[Congressional Record Volume 140, Number 100 (Wednesday, July 27, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: July 27, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                         TRIBUTE TO DAVID JONES

 Mr. McCONNELL. Mr. President, I rise today to recognize a 
brilliant Kentucky businessman. David A. Jones is the chairman and 
chief executive officer of the Louisville-based Humana, Inc., and the 
chairman of the Healthcare Leadership Council.
  David A. Jones is a Yale-educated lawyer who started out practicing 
law in Louisville, KY. He became involved in healthcare in 1961 when a 
friend told him about making some extra money by investing in a nursing 
home. He decided to give it a try and what started out as a bit of 
extra money became his career. The nursing home venture grew into 
Humana, Inc., the Nation's largest publicly traded health maintenance 
organization [HMO].
  The Healthcare Leadership Council is a nationwide coalition of a 
variety of parties interested in healthcare reform. It includes leaders 
from hospitals; insurance, pharmaceutical, and medical equipment 
companies; and doctors and nurses. Since it was begun in the late 
1980's, the council has worked to find solutions to the healthcare 
problems that we face today and has come up with variety of 
possibilities.
  In a recent column for the Louisville Courier-Journal, David Jones 
outlines the ideas that he has come up with. As we prepare to begin 
debating healthcare reform next week, I believe that every Member of 
this body could benefit from a thorough review of this article. Please 
enter the following article from the Courier-Journal into the Record.
  The article follows:

                         Reforming Health Care


              Humana chief offers his proposals for change

                          (By David A. Jones)

       The writer is chairman and chief executive officer of 
     Humana Inc., the Louisville-based corporation which is the 
     nation's largest publicly-traded Health Maintenance 
     Organization (HMO).
       Health care reform is today a major domestic political 
     issue. The status quo is without a serious defender. That's 
     as it should be. The time has come for fundamental change.
       Democrats and Republicans agree that we have serious 
     problems of (a) rising costs; (b) access, especially by an 
     estimated 37 million uninsured Americans; and (c) anxiety on 
     the part of many workers that they might become uninsured if 
     they lose their job, or change their job after they or a 
     family member become ill.
       But there is some disagreement on what needs to be done to 
     solve the agreed-upon problems.
       This [article] contributes to the debate in three critical 
     ways: It identifies the problems; suggests solutions; and, 
     more important, describes a reasonable way to pay for the 
     solutions.
       Actual and potential problems of access to affordable 
     health care are the visible symptom of the underlying 
     problem, which is rapidly rising costs. If costs were lower, 
     and more easily affordable, we could readily expand coverage 
     to cure the access problem.
       All of us, providers and consumers alike, will have to 
     alter our behavior to a greater or lesser extent if the cost 
     crisis is to be mastered.
       It is now possible to identify the well-intentioned policy 
     choices of the past, whose now visible flaws have led to the 
     present cost crisis.
       Happily, the root causes of our excess cost increases--
     increases greater than those experienced by competing 
     industrialized nations--are both crystal clear and readily 
     correctable, if we can summon the political will to act.
       But that won't be easy, because every dollar of cost in our 
     system is someone else's dollar of revenue, fiercely 
     protected.
       These root causes are two simple, connected historical 
     events. No congressional votes were taken, and participants 
     did not even realize that they were making policy choices of 
     great magnitude.
       The first event occurred in World War II, when wages were 
     frozen by the Office of Price Stabilization. Labor-short 
     firms began offering health insurance as a fringe benefit not 
     prohibited by the wage freeze.
       The second event occurred just after WW II, when the 
     Internal Revenue Service ruled that such employer-provided 
     health insurance would, without limit, be free of federal 
     income and Social Security tax.
       Thus, it is pure accident that most of us receive our 
     health insurance through employment, and stand to lose it if 
     we lose or change our jobs. Our other insurance, such as 
     life, homeowners, and automobile, are totally unaffected by 
     such change.
       Such policy is as irrational as it is accidental. It's 
     really policy by default--leading to enormous ``hidden'' cost 
     burdens within our health care system.
       The tax subsidy created by the IRS ruling largely benefits 
     the well-to-do, and amounted to about $75 billion in 1991 
     ($66.6 billion federal and $8.3 billion state), and the 
     federal portion is now estimated at about $92 billion for 
     1993. This is about six times the estimated cost to provide 
     Medicaid coverage to the approximately 12 million Americans 
     who live below the poverty line, but are still not covered by 
     Medicaid. Moreover, 26 percent of this tax subsidy goes to 
     families with annual incomes in excess of $75,000, while only 
     6 percent goes to those with incomes under $20,000, so it is 
     deeply regressive.
       And this gigantic subsidy disguises, by seeming to 
     minimize, the actual cost of health care services, thereby 
     artificially and greatly stimulating demand.
       The third-party payment system created by employer-paid 
     health insurance coverage is an even larger stimulator of 
     demand and excess cost. When a patient and a health care 
     provider negotiate, neither is concerned with costs, which 
     are to be paid by some vague third party--perhaps an 
     employer, an insurance company, or government. So they 
     concentrate only on benefits.
       The provider is thus often able to define quantity and 
     price of chosen services, while the patient, filled with 
     anxiety and lacking experties, normally accepts the 
     provider's recommendation.
       Interestingly, the patient is largely unaware that 
     proffered services, for example, diagnostic imaging, may 
     actually be owned by the referring provider. In that case, as 
     reported in the Dec. 6, 1990, New England Journal of 
     Medicine, the cost of such ``captive'' imaging services is 
     4.4 to 7.5 times greater than if the referral is to a 
     neutral, non-owned site.
       Thus, to recapitulate, these two factors constitute the 
     basic, root causes of the excess costs of our health care 
     system:
       1. A third-party payment system which allows interested 
     providers to define the scope, price and source of 
     recommended services to an anxious, dependent, somewhat 
     unknowledgeable patient at the expense of an unrepresented 
     third party.
       2. And a $75 billion tax subsidy which stimulates excess 
     demand by seemingly lowering health care prices.
       Armed with this knowledge, and several simple but critical 
     reforms, we can formulate a strategy to make affordable 
     health insurance available to the three main groups now 
     lacking such coverage. They are:
       1. Middle-class Americans who work for themselves or in a 
     small group where someone has a family member with a pre-
     existing medical condition, which prevents their purchase of 
     reasonably priced health insurance.
       These individuals can usually afford to pay for an average-
     priced policy, but when coverage is available at all, it 
     costs $500 to $1,000 more per person per month.
       The solution to this problem, with which most Members of 
     Congress agree (and which a number of States have already 
     embraced), is insurance reform, which requires: (A) 
     Guaranteed issue, but with a six-month waiting period for 
     pre-existing conditions. Otherwise, no one would buy 
     insurance until after becoming ill. (B) Guaranteed renewal, 
     (C) Portability. (D) No underwriting based on health or 
     employment status.
       In addition to these long overdue insurance reforms, there 
     is a need to create a vehicle that enables individuals and 
     small groups to join together in groups large enough to 
     attract highly competitive bids from many insurers.
       Voluntary purchasing cooperatives, whose functions are 
     limited to obtaining and distributing information on price 
     and quality, and the matching of buyers and sellers, 
     admirably fill the role of enabling individuals and small 
     groups to buy at the same price as large groups.
       2. The poor and near-poor--even with insurance reform and 
     purchasing co-ops to help make insurance affordable, there 
     are among us many who simply can't afford the premiums.
       For those who live below the poverty line, yet are not 
     covered by Medicaid, a full subsidy will be needed. Income-
     based, sliding-scale subsidies will also be needed for the 
     near-poor, perhaps up to 200 percent or 250 percent of the 
     poverty level.
       While all agree that our most disadvantaged citizens need 
     access to primary and preventive services, rather than having 
     to depend on expensive and overcrowded emergency rooms, there 
     is little agreement on how to pay for such benefits, which 
     are likely to be phased in over several years to ease the 
     pain of needed taxes.
       3. Healthy, non-poor employees who do not have health 
     insurance.
       The earlier-mentioned voluntary purchasing co-ops will 
     enable these individuals to choose among many plans and to 
     buy at good prices.
       Tax laws must be amended, however, so that individual 
     purchasers of health insurance, who now receive only 25 
     percent deductibility, receive the same tax subsidy as do 
     employees.
       The federal Medicare program and the joint federal-state 
     Medicaid program are the two largest contributors to the 
     growth of the federal deficit, and thus primarily responsible 
     for our inability to expand coverage to the poor and near-
     poor.
       President Clinton's plan and most congressional plans 
     contemplate the mainstreaming of Medicaid by allowing and 
     requiring beneficiaries to purchase private coverage through 
     cooperatives. Since the Medicaid program is far more 
     expensive than private coverage, significant savings are 
     likely and, if achieved, can be used to expand the number of 
     poor people covered.
       Moreover, there will be greatly enhanced dignity for 
     beneficiaries, who will receive their care from the same 
     doctors and hospitals used by working Americans.
       Medicare, an even larger contributor to the growth of 
     budget deficits, has been exempted from the market-based 
     reforms of the Clinton plan, because of the feared political 
     clout of these beneficiaries.
       However, no meaningful cost containment can occur unless 
     and until Medicare beneficiaries are allowed and required to 
     select among many competitive bids for covered services, and 
     to pay the extra cost if they select a more expensive plan.
       The insurance companies and managed care plans that submit 
     bids serve as surrogate purchasers of health care services 
     for consumers and provide the necessary counterweight to the 
     third-party payment system, which is largely responsible for 
     excess costs in our system.
       Let me offer a simple example. No one of us can negotiate 
     individually with Merck over the price of a prescription, but 
     large systems like Kaiser, Humana and The Harvard Community 
     Health Plan can and do negotiate substantial discounts, which 
     result in lower competitive bids.
       A third significant cost generator is our medical 
     malpractice-tort system, which turns unfortunate medical 
     outcomes into a high stakes lottery. Fear of malpractice 
     litigation explains and legitimizes significant, expensive 
     overuse of medical resources. Reform, along the lines enacted 
     years ago in Indiana, is needed throughout the country.
       In conclusion, I offer a simple and effective, if 
     controversial way to help pay for coverage of the poor and 
     near-poor, while minimizing incentives for overconsumption of 
     health care services for all.
       Tax subsidies should be limited to the average price of 
     several of the most popular health plans within a region. 
     Anyone choosing to spend more on coverage would be free to do 
     so, but no tax deductibility or subsidy would be allowed for 
     the excess cost.
       This will reduce the overall tax subsidy, thereby providing 
     significant funds for income-based subsidies, which will help 
     the poor and near-poor gain access to coverage while 
     preserving a full tax subsidy for all who choose to purchase 
     cost-effective health plans.

                          ____________________