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Regulation and Compliance > Federal Regulation

One Way To Cover The Uninsured? Trim Health Services Regulation Costs

By Steven Brostoff

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Washington

The net burden of health services regulation likely exceeds the annual cost of covering all 44 million uninsured Americans, says a health care researcher.

“A legitimate policy question is whether the benefits of regulation outweigh the benefits of coverage for all Americans,” says Christopher J. Conover, assistant research professor of public policy studies at Duke University.

Noting recent Institute of Medicine findings that 18,000 uninsured people die every year due to a lack of coverage, Conover asks “is maintaining our current regime of health regulation worth letting that continue?”

Conover spoke at a hearing on the problems of the uninsured and the factors driving up the cost of health insurance sponsored by the Senate Committee on Health, Education, Labor and Pensions.

Conover says his analysis is based on more than 2 years of research conducted in part under a contract with the Department of Health and Human Services.

The research, he says, examined the literature for nearly 50 different kinds of federal and state health services regulations, including regulation of health facilities, health professionals, health insurance, pharmaceuticals and medical devices, and the medical tort system.

The regulations, Conover says, covered the gamut from mandated health benefits to state certificate of need requirements for hospitals and nursing homes.

Then, he says, his research systematically tallied both the benefits and costs associated with such regulations and found that the expected costs of the regulations came to nearly $335 billion in 2002.

The estimate of benefits, Conover says, came to about $207 billion. This leaves a net cost of $128 billion.

Conover says 3 areas account for the lions share of this net burden, namely, the tort system, Food and Drug Administration regulation and health facilities regulation.

The medical tort system, he says, including litigation costs, court expenses and defensive medicine, totals $81 billion. FDA regulation, he says, adds another $42 billion in costs while health facility regulation adds $29 billion.

The net cost of regulation borne by the health industry is 6.4%, he says, meaning that health expenditures, and health insurance premiums, are at least that much higher than they would be absent regulation.

This increased cost, Conover says, implies a 2.2% reduction in demand for coverage, translating into nearly 5 million uninsured whose plight might be attributed to excess regulatory costs.

However, Conover says, there is another way to look at this burden.

Researchers have estimated that it would cost betweeen $34 billion and $69 billion in added health spending to cover all the nations uninsured, he says.

Thus, he says, the potential opportunity costs of this regulatory burden are very clear.

Eliminating the regulatory burden, he says, could cover the cost of the uninsured several times over.

Conover urges the nations policymakers to consider this seriously as it wrestles with the problem of the uninsured.

Karen Davis, president of the New York-based Commonwealth Fund, also cites unnecessary costs as a major factor in the high rate of uninsurance.

“We can no longer afford or tolerate wasteful spending on care that does not benefit patients, the duplication of expensive procedures, medical errors or the high administrative costs incurred by the nations insurers and providers,” she says.

“Real solutions,” Davis says, “should directly target these sources of unacceptably high costs, not simply shift costs from employers to workers or from government to the beneficiaries of public programs.”

Davis says consumer-driven health care, which she describes as the major private-sector strategy for addressing rising costs, is unlikely to address the fundamental causes.

Indeed, she says, it is likely to have adverse consequences for patients.

For one thing, she says, consumer-driven health care contributes to excessive financial burdens on patients, particularly lower-income and sicker patients.

“If all Americans had a $1,000 deductible plan, one-third would spend more than 10% of their income on health care if they were hospitalized, with even higher rates at the lowest end of the income scale,” Davis says.

In addtion, she says, patient cost-sharing is a blunt instrument for reducing utilization of services.

But studies have shown, Davis says, that drug-tiering and higher co-payments are leading patients to skip filling essential prescriptions, increasing adverse medical events and raising emergency room use.

There are, she says, better alternatives than shifting costs to patients.

Costs are higher in the U.S. than in other countries because Americans pay higher prices for the same services. This is because administrative costs are higher and physicians prescribed specialized services that are not clinically justified.

“If we as a nation were to adopt fundamental reformssuch as an integrated public-private strategy to purchase health services efficiently, demand quality performance and streamline administrative costssubstantial savings could be achieved,” Davis says.

Reproduced from National Underwriter Life & Health/Financial Services Edition, January 30, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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