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A Second Opinion On The Democrats' Health Plan

The Democrats' long-awaited national health insurance bill, sponsored by Senators Mitchell, Kennedy, Rockefeller, and Riegle, is an instructive disappointment. The Democratic leadership has calculated that universal health coverage is now a legislative possibility-but only by moving incrementally and not alienating any key interest group.

The Democrats' Health America bill builds on the present system of employer-provided health insurance by mandating that businesses provide coverage or pay a tax, the so-called play-or-pay approach. People without private insurance would get federal coverage. Costs would be restrained by an annual process of setting health budget goals, but those goals would not be binding.

The Democrats hope that as the legislative process unfolds, the present draft will be refined. However, it is rare for weak legislation to become progressively stronger; if anything, interest groups demand more concessions.

Our health system now has the worst of all worlds: a built-in bias toward escalating costs coupled with declining security for individuals and constraints on doctors' freedom to practice. As medical technology becomes more complex and expensive, doctors understandably seek to maximize their freedom to make clinical decisions and to purchase costly new equipment as they see fit. Hospitals seek to keep beds occupied, and they compete on the basis of the most up-to-date facilities and services. But insurance companies, which pay most of the bills, naturally seek to restrain costs or pass them along through higher premiums, deductibles, and patient co-payments. The federal government shifts costs to the part of the system that is privately insured.

TOTAL FAILURE. Insurance companies then respond by clamping down more tightly on the freedom of providers and by denying coverage to people or groups likely to get sick. Large employers, faced with premium costs escalating at about 20% per year, defend themselves by passing more of the costs along to employees. Small businesses defend themselves by providing no insurance at all.

The end result of this massive systemic failure is that 37 million people have no insurance-and that even the middle class is suddenly vulnerable to huge increases in premiums and out-of-pocket charges or to denial of insurance based on a "preexisting condition" if they change jobs. The system also leads to colossal administrative waste.

The cleanest solution is, of course, a "single payer" system, supported by tax revenues, in which everyone would be insured, nobody would be excluded because of a medical condition, hospitals would have annual budgets and hence would not have to send bills, and doctors in private practice would bill the single-payer agency. This would not only provide security of coverage but it also would free doctors and hospitals from the endless paper chase. And it would provide greater autonomy for doctors to make decisions based on their best medical judgment rather than on the basis of what they could wring out of private insurers.

DUCKING THE ISSUE. A second-best solution would be the play-or-pay plan. But to achieve the gains of a single-payer system, a play-or-pay approach needs tight cost-containment features. Otherwise, play-or-pay simply extends many of the inefficiencies of the current system. Yet it is precisely this issue that the Democrats' plan ducks.

Interviews with key Democrats suggest that they concluded that doctors and hospitals would resist a single-payer system but might back a play-or-pay requirement as a new source of income. Doctors and hospitals, however, would resist cost-containment. Large businesses, which now bear exorbitant costs through employee premiums, would support shifting to a partly tax-supported system. And insurance companies, which would be put out of business by a single-payer system, could also be enlisted in the play-or-pay coalition but would resist tighter regulation. Finally, the Democrats concluded that a tax-supported single-payer system was fiscally improbable, while play-or-pay had a less visible budget impact. Hence, the incremental approach and the absence of cost containment.

The bill's sponsors believe that once their system is in place, its logic would lead to direct regulation of cost. I hope they are right. But 20 years of experience suggests a patchwork system is just as likely to seek savings through coverage cuts, as well as a dumping of the sickest into the residual public system. Moreover, President Bush opposes the entire approach, and there is no veto-proof majority in Congress for the Democratic plan.

A different strategy would be to go for the best approach and make health a major issue for 1992. Eventually, doctors, hospitals, and businesses, might come around to the single-payer approach. For the present system portends more paperwork, more irrational constraints on doctors and hospitals, and, of course, higher costs. A few Democrats-such as Senators Paul D. Wellstone and Bob Kerrey-are already there. If ever there was a long-term political winner, it is this one. It's a shame to see the opposition party pulling its punches on its best issue.

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