Health Care in America: a Struggle of Vested Interests : Insurance: Employers are moving to ‘managed care,’ which indeed offers freedom of choice --for insurers and employers.

The Supreme Court has let stand a lower court’s decision that an employer can cut health benefits after an employee becomes ill. At stake was the potential cost to the employer--sharply down from $1 million to $5,000--for an employee who had developed AIDS. This was one more example of people’s vulnerability in a system gone mad about making and saving money.

Under federal law, businesses that provide their own health insurance are not subject to state regulations designed to protect consumers. Thus, self-insured companies are free to increase rates and to omit certain coverages. As a direct result, in recent years many businesses have gone over to self-insurance; the proportion now exceeds 60%.

The business of business is profit--more narrowly these days, it seems, than in the past. So insurance companies and employers are moving sharply, even brutally, to cut down on health care costs or shift them to employees. A survey by the Washington Business Group on Health found that 80% of top business executives intend to change policies to increase co-payments and deductibles. Small businesses find that their premiums rise precipitately when even one or two employees become ill. Firms are cutting back on retiree health benefits. Thirteen million retired people receive health benefits from former employers, and one-third of them are at risk because their contracts permit cuts in benefits.

To reduce costs, insurance companies have turned to so-called managed care. There is much to be said for arrangements in which a physician renders a thoughtful judgment about what care is and is not needed. Most managed care is purely money-driven, however, and stories abound about clerks at the end of a telephone line telling physicians that recommended procedures are unnecessary. Physicians are infuriated; patients are merely desperate.

It appears that employer-provided coverage is contributing to chaos in our health care system. Yet prominent reform proposals are based on employer-provided coverage--”play or pay”: provide prescribed health care coverage for employees or pay into a public pool that will provide for them.

With play-or-pay, employers are likely to resort to many of the practices noted above. There is a fond hope (among health care conservatives--there’s a switch!) that tight regulation will be able to prevent such behavior. This will happen, as Arabs say, when apricots bloom in the desert. Another fond hope is that “managed competition,” that is, pitting large group practices against one another, will produce less costly and better quality medical care. This is a dream of policy mavens who have not emerged from Economics 101 sufficiently enough to grasp that competition in health care does not produce quality or efficiency. It produces glossy marketing and ever-higher costs rather than higher quality.

Arguments for play-or-pay combined with managed care dwell on freedom of choice for the consumer. The real freedom of choice, however, is for employers to pick favored providers and insurance companies. For example, when Allied Signal converted to managed care, 95% of its employees had to change family doctors.

A fatal difficulty with such plans is that they will not control costs. Experience here and abroad is that costs are controlled only in single-payer plans. In such a system, the state or the federal government or a body designated by them establishes a health care budget and negotiates uniform payments with all types of providers. Pay-or-play, managed care, managed competition and single-payer are the lines on which the health care debate is being drawn. The struggle will, in some large measure, be a struggle of vested interests against employees, patients and consumers.

It is vital to set this system run amok on the right course. Every unsatisfactory settlement in health care wastes lives and time and strengthens vested interests that make reform even more difficult. If we want fundamental reform, that is, a universal, single-payer system that controls cost and provides choice to the patient, we have to go for it.