Costs Soar; Many Lack Insurance : Fundamental Challenges Face U.S. Health System

The financial difficulties gripping Maxicare Health Plans and some other large prepaid health plans are dwarfed by more fundamental challenges facing the entire American health care system--skyrocketing costs and the millions of people who have little or no insurance.

Unrelenting economic pressures have greatly narrowed the differences between conventional fee-for-service health insurance and health maintenance organizations. They have also triggered an intensive search for novel methods of delivering medical care.

Most industry officials believe that unrestricted fee-for-service health insurance, to which many Americans are accustomed, is dying.

To control costs, fee-for-service plans are adopting cost-cutting tactics pioneered by HMOs. These include restricted panels of physicians and hospitals, and curbs on hospital admissions and referrals to specialists.

To attract more subscribers, including people who have been reluctant to join prepaid health plans, some HMOs are adopting characteristics of fee-for-service plans, such as the option to receive care from non-HMO physicians.

But health policy experts warn that patchwork changes may not be enough. In large part, this is because the cost and utilization of medical services--particularly services provided outside the hospital--continue to increase dramatically.

“The system (in the United States) is headed for enormous problems; it is an utter failure,” said Paul E. Starr, a professor of sociology at Princeton University and the author of the Pulitzer Prize-winning 1982 book, “The Social Transformation of American Medicine.” New forms of HMOs and changes in conventional fee-for-service health insurance are “having a very small effect on the overall picture,” he said.

“We spend about 11.5% of the gross national product on health care, much more than any other country, . . . yet roughly 35 million Americans have no financial protection from medical expenses,” Alain Enthoven and Richard Kronick of Stanford University wrote in the New England Journal of Medicine in January. They termed the situation “a paradox of excess and deprivation.”

If present trends continue, health care spending will reach 15% of the GNP by the year 2000, according to federal projections.

Little Consensus Apparent

There is little consensus on how to reverse these trends. An important reason is that the goal of wider access to affordable care for routine medical problems may conflict with demands for increased availability of new services and technologies, ranging from organ transplants to genetically engineered drugs and sophisticated radiology equipment.

In addition, the goal of maximizing consumer choices may conflict with the goals of assuring quality and curbing costs.

Stanford’s Enthoven, a leading health care economist, said in a recent interview that in his opinion, only a small number of organizations “have figured out how to do a pretty good job” of organizing medical care for quality and economy.

The examples Enthoven cited included the Mayo Clinic of Rochester, Minn., a large nonprofit multi-specialty group practice which has opened branches in Jacksonville, Fla., and Scottsdale, Ariz.

Enthoven also cited large well-established nonprofit HMOs such as Group Health Cooperative of Puget Sound in Seattle, the Harvard Community Health Plan in Massachusetts, the Henry Ford Health Care Corp. in Detroit, and Kaiser Foundation Health Plans. Many independent health policy experts give such plans high marks for financial stability and for their commitment to quality medical care--although they caution that the experience of individual patients and HMO physicians may vary.

Various Paths Debated

Government officials, health insurance industry officials and physicians are debating whether to emulate such existing institutions or experiment with novel medical care arrangements.

Advocates of traditional HMOs hark back to the consumer-oriented philosophy of the early prepaid group health plans. They argue that the best HMOs already provide the sort of quality, cost-effective medical services that are desired for the nation as a whole.

Despite the active opposition of organized medicine, HMO pioneers such as Drs. Donald Ross and H. Clifford Loos in Los Angeles and Dr. Sidney Garfield in the Mojave Desert set out in the 1930s to demonstrate that they could practice a better style of medicine than their private competitors.

EARLY HMOs

The early plans, such as the Ross-Loos Health Plan and Kaiser Permanente, in which Garfield played a key role, were “not set up with the idea of saving money but to provide more comprehensive medical care and better financial protection for their subscribers,” according to Starr. “It just turned out that they hospitalized (patients) less and were less costly as a result.”

Prepaid group health plans became known as HMOs in the early 1970s, at about the time that President Richard M. Nixon advocated them as the centerpiece of a “new national health strategy.” HMOs combine financing and medical services in one organization. Their goal is to change the behavior of patients and physicians, and thereby encourage preventive and continuing care while discouraging unnecessary appointments, hospitalizations or tests.

In return for prepaid fees, the plans accept responsibility for the delivery of needed medical care and medications to their enrollees. Traditional HMOs generally have full-time salaried physicians and their own pharmacies; many own their hospital and laboratory facilities.

HOW EFFECTIVE?

Over the last decade, numerous research studies have shown that traditional HMOs were capable of providing as good care as private physicians. But in practice, many HMOs, like many private doctors and hospitals, may not be as effective or efficient as they could be.

“The bottom line is pretty much a wash between (traditional) HMOs and the fee-for-service system,” said Dr. Robert H. Brook of the UCLA Medical Center and the Santa Monica-based RAND Corp., a principal author of many of the quality-of-care studies.

Critics of traditional HMOs object to the restrictions they may impose on the choice of doctors and services. Some patients also object to excessive waits for routine but necessary appointments and bureaucratic inefficiencies that are characteristic of many large health care organizations.

“The quality of care may be absolutely the same . . . but the satisfaction is certainly greater when I feel I have more control in reaching my doctor,” Brook said.

Public opinion surveys have shown that most people who join HMOs like them, according to Robert J. Blendon, chairman of the department of health policy and management at the Harvard University School of Public Health.

But others, such as many elderly, often want nothing to do with them, primarily because of limitations on access. Many non-HMO members say they would rather pay more for their health care than be required to join an HMO.

“HMOs are like Volvos,” Blendon said. “They appeal to certain people. They have all sorts of positive attributes. But most Americans still don’t want to drive a Volvo.”

As of the end of 1988, 32.6 million Americans, including about 18% of those who obtained health insurance through their employers and about 2 million Medicare beneficiaries, were enrolled in HMOs, according to InterStudy, an HMO research organization in Excelsior, Minn., and the Group Health Assn. of America, an HMO industry organization in Washington, D.C.

While the number of HMO members has doubled since 1984, HMOs have captured more than 25% of the health care market in only two states--California and Minnesota.

NEW AND NOVEL FORMS

In addition, many of the recently established HMOs bear little resemblance to traditional prepaid health plans. An increasing number are organized as profit-making corporations. (Maxicare is the largest among them.) These for-profit HMOs enroll about half of all HMO members.

The novel HMOs include loosely organized plans called “networks” or “independent practice associations” where most physicians practice in their personal offices, and “open-ended” plans that allow enrollees who are willing to pay higher charges to see non-HMO physicians.

Patients typically must select a primary care provider, usually an internist, family practitioner or pediatrician. This physician acts as a gatekeeper. Referrals to surgeons or medical specialists such as allergists, cardiologists or neurologists are usually only covered if they are initiated by the primary care doctor.

Most of the physicians who participate in these plans continue to see large numbers of non-HMO members. They may receive payments based on the number of enrollees they are responsible for or bill the plan, as in private practice, on a fee-for-service basis.

Some novel HMO-like arrangements are being established by large insurers, such as Blue Cross or the Prudential Insurance Co. of America; others by small groups of investors who may do little more than rent an office, buy a computer, employ a few managers and start signing up physicians and patients.

“The term HMO is losing its meaning,” said Dr. Donald M. Berwick, vice president for quality of care measurement at the Harvard Community Health Plan. “For practically any combination of variables, you can find an organization that is giving it a try.”

The newer varieties of HMOs have expanded rapidly; they added more than 10 million members nationwide between 1984 and 1988. “Plans that offer prepaid, comprehensive health care are currently overshadowed by plans that resemble HMOs, but include more characteristics of insurance plans such as larger co-payments, deductibles and co-insurance,” according to a 1988 InterStudy report.

Advocates of such new arrangements say they attract many patients and physicians who have been reluctant to join traditional HMOs. For example, some organizations may sign up a majority of the physicians in a given area, so that many patients who join can continue to see their personal physician.

So far, however, there is little reliable information about whether the newer HMOs, on average, provide as good medical care as traditional HMOs or whether such flexible, loosely structured organizations can be as successful in controlling costs.

There is also little information on whether gatekeeper physicians in the new HMOs provide an equal standard of care to their HMO and non-HMO patients. A non-HMO patient, for example, may have wider access to specialists or newer medical technologies than an HMO patient.

Harold S. Luft of UC San Francisco’s Institute for Health Policy Studies explained that as the health care marketplace has become more competitive, many organizations “have become unwilling to release data that might be sensitive and non-complimentary.”

Luft, who has studied HMOs extensively, said such data, on issues such as waiting times, costs, quality and patient complaints, are precisely the types of information that are needed to make valid comparisons between organizations or between the care physicians offer to their HMO and non-HMO patients.

THE PROFIT MOTIVE

One widely expressed concern is that many newer HMOs lack the consumer commitment on which the older HMOs were founded.

“Perhaps the greatest menace to the ethical legitimacy of HMOs comes from the achievements in reducing the costs of health care delivery,” Dr. Gail Povar and Jonathan Moreno of the George Washington University School of Medicine wrote in the Annals of Internal Medicine last September.

“For-profit enterprises are rapidly entering the HMO industry. . . . One must be concerned about the potential for confusion between a form of organization that began with an ethic of cost-savings on beneficent ethical grounds and a form of organization that saves money to pay dividends.”

For example, an HMO physician might limit on economic grounds the diagnostic studies and treatment for an elderly patient with cancer. Or an HMO manager might insist on arbitrary changes--such as restricted access to expensive new therapies for AIDS, cancer or heart attacks--designed simply to save money.

On the other hand, a physician in private practice might be more likely to err on the side of excess in performing lucrative procedures, such as coronary angioplasties, the dilation of blocked heart arteries with a balloon-tipped catheter, or gastrointestinal endoscopy, an examination of the stomach and small intestine with a fiberoptic tube.

Precautions Suggested

To guard against the abuses to which HMOs seem most prone, the George Washington University researchers recommended that prepaid health plans “make a specific effort to identify underservice” and “to become particularly aggressive in evaluating and promoting the competency of the gatekeeper physicians.”

Others have suggested that HMO physicians and managers be required to clearly inform HMO members of referral restrictions and specific financial incentives to limit care, as well as the appeals procedures that are available.

Another option, the open-ended HMO, allows enrollees to choose whether to see an HMO physician or, for substantial additional payments, a physician of their choice.

As of last June, 48 of the nation’s 643 HMOs offered such plans, according to an InterStudy report. The majority of the approximately 500,000 enrollees were in the Minneapolis/St. Paul area, where the option was first developed. Variants of the open-ended HMO are being offered by Kaiser Permanente (in the Bakersfield area), CIGNA Healthplans and Prudential.

In theory, open-ended plans conflict with the concept of a prepaid health plan. In addition, their ability to control costs and maintain quality is not known. But open-ended plans may allow HMOs to attract new members, while preserving their traditional structure, according to Roger Feldman, a health economist at the University of Minnesota.

“The experience so far is that not many people use the option (to seek care outside of their HMO),” Feldman said. But “it gives people a strong sense of security and control to have the option to go down to (the Mayo Clinic).”

A CALL FOR REFORM

Over the next several years, the competition between HMOs and conventional insurance plans with HMO features is likely to intensify against the backdrop of increasing calls for comprehensive national reform of American health care.

A recent three-nation poll, conducted by Louis Harris & Associates in conjunction with the Harvard University School of Public Health, showed that only 10% of Americans believe the American health care system works reasonably well, while 89% think that fundamental changes are needed.

By comparison, respondents in Britain and Canada, nations with much lower per capita health care expenditures, expressed substantially less dissatisfaction with their health care systems.

For the United States, “nothing short of a comprehensive plan, which includes improved technology assessment and malpractice reform. . . is likely to achieve the goals of universal access, cost containment, and preservation of quality that everyone seems to want,” according to a January editorial by Dr. Arnold S. Relman, the editor of the New England Journal of Medicine.

Berwick, of the Harvard Community Heath Plan, said that increasing frustration with the unresolved cost problem “is draining the real inventive resources of the health care system.” Without far-reaching constructive interventions, he predicted that “we really could end up in 10 years with a health care system far worse than what we have . . . a cheaper system that is not worthy of us.”

Attitudes on HMOs

If an HMO were available in your area, would you be interested in joining?

Yes: 24%

No: 54%

Not sure: 23%

If you were aced with the choice of mandatory membership in an HMO or paying a larger portion of your health care costs, which would you choose?

Membership mandatory HMO: 31%

Not sure: 35%

No: 34%

MILESTONES IN THE GROWTH OF HMOs

1929: In Los Angeles, Drs. Donald Ross and H. Clifford Loos establish a prepaid program to provide medical coverage to employees of the Los Angeles Department of Water and Power and their families.

1933: Dr. Sidney Garfield begins to care for construction workers in the Mojave Desert on a prepaid basis--5 cents per worker per day.

1935: Ross-Loos Clinic, one of the first prepaid group health plans, established in Los Angeles. In the 1980s absorbed into CIGNA Healthplans.

1937: Henry J. Kaiser asks Garfield to establish a health insurance program for workers and their families at the construction site of the Grand Coulee Dam in Washington.

1940s: Garfield’s health care program is offered to Kaiser shipyard workers in the San Francisco area. Later it is offered to the community at large, leading to the establishment of the Kaiser Foundation Health Plans.

1970: Dr. Paul M. Ellwood Jr., a Minneapolis physician who is one of the champions of prepaid group health plans, coins the term health maintenance organization, or HMOs.

1971: President Richard M. Nixon endorses HMOs as a new national health strategy.

1973: Passage of a federal HMO act provides an initial stimulus for growth, including seed money, encouragements to employers to offer HMOs and a federal qualification process to maintain quality.

1978: Kaiser Foundation Health Plans have 3.5 million enrollees, mostly in California, or almost 50% of total HMO enrollment in the United States.

1988: HMO Act amendments update the 1973 HMO law to provide greater flexibility in how rates are set and plans structured.

States with largest % of people Number of HMO percentage of HMO members in HMO’s members (millions) California 29% 7.8 Minnesota 26% 1.1 Massachusetts 22% 1.3 Wisconsin 21% 1.0

Source: InterStudy, Excelsior, Minnesota