Commentary: Health care reform's elephant in the room? Spending

Legislators take aim at health care costs
Legislators take aim at health care costs Jim Gehrz/Minneapolis Star Tribune/MCT

Insurance companies aren't the biggest problem with health care, no matter how much the president attacks them. But they're not the solution, either.

Super-sized spending is the elephant in the room on health care reform, inescapable and almost too big to take on. For all the complaints about rising insurance premiums, they're more a symptom than a cause, a reflection of the unrelenting rise in medical costs and procedures.

Insurers should be ashamed of how they drive out sick customers, but they're right to say that returning all their profits wouldn't fix health care. It's just a lot easier for politicians to pound on insurance companies than to challenge the drivers in the system -- the way that specialists and hospitals are raking it in, and patients insist on getting every treatment, pronto.

In 1960, health care spending accounted for 5.2 percent of the United States' gross domestic product; last year, it was 17.3 percent, and just about everyone bears some responsibility for the explosion in size.

In the past half-century, there have been four distinct attempts to stem the rising tide, including price controls, voluntary cuts and managed care. Each succeeded -- but only briefly, and health spending soon resumed its upward climb.

As the congressional debate over health reform enters the end game in Washington, critics rightly point out that proposals in the bills don't do enough to rein in spending. But it's worth recalling that the last major cost-containment effort fell short, in part because insurers went too far, too fast.

In the early 1990s, after a decade of sharp increases in health costs, insurers and employers embraced a new era of managed care. Health maintenance organizations, or HMOs, offered a new way to curb costs, expand coverage and emphasize preventive medicine. It was not unusual for HMOs to give immunizations, physicals and acute treatment for a single low co-payment. In 1995, as a member of the Harris Methodist Health Plan, I paid a total of $10 to cover all the costs of my son's birth, including hospital and doctor charges.

Around that time, private health care spending per person declined in the U.S., and insurance premiums stopped soaring. But HMOs were quickly under attack. Patients complained about long waits and limits on seeing specialists, while doctors and hospitals were losing money on risky contracts. Regulators and politicians soon jumped into the fray. In 1995, the Texas Legislature passed a patient protection bill that was so tilted in favor of health providers that then-Gov. George W. Bush vetoed it. He and the insurance commissioner later rewrote the rules to reduce restrictions on patients, doctors and hospitals.

Three years later, the Texas attorney general sued the state's largest HMOs, saying their contracts encouraged doctors to limit medically necessary care. Civil cases made similar claims, and HMOs quickly lost customers, as well as millions of dollars.

By 2001, private health spending was rising by double-digit rates again, according to the Kaiser Family Foundation. In the past decade, the backlash over managed care gave providers new negotiating leverage over health costs.

Hospitals gained additional strength through mergers and acquisitions. (In North Texas, Texas Health Resources was formed by combining Harris Methodist and Presbyterian, and Baylor added All Saints.) At the same time, doctors' groups grew in size and prominence.

The upshot is that providers gained the upper hand with insurers, who can't risk losing corporate accounts because their networks don't include "must-have" hospitals and doctors. A recent study of the California market, where HMOs first became a force, found that some hospitals and doctors groups were being paid 200 percent of Medicare rates and getting annual double-digit increases. "We are making out hand over first," an unnamed medical group executive said in the article published in the April issue of Health Affairs.

Researchers from the Center for Studying Health System Change, who wrote the article, said that more integration of hospitals and doctors will increase their clout and may not yield the savings that reformers expect.

"Private insurers could wind up paying more, even if care is delivered more efficiently," wrote Robert Berenson, Paul Ginsburg and Nicole Kemper.

They quote a health plan executive complaining that costs are being driven out of control because providers have so much market power. "We'd welcome some regulatory intervention to break up these monopolies, because they are just killing us," the executive told the researchers.

California's experience is a cautionary tale for national health reform, the authors write, because it seems inevitable that price caps or rate-setting may be necessary to slow the rise in spending.

Reform proposals don't discuss that, because it would be political suicide. But reform would open the door for such measures down the road, if other experiments fail. It would get most people into the health care system -- a moral and economic imperative. And it would encourage demonstration projects and pilot studies.

That's a kinder, gentler approach for providers, who want to rewrite the future of health care. If they can deliver quality outcomes at a lower price, they can win federal incentives for Medicare -- and lawmakers hope their models will spread to other parts of the country.

If costs continue to escalate, the government would have ways to ratchet down spending. In theory, it could exert pressure on insurers in the health exchanges to address costs and best practices.

Reform would establish a Medicare board that could submit legislative proposals to reduce spending. But there are many caveats that limit its scope: no rationing of care; no increase in revenues or reductions in benefits; and no cuts for hospitals through 2019.

That's cost-fighting with one arm tied behind your back. But at least the fight begins.