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Fortney P. Stark Chairman
Subcommittee on Health
Committee on Ways and Means
United States House of Representatives
Re: H.R. 4951: Mandatory Health Insurance and /or Risk Pooling
This testimony is offered in response to your invitation for public views on mandatory employer health insurance benefits and contributions to a health insurance risk pool. Testimony at the August 9 hearing covered many essential issues in this problem and described most economic interests likely to be provoked. However, I am moved to further testimony through observation that three important issues were unmentioned, and by the reflection that the provider community is likelier to encounter some aspects of health problems of the uninsured population than are employers, unions, and insurers. Consequently, Congress might possibly act on this matter without recognizing that risk pools are a far better idea than mandatory employers benefits, should be separated from that issue, and enacted uncontroversially the handicap of linkage.
The Uninsured Residual Portion of the Population Have Disproportionately High Health Costs. There has been a tendency to assume the cost of extending health insurance can be anticipated by merely counting the affected residual population, and multiplying by the existing average cost. Congress should definitely spend money and take time to measure the unique needs of the uninsured group. However, it can safely be assumed this group contains a disproportionate number of chronic illnesses, of pre-existing illnesses, of deferred or neglected health costs, and a disproportionate number of persons lacking in the background and experience to take advantage of health services available to them regardless of cost. It is also clear that marketing costs are greater for small groups than large ones, and that administrative costs are higher for employees who change jobs or address frequently. Employers with marginal profits will default on premiums more frequently, change benefits packages more often, and shop around for bargain insurers more frequently than do large prosperous employers. Insurance companies prefer to avoid small group business because, although their costs are definitely higher, they generate heavy pressure to be charged standard rates.
In national legislation mandating employer coverage, the same issue is certain to arise. Large employers are certain to experience pressure to absorb excess costs of the new small groups; it is probably fair that they should do so, and most of them would probably be willing to pay a reasonable surcharge. such a surcharge could probably be regarded as a tax for the privilege of skimming off the healthy component of the workforce, leaving hardship cases to the small entrepreneurs. However, if the surcharge proved to be extremely heavy, large employers would rebel and expect a portion of the cost to be absorbed through general tax revenues, and that is also fair. They would make the point that being a large employer is not necessarily the same as being a profitable one.
It thus becomes critical to know the degree of adjusted extra cost per person of the uninsured population. There are indications that it may be extremely large, and the 1966 experience with Medicaid and Medicare casts grave doubt on anyone's ability to analyze it I advance. If indeed the aggregate cost proves to be very large, there will need to be a nationwide debate about the equity of who should pay for it.
Health Care is Partly an Economic Investment, Partly a Basic Need, and Partly a Consumption Item. The very large costs we are contemplating can be seen to some degree as increasing the productivity of the workforce, and consensus would probably be readily forthcoming for public tax support for that purpose. However, perceptions would surely be widely variable about how to separate essential medicine from luxury medicine. At the margin, many patients would disagree about preferences between achieving health and consuming health services. There is not the slightest doubt that elected representatives would prefer to have any negative decisions be made by physicians, as is true to a large extent in Great Britain.
Robin Hood No Longer Has a Hostage. It is unlikely that many people outside the provider community are aware that tertiary care was associated with teaching hospitals, and those teaching hospitals and that teaching hospitals were once firmly linked to charity care. This three-way linkage made cost-shifting feasible since the prosperous members of a community could not escape going to charity hospitals if they wanted tertiary care. Forces in the last thirty years, mostly Congressional in origin, disrupted this linkage of tertiary care to charity costs to shift. Therefore even those few teaching hospitals which wish to continue a charity mission are caught in an unbearable price squeeze by their competition. The time is at hand when Congress must take steps to prevent major disruptions in the health care delivery process. The necessary steps should involve some mechanism for spreading charity costs over a wider geographical area than just the urban ghettos, extending costs to hospitals which are not themselves delivering charity, and to employers who are not themselves disposed to it.
Risk Pooling is the Way to Begin to Sort Out These Issues. At the August 9 hearings, there was the discussion of the desirability of addressing unmet health care needs which have not reached the surface. Unfortunately, it is disquieting to achieve this goal by issuing blank checks, since the monthly bank statement may prove to be shocking. Society should first see if it can afford, and if it can effectively administer, a program aimed at the known costs and the least debatable needs. Risk pooling builds on the decisions currently being made by patients, hospitals and physicians. It pays for necessary health care without requiring health insurance for those, like illegal immigrants, who cannot reasonably obtain it. If patients are willing to ask for charity, and providers are willing to give it, the traditions of our culture are such that the absolute minimum benefits package has been effectively described. Both patients and providers will immediately expand their demands if the minimum is satisfied, and it is surely true this is not enough. If the country is willing to afford more, let the benefits package be expanded later, but surely it is inhumane to withhold this much while waiting for perfection.
Risk pooling is possible in a number of different ways. The provisions of this bill utilize the method of taxing employers. This has the great advantage of relieving willing state legislatures of the obstacle created by ERISA that placing taxes on state-regulated health insurer creates an incentive for employers to escape to self-insurance. However, a[plying the surcharge for the pool to hospital bills would work as well and would have the advantage of driving some services out of the inpatient area when the outpatient area would be a cheaper alternative. A hybrid tax might achieve both subsidiary goals.
Unlike the untested concept of mandatory employer health insurance, risk pooling of health insurance has been in existence in a number of states for a number of years. Indeed, it would probably now be widely employed if the ERISA had not been enacted; there is no doubt the insurance industry immediately lost its taste for processing state legislatures for risk pooling. Risk pools can take a number of forms, and it is desirable that a wide variety of pools should be tried in the "laboratories of the state". Congress should adopt a minimalist approach: the main need is to stop preventing the states from forming risk pool's.
George Ross Fisher, M.D.