Health-care breakthrough?

Robert Kuttner

January 05, 1993|By Robert Kuttner

HEALTH reform is urgently desired, but has been blocked by seemingly immovable fiscal and political realities. Now, however, a new approach has been embraced by the Clinton transition group, and could lead to a real breakthrough.

The fiscal blockage is that universal health care, Canadian-style, would shift some $500 billion now paid by employers and consumers onto the taxpayers. That would seem an astronomical tax increase, even though the new "taxes" would mostly replace health dollars now spent in other ways (insurance premiums, payroll deductions, out-of-pocket costs).

In the 1980s, this dilemma led many health reformers to reluctantly embrace a "play-or-pay" model, in which most coverage is provided by employers. Companies that already offer adequate health benefits would pay no new taxes; only those without health plans would pay, and the government would cover the unemployed.

But "play-or-pay" is administratively cumbersome. Also, it gives employers rather than consumers the choice of health plan, at a time when the turbulence of the economy makes your current employer an unreliable source of health coverage.

Politically, there has been a standoff between advocates of play-or-pay, supporters of a Canadian-style system, and major industries (notably the insurance industry) that prefer the status quo. And as long as the Reagan and Bush administrations held power, no legislation moved because the White House promised to veto any plan that cost new federal money.

Now comes a hybrid model rapidly gaining favor within the Clinton camp. It lacks a nice catchword, though some call it "managed competition."

The emerging model builds on work by Stanford University health economist Alain Einthoven, by California Insurance Commissioner John Garamendi, by my colleague Paul Starr, author of the recent "The Logic of Health Care Reform," and a group of Democratic senators led by Harris Wofford of Pennsylvania.

The basic innovation is something called a Health Insurance Purchasing Cooperative (HIPC), which blends elements of play-or-pay with a Canadian approach. Every region would have one such HIPC. Employers could provide their own health plans, but most would find it more cost-effective to pay premiums to the HIPC; the federal government would provide funds to subsidize small business costs, the poor and unemployed.

But unlike play-or-pay, in which money would go from the employer to a health insurance company, under the new approach virtually all money would funnel through the HIPC. And all consumers, all doctors and hospitals, would be in one financial system, though there would still be competing health-delivery plans.

The regional HIPC would certify acceptable plans, impose an overall budget cap on health outlays, and bargain with doctors, hospitals and plans to hold down total costs. Consumers, rather than employers, could choose their health plan. Nobody could be turned down based on a "pre-existing condition," and there would be no gap in coverage if you lost your job.

Health plans would be reimbursed by the HIPC based on the demographic and health profile of their members, and not procedure-by- procedure.

This would give providers an incentive to hold down costs rather than gold-plate treatments in order to maximize reimbursements.

This idea, though imaginative, is not without political and substantive flaws. Purist defenders of the Einthoven "managed competition" approach say the new hybrid plan imposes too much regulation, while advocates of a Canadian system say it artificially divides consumers into multiple health plans solely for the purpose of winning the political support of the health insurance industry (which would be put out of business under a Canadian system).

A substantive problem is that a consumer enrolled in Plan A could not freely visit a doctor from Plan B, while in Canada any consumer is free to visit any doctor. A further criticism is that the system of reimbursements based on the membership profile of a given plan would give health entrepreneurs an incentive to beat the system through selective recruitment of members.

Moreover, say critics, if we can disguise a tax increase by having employers pay money to a regional HIPC, why not have them pay the same money to a Canadian-style public authority?

Still, even with its flaws, this approach is ingenious and may offer the long-awaited political breakthrough. It would provide universal care and most of the benefits of the Canadian system, but without inviting a united front of industry opposition or requiring an unattainable tax hike. It may be the best we can attain under the circumstances.

The several key health industries -- doctors, hospitals, insurance companies -- seem receptive to some version of this approach. The devil, of course, is in the details. Some forms of "managed competition" would not be worth having. For example, if the system lacked truly universal coverage, or allowed insurers to discriminate among the sick and the well, or failed to cap costs, it would be worse than nothing.

The stars seem momentarily aligned, but the window will not stay open very long. As this approach is fashioned into legislation and runs the inevitable gauntlet of congressional committees and interest groups, it will take all of President-elect Clinton's political acumen to bring home a good package.

Robert Kuttner writes a column on economic matters.

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