insurance market. What this would mean for consumers is less choice, when traditional policies become unaffordable or are possibly driven out of the market altogether. MSAs are not the solution for the 10 million uninsured children, whose parents cannot afford health care if they face a steep deductible. If introduced into Medicare, they threaten to siphon off billions of dollars to help the healthy get wealthy, leaving depleted funds to care for the sick.”

     So these incremental approaches can fall far short of their promises and fail to address the major problem of rising costs, the uninsured or the quality problems. It seems to us that most of these measures, no matter how well intended and offered in good faith, fail to adequately deal with the very large problems I have laid before you today.

     So, where does this leave us? Where do we and you go from here? Our Coalition is convinced these problems will not self correct or be successfully patched by partial reforms. They will require major national policy changes and a new public/private partnership. How will this be done? Why, given the magnitude of our problem, have we not made more progress? What lessons have we learned and might you learn from the failed debate of the past?

     One of the lessons we have drawn is that the health care debate began before the public or even many opinion leaders, possibly many of you in this room, had developed anything approaching a sufficient understanding of the working of the health care system. Now that system is changing rapidly and fundamentally in the absence of any national strategy. Yet the understanding of basic information is still lacking. The situation was well summarized by David Broder and Haynes Johnson in their recent book The System, which analyzes what went wrong in the health care debate.

      “In the end the public got much of its information-or misinformation-from partisan or special-interest sourcesŠThe ability of the opposition to mobilize a small minority of people who feared losing some of their advantages carried the day. Too much of the debate was dominated by negative sound bites, by the importunings of ‘spin doctors’ with their misleading arguments, false analogies, and statistics crafted for the convenience of the argument, not the truth of the case. As a result, the public, for excellent reasons, was confused and frightened throughout. In a classic sense, the people were woefully uninformed. The manufactured, and manipulated, ‘public opinion’ prevailedŠWhat people really wanted to know was how the various plans would affect them and their families, and the media did not answer those questions well.”

     We agree and believe that necessary changes are unlikely to occur unless and until the people and opinion leaders such as yourselves and policy makers have a better understanding of the facts, and a broader and shared vision of a better, more equitable and affordable health care system, with assurance that it can be achieved.

     Let me share with you a few examples of where some better understanding is necessary. There are cities in this country which have more MRI’s and cat scanners than the nation of Canada. In these locations, the cost of care for patients is 2-4 times higher than in any other region of the country with no better outcome. Why do we allow that to occur?

     We are living in a country in which 4 out of every 100 hospitalized patients in our best hospitals experience an adverse drug reaction which increases the cost of care, injures thousands and kills many. Half of all these events are considered preventable. Why do we, why do you allow this to occur?

     You all know of the recent public uproar over airline safety. Last year’s TWA crash received national publicity, the President went on television, major investigations were conducted, Commissions were empaneled, and hundreds of millions of additional dollars are being poured into airline safety and security. Yet remember that on average, less than 200 people die each year in airline accidents. While in the health care system, it is estimated that 180,000 patients die each year as a result of medically induced injury, and 90,000 of these deaths are considered preventable.

     This is the equivalent of 3 fully loaded jumbo jet crashes every 2 days with a total loss of life. Where is the public outrage? Do the American people and, for that matter, do you and our policy makers have an adequate understanding of the problem we face? We don’t think so.

     These are just a few examples of where a common base of understanding coupled with effective corrective action is necessary. Achieving a common understanding requires a major educational effort. With our members’ support and substantial grants from several of the nation’s largest health foundations, our Coalition has dedicated itself to help create such an effort. If we are to have a rational dialogue on health care, what do we believe are some of the most important things for the public and for leaders such as you to understand?

     First, we believe we must all recognize this problem is not going to go away. It will grow worse. It is far larger than Medicare and dealing with the Medicare problem in isolation, which is what Congress has proposed, merely shifts the problem and massive costs from government’s ledger to the private sector leaving our basic problem un-addressed. This is the strategy the nation has pursued for 30 years, and it has not and will not work. We need system-wide change and we need it now.

     Second, we must recognize that, for a number of reasons, market forces and competition alone will not solve our problems. Remember that markets need good information to work. It requires a fair transaction between an informed buyer and an informed seller. That doesn’t exist in health care where the consumer and often even the provider is at a severe disadvantage lacking the information necessary to make an informed decision. Consumers can’t buy solely on price because they have insufficient information on quality.

     Competition can help contain costs in real markets, but to get competition, you need a wide variety of choices. We’re getting the exact opposite as large segments of our health care market continues to move towards consolidation. (e.g. Minneapolis-St. Paul.)

     Other markets, including airlines and the financial markets, have independent oversight to assure public accountability. There is no such mechanism to protect consumers in today’s health care system. That is why 50 state legislatures and the U.S. Congress are frantically trying to patch together consumer safeguards while at the same time realizing they are not equipped to make sound scientific judgments. That necessary mechanism is yet to be created and will be a key part of the solution of our problem.

     Third, we all have to recognize that our problems cannot be solved by each of us acting alone or by the private sector alone or by NECA/IBEW alone. Government will have to have a role and together we need to develop a new public, private partnership.

     Finally, we believe people must understand that because these problems are interrelated, successful reform must focus on achieving five goals:

  • Making sure every American has health insurance coverage.
  • Controlling total system costs and stopping cost shifting.
  • Improving the quality of care.
  • Creating a more viable and equitable mechanism of financing.
  • Simplified administration.

     In summary: We recognize that none of these necessary reforms is likely to occur unless and until more Americans and opinion leaders and decision makers such as yourselves understand the facts and insist that fundamental reforms be enacted, reforms which will assure attainment of the key principles I have described.

     This will require a major national educational and advocacy campaign. Our Coalition members have committed themselves to such an effort which is described in more detail in your handouts. IBEW is already a key participant in that campaign. Since they and you face common problems, we are hopeful NECA will also see merit in our effort and join us in working toward our mutual goal of a better, more affordable and more equitable health care system. As I said at the outset, I hope you will accept the challenge of joining in this campaign and working with other key groups to help obtain reforms which will ultimately benefit us all. I hope the facts have convinced you that you in small businesses and your employees will benefit greatly if we succeed and suffer disproportionately if we fail. The choice is yours either way. We welcome your help.

Thank You!