Dealing with the uninsured

After a long day at work in Chapel Hill, Stephanie Grant stretches out on the Indian tapestry-covered, garage-sale couch in her eclectic living room. The concept of rush hour is still something to which she is acclimating herself, helped by a cache of favorite tapes in her car.

The 24-year old redhead graduated from the University of North Carolina at Chapel Hill two years ago with a bachelor's degree in history. Like a number of college graduates, she made the post-graduation pilgrimage to Europe and still fantasizes about living the good life in Prague.

But much to her chagrin, finding a full-time job in the United States was more of a challenge than she had originally imagined. This seems often to be the case for recent college graduates, who decide to defer applying to professional or graduate schools.

A year after wearing a number of hats that did not fit for one reason or another, Grant now is enthusiastically working a "part-time" job as an office manager for a small music marketing firm in Chapel Hill, despite the fact that she often spends up to 35 hours a week in the office. "They do this so they don't have to give you [health] benefits," she says wryly.

Some of Grant's friends have been luckier. "Most of my friends have ended up working for the state as teachers," which means they receive health insurance coverage through the state employees' health plan, she explains.

But Grant says that for many graduates today, the reality is harsh. "Those of us who were liberal arts majors, our plans are up in the air, and we don't have health insurance," she says.

Annually, about 1.4 million North Carolinians lack health insurance because they do not qualify for public aid and cannot get private insurance for various reasons, cost being the most common reason cited. About 61 percent of them are under the age of 35; about 40 percent of the state's uninsured range in age from 18 to 34. Nationally, 55 percent of the estimated 40 million uninsured are adults under the age of 30. In addition, the uninsured are disproportionately non-white.

If Grant would not think twice about buying auto insurance-aside from the fact that it is required by state law-why would she risk not owning health insurance?

"My biggest worry would be some sort of random accident," she says, and pausing adds, "if something happened to me that I had no control over."

Arresting the Robin Hood effect

Control is a key concept for hospitals as well. It is precisely what Duke Hospital, for instance, is losing as the public and private reimbursement systems undergo change. While Republican-proposed cutbacks in public programs like Medicaid (which serves the poor) and Medicare (which serves the blind, disabled and elderly) loom on the horizon, health-care costs continue to rise more rapidly than the middle class's income, causing more and more people to forfeit their coverage.

Soon enough, they end up in emergency rooms because they have no other route to gain access to the health system without paying fees up front. As part of its mission, Duke provides care to these persons, knowing it will not be reimbursed. For 1995, 30 percent of Duke's hospital charges remained uncompensated, a figure that includes losses due to contractual adjustments with insurers.

"Hospitals have historically been able to recover the cost by charging others more," explains William Donelan, the Medical Center's chief financial officer and vice chancellor for administration. This shifting of costs onto the rich, or "cost-shifting," as it is termed, made up about one-third of the hospital bill for a full-paying patient in 1993, according to Blue Cross Blue Shield.

But hospitals like Duke are becoming unable to shift costs because of fiscal pressures from government and managed care insurers to reduce its charges for services.

Says Donelan: "At some point a finite limit to how much charity care we can provide is reached."

Though the surplus revenue from private insurers is steadily diminishing, the hospital has been able to continue providing uncompensated care because of other funding sources.

"[The Hospital has] been able to do reasonably well with investment income," though operating income has dropped considerably, Donelan reports. "We've been riding a bull market. You don't want to rely on investment income as a way of prudently managing hospital [finances]."

He adds: "This is where non-reimbursement is having an effect on hospital income." Which perhaps explains why the Hospital's net income for 1995 was $32.1 million, a little less than half the hospital's peak net income in 1992 of $61.8 million. Part of this decrease is due to a change in accounting standards that all non-profits were required to adopt during the period.

While all hospitals in the state are having to deal with the cost-shift issue, Duke could feel more than just a pinch. "Duke has nobody to turn to. At the same time, Duke is not going to turn away patients," says Paul Vick, director of government relations for the University.

"It's a very big problem," agrees Ralph Snyderman, chancellor for health affairs and chief executive officer of the Duke Health System. "It's a problem that could be a much bigger problem just because of the nature of this institution... We have been akin to a public hospital even though we're a private hospital. We have not turned people away," he says.

"As community hospitals feel the pressures of managed care, they start decreasing their services for expensive kinds of care such as high intensity neo-natal nursery or they limit the number of beds for high intensity, costly services. So when they get full, the patients get transferred to Duke. So our cost of non-reimbursed care has to go up, and we're beginning to see this already," Snyderman explains.

Since 1992, Duke's expenditures for indigent care have increased by nearly 74 percent, while its uncompensated share of Medicaid costs has risen 65 percent. Meanwhile, since 1993, UNC's hospital has decreased its expenditures on the indigent.

At the same time, managed care does not appear to be lowering health-care costs or insuring more people in North Carolina, causing many to ask, "What are we doing?"

Evelyn Hawthorne, director of government relations for the North Carolina Hospital Association, attempts to explain. "Managed care is not something you're either for or against," she says. "It's a market reality, and health-care systems have to be able to deal with the new reality."

As most twenty-somethings know by now, reality can bite. The inability of the uninsured population-young working class adults are among its fastest growing group-to gain proper access to health systems and hospitals' eroding power to shift costs raises serious concerns about managed care and whether Raleigh-Durham-the most competitive managed care market in the state-can sustain a long-standing invisible safety net.

What happened?

Managed care health plans began to proliferate in North Carolina after 1989 in response to the cry for cost containment. The number of state-licensed health maintenance organizations (HMOs) has grown from three in 1989 to 27 as of April, 1996, with another dozen applications pending.

Sensing the dramatic changes to come, Duke Hospital began a major restructuring program in April, 1994 to ensure itself a place in the emerging managed care marketplace. "The way the health-care system is changing, we need to be as cost-effective as we can while continuing to provide superior quality," Michael Israel, chief operating officer of Duke Hospital, told The Chronicle in March 1994.

To that end, the Hospital has downsized its workforce by 1,500 full-time positions, has bought more than 60 local primary care practices and is implementing a plan to reduce the number of hospital beds by 32 percent during the next several years, redirecting those resources toward outpatient surgery and primary care. By altering its facilities to serve outpatient health-care needs, Duke hopes to compete with regional hospitals for a limited pool of insured patients while meeting its commitment to research and education.

Another creative way in which Duke has prepared itself to be competitive in the marketplace is to become a health insurance company itself. Duke, along with New York Life subsidiary Sanus, has formed its own HMO-WellPath Community Health Plans-to compete with other managed care plans in the region and increase its shrinking revenues.

"The feeling, I believe, throughout most of the Medical Center is that we have a real opportunity based on the models that we've developed to become the premier academic health center in the 21st century," said Snyderman at the Board of Trustees' meeting last December.

Snyderman, who during the 1993 health-care debate, supported the principles of choice, universal coverage and local control in cost-effective, quality health care, said that achieving such heights will involve some growing pains and doubt.

"We're going to have to look different, and we're going to have to understand that areas we go into sometimes have risk," he added at the Board meeting.

Gambling on lower health costs

The risk to Duke and the region's uninsured is very real. A study of the effects of California's market changes during the 1980s-changes similar to those being experienced in North Carolina-showed that by the end of the decade, there was a 36 percent reduction in charity care as a percentage of total care provided at not-for-profit hospitals and community hospitals.

Furthermore, some California hospitals have developed emergency room policies that discourage use by the uninsured; others transfer indigent patients to public hospitals or academic medical centers; still others have closed emergency departments.

"Probably there is no one in California who wanted that outcome, but it happened," said Robert Morrison, president of North Carolina's Randolph Hospital, addressing the North Carolina Health Care Reform Commission in March.

"It continues and I believe it will occur here," Morrison added. "As the cost shift disappears, we must recognize that while charges to managed care firms go down, resources to care for the uninsured shrink proportionately.

"I am anxiously awaiting news about the impact on the community and on the closest community hospitals when the uninsured population fills their emergency departments," Morrison continued. "In Asheboro, North Carolina, with unemployment below 4 percent, 25 percent of our emergency room visits are uninsured patients. Can you imagine the potential load in an inner-city during a recession?"

Durham's unemployment rate is 3.1 percent as of January 1995, and 22 percent of Duke's unadmitted emergency room patients in 1995 were uninsured.

The emergency room also is a more expensive point in the health-care system to treat patients. "If you're only going to take care of the end stage of anything, it's going to cost you more money, let alone the human waste," explains Dr. Evelyn Schmidt, executive director of the Lincoln Community Health Center, which is located in one of Durham's most needy neighborhoods. "If you don't want to worry about the human waste, which I have to worry about, look at it strictly economically."

Despite the fact that Durham County ranks third in the state in uninsured population and has almost 48,000 persons annually at risk for being medically indigent, and despite the fact that three state-sponsored commissions have looked at the uninsured problem, the pressure to do something about the problem has been thrust to the side.

Duke's Vick says that the complexity of the health-care system prevents anything from being passed by the legislature. "It's the same problem that's occurred at the federal level," he says.

For Schmidt, talking about the uninsured is a question of priorities. "I've raised that question at meetings and nobody really wants to discuss the uninsured," she says with frustration. "Right now, we're really in a state of flux, but what's being left out is really the people I'm talking about-the uninsured, low-income populations."

When asked why, Schmidt takes a deep breath and leans forward, her voice suddenly hushed. "Because I don't think anybody has an answer."

A prescription for reform

"The answer" for Chris Conover is largely a political one. An associate in research at Duke's Center for Health Policy, Education and Research, Conover has played a significant part in North Carolina health-care reform debates by conducting annual surveys of state residents, analyzing health-care trends and presenting reports to the state's Health Planning Commission and Health Care Reform Commission.

His 1985 report on the uninsured poor in North Carolina opened the eyes of many legislators to the growing problem and called for a tax on hospital revenues to create a pool of funds for primary care for the uninsured. Such a tax could provide voluntary universal coverage to North Carolina residents, but would offer only a little more than half the services offered by private insurance. The state's hospital association lobbied successfully for expansion of the Medicaid program.

"They've never wanted to be taxed," Conover says. "Other states tax hospitals."

Generally, three options for universal coverage are available: a single-payer government insurance program; a mandate that employers provide coverage; or, a requirement that individuals must buy coverage.

Among all the plans proposed, Conover admits that none of them is self-financing or politically attractive. "You can never make it self-financing, so the question becomes 'How big is the hit and who pays for it?'"

It's not likely to be the profit-making HMOs. "The amount of money being made by for-profit [HMOs]... is bordering on the obscene," says Chancellor Snyderman. Nevertheless, he says he is cautious about government regulation.

The key to addressing the uninsured problem, Snyderman says, is some form of public-private partnership. "It's a problem that we ultimately need to deal with. The question is, 'Will there be the political courage to do it?' But I don't see the for-profit HMOs dealing with this issue."

Lincoln Health Center's Schmidt says that any reform plan must emphasize four elements: affordability, hours of availability, transportation, and communication.

One option that has been touted by politicians and endorsed by the Health Care Reform Commission is medical savings accounts. Under one proposal, all state residents would be required to make regular deposits to these accounts for personal health care and would also be able to purchase catastrophic insurance cheaply. A bill passed in the U.S. House of Representatives in March and now under discussion in the Senate would allow individuals with high-deductible insurance plans to make tax-deductible contributions to similar accounts, which Democrats object to, saying it ignores the working poor.

Snyderman also disputes the feasibility of this idea. "It increases the risk of the conventionally insured and increases their pricing, and it tends to pull out the healthier populations into the medical savings accounts. Now what becomes even worse is [that] the people stay in the medical savings account getting the benefits of that, but what happens if they get a serious illness?... [T]hey kick right back into the insurance pool... [and] you've driven up the costs of the average insurance population."

Another option that advocates for the uninsured have supported is allowing all state residents to buy coverage through the state employee's health plan. The $600 million insurance program covers about half a million state employees, teachers and retirees. Each worker has a choice of seven different insurance plans, including the state's own plan and commercial HMOs like Kaiser Permanente. The program has generated a surplus for the past eight years, while premiums have remained static for the past three years.

In order to give the uninsured coverage under North Carolina's program, however, the state would have to levy a tax on everybody, which is politically problematic. Meanwhile, the state's current pool of insured people has a majority of persons older than 65, and actuarial estimates suggest that if the state's uninsured were admitted to the state plan, the more favorable age and sex mix of the projected uninsured could result in a 10-15 percent reduction in the state's current employee premium rates. This seems to bode well for UNC graduate Grant and her friends, many of whom receive insurance from the state.

Vick places his faith in private ingenuity. "The real solution is going to come from the private sector," he says. "[After that] the private sector is going to have to incorporate the public sector. Government has failed to come up with a solution."

For institutions like Duke, the coming changes present an opportunity to address the long-term health needs of society. "We're part of the safety net. We treat people no matter what," says Dr. Richard Serra, assistant director of the emergency division. "[Cost] is not part of the prospective evaluation of a patient."

Nevertheless, managed care is forcing hospitals to examine their dual identity as a charitable institution and as a business, though the larger question of whether and even how to provide pre-emergency or primary care for the uninsured seems to linger beneath the surface. Schmidt says that hospitals are caught in "the horns of a dilemma." That is, hospitals may wish to help the indigent and uninsured, but may not be able to afford to do so. That comes as ominous news to uninsured people like Grant. For now, she can turn to Duke in an emergency, but as for the future, her fate in the managed care environment remains quite uncertain.