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America Must Choose between Clinton Health Plan, Status Quo

Guest Column by Anders Hove

The Clinton plan for health care reform has been the subject of endless analysis, Lars Bader tells us. Thus I expected Bader's column "[Cost of Clinton Health Care Plan Unfair to Students," Sept. 28] to add to the discussion. His criticism of the president's plan is perhaps valid, and some of the points he raises certainly merit further discussion. Yet in sum I believe Bader's column does more to confuse than to inform the reader. I do not wish to counter his column point by point; rather I would like to clarify some of the issues, including those he has raised, in order that we might adequately choose between the two systems of financing health care in America: the Clinton plan and the status quo.

President Clinton's newly released health care plan seeks to accomplish two ends: First, it would guarantee every American basic health insurance without regard to income; second, it would control costs by introducing a scheme of large insurance purchasing cooperatives which would compete to provide insurance for the highest quality care at the lowest possible cost.

The consumer, whether employer or individual, would have a choice among plans offering alternately greater choice and services at greater cost, or fewer choice and services at less cost. All plans would be required to offer at least a minimum package of benefits. (The list of guaranteed benefits may be found in almost any recent magazine or newspaper.)

The key to the plan is financing. As I said, the government would seek to control system-wide costs through private competition among large purchasing cooperatives, known as "health alliances." Alliances would use their large purchasing leverage with providers (such as hospitals) in order to draw up plans which offer cost-effective quality care.

Needless to say, financing the plan's universal access provisions presents the greatest challenge to policy-makers. Instead of simply expanding government bureaucracies, Clinton's plan would eliminate Medicaid and put current Medicaid and Medicare recipients, along with other uninsured citizens, into the local purchasing alliances. Hospitals would compete to offer cost-effective care to these patients just as they would for any other group. The bulk, the uninsured, would be insured by their employers, with the federal government subsidizing the insurance of most part-time, self-employed, or low-wage individuals. (In other words, employers would purchase for their employees insurance plans offered by local health purchasing alliances.) Small businesses would also receive a tax-credit to help offset the impact of purchasing insurance plans. The current public debate seems to be centered around two ideological questions. First, does Clinton's plan amount to a huge increase in government bureaucracy to which all Americans will be forced to pay to receive rationed, socialized medicine? Second, will Clinton's plan kill free enterprise in America by stifling entrepreneurs in small business?

The answers to these two questions are matters of opinion and perspective. Some of the response to the president's plan is surprising, while some is predictable. For instance, insurance companies offering traditional individual insurance (known as "fee-for-service") are predictably against the plan. After all, they would be required to radically alter their methods in order to become competitive in a system that places a value on both cost and quality of care. For such insurers, the answer to the first question is yes, because they see price-competition in the insurance market as a form of government regulation. On the other hand, many business organizations, chambers of commerce, and unions support the plan. These groups believe that, while mandating employers purchase a share of health insurance may hurt some uncompetitive businesses, most employers and employees will be able to purchase care at greatly reduced cost. Even more important, since many businesses currently purchase expensive fee-for-service or health maintenance organization coverage, they will be happy to switch to the cheaper health alliances. For such organizations, the answers to the two questions are both no, since they would be greatly aided by the lower cost of doing business in the relatively deregulated environment of price-competition in the insurance market.

Many readers may still be puzzled at how proponents can argue that Clinton's plan would return the insurance market to price-competition. After all, strident opponents of the plan are quick to label it "socialist," and to decry it as the creation of a bureaucracy which would ration out low-quality care without regard to the free market. Yet to many doctors, hospital administrators, HMO presidents, employers, and policy-makers, the words "bureaucracy," "rationing," and "not responsive to the free market" describe the current health care system. Right now, state and federal governments spend hundreds of billions of dollars to give low-quality care to Medicaid recipients. But since the government never picks up all of the tab, hospitals are required to charge paying patients for the shortfall. (In most states, fee-for-service recipients shell out hundreds of millions of dollars annually in premium surcharges to pay this shortfall.) In the end, hospitals are forced to ration care as follows: Paying patients get high-quality, high-cost care provided with an eye toward future litigation; non-paying patients get low-quality, high-cost emergency room care for services that could have been prevented at a quarter of the cost. There is currently no incentive to control costs. Who pays for this mess? Those who pay taxes and those who pay insurance premiums. Bader talks about what he calls "cost-shifting," his idea that the young will pay an unfair rate to subsidize the old. In the health care industry, however, the words "cost-shifting" refer to the practice of shifting the cost of providing care for non-paying or under-paying patients to those who are insured. Since the uninsured do not pay for their care, and Medicaid, Medicare, and HMOs reimburse below cost for their services, paying patients often spend nearly 25 percent of their hospital bill for other people's care.

Of course Bader is really talking about community-rating. "Community-rating" is the process whereby many individuals pay into a pool to insure a large group of people. If I buy insurance, and I never get sick, I don't get my money back; that money just goes to pay for the person who did get sick. All insurance used to be based on this concept of community-rating. Recently, however, insurance companies have begun hiring private firms to locate groups of high-risk people. These insurance companies now write policies which disqualify all but the statistically healthy. Many people who are deemed to have a high risk of getting sick are charged a much higher premium, thus driving more of them into the ranks of the uninsured. These uninsured people -- who could afford to insure themselves ten years ago -- end up so impoverished by mounting emergency room bills that they qualify for Medicaid. In other words, insurance companies make a big profit on healthy patients; the taxpayer pays for the statistically unhealthy.

If the Clinton plan is passed in its current form, this form of rationing will end, and the health care system will return to community-rating. Since nobody will go without insurance, and nobody will get below-cost treatment, there will be no cost-shifting to paying patients, nor will the taxpayer be forced to pay for those who should be able to both qualify for and afford basic insurance.

Those who support the Clinton plan for national health care reform are earnestly attempting to keep our nation competitive by slowing the growing cost of insuring our citizens. (Our health care bill comes to $900 billion annually -- one seventh of the gross national product.) A system of large insurance purchasing alliances can and will compete to drive down these costs without sacrificing the quality of care. If successful, the plan may smash apart the convoluted snarl of the public and private sector, end cost-shifting, and save taxpayers and insurance purchasing Americans hundreds of billions of dollars. Yet there is still uncertainty about what the unseen costs of the plan will be, to both the public and private sectors, and to individuals.

The Clinton administration's plan for health security presents us with a unique opportunity for discussion. We should all know the stakes when we choose between Clinton's plan and the status quo.