The problem that won't go away
Kenneth A. Macke
Published April 1, 1992 | April 1992 issue
Dayton Hudson is the nation's 16th largest employer in the private sector. We have 161,000 employees--of these, 60,000 work 24 hours or more per week. They and their dependents are covered by medical insurance.
During the seven years that I have been CEO, our corporation's medical expenses have grown from $60 million to $150 million a year. If you include workers' compensation medical, it approaches $200 million. Our per-covered- employee cost has increased from $1,108 to $1,750. In 1985, an appendectomy cost about $2,500. Today, it is $6,000. Normal childbirth was $2,000. Today it is $4,500. To put it in perspective, we have to sell over 39,000 Ninja Turtle action figures to pay for one appendectomy.
In self-defense, in the early 1980s, we began a major cost containment program.
- We are self-insured.
- We use claims management.
- We do utilization reviews.
- We make use of managed care and bargained rates.
- We use our size to influence HMO practices.
- We have increased dramatically the administrative requirements.
- We have asked our employees to participate more heavily in the costs.
And yet, in 1992 our medical expenses per covered employee will increase 15 percent. This picture is even darker for smaller companies. For that group, premium increases will be in the 25 percent range.
We have learned the hard way that voluntary cost control efforts and market forces DO NOT solve the problem.
As a nation, we spend 14 percent of our GNP for health care. And yet, medical care effectiveness in the United States is no better than other nations that are spending as little as one-third of what we spend.
The experts estimate that if we don't do something about this, annual medical expenses in our country will exceed 20 percent of GNP by the year 2000. I am equally alarmed that an estimated 40 million Americans, or 15 percent of our population, do not have access to medical insurance.
Reform will mean sacrifices by all segments of the medical treatment chain: providers, payers and users. Because of the depth of the problem and because of the rapid escalation in costs which will continue if we do not intervene, it is paramount that changes occur as soon as possible. Waiting another three or four years will allow spending to double again and will hurt those who are unprotected.
Given the gravity of our situation, Dayton Hudson is aggressively participating in various coalitions whose purpose is to bring abut health care reform that results in quality health care, delivered in the most economical manner to all Americans.
Although reform in Minnesota may be under way, nationwide reform is essential. We are a national economy; employers and medical providers alike operate across state lines. We have a mobile population with millions moving annually from state to state. The need for universal coverage will be met only if there is national reform. If 50 states form 50 separate systems, we will have even greater chaos than we have now.
We are so convinced that a nationwide reform is essential that we are members of the National Leadership Coalition for Health Care Reform. After two years of study, that coalition developed a proposed strategy for universal coverage and major reform.
The reform proposal we advocate has eight interconnected elements:
- Initiatives to improve the quality of health care.
- Universal coverage with a funding mechanism.
- Cost control through spending limitations.
- Organized delivery systems for efficiency, quality and accountability.
- Management and oversight.
- Insurance reform.
- Malpractice reform.
- Administrative simplification.
The financing of the plan would occur as follows:
- All employers offer health insurance or make a 7 percent of payroll contribution to the public plan.
- Employees above poverty pay either 20 percent of the premium if insurance is offered, or 1.75 percent of their salary if the contribution option is selected.
- All employers contribute 0.5 percent of taxable payroll to fund the public plan.
- All employees contribute 0.5 percent of their taxable payroll to fund the public plan.
Because of the nature of our particular coalition, we have a chance to mobilize the private sector and to work with government to achieve these necessary reforms. We are dedicated to help bring federal and state government, and the private sector together around this task. The problem will not go away, but a solution is within our reach.
Mr. Macke's introductory comments are based on June 1991 testimony before the U.S. House Committee on Government Operations. The subsequent column first appeared in the March 1992 Executive Summary, a publication of the Minnesota Center for Corporate Responsibility.