The Institute for SocioEconomic Studies is a private operating foundation that examines issues relating to economic development, poverty, health care reform and the quality of life

e-Bulletin -- July 10,  2001

Institute for SocioEconomic Studies
SocioEconomic e-Bulletin
July 10, 2001

Welcome to the SocioEconomic e-Bulletin, the e-mail newsletter of the Institute for SocioEconomic Studies, a non-profit, non-partisan operating foundation that  examines issues relating to economic development, poverty, health care reform and the quality of life (http://www.socioeconomic.org).

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IN THIS ISSUE

1. Prescription Drug Spending Rises Again in 2000: Prescription drug spending  increased 18.8% in 2000 to an estimated $131.9 billion...

2.  H.R. 1331: The Fair Care for the Uninsured Act of 2001: This legislation would create a refundable tax credit for the purchase of private insurance.

3. A  Look at the Shift to Managed Care: The shift from indemnity insurance to managed care was predominantly a management decision, according to a recent  report published in the journal Health Affairs...

4.  Skyrocketing Prescription Drug Costs Put the Squeeze on Medicaid: In  Louisiana, proposed bill SB502 seeks to end policy of taxpayers funding any drug a doctor chooses to prescribe, regardless of cost.

5.  Catastrophic Approach to Health Insurance Catching On: The Missouri Chamber of Commerce takes a catastrophic approach in its new health benefits program, and lowers the overall cost of health coverage.

6.  Says WHO? UN Report Gets a Second Look: Useful new review of last year's  UN/World Health Organization rating of health care by nation shows that what  experts value most doesn't necessarily translate into citizen satisfaction.

7.  Managed Care Is on the Way Out: Noted health economist Dr. James C. Robinson says the HMO model has alienated patients, payers and providers alike. 

 

1.  Prescription Drug Spending Rises Again in 2000

Highlights of this report  included:

  • Just over half (51.4%) of the increase in spending occurred in eight categories of drugs.
     
  • Among the 50 drugs contributing most to the one-year increase in spending, sales rose 40.2%. Sales of all other drugs increased 7.9%.
     
  • 42% of the increase in spending was attributable to an increase in the number of prescriptions being written.
     
  • 36% of the increase was due to a shift in the mix of drugs from older, generally less expensive drugs to newer ones.

What to Look for:

  • Prescription drug spending will likely continue to comprise a growing share of total health care spending.  According to the Health Care Financing Administration (now the Centers for  Medicare and Medicaid Services), prescription drug spending increased from 6.5% of total health care spending to an estimated 8.9% from 1996 to 2000.

  • Growing pressure for public policy reforms aimed at expanding prescription drug coverage.

What This Means:

One of the report's major findings was that the current form of prescription drug  insurance was partly responsible for helping drive expenditures higher due to what essentially amounts to "first-dollar" coverage.

The report declared, "In fact, insured persons today are paying a much smaller percentage of drug costs out-of-pocket than they did just 10 years ago (27.5% in 1998 versus 48.3% in 1990), despite the recent rise in drug costs. Protected from all but a $5, $10, or $15 flat co-payment per prescription, consumers have not been "price-sensitive" to the drugs they buy.

Given this experience, prescription drug coverage should focus on protecting health care consumers from catastrophic drug expenditures. Routine spending on  prescription drugs should be handled directly by consumers outside the insurance  market.

Source of  News:

Prescription Drug Expenditures in 2000: The Upward Trend Continues, The National Institute for Health Care Management, May 2001 (http://www.nihcm.org/spending2001.pdf)

Additional Source of  Information:

Health Care Financing Administration  (http://www.hcfa.gov/)

 

2. H.R. 1331: The Fair Care for the Uninsured Act of 2001

This legislation was introduced by Congressman Dick Armey to amend the Internal  Revenue Code of 1986 in order to create a refundable tax credit and to establish  State health insurance safety net programs.

This legislation would provide:

  • A $1,000 per year refundable tax credit for individuals
     
  • An additional $1,000 per year refundable tax credit for a spouse
     
  • A $500-per-dependent refundable tax credit for up to two dependents

The tax credit would be allocated based on each coverage month in which the taxpayer pays the premiums on qualified health coverage.

In general, qualified health insurance would be defined as "a health plan that is not a  subsidized health plan."

What to Look for:

  • The legislation has been referred for hearings to the Subcommittees on Health of both the House Energy and Commerce Committee and the House Ways and Means Committee.
     
  • No hearings have been scheduled.
     
  • Hearings are likely to take place after the Appropriations process is completed, when Congress begins to consider President Bush's prescription drug proposal, among other things.
     
  • This legislation could be considered separately or be incorporated into broader health care reform legislation.
     
  • Overall prospects remain uncertain.

Background Information:

Today, two-thirds of all Americans rely on employer-based health coverage. Despite  providing direct and indirect coverage to 160.5 million Americans, this system contains flaws that limit the overall extent of coverage in the United States. Health coverage is tied to family income.

Consequently, over the past 15 years, as health care inflation rose more sharply than consumer prices in general, and also generally at a faster pace than family income, the percentage of uninsured non-elderly Americans increased.

Vital Statistics:

  • Increase in uninsured Americans (1990-1999): 21.3%
  • Annual increase in health care costs (1990-1999): 4.9%
  • Annual increase in overall consumer prices (1990-1999): 2.7%
  • Annual increase in median family income (1990-1998): -0.2%

Currently, 42.1 million Americans lack health coverage; the largest share of these have incomes of less than two times the poverty level. In an employer-based health  coverage system, access to coverage is related to firm size. As of 1997, 32.9%  of firms having fewer than 10 employees offered health coverage, while 98.2% of  those having 1,000 or more employees offered one or more health plans. However, more than 80% of all employers offered only one health plan rather than a choice of health plans.

A refundable health insurance tax credit that would help people purchase their own  private health insurance would not only provide the opportunity for expanded  coverage, but could also de-emphasize the employer as the leading source of  coverage for non-elderly Americans.

This shift could also lead to the gradual evolution of a consumer market in health coverage that would give individuals greater choice than is possible today.

Source of News:

H.R. 1331: The Fair Care for the Uninsured Act of 2001 (http://rs9.loc.gov/)

Additional Sources of Useful Information:

William S. Custer, PhD. and Pat Ketsche, MBA, MHA, "Health Insurance Coverage and the Uninsured: 1990-1998," Health Insurance Association of America (http://membership.hiaa.org/pdfs/apps/custer.pdf)

William S. Custer, PhD. and Pat Ketsche, PhD., MHA, "The Changing Sources of Health Insurance, "Health Insurance Association of America (http://membership.hiaa.org/pdfs/2000CusterFour.pdf)

U.S. Census Bureau, Statistical Abstract of the United States: 2000, Washington, DC, 2000  (http://www.census.gov/prod/www/statistical-abstract-us.html)

James R. Frogue and Robert E. Moffit. PhD., "Health Care," Issues 2000, The Heritage Foundation (http://www.heritage.org/issues/chap7.html)

 

3. A Look at the Shift to Managed Care

A survey published by James Maxwell (Director of Health Policy and Management Research at JSI Research and Training Institute), Peter Temin (MIT), and Corey Watts (JSI) analyzed the shift of Fortune 500 companies to managed care plans since 1994.

This report found that:

  • The shift was largely driven by employers. 75% of firms responding reported that senior management endorsed explicit strategies designed to expand managed care enrollment.
     
  • Cost was a major focus, with large companies adopting competitive bidding and other approaches to maintaining cost effectiveness.

This report confirms that health care coverage offered by large companies continues to reinforce a system in which health care consumers enjoyed the least bargaining  power. Decisions to pursue managed care were largely initiated by employers, with a large emphasis on cost controls.This approach, in which insurers/managed care organizations and employers make the largest share of critical health care  decisions, runs counter to preserving and strengthening the interests of the consuming public.

Quality health care is a critical issue for consumers, so it is not surprising that  conflicts would arise over managed care decisions to control costs. By 1999,  according to the survey, 40% of health benefit managers reported receiving an  increased number of complaints from five years earlier. Overall, 80% of health benefit managers reported receiving either the same number or a greater number of complaints.

In sum, the results of this survey offer additional evidence that health care reform needs to better reflect consumer interests. The employer-based system in which  management predominantly makes the choices pertaining to coverage has not been  effective in protecting consumer interests. With 160.5 million Americans (66.7% of the non-elderly) covered by employer plans, a substantial number of consumers are participants in a system that limits their choice and concentrates on objectives that may not necessarily be in their best interests.

Source of News:

James Maxwell, Peter Temin, and Corey Watts, "Corporate Health Care Purchasing among Fortune 500 Firms," Health Affairs, May/June 2001, pp. 181-188 (http://www.catchword.com/titles/phope/02782715/v20n3/contp1-1.htm)

 

4. Skyrocketing Prescription Drug Costs Put the Squeeze on Medicaid

In Louisiana, where the cost of providing the state's poor with access to prescription drugs is rapidly passing the $500 million mark, the State Legislature has adopted a new law to limit the types of drugs to which Medicaid recipients will have access. The new measure, previously SB502, which was adopted in early June, seeks to end a policy where taxpayers fund any type of drug that a doctor chooses to prescribe, regardless of  cost.

The law would charge a 15-member committee of physicians, pharmacists, pharmacologists, and state Medicaid officials with devising a list of drugs and drug types to be routinely covered by the state's Medicaid program. Those physicians wishing to prescribe a drug not on the list would have to seek special permission before a patient could receive it.

Spending on prescription drugs has skyrocketed in recent years, climbing more than 12% a year in 7 of the last 13 years. These dramatic increases have contributed to higher healthcare costs and healthcare insurance premiums. According to a recent  report released by the National Institute for Health Care Management, spending on retail outpatient prescription drugs rose 18.8% between 1999 and 2000, from $111.1 billion to $131.9 billion.

Louisiana is not the only state where prescription drug costs threaten to overwhelm the Medicaid budget. The NIHCM report indicates that some 25 states predicted in  early 2001 that Medicaid costs would exceed budgeted amounts for fiscal year 2002, due in large part to the dramatic rise in prescription drug expenditures.

Between 1990 and 1999, Medicaid spending on prescription drugs more than tripled, climbing from $4.8 billion in 1990 (6.6% of total Medicaid costs) to $17 billion in 1999 (9.4% of total Medicaid costs).

Increasing costs continue to push the Medicaid program down a road already all too familiar to managed care institutions, where budgetary constraints often limit individual choice and hamper the development of strong doctor-patient relationships.

Source of News:

Marsha Shuler, "Senate Panel Clears Medicaid Drug Bill, The (Baton Rouge)  Advocate, April 10, 2001 (http://www.theadvocate.com/news/story.asp?StoryID=21392)

Additional Sources of  Information:

SB502 (http://www.legis.state.la.us/)

National Institute for Health Care Management (http://www.nihcm.org)

 

5.  Catastrophic Approach to Health Care Catching On

Central to the ISES vision for Common Sense Health Care Reform is a move away from insuring routine health expenses. Much of the cost of a typical health policy today represents nothing more than such "dollar swapping," which only increases costs and adds administrative barriers to health care.

In contrast, a return to true insurance--which would protect against catastrophic  expenses of major illness or injury--would lower the cost of coverage (thus reducing the number of uninsured) and minimize third party interference in the patient-doctor relationship (thereby enhancing satisfaction, improving quality, and fostering medical progress).

The logic of this approach is increasingly attracting attention.

The Missouri Chamber of Commerce takes a catastrophic approach in its new program to help small businesses deal with the high cost of health benefits. By insuring only catastrophic expenses and letting employers  "self insure" routine health care services, the program--Missouri Chamber Care--lowers the overall cost of health coverage. According to the Chamber, this approach will enable more small businesses to offer or maintain a health benefits program, which in turn helps them compete for workers in a tight labor market.

Source of News:

Blue Cross & Blue Shield United of Wisconsin (http://www.bluecrosswisconsin.com)

 

6. Says WHO? UN Report Gets Second Look

In the May/June issue of the journal Health Affairs, Robert Blendon and colleagues at Harvard shine a light on last year's UN/World Health Organization rating of health care by nation. The now infamous report ranked the United States #37, behind even Columbia and Costa Rica.

It seems that WHO researchers didn't feel the need to interview individual citizens--let alone patients--about what they thought of their health care, instead relying on "expert" opinion about how a health system should function. In fact, listening to the people turns many of the rankings on their head.

The new research is useful because it shows that what experts value most doesn't necessarily translate into citizen satisfaction. Such findings should give pause to those who would expand government-run health care here, especially since many other nations are now looking to free market forces to revitalize their troubled systems.

Government's role should be to make sure everyone is empowered to seek care from a free market responsive to their individual needs. Using just such an approach, the Institute for SocioEconomic Studies has developed a plan to make quality, affordable health care available to all Americans.

Source of News:

Robert J. Blendon; Minah Kim; John M. Benson, "The Public Versus The World Health Organization On Health System Performance," Health Affairs, Volume 20, Number 3, Issue May 2001 (http://www.healthaffairs.org/)

Additional Source of Information: More information on the Institute's proposals for health care reform is available at: http://www.socioeconomic.org

 

7. Managed Care Is on the Way Out

Managed care has failed and is on the way out, Dr. James C. Robinson of the University of California at Berkeley writes in the latest issue of the Journal of the American Medical Association. The health economist suggests that managed care will likely be replaced by individual consumers making their own cost-benefit decisions about health care services, a change the Institute for SocioEcononic Studies has strongly advocated.

In The End of Managed Care, Dr. Robinson notes that the HMO model--which was temporarily successful in containing health care costs--is no longer effective, and has alienated patients, payers and providers alike.

Not that he thinks this is going to be a smooth transition. In particular, he is worried about how costs for those with chronic illness can be spread out in a system focused on and responsive to individual patient-consumers. Here, the Institute's proposed national system of catastrophic insurance offers a possible solution.

Dr. Robinson thinks that the shift is underway in other countries--like Germany and Britain--that are also facing great pressures to reform their troubled health care systems.

Source:

Journal of the American Medical Association,  May 23/30, 2001, v.285, no.20, pg2622+ (subscription required) (http://jama.ama-assn.org)

Additional Source of  Information:

More information on the Institute's health care proposal is available at: http://www.socioeconomic.org/Healthcare__/healthcare__.htm