Oregon Prescribes a Cure for National Health Need

Going by media reports, the most noteworthy action of the 1989 Oregon Legislature was extension of the state lottery to betting on National Football League games. Even within Oregon, far less attention was paid to the passage of a program that could eventually revolutionize the health-care system of the entire nation.

Without fanfare, Democratic Gov. Neil E. Goldschmidt this summer signed into law two bills designed to establish a “rationing” system for health benefits and to guarantee that every Oregonian gets care for “basic” health needs. The Oregon plan was produced in the legislative laboratory of Dr. John Kitzhaber, a Roseburg emergency-room physician who also happens to serve as president of the state Senate.

Across the nation, health experts are watching the Oregon plan to see if its performance matches its promise of saving money for both government and big business while distributing benefits to those who now have no medical insurance.

The plan establishes a priority system for those receiving publicly financed health care, gives health coverage to the so-called “working poor,” forces most employers to provide medical insurance for their workers and provides tax credits to small businesses insuring their employees.

Kitzhaber’s plan is a possible breakthrough in the long-sought attempt to develop a universal health-insurance program that contains realistic cost-control safeguards and maintains the free-enterprise system in medicine. Parts of the program could be in operation at the end of next year.

Oregon’s pioneering effort marks a historical change in the source of health-care innovations. Over the past 50 years, essentially all major reforms in medical delivery have been launched either from California or Washington, D.C. California is credited with the development of the health-maintenance organization (HMO), the preferred-provider organization (PPO) and with injecting a large dose of competition into the medical marketplace. The other major change in the system was the establishment of the national Medicare and Medicaid (Medi-Cal in California) systems for the aged and the poor.

With legislation designed to cure the ailing health-delivery system stalled in Congress, the Kitzhaber plan has captured the imagination of politicians, business groups, consumer organizations and health associations around the nation.

A major effort is under way in Sacramento this year to provide health insurance for at least some of the 5.2 million Californians who now have no medical coverage. Most of the action centers on a bill by Assembly Speaker Willie Brown (D-San Francisco) that would require, starting in 1993, most state employers to provide health insurance for their employees. The Brown approach, which would extend coverage to about 2 million more Californians, includes no fiscal relief for employers, nor does it make any attempt to apply the brakes to ever-rising health-care costs for the state. A coalition called Health Access is promoting a rival plan, which may be placed on the ballot by initiative next year, to provide universal health insurance for all Californians.

Meanwhile, Kitzhaber worked his two-bill program through the Oregon Legislature with surprisingly light opposition. The only significant opponent was the National Federation of Independent Business, contending that small firms should not be required to absorb the cost of health insurance, especially at a time when the minimum wage is likely to rise. The plan was supported by Associated Oregon Industries, representing most of the state’s major employers. The association hopes the plan will curb soaring health insurance costs.

Welfare recipients receiving Medicaid benefits now have few restrictions on the health services they can receive. But under the Kitzhaber plan, these services will be rationed. A special commission will establish a priority list for medical procedures, and state officials will decide every year how far down the list the state can afford to go.

Kitzhaber, a Democrat, claims the nation’s health system “rations people while maintaining an increasingly rich benefit package for the shrinking number of people who remain eligible. And this constitutes rationing of the very worst kind--rationing that reflects no social policy, which has no ethical or clinical basis, which is being done silently, implicitly and by default.”

In an attempt to show how rationing would work, the state of Oregon hired the Berkeley-based Bioethics Consultation Group to develop a model priority list. Prenatal care, immunizations and nutritional supplements received the highest priority, with organ transplants and infertility programs getting the lowest ranking.

The package of basic benefits would be provided to everyone with an income under the federal poverty level, now set at $10,000 for a family of three. In essence, Oregon would expand eligibility to the working poor while reducing benefits to those on welfare, thus keeping costs in line.

Using a carrot-and-stick approach, the plan pushes private employers into providing health insurance for their employees and their dependents. The plan sets a 1994 deadline for all employers to provide at least the same coverage as the state offers the poor, and tax credits are given as a reward for participation. The mandatory feature would be scrapped, however, if most employers provide coverage voluntarily.

If the Kitzhaber plan works as intended, almost all Oregonians will be covered by some form of insurance within five years, although self-employed persons above the poverty level might fall between the cracks.

Kitzhaber sees the nation’s current system as producing a “cost shift” in which care for the uninsured and the poor is subsidized through ever-increasing insurance premiums paid by employers to cover their workers. The system, he says, “encourages utilization and builds up expectations beyond our ability to pay for them.”

Oregon bought Kitzhaber’s theory, but there is still plenty of skepticism about implementation. For starters, Oregon cannot establish the priority system for Medicaid without receiving a waiver from the federal government, which shares the cost of the program with the states. This could be a major issue before Congress in the coming months. This waiver, incidentally, is also critical to the fiscal viability of the Health Access proposal in California.

Imagine, too, the political infighting over the priority list for benefits and each year’s level of support for the entire program. That could prove as controversial as setting the right penalties for each crime or distributing education funds equitably, both traditional headaches for state lawmakers. For example, podiatrists, optometrists and chiropractors are bound to lobby the Legislature and the priority-setting Health Services Commission for inclusion in the basic program.

Funding of abortions will also be debated at every turn, although Oregon is one state where pro-choice forces traditionally have held the upper hand.

Perhaps the biggest potential problem is the impact on health insurance programs for workers already covered by their employers. Will their benefits gradually be eroded until they match the basic package provided the poor by the state? Kitzhaber recognizes that reform will fail if it reduces benefits for middle-class citizens whose taxes support medical programs for the poor.

Oregon’s relatively peaceful debate over health insurance contrasts with this year’s combat over the issue in Sacramento. Even passage of Speaker Brown’s bill, supported by medical organizations, would leave millions of Californians without health insurance. Nor will Brown’s measure satisfy Health Access, which is already soliciting funds for its initiative campaign.

If the health-care issue is put to voters next year, Oregon’s early experience with the Kitzhaber rationing system could be a central issue in the California debate.