By Jeffrey Barg

Published September 1998

• React to this article in the Discussion Forum.

PND: There are two acute crises in Pennsylvania: the Allegheny bankruptcy and the Independence Blue Cross surgical fee cuts. What help can the AMA provide in dealing with these crises?

WM: The goal of the American Medical Association is to convert our current tax treatment of insurance coverage away from the current employer-based tax deduction to an individually owned and individually purchased insurance. The problems that are being experienced here in PA and certainly elsewhere are largely due to the perverse mechanisms of the current tax structure which encourages third parties to come between the patients and physicians in medical decision making and other manifestations of healthcare delivery. So you get situations like Allegheny with a lot of capital moving into the Philadelphia area requiring not only practices but hospitals and major teaching facilities with the promise of huge financial returns as they ratchet down payments such as Blue Cross is currently doing in their plan. Allegheny made some mistakes in their calculations and over-extended themselves. We think that while you might try to get a hose to put out the fire, building a fire-proof system is really what is needed. Our House of Delegates has directed us to pursue this course of action.

PND: What is the AMA’s analysis leading to this proposed course of action?

WM: The employers were experiencing a considerable increase in the cost of health insurance. Ten, twelve, fifteen percent increases per year and they were having trouble telling their employees they were not going to cover their healthcare insurance. So they were looking for ways to reduce the costs, providing an opening for managed care plans. We have seen employers shifting from indemnity coverage to offer their employees managed care plans and then switching from one to another based upon almost totally on premium costs. That has given the the plans tremendous market leverage because they have consolidated to the place where in Philadelphia, for instance, I think 85 percent of all managed care is controlled by just two companies. That kind of dominance in the market leaves the physicians totally helpless as far as negotiating any kind of contract provisions or indeed fearful of even challenging medical necessity decisions or decisions not to pay for needed consultations. They feel they just don’t have a bargaining position. They are fearful they will be dropped by the plan and that could be economic suicide. All of those problems would go away if the individual patient had an opportunity to choose a health plan from a wide variety of health plans based on quality and costs rather than have an employer shift 5000 people here or there based on a premium alone. The idea of having choice at the patient level eliminates a awful lot of distortion that is in the marketplace today.

PND: How would you change the current system so that the individual has more choice?

WM: It would take a fundamental change in the tax law to allow for a tax credit for the purchase of health expense coverage. There would be a cap on the tax credit. Then employers will say, "We will continue to give you the same amount of money for your health insurance coverage as we did when we purchased your managed care policy last year in the form of a voucher or in the form of a defined contribution." This gives the employer the advantage of having an absolute fixed line on the balance sheet and not have to worry about yearly increases. Employers could also educate employees as to what plans are available, what specific aspects of the plans the employees would be interested in. It keeps the employer involved in it but it really shifts the responsibility to the individual who will get the tax credit. Ever since World War II, this has been nothing more than part of a wage package. It has always been the employee’s money that has been involved and it’s a shame that the employer has maintained so much control over how the employee’s money has been used.

PND: Would the employer continue to get a tax deduction?

WM: Exactly. There’s a tax credit to the employer and the employee and we think there should be a transitional, so-called maintenance of effort safeguard built in whatever comes through so that employers cannot just drop their contribution to health expense coverage, which would be a significant reduction in employee wages.

PND: How would all these changes impact on cost, quality and access to health care?

WM: Well it should improve access. The self employed clearly will have much greater incentive. The poor will have an incentive. We’re talking about refundable tax credits and we think the tax credits should be related to income. So to the degree that it is drawn up properly we should eliminate a great deal of the problems of poor people’s access to healthcare. And it would benefit all those currently purchasing health insurance because we’re paying a great deal more that we normally would now because of the cost shift for the uninsured. And it should help those who have had prior health risks through the encouragement of small employers and others to develop voluntary choice cooperatives and through mandated community rating. The benefit of large group purchases could still be enjoyed by individuals, not just through their employer, but through national fraternal organizations or national trade associations which gives them the freedom to move about and eliminates the problem of job lock and yet they still get the advantage of larger choice of plans. They get the advantage of a large risk pool and they get the advantage of administrative savings by having a large group.

We think that cost will be improved through a much more competitive marketplace. This will really turn the purchase of health expense coverage into a true market because now we will have individuals making decisions instead of large employers or the like. So we think the cost of health care will be influenced by the fact that plans will have to be competitive among a wide range of plans and also through the mechanism of not having the cost shift that we talked about. Medical savings accounts would also encourage individuals to make cost conscious health care decisions.

I think quality will definitely be a major factor in an individual’s choice of health plan. I think that will make the plans focus on quality more than currently.

PND: What impact would this new system have on physicians?

WM: I think it would be a huge benefit. Financial difficulties such as those experienced by Allegheny would become a thing of the past and denials of coverage would be rare as hens’ teeth. I think it would effectively take the third party out of the picture. I think it would return the decision making to the patient and physician. The place it traditionally has been.

PND: You mentioned before the fact that IBC and Aetna US Healthcare have an 85 percent market share in Southeastern PA. In Western PA, Highmark Blue Cross Blue Shield by themselves have an 85 percent market share. How would consumers have more choice when you have monopolies or two companies controlling a market?

WM: I think whatever transpires will be incremental. I’m reminded that the St. Lawrence Seaway took 50 years to complete and so I don’t expect things to change overnight. Look at what has happened in the public sector with the Federal Employee Health Benefit Plan. There’s a rather large amount of selection possible in the private sector. Look at Quaker Oats. They’ve allowed their employees a great deal of freedom in selection. So I think it’s doable. I think you will find a lucrative market such as the Philadelphia area will attract a lot more players once the options are made by individuals and not controlled by huge employers and the like. And I think we’ll see a shift in the emphasis from the premium to quality.

PND: What is your political prognosis for getting these changes through the Congress?

WM: I think it’s excellent because it’s already being discussed as you know by a number of policy wonks and a number of legislators. I don’t think it has a prospect this year, probably not next year, but once again we’re making significant headway. We need to consider three things. One is we want to make the proposal budget neutral. We want to create a win-win situation to try to minimize as much as possible, if not eliminate, mandates. And we want to take an incremental approach. We may get a piece of it. We may be able to get expansion of MSAs this year. I think it’s very doable because everybody can profit from this, except perhaps the large plans that are currently doing things they shouldn’t be doing.

PND: You mentioned several times that this approach is going to take some time. What can physicians do now when they’re faced with rates from Independence Blue Cross that are 80 percent of Medicare?

WM: I think the payers have come to the realization that physicians love to practice medicine and take care of patients and will put up with an awful lot of nonsense before saying no or declining care to patients. The Government figured it out and has been ratcheting down reimbursement and the only question is access. They’re waiting to see how far down they can go until the physicians say we won’t see the patients, and not only say it but actually do it. That is unfortunately where we have to be. It may be that physicians can educate the population in the meantime and the population will bring to bear forces against the payers but the truth is, it’s very difficult because the population sees it as money in the pocket. You cut my premiums, that’s more money I can spend on a car. People are starting to wake up and are becoming more active and I think that we can build on that. We can help educate our population about the situations we are seeing as for providers. We see this in those physicians who sold their practice: their boss is telling them to see more patients in shorter periods of time. The quality of care is going to diminish. It may be possible to render absolutely good care in five minutes as far as making a decision and a prescription but it takes another 15 or 20 minutes to explain to the patient why it’s necessary to comply. I can’t tell you what percentage of prescriptions are never filled, but it’s significant. So making a diagnosis and a prescription might be pretty quick but getting compliance and a good outcome may be more difficult.

So I think physicians have several choices and I think one is to drop out of a particular plan. A number of people have sent Blue Cross their termination papers and they’re saying fine, we will get somebody else. They do have a surplus of providers. At least they did going into this. So they’re calling the bluff right now and they play a good card game. They’re sitting on a lot of money. I don’t know if that will work or not, but it will work when a significant number of providers refuse to participate with a plan. Our practice recently received a letter from Blue Cross saying that they were relooking at the matter. Apparently they are significantly concerned because we had sent them a letter saying that our practice was considering dropping out. We worded it very carefully.

PND: Any advice for Allegheny physicians?

WM: This is not AMA policy. But my own personal feeling is that it is very risky to sell your practice and I think we have unfortunately seen that play out in our neighborhood in spades. I know a number of physicians are buying or purchasing their practices back and I think that makes a whole lot of sense. On the other hand, my feeling is that the health care needs of the population will be there. The need for providers will be there. I am not at all convinced that we have such a surplus of providers that a significant number of people will be without work. I just don’t believe that. I think the public interest will be such that the medical schools will be okay and that probably a great majority of providers will be okay. Whoever purchases the medical facilities and practices will want to see a continuum of payments and access or the value of their purchase will be zero. I think that probably things will be fine if they hold on. Although privately, my own feeling is that if there is an option to buy back the practice that would make sense. Once it gets into the for-profit arena, we just can’t follow the bouncing ball.