Managed Care Is a Bust, but What's the Cure?

Robert Kuttner's ''A dirty little secret: Managed care is bad for business'' (Economic Viewpoint, Dec. 21) makes a great case for universal health insurance. As the for-profit medical-insurance industry continues to consolidate into a handful of major players, they will leverage their buying power to continue to reduce payments to hospitals. If hospitals want contracts with insurers, they will have to service more patients and be paid less. At the same time, insurers are raising premiums to employers to increase their profit margins. Government, meanwhile, continues to see reducing payments for Medicare services as a way to reduce the federal budget.

Caught in the middle are the nation's hospitals and the public. About two-thirds of a hospital's expenses are for wages and benefits, with the bulk for professional staff such as nurses, laboratory and X-ray technicians, physical therapists, pharmacists, and mental-health workers. As lower payments decrease revenue, hospital boards and management will be forced to cut staff, which will continue to erode patient satisfaction and quality.

''Managed care'' is a misnomer. The present system is service driven by financial incentives. The real answer is a universal health insurance model that changes the present financial incentives for insurers, providers, the public, and businesses to focus on health education and prevention--and acute care.

William Powanda
Griffin Hospital
Derby, Conn.

Kuttner has the right diagnosis but the wrong cure: government-sponsored health care. He, like many others, seems to have been hypnotized into the idea that health care and health insurance are inseparable. In fact, health insurance has outgrown its useful function and has begun to prevent health care.

Insurance helps when it protects us from difficult-to-predict catastrophic losses, such as an early death or a house fire. Everyone throws a small amount of money in the pot so that there is enough for the unlucky person who needs it. Today, health insurance ''protects'' us from routine and predictable health-care expenses. It is like having insurance against the loss of going to the grocery store. The costs for this protection are huge administrative expenses and the loss of control over the health care we receive. At the end of the year, healthy people have nothing to show for the thousands of dollars that they have sunk into premiums.

Let's put money and control in the hands of people, instead of expecting employers to purchase such policies out of our wages or, even worse, allowing government to siphon more money out of wages for higher taxes. People could purchase high-deductible policies to protect themselves from serious losses for a small fraction of what is currently being spent on health insurance. They would have the balance of that money to spend as their own judgment about health care deemed appropriate.

Dana C. Ackley
Roanoke, Va.

Robert Kuttner has muddled the discussion over health-care reform in the U.S. by propagating some misconceptions about health-care spending. The most egregious of these is that U.S. businesses are bearing the cost of their employees' health insurance. Health benefits are but one component of employee compensation; the level is set by the labor market. And over all but the very short run, companies offset increases in the cost of health insurance through decreases in the growth of wages and other fringe benefits. It is American workers who bear the cost of health insurance, not their employers.

Furthermore, health economists have not established that a causal relationship exists between increased per capita expenditures for health care and increased longevity. In contrast, the relationship between affluence and health-care spending across countries is well-established. When the disease has been so badly misdiagnosed, it will only be by accident that the prescribed treatment results in a cure.

Todd M. Bass


Updated Jan. 7, 1999 by bwwebmaster
Copyright 1999, Bloomberg L.P.
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