The Public Policy Institute

Managing With Care


Managing For Cost, And For Quality Care

Remember the crisis in health-care costs?

A few years back, it was the leading topic of national conversation. Time, U.S. News & World Report and other news magazines published cover stories. Consumer Reports devoted 41 pages to the topic in three consecutive editions during fall 1992, saying the U.S. health-care system had begun to "creak and groan under the weight of its runaway costs." Even Ladies Home Journal carried a major article on "The crushing cost of health care."

The governor of a small Southern state was elected President after making health-care reform a central element in his campaign. After taking office, President Clinton introduced a dramatic proposal to reshape the entire American health care system, saying: "Rampant medical inflation is eating away at our wages, our savings, our investment capital, our ability to create new jobs in the private sector, and this public treasury." Such rising costs, the President said, "are a special nightmare for our small businesses, the engine of our entrepreneurship and our job creation in America today."

Congress—at the time controlled by the President's own party—refused to act on his proposal for radical change, because of worries that too much government control over health care might make costs rise even more. Yet, with no major new governmental controls, things are much better now. High costs still force millions of Americans to go without coverage, to be sure—and that is a critical problem, as this report will show. In recent years, though, the continual, huge increases in costs seemed to disappear.


Because of managed care. It's the instrument through which we as a society have become much more sensible about how we use the more than $1 trillion we spend on health care each year. We now manage those expenditures more carefully. As a result, the annual double-digit cost increases of the late 1980s and early 1990s went away in the middle years of this decade. Although cost increases are threatening to make a comeback, no one is predicting the 16, 17 and 19 percent across-the-board jumps that took place just a few years ago. That's largely because of the success of managed care.

Managed care plans "have achieved most of the cost savings that were one of the president's goals," The New York Times reported recently. "(1)

Some political figures and some in the news media are acting as though managed care is bad for us—that it keeps us from getting the high-quality medical attention we need. Managed care is the source of health-care problems these days, they say —it consists of hard-hearted bean counters who care nothing for patients' health and simply want to cut costs. And, they claim, we used to have a compassionate, put-the-patient-first health care system before managed care came along.

In truth, though, precisely the opposite is true.

Lower costs, more accessible health care

Managed care is making a difference in cost. That means making it possible for more families and individuals—not fewer—to have access to good health care. Because of managed care, an estimated 200,000 to 300,000 New Yorkers who would otherwise be uninsured now benefit from health insurance coverage, based on experts' calculations for the national health-care picture. (For more on costs and the uninsured, see Section 2.)

At the same time it's making health care more affordable and thus more accessible to New Yorkers, managed care is improving the quality of care. Because of health-maintenance organizations and other forms of managed care, we're more likely now to do what doctors have always told us we should do—get annual checkups, treat minor problems before they develop into major ones, and live healthier lifestyles. Partly as a result of those changes, important indicators of good health are improving—for instance, infant mortality is at a record low, and more poor children are receiving immunizations. And managed care is now starting to do what our health care system never did before—honestly and carefully measure the quality of care, in terms of customer satisfaction and healthier outcomes.

Pathbreaking steps in quality assurance are coming not because of new laws or government regulations, but because of marketplace pressure. The country's largest corporate employers—working through organizations such as the National Committee for Quality Assurance—are pushing managed care organizations to contract with highly qualified physicians, to develop detailed plans for improving quality of care, and to measure and report on members' satisfaction.

Government does have a significant role to play in assuring the quality of health- insurance plans. Aside from monitoring organizations' financial stability and individual physicians' competence, that role is primarily to help make sure employers and consumers have as much information as possible to judge competing plans. New York State's Health Department is a national leader in that effort. (For more on quality of health care, see Section 3.)

All things considered, managed care is one of the reasons the American system of health care is, more than ever, the envy of the entire world.

But that's not exactly the conclusion one might draw from news media reports in recent years, and from various "reforms" the state Legislature is considering. At the very time it should be celebrated for helping solve the critical cost problem and for promoting quality health care, managed care is under increasing attack.

An ambitious analysis of coverage by major news organizations, just released by three independent experts on health care, found that news reports in recent years have become increasingly negative, dramatic and based on anecdotes rather than objective analysis. (See Section 3 for details.)

Perhaps responding to the perception of managed care as a problem rather than a solution, some elected leaders in New York—like some in Washington and other state capitals—have proposed a broad range of legislation to impose mandates and other new rules on managed care. At the behest of trial lawyers, for instance, the Legislature is considering allowing new types of lawsuits against health plans and employers who purchase coverage for employers. While that proposal would affect all health-insurance plans and self-insured employers, much of its genesis comes from sentiment against managed-care plans. Other proposals would require health plans to provide costly new coverage for mental illness and other specific illnesses. (See Section 4.)

Those "reforms" would drive up health-care costs—by billions of dollars, all told. New Yorkers already pay exorbitant amounts for health care—22 percent above the national average.

One result of further cost increases would be to force more businesses into deciding they cannot afford any health insurance. If that were to happen, thousands more New Yorkers would be left with no health insurance at all. And further government-driven increases in health-care costs would make it harder to show the rest of the world that New York is serious about becoming competitive for new business and jobs. With a growth rate still lagging most other states, we can hardly afford that.

Partly because of our high health-care costs, the proportion of residents who are uninsured rose in New York at more than four times the national rate, from 1991 to 1996.

Experts agree that lack of health insurance usually means poorer health care. For example, mothers who lack health insurance are less likely to see a doctor while pregnant—and their babies are more likely to suffer health complications. The very last thing state leaders should be doing is driving even more families and individuals into the ranks of the uninsured.

Make private insurance more available

Rather than passing new laws to drive up health insurance costs, the state's top health-care priority should be reducing the number of uninsured New Yorkers, now estimated at more than 3.1 million. Newly available federal money will be used to expand the state's Child Health Plus program, providing coverage for another 420,000 children. But taxpayers in New York, who already pay far more than those in other states for publicly funded health care, will never be able to cover every state resident who lacks coverage now. For the most part, then, the real answer is for state policymakers to recognize that the private insurance market is the key player in making health coverage—and its promise of better health—available to all New Yorkers.

With that realization, Albany should turn its attention to:

When it comes to reducing costs, a key principle for state policymakers should be the same as for physicians: First, do no harm. That means thinking carefully before approving any "reforms"—such as new lawsuits or new mandates—that would increase health insurance premiums.

Unfortunately, those premiums will rise by an estimated $200 million a year, as a result of a new chiropractic mandate state leaders enacted in 1997. On the other hand, in the last two years Governor George E. Pataki and the Legislature also enacted historic new rules for hospital financing, and put a freeze on a hospital surcharge that was created to pay for "excess" malpractice insurance for doctors. Those last two steps will produce real cost savings. They represent the kind of progress we need, if we truly want to make health care affordable.

Going further to reduce costs will, by itself, make it easier for employers and individuals to afford health coverage. Other steps worth examining include innovations such as allowing a "foundation" health plan that would provide basic health care at a significantly lower price.

Fortunately, the other major, long-term solution to our uninsured problem is already one of the top priorities for Governor Pataki and the Legislature: Growing new jobs in New York.

That will help directly, because more good jobs means more New Yorkers with privately funded health coverage. And it will help indirectly as well; a growing economy is absolutely imperative if we are to continue spending billions of taxpayer dollars on publicly funded health care.

In the past three years, the state's resurgent economy has created more than 290,000 new, private-sector jobs. Not all those jobs carry health benefits, of course. Still, including the families of newly employed workers, it's likely that at least a quarter of a million New Yorkers who did not have health coverage in 1994 have such coverage now. That's quite an accomplishment—and the best possible area on which to build.

1. "Analysts Expect Health Insurance Premiums to Rise Sharply," The New York Times, October 19, 1997; p. 1.

contents introduction section 1 section 2 section 3 section 4 appendix

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