The mere mention of health care these days is enough to cause indigestion in users, employers, providers, insurers, and government officials alike. At one point, managed care had been hailed as the remedy that would cure the problems associated with today’s complicated and expensive health-care system. Unfortunately, says Uwe Reinhardt, the James Madison Professor of Political Economy at the Woodrow School School of Princeton University, managed care has created more bile, rather than less, in just about all the parties involved.

In a lecture sponsored by the Leonard Davis Institute of Health Economics at the University of Pennsylvania, Reinhardt addressed some of the issues facing managed care and what he sees as the predictable backlash against it. He does not single out one party as the villain in this drama. Indeed, he notes that patients, who are usually seen to be the innocents, have played an active role in the development of our health-care crisis. "We Americans want it all when it comes to health care and we think someone else should always pay for it," he observed. "Europeans are amused by the fact that Americans tend to think of death as optional."

The central objective of managed care, Reinhardt noted, is "to ration health care judiciously, at the margin, with an eye towards cost effectiveness. But that can be done delicately or like elephants in a porcelain shop. Sometimes the managed-care industry has adopted the latter style as, for example, when they kicked mothers out of bed only one day after a normal delivery.

"In the eyes of the insurance companies, a mere refusal to pay for care may not appear as the withholding of the care itself, or even of regulating the process of health care delivery," Reinhardt said. But patients view this differently, seeing treatment not covered by reimbursement as treatment denied.

On the other hand, managed care has had its successes, even if they are overshadowed by the constant torrent of complaints about the system, Reinhardt said. For example, managed care has leveled the playing field considerably in the way health care is provided. In place of glaring unevenness in how and where health care services are offered, there now exist many standardized practices and a rise in the overall level of services. Managed care has also slowed what had appeared to be an inexorable upward spiral of health-care costs, although Reinhardt sees these costs beginning to rise again, a trend that he predicted back in 1998. "Cost controls will no longer be so effective because the easy pickings have already been taken," he noted. In the future, savings won’t come "simply from extracting discounts from doctors and hospitals. They will have to come from managing real resources better in health care."

Reinhardt discussed a proposal he has made in the past, and still favors, with certain caveats. His idea involves a voucher system in which employers would no longer offer their employees one or two pre-approved health plans, but instead would give each employee a voucher that would enable him or her to buy insurance from a larger selection of plans. These plans would be offered through an employer coalition or through the state or other buying cooperatives. The employees would benefit because they would get more choice than currently available under most employer plans.

In order for the system to work, however, insurers would have to be regulated so that, for example, they would not be allowed to charge different premiums to employees based on their relative good or bad health. "If you give every employee a voucher for $3,000 and an insurance company says to an employee with diabetes, ‘For you the cost is $8,000,’ clearly that is unacceptable," said Reinhart. "Insurers have to charge the same premium to everyone."

Reinhart’s plan also would require every person to carry health insurance. Those who didn’t cooperate would have to pay an income tax, "which would then go into a federal pot. Both the federal and state governments would chip in money for low-income people so that everyone would be given a voucher.

"Using private insurance companies to do essentially a social service is obviously going to be complicated," Reinhardt said. "But we have always wanted to use the insurance mechanism to redistribute from the healthy to the sick and from the rich to the poor. In a sense that is what actually happens now within large companies."

The whole health-care issue, Reinhardt added, is back on the front burner, for a number of reasons: An election is coming; there are no other major news stories at the moment; and more attention is being paid to patients’ rights, drugs for the elderly, Medicare in general, and the growing numbers of uninsured. Reinhardt is not in favor of the bill approved last week by the U.S. House of Representatives that reins in the managed-care industry and appears to bolster patients’ rights. "This isn’t a patients’ bill of rights, it’s a providers’ bill of rights," he said. "The American Medical Association (AMA) paid for it. Is this a victory for consumers? I doubt it. Consumers are usually ignorant when it comes to what works and what does not in health care. They don’t know that when doctors make decisions they aren’t necessarily making the best decisions. There will need to be practice guidelines to help doctors keep abreast of best practices. Decades worth of highly-acclaimed research shows, for example, that about 25% of heart surgery done in this country during the 1980s was not necessary. We are going back to the old system where doctors can do whatever they like. It may well leave patients worse off than they are now under managed care."