Subject: Health-Care Experts Devising Clinton Plan Face Sticky Questions Date: Published: 3/11/93 (374 lines) Source: Wall Street Journal. Copyright Dow Jones & Co. Inc. Medical Maze: Health-Care Experts Devising Clinton Plan Face Sticky Questions --- How to Finance the Program And What It Will Include Are Among the Top Issues --- Huge Stakes for the President ---- By Hilary Stout Staff Reporter of The Wall Street Journal WASHINGTON -- In a "war room" in the ornate Old Executive Office Building next to the White House, the advisers to President Clinton, led by Hillary Rodham Clinton, are mapping nothing less than a revolution. By May 1, they must come up with a plan to expand health-care coverage to every American while curtailing medical costs that in the past decade have soared 150% to more than $800 billion a year. Aided by hundreds of government bureaucrats, congressional aides and outside experts, they are, in short, trying to redesign one-seventh of the U. S. economy in the next 51 days . Mr. Clinton must depend on this health plan, even more than on his economic program, to win the allegiance of the vast middle class he courted so assiduously during his election campaign. The health package will probably cost more, affect the average person's life more and stir up more controversy than his plan to reduce the deficit and stimulate the economy. To a large extent, Mr. Clinton has staked his presidency on this issue. "All our efforts to strengthen the economy will fail -- let me say this again, I feel so strongly about it -- all our efforts to strengthen the economy will fail unless we also take this year -- not next year, not five years from now, but this year -- bold steps to reform our health-care system," Mr. Clinton, straying from his prepared text, told Congress last month. However, many of the "bold steps" he is promising have yet to be decided. His health-care task force is wrestling with a slew of unresolved issues. It must decide: -- Whether to propose a second round of tax increases to help pay for extending health insurance to the 37 million people now lacking it. The task force's preliminary work plan estimates that universal access could cost the government an additional $30 billion to $90 billion a year, depending on the program. -- Whether to propose short-term government price controls to stem the relentless rise in medical fees while the broad health-care overhaul legislation is being debated, passed and put into effect. -- How to set and enforce the national health-care budget the president has publicly advocated. But while those issues remain, much of the Clinton administration's plan is coming into focus. Based on public statements, task force documents and interviews, here is what the U. S. health system would look like if these plans were enacted by Congress: All working people would, by law, be guaranteed a standard package of health benefits from their employers. Low-income unemployed people would get the same benefit package, but it would be financed by government subsidies. The elderly would continue in the federal Medicare program for now. No one with HIV, no one with a heart murmur, no one who is pregnant, no one with any other medical condition could be dropped from -- or declined enrollment in -- a health plan. No one who lost a job or changed jobs would lose health benefits. To hold down costs, new competition would be brought to the medical market. Large regional cooperatives of businesses and individuals would be created to shop for the best health plan at the best price. To win the business of these huge buyers, doctors, hospitals and other health-care providers would band together in an effort to offer the highest-quality medical care at the lowest cost. Large companies, many of which are accustomed to underwriting their own benefit packages, are likely to be allowed to continue to do so, although that isn't certain. To impose discipline on the system, the government would set a budget limiting the amount that could be spent on healthcare coverage in the U. S. each year. As a result, each insurance-purchasing cooperative would have a fixed amount of money it could spend on coverage. Administration officials insist that universal coverage is critical to holding down medical costs. Without it, hospitals pad their bills for paying patients to cover care for the uninsured. Insurers seek to cover only the relatively young and healthy, pushing up premiums for others and denying any coverage at all to some. The clear winners under the system Mr. Clinton envisions would be the 37 million Americans who now lack any health insurance, of whom 56% are working adults and 26% are children, according to the Employee Benefits Research Institute. Poor people now covered by Medicaid, the state-federal health program for low-income women and children, would probably do better, too; the plan could lead to abolition of Medicaid, a program many doctors shun because reimbursement rates are so low. But middle-class working people with comfortable benefit packages -- such as union members and many white-collar employees -- may be startled by what health-care reform really involves. The standard benefit package that the government would require might be less generous than their current one. Consequently, they might have to pay for extra benefits out of their own pockets. Their taxes might go up to finance universal coverage. They may also have less choice. Mr. Clinton hopes to encourage people to enroll in networks of doctors and hospitals in which -- as in health maintenance organizations -- members pay a fixed annual price and receive all the medical services they need. The idea is to discourage the costly, out-of-control system in which people pay for each service performed, then seek reimbursement from an insurance company. But the result for some people could be the loss of a family doctor. The trade-off, the White House will say repeatedly, is personal economic security. "In this richest of all countries, there is a growing sense of personal vulnerability and personal insecurity because our health system has failed us," Mrs. Clinton said on a recent trip to Harrisburg, Pa., one of many she plans to promote the health plan. If the plan is enacted, she and various officials say, no longer will any family have to worry about financial ruin from a family member's illness. No longer will people be forced to stay stuck in a job for fear that changing employers will mean a loss of health insurance. This concept of large, competing networks to pool risks and hold down costs is based on an idea called "managed competition." But Mr. Clinton has no model for the system of managed competition that he envisions. "That model per se doesn't exist in real life. It's a blueprint," says Uwe Reinhardt, a health-care economist at Princeton University in New Jersey. To get from blueprint to real life will involve many painful decisions and many political battles. Here are some of the big questions: How do you pay for it? That has already been partially answered. Business would foot a large part of the bill. The task force's preliminary work plan suggests that all employers pay a percentage, "perhaps 75-80% of the cost of a standard plan for their employees and dependents." (Whether that would include part-time workers is still being debated.) But the government, too, would have to cough up a lot of money -- for subsidies to help low-income unemployed people buy health insurance and for tax breaks to help small companies buy employee plans in the early years of the new health system. To do this would quite probably require raising taxes. Mr. Clinton has said he wants to raise the federal taxes on cigarettes. His budget director, Leon Panetta, has said publicly that the administration will probably propose increases in "sin taxes" not only on cigarettes but also on alcoholic beverages and possibly other products that are hazardous to health. The task force is exploring dozens of other tax options as well. Fearing the political fallout from labor unions and the middle class, it has ruled out one option pushed by a number of economists and backed by a wide array of groups, from the insurance industry trade association to the National Governors Association: taxing workers for some of their employer-provided health benefits. Instead, the group is looking at placing the burden on employers by adding a surcharge -- basically a tax -- to the health benefits they provide their workers. Or it might also limit employers' ability to deduct from taxable income the cost of providing health benefits for their workers. Another idea is to put a tax on the gross receipts of hospitals, doctors and other providers. What would go into the standard benefit package to which all Americans would be entitled? The plan certainly will include a wide array of preventive services, such as prenatal care benefits, immunizations and cancer screening. Administration officials believe that preventive care not only helps people lead happier, more productive lives but also saves money in treatment costs later. The package also will certainly include hospitalization coverage and some mental-health benefits. (Vice President Albert Gore's wife, Tipper, is working on mental-health issues with the task force.) Mr. Clinton would like to include a prescription-drug benefit in the package, though his advisers aren't sure whether it would be affordable. He also favors inclusion of some provisions in the standard package or a separate program to help make more affordable long-term care for the elderly, chronically ill and disabled. But this, too, could be too expensive to incorporate right away. Nevertheless, the standard package would probably be more extensive than the "bare bones" coverage now required by some states. How do you set and enforce the national health budget? One leading option is to have the president, Congress or both appoint an independent national health board -- with autonomy similar to the Federal Reserve Board's -- to set the budget as well as the standard benefit package. The board would probably include representatives of doctors, hospitals, consumers and maybe an economist or other health experts. A confidential preliminary work plan for the task force suggests that per capita state budgets might be imposed, which would limit the amount of money each health insurance purchasing network could spend on health plans each year. A network that exceeded the spending limit might be sanctioned by the government. How the budget would be ultimately enforced has yet to be determined. But it is clear that setting a limit on health spending would not mean that people wouldn't be able to get medical care in, say, December, if their network's annual limit had been reached in November. In fact, some advisers are talking only about "expenditure targets" rather than "expenditure caps" at the outset. Under one idea, the national health board would review why a spending limit had been exceeded, and it would tackle the problem. If a certain medical technology was proving expensive but not very effective, for example, the board might decide to drop it from the standard benefit plan. Another way of enforcing spending caps might be to reduce the annual increase in the ceiling by the amount it was exceeded in the previous year. Clinton health advisers insist that a nationwide health budget doesn't mean setting the prices of the thousands of medical services performed by doctors, hospitals, clinics, counselors and other professionals. In a recent article, two prominent members of the working group advising the task force, Paul Starr and Walter Zelman, argue that the government could simply determine "a maximum allowable rate of increase in benchmark health insurance premiums each year." What happens to health costs in the meantime? Should short-term, stop-gap controls be imposed? Last year, nationwide health expenditures rose nearly 10%, more than three times the overall rate of inflation. Between 1990 and 1992, health spending jumped from 12.1% of the nation's gross domestic product, its total spending on goods and services, to nearly 14%. Even if the administration accomplishes the nearly impossible feat of getting a health-care plan through Congress this year, officials acknowledge that it will take years to phase in and execute the package. Therefore, "the immediate important question, because of the complexity of development of managed competition and the time it's going to take to kick in, is whether there will be so-called interim price controls or other freeze mechanisms," says John Hoff, a health-care lawyer in Washington. One administration working group is looking at options for short-term controls, and people involved in the task force say Mr. Clinton is eager to do something immediately to hold down costs. His advisers have prepared a range of options, including extending the Medicare fee schedule for paying doctors and hospitals to all private insurers and even freezing all medical prices. Currently, Medicare reimburses doctors at about 65% and hospitals at 90% of the rate that private insurers pay. But to freeze any prices, even in government programs, Mr. Clinton would need legislative authority. Consequently, the administration is also looking at ways to get doctors, hospitals, drug makers and insurers to hold down prices voluntarily. How can the burden of buying employee health plans be eased for small business? Mr. Clinton wants all employers to be required to contribute to the cost of health insurance for their employees, just as they must pay into the Social Security fund on behalf of their workers. Administration officials expect some of the strongest opposition to their health package to come from small-business groups, which contend that the burden of buying health insurance for their workers would break them. To ease the pain and mute the criticism, Mr. Clinton wants to offer federal assistance in the early years of the new system to small firms not now providing health insurance. This assistance would probably take the form of a tax credit, but details haven't been decided. However, 69% of the workers in small businesses now have employer-provided health benefits, according to the Employee Benefits Research Institute. (More than 90% of workers at medium and large businesses have coverage.) Health officials emphasize that the health-insurance purchasing networks would give small businesses market power they have never had and that the insurance-market reforms would make buying insurance far less of a financial burden than if a mandate were imposed in the current system. For small firms already struggling to provide health insurance to their workers, the playing field would be leveled because competitors that don't provide such benefits would be forced to do so. How can managed competition work in rural areas, such as much of Arkansas? Some economists estimate that at least a third of the population wouldn't benefit from the new competition because where they live it is hard to find any obstetrician, for example, let alone competing networks of doctors and hospitals. Advisers say the system would work differently in rural areas. It would seek to encourage whatever doctors and hospitals are operating in such areas to band together in efficient delivery systems rather than to generate price wars among providers and insurance companies. Some states may end up having to regulate, in the absence of competition to hold down prices, a step many doctors fear would open the door to national price controls. The task force's preliminary work plan, written by Ira Magaziner, the White House aide overseeing the group's day-to-day operations, says: "States where competition among plans is not possible or desired may regulate provider fees in order to meet the budget." --- A HEALTH-CARE GLOSSARY ALL-PAYER SYSTEM: "All payers" of health-care bills -- the government, a private insurer, a big company or an individual -- pay the same rates, set by the government, for the same medical service. The uniform fees would bar providers from shifting costs onto those more able to pay. The Clinton administration is exploring the possibility of at least a temporary all-payer structure. --- COMMUNITY RATING: Setting health-insurance premiums based on the average cost of providing medical services to all people in a geographic area, without adjusting for each individual's medical history or likelihood of using such services. The White House is likely to call for some form of community rating in the insurance industry. --- FEE-FOR-SERVICE: An arrangement under which patients pay doctors, hospitals or other health-care providers for each service rendered. Most then seek reimbursement from a private insurer or the government. --- GLOBAL BUDGET: The term commonly used term by experts for placing a nationwide limit on overall spending for health-care services. The cap would cover both public and private spending. President Clinton has said he intends to propose a global budget, set by an independent national health board. --- HEALTH INSURANCE PURCHASING COOPERATIVE: These are likely to be critical pieces of the restructured health-care system Mr. Clinton will propose. They would be purchasing agents for large groups of employers in a region, which would shop for the highest-quality health plan at the lowest price. The hope is that the HPICs would give small businesses the buying muscle they now lack. --- HEALTH MAINTENANCE ORGANIZATION: A prepaid health-care plan under which people enroll by paying a set annual fee. They then receive all the medical services they need through a group of affiliated doctors and hospitals, often with no additional co-payments or fees. --- INDEPENDENT PRACTICE ASSOCIATION: A type of HMO that contracts with individual physicians to provide services to the HMO's enrollees. Doctors maintain their own private practices and thus can contract with other HMOs or see regular fee-for-service patients as well. --- MANAGED CARE: A general term for organizing networks of health-care providers, such as doctors and hospitals, to enhance the cost-effectiveness of their work. An HMO is a common form of managed care. --- MANAGED COMPETITION: A proposal for financing and delivering health care that is likely to be the cornerstone of Mr. Clinton's plan. Developed by a group of academics and health-industry experts who meet periodically in Jackson Hole, Wyo., it attempts to meld the best features of government regulation and market competition. The basic idea is to blend employers into large purchasing networks to shop for the highest-quality health coverage at the lowest price. The government would require any insurance company, HMO or other health plan bidding for their business to offer a standard package of benefits. The hope is that the networks' huge buying power would generate competition among health plans, lowering prices and improving quality. All employers would be required to contribute the cost of health coverage for their employees, and the government would subsidize the cost for the low-income unemployed. --- MEDICAID: A program, financed jointly by the federal government and the states, that provides health coverage for mostly low-income women and children as well as nursing-home care for low-income elderly. Funding, benefits and the portion of low-income people covered vary widely from state to state. --- MEDICARE: The federal program providing health insurance for people aged 65 and older and for disabled people of all ages. --- PREFERRED PROVIDER ORGANIZATION: An arrangement under which an insurance company or employer negotiates discounted fees with networks of health-care providers in return for guaranteeing a certain volume of patients. Enrollees in a PPO can elect to receive treatment outside the network but have to pay higher co-payments or deductibles for it. --- PAY-OR-PLAY: A proposal for restructuring the health-care system so all employers would be required to either provide health insurance for their workers or pay a tax to finance a government plan to cover everyone else. --- SINGLE PAYER: A system whereby one entity, probably the government, pays for all health care. Canada has the best-known single-payer system. It is financed by taxes, and people go to the doctor and hospital of their choice and bill the government. [This article is made available here by Dow Jones Co. for the personal and non-commercial use of callers to this bbs, in the hope that it will be of some help to those who are suffering from the disease and others who are seeking to help them.]