COSMETIC SURGERY

By Jonathan Cohn

Okay, admit it. It's been fun kicking around the managed-care industry for the last few weeks. If you're like most Americans you now get your health insurance through some form of managed care- an HMO or some variant that restricts your choice of doctor and your ability to receive treatments. While the polls suggest you haven't had any problems with your plan personally, there's a good chance you know somebody who has. The polls also show that you've heard so many horror stories by now- my favorite is the one about the guy who got castrated because his HMO mistakenly denied a more expensive, less severe treatment for prostate cancer- that you're not quite sure you'll be fully covered if you get truly sick.
    And in thinking all of this you are quite right Managed care started out as a progressive alternative to expensive and wasteful fee-for-service medicine- a system that encouraged unnecessary treatments and spe-cialist visits while skimping on preventive care and excluding many less affluent Americans. But the for-profit industry has mangled managed care, turning it into a corporate behemoth more concerned with profit margins than patients. "Do no harm" has become "Do no harm to stockholders."
    Of course, if you happen to be a liberal, then stick-ing it to the insurance industry has been doubly fun these last few weeks. After all, this is the same industry that torpedoed President Clinton's comprehensive health care bill four years ago. Clintoncare had its problems, perhaps enough to merit its ultimate failure. But many of the insurance industry's arguments were simply untrue. For example, it was not Clintoncare that was going to restrict people's choice of doctors and impose rationing. The private insurance industry itself was planning to do that- and has. Now it's pay-back time.
    And yet, when the fun is all over in a few weeks, will we have significantly improved the quality of health care in America? Probably not. Congress is on the verge of passing something that can be billed as a patient-protection law, but it's hard to imagine it will do much good. The Republicans are offering only sham reforms full of loopholes. (For details, see "Man-gling Care," TNR, August 1O.) And, while the Democrats' intentions are more sincere, their reforms would make only modest improvements. Nothing on the table now challenges the contradictions built into our health care system. As a result, nothing on the table now seems capable of offering long-term peace of mind to the millions of Americans who are legitimately worried about what might happen to them if they become seri-ously ill.

Flash back to July 16, when the Democrats lead-ing the charge for HMO reform received what they took to be some very good news. For months, the insurance industry and its lobby had been making one potent argument against enact-ing a patient-protection law: If government interfered with HMO decisions about health care, then HMOs would lose their ability to control costs. Premiums would rise. Employers, in turn, would pass those higher costs along to their employees or, in some cases, drop coverage altogether.
    It was a rather brazen argument. After all, these same lobbyists were simultaneously claiming that reform was unnecessary because the insurance industry was provid-ing high quality care already. So why would requiring them to do so raise costs? The insurers claimed the new regulations would add layers of unnecessary bureaucracy. But the real reason was that at least sometimes managed-care firms do, in fact, cut costs by sacrificing treatment that would benefit patients.
    For example, one of the issues now at the heart of the debate is whether HMOs should always have to pay for emergency room care. The papers have been full of stories about people suffering from life-threatening injuries, or what they thought were life-threatening injuries, who took themselves to emergency room only to have HMOs deny coverage either because the hospital visit wasn't pre-approved or because the injury turned out to be less serious than originally thought. Since it's hard to know sometimes whether you have a real emergency or not- is it appen-dicitis or just some bad chili- it seems reasonable to require HMOs to pay for emergency room treatment anytime a "prudent layperson" would think such treat-ment necessary. According to a recently published Congressional Budget Office (CBO) study, that would disqualify about half of the current coverage denials HMOs issue for emergency room care.
    And yet the great mystery was just how high a comprehensive package of patient protections might push premiums. The anti-reform lobbies were only too happy to supply an answer. They commissioned studies from accounting firms like KPMG Peat Marwick and Milliman and Robertson which made worst-case assumptions and produced estimates of a sudden increase in health care premiums ranging from three percent to 23 percent- an increase that would surely make insurance prohibitively expensive for millions, particularly those employed by small businesses. Insurance lobbyists and Republicans seized upon these numbers, casting themselves not as opponents of reform but as protectors of the needy.
    But then the nonpartisan CBO weighed in. This authoritative source found that even the most sweeping of the HMO bills on the agenda- the "Patients' Bill of Rights," sponsored by Congressman John Dingell and Senator Edward Kennedy- would only cause a modest premium hike: about four percent, or about two dol-lars per person per month. Kennedy-Dingell support-ers crowed. "Seven cents per day is little to pay to ensure that patients receive the health care coverage they have been promised by their health plans," pronounced a press release from Families USA, a leading health care reform lobby.
    But the CBO report was not quite vindication. The reforms in Kennedy--Dingell are cheap because they are, in many ways, ineffective. Like the adage says: You get what you pay for.

For example, one of the chief complaints HMO' consumers have now is that they can no longer choose their own doctor- rather, they must select from lists of providers who have contracts with the HMO. This is a matter of some inconvenience if you just got new insurance and your family doctor isn't on the list. It can be a more serious problem if you need specialty care for a serious ailment and the specialist you need isn't on the plan. To rectify this, reformers have long suggested that all health care plans offer everybody a so-called point-of-service option, which would allow you to see a doctor outside of your plan.
    At first glance, this looks like a serious strategic blow to managed care. After all, one of the most effective tools HMOs have for bringing down costs is their ability to negotiate lower rates with physicians. While, say, an ophthalmologist might normally charge $2,000 for cataract surgery, he might agree to charge $1,500 if it meant a steady stream of patients from a large managed-care organization- a kind of group discount. But, if a doctor knew that any patient could come to his office, even if he didn't negotiate a special rate, then he'd have no incentive to bargain with the HMO.
    That, of course, could return us to the bad old days of double-digit annual health care inflation. So the Kennedy-Dingell plan tries to make up for this by allow-ing plans to charge more for point-of-service options. And it doesn't restrict how high those costs can be. According to the CBO, that would mean only a few people would end up choosing the point-of-service option-since insurance companies would make it prohibitively expensive.
    Consider, next, what has become the most controver-sial of the patient-protection provisions: the right to sue your HMO when you believe it denied medically necessary treatment. As you may have read by now, the courts have generally interpreted a federal law called the Employment Retirement Income Security Act (ERISA) as a blanket liability exemption for insurance companies in most cases. Currently, if an HMO denies you treat-ment and you suffer, you can sue. But you can only recoup the cost of the treatment- you cannot get awards for pain and suffer-ing. Some federal judges, powerless when such cases come before them, has been quite publicly be-moaning this fact for some time- with good reason. Even if you think we have too many lawsuits already, it's hard to justify why insurance companies- and insurance companies alone- should not be held accountable, in a court of law, for the consequences of their decisions.
    But the CBO concluded that ERISA reform would, on its own, produce a premium hike of only 1.4 percent Although the CBO was careful to indicate that this was a speculative estimate- experts have widely divergent views on the matter- it was at least based on defensible assumptions. For instance, the CBO noted that there are already some plans (mostly sponsored by state or local government) which do not enjoy the ERISA ex-emption, and they don't get sued very often. The CBO also assumed that insurance companies could preempt some lawsuits simply by clarifying their rules for treat-ment approval and doctor referrals. In other words, an HMO could still deny you certain kinds of expensive but arguably necessary treatments, just so long as it had notified you that such denials were a condition of your coverage. And what does notifying you mean? More pages of fine print at the back of the already thick book of mind-numbing regulations that you and every other managed-care subscriber already receive.
    Of course, the strongest patient-protection measures anticipate these problems and attempt to avoid them by setting some basic ground rules about what HMOs may and may not deny. Kennedy-Dingell specifically requires that HMOs pay for experimental AIDS and cancer treat-ments. It outlaws the use of any financial incentives that might result in medically substandard care and prohibits plans from interfering with the "manner or set-ting" of "medically necessary" treatment. Finally, Kennedy-Dingell also bans "gag rules"- that is an insur-ance company cannot prohibit a physician from discussing more expensive treatment options with patients. (The Republican plans include weaker versions of some, but not all, of these ideas.)
    These are among the most crucial provisions in the entire patient-protection effort, because they strike at the heart of the managed care cost control apparatus. A big reason health care got so expensive in the 1970s and 1980s was that doctors ordered up superfluous tests just to test hunches- since insurance companies would pay the bills no matter what. So the insurance compa-nies decided to link doctor incomes to the total cost of the procedures and medication doctors prescribe. They offered bonuses for doctors who ran up fewer costs; they had gag rules to discourage doctors from spread-ing the word about expensive therapies or procedures. And, when doctors got too expensive, the plans would simply "deselect"- that is, fire-them.
    This was certainly a good way to cut costs. But it wasn't always a good way to take care of sick people-particularly after for-profit HMOs began to supplant nonprofit HMOs as the arbiters of sound medical judgment. As economic journalist Robert Kuttner reported in a pair of articles for The New England Journal of Medicine in May, one Humana plan barred doctors from "conveying the possibility of [hospital] admission to the plan member" without prior authorization from Humana officials. "When doctors' earnings are influ-enced by large financial incentives not to treat patients," Kuttner wrote, "the ethical conflict of interest is stark"

Insofar as these cost-cutting methods have sacrificed the well-being of patients, it makes sense to curtail them. But having prohibitions on such methods in the law is one thing- enforcing them quite another. In theory, enforcement under Kennedy--Dingell comes from two sources: patients, who can appeal to review boards or sue in the courts, and gov-ernment officials, who can investigate and prosecute plans that violate the law. But many plans already have appeals mechanisms, and few people take advantage. The apparent reason: The insurance process is so mad-deningly complex most people either don't know about appeals or simply throw up their hands when they get denied care. And, while it's a good idea to embolden the state and federal officials charged with overseeing insurance plans, keep in mind that these are the same chronically overworked officials who have their hands full going after bigger cases of fraud.
    Besides, even with the most tightly worded laws, insurance companies could still pursue their traditional cost-cutting methods- just so long as they didn't look like they were pursuing their traditional cost-cutting methods. If a doctor is running up bills that are too expensive because, say, he's a very good doctor and thus gets a lot of very sick patients, a plan can always find some other ostensible rationale for cutting him off. Or, at the very least, a plan can always come up with an excuse good enough to force a lengthy and protracted court battle with the physician.

Now, the CBO (and I) could certainly be wrong. The protections in a strong bill like Kennedy-Dingell could have a significant impact on quality of care. The courts, for example, could interpret terms like "medically necessary" in the broad-est possible sense. The appeals and lawsuits could have a chilling effect on insurers. But then we're back to the demoralizing paradox of regulating for-profit HMOs: done right, it will almost certainly cost more money. And that will mean one of two things. Either insurance will become too expensive for many people, or the insurance companies will cut their costs by insuring only healthier people.
    Indeed, we've seen this chain of events before- after 1996, when Kennedy teamed up with Senator Nancy Kassebaum to pass what was supposed to be a groundbreaking health care reform measure. In theory, under the Kennedy-Kassebaum law an insurer would have to offer coverage to any customer who had previously been covered, even if that person had preexisting con-ditions. But the Kennedy-Kassebaum law didn't really restrict how much the insurer could charge for that coverage. So now many insurance companies simply charge more for customers who are likely to ruin up big health care bills. (And that's logical: if they couldn't charge more for consumers with preexisting conditions, it would destroy the whole insurance system, since people would never buy insurance until they got sick)
    In addition, plans already "cherry pick" healthy people by marketing aggressively to groups that are predominantly young and healthy. To take one familiar example, many plans now offer deep discounts on health club benefits as an enticement The stated rationale is that exercise keeps you healthy, but there's a sec-ond, unstated rationale, too. If you chose this health plan over another option (or, as is so often the case, if your employer chose this plan over another option), chances are you're the type of person who cared about exercising in the first place- that is, you're younger and healthier than the average American.
    None of this is to say that patient protection, in its most aggressive form, would be pointless. The prudent layperson emergency room standard, for example, would tangibly improve the quality of health care in America. But this approach to HMO reform- adding law upon law and then dealing with the negative consequences each time- is fundamentally unsatisfactory. In order to make significant progress, it would take dozens of specific regulations, filling reams of paper, requiring hours of congressional debate. As it is, the Kennedy-Dingell bill would substantially increase the paper flow in health care by requiring doctors to keep more data on patient histories and requiring plans to keep more data on patient satisfaction and demographics. If there were no alternative, a good patient-protection bill would be worth passing, just barely. But is there really no alternative?

Of course not. And, in the last few months, one surprisingly honest alternative has come from the right. Conservatives understand and confront one basic truth about health care: it is an imperfect market. In a normal market system, the purchaser of a product is the one who uses it- if you 'want a car, you buy yourself a car, and you weigh the trade-offs between cost and quality. You may want a Corvette, but you don't think it's worth an extra $20,000; so you buy a Toyota instead. In health care, of course, the party that buys health care is not usually the party that receives it: The majority of Americans receive health insurance through their employers; their employers, in turn, negotiate with one or several plans over cost.
    Hypothetically, employers are supposed to consider the interests of their employees when they strike these bargains. But, as you might expect, the employers are usually most concerned with premiums. So the market system breaks down. Even when people want better insurance, they often have little or no ability to get it. Thus, the conservatives say, the answer to our health problem is to break the link between employment and health care- that is, to give consumers the direct power to purchase their own insurance.
    This certainly sounds like a good idea. The yoking together of jobs and health insurance, after all, is a historical accident. In World War II, wage controls prohibited employers from enticing workers with higher salaries, so they offered health care as a fringe benefit instead. We've been stuck with the system ever since. Government could break this link by creating purchasing pools, allowing small firms and individuals to band together, thus offering their employees more options from which to choose; by changing the tax treatment of health insurance, so that it's not prohibitively expensive for individuals and the self-employed; and by encouragi-ng the use of individual savings accounts (known as medical savings accounts, or MSAs) that make individu-als bear more of the costs of their own health care. All three ideas are in the bill the Republican House passed on July 24. Steve Forbes has indicated that he will make MSAs a cornerstone of his likely presidential campaign.
    Unfortunately, while the instinct to empower con-sumers and expand choice is a healthy one, the con-servative version of this idea has an overwhelming flaw- a flaw that becomes most apparent when you consider the probable impact of MSAs. An MSA is a special savings account into which you and your employer deposit money. If you get sick, you pay for your health care bills by withdrawing from the account, up to a certain limit, at which point your insurance kicks in. (When you start an MSA, you're generally required to take out a catastrophic insurance policy, which covers you in case of a really expensive ailment). What you don't spend you keep.
    Now, is an MSA a good bargain for you? Well, if you're young and healthy, it's a great deal. After all, you're probably not going to spend that MSA money, so you'll be that much richer. But, if you're not young or you're not healthy, you're probably going to opt for a more traditional insurance plan. You can see where this is going. If MSAs were widespread, you'd have a bifurcated insurance market: Healthy people would have MSAs, and sick people would have insurance. And, of course, since the pool of people in the tradi-tional plans would then be sicker on average, the plans would have to charge higher premiums to cover the costs. A lot of these people would lose coverage, and even those who didn't would end up with all the quality problems people now face in the most restrictive man-aged-care plans. So you've improved quality for a few, more or less at the expense of others.

The MSA problem highlights the fundamental trouble with the conservative approach to health care quality reform. Conservatives properly recognize one way in which the current health care market fails, but they miss another: deep down, for-profit insurance companies don't really want to take care of sick people. After all, sick people cost money. As long as that is the case, and as long as the entities making decisions about health care want to make profits, quality of care will continue to be a low priority. As Arnold Relman, professor emeritus at Harvard Medical School, wrote recently in The American Prospect, we need to "accept the notion of health care as a social good rather than an economic commodity."
    Not that accomplishing this would be easy. There are three alternatives today: sticking with the status quo; endless attempts to fine tune the status quo through regulation; or enactment of a national health care system that guaranteed universal coverage, put a ceiling on overall costs, and then let the people, through their elected representative, decide how to spend that money. While the third option would surely entail some painful rationing decisions of its own, those decisions would at least be made with the democratic involvement of voters, according to criteria that are bound to be more sensitive to the needs of patients.
    National health insurance, of course, happens to be the preferred option of the most ardent advocates of patient protection- from Families USA to Ted Kennedy to Bill Clinton. They've settled on patient protection only because political realities will allow nothing more grandiose. But that, too, could change. After all, nobody thought that in 1998- with the memories of Clintoncare still so fresh- the nation would be talking about health care again. So for now, at least, don't feel guilty about HMO-bashing. Keep at it. At least until something better comes along.

The New Republic August 17 & 24, 1998