Health Care & Unintended Consequences...or, How We Got Where We Are

Back in the 1970s, our elected officials enacted new legislation to permit an entity called a Health Maintenance Organization to be organized under federal regulations. That same law provided for grants to be used to create these new entities. People streamed to the federal trough and hundreds of health maintenance Organizations were created.

The intended results were the broadening of health care available to the members of these new organizations. The law required the use of a tool called community rating. This tool was intended to make premium rates fair across the total spectrum: young and old, male and female, and healthy and ill.

In addition, the entities could now either employ the health care providers directly, or those health care providers could organize for purposes of negotiating master agreements under which they'd provide required services for advanced payments. This was thought to be a good way to control the use of limited health care services while helping the new organizations remain financially stable.

It was believed that keeping people healthy was better and less expensive than the treatment of acute issues that had lain untreated for a period of time.

There seemed nothing wrong with the hypothesis, however time began to show the deficiencies.

Community rating caused the rates of the healthy and younger to rise since they had to offset the added costs of the ill and older members. The prepayments to the Health Maintenance Organizations were subject to shortfalls if over utilization occurred. We had just created an official way to ration health care. Services were delayed until the next month, and that solved the over utilization problem for the moment.

To this point, the free market had taken care of this issue; if you didn't have the money to pay for the service, you waited until you had the money.

This method of compensating providers came to be known as prepaid health care and began the process of removing the health care consumer from the equation. We consumers began to observe that our only out-of-pocket cost for this new kind of plan was our co-payment. Back then, co-payments were in the range of $5 to $10 per visit. We began to lose track of the real total cost of the health care we consumed. If we had a sniffle, why not see the doctor; after all, it only cost $5 or $10. We gave no real thought to where the rest of money was coming from, because it didn't appear to come from our pockets. That wasn't and isn't true, but it seems so on the surface.

It is important to understand that the Health Maintenance Organizations were not villains; they were simply following the federal edict. HMOs as we began to call them managed to eliminate much of the waste that had existed. They negotiated tough reimbursement agreements with hospitals. Hospitals that had had occupancy rates of 50% to 60% were now forced to close off wings, or to be creative and find other uses for the empty facilities. One of those uses was the birthing center with soft lighting, etc. Even though the mother was only given 48 hours in the hospital, they were going to be softly lit hours!

As HMOs took ever larger share of the market from traditional insurers, the insurance companies reacted and created their own provider networks and negotiated discounted prices from the usual fee for service pricing. As doctors were forced to take less money for each procedure, they could only exist by performing more procedures.

This story could go on for many more paragraphs. Suffice to say, there were many unintended consequences that continue to cause problems to this day:

• consumers have no concept of the real cost of the services they consume
• health care providers continue to provide more services since that is how they get paid
• health care costs spiral upward at multiples of the cost of other goods and services
• small employers have gotten to the point of ending health care plans to avoid going out of business
• health care now consumes nearly 16% of every dollar generated by our national economy and is headed up

We must restore the consumer to his and her rightful place in the equation. One of the ways to do that is to cause the consumer to want to know the real costs, and to think seriously about seeing the doctor before deciding to do so on a whim. We cause that by having the consumer again be responsible for a larger part of what he or she consumes.

In order for this to happen, we must have truly transparent cost information available. We must have truly transparent quality information available. And, we must have truly transparent outcomes information available. These are roles in which government can legitimately play a part.

We must reward health care providers for being good at what they do. Providers with better outcomes and better pricing should be rewarded with more business. Those not measuring up to their peers should pay the price of full disclosure causing them to clean up their acts. These are roles in which government can legitimately play a part.

Government does not belong in the health care business. There are numerous examples all across the world that vividly point this out. The governments with single payer plans are in trouble. They are running out of money, have alienated their customers [who are also the taxpayers that refuse to pay any more for inferior services], and look longingly to the United States and what they see as the best health care system in the world.

It seems that we're the only people who don't recognize what we have and how we can make it even better.