Health Care
Agenda
Goal: an affordable, effective health care system that promotes longer, healthier lives for all Georgians.
- Encourage the adoption of consumer-based health care plans so that traditional market forces can influence the cost of medical services as they now influence and control the cost of virtually all other commodities
- Ensure that the consumer has ready access to medical cost and efficacy information
- Examine the role of medical liability in the cost and availability of medical care in Georgia
- Efficiently spend Medicaid dollars
- Establish a safety net for uninsurable Georgians
Overview
The medical inflation rate for 2004 in the United States is predicted to be 12 percent. This will be the fifth year in a row it has been in double digits. This medical inflation rate is five times higher than the average general U.S. inflation of 2.4 percent during the same period.
Before the Second World War, most health care was purchased out of pocket and medical costs were in line with general inflation. With the outbreak of war, President Franklin D. Roosevelt and Congress put wage and price controls into effect. Labor could not bargain for higher wages and business could not compete for labor by offering higher wages. To solve this compensation problem, the IRS, with the support of Congress, established that health benefits would not be controlled by the wartime wage guidelines and furthermore, employers could purchase health benefits tax-free. With such a structure, employer-funded health plans quickly developed. Medicare used a similar third-party model when it was enacted in 1965.
With the third-party system, neither suppliers (hospitals and doctors) nor demanders (employees and retirees) have an incentive to control costs. Since the nation instituted widespread third-party payer systems for covering medical costs, medical inflation has increased four times faster than general inflation. The inflation-adjusted, per-person expenditure for health care increased from $1,120 in 1965 to $4,637 in 2000.
In 1960, more than 55 percent of total health care spending was paid directly by consumers. As of 2002, that number is now dramatically less and insurance coverage of even small expenses has insulated individuals and made them less likely to be concerned with cost.
Employers and insurance companies have attempted to control these rapidly increasing costs with “managed care.” Various types of managed care plans have been tried for the last 20 years but costs have continued to increase.Mercer Human Resources Consultants reports that 95 percent of all employer plans in 2003 were some type of managed care. As of 2003 (the most recent data available):
- 30 percent of all company plans were health maintenance organizations (HMOs)
- 51 percent were preferred provider plans (PPOs)
- 14 percent were point of service plans (POS)
- 5 percent were the original third-party, indemnity-type plans
Even with 95 percent “managed care,” medical inflation is now five times the general inflation rate. Costs are up, employee contributions are up, restrictions are up and only employee satisfaction is down. Health coverage is a major cause of labor disputes and many companies identify health coverage as their most unpredictable and rapidly increasing business expense.
This situation is clearly unsustainable for all parties.
The False Promise of a Single Payer System
Some countries have attempted to reduce the cost of health care by shifting to a single payer system, with government as the primary payer of health care services. This is a shift to third-party payers taken to the extreme. Although pushed as a panacea by some in the United States, this bureaucratic system of rationing is unpopular where it has been practiced. Large majorities of Canadians, Britons, Australians and New Zealanders think their health care system is broken and needs to be rebuilt. With Americans having already shown their dissatisfaction with managed care, it is likely that government rationing of health care services would meet a similar, if not stronger, reaction.
Source: Karen Donelan, et al, “The Cost of Health System Change: Public Discontent in Five Nations.”
Health Affairs. Project Hope. Bethesda, Maryland. May/June 1999, page 208.The Health Insurance Tax PenaltyThe U.S. tax code is one of the primary culprits in our current dysfunctional health care system. Employer-provided health insurance is tax-deductible, but if an employer does not offer health insurance benefits, individuals who purchase insurance privately do not get the same tax deduction. This tax penalty can often double the cost of insurance. As more and more businesses are forced to drop their insurance, it is not surprising that many employees remain uninsured – either by choice or necessity. As the graph shows, someone without access to employer-provided health insurance must earn $4,133 to afford the same health insurance an employer would purchase for $2,232.[1]
The Galen Institute, a non-profit health care research organization in Washington, D.C., accurately describes a variation of the effect of the tax code on access to health insurance. “Working Americans with incomes of around $25,000 are most likely to be uninsured and are caught in the trough – they earn too much to qualify for public programs but are unlikely to have the good jobs that provide health insurance as a tax-free benefit.”
The Lewin Group in Fairfax, Va., estimates that families earning $100,000 or more in 1998 received a tax benefit worth $2,357 from the favorable treatment of job-based health insurance. However, families with incomes of less than $15,000 received only a $71 benefit. The tax code is functioning as a highly regressive subsidy that drives many of the problems involving cost and access to health coverage in the United States. The Galen Institute suggests that many more people would have access to medical services and affordable health insurance if these inequities were addressed by providing refundable tax credits directly to the uninsured.
Currently the only federal health care tax credits for individuals were created by the Trade Adjustment Act of 2002. They are available only for individuals who have lost their jobs due to a trade-related event, or who receive benefits through the federal Pension Benefit Guarantee Corporation. The federal government should reverse this unfair and destructive tax policy. All individuals should have the same tax credit for health insurance as employers.
Current Patterns of Health Spending
In 1998, of the U.S. population with employment-based insurance, the 22 percent who spent $2,000 or more on health care accounted for 77 percent of all that population’s health spending. (“Employment-Based Health Insurance Is Failing: Now What?” Alain C. Enthoven, Health Affairs, 2003.)
The Medical Expenditure Panel Survey[2], cosponsored by the Agency for Healthcare Research and Quality and the National Center for Health Statistics, compiles extensive data on health spending. The latest available compiled data are for 2000. In 2000, 83.5 percent of the U.S. population had some health care expense. These expenses included inpatient care, outpatient care, medications, dental services, home health services and medical devices. The mean expense was $2,700, but the median was substantially lower at $720. That means that half the population spent $720 or less on total medical care in 2000.The large difference between the median and the mean is a result of a very small proportion of the population consuming a disproportionate share of overall health care dollars. In 2000, 25 percent of the health care spending was by 1 percent of the population. One fourth of the population spent three fourths of the money. This proportion has been remained stable over time.
Older people had more claims and higher expenses. The older population had a mean expense of $6,140 versus $2,127 for people under 65. They were 3.2 times more likely to have hospital inpatient expenses and the median expense was higher ($9,160 versus $4,372). Elderly people were also more likely to have prescription medical expenses than people under 65 and their median expense was five times higher.
The largest single payer among the population above 65 was Medicare (54.7 percent). The proportion of people 65 or older is expected to increase dramatically in the near future. Since expected health care costs for this population are predictably higher, our medical inflation problem is of increasing public concern in the very near future.
Medical Costs Influenced by Behavior
Of all the money spent for medical care, the majority, 60-75 percent, is spent on chronic conditions.[3] The Centers for Disease Control and Prevention reports that lifestyle is the most important influence on health status. Human biology was found to be responsible for 20 percent of health status difference, environment 19 percent, health care 10 percent and lifestyle 51 percent. Lifestyle choices such as smoking, obesity, stress, poor nutrition, excess alcohol use and illegal drug use all significantly increase health costs. The Department of Health and Human Services reports that smoking, for example, causes diseases in nearly every organ in the body and the economic toll exceeds $157 billion each year in the United States. Of that amount, $75 billion is for direct medical costs and an estimated $82 billion is lost productivity.[4] For Georgia, the smoking-attributed expenditure for Medicaid alone was $419 million in 1998.[5]Agenda: Encourage the adoption of consumer-based health care plans so that traditional market forces can influence the cost of medical services as they now influence and control the cost of virtually all other commodities
During the same period that saw a quadrupling of medical inflation, other scientifically innovative products such as cell phones and computers that have not been provided by employers as benefits are available to more people at a lower cost. Even those few medical services not primarily provided by third-party payers, such as cosmetic laser eye surgery, have followed general inflation or come down in cost. It is logical that returning more health care payments to a model directly influenced by consumer market forces could significantly reduce the rate of medical inflation.
This is now possible. As part of the Medicare Modernization Act of 2003, Congress and the President created Health Savings Accounts (HSAs), which combine qualified high-deductible health plans with tax-free health care spending accounts that are owned by the employee. Health Reimbursement Arrangements (HRAs), which became available to employers in 2002, are similar to HSAs, but HRAs are owned and controlled by the employer, not the employee. With both types of accounts, employers are able to save money on health insurance premiums by increasing deductibles. They can then pass on these savings to their employees in the form of deposits into their health spending accounts. Using common debit card technology, employees can use these funds to pay deductibles and other health care expenses. With the new HSAs, instead of “use-it-or-lose-it,” unused funds remain available for the individual’s future health care costs.[6]
The empirical evidence of consumer discretion in health care is plentiful, starting with the renowned Rand Health Insurance Experiment completed in the early 1980s. This study tested a variety of cost-sharing options over an eight-year period, from one that paid 100 percent of the cost of services to one that paid only 5 percent with a stop-loss limit. Project director and Harvard University professor Joseph Newhouse concluded, “Use of medical services responds unequivocally to changes in the amount paid out-of-pocket. … Per capita expenses on the free plan are 45% higher than those on the plan with a 95% coinsurance rate.” He added, “The more families had to pay out of pocket, the fewer medical services they used. Importantly, the lower use of services did not have a negative effect on health outcomes.”[7]
In the current third-party payer system, quality of health care is not dependent on price. A 2003 study of Medicare paid coronary bypass graft surgeries at five Phoenix, Arizona, hospitals found that the hospital with the lowest mortality rate and the lowest rate of complications charged Medicare the least.[8] In one Georgia hospital outpatient lab, routine screening labs such as cholesterol, glucose and hematocrit cost $514. At the health department in the same community, the patient obtained the same labs for $35. The vast majority of medical services are not emergencies. Careful consumers, spending their own money, with adequate knowledge, can make informed and cost-saving choices.
Currently, 9 percent of the nation’s jumbo employers (those employing more than 20,000) have already adopted consumer health plans. Although this is less than 1 percent of all companies, the initial data is very encouraging. Certainly, the principles are correct: When knowledgeable consumers spend their own money, they make better choices.
Combining a wellness program with these new accounts, the Louisiana State University Healthcare Network experienced a 9.6 percent increase in physician office visits but a 28 percent decrease in total health care costs last year. In an environment of double-digit annual increases in health care costs, a 28 percent decrease is quite dramatic.
In Georgia, Scientific-Atlanta rolled out a consumer-driven health care plan from Definity as one of several options for its employees in 2002. Fifteen percent of its employees signed up for the plan initially. Enrollment doubled to 30 percent in 2003 and reached 37 percent in 2004. The retention rate of 96 percent was significantly higher than that seen among their other plans. The most recent cost data shows savings of $1 million in 2002 or a 4 percent decline in total costs for the employees who switched to the consumer-driven plan. Ninety-five percent of the members were “satisfied” or “very satisfied,” based on an annual 2002 member satisfaction survey. According to Beth Pollard, VP of Compensation, Benefits and HR Planning, “To date, we’ve had no employee complaints associated with the Definity plan.”[9]
Blue Cross Blue Shield of Georgia announced in April, 2004, that it has established high-deductible health plans compatible with HSAs. Therefore, this option is now widely available to all Georgians.
A new study by Assurant Health, a leading firm offering HSAs, shows that 43 percent of those purchasing the new accounts since Jan. 1, 2004, were previously uninsured. Assurant reports that the new accounts are appealing to those who were previously shut out of the insurance market, to families, to older Americans and to workers of all income levels.
In addition, the study found that preventive care office visits were up 31 percent. This increased utilization of preventive care with consumer directed plans was consistent with an earlier study done by Aetna.
eHealthInsurance found that 71 percent of those purchasing HSAs paid less than $100 a month for insurance premiums. In their sample, 56 percent of their consumers were 40 years of age or older. The plans they purchased, while inexpensive, have comprehensive benefits, once deductible levels were met.[10]
Destiny Health, a provider of consumer health plans, also reported behavior changes in the purchasers of their plans. They reported that the first year, on average, members fill 70 percent of their prescriptions with high-price formulary drugs. By the end of the second year in the plan, the members are opting for generic drugs 50 percent of the time. They also report a survey that shows that 79 percent of Destiny Health Plan members had started an exercise or nutrition program in the preceding year, only 32 percent of non-members could say the same. This company has been selling HSA-type plans internationally for 12 years.
Possible cost savings
How much money could Georgia save? Economists Martin Feldstein and Jonathan Gruber used data from the National Medical Expenditure Survey to simulate health care spending. They evaluated a model with a high deductible and found that encouraging people to shift to true insurance policies covering only major risks could lower aggregate health spending by 20 percent.[11]
In the Rand Health Insurance Experiment, insurance plans with high deductibles and relatively large out-of-pocket costs reduced expenditures by 31 percent relative to those that provided first dollar coverage.[12]
Consumer health plans, where the employee’s own money is spent first, look very similar to a true high deductible model if the money saved is owned by the individual and can be rolled over for future health needs or long-term care.
Hewitt Associates estimates that more than 60 percent of large employers are likely to offer their employees the new Health Savings Account plans in the near future.[13]Georgia has 600,000 government employees and spent $1.5 billion for their health care in FY2002. If it offers its employees a consumer driven plan, the cost savings for the state budget could be enormous. In addition, businesses in the state would have a role model for adopting similar programs. The stimulation to the economy could also be enormous.
Types of plans
Tony Kotin at Mercer Human Resources Consulting describes consumerism in health care as a spectrum of models along a continuum, beginning with simple co-insurance and moving toward defined contributions.
The simplest plan might combine an HSA or HRA with an insurance plan only for higher, less likely expenses. Since the known median health expenditure is $720, the health account might have $1,000 in it to cover most costs, followed by an out-of-pocket amount of $500 or $1,000, followed by a higher coverage insurance policy for 100 percent coverage of all other costs.
Mr. Kotin described a more complicated arrangement that more resembles co-pay insurance. This plan is illustrated below.
The greatest impact of these plans is on the smaller expenses. Getting your cholesterol checked for $35, not $520, for example. Again, the total medical expenses for half the population was $720.[14]
Defined contribution plans differ in that they also target larger expenses. In defined contribution plans, the employer pays a set amount for each medical service. After an annual deductible, the plan pays 100 percent of charges up to the median amount charged for that service in the community. There is complete freedom of choice for medical services but if the doctor does not agree to perform the service for the median charge, the employee is responsible for additional charges. After a maximum amount paid by the employee, insurance covers 100 percent of all additional charges.
A needed, unexpected benefit of Health Savings Accounts — funding long-term care
One advantage of the rise in consumer health plans is that long-term care premiums can be paid from the tax-free Health Savings Accounts. Most Americans are completely unprepared if they or a loved face a medical crisis that requires long-term care. Many people have never even considered the benefits and options available for financing potential long-term care needs. When a medical catastrophe occurs, the majority of Americans are forced to either self-finance their care or rely on Medicaid to foot the bill. Because the baby boom generation is aging, the possibility of needing long-term care is increasing. Currently, catastrophic medical costs are a leading cause of bankruptcy, and it is clear we must come to terms with the crisis in long-term care financing.
One of the best ways Americans can prepare for future long-term care is through the purchase of private long-term care insurance. Private long-term care insurance benefits offer Americans financial security as they age, as well as the ability to choose the type of care that best suits their individual needs. There are many different types of long-term care insurance policies available, all with different costs and levels of benefits. Depending on the type of policy, long-term care insurance is used not only to finance nursing home care, but also to pay for assisted living facilities, home-based care and other services.
There are two things Georgia could do to relieve the financial barriers for long-term care:
- Provide state income tax incentives to residents who purchase long-term care insurance policies for themselves and their family members.
- Enact legislation to create a long-term care partnership program for the state of Georgia.
The purpose of a long-term care partnership program is to provide incentives for individuals to purchase long-term care insurance. Later, the financial burden on the state is relieved for the long-term care needs of their citizens because the Medicaid program is used less for long-term care. With the partnership, individuals who exhaust qualified private long-term care policy benefits are still allowed to protect an equivalent value of their assets and satisfy Medicaid’s financial eligibility requirements. The four states that have had partnership plans for almost a decade, specifically California, Connecticut, Indiana and New York, have experienced significant savings to taxpayers, and have seen less than 100 total partnership purchasers qualify for Medicaid. Unfortunately, a provision in the federal Omnibus Budget Reconciliation Act of 1993 known as the Waxman Amendment has prevented the other states from following suit and creating their own partnership programs. However, Georgia can follow the lead of a number of other states by creating a partnership program for Georgia that will take effect immediately when the Waxman Amendment is repealed at the federal level.
Ensure that the consumer has ready access to medical cost and efficacy information
Consumers must have access to sufficient information to make intelligent choices. Medical information is already widely available on a number of Web sites. Eighty-two percent of patients who obtain medical information via the Internet use a search engine (such as Yahoo) to access that information.[15] Accuracy of this information is a significant concern. If the various medical societies such as the Georgia Medical Association and the Georgia Obstetric and Gynecology Society would provide a list of suggested sites for the state to publish, information that is more reliable should be available.
Medical cost information is now very difficult to obtain. In 2004, Florida passed HB 1629, which attempts to address this problem. The law requires licensed medical facilities to make patient charge and medical performance data available on Web sites. The licensed facilities must also provide prospective patients with estimates for charges for services. They must also provide complication rates for such things as infections after surgery and mortality rates for surgical procedures. A notice must be in the reception area that such data is available.
In addition, in HB 1629, collection of the retail prices charged by pharmacies for the 50 most frequently prescribed medications was authorized. Brand name prices and comparable generic availability and prices are to be reported for each drug. The data is to be available on a Internet Web site for each drug by pharmacy and by metropolitan area or region and updated quarterly. Patients can compare prices and locations online.
The Florida law does not require it, but it would also be useful to have published estimates for office visits for HSA or other self-pay patients. These visits can often be provided at a lower cost. Filing insurance claims for routine office visits is an expensive, time-intensive task. Dr. Vern Cherewatenko, who founded SimpleCare[16] to encourage cash-only medicine, notes that before he switched to a cash-only practice, he charged $79 for an office visit and got $43 from the insurance company months later, minus $20 in staff time it took to collect the payment. Now he charges $50 for that same visit and everyone is happy.[17]Examine the role of medical liability in the cost and availability of medical care in Georgia
The American Medical Association currently lists Georgia as one of the 19 states with a malpractice crisis.[18] Twelve percent of Georgia obstetricians will stop delivering babies between 2002 and 2005. These vacant positions will not necessarily be easily filled. The American College of Obstetrics and Gynecologists reports a significant decrease in the number of obstetricians being trained. Only 66 percent of new residency training positions were filled in the United States in 2003 and fewer students are choosing to go into Ob/Gyn. For example, Common Good, a legal reform coalition, reports that last year in Maryland, which has been hard hit by lawsuits, no medical graduates of the University of Maryland chose residencies in obstetrics. This year, only one student out of 150 chose obstetrics.
In the four Georgia medical schools, Emory, Medical College of Georgia, Mercer and Morehouse, there were 359 medical graduates in 2004 and only 20 of them are going into Ob/Gyn. The current statistic is that 50 percent of obstetricians trained in Georgia leave the state. Thirty percent of practicing Ob/Gyns are over age 55. With earlier retirement and fewer students entering the field, potential loss of services looms large.
A March 2003 study conducted by the AMA reports that 64.8 percent of physicians in America’s high-risk specialties, such as neurosurgery, trauma surgery, emergency medicine and obstetrics, have reduced services. A fourth have completely stopped needed services such as emergency and trauma care and delivering babies. The majority, 92 percent, of these physicians say that liability pressures were important in their decision to stop the services.
Unless we are willing to have only elective, low-risk surgical cases and routine medical care provided, we must reform the medical liability system. To solve this recurrent problem, a comprehensive understanding of all the systems involved is needed. Medical care, liability insurance and tort law all play a role in costs and consequences. Any solution that only deals with one of the components is doomed to failure.
Medical Care
There have been several large studies evaluating adverse medical events. The studies found both bad outcomes with appropriate care and bad outcomes with negligence. The Institute of Medicine’s 2000 Report states that with “modern medicine’s increasing capacity to alleviate disease, injury and disability, comes significant risks to independently cause harm.” It is also very important to remember that you can have the absolutely best, even the most expensive, perfect medical care in the entire world, and at some time, you will still die. Medicine can extend or improve life, but it can never guarantee that you will live without disease or defect forever. We need to determine which adverse medical are preventable, and correct them.
The Institute of Medicine’s 2000 report estimated that there are 1 million errors in American medicine each year and between 44,000 and 98,000 people die each year due to that medical error. It concluded that medical malpractice suits were not correcting the problem and indeed may contribute to “a failure to observe and learn from errors and a continued focus on individual rather than systematic causes of error.” At the same time, there is an estimated $15 billion per year spent on “defensive medicine.”[19]
Medical Liability Insurance
The current malpractice insurance crisis is the third in the last 30 years. In the mid-1970s, and again in the mid-1980s, medical malpractice markets experienced rapid increases in the frequency of claims, rising premiums and, in some places, decreasing options for professional coverage.
The National Academy for State Health Policy describes the role of insurance in the health care system: “Insurance underwriting practices are cyclical, with periodic adjusting of rates after the fact to reflect actual losses during a given period. The premiums are invested and the return on investments is factored in as a part of a company’s profit and losses. During times of high interest rates or a strong stock market, companies keep their premiums low to remain competitive. During these times, new companies enter the market and the resulting price wars cause companies to sell malpractice insurance at rates too low to cover costs of subsequent claims. When the boom stock market went bust, exacerbated by the September 11th attacks, many companies suffered large losses and either drastically raised premiums or stopped offering malpractice insurance.”
The cumulative underwriting loss for the medical liability insurance sector from 1990-2001 was nearly $10 billion. Medical liability insurance companies are now paying out approximately $1.40 for every premium dollar collected.[20]
The largest malpractice insurer in the country and in Georgia, The St. Paul Company, declared in December 2001 its plan to discontinue its services to the medical community. In 2003, many states averaged premium increases of 25 percent. The Georgia Ob-Gyn Society reports that 70 percent of respondents to their survey have had over 40 percent increases in their malpractice rates in the last two years, with some reporting 70 percent to over 100 percent. Board-certified emergency medicine groups in Georgia with no malpractice suits against them have experienced a 50 percent increase in the last two years.
Tort Law
When evaluating tort reform as it relates to the health care field in particular, it is important to balance the desire to eliminate frivolous lawsuits with the equally critical goal of protecting the right of an individual to have access to the courts when truly injured. With that in mind, medical liability awards have been growing steadily. According to Jury Verdict Research Data from 1994 to 2000, the median jury award rose by 176 percent. In 1996, 34 percent of all jury awards exceeded $1 million. Four years later, the number of million-dollar awards increased to 52 percent, and the average jury award in 2000 was nearly $3.5 million.
Medical liability costs are increasing at a far more rapid rate than medical costs generally. From 1975 to 2000, medical liability costs have exploded by 1,642 percent, as compared to a 449 percent increase for general medical costs.[21]
A July 2003 study by the U.S. Department of Health and Human Services entitled “The Impact of State Laws Limiting Malpractice Awards on the Geographic Distribution of Physicians,” found that states that have passed legislation to cap non-economic damages in medical liability cases have more doctors.
California is a very clear example of the effect of tort reform on insurance premium costs. In the early 1970s, California, with bipartisan support, passed the Medical Injury Compensation Reform Act or MICRA. The provisions were:
- Full compensation for all economic damages including medical bills, lost wages, future earnings, custodial care and rehabilitation
- A limit of $250,000 on non-economic damages, such as pain and suffering
- A fair and reasonable statute of limitations
- Periodic payment of damages and ensuring that the bulk of any award goes to the plaintiffs
From 1976 to 2000, medical liability premiums for physicians in California have risen only 167 percent as compared to a 505 percent increase for the entire United States. The awards in California have outpaced inflation, but since the increases have been only in economic damages, insurance companies have been better able to predict future costs and stability has been brought to the health care delivery system. In high-risk specialties, the difference is even more dramatic. In a nationwide survey of neurosurgeons from 2000 to 2002, the average rate of increase of malpractice insurance in non-reform states was 143 percent. In Los Angeles, the rate of increase for neurosurgeons was just 8 percent.[22]
Not all tort cases result in awards for patients. The Physician Insurers Association, in a sample of 5,524 malpractice cases, reported the following in 2002:
- 0.9 percent resulted in jury verdicts for the plaintiff
- 27.4 percent were settled before trial
- 67.7 percent were dropped or dismissed
- 4 percent resulted in a verdict for the defendant
Most of the individuals who are injured due to negligence (malpractice) do not sue. In fact, 97 percent of the patients who suffered negligent injury did not sue.[23] Physicians are much more likely to be sued for rendering non-negligent care. For example, of MAG Mutual’s cases that have gone to trial since 1982 in Georgia, 82 percent have resulted in verdicts in favor of the physician.[24]
A July 2002 report prepared for the U.S. Department of Health and Human Services found the cost to defend a malpractice claim averaged over $24,000 even though the majority of cases were dropped or dismissed. Countersuits to regain these monies have been for the most part unsuccessful since the courts are reluctant to discourage plaintiffs from utilizing the judicial system for meritorious claims.
For those who do sue and win, only 42 percent of the money awarded in medical tort cases ever reaches the patient or their families; 33 percent goes to lawyers and 25 percent goes for administrative costs.[25]
Conclusion
It stands to reason that our current malpractice system has not improved patient safety. Repeated studies over time and across several states show a consistent rate of adverse medical events due to negligence. In 1974, a California study reported that 1 percent of all hospitalized patients have significant injury due to physician negligence. The Harvard Medical Practice Study of 1984 in New York State reported a 1 percent injury rate due to physician negligence. A similar study in Colorado and Utah in 1992 again found a 1 percent physician negligence rate.[26]
Handling medical adverse event cases in the current legal system has not improved negligence rates; many believe it has hindered improvements in error rates. The cost of the system is enormous and increasing. Less than half of the money awarded ever makes it to the damaged party.
If our goal is to compensate patients when bad things happen, we need a more efficient system.
If our goal is to improve medical care and get rid of bad doctors, we need a more efficient system.
If our goal is to improve access to good medical care for all Georgians, we need a more efficient system.
The Perfect System
The perfect system would have swift no-fault compensation for everyone who suffers a significant, permanent, adverse medical event coupled with a professional review of each questioned case. The review should be admissible in court and it should clearly state if there was negligence or below-standard care. Doctors should be required to take training courses before their license is renewed if inadequate care was given. Doctors who do not have sufficient re-training or too many poor-care cases would lose their license. The review should also state if an adequate standard of care was rendered. If a patient or family wanted to reject the compensation provided and take the case to the current tort system, they certainly should be able to, with the caveat that the loser pays court costs. Lawyers working only on a contingency fee basis could purchase a bond to pay for court costs if they lost the case.
What Should Georgia Do?
1. Georgia should decide to develop a better system. If we do not choose to develop a better system, reasonable caps on non-economic damages are needed to ensure medical access and to control costs.
2. Georgia should also implement review panels. This evaluation should be admissible in court and could be used in arbitration settlements. One solution would be to require medical professionals to be available to serve on the statewide review boards that determine if the care given in a case where there was a bad outcome met the standard of care. To insure fairness and accuracy, these boards should ideally be composed of three board certified doctors in the specialty involved in the case, and two non-medical members from the general or legal community.
For more information, see:
Efficiently spend Medicaid dollars
Medicaid is a large and growing portion of Georgia’s state budget. Of the more than $6 billion spent on Medicaid in fiscal 2003, about $2.4 billion came from the state and $3.6 billion from the federal government. Medicaid, including the PeachCare program for children, pays for health care services for more than 1.6 million recipients. Rather than thinking of Medicaid recipients as one homogenous group, it is more helpful to think of them in groups. The three large groupings include adults and children who are eligible due to their low income status, elderly recipients who receive funding for long-term care, usually nursing homes, which Medicare (the federal health care program for the elderly) does not adequately cover, and the disabled who are eligible due to their income and disability.
The state’s primary attempt to reduce costs in this program has been to reduce reimbursement across the board to health care providers. In most cases, the current reimbursement rates are far below the actual cost of the service provided. As a result, fewer and fewer physicians can financially afford to see Medicaid recipients. In addition, these losses are shifted to other payers. In rural areas where there are fewer private payers to bear this added expense, losses due to Medicaid and other uncompensated care can cause shortages of critical health care services and in many cases have resulted in hospital closings.
Georgia has also tried a program to match each Medicaid recipient with a primary care physician to try to control costs and unnecessary use of services. The physician is paid $2 a month per recipient and the primary physician must approve visits to another physician. Even with the across-the-board cuts and the primary physician model, total expenditures per Medicaid recipient have increased just over 25 percent since fiscal year 1990.[27]
Part of the lack of success in these cost-savings measures is that physician services account for the smallest major Medicaid expenditure. Total physician services account for only 11 percent of the Medical Assistance budget while pharmacy services are 17 percent, hospital services are 30 percent, and nursing facilities are 20 percent. Mental health services, maternal and child services, emergency transport services, equipment and devices and all other services make up the remaining costs.[28] This illustrates why another cut in physician reimbursement will just not solve the problem. Even if you legislate that physicians must cut the costs of their services to Medicaid recipients by half, you still have 94 percent of the costs unaffected.
Real cost control opportunities: Managing Chronic Diseases
The real basis of the cost problem is that Medicaid covers mostly chronic conditions. The majority of Medicaid funds, 61 percent, are spent on the Aged, Blind or Disabled. Twenty-five percent is spent on income-eligible children and only 14 percent spent on income-eligible adults.[29] Statistically, 70 percent of the money spent on adults is for chronic medical problems. Clearly, chronic conditions require the overwhelming majority of the available funds. A more logical model for cost control in Medicaid should be aimed at controlling costs for chronic care.
There are many examples of successful efforts to reduce the costs of individuals with chronic diseases. When the city of Asheville, N.C., paid pharmacists to counsel diabetic patients, offering advice on diet, exercise, stress reduction and medications, total health care spending on diabetics fell from $7,042 per patient in 1996 to about $4,000 per year now. City officials report savings of $4 for every $1 invested in the program.[30]
Community Health Works (CHW) is another success story of managing chronic conditions right here in Georgia. CHW is a regional, nonprofit collaborative of health care providers, community leaders and government officials in Bibb, Crawford, Houston, Jones, Monroe, Peach and Twiggs counties in Middle Georgia. Targeting uninsured, adult residents with hypertension, heart disease, diabetes or depression, CHW’s average patient has an annual income of less than $5,000, has three different chronic diseases and takes five different medications. CHW uses an individual-centered, care management model based on the unique needs of each community it serves. Dr. William S. Custer of Georgia State University performed the first evaluation of CHW this year, and the results were impressive. In addition to saving the regional health system more than $340,000, more than 95 percent of patient members report improved health status. By reducing emergency room visits and hospitalization, this proactive, community-based effort has proven that improving health while saving money is possible. According to Dr. Custer, “The news is good and only going to get better.”[31]
In Florida, the Veterans Administration implemented a case management system using an Internet connected device called “Health Buddy.” Every day the patients interacted with Health Buddy and answered questions about their health. Nurse case managers reviewed this information and needed interventions with the patients were performed if necessary.
The program reported:
- 63 percent reduction in hospital visits
- 60 percent reduction in nursing home admissions
- 88 percent reduction in nursing home bed days of care
- 40 percent reduction in emergency room visits[32]
Florida, with the fourth largest Medicaid program in the country, also recently instituted a public-private partnership program with Pfizer Inc. to provide information and support to the Medicaid population with the chronic diseases asthma, diabetes, heart failure or hypertension. The program has improved health, reduced hospital days and saved the state an estimated $15.9 million during the first year. In Washington state, a similar program for 18,000 patients saved the state an estimated $2 million.[33]
“Cash and Counseling”
In 1995, the Robert Wood Johnson Foundation sponsored “Cash and Counseling,” a demonstration program to stimulate consumer direction and choice in long-term care. Traditionally, state Medicaid programs have contracted with home care agencies to provide personal assistance services, such as bathing and preparing meals to persons with disabilities. The program instead offered individual budgets to the recipients of Medicaid. Each person’s allocation was comparable to the value of the services he would receive through the traditional agencies. An evaluation showed that in Arkansas, the first state to implement “Cash and Counseling,” the beneficiaries reported higher satisfaction, better quality of life, fewer unmet care needs, better access to home care services, and less nursing home use – all without increasing costs or compromising health or safety.[34] In addition, no major instances of fraud or abuse were found. The foundation has expanded the authorization of $7 million to expand the program. Georgia should implement such a program.
Establish a safety net for uninsurable Georgians
Georgia has about 1 million uninsured, or 13 percent, of its non-elderly population – one of the highest rates in the country. The good news is that only 9 percent were uninsured for more than a year, and 68 percent of the uninsured are employed or the dependent of a worker.[35] The increasing availability of Health Savings Account plans should significantly help those who are employed.
We still need to help medically uninsurable Georgians by funding a high-risk pool. Georgia could greatly stabilize the small group and individual markets by creating a high-risk pool for persons with chronic, costly medical conditions. These individuals, who have been rejected by insurers as uninsurable or quoted premiums that are far beyond their capacity to pay are estimated to be less than 1 percent of the total market.
High-risk health insurance pools have been created in 32 states in order to provide affordable and quality private health insurance options for individuals with catastrophic medical conditions who do not have access to the group insurance market. By serving the state’s small but critical medically uninsurable population, pools not only provide a coverage home for very vulnerable and high end medical care consumers, they also help stabilize the remainder of the state’s health insurance market by guaranteeing that very high-risk individuals are covered in a contained, private market environment. A high-risk pool would help reduce health insurance costs for all of the rest of Georgia’s individual health insurance consumers in two key ways. First, since the pool would provide individual market carriers with a predictable means of assessing risk, it would encourage greater competition in the general marketplace. And as has been shown, repeatedly, greater competition in any market drives down prices. Secondly, as coverage becomes more and more affordable, the incentive for healthy individuals to enter that market grows, further reducing costs for everyone.
The stabilizing presence of a high-risk pool in the individual market also benefits the purchasers of group health insurance coverage. Since a pool creates an affordable option for medically uninsurable people in the individual market, there would be little incentive for very sick consumers to try and “game” the system and obtain guaranteed-issue coverage in the small group market. Currently there is no means in Georgia for seriously ill people to obtain guaranteed-issue individual coverage, but federal law requires small group health insurance coverage to be guaranteed issue. Therefore, there exists an unfortunate incentive for very sick individuals to try to create a “group” in order to obtain needed health coverage. Healthy people do not have this incentive, since they can currently obtain coverage in the individual market. These uninsurable “groups,” in addition to being oftentimes fraudulent, hurt the overall small-group health insurance market pool, since there is no need for people to create them unless they anticipate that they will be costly high-end users of the health insurance system. Reducing the number of these groups in Georgia could help reduce the acceleration of small-group health insurance rates.
When the subject of high-risk health insurance pools come up, it is usually hard to find anyone who thinks that the existence of a high-risk pool would be a bad idea for the health insurance marketplace. Generally, what is controversial about high-risk pools is the financing mechanism. Surveys of high-risk pool directors in the 32 states that have created them have shown that risk-pool premiums are never sufficient to pay all pool claims, since risk pool rates are capped and pool participants all have catastrophic medical conditions. Therefore, each of the states with high-risk pools has established some type of funding mechanism to cover pool losses. Of the five states that have most recently created risk pool, two (New Hampshire and South Dakota) have elected to fund their pool losses with an assessment on all health insurance carriers in the state, including re-insurers providing stop-loss coverage to self-funded health plans, based on the number of lives each carrier covers. Maryland and West Virginia elected to finance their losses with an assessment on hospitals, and Florida recently passed legislation to create a new pool to be financed primarily by enrollees’ premiums, and then appropriations by the Legislature of Florida, although no appropriation is made in the enabling legislation. Georgia should create a high-risk pool to serve its medically uninsurable population, and in doing so be sure to create a financing option for the pool that will be an equitable, stable means of funding pool premium shortfalls.
Other Good Ideas
Leverage existing public and private funds to expand access to health care.
Studies in Texas have shown that uncompensated care costs hospitals nearly $1,000 per uninsured person. Georgia is probably spending similar amounts. Much of this money would not need to be spent if more individuals had insurance coverage. This would also result in better utilization of health care resources because research indicates that individuals covered by health insurance both less likely to delay in seeking needed medical care and are less likely to utilize emergency rooms and other more expensive forms of health care services.
Agreements by providers in the area to accept discounted fees are also an important part of these types of programs. In many of the successful programs seen, providers were receiving little or no compensation for seeing uninsured patients with low incomes. Georgia should investigate innovative ways of filling this gap. By identifying existing sources of funds (disproportionate share hospital funds, indigent care trust funds, HIFA waiver funding, other uncompensated care expenditures, charity care, etc.), working with local community providers and leveraging these funds with private funds to encourage more personal responsibility, local communities can maximize access to health insurance for those who are currently uninsured.
Another way to leverage private funds and seamless insurance coverage is to take advantage of cost savings by adding PeachCare recipients to their parent’s employer-provided plans. PeachCare is the federally funded program that provides comprehensive health care to children through the age of 18 who do not qualify for Medicaid and live in households with incomes up to 235 percent of the federal poverty level. (The federal poverty level in 2004 for a family of four was $18,850.) In many instances, it is less expensive to enroll the child in the parent’s private plan than to pay for PeachCare. If the private plan does not provide certain federally-required benefits, “wrap around” coverage can be purchased very inexpensively. The result is that the children become insured, the parents only have to work with one insurance program, and either taxpayers save money or those saved funds can be used to expand access more broadly.
“Many states are now subsidizing private health insurance with public funds: Massachusettes, Colorado, Rhode Island, Pennsylvania, Wisconsin, New Jersey, Maryland andIowa. … There are several reasons states are interested in premium assistance programs. First, a substantial share of low-income families may have access to employer-sponsored insurance but are unable to afford that coverage. Buy-in programs are a way to help these families purchase private coverage. Second, states believe premium assistance programs – by leveraging public resources with private health coverage dollars – can produce significant budget savings. Third, states see premium assistance programs as a way to help stabilize private markets and prevent substitution. Finally, employer buy-in programs are attractive to many states because they rely on private markets and are consistent with the goals of individual responsibility and self-reliance.”
For more information, see “A Snapshot of State Experience Implementing Premium Assistance Programs,” National Academic for State Health Policy, produced under contract with the Centers for Medicare and Medicaid Services, U.S. Department of Health and Human Services, April 2003, pages 9 and 10, athttp://www.cms.hhs.gov/schiop/snapshot.pdf.
Utilize technology to lower costs, improve quality and provide information.
Modern medicine utilizes amazing technology in the operating room, but still relies on paper records and handwritten prescriptions in the medical office. Not only does this lead to excess cost and frustrating delays, but a lack of information or misinterpreted information can be life-threatening.
In 2004, Georgia passed an e-prescribing bill that will allow doctors to move away from handwritten prescriptions. Florida recently passed a law requiring doctors to write more legibly![36] In addition to helping prevent dangerous dosage and drug interaction errors, e-prescribing could also provide physicians with cost data for medication options. Hospitals in Georgia have already successfully begun to implement this advance.[37]
Electronic health records should also be explored. An electronic health record that complies with all privacy laws would ensure a more accurate medical record accessible to all appropriate medical personnel. A patient seen at midnight in the emergency room, for example, would have all medications, problems and history readily available. A visit to a second specialty physician would have all previous tests and medications available. Mistakes of incomplete knowledge would be avoided.
In rural hospitals, technology can help make up for staffing shortages. One company, for example, provides highly trained intensive care unit specialists for remote monitoring, allowing rural hospitals to provide constant, professional monitoring of these critical patients in their intensive care units. Much like air traffic controllers, these specialists can spot and notify local hospital personnel of problems before they are life-threatening, and provide expert advice. A recent study reported a 27 percent drop in ICU mortality and 17 percent shorter stays since the first e-ICU set up shop at Virginia’s Sentara Healthcare a few years ago. [38]
[1] This example assumes an individual is in the 25 percent federal income tax bracket. Other taxes would include FICA taxes of 15 percent and Georgia income taxes of 6 percent, for a grand total of 46 percent.
[2] http://www.meps.ahrq.gov/papers/st27/stat27.htm
[3] Journal of the American Medical Association (JAMA).
[4] FDCH Federal Department and Agency Documents May 27, 2004.
[5] Centers for Disease Control and Prevention, Publication Data 2002.
[6] For more information on how this would impact typical families, see Why Pay More? Simple Insurance Reform Would Save Coloradoans Millions, Linda Gorman, Independence Institute, http://i2i.org/articles/2-2002.pdf.
[7] Joseph Newhouse, “Free for All? Lessons from the Rand Health Insurance Experiment,” Harvard University Press, Cambridge, Mass., 1991, Page 41.
[8] “Study questions Medicare spending, Dollars, quality don’t correlate,” Larry Lipman – Palm Beach Post, Atlanta Journal-Constitution, Wednesday, April 7, 2004.
[9] BenefitNews.com, Success Story Interview, April 9, 2003.
[10] Health Savings Accounts: Early experience shows broad appeal, Grace-Marie Turner, Galen Institute, 6/23/2004, http://www.galen.org/ccbdocs.asp?docID=655
[11] Martin Feldstein and Jonathan Gruber. September 1994. A Major Risk Approach to Health Insurance Reform. Working Paper No. 4825, National Bureau of Economic Research, Cambridge, Massachusetts.
[12] Willard G. Manning, et al. June 1987. “Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment,” American Economic Review, p. 251.
[13] Hewitt Associates, March 31, 2004.
[14] Medical Expenditure Panel Study.
[15] Mercer Human Resource Consulting, http://www.mercerhr.com/knowledgecenter/reportsummary.jhtml?idContent=1068735
[16] For more information, see www.simplecare.com.
[17] “Fed up with insurance, some doctors want payment in cash,” Rebecca Cook, Associated Press, Atlanta Journal-Constitution, March 3, 2004. For more information see: “End Health Care Discrimination: Give Cash a Chance,” Kelly McCutchen, Georgia Public Policy Foundation, April 15, 2003.
[18] “America’s Liability Crisis: A National View,” American Medical Association (2003), available at http://www.ama-assn.org/ama1/pub/upload/mm/-1/med_liab_19stat.pdf
[19] Health Law Journal, 1993, Volume 1, page 97.
[20] June 2003 General Accounting Office report.
[21] Testimony of the Alliance of Specialty Medicine Capitol Hill hearing October 2003.
[22] Capitol Hill testimony October 2003.
[23] Harvard School of Public Health.
[24] MAG Mutual Insurance Company.
[25] T. Luu, “Reducing the Costs of Civil Litigation: What are the Costs of Litigation?,” PLRI Public Law Research Institute.
[26] Harvard School of Public Health.
[27] FY2000 Budget Report.
[28] Georgia Department of Community Health Annual Report, FY2002, page 20.
[29] Ibid, page 13.
[30] The Washington Post, “In NC, Improving Worker Health–and Cutting Costs,” August 20, 2002, page A1.
[31] http://www.cjaonline.net/Communities/GA_Forsyth.htm. For more infomation on this and similar programs in Georgia see “1% of Medicaid Members Generate 23% – An Argument for Case Management,” Karen Minyard, Ph.D. and Kate Gardner, MA, Georgia Health Policy Center, October 2003,http://www.gsu.edu/%7Ewwwghp/publications/issuebriefoct03.pdf[32] Newt Gingrich, Dana Pavey and Anne Woodbury, “Saving Lives and Saving Money,” 2003, page 99.
[33] Ibid, page 235.
[34] The Effects Of Cash And Counseling On Personal Care Services And Medicaid Costs In Arkansas, November 19, 2003,http://content.healthaffairs.org/cgi/reprint/hlthaff.w3.566v1.pdf
[35] Georgia Healthcare Coverage Project
[36] “Florida tells doctors: Print clearly or else,” Amednews.com, August 4, 2003, http://www.ama-assn.org/amednews/2003/08/04/prl20804.htm
[37] “Drug dispensing goes high tech,” Andy Miller, The Atlanta Journal-Constitution, March 27, 2004, http://www.ajc.com/business/content/business/0304/28prescribe.html(free subscription required)
[38] Warming Up To Telemedicine, Popular Science magazine, May 19th, 2004.
The Georgia Public Policy Foundation is an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (September 3, 2004). Permission to reprint in whole or in part is hereby granted, provided the affiliation is cited.
Health Care
Agenda
Goal: an affordable, effective health care system that promotes longer, healthier lives for all Georgians.
- Encourage the adoption of consumer-based health care plans so that traditional market forces can influence the cost of medical services as they now influence and control the cost of virtually all other commodities
- Ensure that the consumer has ready access to medical cost and efficacy information
- Examine the role of medical liability in the cost and availability of medical care in Georgia
- Efficiently spend Medicaid dollars
- Establish a safety net for uninsurable Georgians
Overview
The medical inflation rate for 2004 in the United States is predicted to be 12 percent. This will be the fifth year in a row it has been in double digits. This medical inflation rate is five times higher than the average general U.S. inflation of 2.4 percent during the same period.
Before the Second World War, most health care was purchased out of pocket and medical costs were in line with general inflation. With the outbreak of war, President Franklin D. Roosevelt and Congress put wage and price controls into effect. Labor could not bargain for higher wages and business could not compete for labor by offering higher wages. To solve this compensation problem, the IRS, with the support of Congress, established that health benefits would not be controlled by the wartime wage guidelines and furthermore, employers could purchase health benefits tax-free. With such a structure, employer-funded health plans quickly developed. Medicare used a similar third-party model when it was enacted in 1965.
With the third-party system, neither suppliers (hospitals and doctors) nor demanders (employees and retirees) have an incentive to control costs. Since the nation instituted widespread third-party payer systems for covering medical costs, medical inflation has increased four times faster than general inflation. The inflation-adjusted, per-person expenditure for health care increased from $1,120 in 1965 to $4,637 in 2000.
In 1960, more than 55 percent of total health care spending was paid directly by consumers. As of 2002, that number is now dramatically less and insurance coverage of even small expenses has insulated individuals and made them less likely to be concerned with cost.
Employers and insurance companies have attempted to control these rapidly increasing costs with “managed care.” Various types of managed care plans have been tried for the last 20 years but costs have continued to increase.Mercer Human Resources Consultants reports that 95 percent of all employer plans in 2003 were some type of managed care. As of 2003 (the most recent data available):
- 30 percent of all company plans were health maintenance organizations (HMOs)
- 51 percent were preferred provider plans (PPOs)
- 14 percent were point of service plans (POS)
- 5 percent were the original third-party, indemnity-type plans
Even with 95 percent “managed care,” medical inflation is now five times the general inflation rate. Costs are up, employee contributions are up, restrictions are up and only employee satisfaction is down. Health coverage is a major cause of labor disputes and many companies identify health coverage as their most unpredictable and rapidly increasing business expense.
This situation is clearly unsustainable for all parties.
The False Promise of a Single Payer System
Some countries have attempted to reduce the cost of health care by shifting to a single payer system, with government as the primary payer of health care services. This is a shift to third-party payers taken to the extreme. Although pushed as a panacea by some in the United States, this bureaucratic system of rationing is unpopular where it has been practiced. Large majorities of Canadians, Britons, Australians and New Zealanders think their health care system is broken and needs to be rebuilt. With Americans having already shown their dissatisfaction with managed care, it is likely that government rationing of health care services would meet a similar, if not stronger, reaction.
Source: Karen Donelan, et al, “The Cost of Health System Change: Public Discontent in Five Nations.”
Health Affairs. Project Hope. Bethesda, Maryland. May/June 1999, page 208.The Health Insurance Tax PenaltyThe U.S. tax code is one of the primary culprits in our current dysfunctional health care system. Employer-provided health insurance is tax-deductible, but if an employer does not offer health insurance benefits, individuals who purchase insurance privately do not get the same tax deduction. This tax penalty can often double the cost of insurance. As more and more businesses are forced to drop their insurance, it is not surprising that many employees remain uninsured – either by choice or necessity. As the graph shows, someone without access to employer-provided health insurance must earn $4,133 to afford the same health insurance an employer would purchase for $2,232.[1]
The Galen Institute, a non-profit health care research organization in Washington, D.C., accurately describes a variation of the effect of the tax code on access to health insurance. “Working Americans with incomes of around $25,000 are most likely to be uninsured and are caught in the trough – they earn too much to qualify for public programs but are unlikely to have the good jobs that provide health insurance as a tax-free benefit.”
The Lewin Group in Fairfax, Va., estimates that families earning $100,000 or more in 1998 received a tax benefit worth $2,357 from the favorable treatment of job-based health insurance. However, families with incomes of less than $15,000 received only a $71 benefit. The tax code is functioning as a highly regressive subsidy that drives many of the problems involving cost and access to health coverage in the United States. The Galen Institute suggests that many more people would have access to medical services and affordable health insurance if these inequities were addressed by providing refundable tax credits directly to the uninsured.
Currently the only federal health care tax credits for individuals were created by the Trade Adjustment Act of 2002. They are available only for individuals who have lost their jobs due to a trade-related event, or who receive benefits through the federal Pension Benefit Guarantee Corporation. The federal government should reverse this unfair and destructive tax policy. All individuals should have the same tax credit for health insurance as employers.
Current Patterns of Health Spending
In 1998, of the U.S. population with employment-based insurance, the 22 percent who spent $2,000 or more on health care accounted for 77 percent of all that population’s health spending. (“Employment-Based Health Insurance Is Failing: Now What?” Alain C. Enthoven, Health Affairs, 2003.)
The Medical Expenditure Panel Survey[2], cosponsored by the Agency for Healthcare Research and Quality and the National Center for Health Statistics, compiles extensive data on health spending. The latest available compiled data are for 2000. In 2000, 83.5 percent of the U.S. population had some health care expense. These expenses included inpatient care, outpatient care, medications, dental services, home health services and medical devices. The mean expense was $2,700, but the median was substantially lower at $720. That means that half the population spent $720 or less on total medical care in 2000.The large difference between the median and the mean is a result of a very small proportion of the population consuming a disproportionate share of overall health care dollars. In 2000, 25 percent of the health care spending was by 1 percent of the population. One fourth of the population spent three fourths of the money. This proportion has been remained stable over time.
Older people had more claims and higher expenses. The older population had a mean expense of $6,140 versus $2,127 for people under 65. They were 3.2 times more likely to have hospital inpatient expenses and the median expense was higher ($9,160 versus $4,372). Elderly people were also more likely to have prescription medical expenses than people under 65 and their median expense was five times higher.
The largest single payer among the population above 65 was Medicare (54.7 percent). The proportion of people 65 or older is expected to increase dramatically in the near future. Since expected health care costs for this population are predictably higher, our medical inflation problem is of increasing public concern in the very near future.
Medical Costs Influenced by Behavior
Of all the money spent for medical care, the majority, 60-75 percent, is spent on chronic conditions.[3] The Centers for Disease Control and Prevention reports that lifestyle is the most important influence on health status. Human biology was found to be responsible for 20 percent of health status difference, environment 19 percent, health care 10 percent and lifestyle 51 percent. Lifestyle choices such as smoking, obesity, stress, poor nutrition, excess alcohol use and illegal drug use all significantly increase health costs. The Department of Health and Human Services reports that smoking, for example, causes diseases in nearly every organ in the body and the economic toll exceeds $157 billion each year in the United States. Of that amount, $75 billion is for direct medical costs and an estimated $82 billion is lost productivity.[4] For Georgia, the smoking-attributed expenditure for Medicaid alone was $419 million in 1998.[5]Agenda: Encourage the adoption of consumer-based health care plans so that traditional market forces can influence the cost of medical services as they now influence and control the cost of virtually all other commodities
During the same period that saw a quadrupling of medical inflation, other scientifically innovative products such as cell phones and computers that have not been provided by employers as benefits are available to more people at a lower cost. Even those few medical services not primarily provided by third-party payers, such as cosmetic laser eye surgery, have followed general inflation or come down in cost. It is logical that returning more health care payments to a model directly influenced by consumer market forces could significantly reduce the rate of medical inflation.
This is now possible. As part of the Medicare Modernization Act of 2003, Congress and the President created Health Savings Accounts (HSAs), which combine qualified high-deductible health plans with tax-free health care spending accounts that are owned by the employee. Health Reimbursement Arrangements (HRAs), which became available to employers in 2002, are similar to HSAs, but HRAs are owned and controlled by the employer, not the employee. With both types of accounts, employers are able to save money on health insurance premiums by increasing deductibles. They can then pass on these savings to their employees in the form of deposits into their health spending accounts. Using common debit card technology, employees can use these funds to pay deductibles and other health care expenses. With the new HSAs, instead of “use-it-or-lose-it,” unused funds remain available for the individual’s future health care costs.[6]
The empirical evidence of consumer discretion in health care is plentiful, starting with the renowned Rand Health Insurance Experiment completed in the early 1980s. This study tested a variety of cost-sharing options over an eight-year period, from one that paid 100 percent of the cost of services to one that paid only 5 percent with a stop-loss limit. Project director and Harvard University professor Joseph Newhouse concluded, “Use of medical services responds unequivocally to changes in the amount paid out-of-pocket. … Per capita expenses on the free plan are 45% higher than those on the plan with a 95% coinsurance rate.” He added, “The more families had to pay out of pocket, the fewer medical services they used. Importantly, the lower use of services did not have a negative effect on health outcomes.”[7]
In the current third-party payer system, quality of health care is not dependent on price. A 2003 study of Medicare paid coronary bypass graft surgeries at five Phoenix, Arizona, hospitals found that the hospital with the lowest mortality rate and the lowest rate of complications charged Medicare the least.[8] In one Georgia hospital outpatient lab, routine screening labs such as cholesterol, glucose and hematocrit cost $514. At the health department in the same community, the patient obtained the same labs for $35. The vast majority of medical services are not emergencies. Careful consumers, spending their own money, with adequate knowledge, can make informed and cost-saving choices.
Currently, 9 percent of the nation’s jumbo employers (those employing more than 20,000) have already adopted consumer health plans. Although this is less than 1 percent of all companies, the initial data is very encouraging. Certainly, the principles are correct: When knowledgeable consumers spend their own money, they make better choices.
Combining a wellness program with these new accounts, the Louisiana State University Healthcare Network experienced a 9.6 percent increase in physician office visits but a 28 percent decrease in total health care costs last year. In an environment of double-digit annual increases in health care costs, a 28 percent decrease is quite dramatic.
In Georgia, Scientific-Atlanta rolled out a consumer-driven health care plan from Definity as one of several options for its employees in 2002. Fifteen percent of its employees signed up for the plan initially. Enrollment doubled to 30 percent in 2003 and reached 37 percent in 2004. The retention rate of 96 percent was significantly higher than that seen among their other plans. The most recent cost data shows savings of $1 million in 2002 or a 4 percent decline in total costs for the employees who switched to the consumer-driven plan. Ninety-five percent of the members were “satisfied” or “very satisfied,” based on an annual 2002 member satisfaction survey. According to Beth Pollard, VP of Compensation, Benefits and HR Planning, “To date, we’ve had no employee complaints associated with the Definity plan.”[9]
Blue Cross Blue Shield of Georgia announced in April, 2004, that it has established high-deductible health plans compatible with HSAs. Therefore, this option is now widely available to all Georgians.
A new study by Assurant Health, a leading firm offering HSAs, shows that 43 percent of those purchasing the new accounts since Jan. 1, 2004, were previously uninsured. Assurant reports that the new accounts are appealing to those who were previously shut out of the insurance market, to families, to older Americans and to workers of all income levels.
In addition, the study found that preventive care office visits were up 31 percent. This increased utilization of preventive care with consumer directed plans was consistent with an earlier study done by Aetna.
eHealthInsurance found that 71 percent of those purchasing HSAs paid less than $100 a month for insurance premiums. In their sample, 56 percent of their consumers were 40 years of age or older. The plans they purchased, while inexpensive, have comprehensive benefits, once deductible levels were met.[10]
Destiny Health, a provider of consumer health plans, also reported behavior changes in the purchasers of their plans. They reported that the first year, on average, members fill 70 percent of their prescriptions with high-price formulary drugs. By the end of the second year in the plan, the members are opting for generic drugs 50 percent of the time. They also report a survey that shows that 79 percent of Destiny Health Plan members had started an exercise or nutrition program in the preceding year, only 32 percent of non-members could say the same. This company has been selling HSA-type plans internationally for 12 years.
Possible cost savings
How much money could Georgia save? Economists Martin Feldstein and Jonathan Gruber used data from the National Medical Expenditure Survey to simulate health care spending. They evaluated a model with a high deductible and found that encouraging people to shift to true insurance policies covering only major risks could lower aggregate health spending by 20 percent.[11]
In the Rand Health Insurance Experiment, insurance plans with high deductibles and relatively large out-of-pocket costs reduced expenditures by 31 percent relative to those that provided first dollar coverage.[12]
Consumer health plans, where the employee’s own money is spent first, look very similar to a true high deductible model if the money saved is owned by the individual and can be rolled over for future health needs or long-term care.
Hewitt Associates estimates that more than 60 percent of large employers are likely to offer their employees the new Health Savings Account plans in the near future.[13]Georgia has 600,000 government employees and spent $1.5 billion for their health care in FY2002. If it offers its employees a consumer driven plan, the cost savings for the state budget could be enormous. In addition, businesses in the state would have a role model for adopting similar programs. The stimulation to the economy could also be enormous.
Types of plans
Tony Kotin at Mercer Human Resources Consulting describes consumerism in health care as a spectrum of models along a continuum, beginning with simple co-insurance and moving toward defined contributions.
The simplest plan might combine an HSA or HRA with an insurance plan only for higher, less likely expenses. Since the known median health expenditure is $720, the health account might have $1,000 in it to cover most costs, followed by an out-of-pocket amount of $500 or $1,000, followed by a higher coverage insurance policy for 100 percent coverage of all other costs.
Mr. Kotin described a more complicated arrangement that more resembles co-pay insurance. This plan is illustrated below.
The greatest impact of these plans is on the smaller expenses. Getting your cholesterol checked for $35, not $520, for example. Again, the total medical expenses for half the population was $720.[14]
Defined contribution plans differ in that they also target larger expenses. In defined contribution plans, the employer pays a set amount for each medical service. After an annual deductible, the plan pays 100 percent of charges up to the median amount charged for that service in the community. There is complete freedom of choice for medical services but if the doctor does not agree to perform the service for the median charge, the employee is responsible for additional charges. After a maximum amount paid by the employee, insurance covers 100 percent of all additional charges.
A needed, unexpected benefit of Health Savings Accounts — funding long-term care
One advantage of the rise in consumer health plans is that long-term care premiums can be paid from the tax-free Health Savings Accounts. Most Americans are completely unprepared if they or a loved face a medical crisis that requires long-term care. Many people have never even considered the benefits and options available for financing potential long-term care needs. When a medical catastrophe occurs, the majority of Americans are forced to either self-finance their care or rely on Medicaid to foot the bill. Because the baby boom generation is aging, the possibility of needing long-term care is increasing. Currently, catastrophic medical costs are a leading cause of bankruptcy, and it is clear we must come to terms with the crisis in long-term care financing.
One of the best ways Americans can prepare for future long-term care is through the purchase of private long-term care insurance. Private long-term care insurance benefits offer Americans financial security as they age, as well as the ability to choose the type of care that best suits their individual needs. There are many different types of long-term care insurance policies available, all with different costs and levels of benefits. Depending on the type of policy, long-term care insurance is used not only to finance nursing home care, but also to pay for assisted living facilities, home-based care and other services.
There are two things Georgia could do to relieve the financial barriers for long-term care:
- Provide state income tax incentives to residents who purchase long-term care insurance policies for themselves and their family members.
- Enact legislation to create a long-term care partnership program for the state of Georgia.
The purpose of a long-term care partnership program is to provide incentives for individuals to purchase long-term care insurance. Later, the financial burden on the state is relieved for the long-term care needs of their citizens because the Medicaid program is used less for long-term care. With the partnership, individuals who exhaust qualified private long-term care policy benefits are still allowed to protect an equivalent value of their assets and satisfy Medicaid’s financial eligibility requirements. The four states that have had partnership plans for almost a decade, specifically California, Connecticut, Indiana and New York, have experienced significant savings to taxpayers, and have seen less than 100 total partnership purchasers qualify for Medicaid. Unfortunately, a provision in the federal Omnibus Budget Reconciliation Act of 1993 known as the Waxman Amendment has prevented the other states from following suit and creating their own partnership programs. However, Georgia can follow the lead of a number of other states by creating a partnership program for Georgia that will take effect immediately when the Waxman Amendment is repealed at the federal level.
Ensure that the consumer has ready access to medical cost and efficacy information
Consumers must have access to sufficient information to make intelligent choices. Medical information is already widely available on a number of Web sites. Eighty-two percent of patients who obtain medical information via the Internet use a search engine (such as Yahoo) to access that information.[15] Accuracy of this information is a significant concern. If the various medical societies such as the Georgia Medical Association and the Georgia Obstetric and Gynecology Society would provide a list of suggested sites for the state to publish, information that is more reliable should be available.
Medical cost information is now very difficult to obtain. In 2004, Florida passed HB 1629, which attempts to address this problem. The law requires licensed medical facilities to make patient charge and medical performance data available on Web sites. The licensed facilities must also provide prospective patients with estimates for charges for services. They must also provide complication rates for such things as infections after surgery and mortality rates for surgical procedures. A notice must be in the reception area that such data is available.
In addition, in HB 1629, collection of the retail prices charged by pharmacies for the 50 most frequently prescribed medications was authorized. Brand name prices and comparable generic availability and prices are to be reported for each drug. The data is to be available on a Internet Web site for each drug by pharmacy and by metropolitan area or region and updated quarterly. Patients can compare prices and locations online.
The Florida law does not require it, but it would also be useful to have published estimates for office visits for HSA or other self-pay patients. These visits can often be provided at a lower cost. Filing insurance claims for routine office visits is an expensive, time-intensive task. Dr. Vern Cherewatenko, who founded SimpleCare[16] to encourage cash-only medicine, notes that before he switched to a cash-only practice, he charged $79 for an office visit and got $43 from the insurance company months later, minus $20 in staff time it took to collect the payment. Now he charges $50 for that same visit and everyone is happy.[17]Examine the role of medical liability in the cost and availability of medical care in Georgia
The American Medical Association currently lists Georgia as one of the 19 states with a malpractice crisis.[18] Twelve percent of Georgia obstetricians will stop delivering babies between 2002 and 2005. These vacant positions will not necessarily be easily filled. The American College of Obstetrics and Gynecologists reports a significant decrease in the number of obstetricians being trained. Only 66 percent of new residency training positions were filled in the United States in 2003 and fewer students are choosing to go into Ob/Gyn. For example, Common Good, a legal reform coalition, reports that last year in Maryland, which has been hard hit by lawsuits, no medical graduates of the University of Maryland chose residencies in obstetrics. This year, only one student out of 150 chose obstetrics.
In the four Georgia medical schools, Emory, Medical College of Georgia, Mercer and Morehouse, there were 359 medical graduates in 2004 and only 20 of them are going into Ob/Gyn. The current statistic is that 50 percent of obstetricians trained in Georgia leave the state. Thirty percent of practicing Ob/Gyns are over age 55. With earlier retirement and fewer students entering the field, potential loss of services looms large.
A March 2003 study conducted by the AMA reports that 64.8 percent of physicians in America’s high-risk specialties, such as neurosurgery, trauma surgery, emergency medicine and obstetrics, have reduced services. A fourth have completely stopped needed services such as emergency and trauma care and delivering babies. The majority, 92 percent, of these physicians say that liability pressures were important in their decision to stop the services.
Unless we are willing to have only elective, low-risk surgical cases and routine medical care provided, we must reform the medical liability system. To solve this recurrent problem, a comprehensive understanding of all the systems involved is needed. Medical care, liability insurance and tort law all play a role in costs and consequences. Any solution that only deals with one of the components is doomed to failure.
Medical Care
There have been several large studies evaluating adverse medical events. The studies found both bad outcomes with appropriate care and bad outcomes with negligence. The Institute of Medicine’s 2000 Report states that with “modern medicine’s increasing capacity to alleviate disease, injury and disability, comes significant risks to independently cause harm.” It is also very important to remember that you can have the absolutely best, even the most expensive, perfect medical care in the entire world, and at some time, you will still die. Medicine can extend or improve life, but it can never guarantee that you will live without disease or defect forever. We need to determine which adverse medical are preventable, and correct them.
The Institute of Medicine’s 2000 report estimated that there are 1 million errors in American medicine each year and between 44,000 and 98,000 people die each year due to that medical error. It concluded that medical malpractice suits were not correcting the problem and indeed may contribute to “a failure to observe and learn from errors and a continued focus on individual rather than systematic causes of error.” At the same time, there is an estimated $15 billion per year spent on “defensive medicine.”[19]
Medical Liability Insurance
The current malpractice insurance crisis is the third in the last 30 years. In the mid-1970s, and again in the mid-1980s, medical malpractice markets experienced rapid increases in the frequency of claims, rising premiums and, in some places, decreasing options for professional coverage.
The National Academy for State Health Policy describes the role of insurance in the health care system: “Insurance underwriting practices are cyclical, with periodic adjusting of rates after the fact to reflect actual losses during a given period. The premiums are invested and the return on investments is factored in as a part of a company’s profit and losses. During times of high interest rates or a strong stock market, companies keep their premiums low to remain competitive. During these times, new companies enter the market and the resulting price wars cause companies to sell malpractice insurance at rates too low to cover costs of subsequent claims. When the boom stock market went bust, exacerbated by the September 11th attacks, many companies suffered large losses and either drastically raised premiums or stopped offering malpractice insurance.”
The cumulative underwriting loss for the medical liability insurance sector from 1990-2001 was nearly $10 billion. Medical liability insurance companies are now paying out approximately $1.40 for every premium dollar collected.[20]
The largest malpractice insurer in the country and in Georgia, The St. Paul Company, declared in December 2001 its plan to discontinue its services to the medical community. In 2003, many states averaged premium increases of 25 percent. The Georgia Ob-Gyn Society reports that 70 percent of respondents to their survey have had over 40 percent increases in their malpractice rates in the last two years, with some reporting 70 percent to over 100 percent. Board-certified emergency medicine groups in Georgia with no malpractice suits against them have experienced a 50 percent increase in the last two years.
Tort Law
When evaluating tort reform as it relates to the health care field in particular, it is important to balance the desire to eliminate frivolous lawsuits with the equally critical goal of protecting the right of an individual to have access to the courts when truly injured. With that in mind, medical liability awards have been growing steadily. According to Jury Verdict Research Data from 1994 to 2000, the median jury award rose by 176 percent. In 1996, 34 percent of all jury awards exceeded $1 million. Four years later, the number of million-dollar awards increased to 52 percent, and the average jury award in 2000 was nearly $3.5 million.
Medical liability costs are increasing at a far more rapid rate than medical costs generally. From 1975 to 2000, medical liability costs have exploded by 1,642 percent, as compared to a 449 percent increase for general medical costs.[21]
A July 2003 study by the U.S. Department of Health and Human Services entitled “The Impact of State Laws Limiting Malpractice Awards on the Geographic Distribution of Physicians,” found that states that have passed legislation to cap non-economic damages in medical liability cases have more doctors.
California is a very clear example of the effect of tort reform on insurance premium costs. In the early 1970s, California, with bipartisan support, passed the Medical Injury Compensation Reform Act or MICRA. The provisions were:
- Full compensation for all economic damages including medical bills, lost wages, future earnings, custodial care and rehabilitation
- A limit of $250,000 on non-economic damages, such as pain and suffering
- A fair and reasonable statute of limitations
- Periodic payment of damages and ensuring that the bulk of any award goes to the plaintiffs
From 1976 to 2000, medical liability premiums for physicians in California have risen only 167 percent as compared to a 505 percent increase for the entire United States. The awards in California have outpaced inflation, but since the increases have been only in economic damages, insurance companies have been better able to predict future costs and stability has been brought to the health care delivery system. In high-risk specialties, the difference is even more dramatic. In a nationwide survey of neurosurgeons from 2000 to 2002, the average rate of increase of malpractice insurance in non-reform states was 143 percent. In Los Angeles, the rate of increase for neurosurgeons was just 8 percent.[22]
Not all tort cases result in awards for patients. The Physician Insurers Association, in a sample of 5,524 malpractice cases, reported the following in 2002:
- 0.9 percent resulted in jury verdicts for the plaintiff
- 27.4 percent were settled before trial
- 67.7 percent were dropped or dismissed
- 4 percent resulted in a verdict for the defendant
Most of the individuals who are injured due to negligence (malpractice) do not sue. In fact, 97 percent of the patients who suffered negligent injury did not sue.[23] Physicians are much more likely to be sued for rendering non-negligent care. For example, of MAG Mutual’s cases that have gone to trial since 1982 in Georgia, 82 percent have resulted in verdicts in favor of the physician.[24]
A July 2002 report prepared for the U.S. Department of Health and Human Services found the cost to defend a malpractice claim averaged over $24,000 even though the majority of cases were dropped or dismissed. Countersuits to regain these monies have been for the most part unsuccessful since the courts are reluctant to discourage plaintiffs from utilizing the judicial system for meritorious claims.
For those who do sue and win, only 42 percent of the money awarded in medical tort cases ever reaches the patient or their families; 33 percent goes to lawyers and 25 percent goes for administrative costs.[25]
Conclusion
It stands to reason that our current malpractice system has not improved patient safety. Repeated studies over time and across several states show a consistent rate of adverse medical events due to negligence. In 1974, a California study reported that 1 percent of all hospitalized patients have significant injury due to physician negligence. The Harvard Medical Practice Study of 1984 in New York State reported a 1 percent injury rate due to physician negligence. A similar study in Colorado and Utah in 1992 again found a 1 percent physician negligence rate.[26]
Handling medical adverse event cases in the current legal system has not improved negligence rates; many believe it has hindered improvements in error rates. The cost of the system is enormous and increasing. Less than half of the money awarded ever makes it to the damaged party.
If our goal is to compensate patients when bad things happen, we need a more efficient system.
If our goal is to improve medical care and get rid of bad doctors, we need a more efficient system.
If our goal is to improve access to good medical care for all Georgians, we need a more efficient system.
The Perfect System
The perfect system would have swift no-fault compensation for everyone who suffers a significant, permanent, adverse medical event coupled with a professional review of each questioned case. The review should be admissible in court and it should clearly state if there was negligence or below-standard care. Doctors should be required to take training courses before their license is renewed if inadequate care was given. Doctors who do not have sufficient re-training or too many poor-care cases would lose their license. The review should also state if an adequate standard of care was rendered. If a patient or family wanted to reject the compensation provided and take the case to the current tort system, they certainly should be able to, with the caveat that the loser pays court costs. Lawyers working only on a contingency fee basis could purchase a bond to pay for court costs if they lost the case.
What Should Georgia Do?
1. Georgia should decide to develop a better system. If we do not choose to develop a better system, reasonable caps on non-economic damages are needed to ensure medical access and to control costs.
2. Georgia should also implement review panels. This evaluation should be admissible in court and could be used in arbitration settlements. One solution would be to require medical professionals to be available to serve on the statewide review boards that determine if the care given in a case where there was a bad outcome met the standard of care. To insure fairness and accuracy, these boards should ideally be composed of three board certified doctors in the specialty involved in the case, and two non-medical members from the general or legal community.
For more information, see:
Efficiently spend Medicaid dollars
Medicaid is a large and growing portion of Georgia’s state budget. Of the more than $6 billion spent on Medicaid in fiscal 2003, about $2.4 billion came from the state and $3.6 billion from the federal government. Medicaid, including the PeachCare program for children, pays for health care services for more than 1.6 million recipients. Rather than thinking of Medicaid recipients as one homogenous group, it is more helpful to think of them in groups. The three large groupings include adults and children who are eligible due to their low income status, elderly recipients who receive funding for long-term care, usually nursing homes, which Medicare (the federal health care program for the elderly) does not adequately cover, and the disabled who are eligible due to their income and disability.
The state’s primary attempt to reduce costs in this program has been to reduce reimbursement across the board to health care providers. In most cases, the current reimbursement rates are far below the actual cost of the service provided. As a result, fewer and fewer physicians can financially afford to see Medicaid recipients. In addition, these losses are shifted to other payers. In rural areas where there are fewer private payers to bear this added expense, losses due to Medicaid and other uncompensated care can cause shortages of critical health care services and in many cases have resulted in hospital closings.
Georgia has also tried a program to match each Medicaid recipient with a primary care physician to try to control costs and unnecessary use of services. The physician is paid $2 a month per recipient and the primary physician must approve visits to another physician. Even with the across-the-board cuts and the primary physician model, total expenditures per Medicaid recipient have increased just over 25 percent since fiscal year 1990.[27]
Part of the lack of success in these cost-savings measures is that physician services account for the smallest major Medicaid expenditure. Total physician services account for only 11 percent of the Medical Assistance budget while pharmacy services are 17 percent, hospital services are 30 percent, and nursing facilities are 20 percent. Mental health services, maternal and child services, emergency transport services, equipment and devices and all other services make up the remaining costs.[28] This illustrates why another cut in physician reimbursement will just not solve the problem. Even if you legislate that physicians must cut the costs of their services to Medicaid recipients by half, you still have 94 percent of the costs unaffected.
Real cost control opportunities: Managing Chronic Diseases
The real basis of the cost problem is that Medicaid covers mostly chronic conditions. The majority of Medicaid funds, 61 percent, are spent on the Aged, Blind or Disabled. Twenty-five percent is spent on income-eligible children and only 14 percent spent on income-eligible adults.[29] Statistically, 70 percent of the money spent on adults is for chronic medical problems. Clearly, chronic conditions require the overwhelming majority of the available funds. A more logical model for cost control in Medicaid should be aimed at controlling costs for chronic care.
There are many examples of successful efforts to reduce the costs of individuals with chronic diseases. When the city of Asheville, N.C., paid pharmacists to counsel diabetic patients, offering advice on diet, exercise, stress reduction and medications, total health care spending on diabetics fell from $7,042 per patient in 1996 to about $4,000 per year now. City officials report savings of $4 for every $1 invested in the program.[30]
Community Health Works (CHW) is another success story of managing chronic conditions right here in Georgia. CHW is a regional, nonprofit collaborative of health care providers, community leaders and government officials in Bibb, Crawford, Houston, Jones, Monroe, Peach and Twiggs counties in Middle Georgia. Targeting uninsured, adult residents with hypertension, heart disease, diabetes or depression, CHW’s average patient has an annual income of less than $5,000, has three different chronic diseases and takes five different medications. CHW uses an individual-centered, care management model based on the unique needs of each community it serves. Dr. William S. Custer of Georgia State University performed the first evaluation of CHW this year, and the results were impressive. In addition to saving the regional health system more than $340,000, more than 95 percent of patient members report improved health status. By reducing emergency room visits and hospitalization, this proactive, community-based effort has proven that improving health while saving money is possible. According to Dr. Custer, “The news is good and only going to get better.”[31]
In Florida, the Veterans Administration implemented a case management system using an Internet connected device called “Health Buddy.” Every day the patients interacted with Health Buddy and answered questions about their health. Nurse case managers reviewed this information and needed interventions with the patients were performed if necessary.
The program reported:
- 63 percent reduction in hospital visits
- 60 percent reduction in nursing home admissions
- 88 percent reduction in nursing home bed days of care
- 40 percent reduction in emergency room visits[32]
Florida, with the fourth largest Medicaid program in the country, also recently instituted a public-private partnership program with Pfizer Inc. to provide information and support to the Medicaid population with the chronic diseases asthma, diabetes, heart failure or hypertension. The program has improved health, reduced hospital days and saved the state an estimated $15.9 million during the first year. In Washington state, a similar program for 18,000 patients saved the state an estimated $2 million.[33]
“Cash and Counseling”
In 1995, the Robert Wood Johnson Foundation sponsored “Cash and Counseling,” a demonstration program to stimulate consumer direction and choice in long-term care. Traditionally, state Medicaid programs have contracted with home care agencies to provide personal assistance services, such as bathing and preparing meals to persons with disabilities. The program instead offered individual budgets to the recipients of Medicaid. Each person’s allocation was comparable to the value of the services he would receive through the traditional agencies. An evaluation showed that in Arkansas, the first state to implement “Cash and Counseling,” the beneficiaries reported higher satisfaction, better quality of life, fewer unmet care needs, better access to home care services, and less nursing home use – all without increasing costs or compromising health or safety.[34] In addition, no major instances of fraud or abuse were found. The foundation has expanded the authorization of $7 million to expand the program. Georgia should implement such a program.
Establish a safety net for uninsurable Georgians
Georgia has about 1 million uninsured, or 13 percent, of its non-elderly population – one of the highest rates in the country. The good news is that only 9 percent were uninsured for more than a year, and 68 percent of the uninsured are employed or the dependent of a worker.[35] The increasing availability of Health Savings Account plans should significantly help those who are employed.
We still need to help medically uninsurable Georgians by funding a high-risk pool. Georgia could greatly stabilize the small group and individual markets by creating a high-risk pool for persons with chronic, costly medical conditions. These individuals, who have been rejected by insurers as uninsurable or quoted premiums that are far beyond their capacity to pay are estimated to be less than 1 percent of the total market.
High-risk health insurance pools have been created in 32 states in order to provide affordable and quality private health insurance options for individuals with catastrophic medical conditions who do not have access to the group insurance market. By serving the state’s small but critical medically uninsurable population, pools not only provide a coverage home for very vulnerable and high end medical care consumers, they also help stabilize the remainder of the state’s health insurance market by guaranteeing that very high-risk individuals are covered in a contained, private market environment. A high-risk pool would help reduce health insurance costs for all of the rest of Georgia’s individual health insurance consumers in two key ways. First, since the pool would provide individual market carriers with a predictable means of assessing risk, it would encourage greater competition in the general marketplace. And as has been shown, repeatedly, greater competition in any market drives down prices. Secondly, as coverage becomes more and more affordable, the incentive for healthy individuals to enter that market grows, further reducing costs for everyone.
The stabilizing presence of a high-risk pool in the individual market also benefits the purchasers of group health insurance coverage. Since a pool creates an affordable option for medically uninsurable people in the individual market, there would be little incentive for very sick consumers to try and “game” the system and obtain guaranteed-issue coverage in the small group market. Currently there is no means in Georgia for seriously ill people to obtain guaranteed-issue individual coverage, but federal law requires small group health insurance coverage to be guaranteed issue. Therefore, there exists an unfortunate incentive for very sick individuals to try to create a “group” in order to obtain needed health coverage. Healthy people do not have this incentive, since they can currently obtain coverage in the individual market. These uninsurable “groups,” in addition to being oftentimes fraudulent, hurt the overall small-group health insurance market pool, since there is no need for people to create them unless they anticipate that they will be costly high-end users of the health insurance system. Reducing the number of these groups in Georgia could help reduce the acceleration of small-group health insurance rates.
When the subject of high-risk health insurance pools come up, it is usually hard to find anyone who thinks that the existence of a high-risk pool would be a bad idea for the health insurance marketplace. Generally, what is controversial about high-risk pools is the financing mechanism. Surveys of high-risk pool directors in the 32 states that have created them have shown that risk-pool premiums are never sufficient to pay all pool claims, since risk pool rates are capped and pool participants all have catastrophic medical conditions. Therefore, each of the states with high-risk pools has established some type of funding mechanism to cover pool losses. Of the five states that have most recently created risk pool, two (New Hampshire and South Dakota) have elected to fund their pool losses with an assessment on all health insurance carriers in the state, including re-insurers providing stop-loss coverage to self-funded health plans, based on the number of lives each carrier covers. Maryland and West Virginia elected to finance their losses with an assessment on hospitals, and Florida recently passed legislation to create a new pool to be financed primarily by enrollees’ premiums, and then appropriations by the Legislature of Florida, although no appropriation is made in the enabling legislation. Georgia should create a high-risk pool to serve its medically uninsurable population, and in doing so be sure to create a financing option for the pool that will be an equitable, stable means of funding pool premium shortfalls.
Other Good Ideas
Leverage existing public and private funds to expand access to health care.
Studies in Texas have shown that uncompensated care costs hospitals nearly $1,000 per uninsured person. Georgia is probably spending similar amounts. Much of this money would not need to be spent if more individuals had insurance coverage. This would also result in better utilization of health care resources because research indicates that individuals covered by health insurance both less likely to delay in seeking needed medical care and are less likely to utilize emergency rooms and other more expensive forms of health care services.
Agreements by providers in the area to accept discounted fees are also an important part of these types of programs. In many of the successful programs seen, providers were receiving little or no compensation for seeing uninsured patients with low incomes. Georgia should investigate innovative ways of filling this gap. By identifying existing sources of funds (disproportionate share hospital funds, indigent care trust funds, HIFA waiver funding, other uncompensated care expenditures, charity care, etc.), working with local community providers and leveraging these funds with private funds to encourage more personal responsibility, local communities can maximize access to health insurance for those who are currently uninsured.
Another way to leverage private funds and seamless insurance coverage is to take advantage of cost savings by adding PeachCare recipients to their parent’s employer-provided plans. PeachCare is the federally funded program that provides comprehensive health care to children through the age of 18 who do not qualify for Medicaid and live in households with incomes up to 235 percent of the federal poverty level. (The federal poverty level in 2004 for a family of four was $18,850.) In many instances, it is less expensive to enroll the child in the parent’s private plan than to pay for PeachCare. If the private plan does not provide certain federally-required benefits, “wrap around” coverage can be purchased very inexpensively. The result is that the children become insured, the parents only have to work with one insurance program, and either taxpayers save money or those saved funds can be used to expand access more broadly.
“Many states are now subsidizing private health insurance with public funds: Massachusettes, Colorado, Rhode Island, Pennsylvania, Wisconsin, New Jersey, Maryland andIowa. … There are several reasons states are interested in premium assistance programs. First, a substantial share of low-income families may have access to employer-sponsored insurance but are unable to afford that coverage. Buy-in programs are a way to help these families purchase private coverage. Second, states believe premium assistance programs – by leveraging public resources with private health coverage dollars – can produce significant budget savings. Third, states see premium assistance programs as a way to help stabilize private markets and prevent substitution. Finally, employer buy-in programs are attractive to many states because they rely on private markets and are consistent with the goals of individual responsibility and self-reliance.”
For more information, see “A Snapshot of State Experience Implementing Premium Assistance Programs,” National Academic for State Health Policy, produced under contract with the Centers for Medicare and Medicaid Services, U.S. Department of Health and Human Services, April 2003, pages 9 and 10, athttp://www.cms.hhs.gov/schiop/snapshot.pdf.
Utilize technology to lower costs, improve quality and provide information.
Modern medicine utilizes amazing technology in the operating room, but still relies on paper records and handwritten prescriptions in the medical office. Not only does this lead to excess cost and frustrating delays, but a lack of information or misinterpreted information can be life-threatening.
In 2004, Georgia passed an e-prescribing bill that will allow doctors to move away from handwritten prescriptions. Florida recently passed a law requiring doctors to write more legibly![36] In addition to helping prevent dangerous dosage and drug interaction errors, e-prescribing could also provide physicians with cost data for medication options. Hospitals in Georgia have already successfully begun to implement this advance.[37]
Electronic health records should also be explored. An electronic health record that complies with all privacy laws would ensure a more accurate medical record accessible to all appropriate medical personnel. A patient seen at midnight in the emergency room, for example, would have all medications, problems and history readily available. A visit to a second specialty physician would have all previous tests and medications available. Mistakes of incomplete knowledge would be avoided.
In rural hospitals, technology can help make up for staffing shortages. One company, for example, provides highly trained intensive care unit specialists for remote monitoring, allowing rural hospitals to provide constant, professional monitoring of these critical patients in their intensive care units. Much like air traffic controllers, these specialists can spot and notify local hospital personnel of problems before they are life-threatening, and provide expert advice. A recent study reported a 27 percent drop in ICU mortality and 17 percent shorter stays since the first e-ICU set up shop at Virginia’s Sentara Healthcare a few years ago. [38]
[1] This example assumes an individual is in the 25 percent federal income tax bracket. Other taxes would include FICA taxes of 15 percent and Georgia income taxes of 6 percent, for a grand total of 46 percent.
[2] http://www.meps.ahrq.gov/papers/st27/stat27.htm
[3] Journal of the American Medical Association (JAMA).
[4] FDCH Federal Department and Agency Documents May 27, 2004.
[5] Centers for Disease Control and Prevention, Publication Data 2002.
[6] For more information on how this would impact typical families, see Why Pay More? Simple Insurance Reform Would Save Coloradoans Millions, Linda Gorman, Independence Institute, http://i2i.org/articles/2-2002.pdf.
[7] Joseph Newhouse, “Free for All? Lessons from the Rand Health Insurance Experiment,” Harvard University Press, Cambridge, Mass., 1991, Page 41.
[8] “Study questions Medicare spending, Dollars, quality don’t correlate,” Larry Lipman – Palm Beach Post, Atlanta Journal-Constitution, Wednesday, April 7, 2004.
[9] BenefitNews.com, Success Story Interview, April 9, 2003.
[10] Health Savings Accounts: Early experience shows broad appeal, Grace-Marie Turner, Galen Institute, 6/23/2004, http://www.galen.org/ccbdocs.asp?docID=655
[11] Martin Feldstein and Jonathan Gruber. September 1994. A Major Risk Approach to Health Insurance Reform. Working Paper No. 4825, National Bureau of Economic Research, Cambridge, Massachusetts.
[12] Willard G. Manning, et al. June 1987. “Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment,” American Economic Review, p. 251.
[13] Hewitt Associates, March 31, 2004.
[14] Medical Expenditure Panel Study.
[15] Mercer Human Resource Consulting, http://www.mercerhr.com/knowledgecenter/reportsummary.jhtml?idContent=1068735
[16] For more information, see www.simplecare.com.
[17] “Fed up with insurance, some doctors want payment in cash,” Rebecca Cook, Associated Press, Atlanta Journal-Constitution, March 3, 2004. For more information see: “End Health Care Discrimination: Give Cash a Chance,” Kelly McCutchen, Georgia Public Policy Foundation, April 15, 2003.
[18] “America’s Liability Crisis: A National View,” American Medical Association (2003), available at http://www.ama-assn.org/ama1/pub/upload/mm/-1/med_liab_19stat.pdf
[19] Health Law Journal, 1993, Volume 1, page 97.
[20] June 2003 General Accounting Office report.
[21] Testimony of the Alliance of Specialty Medicine Capitol Hill hearing October 2003.
[22] Capitol Hill testimony October 2003.
[23] Harvard School of Public Health.
[24] MAG Mutual Insurance Company.
[25] T. Luu, “Reducing the Costs of Civil Litigation: What are the Costs of Litigation?,” PLRI Public Law Research Institute.
[26] Harvard School of Public Health.
[27] FY2000 Budget Report.
[28] Georgia Department of Community Health Annual Report, FY2002, page 20.
[29] Ibid, page 13.
[30] The Washington Post, “In NC, Improving Worker Health–and Cutting Costs,” August 20, 2002, page A1.
[31] http://www.cjaonline.net/Communities/GA_Forsyth.htm. For more infomation on this and similar programs in Georgia see “1% of Medicaid Members Generate 23% – An Argument for Case Management,” Karen Minyard, Ph.D. and Kate Gardner, MA, Georgia Health Policy Center, October 2003,http://www.gsu.edu/%7Ewwwghp/publications/issuebriefoct03.pdf[32] Newt Gingrich, Dana Pavey and Anne Woodbury, “Saving Lives and Saving Money,” 2003, page 99.
[33] Ibid, page 235.
[34] The Effects Of Cash And Counseling On Personal Care Services And Medicaid Costs In Arkansas, November 19, 2003,http://content.healthaffairs.org/cgi/reprint/hlthaff.w3.566v1.pdf
[35] Georgia Healthcare Coverage Project
[36] “Florida tells doctors: Print clearly or else,” Amednews.com, August 4, 2003, http://www.ama-assn.org/amednews/2003/08/04/prl20804.htm
[37] “Drug dispensing goes high tech,” Andy Miller, The Atlanta Journal-Constitution, March 27, 2004, http://www.ajc.com/business/content/business/0304/28prescribe.html(free subscription required)
[38] Warming Up To Telemedicine, Popular Science magazine, May 19th, 2004.
The Georgia Public Policy Foundation is an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (September 3, 2004). Permission to reprint in whole or in part is hereby granted, provided the affiliation is cited.