Mad Social Scientists

February 10, 1994|By TRB

WASHINGTON — Washington.-- The Clinton people have done a terrible job explaining why their health care reform is so complicated and intrusive. Why, for example, must virtually everyone join one of these ''alliance'' thingies?

And what is this business George Will was going on about in Newsweek recently? ''It would be illegal,'' Mr. Will wrote, ''for doctors to accept money directly from patients, and there would be 15-year jail terms for people driven to bribery for care they feel they need but the government does not deem 'necessary.' ''

As the skeptics point out, a large majority of Americans currently have health insurance they're satisfied with. Without a clearer dTC explanation than has been supplied so far, it is perfectly reasonable to wonder why this majority's current arrangements must be unsettled. Why isn't it enough simply to reform the insurance market so that people can't lose their coverage, and to create a much smaller program to help the uninsured? Are the Clintons just mad social scientists, experimenting needlessly on the body politic?

OK, so take those alliances. Their purpose is twofold: to hold down health-care costs through market competition by giving buyers more leverage, and to help end price discrimination against individuals and small businesses by putting them into pools as large as the largest companies. But if the alliances are such a wonderful idea, why must folks be forced into them?

As explained by President Clinton's health-care guru, Ira Magaziner, the reason has to do with the problem of risk-sharing. One goal of every health reform plan, including the most conservative and ''market-oriented,'' is to end the insurance-industry practice of charging more to people who are more likely to get sick, or are already sick: older people and those with ''pre-existing conditions.''

But ''community rating,'' as it's called -- ordering insurance companies to charge everyone the same for health insurance, no matter what their individual risk -- is not a simple matter. It requires not just rules against price discrimination, which are fairly simple, but much more complex and hard-to-enforce rules to prevent insurance companies from discouraging customers who are likely to prove expensive.

And even if insurance companies don't discriminate, the luck of the draw means that some of them will end up with a worse risk pool than others. That is why ''community rating'' also requires complex procedures for assessing individual risks, and for redistributing funds among insurance companies to level the playing field.

Mr. Magaziner maintains that if almost everybody acquires insurance through these large regional alliances of his, the task of equalizing insurance costs becomes much simpler and requires less intrusive regulation, not more. The general point is that larger risk pools equalize costs automatically.

If the alliances are strictly voluntary, groups of low-risk (younger, healthier) people will form outside of them and negotiate preferential rates. If there are hundreds of insurance companies making separate arrangements with thousands of companies and millions of individuals, the task of leveling the playing field among customers and companies becomes infinitely more complicated.

Mr. Magaziner's alliances may not be the best way to solve this problem. But those who say that minor insurance reforms can straighten everything out are either ignorant or dishonest. The

dirty secret of all those from Mr. Clinton rightward who oppose a Canadian-style single-payer system is that insurance ''community rating'' -- the bottom-line reform nearly everyone advocates -- essentially socializes health-care costs, and will require tremendous new government involvement no matter how it is done.

As for George Will's 15 years in jail for bribery, Mr. Magaziner says this applies only to outright insurance fraud. If a patient and a doctor collude to bill an insurance company for a procedure that isn't covered, they go to the slammer. Fifteen years seems a bit stiff, but of course that's the fashion these days.

It would not be ''illegal for doctors to accept money directly from patients.'' Anyone would be free to go outside the system and pay any doctor any amount for any service. And many insurance plans would involve partial co-payments by patients, as they do now.

What would be illegal is for doctors to say, ''I'll treat you, but only if you pay me more than the agreed-upon co-payment.'' This is a matter once again of insurance fraud. If doctors have agreed to accept a set fee schedule, they should stick to it.

More generally, this rule addresses the problem of controlling costs in an industry dominated by insurance. For years Medicare paid 80 percent of a set doctor's fee, but doctors were free to charge patients more than just the remaining 20 percent. Inevitably, the fact that four-fifths of the basic charge was seemingly ''free'' enabled doctors to charge a lot more than they otherwise could. This became a huge engine of health-cost inflation. Forcing health-care providers to negotiate rates and then stick to them is the key to ''managed competition.''

There are alternatives to managed competition, such as Sen. Phil Gramm's scheme to encourage people to go without insurance for all but ''catastrophic'' medical expenses. But if you want basic medical insurance, and if you want more market discipline on costs in the health-care industry, rules like this one are essential.

TRB is a column of The New Republic, written by Michael Kinsley.

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