Braking Health-Care Costs

February 03, 1991

Health-care costs are spiraling upward again, driven by catastrophic illness claims and the mushrooming use of mental health and substance abuse services. Corporate medical bills soared 21.6 percent last year: The average company spends more than a quarter of its net earnings on health care. If the cost curve continues on this course, medical benefits will rise to intolerable levels -- an estimated $22,000 per worker by the year 2000.

Cost containment, the magic bullet of the '80s, hasn't worked. Many employers have been slow to embrace cheaper alternatives such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs) -- networks that offer services at a discount. Thus, many are paying for coverage under traditional plans that are usually more costly .

The issue is further exacerbated by budget cuts in federal Medicare and Medicaid programs. To make up the shortfall, doctors and hospitals are shifting the burden to private payers through higher rates and fees. The buck-passing doesn't stop there: As more big firms strike deals with providers, smaller businesses end up paying more to insure their workers.

What's to be done? A handful of initiatives percolating in Annapolis are worthy of serious consideration. The Baltimore Area Labor Management Committee, an unlikely alliance of the Maryland Chamber of Commerce and the state AFL-CIO, is pushing legislation that would, among other things, create a minimum benefits package for smaller employers.

This would exempt these businesses from the state's mandated benefits laws, thus lowering their costs and making insurance available to a wider number of employees. The committee also wants to study claims data from the non-hospital sector of the industry where costs have been rising three to four times the rate of inflation. Other initiatives include requiring doctors to disclose their holdings in laboratories and clinics to which they refer patients and the possibility of regulating the fees charged by hospital-based specialists.

The best solution may be a longer-term strategy under study by the Governor's Commission on Health Care Policy and Financing. This group, chaired by Baltimore attorney Eugene M. Feinblatt, is exploring a statewide plan in which a quasi-public entity would invite providers to submit bids to offer coverage at a flat community rate.

None of these ideas is cast in stone, but all are aimed at bringing down the untenably high cost of health care. Unchecked, rising expenses will push employers -- and workers -- out of the health-insurance market and into the already too large pool of uninsured Americans.

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