Health care: expect to pay more

Experts assembled by Kaiser tell union leaders rising costs are ahead

By DON McINTOSH, Associate Editor

The message was easier to accept coming from a partner: Workers will have to pay more out of their own pockets for health care. Unions will have to come to terms with that notion, because they’re facing so much pressure in bargaining with employers, many of whom are reaching the tipping point in their willingness to pay for health care.

That was the underlying message of a Sept. 9 forum organized by Kaiser Permanente for an audience of over 100 Oregon union leaders, including those who bargain benefits with employers and those who serve as trustees on health and welfare trusts.

Most weren’t happy with the diagnosis but agreed that making patients pay will have to be part of the cure.

The trend nationwide — said health care expert James C. Robinson, a professor in the School of Public Health at the University of California Berkeley — is for workers to pay an increased share of monthly premiums, higher co-pays for medical services, and higher annual deductibles, and for plans to offer less coverage for retirees and dependents.

Employers increasingly want to fix their contribution at a budgeted rate and pass cost increases onto employees.

Premiums are going up an average of 11.2 percent this year, the fourth straight year of double digit increases, and are likely to rise just as much next year.

“Train-wreck imagery” is appropriate in describing the health care cost crisis, Robinson says, because those kinds of increases are unsustainable. For over 40 years, health costs have been rising faster than inflation, and more importantly, faster than the nation’s increased productivity. In 1960, Americans spent $27 billion — or 5 percent of the nation’s gross domestic product (GDP), on health care.

Today they spend over $1.3 trillion — 15 percent of the GDP. And health care costs are projected to continue to outpace GDP growth for the foreseeable future; some forecasts predict it could increase to 18.4 percent of GDP by 2013. It’s not a coincidence that insurance coverage has been receding since the 1970s, and today some 45 million Americans are uninsured.

In the early 1990s, when HMOs were catching on, cost increases slowed because doctors were given incentives to restrict care. But there was a consumer backlash against that, Robinson said, and now the health care industry is pushing to give patients the incentive to restrain care — by making them pay a portion of the cost.

Kaiser Permanente recently decided to begin pushing deductible plans, a decision that senior vice president Bernard Tyson said was difficult to make. “We have to face the realities,” Tyson told union leaders. “We all know that we spend other people’s money less carefully than we spend our own.”

So a necessary solution to cutting costs, he and other speakers argued, is for patients to pay part of it.

John Etten, director of collective bargaining for 18,000-member United Food & Commercial Workers Local 555, called Robinson’s message a reality check. Unions need to find ways to escape the “death spiral of increased health care costs,” Etten said.

In Local 555’s largest contracts, the union last year negotiated a “soft cap” on employer contributions: If cost increases are held to 8 percent a year or less, the employer continues paying the entire premium; above that amount, the employee will pay half of the increase. Amazingly, Etten said, the union and employer have so far been able to keep the increase below 8 percent by changing the benefit structure of the health plan.

One speaker objected to Robinson’s push for making patients pay, and drew a standing ovation. Peter diCicco, executive director of the Coalition of Kaiser Unions, said unions have been down that road before.

“It wasn’t that many years ago that our members sold out their health for $300,” diCicco said, arguing against any plan that would reward employees for NOT using medical services.

DiCicco said he’s not fundamentally opposed to patients paying something for care, but said first they must have access to the information they need to make valid decisions about the value of the treatments to be paid for. Otherwise, he said, “all we do is measure cost.”

Most health plans by now require some co-pay for medical services, but those co-pays are $15 or less in 88 percent of HMOs — not enough to restrain patient “over-utilization.” Robinson said.

Robinson, who is known as an advocate of greater market competition and more corporate forms of organization in health care, aired a number of market-like proposals to restrain costs:

• Health plans would focus attention on cutting costs among the biggest users of health care services, since about 8 percent of enrollees account for 90 percent of health care costs.

• Health plans would cut down on unnecessary medical procedures by standardizing procedures, based on scientific studies that they work and are cost-effective. A multi-year study by the Dartmouth Atlas Project found that the kinds of treatment ordered for a given medical condition vary widely state to state and even hospital to hospital. “Insurers notice differences in practice patterns but don’t intervene,” Robinson said.

• Employers would peg their premium contributions to the cost of the low-cost plan (for example paying the full premium for the lowest-cost plan) and ask employees to pay the difference if they opt for higher-cost plans.

• Plans would be structured to provide good coverage for essential medicines and services, cost-sharing for less-essential services, and uninsured but discounted prices for discretionary services.

• Consumers could benefit financially from cost-saving choices, through experiments with “health savings accounts,” for example.

Why costs will keep going up

Giving patients incentives to cut down health care usage could slow but is unlikely to halt health care cost increases. Tyson and Robinson, corroborated by a Kaiser actuary, identified numerous “drivers” of increased costs:

• Americans are aging and therefore require more care, and they’re leading unhealthy lifestyles, which are producing record obesity.

• New drugs and new medical technologies are curing conditions that were previously uncurable, and ameliorating chronic conditions that patients formerly endured.

• Medical breakthroughs are allowing earlier detection and more aggressive treatment of chronic conditions like diabetes and heart disease.

• A persistent shortage of health care workers is driving up wages.

• Government programs like Medicare and Medicaid limit reimbursements to save taxpayer money, meaning costs are shifted to others.

• Jury awards in malpractice suits are up, and doctors are practicing defensive medicine by ordering more tests.

• Health care providers have been merging and consolidating, which studies have shown usually leads to increased rates.

• Effective marketing of new brand-name drugs has created consumer demand for more expensive products.

• Americans have rising expectations of care and are treating conditions that were not previously seen as medical matters, like depression, allergies and erectile dysfunction.

Unions view Kaiser as an ally

In an industry that is frequently hostile to unions at every level, Kaiser has developed close relations with unions since it proposed a labor-management partnership in 1997.

Kaiser is the nation’s largest non-profit health plan, with 8.2 million members and 136,000 employees. About 85,000 of those employees are unionized, and bargain together in the Kaiser Coalition of Unions, which includes 25 locals of eight international unions. The five-year contract they signed in 2000 ensured labor peace and set up a partnership structure that is supposed to give workers a voice in management decisions at every level.

Kaiser uses union contractors when building and new units are able to unionize without management opposition by collecting a simple majority of union authorization cards. In the first three years of the contract, the number of employee grievances filed fell by two-thirds.

Kaiser is in brand-building mode, reacting to a poll that showed that members think highly of Kaiser while non-members think poorly of it. Kaiser executives are hoping unions will help it build market share. It helps that Kaiser has received high marks for quality and price; Kaiser’s Northwest region was the top-ranked HMO in the country in a 2002 Consumer Reports survey of 42,000 members.

Labor harmony is rare enough in health care that union leaders are decidedly upbeat about Kaiser.

Its members have several health plans to choose from, but Local 555 is encouraging them to switch to Kaiser, and so far 1,000 have done so.

© Oregon Labor Press Publishing Co. Inc.