National Center for Policy Analysis

MONTH IN REVIEW

Health Care

February, 1996

WHAT'S IN THE KENNEDY-KASSEBAUM HEALTH CARE PLAN?

Legislation introduced by Senators Ted Kennedy (D-Mass.) and Nancy Kassebaum (R-Kan.) to reform health insurance is described by analysts as a "modest" plan -- at least compared to previous sweeping proposals.

Unlike previous "reforms," their bill wouldn't have the government tell private insurers what they can charge for their policies. And it would let health maintenance organizations offer high-deductible insurance linked to medical savings accounts.

But most of the bill still follows the "Washington knows best" approach, according to those familiar with it.

• Insurers would be forced to offer coverage to any group seeking it, and could not refuse to renew a policy.
• Insurers would face sharp limits on their ability to put "pre-existing condition" riders on policies for people who were already sick when they chose to buy insurance.
• Plans would have to continue covering anyone who leaves a job where he had insurance coverage.
• The plan would raise the cost of everyone's premiums by about 3 percent.

The health care market is already a Rube Goldberg mess, with endless federal, state and local regulations, mandates, subsidies and cost shifts. Though it is portrayed as a modest reform, few doubt that the Kennedy/Kassebaum plan would be subject to later amendments and further tinkering in future years which would steadily enlarge its scope.

Source: Editorial, "Back to Health Care Reform," Investor's Business Daily, February 5, 1996.

COST OF RESTRICTING MEDICAL PRACTICES

Some researchers believe that rather than ensuring consumer safety, restrictions on many health care practitioners reduce competition and increase health care costs. They cite studies that claim substantial savings could be realized if medical markets were open to more competition:

• Midwives, who attend 75 percent of births in Europe vs. 5 percent here, are restricted or prohibited in 36 states; but if 20 percent of American women had increased access to midwifery, Americans could save $2.4 billion annually.
• Nurse practitioners could provide between 75 and 80 percent of adult primary care and up to 90 percent of pediatric primary care, at an estimated savings between $6.4 billion and $8.75 billion annually.
• Chiropractic spinal manipulation and other noninvasive therapy for some of the 80 percent of adults who experience acute lower back pain at some time could save $1 billion annually.

Another study concluded that because dentists with out-of-state licenses are not allowed to practice in some states, dental fees in those states are 12 to 15 percent higher than in other states.

Source: Sue A. Blevins, "The Medical Monopoly: Protecting Consumers or Limiting Competition?" Policy Analysis No. 246, December 15, 1995, Cato Institute, 1000 Massachusetts Avenue, N.W., Washington, DC 20001, (202) 842-0200.

MSAs INCREASINGLY POPULAR WITH POLICY-MAKERS

Allowing people to control their own health care dollars -- rather than forcibly delegating the task to a government bureaucrat -- is winning converts. The vehicle for freeing-up the system is Medical Savings Accounts (MSAs).

Here are several features of the plan:

• MSAs give people the opportunity to move from a conventional, low-deductible health insurance plan to one with a high-deductible -- say $2,000 to $3,000 a year -- and put the premium savings in the Medical Savings Account.
• Employees and their families pay all medical bills up to the deductible from their MSAs or out-of-pocket.
• Insurance then covers 100 percent of whatever medical charges remain.

Some 3,000 businesses have already adopted some form of the plan. And the concept is gaining popularity even among labor unions.

• In 1994, the United Mine Workers union adopted an MSA-type proposal by providing members with a $1,000 deductible policy and writing them a check for $1,000 at the beginning of the year.
• City employees in Jersey City, NJ, get an $1,800 contribution to a family plan and a $2,000 deductible -- and the average MSA refund was about $1,000 at the end of the first year.

Those who oppose allowing Americans to employ this innovative health care financing approach usually do so with the condescending attitude that individuals and their doctors cannot make wise health care decisions for themselves.

Source: Former Governor Pete du Pont (National Center for Policy Analysis), "MSAs Winning New Friends," Washington Times, February 15, 1996.

LOWER HEALTH CARE COSTS PREDICTED

A downward trend in the growth of Americans' health care spending over the next several years should lower projected health care costs by $100 billion annually, according to a recent economic forecast from Larry J. Kimbell, of the University of California, Los Angeles Business Forecasting Project.

Kimbell, chief economist for the project, predicted that:

• Spending on consumption over the 1994-98 period will grow at an annual rate of 1.7 percent, after adjusting for inflation.
• Spending on health care will still rise faster than overall consumption, but it will only increase by an estimated 0.9 percent more annually.
• This would reverse a 30-year trend in which health care spending, adjusted for general inflation, grew annually 3.4 percent faster than total consumption.

The report makes clear than increased competition and the shift from traditional fee-for-service medicine toward managed care is a major reason for the downward pressure on health care expenditures.

Source: "UCLA Forecasts Annual Savings of $100 Billion in Health Care 1998," BNA's Health Care Policy Report, Vol. 4, No.1, January 1, 1996.

FINDING A SOLUTION TO HEALTH INSURANCE "PORTABILITY"

Most private health insurance is purchased by employers on behalf of their employees. And since the employees do not own their insurance, they lose their coverage when they change jobs.

In 1985, congress gave workers leaving a firm of 20 or more employees the right to retain health insurance for up to 18 months, by paying 102 percent of the premium their employer had been paying.

Now Senators Nancy Kassebaum (R-Kan) and Edward Kennedy (D-Mass) have introduced legislation which would give people who have been insured with one employer the right to immediate coverage, with no waiting periods, at their new job -- so long as the new employer also offers health insurance.

A more controversial provision would also force companies which sell individual coverage to insure those who leave a job with employer-provided insurance and wish to move to an individual policy -- regardless of their health status. All that is required for them to be eligible for this "guaranteed issue" policy is that they were covered for 30 days under the previous employer's plan, and that the plan had been in effect for 18 months.

Some health policy experts believe these group-to-individual rules could be disastrous for the individual health insurance market, which already suffers from tougher tax treatment.

• They would make the individual market the insurer of last resort for people who have been paying premiums to other institutions for years, then develop health problems and leave their job.
• Thus the individual insurer -- who had received no premiums for the years when the worker was healthy -- would be responsible for his care when the worker became ill.

It has been suggested that insurers writing group policies be required to convert to an individual policy for a period of time. Thus the insurer who had been getting premiums when the employee was working and healthy would have to cover him when he became sick and left work.

Analysts think the best solution would be to encourage more states to establish high-risk health insurance pools. In 28 states, these pools subsidize insurance for those who have been denied coverage because of a medical condition.

Source: Merrill Matthews Jr. (National Center for Policy Analysis), "A Flawed Health-Care Fix," Investor's Business Daily, February 21, 1996.

MEDICARE SWIFTLY GOING BROKE

Medicare's financial condition is worse than anyone previously imagined, according to experts. Last year, the system's trustees paid out more money than they took in through payroll taxes for the first time since 1972.

• Medicare authorities earlier calculated the system would go into the red in 1997, and the trust fund would be broke by the year 2002.
• Now it appears Medicare has gobbled up a projected $4.7 billion surplus and produced a $36 million deficit -- going into the red a year early.

It is not difficult to see where the problem lies when one realizes that today's recipients have, on average, only paid $1 into the fund during their working years for every $5 in benefits they are now collecting. Congress is scrambling to cover the program's losses.

• Congress has already raised Medicare payroll taxes 23 times in the past 30 years.
• To keep Medicare benefits as they are today, baby boomers must pay an additional $1,760 in payroll taxes by the time they are making $45,000 a year.

Even these projections, based on current data, may be overly optimistic. Some experts believe Medicare and Social Security payroll taxes will consume 28 percent of a wage earner's paycheck by the year 2030.

Source: Robert Rector (Heritage Foundation), "Medicare's Declining Vital Signs," Washington Times, February 26, 1996.

MSAs WOULD BENEFIT THOSE SEEKING "ALTERNATIVE" HEALTH CARE

About one-third of Americans seek some sort of alternative health care -- such as chiropractic or acupuncture -- each year. "The Access to Medical Treatment Act" has been proposed in the Senate to widen access to alternative care.

• In 1990, consumers spent $13.7 billion on alternative treatments, $11.7 billion of it on alternative providers.
• Employment in alternative care offices grew by 50 percent from 1987 to 1995 -- compared to a 20 percent increase in jobs in hospitals and physician offices.

Yet under programs such as Medicare there is no guarantee that the patient will be reimbursed. Most costs must be paid out-of-pocket.

• In 1990, consumers paid $8.2 billion, nearly 70 percent of the total bill for alternative-care providers.
• Yet insurers and the government picked up 83 percent of the bill for physician services.

The real problem, according to many health care policy critics, is that most people receive their health insurance from their employer or the government. Bureaucrats ultimately dictate health care decisions. Therefore, the easiest way to ensure that consumers are guaranteed a choice as to treatments would be to allow universal access to Medical Savings Accounts. More rules and regulations are not necessary, and MSAs are a preferable alternative, according to health care policy analysts.

MSAs are tax-deferred accounts set up for individuals to pay for routine medical care, encouraging consumers to become aware of how their health-care dollars are spent.

Source: Sue A. Blevins (Competitive Enterprise Institute), "Guaranteed Medical choice," Investor's Business Daily, February 27, 1996.

HEALTH INSURANCE COSTS COULD SOAR UNDER REFORM BILL

A report issued by the American Academy of Actuaries analyzing the probable impact of the proposed Health Insurance Reform Act introduced by Senators Nancy Kassebaum (R-Kan) and Edward Kennedy (D-Mass) contained some startling information concerning the potential pitfalls of the bill.

However, the press release covering the report praised the legislation in glowing terms. And thus was the report publicized to the nation. But these were some of the actual findings of the report:

• Under the legislation, premiums for people seeking to purchase an individual health insurance policy could increase 200 to 300 percent in 34 states.
• As a result, the "states would tend to respond by enacting legislation that would restrict the range of premiums insurers could charge for individual health insurance."
• And, after states had responded with legislation to spread the cost among all those with individual insurance policies, people would still experience premium increases between 125 and 167 percent.

The report raises other troubling issues about the Kassebaum-Kennedy bill. The chain of events described above would result in massive government intervention in the health insurance marketplace, in other words, a toned-down version of the defeated Clinton health care plan. Also, since healthy people entering the individual health insurance marketplace would see their premiums rise, they could very well cancel their policies -- leaving more people uninsured.

Source: Merrill Matthews, Jr. (National Center for Policy Analysis), "The Right Numbers on Health Reform," Washington Times, February 28, 1996.