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March 20, 2003

Speakers discuss Rx for health insurance ills

If history is any guide, eventually the U.S. stock market will bounce back and the Commonwealth of Pennsylvania’s coffers will be more flush than they are today, Chancellor Mark A. Nordenberg observed at the beginning of yesterday’s University Senate plenary session on University health benefits.

“But there is no such encouraging pattern when it comes to the costs of health care,” Nordenberg said. “That cost just keeps rising and rising and rising,” a trend that Pitt budget makers are all too aware of as the University negotiates a new employee health insurance contract.

Dramatic increases in the number of Americans without health insurance (41 million at last count) disproportionately burden the finances of academic medical centers like Pitt’s, the chancellor noted.

“The challenge of effectively addressing the important matter of health care benefits has become a national problem of almost mythic proportions,” said Nordenberg, likening it to the challenge of untying the mythically intricate Gordian Knot.

The plenary session’s keynote speaker, Oakland University economics professor Sherman T. Folland, promptly showed that he’s no Alexander the Great.

Citing research by himself and his fellow health economists, Folland methodically knocked the props out from under the more popular, suggested remedies for runaway health insurance costs. These included:

• Make health care institutions more efficient. The average U.S. hospital is 80-90 percent efficient, well above the average for some other key industries, Folland said. During the 1994 debate over the Clinton administration’s proposed national health plan, economists concluded that “there was little that could be gained by squeezing more efficiency out of hospitals,” Folland said.

• Stop price gouging by insurance companies. For people who get their health insurance through group plans, as the vast majority of insured Americans do, the “loading fee” (the portion of an insurance premium that does not go back to patients in the form of health care) represents just 15 cents of every $1 in premiums — a rate that hardly qualifies as gouging, Folland said. For individual coverage the loading fee averages a whopping 50 percent, but only a small portion of the public is self-insured, he noted.

• Cut drug costs. While some drug companies are as profitable, percentage-wise, as Microsoft, they are not monopolistic by nature and they face formidable bottlenecks in developing drugs from the lab to the marketplace, said Folland. Drug costs constitute 10 percent of total U.S. health care costs, compared to the 21 percent that goes to physicians and 43 percent to hospitals and nursing homes. “If all drug costs were reduced to zero, it would still save just 10 percent in terms of overall health care costs,” Folland said.

• Increase competition. “Competition sounds good to every economist,” Folland said. “But it’s a big question how much it applies to health care.” For one thing, a competitive market requires consumers who are well informed about the services they’re buying. But doctors know far more about health care than patients do, Folland pointed out.

• Use less health care. “The main way to save money on health care is to use less of it,” he said. “But do we really want to do that? We spend about 15 percent of our national income on health care. Is that too much, really? Richer nations spend more on health care, and we’re the richest substantial nation in the world.”

Americans like having access to top-notch hospitals and sophisticated technology, Folland said. And, like Dylan Thomas, most of us have no intention of going gently into that good night; yet, health care costs during a person’s last year of life tend to dwarf what was spent on their health during all of the preceding years. “Do we really want to spend less on end-of-life care?” Folland asked.

Americans have long admired Canada’s national health system (less so in recent years, when that system’s costs and inefficiencies began increasing), Folland noted. “We’ve found that Canadians come across the border to use our health care in times of dire need,” he said, mainly because high-tech equipment is comparatively plentiful here. For example, the United States has 3.7 open-heart technology units per million people, compared with 1.3 units-per-million people in Canada. “You can get access to radiation therapy and MRI scans almost at any time” in the United States, Folland said.

Folland’s advice to Pitt?

Considering that American workers sacrifice 85 cents in wages for every $1 they receive in health care, he said, employers should give employees financial incentives to choose low-cost health plans — which traditionally has been the case here, as Pitt staff and faculty have paid less for managed care coverage than for options with greater freedom of choice in physicians and care received.

Among the presentations by Pitt faculty panelists at yesterday’s plenary session, Gordon K. MacLeod’s contrasted most strongly with Folland’s.

MacLeod, a professor of health services administration in the Graduate School of Public Health, recommended a bold solution to America’s health care crisis: a nationally financed and regulated medical insurance system like the ones in Canada, the United Kingdom and most other industrialized Western nations.

“For years, we have known that the results of measurable health standards for almost every other industrialized country have far surpassed those of the United States,” MacLeod said. “Witness the fact that the U.S. has higher infant mortality rates and shorter longevity than almost all other industrialized counties,” including Australia, Canada, England, France, Germany, Israel, Italy and Spain — countries which, like the United States, have multi-ethnic populations.

MacLeod cited a World Health Organization (WHO) report for the year 2000 that found the United States spent a far greater proportion (14.1 percent) of its gross domestic product on health care than any other country. “While the U.S. can be said to be the most responsive health system in the world with its generous share of specialists and hospital facilities, it is distressing to learn that despite being the world’s richest country, WHO ranked the overall performance of the American health care system at 37th among the 191 U.N. member countries, just between Costa Rica and Slovenia,” said MacLeod.

“In fact, the United States fails to meet the standards of health systems available in almost all of the rest of the developed world,” he continued. “For example, the United Kingdom, oft criticized for long waits for medical procedures, ranks 18th when measuring overall health system performance, compared to the U.S. ranking of 37th.”

Defending Canada’s recently maligned system, MacLeod cited WHO data revealing that the U.S. ranks below its northern neighbor in rates of infant mortality and life expectancy.

MacLeod argued that a national health care system would eliminate or substantially constrain such inflationary factors as exorbitant profits by proprietary nursing homes; out-of-control liability awards; fraud by hospitals, physicians and managed care companies, and what he called “the regulatory administrative costs for conducting business under the most unnecessarily multi-faceted and bewildering private health financing system in the world.”

He called on Pitt’s Faculty Assembly to take the lead in advocating a national health care system. “Because academicians are highly respected and represent some 9,000 institutions of higher learning across the nation, the faculty of these schools could have a profound impact on such an important issue,” MacLeod said.

He compared faculty advocacy of national health insurance to the recent friend-of-the-court legal brief filed by Pitt, Carnegie Mellon University and other schools in support of the University of Michigan’s affirmative action policies. “I do think that with some publicity, Faculty Assembly could stand up and actually take this and make it into a national issue,” MacLeod said.

Fellow panelist Nathan Hershey, a Pitt professor of health law, remembered attending a 1961 briefing by a Kennedy administration official who outlined a Congressional bill proposing the Medicare system. “Quite frankly,” Hershey said, “after [the official] left, my thoughts were: ‘This will never happen, but it was nice to be asked what we thought about it.’ And then, lo and behold — it took a presidential assassination to really get things going on Medicare…but it happened.”

Fallon said he favored a national health care plan modeled after the systems by which states require every driver to have auto insurance — and then see to it that basic coverage remains affordable. (Some Republican leaders also favor such a system, Fallon noted.)

— Bruce Steele

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