Smart Money Betting on Positive Change From Health Reform
Specifics of President Clinton’s health care reform proposals are dribbling out prior to his formal presentation to Congress later this month. And already protests are heard from medical groups, insurance companies, health consultants and many other affected parties.
But don’t be confused. Looked at dispassionately, what is known so far of the White House plan shapes up as a pretty good way of dealing with the health cost problem. That’s why some smart money is buying shares in health care companies now.
The heart of the Clinton plan would extend basic coverage--worth about $1,800 a year for an individual--to all Americans and legal U.S. residents by 1997. It would exclude coverage of dental care and eyeglasses for adults only in its initial years.
It’s an ambitious plan, but the White House so far has mentioned only $15 billion worth of “sin” taxes--on cigarettes and liquor--to pay for it. This has aroused skepticism, but perhaps unjustifiably.
Because a key to Clinton’s plan is that it will be based on insurance bought by large, regional health insurance purchasing corporations, or HIPCs. Such semi-public purchasing bodies might represent 1 million individuals and companies in a given state or area. Thus the HIPCs will have the market power to change medical economics.
They could bring down some expenses--beginning with the costs of insurance and administration, which have been going up faster than any other part of the nation’s almost $800-billion health care bill. Not surprisingly, the largest U.S. insurance companies are protesting. These companies are planning a television ad campaign to say that HIPCs will reduce consumers’ range of choices, but experts in the insurance business say privately that such a change could well broaden people’s options.
Elsewhere, medical companies are preparing for reform by merging with others, seeking to grow bigger and more imposing in the marketplace. Columbia Healthcare and Galen Health Care--formerly the acute hospital division of Humana Inc.--merged in June with the intent of building the nation’s largest private hospital network.
On Tuesday alone, two mergers were announced--Pacificare Health Systems said it would buy California Dental Health Plan and Abbey Healthcare Group said it would buy Total Pharmaceutical Care, in Torrance, for $197 million.
Centers of advanced medicine, too, are on the move. The Cleveland Clinic and Mayo Clinic have set up regional centers in Ft. Lauderdale, Fla., and Scottsdale, Ariz.
The idea is that companies and clinics want expanded regional presence to increase their standing with the new purchasing organizations.
Such reactions are both astute and interesting. But by far the most important benefit of the proposed reforms is that they could eliminate the fear and distortions that are the most unattractive and unproductive aspects of the present medical system.
Fear, to begin with: Universal health coverage, meaning everybody is covered by a basic plan that can be carried from job to job, could eliminate employees’ fears that they will lose their insurance if they change jobs, lose a job or develop a chronic illness such as cancer. “Universal coverage will end the cherry-picking of risk that goes on all the time among insurance plans and companies today,” said one medical expert who preferred to speak confidentially.
Now for distortions: Since everybody will have basic coverage, the reform should eliminate cost shifting--the current practice by which hospitals charge fully insured patients more money in order to compensate for losses on indigent and Medicare patients.
Employers will have to pay 3.5% to 8% of payroll (and employees will pay up to 2% of salary) to help finance the new system. But that’s little, if any, increase from present charges, and most employers will gladly pay if it relieves them of deciding who gets insurance and who doesn’t--a ticklish matter that opens companies to the risk of lawsuits.
The upshot of the coming reforms is that they promise to standardize insurance coverage and delivery of many medical services, which should make them less expensive. Today’s legions of health care consultants will have to shift their business from advising corporations on how to buy insurance to advising hospitals on how to keep their costs acceptable to the purchasing organizations.
Change is bound to arouse opposition. “Everybody’s going to have a bite taken out of their lunch,” said a leading health care consultant. But change is just what the present creaking and groaning health payments system needs. Chances are, the system will improve.
That’s why David Jones, the 62-year-old founder and chairman of Humana Inc., recently ponied up about $20 million to buy an additional 2 million shares of his company’s stock. Jones obviously reckons that reform will mean good business for Humana, which has the largest health maintenance organization in Florida as well as its native Kentucky.
And the stock market in general, which reacted negatively at first to Clinton’s talk of reform, recently has been restoring the prices of Hospital Corp. of America and other medical companies. Amid the debate and bluster that even now are anticipating Clinton’s program, the smart money is buying. That’s a cue: Follow the money.
The Health Care Dollar
Americans spent $751.8 billion on health care in 1991, according to the federal government’s latest figures. That’s more than 7.5 cents of every dollar in the whole economy.
Hospital Services:$288.6 billion
Physicians services:$142 billion
Drugs and medical nondurables: $60.7 billion
Nursing home care: $59.9 billion
Government program administration and cost of private health insurance: $43.9 billion
Dental services: $37.1 billion
Other professional services (private duty nurses, chiropractors etc.): $35.8 billion
Research and hospital construction: $23.1 billion
Other (Public health, vision and hearing aids, home care, company health facilities): $60.7 billion
Source: U.S. Health Care Financing Administration.
