Keep Sacramento Out of HMO Reform

Imagine that one state had hit on the key to controlling one of the nation’s most pressing social problems, and then started contemplating proposals that would undermine that success. Meanwhile, the rest of the country stood by expectantly, waiting to jump on the state’s lead.

This, in a nutshell, is California’s story as the Legislature considers more than 100 recommendations from Gov. Pete Wilson’s Managed Health Care Improvement Task Force to reform California’s rapidly evolving managed care health system.

By mandating fixed benefits and fixed practices on health plans and health providers, many of the task force’s recommendations fly in the face of what has helped California tame health care inflation.

Even if such mandates appear valid, consumers may not be happy with the results. Take mandating direct access to specialists without requiring patients to go through primary care physicians, which sounds appealing. A survey of Californians found that while 44% wanted direct access to specialists and would be willing to pay for it, an even larger group (46%) did not value this benefit enough to pay even $10 extra. Should this be mandated, a significant number of Californians would be forced to pay higher premiums for an added benefit they didn’t ask for.

Then there’s the question of whether mandates actually work. Since 1982, California has demonstrated that it is the antithesis of mandates--market forces--that really drives down costs. The Legislature 15 years ago adopted a law to stimulate competition in the health care system as a way to control rapidly rising expenditures. This law, the first of its type, has since been copied throughout the U.S., resulting in the revolution that we now call managed care.

Health care inflation in California declined dramatically between 1980 and 1991; per capita health costs grew by 39%, compared with 63% in the rest of the country. Californians now pay among the lowest health insurance premiums in the country. Savings in health costs generate many economic and social benefits to Californians and make it more possible for small employers to offer insurance to their workers.

Competition helps to lower costs by forcing health care organizations to find new and innovative ways to deliver care at lower costs. If they stand to lose patients to other providers, organizations have every incentive to preserve services that their patients demand. Competition also provides them with a powerful incentive to cut fat where only they can find it. Mandates substitute the government in place of consumers and health professionals in deciding what kinds of health services are available to them and, ultimately, what services cost.

There is a role for government here. It is in ensuring that consumers have adequate information. Consumers need to be able to easily compare health plans and health providers and government can require such information. The best protection consumers have to ensure that they will have access to a cost-effective health care system is a combination of price and quality competition. With sufficient information on a range of choices, consumers can then assess the costs and benefits of the plans available, and then, as in most parts of our economy, they can vote with their feet.