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Health Care Crisis: No Silver Bullet for Soaring Costs |
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Written On: March/April 2005 |
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Written By: Paul Schlienz |
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Health care costs continue to skyrocket. While consensus builds that the system must be fixed, agreement on a solution remains elusive.
According to the Kaiser Family Foundation, between the spring of 2003 and the spring of 2004, premiums for employer-sponsored health insurance rose by 11.2 percent. While this spike was lower than the 13.9 percent increase in 2003, this was, nevertheless, the fourth consecutive year of double-digit growth in health care costs.
Premiums continued to increase much faster than overall inflation — 2.3 percent — and wage gains.
More and more small businesses, many of which would like to provide health care for their employees, are discovering that traditional employee health insurance plans are too expensive to be realistic. Complicating the situation are government health insurance mandates, often well intentioned, but burdensome to businesses that are struggling to stay afloat in a highly competitive economy.
“Rising health care costs are an extremely complex problem,” Sen. Karen Keiser, D-Des Moines, chair of the Senate Health & Long Term Care Committee, said. “It’s a huge puzzle of moving pieces. There’s not one silver bullet that’s going to be the answer.”
Major cost drivers for health care include the over utilization of health services, reductions in such federal programs as Medicare and Medicaid, government mandates on health benefits, the rapidly expanding use of expensive high technology in medical treatment, an aging population, rising prescription drug costs, the need to cover the costs of uncompensated medical care for the uninsured, an astoundingly small number of insurance carriers willing to operate in Washington’s highly regulated environment, and soaring medical malpractice insurance rates.
Rising Medical Malpractice Rates
Medical malpractice is getting special attention this year due to Initiative 330, which was sent to the Legislature by the Washington State Medical Association to address problems related to medical liability.
Initiative 330 would cap contingency fees charged by attorneys, thus ensuring that a larger proportion of awards actually get to injured parties. The measure would also provide for arbitration and some initial mediation in addition to putting a cap on pain and suffering damages. Initiative 330 would not, however, cap economic damages.
Rising medical malpractice insurance costs do not just affect doctors. Indeed, these costs are passed on to patients not only in higher rates, but also in an insidious erosion of the quality and variety of medical services.
The number of high risk services provided in Washington — a state with stratospheric malpractice insurance rates — is rapidly dwindling. Obstetrics, because it is a high-risk specialty, has been hit particularly hard by the continual threat of lawsuits. Alarmingly, there are nine Washington counties with no doctors who will deliver babies.
Many fine obstetricians are, indeed, either leaving the state or leaving practice. Ultimately, their patients suffer the most.
In January, Marriann Tefft, wife of AWB General Counsel Kris Tefft, testified at a legislative committee hearing that her own trusted obstetrician who helped her through four pregnancies and saved her life when she miscarried, was being forced out of practice because of medical malpractice insurance rates.
“It is personally upsetting for our family to face the prospect of having a stranger handling this important medical care,” Kris Tefft commented following his wife’s testimony. “This situation is due in large part to an inability in our state to adequately address the health care liability issue.”
And it’s not just obstetricians who are being affected. Because emergency-room medicine is high risk, there are fewer doctors willing to perform these services. As a result, many Washington communities no longer have 24-hour trauma services. Shockingly, one of these communities is Olympia — Washington’s capital city.
Another negative effect of the medical malpractice insurance crisis is the rise of “defensive medicine.” Defensive medicine is expensive medicine because costs rise as physicians make sure every conceivable risk factor, even if the risk is remote, is addressed with an appropriate process in order to reduce risk. This phenomenon can be seen at work in the massive increase in C-section births over the past decade.
In addition to suffering a brain drain of doctors who are simply quitting their practices or leaving for less litigious states, Washington is having difficulty attracting new doctors.
“We have a wonderful state, but with the liability environment and other factors like the low Medicare payments to Washington, we’ve become an unattractive state for recruitment,” lamented Kenneth Isaacs, a Walla Walla neurologist and president of the WSMA.
While the WSMA’s Initiative 330 is unlikely to be passed into law by the Legislature, it will probably face the voters in November, alongside the competing Initiative 336, which is almost entirely funded by the Washington Trial Attorneys Association. Nevertheless, other aspects of the health care crisis may be addressed during the 2005 legislative session.
A Market-Based Option
Health care, because it is so complex and fraught with political danger, is rarely a front-burner issue when the Legislature convenes. In 2005, however, the Legislature faces a budget shortfall approaching $2 billion. Thus proposals to reform the health care system are receiving more attention than usual.
Sen. Linda Parlette, R-Wenatchee, a member of the Senate’s Health & Long Term Care Committee, sees the budget shortfall as potentially a blessing in disguise.
“The good thing about having budget crunches is that they force us to the table to talk about things we normally don’t talk about, which leads us to avenues to do things differently,” Parlette observed.
On the table during the 2005 session are proposals that would freeze all state health mandates, increase insurance choices, and provide health savings account options. Conversely, legislation has also emerged that would force larger employers to either provide a certain level of health insurance to its employees or pay a tax to enroll employees in the state’s Basic Health Plan. Mental health parity and other mandates are also being considered.
Rep. Barbara Bailey, R-Oak Harbor, the ranking minority member of the House Health Care Committee, believes the state is trying to do too much with its insurance mandates.
“We don’t have the opportunity in this state to offer just a pure insurance-against-risk plan,” Bailey said. “What we have in statute because we mandate everything is more like a health care plan. It’s meant to be used, and the increased usage obviously drives up the costs.”
Bailey and Parlette favor expanding access to health savings accounts. An option first allowed under the federal Medicare Reform Act of 2003, health savings accounts allow a qualified high-deductible plan that can be paired with a tax-exempt savings account. Much like an individual retirement account, employees may contribute tax free to an HSA. Unlike traditional health insurance policies, contributions can accumulate over the years and build up into a health care nest egg for retirement.
HSAs, while not appropriate for all health consumers, are an option that may play a significant role in cutting medical costs. Since these plans feature high deductibles, it is expected that HSA holders will be less likely to utilize medical services unless there is a compelling need. In contrast, traditional plans with lower deductibles encourage the utilization of medical services by masking the real costs of health care for the consumer.
“Pay-or-Play” Gains Ground
Another far less market-oriented approach to health care is, however, gaining ground in the Democrat-controlled Legislature. Pay-or-play legislation to require employers to provide health care insurance for employees or pay to enroll them in the BHP has been sponsored in the Senate by Keiser and in the House by Rep. Eileen Cody, D-Seattle, chair of the House Health Care Committee. This plan, dubbed the Health Care Responsibility Act, is widely opposed by the business community, including AWB.
Keiser and Cody promote pay-or-play as a way to reduce the number of uninsured people who drive up health care costs by accessing state subsidized facilities like emergency rooms and community health care centers for their primary medical services. In addition, pay-or-play is touted as a means to level the playing field so no large employer can gain a competitive advantage by not providing employee health insurance.
Keiser also holds out the possibility that once larger employers are mandated to cover their employees’ health insurance, the state might use the savings it gains from the decreased number of uninsured people to provide a subsidy so smaller businesses could purchase employee health insurance.
Pay-or-play alarms the Legislature’s advocates for more market-oriented health care solutions.
“If we continue the way we’re going right now with incremental steps toward state control, we will create a system that will not allow consumer choice, will deny access, and will be expensive,” warned Bailey. “We will lose innovation and much of the research and development in our system. Once we lose our individual choice, we will take a number and get in line.”
Parlette urged business to stay involved in the health care debate and press for the market-oriented reforms that would provide quality health care while preserving choice.
“AWB has a big role in this,” Parlette observed. “They’re big enough that if they demand a certain kind of policy for employers, they’ll get it. And that will help both small business and big business.”
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