The Clinton Plan Mixes the Best of Market Reform and Government Intervention

October 17, 1993|By WALTER ZELMAN

For any major change to occur in an area as important as health care, at least three conditions must be met.

First, there must be a sense of crisis: one that affects most segments of society.

Second, there must be leadership from the executive branch. Without it, few initiatives can override the fragmentation of American government and politics.

Third, change this deep doesn't arrive in America when one philosophical side narrowly overcomes another: it comes only with the emergence of broad consensus on how a crisis can be addressed.

The first two conditions have already been met. The Clinton plan -- a unique blend of health care reforms -- has the potential to achieve the third.

For some time there has been agreement on what the current crisis now is. Thirty-seven million Americans are without insurance coverage, and every month another 2 million lose their insurance for some period of time. Millions more have just bare-bones policies, and the rest are (or should be) anxious about maintaining the coverage they have. Costs -- for families, employers and government -- are rising at rates two to three times that of inflation, and in many cases much faster, threatening the ability of private employers to maintain current benefits and diminishing the country's capacity to invest and engage in other public and private enterprises.

The insurance marketplace is also dysfunctional. Competition among insurers over quality, service and price has given way to competition to find the least risky consumers. When 10 percent of individuals account for 75 percent of system costs, competition among insurers will be more over whom to enroll and less over how to care for all enrollees efficiently.

Finally, there are inequities in our current financing structure. It is not just a case of the current system lacking progressivity; it can be outright regressive. Large employers or high-wage firms are more likely to insure their employees with more generous benefits and to pay higher shares of insurance premiums than are smaller or lower-wage employers.

There is even considerable consensus around the cause of the health care crisis. When it comes to health care, the balance of power between the supply and demand sides has been anything but balanced.

Most buyers have little information about the quality of service delivered by health care providers -- doctors, hospitals, health maintenance organizations or insurance companies. It is difficult, if not impossible, to compare the value of all the plans offering marginally different levels of benefits and consumer cost-sharing. In fee-for-service medicine, still the main way we get health care, the incentive is to do (supply) more when less might be acceptable, or even better. And with consumer cost consciousness as low as it is (after all, the employer pays most of the premium, and the insurer most of the bill), the individual consumer has little incentive to question the decision to spend ,, more.

In short, the demand side has had little ability to keep the supply side in check. (Indeed, in the ultimate violation of market economic theory, suppliers largely determine demand, telling us what we need and when we need it.) In the face of this failure, proponents of reform have generally fallen into two categories, each of which has had a political component (access and coverage) and an economic component (cost containment).

Some -- mostly Republicans and conservative Democrats -- have advocated market-oriented solutions. They want reforms that will create a more level insurance playing field to reduce or eliminate the propensity of insurers to compete on risk selection. They may also endorse the creation of modest-sized purchasing pools to strengthen the market power of small employers. However, these reformers have generally been reluctant to endorse the means (e.g., mandates), the government intervention or the expenditures necessary to make the system serve everybody.

By contrast, many moderate and most liberal Democrats have demanded universal coverage and have been willing to impose a mandate on employers or government to get there. Most important, they've believed that the goal of guaranteed coverage with cost control would inevitably mean relying more on government intervention than on market-driven reforms and adjustments.

The Clinton plan represents an attempt to enlist the best ideas of both market reform and government intervention. It embraces the goal of coverage for everybody, and recognizes that some degree of government intervention -- including asking all to pay a share -- will be required to achieve that goal.

But it resists the temptation to micromanage the system, and leaves the bulk of delivery system reform and cost-control tasks to the private marketplace. It embraces means generally associated with conservatives (competition) to achieve ends (guaranteed coverage for all) generally associated with liberals.

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