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Catastrophic Health Insurance and Cost Containment: Restructuring the Current Health Insurance System

Published online by Cambridge University Press:  24 February 2021

Jay L. Zucker
Jay L. Zucker*
Affiliation:
Boston University School
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Abstract

Catastrophic health insurance may be necessary to curb rising health care costs in the United States. A major factor in this rise has been the current structure of the nation's health insurance system, which inadequately protects individuals with expensive illnesses, but encourages overinsurance for less expensive illnesses. This Note examines the current health insurance system, and analyzes its impact oh health care costs for individuals and society. It evaluates several proposals to modify the structure of the current health insurance system, and recommends the adoption of a catastrophic health insurance plan based on an economic definition of catastrophe. Such a plan would decrease shallow coverage, and would use coinsurance and deductible rates keyed to the individual's income as means of increasing consumer cost consciousness without making necessary care unreasonably expensive. This Note also recommends that a catastrophic plan only cover treatment that has been determined medically necessary by utilization review, and that this review encourage outpatient rather than costly inpatient treatment.

Type
Notes
Information
American Journal of Law & Medicine , Volume 6 , Issue 1 , Spring 1980 , pp. 81 - 103
Copyright
Copyright © American Society of Law, Medicine and Ethics and Boston University 1980

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References

1 Havighurst, , Blumstein, , & Bovbjerg, , Strategies in Underwriting the Cost of Catastrophic Disease, 40 LAW & CONTEMP. PROB. 122, 125 (1976)CrossRefGoogle Scholar [hereinafter cited as Havighurst-I].

2 See generally J. MEYER, HEALTH CARE COST INCREASES 5-13 (1979); Feldstein, , A New Approach to National Health Insurance, 23 PUB. INT. 93, 93 (1971).Google Scholar “Ironically … the hospital patient with a large bill often finds his insurance grossly inadequate, [while] the average patient has almost his entire bill paid for by insurance.” Id. at 95. Thus, the lack of deep coverage “leaves a large residue of financial hardship and may also prevent many people from seeking potentially expensive care.” Id.

3 The statistical determination of what percentage of a family's income constitutes an unreasonably large expense is beyond the scope of this Note. The term is used to indicate a point at which such an expense becomes more than an inconvenience, and threatens either to deter necessary medical care or to force the family to incur economic hardship.

Some commentators have advocated including loss of income as a cost of catastrophic illness, and thus have proposed programs based primarily on income replacement, rather than on payment of the medical costs, of catastrophic disease. See, e.g., Havighurst-I, supra note 1, at 181-85. This Note does not follow this approach for two reasons. First, an income-replacement system would either pay larger benefits to individuals with higher incomes, or would not replace lost income in many cases. Second, it would substitute a serious work disincentive for the current incentives to incur unnecessary medical expenses. See text accompanying notes 20-42 infra.

4 “Thus, contrary to popular usage, a sudden fatal heart attack would not be deemed catastrophic, while a chronic but nonfatal condition might be—if, the accepted therapy of rehabilitative regimen were very costly.” Havighurst-I, supra note 1, at 122-23.

5 Professor Havighurst points out that the two definitions may have different policy implications for financing catastrophic illness. Havighurst-I, supra note 1, at 128.

6 See note 3 supra.

7 For example, end-stage renal disease can be a catastrophe to the individual, both economically and medically. In recognition of this fact, Congress enacted the end-stage renal disease (ESRD) program as part of the Social Security Act of 1972. 42 U.S.C.A. § 426 (e)(3) (West 1974). The ESRD program expands Medicare to cover the cost of treatment for all patients suffering from end-stage renal disease. Such coverage in effect may be a form of catastrophic health insurance, because contracting end-stage renal disease is clearly a medical catastrophe. The program may be overbroad, however, if it was designed to insure against economic catastrophe, because it covers the cost of treatment without regard to the financial need of the person involved.

The costs of the ESRD program have risen dramatically since its inception. It is estimated that, between 1975 and 1984, annual costs will rise from $150 million to over $1 billion. Rettig, , The Policy Debate on Patient Care Financing for Victims of End-Stage Renal Disease, 40 LAW & CONTEMP. PROB. 196, 201 (1976).CrossRefGoogle Scholar If the program had been designed to insure against renal disease only to the extent that it consumed a catastrophic portion of a person's income, different results would have likely ensued. For example, if the expenses of end-stage renal disease were paid only when the burden of such expenses became catastrophic to the patient, some patients might be ineligible for coverage. Those wealthy enough to absorb the cost of treatment without undue financial hardship would not be suffering from a “catastrophe” and thus would not be covered. Further, requiring all patients to shoulder the burden of payment up to the point when those expenses become a hardship would create an incentive to economize. In the ESRD program such a requirement would be likely to encourage more people to use home dialysis rather than more expensive inpatient. dialysis, thus reducing program costs greatly. See Rettig, supra, at 199. Consequently, defining catastrophic illness in economic rather than medical terms could have a great effect on the operation and cost of a program.

8 V. FUCHS, WHO SHALL LIVE: HEALTH ECONOMICS AND SOCIAL CHOICE 10-11 (1974). See also Note, Controlling Health Care Costs through Commercial insurance Companies, 1978 DUKE L.J. 728, 728-29 (1978).Google Scholar

9 S. LAW, BLUE CROSS: WHAT WENT WRONG 1 (1974).

10 Miller, , PSRO, Data and Information: Disclosure to State Health Regulatory Agencies, 57 B.U.L. REV. 245, 245 (1977).Google Scholar

11 Berry, , Prospective Rate Reimbursement and Cost Containment, 13 INQUIRY 289 (1976).Google Scholar

12 DEPT. OF HEALTH, EDUC. & WELFARE, PRESIDENT CARTER's NATIONAL HEALTH PLAN LEGISLATION, DETAILED FACT SHEET 5 (1979).

13 See Miller, supra note 10, at 245. In a free market situation, increased spending may indicate many things, including movement toward a more appropriate equilibrium between supply and demand. An increase in the illness rate, for example, might necessitate greater spending in the health sector. Similarly, if a scarcity of health resources such as hospital beds existed, a commitment of more funds might be appropriate to increase the supply. In both cases, the additional spending in the health sector would be justified by the resultant benefit to the public health. Id. See also V. FUCHS, supra note 8, at 10-29.

14 Some commentators have suggested that health services purchased by consumers today do not necessarily resemble the services purchased ten, or even five, years ago. See, e.g., L. RUSSELL, TECHNOLOGY IN HOSPITALS: MEDICAL ADVANCES AND THEIR DIFFUSION (1979). Consequently, comparing past and present costs may be misleading in assessing the causes of the rise in health care costs. See V. FUCHS, supra note 8, at 12. This “changing market basket” may be a primary cause of inflation in the health sector. Some commentators, however, have concluded that instead it is partially the result of the same factors that have caused the inflation. “[N]ew technologies are only some of the things we spend our money on, not the reason we spend it—a symptom, not a cause. The real reason … [for rising health care costs] has to do with the growth of private health insurance and public programs like Medicare and Medicaid, referred to collectively as third party payers.” L. RUSSELL, supra, at 2. Technological innovations can have either of two effects: they can lower the cost of providing a given level of health care, or they can produce a higher level of health care for which the patient will be willing to pay more. M. FELDSTEIN, THE RISING COST OF HOSPITAL CARE 46-51 (1971). The current system favors cost-increasing innovations, but does not actually correspond to consumer preferences, largely due to the prevalence of public and private health insurance. Id. at 75-76. For detailed economic analyses of the factors causing rising health care costs, see generally M. FELDSTEIN, supra; L. RUSSELL, supra.

15 Professor Weiner has described the system as follows:

Prior to enactment of Medicare and Medicaid, cost reimbursement was not the predominant pattern among third party purchasers of hospital services. Much of reimbursement to hospitals was based on charges. “Charges” are the amounts billed to the general public for hospital services, and are the amounts ordinarily paid by uninsured persons who have the capacity to pay their hospital bills—that is, uninsured persons who do not receive free care or become bad debts. Before Medicare and Medicaid, when cost reimbursement was not the prevalent mode, most hospitals had only a limited need and ability to identify their true cost of operation. Because of this, frequently there was (and indeed there still is in many cases) no direct relationship between a hospital's charge for a service and the actual cost attributable to that service.

Weiner, , “Reasonable Cost” Reimbursement Under Medicare and Medicaid: The Emergence of Public Control, 3 AM. J.L. & MED. 1, 5 (1977).Google Scholar Medicare, Social Security Act tit. XVIII, § 1801-1881, 42 U.S.C.A. §§ 1395-1395rr (West 1974 & Supp. 1979), and Medicaid, Social Security Act tit. XIX, §§ 1901-1912, 42 U.S.C.A: §§ 1396-1396k (West 1974 & Supp. 1979), established a mode of health insurance for the elderly, disabled, and poor that used a system of cost-based reimbursement. By guaranteeing providers repayment for expenditures made within specific allowable categories, the government essentially eliminated any incentives to economize within those categories. In addition, generous depreciation allowances on capital expenditures, as well as on donated capital items, created a “cost-plus” aspect to the reimbursement, thus encouraging spending and expansion. Weiner, supra, at 7-14.

16 Since a hospital loses money on an empty bed or underutilized piece of equipment, it is in the provider's interest to have its facilities used. See S. LAW, supra note 9, at 116 (“In areas where unplanned and unregulated growth have produced an excess of hospital beds, the tendency toward overutilization of hospital beds is exacerbated, since it is about two thirds as expensive to maintain an empty bed as to maintain a full one, and the income to the hospital is obviously greater when the beds are occupied.”).

In a normal supply-demand situation, over-expansion would meet with a lack of demand, and thus would be financially imprudent. The health sector, however, diverges from a free market model. The consumer is not necessarily the actor creating demand. Rather, the physician informs the patient what he or she “needs,” and the patient is seldom sufficiently informed to make an independent judgment. Demand is thus largely a manifestation of the provider's will. Consequently, demand is likely to be induced by available supply. See Roerrier, , Bed Supply and Hospital Utilization: A National Experiment, 1961 HOSPITALS 35 (1961).Google Scholar See also Feldstein, , The Welfare of Excess Health Insurance, 81 J. POL. ECON. 251, 255 (1973)CrossRefGoogle Scholar; Miller, supra note 10, at 247.

17 Miller, supra note 10, at 247.

18 See Havighurst, & Blumstein, , Coping with Quality/Cost Trade-offs in Medical Care: The Role of PSROs, 70 Nw. U.L. REV. 6, 20-38 (1975)Google Scholar (hereinafter cited as Havighurst-II).

19 J. MEYER, supra note 2, at 7-9.

20 In 1973, about 85 percent of the populace had some form of coverage for hospital and surgical expenses. T. HAILSTONES ET. AL, CONTEMPORARY ECONOMIC PROBLEMS AND ISSUES 234 (1973). Additionally, Medicare covered virtually all people over 65 years of age, id. at 231, and Medicaid covered about 50 percent of the poor, id. at 232.

21 K. DAVIS, NATIONAL HEALTH INSURANCE: BENEFITS, COSTS AND CONSEQUENCES 231 (1975).

22 Id.

23 Other factors such as waiting time may deter people from seeking unnecessary care, but these, factors pertain to both the insured and uninsured individual. Thus, a person who is uninsured must bear both the financial burden of treatment and the burden of waiting for care. Insurance removes the burden of payment from the consideration of the insured, and substitutes only individual morality for the resulting loss of deterrence.

24 “Moral hazard refers to the phenomenon whereby the method of insurance and the form of the insurance policy affect the behavior of the insured ….” Nordquist & Wu, The Joint Demand for Health Insurance and Preventive Medicine, in THE ROLE OF HEALTH INSURANCE IN THE HEALTH SERVICES SECTOR 42 (R. Rosett ed. 1976). Moral hazard must be distinguished from adverse selection. With moral hazard, more insurance increases the expected medical expenditure, whereas with adverse selection, higher, expected medical expenditure induces the purchase of more insurance. In the health sector, moral hazard is more prevalent than adverse selection. See Freeh, Comment, in THE ROLE OF HEALTH INSURANCE IN THE HEALTH SERVICES SECTOR, at 157-59 (R. Rosett ed. 1976).

25 K. DAVIS, supra note 21, at 12.

26 At least 47 cents of every dollar goes to the payment of non-medical expenses. Id.

27 Blumstein, & Zubkoff, , Public Choices in Health: Problems, Politics and Perspectives on Formulating National Health Policy, 4 J. HEALTH POL., POL'Y & L. 382, 397 (1979).CrossRefGoogle Scholar

Although the population covered is broad and growing, a major drawback of private health insurance remains—namely its emphasis on ‘shallow’ coverage. Insurance has concentrated on paying for short hospital stays and other modest bills while insufficiently protecting against large medical expenses, which, being both less predictable and more burdensome when they occur, would seem to be more appropriate for insurance coverage.

Havighurst-I, supra note 2, at 125. 46 million Americans are not protected against major medical expenses, in addition to 18 million who have no health insurance and 19 million who have insurance that fails to cover ordinary hospital and physician services. DEFT. OF HEALTH, EDUC. & WELFARE, PRESIDENT CARTER's NATIONAL HEALTH PLAN LEGISLATION, DETAILED FACT SHEET 2 (1979)

There is a seeming contradiction between the statement that Americans are overinsured for more expensive hospital care rather than less expensive outpatient care, and the statement that the American health insurance system focuses on shallow coverage, and leaves the individual uncovered for more expensive illnesses. There is, however, no real inconsistency. Treatment that could be rendered on either an inpatient or outpatient basis generally is covered only when rendered in the hospital, so patients generally choose to be treated on an inpatient basis. Most inpatient treatments that are covered, including those treatments that could have been rendered on a less costly outpatient basis, involve less expensive illnesses. Expensive inpatient treatment that is less discretionary is not covered by shallow insurance policies.

29 Frech, supra note 24, at 157.

A major effect of health insurance regulation is to give nonprofit medical provider-controlled insurers …. (Blue Cross and Blue Shield) a competitive advantage over commercial insurers … . [T]hese nonprofit insurers can benefit the providers by raising the demand curve for medical services by offering only relatively complete insurance in the market. This overly complete (in terms of consumer preferences) insurance leads to increased demand for health services, as it is intended to.

Frech, supra note 24, at 158. See also S. LAW, supra note 9, at 6.

31 For an in-depth look at the Way Blue Cross responds to provider interests, see S. LAW, supra note 9, at 16-30. Blue Cross tends to serve as a “role model” for private health insurers, “subtly teaching them their ‘place’ and influencing their behavior toward doctors.” Havighurst, , Professional Restraints on Innovation in Health Care Financing, 1978 DUKE L. J. 303, 337 (1978)Google Scholar [hereinafter cited as Havighurst-III].

32 “During 1977, Blue Shield plans underwrote or administered medical care coverage for approximately 85.3 million Americans, about 39.5 percent of the nation's total population.” FTC, BUREAU OF COMPETITION, MEDICAL PARTICIPATION IN CONTROL OF BLUE SHIELD AND CERTAIN OTHER OPEN-PANEL MEDICAL PREPAYMENT PLANS, 80 (1979) (citing BLUE CROSS BLUE SHIELD FACT BOOK 1978 at 16). Most Blue Shield plans are the largest medical insurance underwriters in their areas. More than 70 percent of those physicians actively engaged in patient care, not including hospital interns and residents, participate in Blue Shield. Id. at 80-85. “While the providers certainly seek higher prices for their services, in the absence of vigorous competition, there is no strong incentive, for the Blues’ board (or its agents) to seek a lower price. The medical community in effect “negotiates” with itself to determine the premium to be collected.” Id. at 126 (citing Gudger, Health Insurance: Cost Containment, Equity and the Insurance Regulator, WISCONSIN INSURANCE COMMISSIONER's REPORT 2-27, (1976)).

33 INT. REV. CODE OF 1954, § 106.

34 Havighurst-III, supra note 31, at 342.

35 TREAS. REC. § 1.162-10(a) (1975).

36 INT. REV. CODE OF 1954, §213 (a)(2).

37 S. LAW, supra note 9, a t 150.

38 Havighurst-I, supra note 1, at 126-27.

39 J. MEYER, supra note 2, at 14-17.

40 K. DAVIS, supra note 21, at 21.

The usual view is that the elasticity of demand for relatively minor elective medical problems is large, in part because there are so many reasonable ways of treating the conditions. For more serious problems, the technological possibilities are much more limited so that the ill effects of moral hazard are much reduced …. In any case, the usual view is that marginal moral hazard decreases with increasing loss.

Frech, supra note 24, at 157.

42 Havighurst-I, supra note 1, at 124.

43 A deductible requires the insured party to pay the initial cost of treatment up to a certain amount. For example, policy with a $100 deductible means that the insured is responsible for the first $100 in cost. Posner, , Regulatory Aspects of National Health Insurance Plans, 39 U. CHI. L. REV. 1, 4-5 (1971).CrossRefGoogle Scholar

44 A coinsurance provision usually requires the insured party to pay a percentage of treatment costs. Deductibles and coinsurance create somewhat different incentives to economize. A deductible deters only initial expenses; once the insured has incurred costs above the deductible, he or she is given no further reason to economize. Coinsurance creates an incentive to economize at all levels of cost. Because the coinsurance rate is only a fraction of the treatment costs incurred, however, this incentive may be fairly weak. Id. at 5.

45 A policy ceiling is a limit on the amount of benefits an insurer will pay; any costs incurred above the policy ceiling must be paid by the insured. See Havighurst-I, supra note 1, at 133.

46 D. Mass.

47 The Kennedy-Corman bill, S. 3, H.R. 21, 94th Cong., 1st Sess. (1975), is currently undergoing revision. This Note discusses the most recent information available at the time of publication. 124 CONC. REC. S. 16,813 (daily ed. Oct. 2, 1978) (remarks of Sen. Kennedy).

48 Benefits would include full coverage for inpatient services, physicians’ services in and out of the hospital, home health services, x-rays and lab tests. Preventive care for all members of the population would be encouraged and covered. Id. at S. 16,814.

Coverage also would include 45 consecutive days of inpatient hospital psychiatric services, 100 skilled nursing facility service days, rural health clinic services at a rate of two days for each day of inpatient psychiatric services not used, outpatient physical and speech therapy services, one audiological examination per year, one hearing aid every three years, and outpatient services provided by community mental health centers. Summary of Health Care for All Americans Act, 33 MED. & HEALTH, NO. 20, at 3 (May 21, 1979).

49 To receive certification, an insurance company would be required, inter alia, (1) to provide for the enrollment of all group members without regard to age, sex, occupation, race, prior medical history, current health status, employment, marital status, or source of premium payment, (2) to offer uniform and comprehensive benefits at earnings-based premiums equal to or below the maximum set by the government without experience rating, (3) to reimburse providers for all services covered by the uniform and comprehensive benefits, and (4) to adhere to standards set by the government regarding claims and quality review criteria, interpretation of benefits, customer service, advertising, and other matters. 124 CONG. REC. S. 16,815 (daily ed. Oct. 2, 1978) (remarks of Sen. Kennedy).

50 Id. at S. 16,816.

51 Id.

52 Id.

53 Id.

54 Id. at 16,815.

55 Id. at 16,814.

56 See note 15 supra and accompanying text.

57 124 CONG. REC. S. 16,814 (daily ed. Oct. 2, 1978) (remarks of Sen. Kennedy).

58 Id.

59 Id. at 16,815.

60 Posner, supra note 43, at 12.

61 See generally Posner, supra note 43.

The supply of medical services respond[s] very slowly to the sharp increase in demand generated by national health insurance programs. The inadequacy of supply would not be cured, or even treated, by a ceiling in prices. Queues of various sorts would replace price increases as the method of rationing the short supply among demanders—hardly a durable or satisfactory solution.

Id. at 12.

63 See notes 43-44 supra.

64 DEPT. OF. HEALTH, EDUC., & WELFARE, PRESIDENT CARTER's NATIONAL HEALTH PLAN LEGISLATION, DETAILED FACT SHEET, (1979). A spend-down, proposal also was included in the Long-Ribicoff Catastrophic. Health Insurance and Medical Assistance Reform Act of 1975. S. 2470, 94th Cong., 1st Sess. (1975). For an analysis of the bill, in general, and the spend-down provision, in particular, see K. DAVIS, supra note 21, at 85-88.

65 DEPT. OF HEALTH, EDUC. & WELFARE, PRESIDENT CARTER's NATIONAL HEALTH PLAN LEGISLATION, DETAILED FACT SHEET 9-11, 25 (1979).

66 Id. at 6.

67 Benefits would include:

Inpatient hospital services (unlimited)

Physician and other ambulatory services (including laboratory and excluding dental and psychiatric care) (unlimited)

Skilled nursing service (100 days per year). These skilled nursing home benefit days are intended to permit patients who still require the support services of an institution—but no longer the range and intensity of services provided by a hospital—to be released from the hospital to a less costly level of care. The skilled nursing benefit will reduce the length of hospital stays for many admissions.

Home health visits (100 visits per year)

Mental health (20 days of inpatient hospital care; $1,000 in ambulatory services)

Preventive care. HealthCare covers two important preventive care packages:

  • — complete prenatal, delivery, and total infant care (preventive and acute services) for all mothers and children

  • — a schedule of preventive services for all children up to age 18

Id. at 11-12.

68 42 U.S.C. § § 601-44 (1970).

69 42 U.S.C. § § 1381-83c (1970).

70 DEFT. OF HEALTH, EDUC. & WELFARE, PRESIDENT CARTER's NATIONAL HEALTH PLAN LEGISLATION, DETAILED FACT SHEET 9-10, (1979).

71 Id.

72 The spend-down provision establishes that “[a]ny individual or family whose health expenses exceed the difference between their income (minus 20% of earnings work expense deductions) and the 55% of poverty [level] can apply to HealthCare for complete coverage of all further expenses for a year.” Id. at 10. For example, assuming that 55 percent of the poverty level is $4,200, a family earning $7,000 could incur $1,400 in uncovered medical expenses. A family earning $10,000 or $3,000 more would be liable to incur $2,400 in additional uncovered medical expenses.

73 Id. at 5, 11.

74 Id.

75 Id.

76 Id.

77 Id. at 19, 21.

78 Id. at 19.

79 Id.

80 For the aged and disabled, an annual hospital deductible would be substituted for the Medicare hospital deductible of $160 per spell-of-illness. Id. at 12. In addition, a copayments limit of $1,250 would be set, replacing the open-ended 20 percent Medicare coinsurance rate on non hospital services. Id. at 12-13. Aged persons with incomes below 55 percent of the poverty level or those who spent down to that level, would be covered for health services, without any cost-sharing requirement. Id. at 13. Persons eligible because of their entitlement to cash assistance through the AFDC or SSI programs, or because of an income level of less than 55 percent of the poverty level, would not face any cost sharing. Id. Those eligible because of the spend-down provision would not be required to participate in cost sharing once they had spent down to 55 percent of the poverty level. Id.

81 See note 72 supra.

82 See M. CHIRELSTEIN, FEDERAL INCOME TAXATION 142 (2d ed. 1972).

83 H.R. 10759, 95th Cong., 2nd Sess. (1978).

84 D. Ill.

85 INT. REV. CODE OF 1954, § 213.

86 H. R. 10759, 95th Cong., 2d Sess. 18 (1978). Under this bill, the purchase of health insurance is considered a medical expense. Id.

Modified adjusted gross income is adjusted gross income, as defined in § 62 of the Internal Revenue Code.

reduced by the amount of the deduction for personal exemptions under § 151, and increased by (A) the deduction allowed by section 1202 (relating to deduction for capital gains); (B) the sum of any amounts received during the taxable year which are excluded from gross income under section 103 (relating to interest on certain governmental obligations); and (C) to the extent not otherwise included in the adjusted gross income, the sum of the amounts of any cash payments (or their equivalent) received during the taxable year under (i) any program under title II, IV, or XVI of the Social Security Act, (ii) any program of compensation or pension under chapters 11, 13, or 15 of title 38, United States Code (relating to veterans and other persons), or (iii) any unemployment program (as defined by the Secretary [of HEW]).

Id. at 19-20.

87 Id. at 18.

88 Id. at 22.

89 INT. REV. CODE OF 1954, § 213.

90 Miller, supra note 10, at 247.

91 Havighurst-I, supra note 1, at 189-95.

92 Id. at 188-90.

93 Id. at 190.

94 Id. at 192.

95 Id.

96 Id.

97 A policy excluding coverage for a coronary by-pass operation, for example, may be financially attractive to a prospective purchaser. Because individuals have a general tendency to underestimate the risk of catastrophic illness, and because the incidence of such illnesses is not common knowledge, the choice of an insurance policy may be made on an uninformed basis. If a person holding such a policy were to need a by-pass operation at some later time his or her ability to pay would determine the individual's access to treatment.

In another article, Professor Havighurst proposes a high copaynient rate on treatments, such as coronary by-passes, which are “frequently of doubtful value yet not appropriately excludable altogether … .” Havighurst-III, supra note 31, at 322. The same objection pertains to this proposal.

98 For a description of how such post facto reviews under Blue Cross plans have allowed providers to screen patients and to admit only those from whom payment may be obtained in the event of a claim denial, see S. LAW, supra note 9, at 115-44.

99 Note, supra note 8, at 730.

100 This Note does not take a position on whether a health insurance plan should be implemented through private insurers or through the federal government. Rather, it proposes a framework for any national health insurance plan.

101 Diagnostic tests, however, probably should be exempt from cost sharing if the cost of providing these tests would be less than or equal to the expected cost of the illnesses which such tests could detect or prevent.

102 Such a proposal has been made by Professor Feldstein under a plan which he calls “major risk insurance,” or MRI. Under MRI, an individual would be covered by comprehensive health insurance, subject to an income-related deductible. In addition, all care above the deductible would be subject to a copayment rate, until a personal expenditure ceiling, also related to income, had been reached. After the ceiling expense had been incurred, additional expenses would be covered entirely by the insurance plan. Other aspects of the plan include the provision of federally insured loans to spread the cost of coinsurance and deductible payments over a term of years, and the coverage of specific diagnostic tests which might save more money than they would cost by detecting disease at an early stage. Such tests would otherwise be discouraged by the plan. Feldstein, supra note 2, at 99-104.

Given a new federal catastrophic plan covering all expenditures above $1,000 of expense, a family may for the first time become aware that it is paying a private insurance company some $500 to insure itself against the, first $1,000 of medical expenses. It is reasonable to suspect that under such circumstances a reduction in early dollar coverage will occur; this, in turn, would serve to reduce demand, offsetting to a considerable extent the increase that would otherwise be generated by new last-dollar coverage.

Newhouse, , Phelps, & Schwartz, , Policy Options and the Impact of National Health Insurance, 290 NEW ENGLAND J. MED. 1345, 1348 (1978).CrossRefGoogle Scholar

If the current highly favorable tax treatment of health insurance premiums were altered, there would probably be a significant effect on the amount of early dollar coverage purchased by consumers. At present, employer-paid premiums are not treated as taxable income, and half of individually paid premiums (up to $150) can be taken as a personal tax deduction. Many believe that this kind of inducement to purchase insurance will no longer be appropriate if there is a national plan that protects against financial catastrophe.

Id.

104 Although the consumer probably would continue to defer to physician judgment in most cases, there at least would be a great incentive to question the physician's choice of treatment, and to seek less expensive outpatient care if possible. Further, physicians, knowing that their services would be paid for by the individual rather than an insurance company, might be less apt to render inappropriate and expensive treatment.

105 Utilization review would be particularly effective because it would concentrate on more expensive, less discretionary treatment, due to cost sharing for less expensive illnesses. Such a conclusion is supported by the experience in New Mexico, which institutionalized utilization review following the bankruptcy of the state Medicaid program. Two years after the review program's inception, the state claimed an annual savings of $85,000 on physicians’ bills, and $500,000 from a reduction in the average hospital length of stay (LOS). Gosfield, , Medical Necessity in Medicare and Medicaid: The Implication of PSROs, 51 TEMP. L.Q. 229, 252 (1978)Google Scholar (citing Auerbach, New Mexico: Self-Reform by Doctors, Wash. Post, May 7, 1953, at 1, col. 5). Concomitant with these savings were a removal of “arbitrary restrictions on patient benefits such as the limit of 30 days hospitalization per year, and limitations on necessary hospital consultations.” Id. at 252, (citing Hearings Before the Subcomm. on Health of the Sen. Comm. on Finance, 93d Cong., 2d Sess. 474 (1975)).

106 The problems inherent in deciding whether to terminate life-prolonging treatment for those covered by a catastrophic health insurance plan are beyond the scope of this Note. Both Professor Havighurst and Professor Zeckhauser have expressed concern that, by subsidizing catastrophic illness, the government inevitably will be faced with the problem of deciding when a life is no longer worth maintaining. Havighurst-I, supra note 1, at 140; Zeckhauser, , Coverage for Catastrophic Illness, 21 PUB. POL'Y 147, 164 (1973).Google Scholar Although such a problem would be more prevalent in a plan defining catastrophic illness as necessarily life threatening, an economic definition of catastrophic illness still would cover many people maintained by artificial means. The existence of catastrophic health insurance, it is argued, therefore would force the government into the moral dilemma of confronting directly the problem of valuing life, and would destroy the myth that human life is above valuation. (Professor Zeckhauser calls this a “valuable myth.” Zeckhauser, supra, at 164.)

It is not apparent, however, that the nature of the problem of terminating treatment must change with the payor of the medical bills. See Himmler v. Califano, No. 77-1083 (6th Cir. Dec. 11, 1979) (Court held that the termination of payment for treatment under Medicare was not a denial of due process). The decision to continue or to terminate treatment is one that eventually must be made, regardless of whether the government is responsible for payment. The procedure for termination of treatment under a catastrophic health insurance plan, therefore, should be the same as the procedure for patients not covered by insurance. Specifically, such a procedure would entail either the appointment of a guardian to substitute his or her judgment for the patient involved, or a judicial decision based on the best interests of the patient. See, e.g., Superintendent of Belchertown State School v. Saikewicz, 373 Mass. 728, 370 N.E.2d 417 (1977) (Court applied substituted judgment test to determine whether incompetent leukemic adult should receive chemotherapy); In re Quinlan, 70 N.J. 10, 355 A.2d 647 (1976) (Court applied reasonable person standard to determine whether incompetent's life-prolonging treatment should be terminated).

107 See Posner, supra note 43, at 4-5.

108 Cosmetic surgery may even be medically necessary, for example, for burn victims.