Health Care: Reform and Opportunity
Outlines of the Clinton Administration’s health care reform plan are emerging, and they reveal two basic aims of great interest to business and working people. One is that 37 million uninsured Americans will be brought into health coverage--a reform that theoretically could inflate medical costs out of sight. Small business owners fear unaffordable bills for medical insurance.
But a second main theme is that burdens will be shared. The German health system is being used as one model for the Clinton plan--and that means employees of many companies will pay significantly more for health insurance. In Germany, employees pay half the cost of premiums.
Reform means new business, but not necessarily more cost, says James Tobin, president of Baxter International, a leading hospital supply firm. Bringing insurance to 37 million more people may even reduce today’s costs, he maintains. “The uninsured are not going without medical treatment now--they’re being treated in emergency rooms at enormous expense to everybody else,” Tobin says. “Also, allowing people to get medical care sooner rather than later makes economic sense.”
Baxter International is a good example of the business possibilities in reform. The Deerfield, Ill., firm, with $8 billion in annual sales, supplies hospitals with everything from a 75-cent surgeon’s glove to kidney dialysis machines worth tens of thousands of dollars. And like others in the medical supply industry--Abbott Labs, Becton-Dickinson, the hospital services division of Johnson & Johnson and hosts of small companies--Baxter sees itself as part of the solution. As pressure on hospitals and doctors to cut costs becomes intense, supply firms using computerized controls say they can help.
Baxter, for instance, offers to save millions by taking over a hospital’s inventory, materials handling, work scheduling and other routine functions. Specifically, says Tobin, in a 400-bed hospital, Baxter will save $1.5 million in the initial year of a program and $500,000 a year after that--of which it wants one-third as its fee.
“Hospital costs rise 7% a year, but Baxter’s prices scarcely rise at all. It must have some know-how to offer,” says Kenneth Abramowitz, an analyst at the Sanford C. Bernstein research firm.
The typical hospital--a stand-alone facility that seldom cooperates with other hospitals in purchasing or planning--is by nature inefficient. Mere paperwork takes up 10% of a hospital’s costs, says Tobin, who feels confident Baxter can trim that.
The larger problem lies in using costly high-tech equipment to treat a sniffle. An emergency room, when calculating its charges, must allocate the enormous cost of life-support systems for each patient, whether a critically injured car crash victim or a child with a sore throat. The bill for the child might run $500.
A visit to a doctor’s office could be $40 or less, but the poor and uninsured may well bring the child to an emergency room--with the ultimate bill being passed on to fully insured patients or the state welfare system.
If Clinton can bring insurance coverage to all, today’s uninsured will be able to choose the doctor’s office, or home-care treatment, which will become a growing business in the years ahead.
But the increased patient loads, not to mention the growing desperation of employers, will force a change in financing health care.
“The time has finally arrived for managed care to bring costs under control,” says Abramowitz, a longtime analyst of the medical industry. He sees health maintenance organizations driving harder bargains with hospitals and doctors.
In the German health care system--which Judith Feder, head of Clinton’s health policy team, cites as a model--so-called sickness funds negotiate fees with doctors and hospitals. The funds are set up by companies, villages, groups of all kinds, and financed by premiums charged according to family income.
As in the U.S. system, financing is by insurance, not taxes, which makes it philosophically attractive to Americans, says Prof. Bradford Kirkman-Liff of Arizona State University. Also, Germany offers a wide variety of medical facilities--favoring individual choice.
And the system seems to work. Germany has almost as many doctors proportionate to population as the United States, but German doctors treat more patients, often for longer stays in the hospital, at a lower cost per patient. The German system also makes provision for advances in medical technology.
The difference in Germany is that employees put up 50% of the premiums, with employers or unemployment insurance or retirement funds paying the rest. That’s hefty--half the annual health premiums for family coverage in a typical U.S. corporate plan could run $2,500 a year.
“Sharing premiums makes everybody more conscious of the real cost of health care,” says Kirkman-Liff, adding that “some American employees have been sheltered.”
As with so many things in the ‘90s, health care reform is likely to mean no more free lunch.
More for Less
Germany’s health care system, which Clinton transition planners are using as a model, has similarities to U.S. medical care, but the Germans get far more care for less expenditure.
Germany U.S. capita health expenditure (in U.S. dollars) $1,908.40 $2,566.49 Health care as a percent of GDP 8% 12% Population per physician 329.7 445.7 Female life expectancy at birth 79 years 78.7 years Male life expectancy at birth 72.6 years 71.8 years Infant mortality 0.75 0.98 Acute care days in hospital per person 2.3 0.9 Average length of acute hospital stay 12.4 days 7.3 Hospital occupancy rate (percent) 85.2% 66.2% Population per acute hospital bed 7.3 3.6 Female life expectancy at age 60 22.2 years 22.6 years Male life expectancy at age 60 17.8 years 18.6 years
Figures are from 1990--later German statistics now trying to adjust for reunification with East Germany.
Sources: Prof. Bradford Kirkman-Liff, Arizona St. Univ.; Organization for Economic Cooperation and Development.
