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Rising cost of medical care

A trip to a US hospital can produce bills that would make the Pentagon blanch. Take the case of a Hudson, Fla., man who last year was admitted for emergency medical treatment: "I can't quite imagine how his care could possibly have amounted to $12,553.70 for 27 hours," says his wife in a letter to their congressman.

A Columbia, Md., woman fared better: Her two-week stay cost $6,600. But doctors, to take her temperature, used an electronic machine with digital readout.

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"It cost $1.92 each test," she grouses. "I checked at the supermarket. An old-fashioned glass thermometer is a dollar."

Insurance picks up most people's health-care tabs -- but the cost of this coverage is racing ahead, too. "A $120 increase last year, and a $120 increase this year," a retiree writes. "How can a person make ends meet?"

The price of medical care in the United States is exploding. Since 1965, the last year of the pre-medicare era, spending on health, after adjusting for inflation, has doubled to $350 billion a year.

Is that too much? Is our medical-care system the equivalent of a gas-guzzling sedan -- lush, but wasteful?

"Health care is them social issue of the remainder of this century," says Dr. Henry Aaron, a Brookings Institution economist. "The costs involved are enormous, and they're going to keep going up. The only question is how fast."

To the vast majority of citizens who equate the availability of medical care with their own ability to stay healthy, this is a uniquely sensitive problem. Health care is a different sort of economic service -- expense is not the porimary worry on most people's minds when they enter the hospital. Changes in the US health-care system might involve difficult ethical questions, such as one raised by Colorado Gov. Richard Lamm: Can medicare continue to spend one quarter of its funds on patients who die within a year of their treatment?

"Few issues are at once so delicate and so pressing," admits Dr. Carolyne Davis, head of the Health Care Financing Administration (HCFA), which oversees medicare.

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It was in the years following World War II that the US health-care system began its sharp cost climb. In 1950, medical goods and services accounted for 4 .4 percent of the US gross national product (GNP) -- the value of all goods and services produced in the economy. Today health care accounts for about 10 percent of GNP. One of every $10 spent in the US goes for doctor fees, hospital bills, eye care, etc.

Economists have file drawers full of statistics that show where this money is coming from, and where it's going. Health care is now the fourth-largest item in the federal budget. US corporate spending on health care has almost doubled since 1978, the $77 billion. Over the last decade private health-insurance premiums have increased an average of 25 percent annually.

Part of its stems from the fact that health professionals -- particularly doctors -- are well organized, and able to protect their incomes. Harvard sociologist Paul Starr, in a Pulitzer Prize-winning book on US medicine, asserts that physicians in this country have parlayed their professional authority into "social privilege, economic power, and political influence."

Much of the increase in health costs, however, has come about simply because more US citizens have easy access to health care, and because that care has become more advanced technologically.

In the 1950s, there was no medicare or medicaid. Less than half the US population had adequate private health insurance. There were no CT X-ray scanners, artificial hearts, or electronic thermometers.

"We Americans want extra-sophisticated health care," says Dr. Uwe Reinhardt, a professor of economics at Princeton University.

But some portion of the steep jump in medical costs, experts say, undoubtedly is caused by the design of the medical system itself. In that system, consumers are for the most part insulated from the cost of their health-care decisions by programs such as medicare or Blue Cross and Blue Shield.

In the past, doctors and hospitals have had no economic reason to question the necessity of certain procedures because they were simply paid for each service performed. In general, few people have had to make hard choices about the costs and benefits of US medical care.

"The economic incentives have been perverse," says Jack Christy, health policy specialist for the American Association of Retired Persons.

Is that really harmful to the economy? After all, real spending on computers has also doubled in the last 20 years. The $350 billion we spend on health can also be viewed as $350 billion in income received by US citizens. Why are rising health-care costs a bad thing?

To begin with, they are playing havoc with one of the largest and most popular of US government programs: medicare. When medicare was enacted, Congress figured it would cost about $9 billion in 1990. But spending reached that level 17 years early, in 1973.

In years to come the number of US retirees will grow, and medicare will become even more hard-pressed. The 1984 report of the Medicare Board of Trustees estimates the program will go bankrupt by 1995, at the latest, if it isn't altered.

IN addition, many business executives, economists, and politicians say that health costs have gotten out of hand. As one state official says, health care has become "the 'Pac Man' of [my] budget," chomping up an ever-greater share of resources. In Washington, the primary health-policy question is no longer "how can we expand coverage," but "how do we contain costs?"

If costs keep climbing at the same rate, noted HCFA chief Davis in a speech earlier this year, health care will in a few years account for 20 to 30 percent of the GNP. "Reason compels one to conclude that for a nation to remain vigorous and competitive in world markets, that's too much GNP to devote to health care," she said.

If that's the case, what can be done about it? What, in fact, is being done about it?

In the last 18 months, note experts, there have been more changes in the US health-care system than in the previous 18 years. And the action may be having some effect: In the first five months of this year, medical cost inflation declined significantly, to 6.3 percent.

The most far-reaching of these changes have affected that behemoth of the US health-care system, medicare. In each of the last three years Congress has tinkered with medicare in order to save money. This summer, legislators passed cuts in the program predicted to save $7.3 billion through 1987. About a third of the savings will come from a 15-month freeze on physicians' fees; another big chunk of cash will be saved by increasing some beneficiary co-payments.

But the most drastic change in medicare occurred last year, when the Reagan administration persuaded Congress to overhaul the way the program pays its hospital bills. In the past, medicare simply reimbursed hospitals for all costs incurred, plus a little something extra for profit. Under the new system called "prospective payment," medicare decides in advance what it will pay for patients with certain diagnoses, and then reimburses hospitals accordingly.

Some economists feel prospective payment, in the long run, is too complex and arbitrary to work. But US Health and Human Services Secretary Margaret Heckler claims prospective payment will save $100 billion by 1995, by making hospitals more cost-conscious. Indeed, something already seems to be happening in the hospitals, the largest sector of US health care. In the first three months of 1984, hospital admissions declined, the average stay became shorter, and hospital employment shrank.

"Hospital cost containment is already here," caimed Michael Bromberg, director of the Federation of American Hospitals, in a speech early this summer.

States are also in the forefront of change. Pressed by rising bills for their share of the medicaid program and state employee health insurance, 10 states have passed their own prospective payment legislation. Some of these bills are far tougher than Uncle Sam's version.

But it is perhaps US business that most keenly feels the hot breath of rising health-care costs on the back of its neck. Last year, business spending on health was equal to one-half of corporate profits, and many firms are concerned that government cutbacks will shift more health costs to the private sector.

So businesses are fighting back. Zenith Corporation, for instance, has created a medical advisory program. A company specialist advises employees on which area hospitals are least expensive, and provides other cost-savings suggestions.

Ameritrust Bank in Cleveland now offers employees a choice between a traditional health insurance plan and a preferred provider organization. PPOs allow enrollees less leeway in choosing physicians or hospitals, but offer lower premiums in return.

Dexter Corporation, a Connecticut chemical company, has increased its employees' share of their health care bills by raising deductibles and premiums. It also offers a health maintenance organization (HMO), which offers enrollees broader coverage for less money, but requires them to use the HMO's own health-care facilities.

After years of double-digit increases, Dexter's health-care costs shrank during the first six months of this year, says Worth Loomis, company president. "We had viewed [health care] as a benefit that had been settled long ago -- kind of sacred," he says.

In general, price pressures are also helping the growth of alternative health care providers such as HMOs, PPOs, plus for-profit health care "boutiques" such as surgicenters and birth centers. There also are other approaches to health care, but cost is not the primary reason for exploring them.

PRICE pressures also are encouraging more Americans to live in a manner considered by the medical profession to be more healthy, so they can stay away from medical treatment as much as possible. Preventive medicine programs, that stress exercise, proper diet, moderation in alcohol and drug use, etc., are now offered by numerous hospitals and businesses.

A recent survey by Hewitt Associates, a management consulting firm, found 31 percent of responding companies now have smoking cessation programs, for instance. Forty percent offered counseling for alcohol and drug abuse; 29 percent provide their employees nutrition education.

But these actions, both government and private, are only the opening of what promises to be a long campaign.

Medicare is still in financial trouble, despite the cuts made in the system. In coming years more and more baby boomers will retire and begin drawing benefits, while the number of workers paying into the system is predicted to decrease. Medicare's board of trustees estimates that the program's hospital insurance fund will go broke in 1995 at the latest.

Last spring, a federal advisory council weighed in with a list of suggestions for keeping medicare solvent. Among its ideas: borrow tax revenue from social security; tax part of employer contributions to employee health plans, and channel the money to medicare; and raise the program's age of eligibility from 65 to 67.

"Medicare needs to be dealt with sooner or later," says a congressional staff aide involved in the issue. "1985? There certainly will be a lot of talk."

Veterans Administration hospitals are also facing a cost crunch, as increasing numbers of veterans are projected to need health care in coming years.

In fact, as the population of the country becomes more elderly in the years ahead, more demands will be made of the whole US health-care system. The US Census Bureau predicts that by the year 2030 the number of citizens over 65 will double.

"We just have more people growing older," says Dr. Joseph Boyle, president of the American Medical Association.

This demographic switch, say just about all health care experts, means the slice of the GNP that the US spends on health care isn't going to get smaller. At best, economists and others say, we should aim for controlling the rate of increase in health-care costs.

The need for economy, add experts, has stilled debate on whether the US should adopt national health insurance.

The most sweeping health measure currently before Congress, backed by Sen. Edward M. Kennedy (D) of Massachusetts and Rep. Richard Gephardt (D) of Missouri , would mandate stringent cost ceilings applicable to all patients, not just medicare beneficiaries.

Will these cost-control efforts affect the quality of US health care? For almost all who are involved with health care, this is a sensitive question. It makes them clear their throats and start fidgeting with pencils.

Some feel there is enough waste in the US medical system to allow substantial cuts without hitting necessary care. They point to statistical quirks as evidence -- such as the fact that Easterners are far more likely to be hospitalized than people who live in the Western US.

Colorado's Governor Lamm has estimated that as much as 20 percent of health-care spending may be medically unnecessary.

Others, such as Dr. Boyle of the AMA, say that cost cutting threatens development of new methods -- such as artificial organs -- that make the US a world leader in medical technology. Cuts, warns Boyle, could curtail people's freedom to choose among physicians. Zealous economizing "may [deny] real people care," he says.

Defining "medically unnecessary," after all, is not an easy task.What an outside observer terms unneeded might seem quite necessary to the patient. Who decides which tests, operations, new products are not worth the money?

"The dilemma that the United States and many other rich nations face," concludes Dr. Aaron of Brookings, "is how to encourage patients and providers to weigh in a humane fashion the benefits and costs of medical care."

Next: Jobs and the jobless in a changing workplace -- Sept. 21. The Domestic Policy Association is a nonprofit, nonpartisan group that encourages discussion of public issues, explores alternatives for solving problems, and aims to identify common ground. Those wishing to participate in this year's forums should write to Dr. Jon Rye Kinghorn, Domestic Policy Association, 5335 Far Hills Avenue, Dayton, Ohio 45429, or call (513) 434-7300 for information. Key programs for financing medical care in the US

MEDICATE -- health insurance provided Americans 65 or older by the US government. Funded by a payroll tax. Pays for a large portio of hospital expenses nad skilled nursing care.

For a small extra fee, medicare beneficiaries receive supplemental insurance that covers part of the cost of physician fees. The program covers 30 million US citizens -- 11 percent of the population.

MEDICAID -- a welfare program. Pays for doctor and hospital bills of the elderly poor, the disabled, and needy families with dependent children. Funded jointly by federal and state governments.

COMMERCIAL INSURERS -- private firms, such as Blue Cross/Blue Shield, that sell health insurance. Commercial insurance has become widespread in the US since the Great Depression, when the American Hospital Aassociation endorsed the idea.

HEALTH MAINTENANCE ORGANIZATINOS (HMOs) -- institutions that offer prepaid medical care. For a set fee, participants receive all the health care they need from HMOs' own facilities and physicians. Fees are usually less than premiums for Blue Cross and other traditional insurers, but participants have little freedom to choose where they'll be treated, and who will do the treating.

PREFERRED PROVIDER ORGANIZATIONS (PPOs) -- group insurance, ofte offered by corporations to employees, that features discount premiums. The price of coverage is kept down because the insurer is guaranteed a set number of patients , and prompt payment.

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