Health: More care, at less cost
By Alan Sager, Deborah Socolar, David Ford, and Robert Brand

Current spending on health care in Massachusetts is enough to cover everyone and increase use of needed care greatly, new analyses show. These goals are achievable through reforms that would ctually save a billion dollars and eliminate more than 80 percent of patients' out-of-pocket costs.

These findings contrast sharply with the pessimistic mainstream view that complete health care coverage is too expensive. Neither the state nor the nation should accept the recent rises in the number of uninsured people, especially in this booming economy. And some in Congress would even worsen the problem by raising the eligibility age for Medicare from 65 to 67.

Among those lucky enough to be insured, many are concerned that they are losing their right to choose their doctors and hospitals, that medications are becoming unaffordable, and that health plans or caregivers are withholding needed care.

Dismal trends like these reveal a failed system using dangerous and ineffective methods to save money. Reformed financing could cover everyone, reduce costs, and restore patients' choice and trust in caregivers.

Our approach, sometimes called a single-payer system, would provide a wider range of benefits than most people receive now, reduce prescription drug prices, and greatly expand access to home care and nursing home care. Further. this plan stops burdening people who are sick with high out-of-pocket payments. It frees caregivers and patients from bureaucratic interference, and helps eliminate financial incentives to under-serve. And it ends the fear that job loss means loss of health coverage.

It is intolerable that people go without needed care because they cannot pay while billions of health care dollars are wasted on unproductive private insurance paper-pushing and inappropriate care.

A simplified system providing complete health coverage for everyone in Massachusetts, we conclude, would cost 2.8 percent less than projected costs of today's system, with its complex administration and with one of every eight Bay State residents uninsured. If current public funding continues after reform, we project an 11. 6 percent drop in the private funding needed to care for everyone. Further, we find:

• Aiding underinsured people by eliminating deductibles, copayments, and the vast majority of other out-of-pocket spending is affordable, and indeed vital to cutting administrative costs.

• Covering everyone is essential to genuine and safe cost containment.

• Financing better health care for all need not require a huge tax increase.

• State reform is the only likely path to universal coverage for years to come.

There is a great imbalance in this state between what we spend on health care and the coverage our residents receive. In 1997, 755,000 Massachusetts residents were uninsured - twice as many as in 1987. This state is now just 18th best in the percentage of residents insured. And benefit cuts and managed care leave ever more people underinsured, without coverage for substantial costs or important services.

Yet health spending per person in Massachusetts has long been the nation's highest - federal data put it 29 percent above the US average in 1993. That makes it the world's highest.

Comparisons with wealthy nations that cover everyone show that projected 1999 spending of $5,840 per Massachusetts resident should be enough to finance needed care for all. Our calculations bear that out.

For 1999, we project that the cost of care in Massachusetts will be $36.8 billion without reform. This is our baseline for calculating the cost of health reform.

When uninsured people gain coverage, national data suggest they will use about twice as much care as they do today. But today's physicians and hospital beds can absorb many new patients without construction or other new fixed costs. That reduces the real or incremental cost of serving a newly insured person. Covering uninsured people would cost an estimated $975 million, or 2.6 percent of today's baseline spending.

Ending under-insurance of people with some coverage will cost nearly three times that. Our reform plan provides comprehensive benefits, including prescription drugs and long-term care, and slashes out-of-pocket costs. It leaves patients responsible only for nonprescription drugs and supplies, and for modest nursing home room and board payments. Today's underinsured will receive much more care, we project - 17 percent more physician services, for example, and 25 percent more home care. We estimate the real, incremental cost of added care for previously underinsured people at about $2.8 billion.

Better care coordination, data collection, and new services for people with disabilities, estimated at $400 million, bring total new costs of health care for all to $4.2 billion.

On the other side of the ledger, covering everyone in a single plan -one that imposes minimal financial burdens on patients - permits enormous administrative savings. Today's insurers spend heavily on marketing, advertising, and paperwork. We conservatively estimate that administration will consume 11 percent ($1.4 billion) of private health insurance spending here in 1999 without reform.

Using the U.S. General Accounting Office conclusion that a 
single payer could cut costs of administering coverage by 79 percent, Massachusetts could save $1.1 billion.

Caregivers' administrative savings would be even greater than insurers'. Caregivers could drop the costly tasks of determining patient eligibility and benefits, and securing payment through billing and collections. Eliminating cost-sharing would end wasteful record-keeping - for example, to track payment toward deductibles. Cutting administration from 29 to 14 percent of hospital costs, as seen in Canada, could save $1.9 billion. 
Streamlining administration for physicians could save $600 million more and free up time to care for patients. These administrative savings total $3.6 billion - 10 percent of the current cost of care and enough to offset most new costs of more health care for all.
Reform brings large savings outside administration as well. Comprehensive coverage would help people get timely care, thus averting some hospitalizations, their financial costs (perhaps $140 million annually), and their human costs.

Much care is of unproved value. Patients will be better able to trust doctors to cut waste and spend money effectively when all people are covered and when doctors are no longer rewarded for doing less. We estimate clinical savings at 5 percent of current hospital spending, or $600 million.

Today, with HMOs able to do little to contain drug prices, government action is essential. Drug manufacturers accept prices 24 percent lower in Canada than in the United States for the same products, and charge even less in other well-off nations. State price negotiations or bulk purchasing could cut drug prices here to Canadian levels, to save over $500 million.

These and other cost controls and clinical changes would save an estimated $1.6 billion. With the $3.6 billion in administrative cuts, total savings are $5.2 billion, exceeding the $4.2 billion cost of expanded coverage. So care for all would save $1 billion this year alone.

Total health spending will be generous by any standard - about three times the western European average per person. So while outlays to hospitals and doctors will be held to annual budgets and they will certainly have to spend money carefully, there is no need to fear British-style waiting lists for care, because spending will be over three times Britain's. Spending will be enough to finance the care that works for everyone who needs it. Rather than cutting care, Massachusetts can recycle today's administrative and other waste to finance more services for all. Freed from bureaucratic interference, doctors and patients will be able to choose the most effective care.

Where will the money come from? First, over $1 billion of new revenue (mainly from Uncle Sam, because Medicare patients' use rates would rise) will drop the net cost of universal coverage to Massachusetts from $35.8 billion to $34.6 billion.

Existing government funding of $16.5 billion would continue, covering almost half of that $34.6 billion. Patients' remaining responsibility for nonprescription drugs and for limited nursing home costs would amount to $1.2 billion. With the reforms discussed here, the need for other funding would fall from the pre-reform baseline of $19.2 billion to $17.0 billion, a cut of fully 11.6 percent.

Rather than hiking taxes to raise that $17 billion, we propose requiring maintenance of effort in private insurance premium payments per worker. Paid into a state pool - no longer to insurance companies - this would generate about $13.9 billion. Capping employers' health insurance costs at 1999 levels would protect them from the expected rapid rise in premiums.

That leaves $3 billion to raise, to replace today's out-of-pocket payments for uncovered services, deductibles, co-payments, and co-insurance. New taxes of 1.5 percent on income and 1 percent on payroll would suffice. This would free everyone in Massachusetts from most out-of-pocket costs, and permit slashing administrative spending.

More care at less cost is within reach. With Congress paralyzed, Massachusetts faces a choice: preserve wasteful private administration, while access to care suffers and costs climb, or achieve health care for all.

Incremental expansions of coverage appeal to many people but are not an affordable path to universal health care because they increase spending. Financing needed prescription drug coverage with new taxes, for example, doesn't control cost.

If the commonwealth does not act to redirect our health care dollars to where they are needed - for patients, not paperwork - people will continue to sicken and die needlessly for lack of appropriate care, while costs soar. And if reform is put off until a crisis hits, the resulting frantic responses will damage much of what is good in our state's health care. Massachusetts has the opportunity today to plan, test and secure comprehensive, high-quality and equitable care for all -while saving money. 

This article ran in the Focus Section of the Boston Globe on April 25, 1999, and is reprinted courtesy of the Boston Globe.

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