Consumer interest and health reform: The logic of withdrawal from managed competition and the Clinton health plan

By Gordon Schiff, M.D.
The Journal of Consumer Affairs, Winter 1994

We will talk about truth-in-mending--mending broken bones, broken budgets, and broken bargains. Mending our ailing health system is, according to a Harris poll, the number one issue on consumers' minds.

At Cook County Hospital, I have encountered mothers who will not let their kids go out and play, lest they break a bone for which they had no health insurance coverage. I took a cab to the airport in Chicago yesterday. When I told the cab driver I needed to stop at Cook County Hospital he said, "I hate Cook County Hospital. You go to the Emergency Room early in the morning and don't get out till late at night."

While coming as no surprise (I began working at Cook County in the Emergency Room as a volunteer 25 years ago) such comments nonetheless always strike a painful chord; a reminder of shortcomings that are hard not to take personally. The cab driver told me he now goes to a private hospital and uses a false name to avoid being billed. I have met mothers who have to go to court to get legal custody of their own children: they delivered their babies under a false name using a neighbor's Medicaid card.

In my clinic, the General Medical Clinic, there are over 10,000 people on the waiting list, all sick people with medical problems referred from our emergency room (and contributing to the delays there). We hear stories about supposed waiting lists in Canada for high tech procedures. In the United States, we ration primary care.

Mending broken bones and helping to heal diseased bodies--what I was trained as a physician to do, in theory the simplest and most straightforward of tasks--has turned out to be a much more complex and challenging job than I was prepared for in medical school. What a physician quickly learns, once he or she tries to apply medical skills to effectively impact patients' and populations' health, is that the interrelationships among medicine and the social science disciplines represented in this room ultimately have more influence on our citizens' health than 99 percent of what was learned in medical school.

This realization has led me down a variety of paths that you as consumer advocates and academics have cleared for us to meet and travel together. And for that reason, it is with a great deal of honor and trepidation that I speak on subjects highly relevant to my day-today work, but subjects for which my expertise is inferior to many in this audience.

Broken budgets refer to the crushing burden of health care costs on governments especially the states (their leading and fastest growing costs), corporations (whose expenses for health costs in 1965 equaled only 14 percent of their profits, whereas 1990 health expenses exceeded total profits) (Himmelstein and Woolhandler 1994, 41), and most importantly consumers for whom health bills are an important cause of personal bankruptcies, poor credit ratings, and financial hardships. The average household now spends 10 percent of its household income on out-of-pocket health expenses, up from 6.6 percent in 1965. For seniors this portion approaches 20 percent, rising to the same level as before Medicare was enacted (Himmelstein and Woolhandler 1994, 35).

The broken bargains are the failed promises of our political leaders to bring about meaningful and effective national health reform, to accurately weigh and portray the alternatives, and to give leadership toward optimal solutions. The broken promise I fear is again being repeated in Washington, unless we can educate and activate consumers, and thereby break the political gridlock that appears to block real reform this year.


How should we mend our ailing health system? The simplest approach for a consumer might be to turn to Consumer Reports for the answer. And it's right here in last month's issue (Karpatkin 1994). I hope they won't sue me for citing what Rhoda Karpatkin CU President rates/advocates as our best buy--"the single-payer plan cosponsored by 98 members of Congress." The reason I fear not being sued is the same reason we are unlikely to have single-payer reform this year. Single payer is not a product consumers can go out and buy. Single payer is not even a particular piece of legislation to be voted up or down, although that is clearly one important aspect of its implementation. Rather, as I will argue, it is an expression of a commitment--to efficiency, to fairness, to quality, and to consumer empowerment. It entails a deepening of our understanding of the problems, so that we may help educate consumers and thereby permit them to better evaluate and implement health reform as a means to these ends.

How would Colston Warne have approached this question? Based on my reading of his writings, especially a newly published collection of his lectures on the history of the consumer movement (Warne 1993), I believe he would urge a six-part mission in evaluating health reform (Table 1).


We are in the midst of the largest advertising and lobbying campaign in the history of the United States. While Colston Warne felt that advertising rarely served a useful social purpose, he was particularly scornful of ads that blatantly misrepresented corporate interests and activities. As noted by Richard Morse (in his postscript to Colston Warne's book (Warne 1993)), the very companies that fought successfully, at the cost of many lives, against air bags are now taking out full-page ads lauding their dual air bags. Likewise we are witnessing full-page ads from insurance companies warning consumers of restriction of their choices if health reform is enacted. Restrictions on patients' choices, to choose a physician or follow through with physician treatment recommendations, have been the mainstay of mechanisms private insurers have used to control costs.

Especially confusing and pernicious is the fact that there is not one but two insurance industry contingents. One contingent is the 270 small-and middle-sized insurers, represented by the Health Insurance Association of America (HIAA). These insurers are the source of the Harry and Louise ads, which have been the target of Bill and Hillary Clinton's counterattacks. The $6.5 million HIAA advertising campaign disguised as a message from "concerned farmers, consumers, seniors, and businesses," the so-called Coalition for Health Insurance Choices, has lured 228,000 consumers to call a toll-free number of whom 18,000 have filled out response cards asking to become supporters of the coalition (Health-Care Hucksters...1994). However, this is really a sideshow, deflecting understanding from the role of the larger private insurers. Meeting in Jackson Hole, Wyoming over the past several years and pitching in up to $100,000 apiece to sit at the table with no consumer input, this second contingent representing the larger insurers drafted the managed competition plan which is the basis for the Clinton health plan (Priest 1993). It is a plan that gives private insurers a central and ultimately controlling role, rather than moving them to the sidelines as a single-payer system would. The managed competition plan channels 300 billion additional dollars to the private insurers' revenue streams.

The Clinton administration and private insurers make a number of claims that must be seriously examined. The first is that the current employment-based private insurance system is working well for most people, and thus we should (in the President's words) "build on what works today in the private sector to expand employer-based coverage." It is well known that 37.4 million people are uninsured, a jump of nearly two million from 1991 to 1992. However this is just a snapshot of one point in time. This number rises to 63.3 million if we look over a 28-month period studied by the Census Bureau. Furthermore, 50 million Americans are underinsured with such inadequate coverage that a major illness would lead to financial ruin (Himmelstein and Woolhandler 1974, 25 and 33).

A recent statistic exposes not just cracks but gaping holes in this employer-based private insurance foundation. In 1991 only 52 percent of American workers were employed in jobs that provided private health insurance (Iglehart 1994). Because one in seven of these employer-provided insured workers works in the public sector (AFL-CIO Public Affairs Office 1994), their "private" health insurance is actually provided at public expense. Thus the notion of a publicly funded single-payer alternative, as opposed to trying to patch a private employer-based system, appears to be a much less radical suggestion. Also, this statistic helps us understand why resistance to "employer mandate" is so sizable.

A second claim of managed competition advocates is the ability of competition among managed care plans to hold down costs. If one compares the rate of premium increase from 1982 to 1991 for traditional indemnity plans versus HMOs (health maintenance organization), we see no evidence to support this claim (in fact the cumulative increase in HMOs' premiums was slightly higher) (Himmelstein and Woolhandler 1994, 216). Contrary to the Clinton administration's attempt to put a rosier spin on potential savings from competing managed care plans is the managed competition's architect, economist Alain Enthoven (whose theories were originally developed for and faced in the military) (Waitzkin 1994). Enthoven's recent article, "Why Managed Care Has Failed to Contain Health Care Costs," urges stricter free market measures to address this failure (Enthoven 1993).

The Boston University School of Public Health Access and Affordability Monitoring Project plotted the relationship between the proportion of a state's residents in HMOs and the per capita health cost rise during the 1980s. Rather than demonstrating that HMOs hold down costs, there was the opposite relationship. States with the highest HMO penetration had the highest cost rise (Himmelstein and Woolhandler 1994, 217). Such findings are consistent with other findings that competition raises rather than lowers hospital costs (in addition to increasing aggregate costs for the community), as hospitals engage in "medical arms races" duplicating expensive services as they try to compete with each other to market their services (Himmelstein and Woolhandler 1994, 126).

A third set of claims centers around alleged failures of alternate systems such as the Canadian system. Canadians are grappling with many bona fide problems, such as how to decrease persistent social class health disparities, overreliance on fee-for-service providers reimbursement, how to maintain a life-saving tobacco tax in the face of tobacco industry abetted smuggling and a black market, and the economic impacts of a serious recession. But, by almost every measure the Canadian system is superior at achieving high quality care for all of its citizens at a cost 40 percent (and recent data suggest perhaps 50 percent) per capita less than the United States.

Canadian consumer satisfaction with their health is the highest among the ten nations surveyed by Harvard's Robert Blendon with a Harris poll; the United States was the lowest (Himmelstein and Woolhandler 1994, 117). Contrary to perennial rumors that the system is in crisis and that consumer satisfaction is plummeting, a recent Gallup poll showed Canadians' satisfaction with their care increased from 71 percent in 1991 to 89 percent in 1993, Tales of dissatisfied doctors are likewise contradicted by a 1992 survey of more than 3,000 Canadian physicians. Eighty-three percent rated the Canadian health care system as good or excellent, and 85 percent preferred their system to the U.S. system. A study of 147 physicians (75 Canadian and 72 American) who had worked in both systems, with an average of ten years practicing in each country, showed physicians currently practicing in Canada were three times more enthusiastic about their system as physicians working in the United States were about ours (Hayes, Hayes, and Dykstra 1993).

Finally, real outcomes data refute erroneous claims about delays in care and unavailability of care and high tech procedures. Patients from both the United States and Canada enrolled in a joint breast cancer registry were compared. U.S. patients experienced longer delays from symptoms to diagnosis and from diagnosis to surgery (Himmelstein and Woolhandler 1994, 100). In 1990, Paul Tsongas, when running for President, dismissed a Canadian-style single-payer option saying that his life-saving bone marrow transplant would have been unavailable in Canada. Ironically such transplants were pioneered in Toronto and the citizens of Canada have comparably equal or better access to transplantation technology (Himmelstein and Woolhandler 1994, 99).


While there is obviously no way you can haul managed competition, or single payer for that matter, into an independent test lab, Warne might be distressed to learn that the managed competition approach is completely untested. As opposed to the demonstrated workability of single-payer financing for ensuring universal coverage along with cost control, we must rely on the best guess judgments and calculations of independent expert sources.

Although, unknown to most consumers and probably even to the consumer-minded academics here (and contrary to the message that the AMA has tried to project), two of the most respected medical journals, The Lancet and the New England Journal of Medicine, have editorially endorsed single-payer reform. In February after months of study, the leadership of the American College of Surgeons courageously risked the ire of their conservative members in concluding that single payer was the best way to preserve patient choice and physician professionalism. A recent issue of Business Week offers an amazingly favorable review of single payer (Symonds 1994).

Even more impressive are the consistent conclusions from nonpartisan governmental studies. Six recent studies, two apiece from GAO (General Accounting Office), CBO (Congressional Budget Office), and the OTA (Office of Technology Assessment) and related to the managed competition versus single-payer approach, have been released. As shown in Table 2 the message from these reports is that managed competition is uncertain to hold down overall costs, inferior in coverage afforded, and unable to approach the administrative savings achievable under a single-payer system. (Table 2 omitted)


I would like to tell you about three patients' problems I recently encountered.


An elderly woman I was evaluating for medical risks before a scheduled surgical operation appeared visibly upset. When I asked her why, she told me that "the doctors at that private hospital used up all of my Medicare, so I won't be able to have the operation." I tried to reassure her that this could not be the case, Medicare insurance did not work like that. She then took out a letter she had received from Medicare which stated "You have used up all of your Medicare deductible for 1993." She had obviously misunderstood the meaning of the term "deductible." So, I turned to the four medical residents working with me to share the example with them. All of them, although more highly educated than our patient, understood the letter exactly as she had: each interpreted it as meaning she had used up her insurance benefits.


A middle-aged woman I had been following for ten years developed worrisome chest pain. Although she was reluctant, I convinced her to be admitted to the hospital. As a result (1) she refuses to return to my clinic, stating "they are going to put a lien on my house" (which turns out is not true, but was her interpretation of the requirement to disclose this asset), and (2) a supervisor from the Illinois Department to Public Aid is manually searching records in the County Assessor's Office to look up the value of her home, because this is required by the Medicaid application form. The amazing thing is that such assets are not even used in calculations for eligibility related to acute hospitalization (only income counts). When I asked why spend taxpayer dollars needlessly looking up property records, the Medicaid supervisor could only reply, "this was required."


A 71-year-old woman came to our General Medical Clinic with a letter from Medicare. It stated she was not eligible for Medicare. Again I reassured this patient that this was not possible, all citizens 65 and over were eligible for Medicare. It turns out that I was wrong. The patient, due to not unusual, although somewhat complicated circumstances related to nonmarriage and being on disability did not have enough "units" from Social Security to qualify for Medicare Part B. I confess that I still do not completely understand this, but our clinic social worker insists that little can be done to remedy her situation and Medicare was not in error to exclude her.

What do these three examples have in common? Superficially one might view them as illustrating the complexities, inefficiencies, even absurdities of public bureaucracies, providing yet another argument for privately administered health insurance. This would be a mistake. What they illustrate for me are problems inherent in cost barriers, means testing, and multiple and separate programs for different types of patients. All of these mechanisms are features of both the current system and the proposed reforms (with the exception of the single-payer proposal).

The Clinton, Cooper/Breaux, and Republican plans all rely primarily on two mechanisms to hold down costs--competition, particularly among competing managed care plans, and so-called patient "cost sharing." Cost sharing means additional patient fees for insured patients such as copays, coinsurance, and deductibles. Unlike managed competition, there is good evidence that cost sharing requirements can decrease costs by reducing the rate of medical encounters by as much as 40 percent.

Critics note however that such "taxes on the sick" have been shown to have little effect on expenditure decisions once a person enters the system, where physician decisionmaking drives the major costs in health care. This, along with the substantial administrative costs associated with collecting these illness tolls, led the OTA panel, on which I participated, to conclude in its report that there is no evidence cost sharing will decrease overall medical costs (U.S. Congress, OTA 1993).

Such financial barriers to access, without technically complex adjustments for income, disproportionately affect poor people. There is evidence from the Rand Health Insurance Experiment, a randomized controlled trial which compared different types of insurance coverage, that low income, chronically ill patients experience poorer health outcomes when randomized to a copay or HMO rather than to a free plan (Himmelstein and Woolhandler 1994, 227). The more widely cited conclusion of the Rand study, namely that the copay cohort's costs were decreased with no measurable adverse health outcomes on the average, overlooks not only this worrisome side effect of cost sharing on the sick poor subgroup, but also what I consider the most profound and important finding of the study. Cost sharing is not effective for sorting needed from inappropriate care. Visits for serious symptoms such as loss of consciousness, involuntary weight loss of more than ten pounds during the past month, serious bleeding, etc., decreased as much as visits for what Rand called "discretionary" less serious symptoms (Shapiro, Ware, and Sherbourne 1986).

Thus the OTA report concluded "that the conventional wisdom, that cost sharing reduces utilization by promoting the use of more cost effectively appropriate care and by discouraging the use of unnecessary services" has "no supporting evidence." The evidence instead suggests this is a crude and ineffective instrument for matching health care services with health needs. For these reasons the Canadian and the Wellstone/McDermott single-payer plans reject cost sharing for acute and preventive care. Instead they rely on the mechanism most households use to fix their personal expenditures and most countries successfully use to control their health costs. They set a budget and figure out how to live within it. They therefore avoid complex and intrusive bureaucracies. Providers are given both incentives and the flexibility to maximize services within a negotiated and predictable budget. Each provider simply submits one floppy disk to the provincial government each month; each hospital is sent a check for one-twelfth of its annual global budget.

The issues raised by our three patients, related to the administrative complexities associated with means testing and fee collection, financial barriers to access, and multiple confusing types of patients and programs multiplied by millions of similar experiences each year, should lead consumers to seek the simplest and most efficient mechanism for health insurance. Again contradicting conventional wisdom, the most efficient method for collecting and dispersing health insurance dollars is a publicly administered program such as the Canadian system (0.9 percent overhead) or even Medicare or Medicaid (2.1 percent) as opposed to U.S. private insurance (13 percent--a figure that would be even higher if it also included investment credits) (Himmelstein and Woolhandler 1994, 128; McDermott 1994).

I would like to propose and test what I call the 60/60 rule. Can the financing of the health plan be explained to and easily understood by the average consumer (or an employer) in 60 seconds, and can they then calculate exactly what their costs will be in another 60 seconds? As I am already running short of time and you are better informed than the average consumer, I will give you only 30 seconds for each using H.R. 1200/S. 491 (McDermott Wellstone). All employers pay a payroll tax or premium of 8.4 percent, all employees pay 2.1 percent of their income (in most cases a simple payroll deduction). That's it! Try doing that with the Clinton plan. The only small print is that the 8.4 percent employer contribution is reduced to four percent for small businesses (less than 75 employees earning an average of $24,000 or less) plus a $2 per pack cigarette and 50 percent handgun and ammunition taxes. According to Jerry Anderson, economist at the Johns Hopkins Center for Hospital Finance and Management, 75 percent of people would pay less for better coverage than they currently have.


Canadian health economist Robert Evans (1989) presents a culinary parable about what is happening in U.S. health care today. Let us imagine that a group of us decide to go eat at a restaurant after the meeting. Evans asks, what is the most economical way to order and pay for the meal? If each person orders and pays for his own meal, standard economic wisdom suggests that each of us will be more prudent in our ordering. On the other hand if the bill is pooled, each person would be less cost conscious as everybody is sharing the expenses. Thus, if each person has to pick up her own tab, there will be less champagne and steak, more chicken and Sprite. But what if, when the bill arrives at the end of the meal we get into a fight. Each person, concerned about not paying any more than he/she has to, argues about his or her proper share. And what if in order to resolve the dispute I bring in my accountant, and then you bring in your lawyer, and others do the same. Maybe the restaurant owner brings in a lawyer and even a security guard when we start questioning the charges. Now, which way of ordering is more cost effective?

Much of what is going on in health care today is arguing about who will pay the bill. Everyone tries to minimize their costs by shifting them to someone else, sometimes another third-party payer, sometimes back to the provider, more often to the patient. Total costs inflate. The cost of arguing over the bill comprises much of the 25 percent administrative costs in the U.S. system. The need to account for and bill separately for each aspirin given in the hospital and accommodate each payer's aspiration to outsmart the others and minimize risks wastes conservatively 10 percent of our nation's $1 trillion annual health bill (Woolhandler and Himmelstein 1991). One hundred billion dollars could be saved simply by reaching an agreement in advance that we simply order next year's health fare as they do in Canada.

We are spending so much time arguing about the bill that we are overlooking the fact that we are all paying for a suboptimal system. Overlooked during our argument (to extend Evans' parable) is the fact that food is of uneven quality, served inefficiently, and lacking in basic nutritional value. The following gives you a taste of some of these quality deficiencies.


We hear talk about the impact health reform has on the deficit. Here is another deficit statistic. In Chicago, the Health Summit reported that there is an annual deficit of two million ambulatory care visits from the number predicted for the city's population--patient encounters that have simply disappeared from the city's health care (Summary Report 1990).


The percentage of African-American women with no prenatal care before the third trimester exceeds 10 percent and has been rising in recent years (Himmelstein and Woolhandler 1994, 62). Such a phenomenon is beyond comprehension to maternal and public officials in most European countries where early prenatal care is a given.


Product safety has always been an important concern of the consumer movement. Reliable evidence from the California Medical Insurance study in the late 1960s and the Harvard Malpractice Study of hospitalized patients in New York State in the 1980s suggests a 1 percent incidence of serious negligent adverse events (Weiler et al. 1993). This translates into almost 100,000 deaths or serious injuries, making it the leading cause of potentially preventable injury in the United States.


Many recommended interventions (e.g., flu shots, mammograms) are given to less than 50 percent of eligible persons. A complex result of consumer and provider education and behavior issues, coupled with cost and system barriers, these statistics portray a sobering level of disorganization in our health system (Burack et al. 1993).


While a few small studies show rates as high as 20-50 percent, the most disconcerting fact is that we lack any formal mechanisms to track and learn from errors (Williamson, Walters, and Cordes 1993). Even the time honored autopsy, for centuries the source of the profession's learning about missed diagnoses, has atrophied (rate has fallen to less than 10 percent of deaths nationally) due to public and professional indifference and competing concerns (Hill and Anderson 1988). How useful are databases tracking patients' outcomes with patients giving false names or providers being given financial inducements to give a more complex billing diagnosis label (Schiff 1994)?


Health services' research from large financial claims' databases shows as much as three-to tenfold variations in rates of certain procedures. However when the Rand Health Services Utilization study looked at high volume versus low volume geographic areas they found, to their amazement, the same rate of inappropriate procedures (i.e., 32 percent for endarterectomy) (Chassin et al. 1987). How can we explain this? Many, such as John Wennberg (1987), have suggested the "underevaluated theory." We simply lack the knowledge base to know precisely how and when to optimally use such interventions, in a flexible way consistent with patient variations and values.


Speaking as an internist and Chair of the U.S.P. (United States Pharmacopoeia) Panel on Consumer Interest/Patient Education, this is an area of great importance requiring a more detailed discussion (Schiff 1992). We simply note here that probably half of medications are either ordered or used incorrectly.


According to reports recently released by the Agency for Health Care Policy and Research one-quarter of patients have their postoperative pain inadequately treated.

Finally, one last quick look at customer satisfaction. The defenders of the status quo are correct when they argue that the majority of patients are satisfied with their care. Unfortunately, the data show that dissatisfaction is rising with 25 percent of people somewhat or very dissatisfied with their care, a number that doubled from 1987 to 1992 (Himmelstein and Woolhandler 1994, 260).

I offer this list as neither a consumerist doctor-basher nor a defensive physician, the two perspectives from which such issues are usually discussed. Rather, I present these problems to impress upon you the serious work we all have ahead of us once we can stop arguing about the bill.

Cost effective health reform requires thinking about the improved quality that is both required for and created by fundamental change. A shortsighted-consumerist take on this might be to merely call for better inspection and hail the current rush to "quality report cards." However, as Don Berwick (Harvard pediatrician who introduced industrial (Japanese) quality improvement theories to medicine) has warned better quality cannot be inspected or selected; it must be induced and produced (Berwick 1989).

Improved quality must originate with and be designed to maximize the intrinsic values of health workers to help patients, to build on their desires to work with health care consumers to better meet their needs. I contrast this approach to the current reality of oversight of medical care.

There has been a 180 degree shift from what was previously a "more is better" mentality to a "less is better" paradigm, what I believe are two sides of the same coin, with not even a thin rim dedicated to the idea that maybe "better is better." Thus in the past decade the quality oversight of medical care has been predominantly focused on monitoring and limiting utilization of health care services.

There has been an unprecedented growth in the number of organizations that perform so-called "utilization review" from about 125 private organizations in 1989 to almost 350 in 1992. In 1983, 14 percent of corporate benefit health plans required prior approval for nonemergency admissions, by 1988 this number had risen to 95 percent. According to a policy paper just issued by the American College of Physicians almost all of these review organizations are for-profit, freestanding, and lack any formal relationship with health care providers. They generally use "unilaterally developed, secret criteria to evaluate care" (American College of Surgeons 1994). These review organizations boast they can deny ten to 35 percent or more of claims for procedures by applying their proprietary criteria either before or after the fact. For example, the current issue of Business and Health describes the efforts of benefits managers at Harris Corporation, a Florida-based manufacturer, who hired Health Economics Corp., a data analysis firm based in Dallas, to perform detailed review of each service received by their employees in an effort to "micromanage the networks to find the source of suspected problems at the level of the individual provider..." (Torchia 1994). When provider or specialty profiles show higher than average costs, feedback and if necessary provider contract termination is implemented.

What is wrong with this? Is not monitoring and weeding out inappropriate care, thereby getting more value for our health dollars, something consumers should welcome? W. Edwards Deming, who died last December, was the American statistician whose quality theories are considered by Japanese to be the source of their ability to produce the highest quality autos, electronics, etc. Deming used to cite an article on a study of 970 historians' ratings of U.S. presidents. The study researchers were pleased to find "we've been remarkably lucky considering the haphazard way we select a president" that one-fourth were considered great and at least half were above average. (Being great was defined as being in the top 25 percent.)

Finding resource utilization outliers via the widespread practice of "economic profiling" is like finding great presidents in Deming's example. Chopping off tails from practice variation curves does little to improve overall quality. Deming's ideas, as I am sure many of you are aware, go beyond simple statistical common sense. He taught the importance of moving from downstream inspection of end results of the production process (where defective items were reworked and the workers responsible were sought out for blame) to focusing upstream, redesigning the production process to build in quality.

One last example illustrates this point. I recently (in the capacity as co-chair of our hospital's quality assurance committee) contacted and reviewed demonstration software from a firm engaged in monitoring physicians' treatment decisions (Quality FIRST). The company claims to have developed guidelines for 450 diagnoses, representing over 97 percent of medical practice. Using the guidelines, up to two-thirds of selected procedures can be flagged as unnecessary or inappropriate. I was interested in whether we might use their protocols further upstream, as decisionmaking aids for clinicians, rather than as inspection tools for insurers. The answer was a bewildered and unequivocal no--the guidelines were not developed to be used for that purpose. (Frankly, I am not sure how much added value such canned protocols would be anyway for a knowledgeable specialist physician who grapples daily with the difficult individualized patient management decisions.) Rather than improving quality, such approaches to improve appropriateness by denying claims, become merely another variant of arguing over the bill.

How can quality be promoted through national health reform? The Quality of Care Task Force of Physicians for a National Health Program has developed ten quality enhancing principles, which I urge you to critically examine (Schiff, Bindman, and Brennan et al. 1994). Each one invites your criticisms and research to better define and apply it to health reform and quality improvement.


In Washington, each interest group trying to preserve a piece of the status quo argues that proposed health reform legislation is not fair, that they will have to pay more. Highly regarded by Colston Warne was a 1963 Consumers Union subsidized publication entitled The Poor Pay More by David Caplovitz. The current highly regressive reality of U.S. health care financing will probably worsen under the Clinton plan because it charges, with some complex adjustments, essentially a fixed amount regardless of income (for all employers 80 percent and all employees 20 percent of fixed cost of the cheapest plan). A flat percentage of income (e.g., 10 percent, comparable to the 8.4 percent employer plus 2.1 percent employee contribution proposed by McDermott/Wellstone) can be seen to be a much fairer approach. Going even further the Canadians can look in the mirror (on the wall) and see who is the fairest of them all. The actual data from the Province of Alberta illustrates the progressive financing there (Himmelstein and Woolhandler 1994, 176-180).

The term "fairness" in health insurance takes us beyond simple financing formulas. Many of you are familiar with the concept of "actuarial fairness," which is the basis for our present system of experience-rated private health insurance premiums. Actuarial fairness is the notion that "each person should pay in accordance with the quality of his risk," as it would be unfair were there "a forced subsidy from healthy to the less healthy." (As Deborah Stone (1993) points out, insurers almost always use pejorative words like "forced," "unfair," or "coerced" in front of subsidy to mask the obvious fact that that is what insurance is about--a subsidy from the lucky to the unlucky.)

Achieving actuarial fairness requires the practice of medical underwriting, the science of rating, predicting, and selecting (and excluding) risk (Bodenheimer 1990). On the positive side we owe the discovery of high blood pressure as a risk factor for cardiac death to the insurance industry. They performed measurements on tens of thousands of life insurance applicants during the 1930s-1960s and calculated the attendant excess risk, thereby laying the basis for what I spend most of my time doing in my outpatient clinic--treating hypertension (Lew 1973). On the other hand, the underwriting insurance principle strikes at the hart of our current health care crisis. Selectively insuring low risk people and avoiding those with "pre-existing" conditions lead to the distribution of insurance and medical care in inverse relation to need (Light 1994).

Many physicians prefer the challenge of caring for sicker and more complex patients. The same cannot be said for any insurance company. You will not see television or subway ads urging patients with AIDS to join a particular health plan. Seventy percent of AIDS patients lack private health insurance. Put yourself in the shoes of the CEO of a for-profit health plan and ponder the following statistics: the top two percent of people account for 41 percent of health expenditures, the top 10 percent account for 72 percent (Rice, Brown, and Wyn 1993). What is the most cost effective way to keep your plan in the black? If you didn't answer--find some way to predict who these 10 percent of people are and exclude them--you're fired.

Competition among private insurers is thus focused on finding ever smaller pools of healthier people to insure. Stone (1993) warns us that this "logic of actuarial fairness is so deeply embedded in the structure of competitive markets, and so deeply consonant with social divisions in American society that eradicating it will take more than any current reform proposals contemplate." Actuarial fairness ultimately means fragmenting communities into more and more homogeneous groups, each charged rates to insure profitability based on their own experience. Ultimately this undermines the "mutual aid" function, the original social purpose of health insurance. To quote Lawrence Brown:

Insurance as a social institution, invented to spread and pool risk, has degenerated into an industry devoted to shedding and fragmenting risk....Insurers like other occupants of social roles maximize utility with the rules of the game; and if one does not like the way the game is played the answer is not to impugn the sincerity or integrity of the insurance executives or brokers, or urge them to consume heaping bowls of moral fiber, but rather to rewrite the rules of the game (1992, 188).


How do we do this? I suggest that we have to begin with a commitment to putting the consumers not the insurers back in the driver's seat. Whether you are a strong single-payer advocate, as I obviously am, or believe that the Clinton plan is the best possible solution at this point in time, you must be concerned with the way the special interests have effectively shaped health reform design and debate.

Only an informed and activated consumers movement can get health reform moving through the current gridlock. The Clinton plan (to quote an article from this Sunday's New York Times) "was so misshapen by polling and political considerations, in pursuit of some magical middle group that it became a bureaucratic nightmare" (Toner 1994, Sect. 4, 1). In ruling out "a Canadian-style system of national health insurance, a fairly straightforward means of achieving universal coverage," pollsters' predictions of public antipathy to taxes and government, the Times suggested, were permitted to overrule best judgments about the optimal system. Such perspectives underestimate consumers' intelligence. Numerous polls in fact show consumer readiness to support tax-financed Canadian-style solutions.

In the fall of 1991, Senate candidate Harris Wofford shocked the Washington and media establishments and changed the political landscape for health reform by overcoming a 40-point deficit in the polls when he called for unspecified "national health insurance." In the fall of 1993, President Clinton also (according to Harris pollsters) "gave his presidency a big lift and altered the political landscape" by appealing directly to the public on the need for health reform (Taylor 1993). Unfortunately, the Clinton Health Security Act once unveiled can clearly be seen to be a compromised and flawed approach, the result of concessions made at the outset to the private insurers (Woolhandler and Himmelstein 1994; Working Group on Managed Competition 1994). Ironically these large insurers have now double-crossed Clinton and are supporting the Cooper/Breaux Managed Competition Act, which does not even include universal coverage.

The erroneous premise was that "political feasibility" lays in quietly hammering out congressional bargains among the major players in the current system, rather than providing a plan and leadership around which consumers and concerned professionals could best be mobilized. Any plan passed in 1994 is likely to be quickly eviscerated if the public is not actively involved. Theda Skocpol sounded this warning to the "advocates of inside the beltway bargains":

Reformers need to engage the U.S. citizenry as a whole in democratic discussion about the ideas of government-sponsored health care. Advocates of single-payer plans can do this more readily than supporters of complex public-private schemes such as pay or play or managed competition, but all those who want inclusive and effective reforms during the 1990's must face the challenge of democratic dialogue (1993, 532).

As Colston Warne used to say, "it will be interesting to see how it all turns out." As sadly he will not be around to see, I hope we can dedicate ourselves to seeing that it turns out the way he would have wanted.


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Gordon D. Schiff, M.D., is Director, General Medical Clinic, Cook County Hospital, Chicago, and President, Physicians for a National Health Program.

The title is from a book entitled Vietnam: The Logic of Withdrawal by Howard Zinn published by Beacon Press in 1967. Had the logic of his arguments been heeded then by President Johnson, many thousands of lives would have been saved.

Slides presented during the Colston Warne Lecture taken from charts prepared by the Center for National Health Program Studies, Harvard Medical School/Cambridge Hospital are referenced. Primary data sources can be found in the Source Guide (Himmelstein and Woolhandler 1994).




1. Skepticism about Advertised Claims

2. Need for Testing and Credible, Independent Appraisal

3. Minimizing Barriers to Consumer Access, Understanding, and Choice

4. Maximizing Product Quality

5. Evaluation of Whether It Is Fair

6. Assess Potential for Consumer Empowerment/Make Politically Feasible