Reform Health Care Where Consensus Exists

Radical experiments should not be allowed to ruin the world's finest system

CHANGES in health care are needed. But figures used to show that the current system is in crisis are exaggerated or distorted by ignoring social factors that dominate medical results. Attempting to control prices, quality, and output for one seventh of the gross domestic product is a hazardous undertaking. Radical new proposals, besides tinkering with a major part of the national economy, may disrupt the world's best technical health-care system.

Before restructuring the system completely, we should remedy problems on which there is broad consensus and that can be changed promptly. We can then move to more controversial measures. In redesigning the whole system, we may ``fix'' things that aren't broken.

For example:

* ``Cherry picking'' should be replaced by community rating.

Health insurers now seek out healthy individuals and shun those with problems. The cure for this is a ``community rating'' that sets rates in terms of the risk of the whole community, not certain pools. This cure is part of every plan now before Congress. The insurance industry agrees community rating is desirable. But companies that practice it would be at a competitive disadvantage with those that continue to cherry-pick.

Most insurers would welcome a government mandate to practice community rating. Government regulation is sometimes needed, as in the classic ``tragedy of the common'' where villagers will destroy the common by grazing as many cattle as each can afford - unless the government limits grazing rights.

* ``Cost shifting'' should be replaced by ``all-payer fees.''

Where excess health-care capacity exists, insurance companies can extract rebates from providers for offering access to patients they insure. Through ``preferred provider,'' ``managed care,'' and ``point of service'' schemes, they exploit their market dominance and tend to control the services offered. Providers that give rebates compensate by raising prices - cost-shifting - to those who have indemnity insurance or pay their own bills.

When buyers or sellers dominate a market, governments can intervene to restore a semblance of free-market behavior. Antitrust laws are a familiar remedy for ``oligopoly'' - when many buyers and a few large sellers dominate. ``Fair pricing'' laws such as the Robinson-Patman act control ``oligopsony'' - when a few large buyers can dominate the market - by prohibiting buyers from extorting rebates from sellers.

``Managed competition'' would make the oligopsony in the health-care market stronger by reducing the number of buyers.

Absent fair pricing, a Gresham's law for health insurance holds. Insurance based on rebates will drive indemnity insurance out because individuals will be forced to absorb the rebates. ``Adverse selection'' - the young and healthy selecting the rebated programs, while the ill and elderly select indemnity plans - will accelerate this process.

Maryland has an ``all-payer fee'' law prohibiting hospitals from giving rebates and exercising controls over hospital pricing. (Hospitals, being few, are oligopolists and control of their fees is feasible. Controlling fees of most other medical care providers has been ineffective in the medicare program.) A fair-pricing law, allowing providers to set prices but requiring the same fee for all payers, would be supported by physicians, who are tired of being whip-sawed by insurance companies and maintaining multiple fee structures.

* Handle paperwork through voluntary industry standards.

It seems unwise for government, rather than users, to design medical billing forms. Other industries standardize on a voluntary basis. The government should support standard paperwork without mandating, for instance, a one-page form that may prove inappropriate.

* Deal with the uninsured by a continuation of benefits.

The fraction of the population without medical insurance has been 15 percent in recent decades; this is not a new or a growing problem. Most of the desperately poor are covered by current government programs. About six million of the 37 million uninsured are too poor to afford insurance. Another six million have incomes over $40,000 and choose not to buy insurance. About two million are uninsurable for medical reasons and will become insurable under community rating.

Many uninsured are simply between jobs but do not remain uninsured long. About half are covered in six months; many more in nine months. The problem of the transiently uninsured could be eliminated by including continuation of coverage as an unemployment benefit. This would cost employers a bit, but it would not be nearly as costly as other plans. It would penalize termination rather than job creation. Employers who provided stable employment could enjoy an advantage.

There remain the ``near poor'' who are not covered by Medicare or Medicaid and who receive no employee health benefits. Unfortunately, there is no simple and generally acceptable solution for covering these people. Mandating employer-provided benefits will increase unemployment of these marginal workers. Tax-credit schemes to encourage employers to provide health benefits to marginal workers are being considered. We believe the other measures we have discussed would reduce the uninsured problem to manageable proportions that could be dealt with over time without breaking the budget.

The simple measures we advocate: First, mandate community rating for all health insurance. Second, mandate all-payer fees. Third, encourage voluntary industry-wide paperwork standards. Fourth, make continuation of health benefits a part of unemployment benefits to resolve major problems with minimum disruption and bureaucracy.

The first proposal is supported by most groups.

The second would be opposed by some insurance companies engaged primarily in PPOs and non-staff HMOs. But it should be supported by indemnity insurers who form the bulk of the industry and are the main victims of cost-shifting - and by physicians who are tired of being whip-sawed on their fees.

The third would be supported enthusiastically.

The fourth would get the support of the health-care industry and employer groups.

Schemes to provide care for the working poor, to limit the growth of Medicaid and Medicare spending, and to reform malpractice law will still be needed. These are more controversial matters. But the scale of the problem would become less overwhelming if these four proposals were implemented. The Opinion/Essay Page welcomes manuscripts. Authors of articles will be notified by telephone. Authors of articles not accepted will be notified by postcard. Send manuscripts by mail to Opinions/Essays, One Norway Street, Boston, MA 02115, by fax to 617 -450-2317, or by Internet E-mail to OPED@RACHELCSPS.COM.