Building Alternatives to Managed Care: Benefit Designs and Payer Plans, Ethics and Values

Karen Shore, Ph.D.

Introduction

Many clinicians and consumers of care have come to believe that managed care (MC) must be replaced by a more pro-patient, pro-quality system. It is time to call for a national public debate on health care financing and a period of experimentation with alternatives to MC.

But what should the alternatives look like? It is not enough to say that you don't want MC. Those who want to replace MC and to influence or shape the future of our health insurance system must consider and understand some crucial concepts.

First, we must determine the desired underlying ethics and values before designing a new plan and then structure the plan accordingly. Incorporated in this is a need to determine the balance of consumer freedom vs. consumer responsibility that will be built into the system. We must decide how we will safeguard what I call the consumer's "three fundamental freedoms": choice, privacy, and decision-making power. Second, to construct a health insurance plan, we must understand the concepts of benefit designs and payer plans, which comprise the basic structures of a health plan.

Ethics and Values in Health Care

How do we construct a replacement for MC? I begin from the premise that the success of a health plan or insurance system will depend upon the values and ethical systems upon which it is based, for the underlying values and ethics will determine the plan's goals, its cost-containment mechanisms, and other policies.

Professional ethics and the Ethic of Caring vs. business ethics. Professional ethics and values place the primary focus on the patient's well-being. The primary activity of professionals is to help patients achieve and/or maintain the highest level of functioning and well-being possible. Patients have every right to expect that a clinician's only loyalty is to them. As clinicians and caretakers, it is our obligation to do what is best for patients, to protect their privacy and dignity, be honest with them, and to subordinate our needs to theirs if there is a conflict of interest. Many clinicians experience their work as a human endeavor and calling, not as a business, and the relationship of clinician to patient as more a covenant, a bond of care-seeking and care-giving based on trust.

Health care can also be built on an "Ethic of Caring" (Noddings; 1984) in which relatedness and concern are primary. Empathy guides treatment decisions as much as do logic and reason. An Ethic of Caring demands that those in decision-making roles be people who look at patients as people who could be their own mother, father, sister, brother, or child. Under an Ethic of Caring, right and wrong is based on the simple tenet that it is wrong to cause pain needlessly.

Right now, the business community of employers and insurers control health care. In business, the primary focus and activity is commerce and the accumulation of money. It is considered efficient to standardize practices in order to control large groups of people from the top down. Business favors the competition rather than cooperation, but competition can too easily lead to greed, cutting corners, and dishonesty. The MC industry also favors the values of industrialization, which demands cheap labor and the assembly-line production of units of service. Consumers buy from a retailer or wholesaler rather than directly from the person who makes the product. The individualism of both consumers and workers must be suppressed in order to have a compliant workforce and a population willing to accept a mass-produced product that is sold through slogans and promotional materials, while the true operating guidelines are considered "proprietary" information and are hidden from the public.

We foolishly keep thinking that we can demand or legislate that corporations allow clinicians to put their patients first. We keep wanting to make the MC industry feel a social responsiblity toward the community of human beings. Economist Milton Friedman (1988) said that the only social responsibility of business is to use its resources to increase profits. To think that MC companies will ever feel a social responsibility toward quality or patients is pure folly.

Freedom vs. Responsibility. In light of MC, we can see that a major question is: What balance of consumer freedom and responsibility do we want to build into our health care system? By responsibility, I mean: Who is going to pay the premiums? Who is going to pay the claims? Who will be responsible for spending wisely and not wastefully? Will we devise a system that will protect the consumer's "three fundamental freedoms" of choice, privacy, and decision-making power?

My concern is that too many Americans want freedom with no responsibility. Too many want someone else to be responsible for costs, and only realize they have given up their freedom when they cannot get what they want or need. We must understand that the more responsibility we give away, the more freedom we give away. If we, as consumers, want employers or the government to pay for health care, we must be aware that we may be sacrificing those three fundamental freedoms. Consumer freedom can only be protected by a measure of financial repsonsibility on the part of the patient.

The goal of our nation's health care system should be to ensure that the United States is a mentally and physically healthy nation. We need to demand that our system of health insurance system be designed to support professional ethics and values and that it be designed by people who value and live by an Ethic of Caring. Michael Lerner (1995), editor of Tikkun magazine, called for a "bottom line of people" that would "judge efficiency and productivity by the degree to which legislation and organizations produce ethical, spiritual, and sensitive people who can sustain relationships and who are loving and caring."

Structuring Health Insurance Plans: Benefit Designs and Payer Plans

Several different insurance systems could be used instead of MC. There are two basic components of an insurance plan: the benefit design and the payer plan.

The "benefit design" speaks to how the benefits are written: which services are available and covered; how one accesses care; which clinicians and facilities will be reimbursable; who sets fees; who makes treatment decisions; what the cost-containment mechanisms are to be, etc. Examples of benefit designs are: fee-for-service (FFS); "Managed Cooperation," which is a FFS design with a fixed-dollar insurer reimbursement and sliding-scale co-pays (i.e., co-pays are not a percentage of the fee); Medical Savings Accounts (MSAs); and MC designs.

The "payer plan" refers to who pays the premiums and claims. Examples of different payer plans are corporate for-profit and not-for-profit insurers; employer self-insurers; government insurers; and consumer cooperatives. A "single payer" (SP) plan has the government as the sole payer for all citizens, though many also allow private insurance policies to supplement or supplant government plans.

If you say you support "SP" plans, understand that you are only addressing who pays. You must also address what the benefit design will look like, or you could end up with a SP managed care plan. If you say you support Medical Savings Accounts, you are only addressing the benefit design. You must also address who the insurer will be, or you could end up with the same greed-driven insurers we have now. If you don't trust either the government or for-profit corporations to serve as insurers, read on for other payer plan ideas. To make very clear why you must advocate for both who the payer will be and what the benefit design will be, I offer a SP plan almost everyone would hate: The Marquis de Sade Single Payer Plan.

I am the Marquis, and I have just taken over the United States. My health care system will be efficient and cost-effective and will operate according to my ethical principles. My government will be the only payer. No citizen will be allowed to pay privately out of pocket for any services.

All clinicians will take an oath of loyalty to me and my government, and all will be trained at a Marquis de Sade Medical School or Graduate School. Any trainee who is outspoken against me or my health care philosophy will not obtain his/her professional degree or license. Any clinician who criticizes me, my government, or my health plan will lose his/her license to practice.

Citizens may choose any licensed clinician. I will set fees based upon my own secret formulae. All treatments and services must be pre-approved by my Quality Care Case Managers. All appeals of denials of care will go through my Health Care Patient Advocates. If after an appeal care is still denied, and the patient or clinician insists that the treatment is still necessary, either can appeal to me personally. All Quality Care Case Managers and all Health Care Patient Advocates will be appointed by me.

Babies and children and young, strong, and intelligent but impressionable teens and adults will get excellent care. Teens and adults who are neither highly intelligent, particularly young or strong, nor particularly easy to mold will get very good care, unless their care becomes too expensive. Intelligent people who love people and freedom will be denied life-saving treatment. These people can be identified by a special coding on their Health Care Freedom Card, which is connected to my national data bank.

Well....I think you get the point. The Marquis de Sade Single Payer plan is, indeed, a Single Payer plan, but I don't think you'd like its benefit design. To advocate for an alternative to MC, you must consider and specify both the benefit design and the payer plan.

Benefit Designs. There are several different types of benefit designs. A key component of a benefit design is the cost-containment mechanism. Most important is whether the cost-containment mechanisms are external to the patient or internal to the patient. Mechanisms that are external to the patient relieve the patient of a good deal of responsibility by controlling decision-making, sacrificing the consumer's three fundamental freedoms of choice, privacy, and decision-making power. Cost-containment mechanisms that are internal to the patient create incentives that lead patients to use funds wisely while maximizing the consumer's three fundamental freedoms. The balance of freedom and responsibility is an unavoidable challenge.

FFS is a benefit design in which the patient is generally free to choose their clinicians and facilities. The clinician and patient together decide what treatments to use. Costs are contained by deductibles and co-pays, which are internal to the patient in that the costs influence decisions, but no one is making decisions for the patient. A disadvantage is that co-pays and deductibles may be too low to induce a cost-consciousness in many patients, while they may be too high for those with little income, preventing access to needed care.

To address this disadvantage of co-pays, I have suggested an alternative to traditional FFS plans called "Managed Cooperation." This plan proposes a fixed-dollar insurer reimbursement, set below a standard fee, paired with a sliding scale co-pay for expenses above the deductible, which could also be set on a sliding scale. All citizens would be expected to pay something at the time of service, no matter how little. The sliding-scale co-payment creates incentives to contain costs that are internal to the patient, protecting the three fundamental freedoms, yet making treatment affordable to all.

To further contain costs and to prevent patients and insurers from being over-charged, yet to allow clinicians the opportunity to be paid commensurate with their level of training, talent, and experience, Regional Boards would recommend, but not mandate, appropriate fee ranges and insurer reimbursements for each service. A system of sliding scale co-pays, negotiated by clinicians and consumers directly, may be cumbersome for some clinicians, but it seems far preferable to mandated fees, dis-incentives for advanced training, and MC cost-containment mechanisms. The American Mental Health Alliance (617-536-7171), the alternative mental health plan created by Peter Gumpert, Ph.D., plans to use try modifications of the "Managed Cooperation" benefit design.

The Medical Savings Account is a benefit design that involves a high-deductible catastrophic policy paired with a tax-free savings account for medical expenses below the deductible. Contributions to the MSA are made by the consumer, the government, and/or an employer. The MSA can be used for any treatment recognized by the IRS as a medical expense. There is usually a gap of about $500-1000 between the MSA and the catastrophic plan's deductible. Any MSA money not used by the end of the year may be rolled over to the following year. Some plans allow withdrawals for non-medical purposes, in which case the money becomes taxable. Some plans add a 10% or 15% surcharge in order to discourage non-medical withdrawals.

MSAs are an effort to preserve consumer choice, privacy and decision-making power by instilling cost-consciousness in patients, rather than by instituting controls external to the patient. The money below the deductible is the consumer's money, and people seem to be more careful "shoppers" when they spend their own money rather than that of a third party. Payments below the deductible are made with debit cards or checks from the MSA. Because no claims are filed below the deductible, and most Americans would spend less than the deductible in any given year, there is a large savings in administrative costs.

To be of greatest advantage, MSA money should be exempt from federal and state taxes upon deposit and withdrawal for medical purposes. So far, about 30 states have enacted legislation exempting this money from taxes, and the Kennedy-Kassebaum (K-K) bill enabled 750,000 MSAs to be opened on a federally tax-free basis. Recent legislation will allow a number of Medicare MSAs.

One common argument against MSAs is that they will only be good for the healthy, wealthy, and young. Supporters say that experience so far shows a large percentage of modest- and low-income workers choosing MSAs when offered them. If withdrawals for non-medical purposes were prohibited or limited, MSAs could not be a vehicle for the wealthy to simply accumulate more wealth. Critics argue that the disabled and chronically ill will not be able to save money from year to year. This is likely true, though they would have at least as good coverage as under FFS plans, and they may prefer the freedom of choice possible in MSAs to the limits of MC.

One of the most hotly argued concerns is that MSAs will drain money out of the "traditional risk pool." However, this argument is being mis-applied to MSAs alone, most likely for political reasons. The risk pools have already been depleted by FFS and MC designs implemented by employers who self-insure and insurers who cherry-pick the healthy, leaving traditional indemnity insurance unaffordable for most Americans. Also, keep in mind that the catastrophic policy above an MSA could depend on a large risk pool. An MSA used in a single payer plan would create one large risk pool for the catastrophic insurance. Depletion of the risk pool is the fault of an insurance system that allows cherry-picking and small private insurance pools, and is not the fault of any particular benefit design.

The argument that the poor would not be able to afford to put money into an MSA is a bit naive, I think, because the poor and the disabled were never able to afford health insurance. We gave it to them in the form of Medicaid. If MSAs were used widely, we would need to put money into an MSA for the poor, possibly allowing them to keep a portion of any unused money as an incentive for them to spend prudently. Some planners are currently designing MSAs for the Medicaid population.

There is one important advantage to MSAs that no one is yet addressing. Saving for one's own future is a good value - good for individuals, for families, and for society. Tax-free savings seems especially important for those with modest incomes, for it is they who will have to dip into public funds if they haven't saved money. The more people save for their own futures, the less we need to strain our public funds. Today, a major problem for Medicare is that the baby-boomers will soon be getting old, and the generation after them is smaller. The boomer's children will not likely be able to support their parents' Medicare program unless they are a heavily taxed generation. Wouldn't it have been a good idea if thirty years ago the government had allowed the baby boomers to begin putting money aside tax-free for their own later health care needs? A Medical Savings Account can be a way for an individual, a family, and a generation, to save its own money for its own future needs.

Saving for the future and the preservation of the consumer's three fundamental freedoms, are the main reasons I find MSAs an attractive concept. I have no desire, though, to see for-profit corporations make a windfall with them. I prefer to see any benefit design administered through not-for-profit payers. Also, MSAs, like FFS or MC plans, can be designed to prohibit or impede needed care. Like other benefit designs, how the MSA benefits are written and what regulations are passed will still be crucial to the protection of quality, access, and consumer freedom.

MC is a benefit design which contains costs by limiting the patient's three fundamental freedoms of choice, privacy, and decision-making power. The cost-containment mechanisms are external to the patient in the form of gatekeepers, UR, case managers, capitation, case rates, and limited "provider" panels. MC also requires a tremendous and costly bureaucracy, and for-profit MC takes an obscene amount of money out of patient care and gives it to shareholders, corporate profit, and executive income. Most of you know that I and members of the National Coalition of Mental Health Professionals and Consumers consider MC a form of corporate dictatorship that is unethical and is damaging to quality care, patients, clinicians, and training.

As you consider a replacement for MC, understand that any of the above benefit designs could likely be used in any of the following payer plans.

Payer Plans. In the U.S., we are most familiar with private corporate insurers, both for-profit and not-for-profit, and with employers who self-insure. The main advantage of corporate insurers is freedom from government control, which many people fear. However, it is obvious that corporate insurers can be abusive to consumers and clinicians. Government can exert some regulation over abusive corporations, but politics too often makes regulation difficult and inadequate. Also, private insurers, especially for-profit insurers, do not necessarily consider quality of care, fairness, excellence in training, or consumer freedom to be high priorities.

Contrary to popular belief, there are ways to guarantee universal coverage in a private insurance system. This can be achieved by an "individual mandate" in which all people must buy health insurance, just as all drivers must buy automobile insurance. The problem of portability can be removed by eliminating employers from the health care system and having private insurance plans owned by individual citizens, with government or charitable support for people with limited incomes.

Another type of payer plan is the use of the government as insurer through taxation, as in Medicare and Medicaid. One of the most obvious possible advantages of government-sponsored SP plans is the elimination of profit-taking. Also, SP plans can most easily provide an equitable, fair system. Many believe that a SP plan will be more likely to value the lives and health of our citizens than would private insurers, though we can see from the "Marquis de Sade SP Plan" that this is not necessarily so. A SP plan also creates one large insurance pool, eliminating competing plans that will "cherry pick" healthy individuals. SP plans can also easily control fees (not necessarily an advantage). Further, insurance is automatically universal and portable, eliminating pre-existing condition limits and automatically making insurance independent of employment.

The disadvantages of a SP plan are not always so obvious. First, any government plan can decide to contract out services to private MC companies and leave no alternative for either patients or clinicians. Second, the government could decide to manage the benefits by using government employees as gatekeepers and case reviewers. They can also ration or limit care through capitation and case rates. In short, SP plans can easily become MC run by the government. People in Canada, Australia, New Zealand, South Africa, and countries in Europe report that American MCCs are trying to contract for services in their government plans.

A SP plan can also outlaw private contracting, so that all services must go through the government plan. What SP advocates don't usually consider is that even in a SP plan, consumers can lose the freedoms of choice, privacy, and decision-making power. Again, benefit design is crucial. Also, because legislating changes in government policies can take tremendous amounts of time, organization, energy, and money, it can be very difficult to change things we don't like in a SP plan.

For those who do not trust either the government or private insurers, there are health care consumer cooperatives that operate as insurers. Like any cooperative, funds come from the members. Government could supplement low-income citizens who wanted to join a cooperative. Members take responsibility for designing and administering the benefits, and beneficiaries have more direct access to the leadership should they have complaints or recommendations. Any surplus at the end of the year is divided evenly amongst the members or re-invested into the benefits. Cooperatives can be set up by any large geographical area or by people related through membership in a large organization.

A most important concept is that any benefit design can likely be fitted into any payer plan. For example, most people think that MSAs and SP plans are mutually exclusive. They are not. We could have MSAs or FFS plans or MC plans or Managed Cooperation designs in SP plans, private insurance plans, or in consumer cooperatives. Many alternatives are possible. We do not have to be "stuck" with MC. Conclusion

The time has come for us to publicly call for an end to MC and to call for a national, public debate on health care financing and a period of experimentation with alternatives to MC. To shape the health care system of the future, we must be informed about all possible alternatives to MC and the various systems of ethics and values that could be used to guide the building of a new insurance and health care system.

Clinicians, including psychologists, must ask their associations to educate them about alternatives to MC in an unbiased way and to advocate publicly for a national debate and a period of experimentation with alternatives.

Our National Coalition of Mental Health Professionals and Consumers (516-424-5232 or toll-free: 1-888-SAY-NO-MC; e-mail at "NCMHPC@aol.com") is not advocating any one alternative over another, as different members favor different solutions. But we all support replacing MC with a pro-patient, pro-quality system.

References

Friedman, Milton. (1988). The social responsibility of business. In J. Callahan (Ed.), Ethical Issues in Professional Life (pp. 349-350). New York: Oxford University Press.

Lerner, Michael. (1995, March 24). The assault on psychotherapy. Paper presented at the Family Therapy Network Symposium, Washington, DC.

Jeff McKee
Saturday, April 25, 1998