The evidence, analysis, and recommendations in this report are the responsibility of the four listed authors alone, and do not necessarily represent the views of the Health Reform Program’s financial supporters or those of Boston University.

This report finds that complete, comprehensive health care for all Rhode Islanders is already affordable.

Why is complete and comprehensive health care for all Rhode Islanders affordable today? For two main reasons:

1. The money is already available. Current health care spending in Rhode Island is fourth-highest in the nation, 21.5 percent above the U.S. average. And U.S. average spending per person is itself more double the western European average. Those nations cover all citizens and enjoy better health outcomes than do Americans.

2. Cutting administrative waste, cutting drug prices, acting to prevent some medical problems, and other efficiencies save enough money to finance full insurance coverage for people who are now uninsured or inadequately insured.

 

This report finds that the three main alternatives to health care for all are themselves unaffordable. These alternatives are more money for business as usual (without improving coverage), efforts to cover more people with band-aid additions, and efforts to cut health costs by cutting insurance coverage or asking families to pay more.

This report estimates the costs of universal health care in Rhode Island and contrasts those costs with a continuation of the current system. It shows that universal health care for the people of Rhode Island is affordable. It offers alarming new evidence that

ever-higher spending for business-as-usual in Rhode Island health care is not sustainable for people who pay for it or for people who use it, and that

business-as-usual is cheating the state’s people by wasting huge sums on the private sector’s payment bureaucracy at the expense of the care that all Rhode Islanders need.

 

Consolidated financing is essential to cutting administrative costs. (And cutting those administrative costs is essential to financing comprehensive health care for all.) Financing can be consolidated in one of two ways.

Consolidated financing alone is essential to financing comprehensive health care for all Rhode Islanders today. Looking ahead, though, it is not enough—by itself—to ensure affordable medical security for years ahead.

That is because health care costs continue to increase as the population ages and as costly new medical advances are made—things like expensive new drugs, surgical treatments, and transplants.

But what good are these medical advances if Rhode Islanders can’t afford them? Rhode Islanders deserve medical security. This first requires deciding what "medical security" really means. It then requires making sure that we shape health care—delivery and financing—to reach this goal. If we don’t deliberately plan to succeed, we are surely planning to fail. And that would be a tragedy.

Ultimately, no state or nation can ever spend enough to win immortality for its citizens. So immortality is not the goal. Rather, the goal should be something like this:

Health care spending in the United States is vast. In the year 2000, health spending in the U.S.A. was more than four times as great as was spending on national defense. And spending in Rhode Island was 21.5 percent above the U.S. average, as noted earlier.

For the long haul, reaching the goal of affordable high-quality health care for all Rhode Islanders requires that we spend our vast but still finite health care dollars as carefully as possible. This requires going far beyond the simple but vital step of consolidating financing.

It requires that doctors, hospitals, and other caregivers be paid in financially neutral ways—in ways that encourage, liberate, and require them to spend money as carefully as possible. This means, certainly, that all needed caregivers be paid enough money to allow them to remain open in Rhode Island—as long as they operate efficiently.

It requires, further, that doctors—who make the key decisions about how the great bulk of health care dollars are spent—are particularly empowered to spend our money carefully. This should begin by recognizing that doctors traditionally get about one-fifth of the health care dollar. They should be assured this money, to be divided up among them in reasonable proportion to competence, kindness, effort, and other factors.

But doctors also should be encouraged, liberated, and required to marshal the bulk of the remaining 80 percent of the money (excepting only dollars needed by dentists, public health agencies, researchers, and other independent actors) to provide the care that all Rhode Islanders need. Doctors would have to spend all of that money on their patients, and could not spend more. They could not personally benefit by economizing on care. This approach encourages patients and payers to trust doctors’ decisions.

This has been called "professionalism within a budget." It is one sensible way to balance the books in health care. If any patient is denied a service because it would be of small benefit to them, the aim would not be to enrich a physician or a for-profit HMO. Rather, the only reason for denying a service would be to make that service available to another patient who needed it more.

This is nothing more than spending money carefully—of getting as much health care as possible to the people who need it. This is nothing more than recognizing that all Rhode Islanders need health care but that dollars are always going to be limited. This is nothing more than a way to build trust in Rhode Island health care that offers medical security—durably affordable medical security—to all residents.

We offer this report in the hope that it will help the public and policy-makers to grapple with the complexity of our health care system, and to identify the benefits of universal access to comprehensive care with simplified administration.

In the approach to universal coverage examined here:

Coverage would be comprehensive and secure.

Patients and payors get a better deal, more care for less money.

Most of the added care provided would aid people who are now partly insured.

Cutting administrative waste frees 10 % of health dollars to pay for more care.

Reforms in financing and delivery of care would win other substantial savings.

About three-quarters of patients’ out-of-pocket costs would be eliminated.

Caregivers and patients make decisions without bureaucratic interference.

Trustworthy methods of paying caregivers enhance quality of care.

Caregivers gain secure budgets; employers avoid continued premium increases.

Replacing most out-of-pocket costs with public funds permits administrative savings.

Reforms would have permitted cutting this year’s spending on the financial administration of Rhode Island health care by roughly half, or over $750 million. Substantial additional savings are available through other reforms—particularly on prices of drugs and medical equipment, and through clinical efficiencies. As a result, large additional sums could have been devoted to actual care—to provide comprehensive and complete health coverage to all Rhode Islanders—while saving approximately $270 million.

The apparent alternatives are not feasible:

Incremental strategies simply increase spending and fail to find administrative, clinical, and other savings.

As shown in Exhibit 1, on the following page, financing the same benefits incrementally, without reform, would cost about $1.0 billion more—14 percent more than current spending.

Waiting for federal action is dangerous and unnecessary. Rhode Island can afford coverage for all. The time to start planning is now.

 

To summarize:

The costs of health care in Rhode Island under the four alternatives are dramatically different. These are the total costs from 2002 through 2007 (six years):

1. No reform—business as usual $54,643 million

2. No reform—coverage for all $62,154

3. Consolidate financing $50,229

4. Consolidation + professionalism within budget $47,764

 

1. Option 1, no reform with business as usual, would mean higher costs simply for services currently available, with no improvement in which services are covered or how many people have insurance. These projections assume that Rhode Island health care spending increases are in line with those projected nationally by experts at the Office of the Actuary, Centers for Medicare and Medicaid Services.

2. Option 2, no reform but coverage for all, reflects our estimates of the costs of comprehensive care for all Rhode Islanders, without reform in financing or delivery of care. Costs rise as in option 1, but 2002 costs include $1,027 million estimated cost of covering all Rhode Islanders with comprehensive care, without cost savings from consolidated financing.

3. Option 3 would consolidate financing and win some savings through lower drug prices, reducing duplication of services, and avoiding some care needs through prevention. It is reflects 2002 costs of comprehensive care for all Rhode Islanders and savings won through consolidated financing, reduced drug prices, prevention of problems through adequate primary care, and other steps. Costs are projected to rise at 6 percent annually, slightly below the rate used in options 1 and 2.

4. Option 4 would build on the savings from consolidation of financing and other steps in option 3 by providing an overall health care budget and asking doctors to make the decisions that would spend the available dollars as carefully as possible. Here, costs are projected to rise at 4 percent annually, still well above overall inflation, which is projected to rise at roughly 2.5 percent annually, but below the levels assumed in option 3. Professionalism within a budget is expected to result in this level of economies. This expectation rests on the very common research finding a very large share of current health care spending—perhaps "one-fourth of hospital days, one-fourth of procedures, and two-fifths of medications could be done without."

Rhode Island’s health costs are fourth highest in the nation, 21.5 percent above the national average per person.

Despite this high spending, many people are unable to afford the care they need— prescription drugs, home care, dental care, and others. Many people are also at risk because of managed care’s financial incentives to provide fewer services. Still other people are at risk because of HMOs’ unstable relations with hospitals and doctors.

Although spending was already high, HMO premiums nationally have risen by 12 to 15 percent or more in recent years. Some employers and patients have suffered far bigger increases. Substantial further increases are expected for 2003.

Despite high spending, many caregivers—hospitals, nursing homes, and home health agencies—face financial distress.

Despite high spending, HMOs have also faced financial stress in the past few years.

Despite high spending, less money goes to actual care than many people realize, because, we estimate, about one-fifth of each health care dollar today goes to administration.

The private health insurance market has failed to make insurance affordable. Only the past decade’s substantial expansions of government programs and extraordinary economic boom have prevented the number of uninsured people in Rhode Island from soaring.

One response to Rhode Island’s health problems would be to boost spending on health care. But this will also boost financial burdens on all who live, work, and do business in the state. More money for business as usual is not affordable.

Our analyses indicate, while managed care, price competition, and hospital closings have failed to save money, alternative methods of cutting administrative and clinical waste are likely to succeed.

Critics of reform have failed to put forward proposals to contain costs, protect quality, and enhance coverage. Some of these critics instead seem to lean toward advocating more money for business as usual.

We predict that those who advocate more money for business as usual and who reject reform will lead Rhode Island medicine toward medical meltdown. That will mean more hospitals closing, more patients without insurance, and more employers bailing out of offering health coverage in favor of making only defined contributions toward health benefits. And it will mean more instability, more insecurity, more distrust in Rhode Island health care.

It now seems clear that the cost control proposals of recent years—managed care, price competition, and hospital closings, have not worked remotely as well as their proponents claimed.

For these and other reasons, Rhode Island has some of the world’s most expensive health care, with many caregivers facing financial distress, and with growing concern that quality is suffering.

Spending on health care in Rhode Island is already enough to finance and deliver the care that works for all the people who need it. Ever-higher spending is not the answer.

The challenge is to make health care for all durably affordable, while protecting quality of care and the doctors, hospitals, and other caregivers whose efforts ensure quality.

Meeting this challenge requires well-designed and carefully implemented public action. Given the impossibility of anything approaching genuine free market competition in health care, the only alternative to careful government action is medical anarchy.

The evidence points to a recent and striking government success in Rhode Island health care. Public program expansions have helped to substantially reduce the number of people without insurance. Market competition, by contrast, has failed to contain costs or to protect needed caregivers.

This report’s analyses of Rhode Island health care indicate that public action can attain durably affordable and high-quality health care for all without increasing spending. These are our main findings:

(Note: Numbers may not add exactly to totals because of rounding.)

As administrative costs plunge from over $1.47 billion in Rhode Island today, down to about $720 million, vast resources could be reallocated from the payment bureaucracy to care—from fat to bone and muscle.

Using a single or pooled financing source for all care would, for example, eliminate the need to process millions of claims, and the need to screen out patients to avoid costly ones. Under comprehensive reforms, knowing that everyone is covered and that payment is secure, caregivers could drop several huge tasks:

determining patient eligibility,

determining patient benefits under many different plans, and

seeking reimbursement from insurors and patients through billing and collections.

Such simplification would have saved an estimated $314 million on administering coverage (insurance overhead) this year in Rhode Island, we estimate. This reflects the U.S. General Accounting Office finding that using a single payor could cut the cost of administering coverage by 79 percent.

But the savings from simplification and streamlining of health care financing are even greater on the caregiver side. Administrative costs for Rhode Island hospitals alone are approximately $583 million for 2002—26.8 percent of total hospital expenses. We estimate that eliminating most claims processing, and the related paperwork burdens of systems with hundreds or even thousands of different plans paying caregivers, could save about $273 million on hospital financial administration.

We estimate that $381 million is being spent on financial administration of physician services alone this year, and that 42.5 percent of that ($162 million) could be saved through more efficient administration of physician care. That would also free up doctors’ and support staff’s time for patient needs. It would mean saving fully 10 percent of current spending on physicians—and permitting that sum to be devoted to care, rather than paperwork.

 

 

 

Patient cost-sharing amounts to a sick tax which most heavily burdens people with chronic or serious illnesses or lower incomes. It deters use of needed care, fails to target the true causes of high costs, and often shifts costs to caregivers as well as patients.

Out-of-pocket costs for Rhode Island patients would drop from about $867 million this year absent reform to an estimated $227 million with comprehensive coverage. Patient cost-sharing would continue in only two sectors: spending on non-medical (room and meal) costs for long nursing home stays, and spending on over-the-counter drugs and medical supplies.

Aiding under-insured people by providing comprehensive benefits, and ending deductibles, co-payments, and most other out-of-pocket spending are both affordable and very important for cutting administrative costs.

Retaining patient cost-sharing requirements would mean perpetuating today’s inefficient billing bureaucracies, and a financing system that deters needed care and shifts costs. All these problems would raise costs:

- The need to handle cash and partial payments creates an administrative system that is both expensive and unfriendly to patients.

- Continuing patient cost-sharing would oblige wasteful and costly record-keeping to bill patients and track payments towards deductibles. It also would prompt demand for supplemental insurance to cover out-of-pocket costs.

- Most important, requiring patients to pay at the point of service discourages use of services. And cost-sharing is as likely to cut out essential services as unnecessary or marginal ones. Therefore, if cost-sharing requirements persist, patients will continue needing to use costly hospital care after failing to get appropriate care at earlier stages of their illnesses.

 

As shown in the summary table above, total savings of $1.3 billion more than offset the added cost of new coverage. Savings from streamlining administration combined with moderate clinical and other savings can, when captured and recycled, amply finance needed care for all.

Rhode Island can expect modest savings from reduced hospitalizations for conditions treated in more timely fashion when residents gain coverage.

We estimate the costs of a large expansion of prescription drug use under a package deal (a drug price "peace treaty") with drug makers. Rhode Island would protect drug makers’ current profit levels and ability to finance research, in return for purchasing the higher volume of needed medications at the low actual cost of making and dispensing those pills.

We also project substantial savings on durable medical equipment through price negotiations.

While these savings are expected, system-wide budgets will operate as a back-up to ensure that costs stay within desired limits.

Caregivers will be paid in ways that make the budgets real.

 

8. Quality will be enhanced: Covering everyone and ending today’s financial pressures on caregivers to do less will protect quality of care, restoring trust. While caregivers will have to spend carefully, $7 billion is ample in Rhode Island to finance all the care that works for all the people who need it.

In summary, health care for all is affordable, and achieving it can be a win for all parties because current spending is already enough. Rhode Island can have health care security, health care freedom, and lower costs.

Security

for patients and families, knowing that needed care is covered, and that caregivers no longer are rewarded for giving too much care or too little care

for employers and employees, knowing that costs are capped and predictable

for needed caregivers, knowing that their revenue budgets are stable, fair, and sufficient.

 

Freedom

for patients, to select the caregivers they choose

for caregivers and patients, to choose care without bureaucratic interference

for workers, to choose their jobs without worrying that they will lose coverage

for employers, to focus on running their business, not on searching for health plans.

Lower costs

cuts in administrative waste and other reasonable savings are enough to offset the cost of expanded coverage and to reduce health care spending overall

developers of cost-reducing medical technologies would rewarded

advocates of higher health care spending must compete with advocates of other good things—including many others that are also vital to improving the health of citizens of Rhode Island.

 

A state-level effort to cover all people is vitally needed in Rhode Island, and this analysis shows it is feasible.

Those who pay for health care in Rhode Island spend far more than payors do in most other states, 21.5 percent above the national per capita average. The same federal government data show that spending on the state’s caregivers in 1998, per resident, was 65 percent higher in Rhode Island than in Idaho— the fourth highest and the lowest cost states, respectively.

Further, an analysis that combined spending on care in-state and out-of-state care for each state’s residents found that spending was still 19.6 percent higher, per capita, in Rhode Island than the national average.

The state’s extraordinarily high spending levels are long-standing. And they prevail even though Rhode Island, as recently as 1999, ranked third highest among the states in rate of HMO penetration.

So current strategies for cost-control and coverage are clearly not working. State action is urgently needed.

But analysis of the cost of insuring the uninsured and filling today’s gaps in coverage for everyone— along with the opportunities for saving with streamlined administration and trustworthy, equitable coverage— shows that Rhode Island can do the job without spending a penny more.

We summarize here the major steps involved in reaching our bottom line conclusion— that Rhode Island can win comprehensive health care for all while saving money. These highlights of our estimates offer a few examples of the evidence and assumptions used, to convey a sense of the types of issues involved.

This material intentionally overlaps that presented in the Findings, but offers a different look, emphasizing the way the analysis was done as much as its results.

A brief comment on precision: Cost and savings estimates are presented in billions of dollars and tenths of billions— $0.6 billion, for example, or the equivalent, $600 million. Often, individual estimates and their components were calculated using available data in millions of dollars. But because of the incompleteness and approximate nature of many health care cost data, we wish to avoid over-stating the precision of these estimates. We therefore round here to the nearest $10 million. While $10 million is certainly a large sum, it is less than two-tenths of one percent (0.13 percent) of the estimated $7.47 billion in health spending for Rhode Island residents and workers in 2002.

What coverage is proposed?

This plan would provide all Rhode Island residents and workers with comprehensive, equal health care benefits, including dental and long-term care. Besides insuring people who are now uninsured, this plan fills in the gaps in coverage for today’s insured, giving substantial new benefits to us all.

It would cover the cost of all medically necessary health care, excluding only non-prescription drugs and non-durable medical supplies (unless prescribed), and some of the housing costs of nursing home care.

By filling gaps in benefits and ending most patient cost-sharing requirements, this plan would eliminate over three-fourths of out-of-pocket costs. The plan gives patients free choice of doctors, hospitals, and other caregivers. And it frees patients and caregivers from bureaucratic interference with decisions about the appropriate course of care.

This coverage would rest on a system of health care financing without insurance companies, in which all caregivers are paid from one pool of funds. This could be either a traditional single-payor design or a "pooled multi-payor system." In the latter, varied funding streams are combined to permit consistent, equitable caregiver payment methods, budgeting and cost control instead of cost shifting, gaining many of the benefits of traditional single payor.

This coverage plan also includes a range of financing and delivery reforms that would cut administrative and other waste. These will enable the people of Rhode Island to get much more care, while saving money.

Who will be covered?

The plan analyzed here would cover all Rhode Island residents and also out-of-staters who work in Rhode Island. This report refers to these groups, together, as "Rhode Island beneficiaries."

So all of the over one million people who live in Rhode Island would have coverage. In addition, our estimates assume that, for simplicity, efficiency, and workplace equity, the roughly 39,000 people who work in Rhode Island but live outside the state (and their dependents) would get the same coverage that Rhode Island residents receive.

We also note that about one-seventh of working Rhode Island residents are employed outside the state. While the scope of this report does not permit addressing the various options for raising the money to finance universal coverage, we assume that many out-of-state employers would contribute to the state plan since that may well prove less costly than buying private insurance. (With such a large share of the workforce employed outside Rhode Island, the state might hope to raise $400 million or more in employer contributions from out of state.) Also from outside of Rhode Island, we project, would be some limited additional federal funding, mainly because Medicare patients would use more care after removal of the access barriers now posed by requirements to pay deductibles and co-insurance.

Many discussions of universal health insurance focus solely on the goal of providing some coverage to all. But besides insuring the uninsured, this plan is designed to eliminate the diverse problems of under-insurance, such as these.

As shown by the current debate over drug coverage for seniors and the lack of long-term care coverage for many who need it, people with today’s Medicare coverage are often among the under-insured. A recent national survey found that medical costs and premiums actually consumed at least 10 percent of income for fully half of families headed by seniors.

The same survey showed that medical costs and premiums actually consumed at least 10 percent of income for one-sixth of households headed by people under age 65.

Some analysts consider people to be under-insured if the gaps in their coverage leave them at risk of having to pay health costs out-of-pocket (excluding premiums) amounting to more than 10 percent of their family income. This is a broader definition because people need not have actually been sick enough to incur large bills to be deemed under-insured.

Yet even this definition may be too restrictive. There are good reasons to consider far more of Rhode Island’s population under-insured:

Costs amounting to less than 10 percent of income may well keep many people from getting needed care.

Managed care plans’ incentives to limit care mean that most people risk having difficulty getting coverage for needed care.

Definitions of the under-insured which emphasize people incurring high costs or unable to obtain needed care fail to include the countless people with meager benefits who did not happen to fall ill in the year studied. A solution for the problems of the under-insured cannot target only those who will get sick, because that is not predictable.

Thus, providing protection against the costs of care for everyone is manifestly the only way to fill the gaps for the under-insured people of Rhode Island.

Outline of model

We first estimate the costs of care in 2002 absent reform—total health care spending, personal health care spending, and spending for each major type of care. (Details of how we have prepared those estimates are not presented here.)

Next, we estimate the costs of

bringing uninsured people’s care to the private average, and

filling gaps in benefits and eliminating cost-sharing for all patients.

We then estimate savings from

a) administrative simplification, and

b) financing and delivery reforms,

to determine the post-reform cost of care.

Finally, we compare the costs of care for Rhode Island residents and workers after reform to today’s costs, and also to the cost of providing expanded coverage without reform.