Colorado Conference Finds Answers to Rising Costs and Uninsurance Rates

Published November 1, 2003

With health care reform measures deadlocked in Congress, the Independence Institute, a Golden, Colorado-based public policy research organization, convened a September 3, 2003 conference to explore how state officials can improve health care for their constituents–without waiting for Washington.

How We Pay

Speakers in the first session discussed how paying cash for care empowers patients.

Dr. Vern Cherewatenko described how low reimbursements and the cost of collecting third-party payments combine to bankrupt physicians. By dropping out of all insurance plans and requiring patients to pay cash, he said, physicians can eliminate about five support staff per doctor.

Physicians who have adopted this approach–which Cherewatenko developed in the late 1990s as “SimpleCare”–have been able to lower their fees by about 30 percent while remaining or becoming profitable. They also find they can devote more time to caring for patients, Cherewatenko said, without fear of running afoul of government regulations. (See “The SimpleCare Story,” Health Care News, February 2002.)

Greg Scandlen of the Galen Institute explained how America’s current health care financing system–which relies on employer-based insurance and government programs to cover most health care spending–emerged. “Designed decades ago,” said Scandlen, “it still assumes all customers are supported by married men who spend a lifetime with the same company and retire on Medicare. This arrangement forces consumers to accept employers and government as their health insurance agents by providing prepaid health care. Having insurers pay for all care invariably leads to excess consumption.”

That excess consumption, Scandlen said, has resulted in rationing by third-party payers–HMOs that discourage patients from seeing specialists, for example. Consumer discontent with these restrictions on choice has led to calls for government intervention, which only tends to make things worse. Experiments with limiting private-sector insurance to large and unexpected expenses while giving individuals cash funds to cover predictable expenses, by contrast, have increased consumer satisfaction and lowered costs.

Robert Moffit of The Heritage Foundation explained how health insurance markets in the United States are distorted by the preferential treatment given to employer-provided health insurance in the federal tax code. He also encouraged state officials to consider premium subsidies rather than direct provision of health care services. Said Moffit, “In Texas, a statewide study found roughly $1,000 a person was already being spent on care for the uninsured [through government programs], an amount that would go a long way towards supplementing premiums for private insurance.”

According to Jim Frogue, director of the Health and Human Services Task Force of the American Legislative Exchange Council, Medicaid is the ultimate example of wasteful spending. Because patients are not expected to share the financial burden, and because states focus on increasing their federal matching funds, Medicaid reform discussions fall into two camps: “The magicians,” Frogue said, “who claim another oversight agency will cure the program’s problems; and the spendthrifts, who say more money is the answer. The result is a sterile debate over eligibility, covered benefits, reimbursement, and federal spending.”

Linda Gorman of the Independence Institute described how oversight agencies in state prescription drug formulary programs routinely deprive Medicaid patients of needed prescription drugs. “The answer,” Gorman suggested, “is to shift Medicaid towards supplementing incomes with cash, allowing people to shop for necessary care. Florida’s cash and counseling program, in which the disabled elderly receive cash that they use to buy their own care, has high consumer satisfaction, 3,000 participants, and a huge waiting list.”

Julie Reiskin of the Colorado Cross Disabilities Coalition explained cash and counseling works by circumventing the Medicaid regulatory barriers. Why, she asked, “does Medicaid require that a quadriplegic’s insulin be injected by a nurse? Why can’t a far less expensive aide be trained to do it?”

Pathways to Reform

Speakers in the second session gave blueprints for reviving moribund state health insurance markets.

Doug Dean, commissioner of the Colorado Division of Insurance, described his agency as a consumer protection agency.

Merrill Matthews of the Council for Affordable Health Insurance emphasized markets require free movement in and out of an industry free of price controls.

Lee Tooman of Golden Rule Insurance Company and Jamie Scholl of the National Association of Health Underwriters explained how coverage mandates drive reputable insurers out of the market. Colorado now has 13 insurers in the small group market. In 1994–before community rating and a mandate to define a small group as 1 to 50 employees–it had 83.

Tooman and Scholl both explained how community rating mandates require insurers to charge sick and healthy people the same price for insurance, making insurance an expensive deal for the healthy. Eventually they stop buying and premiums skyrocket. The solution, they explained, is to allow medical underwriting, allow insurers to offer mandate-free policies, allow consumers to buy health insurance from insurers in other states, and remove the regulations preventing insurers from offering innovative products.

The Independence Institute’s Gorman told Health Care News the conference generated a positive response not only from participants, but from interested persons unable to attend as well.

“After the conference, the Independence Institute received dozens of requests for more information,” she noted. Moreover, “several private groups are mounting efforts to bring patient-centered health care reforms closer to reality.”

Conrad F. Meier is managing editor of Health Care News. His email address is [email protected]. Linda Gorman, director of the Independence Institute’s Health Care Policy Center, and John Caldara, president of the Independence Institute, provided information for this report. For additional information, contact Gorman at [email protected].