Blame Congress for HMO's

[kitkat24]

Blame Congress for HMOs

by Twila Brase

Published in Ideas on Liberty

by the Foundation for Economic Education

February 2001

Only 27 years ago, congressional Republicans and Democrats agreed that American patients should gently but firmly be forced into managed care. That patients do not know this fact is evidenced by public outrage directed at health maintenance organizations (HMOs) instead of Congress.

Although members of Congress have managed to keep the public in the dark by joining in the clamor against HMOs, legislative history puts the responsibility and blame squarely in their collective lap.

The proliferation of managed-care organizations (MCOs) in general, and HMOs in particular, resulted from the 1965 enactment of Medicare for the elderly and Medicaid for the poor. Literally overnight, on July 1, 1966, millions of Americans lost all financial responsibility for their health-care decisions.

Offering "free care" led to predictable results. Because Congress placed no restrictions on benefits and removed all sense of cost-consciousness, health-care use and medical costs skyrocketed. Congressional testimony reveals that between 1965 and 1971, physician fees increased 7 percent and hospital charges jumped 13 percent, while the Consumer Price Index rose only 5.3 percent. The nation's health-care bill, which was only $39 billion in 1965, increased to $75 billion in 1971.1 Patients had found the fount of unlimited care, and doctors and hospitals had discovered a pot of gold.

This stampede to the doctor's office, through the U.S. Treasury, sent Congress into a panic. It had unlocked the health-care appetite of millions, and the results were disastrous. While fiscal prudence demanded a hasty retreat, Congress opted instead for deception.

Limited by a noninterference promise attached to Medicare law--enacted in response to concerns that government health care would permit rationing--Congress and federal officials had to be creative. Although Medicare officials could not deny services outright, they could shift financial risk to doctors and hospitals, thereby influencing decision-making at the bedside.

Beginning in 1971, Congress began to restrict reimbursements. They authorized the economic stabilization program to limit price increases; the Relative Value Resource Based System (RVRBS) to cut physician payments; Diagnostic-Related Groups (DRGs) to limit hospitals payments; and most recently, the Prospective Payment System (PPS) to offer fixed prepayments to hospitals, nursing homes, and home health agencies for anticipated services regardless of costs incurred. In effect, Congress initiated managed care.

National Health-Care Agenda Advances

Advocates of universal coverage saw this financial crisis as an opportunity to advance national health care through the fledgling HMO. Legislation encouraging members of the public to enter HMOs, where individual control over health-care decisions was weakened, would likely make the transition to a national health-care system, where control is centralized at the federal level, less noticeable and less traumatic. By 1971, the administration had authorized $8.4 million for policy studies to examine alternative health insurance plans for designing a "national health insurance plan."2

Senator Edward M. Kennedy, a longtime advocate of national health care, proceeded to hold three months of extensive hearings in 1971 on what was termed the "Health Care Crisis in America." Following those hearings, he held a series of hearings "on the whole question of HMO's."

Introducing the HMO hearings, Kennedy said,"We need legislation which reorganizes the system to guarantee a sufficient volume of high quality medical care, distributed equitably across the country and available at reasonable cost to every American. It is going to take a drastic overhaul of our entire way of doing business in the health-care field in order to solve the financing and organizational aspects of our health crisis. One aspect of that solution is the creation of comprehensive systems of health-care delivery."3

In 1972, President Richard M. Nixon heralded his desire for the HMO in a speech to Congress: "the Health Maintenance Organization concept is such a central feature of my National Health Strategy."4 The administration had already authorized,without specific legislative authority, $26 million for 110 HMO projects.5 That same year, the U.S. Senate passed a $5.2 billion bill permitting the establishment of HMOs "to improve the nation's health-care delivery system by encouraging prepaid comprehensive health-care programs."6

But when the House of Representatives refused to concur, it was left to the 93rd Congress to pass the HMO Act in 1973. Just before a voice vote passed the bill in the House, U.S. Representative Harley O. Staggers, Sr., of West Virginia said,"I rise in support of the conference report which will stimulate development of health maintenance organizations. . . . I think that this new system will be successful and give us exciting and constructive alternatives to our existing programs of delivering better health services to Americans."7

In the Senate, Kennedy, author of the HMO Act, also encouraged its passage: "I have strongly advocated passage of legislation to assist the development of health maintenance organizations as a viable and competitive alternative to fee-for-service practice. . . . This bill represents the first initiative by the Federal Government which attempts to come to grips directly with the problems of fragmentation and disorganization in the health care industry. . . . I believe that the HMO is the best idea put forth so far for containing costs and improving the organization and the delivery of health-care services."8 In a roll call vote, only Senator Herman Talmadge voted against the bill.

On December 29, 1973, President Nixon signed the HMO Act of 1973 into law.

As patients have since discovered,the HMO--staffed by physicians employed by and beholden to corporations--was not much of a Christmas present or an insurance product. It promises coverage but often denies access. The HMO, like other prepaid MCOs, requires enrollees to pay in advance for a long list of routine and major medical benefits, whether the health-care services are needed, wanted, or ever used. The HMOs are then allowed to manage care--withhold access to dollars and service--through definitions of medical necessity, restrictive drug formularies, and HMO-approved clinical guidelines. As a result, HMOs can keep millions of dollars from premium-paying patients.

HMO Barriers Eliminated

Congress's plan to save its members' political skins and national agendas relied on employer-sponsored coverage and taxpayer subsidies to HMOs. The planners' long-range goal was to place Medicare and Medicaid recipients into managed care where HMO managers, instead of Congress, could ration care and the government's financial liability could be limited through capitation (a fixed payment per enrollee per month regardless of the expense incurred by the HMO).

To accomplish this goal, public officials had to ensure that HMOs developed the size and stability necessary to take on the financial risks of capitated government health-care programs. This required that HMOs capture a significant portion of the private insurance market. Once Medicare and Medicaid recipients began to enroll in HMOs, the organizations would have the flexibility to pool their resources, redistribute private premium dollars, and ration care across their patient populations.

Using the HMO Act of 1973, Congress eliminated three major barriers to HMO growth, as clarified by U.S. Representative Claude Pepper of Florida: "First, HMO's are expensive to start; second, restrictive State laws often make the operation of HMO's illegal; and, third, HMO's cannot compete effectively in employer health benefit plans with existing private insurance programs. The third factor occurs because HMO premiums are often greater than those for an insurance plan." 9

To bring the privately insured into HMOs, Congress forced employers with 25 or more employees to offer HMOs as an option--a law that remained in effect until 1995. Congress then provided a total of $375 million in federal subsidies to fund planning and start-up expenses, and to lower the cost of HMO premiums. This allowed HMOs to undercut the premium prices of their insurance competitors and gain significant market share.

In addition, the federal law pre-empted state laws, that prohibited physicians from receiving payments for not providing care. In other words, payments to physicians by HMOs for certain behavior (fewer admissions to hospitals, rationing care, prescribing cheaper medicines) were now legal.

The combined strategy of subsidies, federal power, and new legal requirements worked like a charm. Employees searching for the lowest priced comprehensive insurance policy flowed into HMOs, bringing their dollars with them. According to the Health Resources Services Administration (HRSA), the percentage of working Americans with private insurance enrolled in managed care rose from 29 percent in 1988 to over 50 percent in 1997. In 1999, 181.4 million people were enrolled in managed-care plans.

Once HMOs were filled with the privately insured, Congress moved to add the publicly subsidized. Medicaid Section 1115 waivers allowed states to herd Medicaid recipients into HMOs, and Medicare+Choice was offered to the elderly. By June 1998, over 53 percent of Medicaid recipients were enrolled in managed-care plans, according to HRSA. In addition, about 15 percent of the 39 million Medicare recipients were in HMOs in 2000.10

HMOs Serve Public-Health Agenda

Despite the public outcry against HMOs, federal support for managed care has not waned. In August 1998, HRSA announced the creation of a Center for Managed Care to provide "leadership, coordination, and advancement of managed care systems . . . [and to] develop working relationships with the private managed care industry to assure mutual areas of cooperation."11

The move to managed care has been strongly supported by public-health officials who anticipate that public-private partnerships will provide funding for public-health infrastructure and initiatives, along with access to the medical records of private patients.12 The fact that health care is now organized in large groups by companies that hold millions of patient records and control literally hundreds of millions of health-care dollars has allowed unprecedented relationships to form between governments and health plans.

For example, Minnesota's HMOs, MCOs, and nonprofit insurers are required by law to fund public-health initiatives approved by the Minnesota Department of Health, the state regulator for managed care plans. The Blue Cross-Blue Shield tobacco lawsuit, which brought billions of dollars into state and health-plan coffers, is just one example of the you-scratch-my-back-I'll-scratch-yours initiatives. Yet this hidden tax, which further limits funds available for medical care, remains virtually unknown to enrollees.

Federal officials, eager to keep HMOs in business, have even been willing to violate federal law. In August 1998, a federal court chided the U.S. Department of Health and Human Services for renewing HMO contracts that violate their own Medicare regulations.13

The Ruse of Patient Protection

Truth be told, HMOs allowed politicians to promise access to comprehensive health-care services without actually delivering them. Because treatment decisions could not be linked directly to Congress, HMOs provided the perfect cover for its plans to contain costs nationwide through health-care rationing. Now that citizens are angry with managed (rationed) care, the responsible parties in Congress, Senator Kennedy in particular, return with legislation ostensibly to protect patients from the HMOs they instituted.

At worst, such offers are an obfuscation designed to entrench federal control over health care through the HMOs. At best, they are deceptive placation. Congress has no desire to eliminate managed care, and federal regulation of HMOs and other managed-care corporations will not protect patients from rationing. Even the U.S. Supreme Court acknowledged in its June 12, 2000, Pegram v. Herdrich decision that to survive financially as Congress intended, HMOs must give physicians incentives to ration treatment.

Real patient protection flows from patient control. Only when patients hold health-care dollars in their own hands will they experience the protection and power inherent in purchasing their own insurance policies, making cost-conscious health-care decisions, and inciting cost-reducing competition for their cash.

What could be so bad about that? A lot, it seems. Public officials worry privately that patients with power may not choose managed-care plans, eventually destabilizing the HMOs Congress is so dependent on for cost containment and national health-care initiatives. Witness congressional constraints on individually owned, tax-free medical savings accounts and the reluctance to break up employer-sponsored coverage by providing federal tax breaks to individuals. Unless citizens wise up to Congress's unabashed but unadvertised support for managed care, it appears unlikely that real patient power will rise readily to the top of its agenda.

1. John D. Twiname, Administrator, Office of Health, Cost of Living Council, testimony before the House Subcommittee on Public Health and Environment, Hospital Cost Controls, December 19, 1973, p. 3.

2. "OEO Transfer for Policy Research," a document included in the U.S. House of Representatives hearing on Oversight of HEW Health Programs, Subcommittee on Public Health and Environment of the Committee on Interstate and Foreign Commerce, March 1, 1973, p. 20.

3. Senator Edward M. Kennedy (Mass.), "Physicians Training Facilities and Health Maintenance Organizations," hearing, U.S. Senate, Subcommittee on Health of the Committee on Labor and Public Welfare. p. 2.

4. President Richard M. Nixon, "Health Care: Requests for Action on Three Programs," March 2, 1972, message to Congress on health care, Congressional Quarterly Almanac 1972 (Washington, D.C.: Congressional Quarterly Books, 1972), p. 43A.

5. U.S. Representative Harley O. Staggers, Sr. (W.Va.), speech on the floor of the U.S. House of Representatives, Congressional Record, September 12, 1973, p. 29354.

6. "Senate Passes Health Maintenance Organization Bill," Congressional Quarterly Almanac 1972, p. 769.

7. Representative Harley O. Staggers, Sr., speech on floor of the U.S. House of Representatives Congressional Record, December 18, 1973, p. 42229.

8. Senator Edward M. Kennedy, speech on the floor of the U.S. Senate, Congressional Record, December 19, 1973, p. 42505.

9. Representative Claude Pepper (Fla.), speech on floor of the U.S. House of Representatives, Congressional Record, September 12, 1973, p. 29353.

10. Laure McGinley and Ron Winslow, "Major HMOs to Quit Medicare Markets," Wall Street Journal, June 30, 2000.

11. The Federal Register, August 26, 1998.

12. "Public Health and Managed Care: Data Sharing for Common Goals," National Center for Chronic Disease Prevention and Health Promotion, Chronic Disease Notes & Reports, Spring/Summer 1997.

13. "Medicare patients have right to appeal HMO refusals, court says," New York Times, August 14, 1998.

--------------------------------------------------------------------------------

Twila Brase, R.N., a public health nurse, is president of the Citizens' Council on Health Care in St. Paul, Minnesota.

© Foundation for Economic Education

Reprinted with permission from the Foundation for Economic Education.

[fergus51]

What's the difference between an HMO and a terrorist?

You can negotiate with a terrorist.

Personally, I don't care how HMOs were created. Trying to shift the blame to congress when they act unethically is just not a good enough excuse for me. I had a terrible experience with our family's HMO. Basically, they didn't want to pay for the tests my doctor wanted to run and we couldn't afford them. We were one of those "underinsured" families. We wound up moving back to Canada the next year and getting things sorted out. That's when we found out that delaying treatment could have caused me real long term problems (like a heart attack or a baby born with birth defects). Fortunately my heart was found to be normal. But, I can't blame my doctor or congress for limiting my access to tests, it was the company that refused to pay.

[kitkat24]

Fergus,

OK, so that is a personal representation of how HMO's delayed your care. I now have endless personal representation of how Canada's system of healthcare has caused deaths from queing and waiting and delaying of care. How is your system any better than an HMO? The same thing you describe is the same things that others describe at length for Canada.

Kitkat

[fergus51]

That's just my point when you post personal stories:) You need to look at the large picture when deciding which system you prefer.

I only included that story to illustrate that I don't blame the government for my lack of care (not to start a debate about health systems). It was a business decision made by an HMO that sucked. People are always looking to blame someone else. Simple fact is they made a decision. I was lucky we moved and I didn't have long term effects from it.

[kitkat24]

Fergus,

If the US was to switch to a univeral healthcare, it would need to be because it is far superior to what we currently have. From what I read, it is not any better. We would be switching one set of problems for another set of problems and wasting millions and millions of taxpayer dollars to set up a different system with the same problems.

I have read in several different articles, both of which I posted earlier is that Canada is looking into co-pays and different ways of coping with an out of control health care costs that do not provide better care. AND, Canadians DO NOT want to be taxed any further.....

Sounds like all the same complaints that we currently have...

Kitkat

[pickledpepperRN]

kitkat24:

I understand you don't like HMOs.

You don't like the Canadian system.

What do you think would be the best way for healthcare to be organized, provided, or offered?

Would you keep Medicare for the aged and disabled?

Keep the Veterans Administration?

Public paramedic and ambulance services?

[fergus51]

Again, I was not posting my experience as an argument in favor of a universal system being adopted in the US. That will never happen. Americans would never allow it even if it was the best thing in the world. Never. So you really don't need to worry about it. I was posting it because I think the idea that the government is to blame when HMOs refuse to treat their customers properly is ridiculous. If an HMO treats its customers badly (and despite what you may think, they often do), that's their responsibility, not the governments. They need to suck it up and stop blaming other people for their actions. Personal responsibility seems to be a conservative value (one that I share btw), so why excuse an HMO from it? The article states that HMOs deny and ration care. So why should I be pleased with them?

[pickledpepperRN]

kitkat24:

If you had a magic wand to be used to create your ideal health care for the USA what would it be?

[kitkat24]

I honestly do not have the answers. My interest in universal healthcare, single-payer healthcare, national healthcare etc has evolved out of last semester at college and this semester at college. My public health book (which weighed 100 pounds) :) repeatedly discussed universal care and said that we needed it here in the US. I was dismayed because while it promoted universal care it never ONCE discussed the negative aspects. I wondered how that was possible. I looked in the Index for all areas related to healthcare systems and universal care. I read chapter after chapter and all I found was how great UHC would be for the US and how it should be ushered in by the nursing profession.

My response was, HOLD ON ONE SECOND HERE! And, thus my quest to understand the details. I do not have the answers. I am looking for the truth. I do not want to trade one poor system for another poor system. I also want our liberty to be protected at the same time.

I would also bet that the majority of union represented nurses and the nursing profession cannot intelligently talk about universal healthcare without their primary arguement being that we all have a "right" to healthcare and we all "deserve" healthcare. While they might believe it entirely, that cannot be the sole arguement for why the US nursing profession should usher in UHC. That makes us look like we only think with our hearts and do not utilize our intellect.

While magic wands would be wonderful, (I could poof me a all one level wheelchair accessible home and eliminate structural barriers for my son and make it easier to care for him) they do not exist. So, we are forced to do the best we can and make the best decisions that we can with the knowledge and information that we have.

Kitkat

[gwenith, BSN, RN]

Kitkat I work in a UHC system and I do think it is wonderful for very many reasons while I have no personal experience of the US system there seems to be more problems there than there are here.

IF you would like to explore further what the actual tangible benefits of a UHC is to both the individual and to society then I am willing to outline them.

[kitkat24]

I am unfamiliar with Australia's UHC system. I have mostly focused my information gathering on my neighbors to the north. Do you know if the negative aspects to your system are similar to the complaints of my northern neighbors?

Thanks

Kitkat

[NurseHardee]

Kitkat, you accuse others of having ideological blinders on. But I think that it is you that is really wearing them.

You want to pose the health care debate in a false framework... of government-run national medical system vs business-run. The big problem you have is that it is not this either or, or either not, dilemma that you want us to focus on. Big Government is already running the US delivery of health care, but they are doing it in tandem with the corporations here.

So trying to pass the buck onto government about the proliferation of HMOs is hogwash. It was the big companies in the US that pushed this proHMO environment onto us. They wanted a 2-tier system for American workers. And as we all know by now, the HMOs deliover the sorriest excuse of medical care.

The big coporations lobbied for this con of the HMO, and easily got the pro-business US government to kick it quickly into place. And now they US government is trying to export this stuff to Europe and Canada, too. That's what the American business community wants, simply because they sense yet more bloody profit out of it.

So the real either ...or ...or not... question is... will the government be wroking on behalf of the American business community, or on behalf of the average citizen? We can see that when our government supports totally, and lets the corporations run wild, we get poorer service at higher cost. But you with your blinkers on, want to deny the obvious, and tell us the contrary! The facts just don't support your case.

Nurse Hardee