The Flaws In A Moderl Health Care System

The task force led by Hillary Rodham Clinton is scrambling to draft a plan for the redesign of America's health-care system, and "managed competition" is the No.1 buzzword, with "CalPERS" a close second.

The giant California Public Employee Retirement System runs the closest thing to an operating model of managed competition: a giant purchasing group picking from the competitive bids of large health-care providers. Over the past two years, CalPERS has enjoyed spectacular results, holding its premium increase to 6.1% this year and a projected 1.4% next. CalPERS offers "powerful evidence that managed competition works," says Stanford University's Alain C. Enthoven, a consultant to the White House health team.

But there may be less here than meets the eye. A new study by the Service Employees International Union, presented to Hillary Clinton on Mar. 3, contends that CalPERS' success has little to do with market forces. The SEIU research found that CalPERS held down costs only after California's fiscal crisis forced a tough spending cap on the system. Budgeting, not competition among the 27 plans that cover CalPERS' 887,000 members, accounted for the savings.

The finding most discouraging to competition advocates: CalPERS members failed to choose low-cost plans that rate high in satisfaction surveys. Only 5.7% chose such coverage, while 54.2% are in plans with above-average premiums. Surveys show that only 25% choose a plan primarily on the basis of cost. The result: Until the state put CalPERS on a strict diet in 1992, CalPERS had a decade of premium hikes exceeding 9.8% a year--above the national average of 9.4%.

The SEIU study could strengthen the hand of skeptics inside the White House health team--led by Judith Feder, who directed Clinton's health transition team--who insist that some form of cost controls is imperative.

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