[Congressional Record Volume 147, Number 24 (Tuesday, February 27, 2001)]
[Extensions of Remarks]
[Pages E226-E227]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

                        BLAME CONGRESS FOR HMO'S


                             HON. RON PAUL

                                of texas

                    in the house of representatives

                       Tuesday, February 27, 2001

  Mr. PAUL. Mr. Speaker, I highly recommend the attached article, 
``Blame Congress for HMOs'' by Twila Brase, a registered nurse and 
President of the Citizens' Council on Health Care, to my colleagues. 
Ms. Brase demolishes the myth that Health Maintenance Organizations 
(HMOs), whose power to deny Americans the health care of their choice 
has been the subject of much concern, are the result of an unregulated 
free-market. Instead, Ms. Brase reveals how HMOs were fostered on the 
American people by the federal government for the express purpose of 
rationing care.
  The story behind the creation of the HMOs is a classic illustration 
of how the unintended consequences of government policies provide a 
justification for further expansions of government power. During the 
early seventies, Congress embraced HMOs in order to address concerns 
about rapidly escalating health care costs. However, it was Congress 
which had caused health care costs to spiral by removing control over 
the health care dollar from consumers and thus eliminating any 
incentive for consumers to pay attention to costs when selecting health 
care. Because the consumer had the incentive to control health care 
cost stripped away, and because politicians where unwilling to either 
give up power by giving individuals control over their health care or 
take responsibility for rationing care, a third way to control costs 
had to be created. Thus, the Nixon Administration, working with 
advocates of nationalized medicine, crafted legislation providing 
federal subsidies to HMOs, preempting state laws forbidding physicians 
to sign contracts to deny care to their patients, and mandating that 
health plans offer an HMO option in addition to traditional fee-for-
service coverage. Federal subsidies, preemption of state law, and 
mandates on private business hardly sounds like the workings of the 
free market. Instead, HMOs are the result of the same Nixon-era 
corporatist, Big Government mindset that produced wage-and-price 
  Mr. Speaker, in reading this article, I am sure many of my colleagues 
will think it ironic that many of the supporters of Nixon's plan to 
foist HMOs on the American public are today promoting the so-called 
``patients' rights'' legislation which attempts to deal with the 
problem of the HMOs by imposing new federal mandates on the private 
sector. However, this is not really surprising because both the 
legislation creating HMOs and the Patients' Bill of Rights reflect the 
belief that individuals are incapable of providing for their own health 
care needs in the free market, and therefore government must control 
health care. The only real difference between our system of medicine 
and the Canadian ``single payer'' system is that in America, Congress 
contracted out the job of rationing health care resources to the HMOs.
  As Ms. Brase, points out, so-called ``patients' rights'' legislation 
will only further empower federal bureaucrats to make health care 
decisions for individuals and entrench the current government-HMO 
complex. Furthermore, because the Patient's Bill of Rights will 
increase health care costs, thus increasing the number of Americans 
without health insurance, it will result in pleas for yet another 
government intervention in the health care market!
  The only true solution to the health care problems is to truly allow 
the private sector to work by restoring control of the health care 
dollar to the individual through Medical Savings Accounts (MSAs) and 
large tax credits. In the Medicare program, seniors should not be 
herded into HMOs but instead should receive increased ability to use 
Medicare MSAs, which give them control over their health care dollars. 
Of course, the limits on private contracting in the Medicare program 
should be lifted immediately.
  In conclusion, Mr. Speaker, I hope all my colleagues will read this 
article and take its lesson to heart. Government-managed care, whether 
of the socialist or corporatist variety, is doomed to failure. Congress 
must instead restore a true free-market in health care if we are 
serious about creating conditions under which individuals can receive 
quality care free of unnecessary interference from third-parties and 
central planners.

                 [From the Ideas On Liberty, Feb. 2001]

                        Blame Congress for HMOs

                            (By Twila Brase)

       Only 27 years ago, congressional Republicans and Democrats 
     agreed that American patients should gently but firmly be 
     forced into managed care. That patients do not know this fact 
     is evidenced by public outrage directed at health maintenance 
     organizations (HMOs) instead of Congress.
       Although members of Congress have managed to keep the 
     public in the dark by joining in the clamor against HMOs, 
     legislative history puts the responsibility and blame 
     squarely in their collective lap.
       The proliferation of managed-care organizations (MCOs) in 
     general, and HMOs in particular, resulted from the 1965 
     enactment of Medicare for the elderly and Medicaid for the 
     poor. Literally overnight, on July 1, 1966, millions of 
     Americans lost all financial responsibility for their health-
     care decisions.
       Offering ``free care'' led to predictable results. Because 
     Congress placed no restrictions on benefits and removed all 
     sense of cost-consciousness, health-care use and medical 
     costs skyrocketed. Congressional testimony reveals that 
     between 1969 and 1971, physician fees increased 7 percent and 
     hospital charges jumped 13 percent, while the Consumer Price 
     Index rose only 5.3 percent. The nation's health-care bill, 
     which was only $39 billion in 1965, increased to $75 billion 
     in 1971. Patients had found the fount of unlimited care, and 
     doctors and hospitals had discovered a pot of gold.
       This stampede to the doctor's office, through the U.S. 
     Treasury, sent Congress into a panic. It had unlocked the 
     health-care appetite of millions, and the results were 
     disastrous. While fiscal prudence demanded a hasty retreat, 
     Congress opted instead for deception.
       Limited by a noninterference promise attached to Medicare 
     law--enacted in response to concerns that government health 
     care would permit rationing--Congress and federal officials 
     had to be creative. Although Medicare officials could not 
     deny services outright, they could shift financial risk to 
     doctors and hospitals, thereby influencing decision-making at 
     the bedside.
       Beginning in 1971, Congress began to restrict 
     reimbursements. They authorized the economic stabilization 
     program to limit price increases; the Relative Value Resource 
     Based System (RVRBS) to cut physician payments; Diagnostic-
     Related Groups (DRGs) to limit hospitals payments; and most 
     recently, the Prospective Payment System (PPS) to offer fixed 
     prepayments to hospitals, nursing homes, and home health 
     agencies for anticipated services regardless of costs 
     incurred. In effect, Congress initiated managed care.

                  National Health-Care Agenda Advances

       Advocates of universal coverage saw this financial crisis 
     as an opportunity to advance
       Senator Edward M. Kennedy, a longtime advocate of national 
     health care, proceeded to hold three months of extensive 
     hearings in 1971 on what was termed the ``Health Care Crisis 
     in America.'' Following these hearings, he held a series of 
     hearing ``on the whole question of HMO's.''
       Introducing the HMO hearings, Kennedy said, ``We need 
     legislation which reorganizes the system to guarantee a 
     sufficient volume of high quality medical care, distributed 
     equitably across the country and available at reasonable cost 
     to every American. It is going to take a drastic overhaul of 
     our entire way of doing business in the health-care field in 
     order to solve the financing and organizational aspects of 
     our health crisis. One aspect of that solution is the 
     creation of comprehensive systems of health-care deliver.''
       In 1972, President Richard M. Nixon heralded his desire for 
     the HMO in a speech to Congress: ``the Health Maintenance 
     Organization concept is such a central feature of my National 
     Health Strategy.'' The administration had already authorized, 
     without specific legislative authority, $26 million for 110 
     HMO projects. That same year, the U.S. Senate passed a $5.2 
     billion bill permitting the establishment of HMOs ``to 
     improve the nation's health-care delivery system by 
     encouraging prepaid comprehensive health-care programs.''
       But what the House of Representatives refused to concur, it 
     was left to the 93rd Congress to pass the HMO Act in 1973. 
     Just before a voice vote passed the bill in the House,

[[Page E227]]

     U.S. Representative Harley O. Staggers, Sr., of West Virginia 
     said, ``I rise in support of the conference report which will 
     stimulate development of health maintenance organizations. . 
     . . I think that this new system will be successful and give 
     us exciting and constructive alternatives to our existing 
     programs of delivering better health services to Americans.''
       In the Senate, Kennedy, author of the HMO Act, also 
     encouraged its passage: ``I have strongly advocated passage 
     of legislation to assist the development of health 
     maintenance organizations as a viable and competitive 
     alternative to fee-for-service practice. . . . This bill 
     represents the first initiative by the Federal Government 
     which attempts to come to grips directly with the problems of 
     fragmentation and disorganization in the health care 
     industry. . . . I believe that the HMO is the best idea put 
     forth so far for containing costs and improving the 
     organization and the delivery of health-care services.'' In a 
     roll call vote, only Senator Herman Talmadge voted against 
     the bill.
       On December 29, 1973, President Nixon signed the HMO Act of 
     1973 into law.
       As patients have since discovered, the HMO--staffed by 
     physicians employed by and beholden to corporations--was not 
     much of a Christmas present or an insurance product. It 
     promises coverage but often denies access. The HMO, like 
     other prepaid MCOs, requires enrollees to pay in advance for 
     a long list of routine and major medical benefits, whether 
     the health-care services are needed, wanted, or ever used. 
     The HMOs are then allowed to manage care--without access to 
     dollars and service--through definitions of medical 
     necessity, restrictive drug formularies, and HMO-approved 
     clinical guidelines. As a result, HMOs can keep millions of 
     dollars from premium-paying patients.

                        HMO Barriers Eliminated

       Congress's plan to save its members' political skins and 
     national agendas relied on employer-sponsored coverage and 
     taxpayer subsidies to HMOs. The planners' long-range goal was 
     to place Medicare and Medicaid recipients into managed care 
     where HMO managers, instead of Congress, could ration care 
     and the government's financial liability
       To accomplish this goal, public officials had to ensure 
     that HMOs developed the size and stability necessary to take 
     on the financial risks of capitated government health-care 
     programs. This required that HMOs capture a significant 
     portion of the private insurance market. Once Medicare and 
     Medicaid recipients began to enroll in HMOs, the 
     organizations would have the flexibility to pool their 
     resources, redistribute private premium dollars, and ration 
     care across their patient populations.
       Using the HMO Act of 1973, Congress eliminated three major 
     barriers to HMO growth, as clarified by U.S. Representative 
     Claude Pepper of Florida: ``First, HMO's are expensive to 
     start; second, restrictive State laws often make the 
     operation of HMO's illegal; and, third, HMO's cannot compete 
     effectively in employer health benefit plans with existing 
     private insurance programs. The third factor occurs because 
     HMO premiums are often greater than those for an insurance 
       To bring the privately insured into HMOs, Congress forced 
     employers with 25 or more employees to offer HMOs as an 
     option--a law that remained in effect until 1995. Congress 
     then provided a total of $373 million in federal subsidies to 
     fund planning and startup expenses, and to lower the cost of 
     HMO premiums. This allowed HMOs to undercut the premium 
     prices of their insurance competitors and gain significant 
     market share.
       In addition, the federal law pre-empted state laws, that 
     prohibited physicians from receiving payments for not 
     providing care. In other words, payments to physicians by 
     HMOs for certain behavior (fewer admissions to hospitals, 
     rationing care, prescribing cheaper medicines) were now 
       The combined strategy of subsidies, federal power, and new 
     legal requirements worked like a charm. Employees searching 
     for the lowest priced comprehensive insurance policy flowed 
     into HMOs, bringing their dollars with them. According to the 
     Health Resources Services Administration (HRSA), the 
     percentage of working Americans with private insurance 
     enrolled in managed care rose from 29 percent in 1988 to over 
     50 percent in 1997. In 1999, 181.4 million people were 
     enrolled in managed-care plans.
       Once HMOs were filled with the privately insured, Congress 
     moved to add the publicly subsidized. Medicaid Section 1115 
     waivers allowed states to herd Medicaid recipients into HMOs, 
     and Medicare+Choice was offered to the elderly. By June 1998, 
     over 53 percent of Medicaid recipients were enrolled in 
     managed-care plans, according to HRSA. In addition, about 15 
     percent of the 39 million Medicare recipients were in HMOs in 

                    HMOs Serve Public-Health Agenda

       Despite the public outcry against HMOs, federal support for 
     managed care has not waned. In August 1998, HRSA announced 
     the creation of a Center for Managed Care to provide 
     ``leadership, coordination, and advancement of managed care 
     systems . . . [and to] develop working relationships with the 
     private managed care industry to assure mutual areas of 
       The move to managed care has been strongly supported by 
     public-health officials who anticipate that public-private 
     partnerships will provide funding for public-health 
     infrastructure and initiatives, along with access to the 
     medical records of private patients. The fact that health 
     care is now organized in large groups by companies that hold 
     millions of patient records and control literally hundreds of 
     millions of health-care dollars has allowed unprecedented 
     relationships to form between governments and health plans.
       For example, Minnesota's HMOs, MCOs, and nonprofit insurers 
     are required by law to fund public-health initiatives 
     approved by the Minnesota Department of Health, the state 
     regulator for managed care plans. The Blue Cross-Blue Shield 
     tobacco lawsuit, which brought billions of dollars into state 
     and health-plan coffers, is just one example of the you-
     scratch-my-back-I'll-scratch-yours initiatives. Yet this 
     hidden tax, which further limits funds available for medical 
     care, remains virtually unknown to enrollees.
       Federal officials, eager to keep HMOs in business, have 
     even been willing to violate federal law. In August 1998, a 
     federal court chided the U.S. Department of Health and Human 
     Services for renewing HMO contracts that violate their own 
     Medicare regulations.

                     The Ruse of Patient protection

       Truth be told, HMOs allowed politicians to promise access 
     to comprehensive health-care services without actually 
     delivering them. Because treatment decisions could not be 
     linked directly to Congress, HMOs provided the perfect cover 
     for its plans to contain costs nationwide through health-care 
     rationing. Now that citizens are angry with managed 
     (rationed) care, the responsible parties in Congress, Senator 
     Kennedy in particular, return with legislation ostensibly to 
     protect patients from the HMOs they instituted.
       At worst, such offers are an obfuscation designed to 
     entrench federal control over health care through the HMOs. 
     At best they are deceptive placation. Congress has no desire 
     to eliminate managed care, and federal regulation of HMOs and 
     other managed-care corporations will not protect patients 
     from rationing. Even the U.S. Supreme Court acknowledged in 
     its June 12, 2000, Pegram v. Herdrich decision that to 
     survive financially as Congress intended, HMOs must give 
     physicians incentives to ration treatment.
       Real patient protection flows from patient control. Only 
     when patients hold health-care dollars in their own hands 
     will they experience the protection and power inherent in 
     purchasing their own insurance policies, making cost-
     conscious health-care decisions, and inciting cost-reducing 
     competition for the cash.
       What could be so bad about that? A lot, it seems. Public 
     officials worry privately that patients with power may not 
     choose managed-care plans, eventually destabilizing the HMOs 
     Congress is so dependent on for cost containment and national 
     health-care initiatives. Witness congressional constraints on 
     individually owned, tax-free medical savings accounts and the 
     reluctance to break up employer-sponsored coverage by 
     providing federal tax breaks to individuals. Unless citizens 
     wise up to Congress's unabashed but unadvertised support for 
     managed care, it appears unlikely that real patient power 
     will rise readily to the top of its agenda.