Cooling off health care costs

As a nation, we are approaching a crossroad in the public policy debate over how to control rising health care costs and make fundamental changes in the health care system to keep it functioning well into the next century.

Unless Congress passes legislation to put a lid on rising health costs, organized labor will experience at the bargaining table the devastating effects of the nation's health care crisis. Employers will push for drastic cutbacks in collectively bargained helath care benefits. Working men and women who have fought hard to win adequate protection against the high cost of getting sick will find themselves paying higher and higher out-of-pocket costs and may find coverage for preventive care, diagnostic testing, drugs and eyeglasses, dental care and other essential services dropped from their policies altogether.

The AFL-CIO believes there three basic approaches for solving our health care crisis: federal legislation, local health care coalitions, collective bargaining.

Trade unionists can lend their powerful support to federal legislation which would require each state to establish a comprehensive, across-the-board cost containment system for all payors, public and private, doctors as well as hospitals. The AFL-CIO is supporting bills introduced by Sen. Edward M. Kennedy (D-Mass.) and Rep. James Shannon (D-Mass.) that would accomplish these goals.

But we cannot afford to wait for Congress to act. The AFL-CIO has recommended that its affiliated unions and state and local bodies join local health care coalitions. Up to now, these organizations have been business or provider-dominated, and their accomplishments have been minor. Union members are finding it useful to work with each other and, when appropriate, to form their own health care coalitions to combat employer efforts to gut collectively bargained health benefits.

Trade unionists can also take initiative in bargaining to suggest viable alternatives to management proposals to cut health care benefits. Rising Costs

Last year as a nation we spent $322 billion on health care. This averaged out to $1,365 for every man, woman and child in the U.S. For the first time, health care spending rose above 10 percent of our gross national product (GNP). If current trends continue, the U.S. Dept. of Health & Human Services projects that by 1990 the nation will spend a whopping $756 billion in health care. That is approximately equal to what was spend on last year's total federal budget.

Conservatives use those numbers to make their case that we are spending too much for health care and that Americans cannot afford a national health care program similar to those in place in every other industrialized country. Ironically, the rate of growth in health care expenditures is lower in almost every country that does have a national health care system. As an example, Canada has had a comprehensive national health care system since the late 1960s and has succeeded in holding health care spending to 7 percent of GNP for almost 10 years while at the same time provinding universal coverage to all citizens and a decent wage to hospital workers. The Reagan Administration's Response

The Reagan Administration clearly will not take the decisive steps needed to control runaway health care costs. Its approach is to cut services, not control costs. Since taking office, the Administration has substantially weakened community health care services for old, sick, jobless and disadvantaged Americans. As if this were not enough, the Administration tried to pressure Congress to pass legislation which would have doubled the amount Medicare beneficiaries now pay for a basic hospital stay. Had the Congress enacted this proposal, many senior citizens would have been required to pay on the average an amount which have consumed nearly two months of benefits for the average widow on social security.

In addition, the Reagan Administration has tried to make it harder for the economically disadvantaged to qualify for Medicaid and to force active workers to begin paying federal taxes on their collectively bargained health care benefits. The Administration sought to place a limit $175 per family per month on the amount of tax-free contributions employers could make to workers health insurance plans. Anything over this amount would be taxable as income to employees.

The Reagan Administration claims its employee health tax proposal is designed to make workers more "cost conscious." In reality, it would result in drastic reductions in coverage for preventive care, outpatient diagnostic services, and other benefits which save money. But the Reagan scheme would leave intact coverage for hospital and surgical benefits, which have been the chief source of health-cost inflation and costly over-utilization--factors over which patients have little control.

The Administration's health tax proposal would also penalize older workers, workers living in high cost areas and those who select more comprehensive benefits plans, such as health maintenance organizations (HMOs). It would be an unprecedented intrusion into the collective bargaining process and would turn back the clock on decades of progress made by workers in winning comprehensive health care protection. At the same time it would increase taxes for a single group: workers with high health care costs.

The employee health tax is a major part of the Reagan Administration's plan to introduce what it calls "competition" into the health care system. The competition theory holds that citizens have too much health care protection and are not sufficiently sensitive to rising health care costs. Proponents of competition believe that if consumers were given economic incentives to buy less health insurance, they would become more aware of and vulnerable to rising health care costs. This increased economic vulnerability, so the theory goes, would force consumers to reduce their demand for services which would then force hospitals and doctors to reduce their prices. This theory has been the basis of a number of draconian solutions to our health care crisis emanating from the Reagan Administration. The so-called competition theory has also been behind employers proposals to reduce. Health insurance coverage for workers.

Early in 1983 the Administration sent Congress legislation meant to reform the way Medicare reimburses hospitals. Up to point, hospitals have been reimbursed for whatever they spend, which has provided no incentive for cost containment and only encouraged inefficiency. Under the variation of the Administration's proposal finally approved by Congress, hospitals will be paid a fixed amount for each patient depending upon its medical staff's diagnosis of his or her condition. As a result, hospitals will have a strong incentive to keep the costs of treating patients under the federal cap for each diagnostic-related group (DRG).

The major problem with this legislation is that the new payment plan covers Medicare alone. It won't restrain the rate of growth in total health care costs, and providers will have a strong financial incentive to shift costs onto employers employees and already overburdened state and local governments, which have been severel hit by the Reagan Administration's budget cuts. The new DRG system will do nothing to restrain growth in unnecessary, expensive hospital construction, nor will it provide any incentives to bring under control the rate of increase in doctors' fees.

The AFL-CIO has been working with a number of its affiliated unions to develop organized labor's solution to the serious problems we face in our health care system. However, both in Congress and in collective bargaining negotiations trade unionists meet resistance from those who have promoted or succumbed to the myth that workers do not care about rising health care costs because they do not pay for health care. This faulty reasoning completely ignores the fact that workers give up a great deal at the collective bargaining table to preserve health care coverage, and that very few workers have 100 percent health care coverage.

The second myth that works against organized labor is the attitude that hospital workers are responsible for rapid inflation in hospital costs. The fact is that over the past 10 years payroll costs have been decreasing as a percent of hospital costs despite a significant jump in the total number of workers employed by each hospital. The AFL-CIO Position

For some years the AFL-CIO has taken the position that the health care system is poorly managed and that incentives to make hospitals genuinely more cost conscious ought to be added to public and private health insurance programs. Organized labor supported the Administration's plans to introduce the concept of prospective budgeting into the Medicare system, while arguing that they did not go far enough.

The Kennedy-Shannon bill is a comprehensive, across-the-board cost containment program, which limits the rate of growth in hospital costs and physicians' fees. It would control reimbursement to providers from all payors, public and private, and strongly encourage states to establish their own cost containment plans within federal guidelines. Wages and benefits of non-supervisory personnel would be protected and special allowances would be given to inner-city and public hospitals. The legislation would impose immediate federal controls on the rate of growth in hospital costs and doctors' fees. The annual rate of growth in each hospital's revenues would be limited to a predetermined amount, which represents increased operating expenses and wages and fringe benefits for non-supervisory employees. There would be adjustments for changes in the number and types of admissions and for renovation or expansion which has the prior approval of the state planning agency. Higher costs incurred by a hospital providing a disproportionate percentage of its services to low-income patients in comparison with facilities of similar size and location would also be allowed for.

Federal controls on revenues would stabilize the rate of increase in hospital costs until states can develop their own cost containment plans. States with cost containment programs already approved by the HHS would be exempt from the federal requirements. The legislation would also establish federal limits on the rate of growth in payments by all payors to physicians. To have an approved cost containment plan, states would have to set up a system to negotiate reimbursement with physicians and other providers. The legislation would also require the Secretary of HHS to study the feasibility of including within the program nursing homes and intermediate care facilities. Collective Bargaining

Currently there is a great deal of pressure from employers to reduce health care coverage by cutting back health care benefits. Many employers cite the results of a study by the Rand Corporation as the basis of proposals to reduce health care costs by increasing workers' out-of-pocket payments. Although the results of this study appear to indicate that increasing deductibles and coinsurance payments produce short-term reductions in outpatient services, there is nothing known about whether reductions in utilization occurred in necessary or unnecessary services and what effect this will have on utilization of hospital care, the most expensive service in our health care system.

Nevertheless, employers have seized upon the results of the Rand study as justification for cutting back employees' health care benefits. National Cash Register Co. (NCR) now offers employees cash rebates to select a low option health insurance plan with high deductibles and coinsurance rates. Mobil Oil Co. Sets aside an amount of money for health insurance benefits for each of its employees. The company gives cash "bonuses" to employees who live in areas that have not used up their benefit allotments.

Quaker Oats Co. has established $300 health "expense accounts" for employees and allows each worker to receive a cash refund for unused benefits at the end of the year. All of these plans reward people for underutilitizing or avoiding altogether any use of health care service so that employes will realize short-term reductions in health insurance premiums. the reality is, these plan will encourage workers to go withou necessary treatment, which will result in higher health care costs over the long run.

Even where unions have been able to resist health care takeaways at the bargaining table, some employers have imposed cuts on their non-union workers. Recently Ford Motor Co. imposed cutbacks on their salaried workers which the Auto Workers had rejected in its last round of negotiations. Even though cutbacks may be successfully fought by organized labor, they remain on management's agenda.

The best way for trade unionists to fight cuts in negotiated health benefits is to take the initiative at the bargaining table with proposals that reduce health care costs without imposing higher out-of-pocket costs on workers. When employers are demanding cutbacks, organized labor must have alternatives or risk losing hard-won benefits. The following are examples of such proposals and estimates of how much they can reduce health insurance premiums: Proposal Potential Reduction in Health Insurance Premium Cost Preadmission testing 0.8 percent Ambulatory surgery 1.9 percent Precertification of 1.0 percent hospital care Second opinions 0.7 percent Concurrent review 4.1 percent Retrospective review 1.5 percent Fee negotiation 3.4 percent Hospice care 1.1 percent Coordination of 7.3 percent benefits Alternative delivery 8.5 percent systems total 30.3 percent

Taken together these initiatives can reduce health insurance premiums by 30 percent and play a major role in restraining the rate of increase in health care costs. for example, Retial, Wholesale & Dept. Store Union members in New York City found that after they instituted a mandatory second surgical opinion program, about 28 percent of initial recommendations for surgery were not confirmed by second opinions. A group of employers in Minneapolis significantly reduced hospital utilization from 856 days per 1,000 to 503 days per 1,000 by instituting a pre-admission screening program to determine whether patients being admitted into hospitals needed to be there or whether they could be treated on an outpatient basis.

In other parts of the country, hospital auditors employed by payors of health care services found such practices as electrocardiograms three times a day on patients who did not have heart conditions, drug charges 400 percent over wholesale, and billing for intensive care treatment for people who were actually in semi-private rooms.

Researchers in New York City have found that hospital stays can be shortened or eliminated completely for certain surgical procedures. For example, current data indicates that if hernias are repaired on an outpatient basis, with patients recuperating at home rather than in the hospital, approximately $1,000 can be cut from the basis cost for this procedure of $1,600. Making this one change in collectively bargained health insurance plan could yield thousands, perhaps millions, of dollars in savings every year. Alternative Services

It has been known for some time that HMO's provide incentives for practicing physicians to reduce unnecessary utilization, including hospital care. Many AFL-CIO unions have strongly encouraged their members to join group practice plans and other cost-effective delivery systems.

HMOs offer comprehensive health care services, including preventive care, to enrolled members for a fixed monthly fee. The prepaid fee covers treatment in HMO facilities and in hospitals and removes financial incentives for provides to perform unnecessary tests or hospitalize patients who could be treated on an outpatient basis. Since 1973, enrollment in HMOs has jumped from 3 to 12 million members. Studies have shown that group practice members are hospitalized only half as often as non-HMO members. As a result, HMO premiums, which include coverage for preventive, diagnostic and catastrophic care, are competitive--and sometimes lower--than private health insurance plans which offer a more limited benefit package, impose higher out-of-pocket costs on patients and fail to monitor the quality of care received.

Given a choice between a viable group practice HMO and a so-called "preferred provider organization" (PPO), the AFL-CIO favors HMOs. Physicians who participate in group practice HMOs agree to provide health care services to subscribers who are enrolled on a capitated basis.

But not all union members can or wish to join HMOs. As a result, some unions have established contractual relationship, with preferred provider organizations. Others are looking into the feasibility of this option.

Preferred provider organizations promise many things to many people. Hospitals are promised increased patient volume and improved cash flow. Physicians are attracted by the assurance of a stable patient base, less paperwork and rapid reimbursement. Insurers and third party administrators see PPOs as a way to increase their market share and improve services to subscribers. Employers and employees are promised reduced health care costs.

If PPOs make good on all of these promises and still provide quality health care to subscribers, they should be encouraged. On the other hand, consumers contemplating joining PPOs should know ahead of time how much they will be required to pay out-of-pocket for certain medical services, what limitations on services exist or what services are excluded from the plan, and whether the plan has made provision for admiting emergency patients to non-affiliated hospitals or for consultation with and transfer to non-participating physicians.

PPOs can offer subscribers a reduction in health insurance premiums, but over the long run they will do little to control the rate of increase in total health care costs.

Over the past year, more and more working men and women are being asked to join local health care coalitions. The AFL-CIO has been participating in an informal coalition with the American Hospital Association, Blue Cross, Health Insurance Association of America, American Medical Association and the Business Roundtable under the corrdination of John Dunlop. Similarily, we have encouraged our affiliates and their members when appropriate to join with other community groups and the providers of health services in their areas to try to develop ways to bring health care costs under control and to assure that unemployed workers and their families, as well as others deprived of coverage, continue to receive health care when they need it.

The AFL-CIO remains convinced that the only way to assure all Americans access to quality health care they can afford is through the enactment of universal national health insurance. Until that goal is won, we should do all in our power through legistation, collective bargaining and community action to fight cutbacks, to control costs and to improve health services for all Americans.

COPYRIGHT 1984 AFL-CIO
COPYRIGHT 2004 Gale Group