Business Can't Hide Its DoubtsMike Mcnamee and Susan B. Garland
Battered by years of relentlessly rising medical costs, Corporate America has been at the forefront of the drive to overhaul the nation's health system. Now, that overhaul has arrived in the outlines of a sweeping new health plan that President Clinton will unveil in a speech to the nation on Sept. 22. But the details of Clinton's reform have some executives asking, "Can we get a second opinion?"
The plan, developed under Hillary Rodham Clinton, aims to blend two hugely ambitious and seemingly incompatible goals: extending health insurance to all Americans without major new taxes, while controlling the relentless growth of the $900 billion health-care industry. To accomplish this, the scheme calls for wrenching changes in the way health care is financed and delivered. All employers would be required to pay for health coverage for their workers. Every American would be eligible for a standard package of benefits. They would be purchased through massive, state-run "health alliances" that would use their clout to hammer down prices.
A SQUEEZE? Will the plan work? Politically, the blueprint sounds a starting gun for a Congress under pressure to address a growing source of insecurity for many Americans. But few outside experts think that the Clintonites can slam the brakes on the health industry without economic and political whiplash. Economists worry that requiring all employers to pay for insurance will squeeze some 500,000 low-wage workers out of their jobs. The potent elderly lobby is gearing up to fight the $100 billion Medicare cut that results from the plan's spending caps. Insurers warn that cost controls will cut into care.
The plan's biggest flaw is its dependence on a heroic assumption championed by top White House health planner Ira C. Magaziner: that the new Clinton scheme can slash the double-digit rate of increase in medical spending almost in half in the first three years of reform (chart). As things stand now, the cobbled-together Clinton plan, itself a series of delicate political and budgetary compromises, isn't capable of pulling that off. "The proposed savings are illusory, because the assumptions are crazy," says an Administration insider.
Beyond the Potomac, business leaders have fears of their own--mostly, that they'll give up control over health-care benefits without gaining control over costs. Companies that are already aggressively containing costs worry that the Clinton approach will wrap competition in a heavy layer of regulation. The plan would take 98% of all companies out of the benefits business and turn 70% of the market over to the new alliances. Business fears the resulting bureaucracies will stifle innovation. "I'm not sure turning the system upside down is the way to fix these problems," says Edwin Moore, owner of Electric Metering Co. in suburban Chicago.
If competition doesn't shave medical spending, the plan has a backstop: "premium caps," which would limit rises in insurance premiums. But price controls have a dubious track record: Companies typically spend more time beating the price ceilings than they do managing. And when the controls are lifted, cost pressures that had been building explode. In the interim, doctors and hospitals may be forced to ration services. Worse, the caps are coming just as the Clinton plan calls for insurers to invest in new networks of health-care providers. "If there are premium caps, nobody's going to win," warns Lawrence P. English, president of CIGNA Corp.'s Employee Benefits Div.
The White House, of course, insists its strategy is rock-solid. The Health & Human Services Dept. on Sept. 3 put the health plan through its 100th run on a computerized model of the medical economy, to calculate the impact of the plan's hundreds of proposals. But the Administration isn't publishing those data yet, leaving health economists to puzzle over the plan's contradictions. Clintonites claim, for example, that no employer will pay more than 8.5% of its payroll in health premiums--and that many will pay less. But Labor Dept. surveys show that big businesses already pay 9.9% of payroll--and the smallest firms that insure pay 13.5%. "Who's going to fill the gap?" asks William S. Custer, research director at the Employee Benefit Research Institute in Washington.
IN SHOCK. Business fears that it will be them. Clinton's promise to rein in health costs will help him garner support from big manufacturers, such as Ford Motor Co., which are burdened by generous benefits for retirees and an aging work force. But small employers--toting up the cost of mandated coverage--are going into shock. Stephen E. Elmont, owner of the upscale Boston restaurant Mirabelle, figures the cost of insuring his 30 employees will double even if small-business premiums are capped at 3.5% of payroll. And big companies, especially those with younger employees, worry that they no longer will benefit from their own cost-containment efforts. "We don't want health-care reform to interfere with our ability to manage our costs," says Ron A. Wyse, benefits director at Harris Corp.Analysts attempting to sort out the plan's impact are stymied by its sheer reach. The Clinton blueprint proposes a basic reorganization of the U.S. health-care system. The goal: to bring cost consciousness to a market that has long operated on the idea that patients should have any treatment that's available, no matter how costly.
Under the new scheme, workers and their families would no longer get coverage from health insurers picked by their employers. Instead, they would choose their own health plan--a traditional insurance package, a preferred-provider network, or a more restrictive health-maintenance organization--from a list of plans certified by a regional health alliance. While each would provide the same benefits, the prices would differ. Big companies, those with more than 5,000 employees, could run their own "corporate alliances."
To cover the cost of insurance for all, every employer would be required to pay 80% of its workers' premiums. Since 85% of the 37 million uninsured Americans are workers or their families, Clintonites figure this mandate will solve the bulk of the nation's problem of uneven access to health care. Small firms and those with low-wage workers would get subsidies to cap their costs. The $70 billion tab for subsidies would be financed in two ways. A hike in "sin taxes" on cigarettes and perhaps alcohol would yield $16 billion annually. The Administration's claimed savings from Medicare and Medicaid would fill the gap.
Ideally, the new health plans would compete vigorously to offer high-quality care at the lowest possible premium. To ensure that consumers shop on price, the Clinton package would require them to pay a share of their health premiums--up to 20% if they choose an average-price plan. A family can save by picking a low-cost plan. That should encourage more Americans to enroll in HMOs and PPOs, which typically charge 10% to 20% less than traditional insurance, thanks to limits on expensive procedures.
For some private companies and state governments, this model for the health market--known as "managed competition"--has already helped slow medical inflation sharply. HMO enrollment among the 55,000 U.S. employees of Xerox Corp. leaped from 40% in 1990 to more than 60% after Xerox started passing the extra costs of traditional insurance on to workers. The result: While Xerox projected that its $250 million health bill would climb 12% this year, it's only rising at a 10% rate.
To Magaziner, that's proof enough that nationwide managed competition will rein in health spending. Just to be sure, the Administration proposes some regulatory insurance. As each state joins the system from 1995 to 1997, a new National Health Board in Washington will assign its regional alliances a target average premium. If insurers and HMOs in a region don't match that target, the alliance will have broad powers of persuasion--including the ability to lock laggard plans out.
Businesses applaud the goal--but worry about the Administration's means. Politically appointed health alliances, says Xerox health-care manager Helen Darling, "could be a nightmare--another Empire Blue Cross," the scandal-ridden New York insurer. Even Ford's director of insurance, Robert L. Ozment, frets that his employer could be dwarfed by the "brute economic power" of massive alliances. The danger: These mega-purchasing co-ops could negotiate such discounts that the health plans would have to shift costs onto companies that manage their own benefits.
A BLITZ. These fears are sure to influence lawmakers worried about imposing an untested system on one-seventh of the U.S. economy. Business concerns compound the White House's political problems: a Congress splintered over the best way to overhaul the system and a public that harbors deep suspicion of both Clinton and his abiding faith in government. "Nobody will believe him when he says that this won't cost you," says Republican pollster Tony Fabrizio.
To help sell the plan to a wary public, the Clintonites will unleash a sophisticated public-relations blitz. The pitch: The health plan offers health security and better benefits at lower costs. But as the public begins to read the fine print, it may be unwilling to make required trade-offs. The plan may tax the value of employer-paid benefits--such as dental care--that go beyond the basic benefits package. And voters may be spooked by the specter of reduced quality of care if doctor choice is curtailed and medical technology is rationed.
The White House must also gingerly navigate a fractious Congress. "I'd be lying if I didn't tell you I wasn't worried about everyone," says a top Clinton strategist. "I'm worried about the liberals who want a single-payer system, the moderate Democrats who don't want an employer mandate, and Republicans who will refuse to give us a victory."
Passage of the bill by next spring, as the Administration hopes, will require forging a centrist alliance. The White House needs to enlist a bloc of Republican votes to offset defections from liberal Democrats. It hopes to enlist Minority Leader Bob Dole of Kansas and GOP moderates led by Senator John H. Chafee of Rhode Island. "I look forward to sitting down with the White House to find a compromise," Chafee says.
Such a deal may well solve many of business's concerns with the Clinton proposal. Moderate Democrats, led by Representatives Jim Cooper (Tenn.) and Michael A. Andrews (Tex.), will come out with their own version of managed competition a week before the President's speech. Their legislation would let more businesses run their own plans, would eschew premium caps, and wouldn't require all employers to finance coverage.
PUBLIC BATTLES. In the wake of the bloody budget battle, Congress also may require more realistic assumptions about health costs to guard against a future raid on the Treasury. That could mean a public replay of the internal battles over benefits and financing already waged within the Administration. When the senior White House economists got their first look at the Magaziner plan last spring, they balked. Treasury Secretary Lloyd Bentsen opposed cost controls and worried about burdening business with big bills, while Council of Economic Advisers Chair Laura D'Andrea Tyson warned that the package's mandates and controls would damage a slow-growth economy. But Hillary Clinton and Magaziner prevailed--and even added benefits at the last minute.
Whatever the disputes, only the most jaded in Washington doubt that some semblance of health-care reform will pass before the 1994 elections. "For the President, this is a must-do," says Democratic pollster Mark Mellman. "And on Capitol Hill, nobody wants to be the person that stops health-care reform."
The final legislation may well resemble Clinton's in its reliance on managed-care networks and purchasing alliances. But business's fears of regulation, price lids, and political control of the health system may strip the final product of many of the President's notions. The result could be an Rx for health care that business would find easier to swallow.