Selected Skirmishes: HMO Phobia

Quack remedies for the health care "crisis"


Dr. Ken Smith has a mission: to destroy the HMO system which today enrolls 85 percent of insured Americans. The Boston-based physician's reasons are simple and humane: "We are for patients, not profits." And his disgust is real: "How dare somebody in some board room in Connecticut decide what I'm worth, and on a whim decide that my worth should be reduced?"

The elements of the current crusade against managed care combine the front-page horror story of the access-denied victim with the political clout of a network of influential millionaires. In swank country clubs all across the land, high-powered attorneys are burying the hatchet with prosperous physicians, getting beyond that little multibillion-dollar spat over medical malpractice. Now they're toasting martinis and swearing litigation against the common enemy: HMOs that clamp down on medical costs.

It may shock the good Dr. Smith, but many of the common folk are quite used to having distant big shots in faraway boardrooms establish the price for their labor. And as for the purity of spirit to which Smith appeals, we do appreciate the thought. But it's best to avoid any kind of competition regarding who's been more successful in bringing health care to the masses, the typical HMO shareholder vs. the typical M.D. After all, who is more likely to be recreating out on the golf course Wednesday afternoon?

The health care market is tricky, and the shadow under which all discussion takes place is the cost explosion tied to third-party payments. When Dr. Smith was perfectly free to prescribe for "his" patient and push the costs onto others–well, that was the Golden Age for doctors. And, coincidentally, 9.9 percent annual medical cost inflation (just to pick the peak year, 1991) for the rest of us.

Managed care stepped in–indeed, it arrived in an ambulance answering a 911 call from ratepayers. HMOs had a tough job to do, teaching lots of doctors with egos the size of Smith's that there ain't no such thing as a free surgical procedure. They have yet to succeed; a group Smith has helped to organize, The Ad Hoc Committee to Defend Health Care, protests the "HMO bean counters" and advocates a single-payer system.

The reality is that the rationing that accompanies state-run systems makes the HMOs look like big spenders. That's not because the government hires better "bean counters." Quite the reverse–the beans sort of just disappear. And then it's, "Sorry, you'll just have to wait on that heart bypass until some more beans turn up."

Marc Roberts, a Harvard economist specializing in health care markets, claims that the doctors' real aim is "to regain status, power and income that they lost in this for-profit industry," and that holding the patient's welfare out as a bargaining chip is a smart stratagem. "They wouldn't gain any support if they stood up and said, `Instead of making $300,000, I now make $200,000, and you should all feel sorry for me.' " The blunt fact is that letting doctors run up medical tabs resulted in runaway expenditures, stealing money from the pockets of wage earners, who ultimately pay in the form of reduced take-home.

Unaffordability is itself a cause of illness, as it puts more Americans outside the health insurance system altogether, lessening their access to regular checkups and preventive medicine. Instead, they increasingly resort to visits to crowded hospital emergency rooms. Treatment there is inefficiently administered–and quietly tacked onto the bills of paying customers, further driving up costs and pushing more working people out.

As consumers, many of us prefer plans which offer a wide range of choice among doctor and treatments. But to receive the benefits from that high-cost deal, we do–and should–pay more via higher premiums and lower reimbursements. Government surely has a role to play enforcing contracts with insurers who attempt to renege and as a smart shopper purchasing large volumes of health care directly. (My understanding is that neither courts nor Medicare and Medicaid are as yet perfectly administered.)

The pressure to realistically assess the cost-benefit tradeoffs in medical care should be welcomed by those outside the fashionable salons where "for-profit" medicine is profitably denounced. In fact, the overwhelming majority of Americans find their HMOs good to excellent, and most rate them as superior to traditional health insurance on the value/dollar scale.

That's a state of affairs that the HMO reformers aim to change. Stuart Altman, professor of health policy at Brandeis University, notes: "The more we reduce the power of managed care to control spending by restricting services, the more we are going to take [away] the pressure of providers to constrain spending."

That's what doctors want, that's why lawyers will sue, and that's the reason Congress will legislate. But don't feel left out–you'll get the bill.

Contributing Editor Thomas W. Hazlett ( is an economist at the University of California at Davis and a resident scholar at the American Enterprise Institute.