American Journal of Law & Medicine

An ethical perspective on health care insurance reform. (Implementing U.S. Health Care Reform)


Perhaps more than any other professional activity, medical care is imbued with ethical principles. Yet today, with major structural health care reform appearing imminent, ethics is rarely used as an analytical device. Although there is no shortage of voices raised about the limitations of our present methods for financing health care, most are fluent in economics or policy. Ethics, and more generally moral philosophy, rarely inform these debates, which tend to emphasize utilitarian cost-benefit analysis or public-choice-driven policy rationales.(1) Even legal analysis has been pushed to the side, with discussion of reform measures usually avoiding difficult problems of state insurance regulation and the preemptive effect of federal law.(2)

An unfortunate result of the emphasis on economics and politics is that much of the discussion of insurance reform today seems disconnected from the larger problems of the health care delivery system. Initiatives that appear far too narrow to have any real impact have been nonetheless scrutinized in great detail. Specific economic costs and policy options are presented with little perspective on what we really want from the health care system. Meanwhile, the dual problems of health care costs and restricted access threaten to spin the existing health care system out of control. The initial reaction of the Clinton Administration has been admirably comprehensive in scope. The plan is only now taking shape as this Article goes to press, but it clearly endorses managed competition.(3) What will eventually emerge from Congress is impossible to predict.

No matter what the final result, I would submit that it is important to consider reform in light of the value of health care in its social and moral terms. Health care is, at its roots, a helping enterprise; it is as much a matter of social commitment as it is an industry. In addition, the practice of medicine has always been attended by elaborate ethical principles. These ethical roots ought to inform the institutions to which they give rise and their attendant financing arrangements. At this point, a real civic debate(4) about the structure of health care provision, and its relationship to the ethical basis of medical care, might help move us towards more meaningful health care reform.

In this Article, I sketch an ethics of health policy and present several issues it raises, as well as the emphasis those issues should be given in the reform of our existing system. Part II discusses why we should reform our health care system and presents three types of proposed solutions: health care insurance reform, health care financing reform, and health care cost reform. Part III sketches a "bottom-up" ethics of health policy that is an extension of traditional medical ethics and accommodates important principles of liberalism. It presents three issues that guide an ethics of health policy: patient commitment, institutional commitment, and provider community orientation. Finally, Part IV addresses seven specific propositions that an ethical analysis of health care reform will raise.


Why does health care reform today focus so much interest on health insurance?(5) The most convenient response is simply that the existing system is too costly. Personal health care expenditures continue to increase annually at about 9.5 percent, with the total personal health care expenditure estimated to reach about $957 billion in 1995.(6) National health expenditures are projected to be $1072.7 billion in that same year.(7) It would seem that our economy cannot tolerate both inflation and commitment of resources at this level.

This broad rendition of the "problem" with health insurance is open to scrutiny on several fronts. There is no absolute reason why either individuals or government cannot spend more money on health care, except insofar as this limits resources for other primary social goods. It is not at all clear how many dollars expended for health care are taken from other socially valuable programs. In addition, insurance reform itself is no panacea for health care cost inflation. Although the Health Insurance Experiment revealed that first-dollar insurance does lead to greater demand for health services,(8) insurance mechanisms can explain only a fraction of the increase in health care expenditure.(9) The remainder is attributable to such factors as the incorporation of new technology and changes in real income.(10) Therefore, the problem must be stated more carefully if health insurance reform is to serve as an adequate solution to the health care cost crisis.

A more sophisticated rationale for health care reform is that health insurance has become too costly for the average middle class person. As real wages have leveled or fallen off in the 1980s, health insurance premiums have continued to increase, in constant dollars from $656 per full-time employee in 1970 to $1,722 in 1989.(11) Employers have paid for much of this increase through health benefits plans. While in 1970, health benefits were equivalent to almost twenty percent of pre-tax corporate profits, by 1990, they were more than fifty percent.(12) With such intense cost pressure, employers have no choice but to limit benefits and induce employee cost sharing.13 Health care cost inflation, therefore, leads to limited benefits and higher employee out-of-pocket payments, which in time lead to consumer pressure for reform.

Certain dynamics of the insurance market, particularly the fragmentation of risk pools, accelerate this process. Insurers and benefits managers at large companies now tend to leave large geographic risk pools and base insurance rates on their employees alone, especially when it seems that the employees are healthier than the rest of the population.(14) A healthy risk pool can qualify for favorable premiums.(15) This leaves behind the less well, who must then pay higher premiums and accept narrower benefits.

Of course, the process of fragmenting toward optimal risk pools reaches a limit when the pool is too small to be actuarially stable. Indeed, small work forces are often charged more for similar benefits than are large workplaces because of higher administrative costs, fear that employees in small workplaces may be sicker, and concerns about inadequate risk pooling.(16) The costs of health care coverage for small workplaces are often so high that employers simply forego this tax-subsidized benefit.(17) Another option for employers is to purchase policies with reduced benefits levels. Caps on employee co-payments had become increasingly popular, but this trend now appears to have moderated.(18) Solutions to the small group market "problem" represented a major boomlet in the general excitement about insurance reform,(19) in no small part because this represents a problem that insurance reform can directly address. They are now fading as attention focuses on managed competition and "health alliances" that will enforce community rating and organize small markets.(20)

Insurance market dynamics and sources of inflationary pressures are not, however, the central concerns of most reform advocates. Underlying concerns about out-of-pocket costs and fragmentation of markets is the fear that, as the availability of insurance dwindles,(21) those without it will not receive medical treatment, or will receive inadequate therapy. The critical ethical "problem" in health care today is that ability to pay will determine availability and quality of care.

The metaphor of the patient unable to gain access to care is relatively new and increasingly pressing. The fear that the uninsured will receive, at best, deficient health care was rarely stated explicitly until the mid- 1980s, perhaps because health care providers traditionally reassured society that payer status would not affect health.(22) Before insurance became widely available in the late 1940s, hospitals acted as true charities, caring for all patients. Although some patients may have been in "private" rooms, and other less wealthy patients on public wards, many of the same physicians provided care to both groups, and the diagnostic and procedural protocols were similar.(23) Medical ethics insisted that patient care be isolated from economic considerations, and most providers followed this imperative.(24) According to this traditional view, wealthier patients, or those with adequate insurance, cross-subsidized the care provided to those without insurance.(25)

As commercial insurance became more widespread, and especially as Medicare(26) and Medicaid(27) were introduced, hospitals could reasonably expect to be reimbursed for services. Many hospitals did away with distinct public and private services.(28) In the meantime, the common law of torts began to identify a hospital's duty to care for all patients presented to an emergency room.(29) In addition, once admitted to the hospital, the common law required that patients receive care according to a reasonable medical standard.(30) By the 1980s, tort doctrine, supplemented by the provisions of the Hill-Burton Act,(31) assured hospital access for acutely ill individuals.(32) The traditional ethical tenet mandating patient care regardless of ability to pay, and the buttress of common law, could be interpreted as preventing any move to an overt double standard for those unable to pay for hospital care.(33) With the advent of community health centers providing primary care to the rural and urban poor, one could even argue that preventive services and health promotion were becoming available to those without insurance.(34)

Only recently has the assumption that patients receive similar care, independent of insurance status, been overturned by empirical research. It has become clear that those without insurance are at risk for a variety of poor outcomes as compared to insured patients.35 Once the Medicare program began to use prospective payment through diagnostically related groups to pay for hospital care,(36) and other large third-party payers began to insist on discounts in hospital rates,(37) cross-subsidies evaporated. This trend in turn, has both increased pressure on hospitals to reduce care inputs for uninsured individuals and affected their care outcomes.(38) Thus, as the uninsured and underinsured population grows, health care becomes more inequitable, and many fear that they will be left off the "medical lifeboat."(39)

The foregoing characterization of the problem makes possible a structural discussion of proposed solutions, which, in turn, can be the target of ethical analysis. First, there are reforms that should at least halt recent increases in insurance costs and create subsidies for those who cannot afford even low-cost policies. These are included in what I term true health care insurance reform because they focus on underwriting issues and the insurers' roles in the provision of health care. As one might expect, the reform proposals that seem most realistic are those that emphasize limited subsidies as an adjunct to the current insurance market. These typically call for use of reinsurance or similar techniques to broaden coverage in small insurance markets;(40) wider use of employer-mandated coverage;(41) and more creative high-risk pooling mechanisms.(42)

The second category of health care reform is health care financing reform (as opposed to narrower insurance reform). Health care financing reform proposals radically restructure existing insurer/insured relations.(43) These proposals tend to form four classes. The first and most radical is to move to a single governmental payer, often referred to as the Canadian model.(44) The second is to continue to rely on multiple payers, but ensure access through increased employer mandates and broader government subsidies.(45) A third is to use newly created quasi-governmental agencies (health insurance purchasing cooperatives, or health alliances) more effectively to manage care and promote competition and access.(46) The fourth is to leave choice about benefits primarily in the hands of the individual, who can take advantage of new tax credits or vouchers to purchase care he or she deems necessary.(47) Models one and perhaps two represent the view that health care should be considered a form of social insurance,(48) while the latter models retain some of the characteristics of the casualty model(49) of insurance.(50)

Any comprehensive plan must stake out a position on certain foundational issues, such as taxation methods, relationship of finance to quality improvement, mechanisms for control of technology, and health manpower.(51) For purposes of an ethical analysis, there are three important foundational issues in health care financing reform. First, any reform plan must either promote competition among diverse insurers or endorse a single payer. Competitive strategies take advantage of market incentives to increase sufficiency and presumably quality.(52) A single payer, on the other hand, has attributes of administrative efficiency and perhaps greater equity.(53)

The second foundational issue is a decision about the nature of benefits. One could consider setting a floor of benefits available to all citizens and a ceiling limited only by a consumer's willingness to purchase additional benefits. On the other hand, one might limit benefits at a single floor/ceiling available to all citizens. This system is a standard benefits package. Although consumer-set ceilings are generally associated with competitive strategies, it is not necessarily true that only single-payer plans endorse standard benefits packages. For example, the proposal of the American College of Physicians envisions a single set of benefits, but allows for competition between insurers based on the efficiency of producing that single benefits package.(54) The Physicians for a National Health Program would eschew competition in favor of a single payer and endorse a single set of benefits.(55) Some economists propose "responsible national health insurance" advocating a minimum floor of benefits through vouchers, and reliance on competition between various insurers, with consumers setting their own ceiling of benefits.(56)

The third foundational issue for health care financing reform is cost control. Both insurance reform and the more general health care financing reform aim at slowing the increase in health care costs for the consumer, as well as lowering the number of uninsured, but do not necessarily affect the costs of health care interventions to society as a whole. To decrease overall health care costs, not just costs to the consumer, one must either limit the number of interventions employed per health problem by changing both hospital and physician behavior, or eliminate some of the costs associated with each intervention.(57) Accomplishing either of these cost-control options usually goes well beyond the financial relationship among payer, provider, and insurer. Nevertheless, most health care financing proposals are likely to be linked to some constellation of these options. I term measures designed to decrease overall costs of care health care cost reform. Although these measures are slightly peripheral to the financial relationship, they are nonetheless important components of reform. Health care cost reform usually entails either market incentives or command and control regulation.

To accomplish the first type of health care cost reform, limiting the number of interventions employed, a few mechanisms have been proposed. Global budgets for hospitals, for example, would force professionals to choose the most efficient array of interventions.58 National and regional prospective payment systems were meant to begin that process.59 Clearly, global budget proposals represent a more harmonious part of a health financing reform proposal that emphasizes centralized command and control regulation rather than market-oriented reform measures.(60) Practice guidelines, enforced in part by malpractice litigation, might accomplish the same goal and can fit into both market and central regulatory approaches.(61) Medical care management through health maintenance organizations can control costs directly by controlling provider decisionmaking.(62) Many argue that competition among health plans furthers this goal by creating incentives for more stringent management techniques.(63)

Rationing health care through explicit lists of compensable services represents yet another way to control costs by decreasing interventions.(64) This is essentially an administratively set floor and ceiling for beneficiaries of a particular plan. The state of Oregon provoked a great deal of discussion by seeking (and eventually gaining) a Medicaid waiver to institute an explicit system of rationing.(65) The concept of rationing as a form of cost control is here to stay.

Achieving the second goal, eliminating costs associated with interventions, may be more difficult. Theoretically, managed care, guideline adherence, global budgets, and competition can decrease the number of inappropriate ancillary tests performed using major procedures and, as a result, decrease unit costs.(66) Minimizing the administrative overhead associated with health care provision also reduces individual intervention costs.(67) One of the major arguments in support of single-payer health care plans concerns the administrative costs associated with the multitude of private plans now available.(68)

In summary, conventional insurance reform, health care financing reform and health care cost reform each refer to different constellations of proposed solutions. Importantly for purposes of this Article, each constellation raises different ethical concerns. But before moving to an analysis of these concerns, we must better specify what is meant by the ethical analysis of health policy.


Moral/ethical analyses of health policy have been available for years.(69) They have usually been independent of and, in some ways, in conflict with traditional medical ethics. For example, most discussions of health care institutions have been rooted in theories of liberal justice, with health care's role as a Rawlsian primary social good the central target of scrutiny.(70) This analysis often becomes intertwined with the concept of a right to health care, a phenomenon apparent in the consideration that the President's Commission gave to the just distribution of health care.(71) Insofar as the U.S. Constitution does not seem to entail a right to health care,(72) much of the legal analysis of health care administration has abandoned the idea of universal entitlement through the concept of rights.(73)

With the Reagan Administration's advocacy of "competitive strategies" in medical care, right to health care as a theme was further eclipsed by a fascination with markets. After a decade of competition, however, the same problems with access to and cost of medical care remain (and perhaps have worsened). Therefore, justice of health care and morality of health institutions are once again becoming central to reform analyses (though notions of competition continue to flourish).(74) Curiously, the consideration of justice in health care has never made serious inroads into traditional notions of medical ethics. Medical ethics continues to emphasize the dutiful clinical relationship of doctor to patient, most recently regarding treatment at the end of life.(75)

An alternative to this streaming of traditional medical ethics and concerns about social justice is to suggest that institutional allocative decisions and clinical encounters reflect some of the values that control the clinical setting.(76) This proposal values some moral consistency between the realm of clinical interventions and access to the institutions that provide them. To this end, an ethics of health policy should share some common themes with traditional medical ethics. Put another way, the ethical propositions that govern the just distribution of goods in the liberal state should be modified so as to accommodate traditional medical ethics. Analogous compromises might be expected of clinical ethics.

This proposed accommodation is no small task. Liberalism espouses a much different set of moral/political ideals from medical ethics. Indeed, traditional medical ethics insisted that physicians do everything possible for the individual patient, independent of political or economic constraints.(77) Obviously, these fiduciary impulses are inappropriate in an ethics of health care policy that has as its central paradigm the limits on medical care resources. I have argued elsewhere that the philosophy of medical ethics based on doing anything that could potentially benefit the patient (without regard to marginal returns) has contributed to the inordinate and inappropriate cost of health care.(78)

The rather radical differences between paternalistic, duty-oriented medical ethics and individual, rights-based liberalism seem to allow two very different approaches to thinking about a hybrid ethics of clinical medicine and health policy. One would be to start with the tenets of liberalism and analyze health as merely one social good among many others.(79) Clinical ethics would be reformulated to fit a definition of just health care.(80) Although this has a great deal of merit, I am interested in a second approach, which involves analysis of policy issues from the viewpoint of medical ethics. …

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