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                 From the Winter 1994 issue (Number 67)
                       of Policy Review magazine:
        
                         CLINTON'S FRANKENSTEIN
        
            The Gory Details of the President's Health Plan
        
                                   by
                            ROBERT E. MOFFIT
        
        
         Reprinted with permission of The Heritage Foundation.
          All rights reserved. For permission to reprint more
           than short passages, fax or write to Ben Morehead,
        Associate Publisher, Policy Review, 214 Mass. Ave. NE,
          Washington, DC 20002-4958, (202) 675-0291. To order
                   Policy Review, call 800 544-4843.
        
        
        It is January 2, 2001. Today marks three years since
        you marched down to the local office of your regional
        health alliance, enrolled your family in the national
        health plan, and picked up your health security cards.
        You thought the Clinton health plan would be the answer
        to many of your old health care complaints, but
        frankly, it's been a disappointment.
        
        You thought you'd have numerous choices among health
        plans through your alliance, but as it turned out, the
        alliance officials approved only three plans to offer
        services in your region: one fee-for-service and two
        health maintenance organizations. Your doctor was not
        among the private practitioners in the fee-for-service
        plan, so you joined an HMO because it was a little
        cheaper.
        
        You wait longer now to see a doctor than you used to,
        and when he finally arrives, the doctor barely has time
        to say hello, look you over, and write a prescription
        before he's off to the next patient. Waiting in the
        long line for a chest X-ray, you feel cheated --you're
        just a number on a chart to your HMO. Still, you're
        young and healthy, and so is your family. The kids are
        finally used to seeing a different doctor at every
        check-up, and the problems the pediatrics office had
        last year with shortages of vaccines seems to have
        stabilized.
        
        Your elderly parents are not so lucky. The state they
        live in opted to administer health care directly
        through a state agency, so there are no alternatives to
        the type of care they receive. Because their state
        includes several major cities with huge health care
        needs that threaten to exceed the health care budget,
        physicians, services, and the availability of some
        advanced technology is sometimes scarce. The doctors in
        their state alliance are young and inexperienced --
        many of your parents' own doctors gave up on medicine
        when the health plan was enacted.
        
        Your mother has a heart condition that could be
        improved by a new drug which has already been approved
        by the FDA. But because the drug's cost might exceed
        the allotted budget, its inclusion in the comprehensive
        benefit package has been delayed by the National Health
        Board. Your father is in constant pain from arthritis
        and needs a hip replacement, but the waiting list for
        this surgery is five months long. Your parents feel
        they get short-changed compared to younger people,
        whose health needs are fewer; you know this is probably
        true.
        
        You never thought, when Bill Clinton started talking
        about health reform in 1992, that you'd actually end up
        spending more for this.
        
        
                             Broken Promise
        
        The plan we were promised is not the plan we got. Bill
        Clinton promised Americans a new national health system
        based on free market principles, a plan that would
        streamline the medical system without nationalizing
        medicine. He continually stressed the principles of
        security, simplicity, savings, choice, quality, and
        responsibility.
        
        In fact, the Clinton health plan is anything but
        simple, and many of the other principles the President
        embraced have been compromised in development of the
        plan as well. Moreover, the power of the new federal
        bureaucracy, particularly the National Health Board,
        the president has proposed to administer health care
        will rival any in the history of the republic. The
        Clinton plan is actually the largest federal power grab
        made over a sector of the economy in peacetime. The
        president's plan promises top-down, command-and-control
        micromanagement of one-seventh of the nation's economy.
        As The Economist of London observed, "Not since
        Franklin Roosevelt's War Production Board has it been
        suggested that so large a part of the American economy
        should suddenly be brought under government control."
        
        Every aspect of the health-care system will be affected
        by the legislation. The 1,342-page bill, officially
        called the "Health Security Act," details sweeping
        government control of the health sector of the economy.
        To consider just a few of the hundreds of new rules in
        the bill is enough to illustrate its breathtaking
        scope. One example: The Health Security Act regulates
        medical education and the training of physicians, and
        will set limits on how many medical school students may
        specialize in a given field in any particular period.
        Too bad if Junior always wanted to be a brain surgeon;
        he may be restricted to becoming a general practitioner
        -- or a pediatrician, or an internist -- if he wants to
        practice medicine at all.
        
        Then there's the "I'm Okay, You're Okay" approach to
        insurance coverage: The regulations stipulate that
        everyone is the same under the Clinton plan, whether
        he's a tee-totaling jogger or a couch potato who spends
        his day with a cigarette in one hand and a beer in the
        other. This is promoting responsibility?
        
        Another provision of the Act creates a government-
        sponsored national data bank, into which the medical
        records of every single patient in America must be
        entered. Maybe this information really will speed
        communication between physicians and assist in
        treatment; maybe too, it will prove to be the first
        step toward nationalized care, and the end of privacy
        between doctors and patients.
        
        Finally, not content to control only the health
        insurance industry, the administration is reaching out
        to grab the auto and worker's compensation markets as
        well. These types of coverage will be coordinated with
        the new standard benefits package required by the
        health plan.
        
        
                         Controlling Mechanisms
        
        Considering how deeply the new health regulations will
        be thrust into our lives, it is essential that
        Americans understand the basic structure of the Clinton
        plan. We must understand how fundamentally different
        the plan is from the one described by the Clintons'
        soothing rhetoric. And we must decide if we can
        tolerate the government's new role as arbitrator in the
        most intimate decisions of our lives. Today, lobbying
        for his health proposal, the president continues to
        stress the principles he vowed would be the foundations
        of his reforms. But the simplified, consumer-oriented
        reform that Bill Clinton promised America is in reality
        a full-scale, federal takeover of the $1 trillion
        health system. Lodged within the body of the
        legislation are provisions that will expand federal
        control over the financing and delivery of U.S. health
        services, and expand the already-enormous government
        bureaucracy devoted to health care.
        
        Government control in the Health Security Act is
        exercised through five key mechanisms:
        
        The National Health Board (NHB), which will have
        general oversight over the entire U.S. health system.
        Virtually every facet of the health system will be
        monitored, decided or reviewed by this presidentially
        appointed board.
        
        Regional Health Alliances, the state-based system of
        health-insurance cooperatives that will control the
        availability of health plans, enforce health budgets,
        enroll employers and employees in the new system,
        collect premiums, and generally enforce national
        insurance rules and regulations. Every American will be
        forced to obtain health insurance through these
        alliances, or through similar corporate-sponsored plans
        if they work for a large company.
        
        A Standard Benefits Package, the detailed list of
        benefits that must be included as standardized
        government health benefits. The standard package
        contains not only major medical services, but also
        coverage for routine care, such as eye and ear exams,
        and even elective abortion and expensive treatments for
        substance and alcohol abuse. The standard benefits will
        be tax free to all Americans; those wishing more
        coverage than the standard package must pay for it out-
        of-pocket with after-tax dollars.
        
        Employee Mandates, which require all employers to
        provide at least the standard package and to pay at
        least 80 percent of its cost, with special subsidies
        and provisions depending on the size of the company.
        Premium costs are limited to 3.5 percent of payroll for
        small firms and 7.9 percent for larger companies. Firms
        with over 5,000 employees will still have to provide at
        least the standard package, but they may opt out of the
        alliance system and form their own cooperatives.
        
        Government Budgets and Spending Caps. The Clinton plan
        is riddled with price controls; the central cost
        control mechanism of the plan is not competition, or
        even  "managed competition," but a rigid set of caps on
        public and private health insurance spending, plus fee
        controls for doctors in private practice. Under the
        plan, the growth in health-care spending is to be
        forcibly ratcheted down each year until it is in line
        with the growth of inflation. The target date for this
        goal is 1999.
        
        At first glance, the Clinton plan may not seem
        unreasonable  -- it may even look generous and
        friendly. It is in reviewing the details, which follow
        below, that the coercive nature of the plan becomes
        clear.
        
        
                      The Supreme Court of Health
        
        The first of the key elements is the National Health
        Board (NHB), a new federal agency in the executive
        branch of government. It is created primarily for the
        purposes of setting national standards for the new
        federal system and for overseeing the administration of
        the health care systems in the states once they are up
        and running. The NHB will be comprised of seven
        members, appointed by the president and confirmed by
        the Senate, each serving a four-year term.  The
        chairman of the NHB will be able to serve a maximum of
        three terms.
        
        Secretary of Health and Human Services Donna Shalala,
        during congressional testimony last October, described
        the National Health Board as a "minor oversight group"
        -- completely miscasting the board's power and scope.
        In fact, the board will have wide rule-making,
        standard-setting, and oversight authority, making it,
        in effect, the  "Supreme Court of Health." The National
        Health Board's responsibilities include:
        
        Oversight of the health-care system established in each
        state. The board will establish standards and
        requirements for health insurance plans in the states,
        approve state implementation of health-care reform, and
        monitor compliance.
        
        Control over changes in the comprehensive health-care
        benefit package. The NHB will have almost absolute
        authority over which benefits will or will not be
        included in the standard health benefits packages
        available to Americans. Its decisions are final, unless
        Congress intervenes. The NHB is also charged with
        establishing and enforcing compliance with a global
        budget for national health-care spending. The board
        will issue regulations for implementing a national
        health-care budget in the form of price caps on health-
        insurance premiums. The board will determine per-capita
        premium targets, or baseline budgets, for every
        regional alliance in the country, taking into account
        "regional variations" in price, inflation, and other
        factors. The board will also certify compliance of the
        regional alliances with the national health budget.
        
        Establishing and managing a "quality management and
        improvement system" for health-care delivery. The board
        is to establish and have ultimate responsibility for a
        performance-based system of quality management and
        improvement through a new federal program called the
        "National Quality Management Program." The day-to-day
        management of the program is to be run by yet another
        new federal agency, the  "National Quality Management
        Council," composed of 15 members appointed by the
        president who are "broadly representative of the
        population of the United States" -- although none of
        these members may be a doctor, health-care provider,
        insurance company employee, or in any way connected
        with the health-care industry. The council is to
        develop measures of quality -- through consultations
        with doctors, consumers, insurers and state officials,
        as well as other health experts  -- in order to
        standardize the measurement of the performance of the
        health programs. In other words, the council will
        attempt to quantify "quality."
        
        Monitor breakthrough drug prices. The National Health
        Board is not authorized to set drug prices. However,
        the board is charged with establishing a special
        committee of its own membership  -- the "Breakthrough
        Drug Committee" -- which will, in conjunction with
        another new group, the "Advisory Council on
        Breakthrough Drugs," monitor breakthrough drug prices
        to determine whether the initial prices are
        "reasonable." A breakthrough drug is defined in the
        language of the bill as a drug "considered to be a
        significant advance over existing therapies." The bill
        language, however, does not give either the Council or
        the NHB explicit powers to roll back a drug price. But
        the National Health Board is no cheerleading section
        for high risk investment in new breakthrough drugs.
        
        The power and scope of the National Health Board is
        awesome. Normally, the Office of Management and Budget
        (OMB) can review regulations proposed by a federal
        agency and block them if they would be too onerous. But
        the current language of the Health Security Act
        suggests that OMB will not have this authority over
        regulations passed by the National Health Board. In
        other words, the board will be able to make its decrees
        without risk of being over-ruled except by Congress.
        Considering how far-reaching the Clinton plan is, this
        is an enormous concentration of authority for one
        government agency. Moreover, it will be extremely
        difficult to appeal Board decisions once they are made.
        In fact, all decisions of the NHB over insurance
        pricing are exempt from either judicial or
        administrative review.
        
        The bottom line: The NHB will decide exactly what
        benefits and treatments will be available and at what
        price. And unless the Congress intervenes, no
        significant change in any aspect of the American
        health-care system may be implemented without the
        approval of the NHB. The Clinton administration has
        clearly attempted to insulate the NHB from the normal
        means of review faced by other federal agencies. No
        wonder some critics are calling it the "Health
        Politburo."
        
        
                            The Apparatchiks
        
        If the National Health Board is the Politburo of health
        policy, the individual states are the apparatchiks. It
        will be the legal obligation of each state to make sure
        that every citizen armed with a "Health Security Card"
        is enrolled in a health plan. The states will certify
        health plans, administer subsidies for low-income
        individuals and small employers, collect data on
        health-alliance and health-plan performance, and meet
        federal quality, management, and fiscal solvency
        requirements. And by January 1, 1998, each state must
        have established a regional alliance system for the
        enrollment of employees and employers in approved
        health-care plans.
        
        The regional alliances are the powerful cooperatives
        through which health coverage will be purchased and
        regulated. The alliances may be either public or
        private entities, a matter left totally to the
        discretion of state officials. They could simply be
        state agencies, even an extension of the Governor's
        office. A board of directors --made up of employers and
        consumer representatives, but no representatives from
        any health-related agency or business -- will help run
        the alliance system in each state.
        
        Americans will be required to purchase their health
        coverage through the regional cooperative to which they
        are assigned, based on where they live. The boundaries
        for each region are to be determined by the individual
        states; each geographic area will have only one
        regional alliance. The only alternative method of
        providing health care available to a state other than
        the alliance system is a single-payer system. That is,
        a state may choose to control health care directly
        through a state agency. Under a single-payer system, of
        course, consumers are denied the freedom of choice of
        alternative health coverage plans, because there are no
        alternatives.
        
        Although the Clinton administration is downplaying the
        regulatory strength of the regional alliances, they
        will have impressive powers. They will decide which
        insurance companies will compete in their regions and
        which will be excluded, and will negotiate contracts
        with the insurers and other health-care providers they
        approve. The alliances will collect all health
        insurance premiums; they also will strictly monitor and
        distribute consumer information on the various plans
        allowed to participate. The alliances will "represent
        the interests" of both employers and employees in
        negotiating coverage with the plans in their regions,
        as well as enforce the strict federal health budgets.
        The alliances also have the authority to impose
        separate budgets and fee schedules on doctors.
        Ultimately, all issues related to health care and
        health insurance coverage in a particular area will be
        funneled through the local alliance.
        
        
                         Political Health Care
        
        The basic flaw in the alliance system is clear: Health
        concerns will become political concerns. The alliance
        plan will politicize health care at every level while
        severely limiting competition in the health-care
        market.
        
        First, since so much discretion in staffing boards of
        the individual alliances is left up to the states,
        alliances will inevitably reflect their local state
        politics. It is likely that conservative governors or
        state legislatures, not immune to pressure from their
        supporters, will develop an alliance system that
        reflects their views; likewise for liberal state
        governments. The structure of a state's alliance
        network will become a political bargaining chip in
        state elections.
        
        But partisan pressure will be just the beginning.
        Because of the many competing groups that have interest
        in how the regional boundaries for each alliance are
        drawn, there is the inevitability of "gerrymandering" -
        - the creative drawing of regional district boundaries
        -- in order to provide better prices to favored
        constituencies.
        
        Elizabeth McCaughey, a fellow at the Manhattan
        Institute in New York who has written extensively on
        the Clinton plan in the Wall Street Journal, notes that
        "The system promises to pit black against white, poor
        against rich, city against suburb." There will be
        strong pressures on state officials by groups wanting
        to be included or excluded from certain alliances.
        Since each alliance will be required to enforce strict
        budgets for total health care provided in its region,
        voters will want areas with higher-than-average
        incidence of older citizens or retirees, pregnant
        teens, violent crime, or HIV infection excluded from
        their alliances, and areas of low potential health cost
        included. As Ms. McCaughey observes, "Everyone will
        figure out that you get more health care for your
        dollar or pay lower premiums in an alliance without
        inner-city problems. The plan will be an incentive for
        employers to abandon cities and relocate." In spite of
        regulations in the health legislation prohibiting any
        type of discrimination in setting boundaries, there are
        likely to be intense political battles and many
        lawsuits over this issue.
        
        And laying aside geography, let's consider the intense
        lobbying that will result from the alliances' veto
        power over insurance plans. Technically, an alliance is
        required to approve any health plan that wants to offer
        coverage in its region so long as the plan meets all
        the federal requirements set down by the National
        Health Board. But what will prevent a weak, but
        politically well-connected, plan from being retained in
        the system? What prevents a good plan from being barred
        from competing in an alliance system because it poses a
        threat to politically influential, well financed plans?
        If the Clinton health plan is enacted, such political
        problems will spill over to the insurance market place,
        already heavily politicized.
        
        The only exception to enrollment in a regional alliance
        -- or state health program, in those states opting to
        manage health care directly -- is for companies with
        over 5,000 employees nationwide. Such companies may
        elect to set up their own alliance rather than join a
        state-based regional alliance. In general, corporate
        alliances must meet all the same criteria as a regional
        alliance, but oversight of these corporate groups is
        delegated to the Department of Labor rather than the
        Department of Health and Human Services and the
        National Health Board, and they may initially use
        different insurance rating systems. The corporate
        option is discussed further below in the section on
        employment issues.
        
        
                           I'm OK, You're OK
        
        How will insurance be offered in the alliance system?
        There will be standard methods, and each state will set
        up its individual alliance system or systems in
        accordance with federal rules. But on one issue there
        is no question: All insurance companies are legally
        required to offer insurance at the same premium for any
        individual or group, regardless of health risk. As
        opposed to the current system, insurance companies are
        forbidden to take health histories, lifestyles, and
        other factors that affect health risk into account when
        offering insurance.
        
        This insurance rating system -- known as community
        rating -- is supposed to guarantee that no one will be
        denied insurance because of his prior medical history;
        no one will have a "pre-existing condition" that will
        affect premiums. But in the same way that insurance
        rates will not discriminate against the sick, they will
        not be able to reflect better health conditions either.
        
        Imagine what this means. Those who overeat, smoke,
        drink, abuse drugs, and engage in promiscuous sexual
        behavior will be rated exactly the same as fervent
        health nuts. The logical outcome of such a system is
        that the healthy -- who require less medical services -
        - will subsidize those who are choosing riskier
        lifestyles. Not only does community rating discriminate
        against the healthy, it actually rewards those who
        abuse their health. So much for encouraging personal
        responsibility.
        
        Another problem with community rating is the stress it
        will cause on alliances with higher-than-average
        incidences of health problems. Alliances serving inner
        cities facing, for example, the higher rates of drug
        abuse, violent assault, and premature birth that are
        endemic to urban areas will spend their health budgets
        faster than alliances serving suburban or rural areas.
        Premiums will eventually have to rise to meet the
        higher costs for an alliance with these pressures.
        
        Where it has been implemented -- for example, in the
        state of New York -- community rating has tended to
        result in higher average insurance costs. Of course,
        the Clinton plan solves this problem by simply capping
        premium costs above a mandated level.
        
        The National Health Board is also directed to set up a
        national risk-adjustment system to compensate for the
        inequalities inherent to community rating. But these
        steps are unlikely to eliminate the central weakness of
        community-rating systems: If a plan attracts higher-
        risk individuals and groups, but its premiums cannot be
        raised, the plan may face huge pay-outs and financial
        collapse. The only alternative is to bail it out, and
        more costs to the taxpayers are likely.
        
        
                          Keeping your Doctor
        
        Although the president has emphasized consumer choice
        as a main principle in reforming health care, the
        choice available to families is limited by the
        government, with few exceptions. Unless you receive
        health benefits through Medicare, military or veterans
        benefits, or unless your spouse works for a large
        company, the law will require you to buy health
        insurance from the limited choices offered by your
        alliance. And all families must join a regional
        alliance, or face penalties.
        
        For many Americans, a basic concern is whether or not
        they will be able to keep their own doctors under the
        Clinton plan. Theoretically at least, they will be able
        to do so. The Health Security Act requires each
        alliance to offer at least one fee-for-service plan --
        a plan where families choose the doctors they want and
        the doctor is reimbursed by the insurance company for
        his services. But the Clinton plan places harsh
        regulatory burdens on those who practice fee-for-
        service medicine, including strict fee schedules and
        budget limits. Politically, it is easy to clamp down on
        doctor's fees. The fees doctors will be allowed to
        charge are unlikely to even meet their overhead, much
        less allow them any profit.
        
        Many doctors may find it impossible to continue in
        private practice under these conditions. As Newsweek
        recently reported, "Despite the president's attempts to
        be reassuring about the changes that will ensue, there
        is a very good chance that our relationship with our
        current doctor will be disrupted -- the physician may
        leave medicine altogether or join a health plan we do
        not choose to join." The wealthy will still be able to
        go outside their plans and pay for a physician's
        services out-of-pocket, with no tax deductions, but for
        average Americans such expenses will be prohibitive.
        Private practice medicine will become a luxury item
        reserved only for those who can afford it .
        
        
                           One Size Fits All
        
        A particularly mind-numbing section of the Health
        Security Act is the 56-page section devoted to the
        standard benefit package that every health plan must
        offer to its subscribers. This benefits package is not
        just a minimum or catastrophic package. It is a
        comprehensive benefit package covering a broad range of
        medical services, and it is this precise package -- no
        more and no less --that health plans are required to
        offer.
        
        Bill Clinton promised America "Fortune 500 health
        care," and his standard benefits package certainly
        gives that impression. It will provide major medical
        coverage, including an impressive array of hospital and
        physician services, diagnostic services, preventive
        care, mental health and substance abuse benefits,
        family planning and "pregnancy related services" --
        including abortion --prescription drugs, hospice, home
        health and rehabilitative services, vision and hearing
        care, and preventive dental care for children. Among
        the items specifically excluded from the benefit
        package: in vitro fertilization, sex change operations,
        and dental implants.
        
        Who could argue against such lavish coverage? Some
        doctors and patient groups do, claiming that it is
        still not comprehensive enough. But the problem with
        the benefits package is not so much what it covers now,
        but what it might not cover in the future. Once the
        standard benefits package is finalized, approved by
        Congress, and executed by the health alliances, it may
        become very hard to amend.
        
        Other federal experiences in setting benefits suggest
        that it will be extremely difficult, once the standard
        benefit package is in place, to add new treatments,
        procedures, or benefits to it. Medicare, the federal
        insurance program that cover some 35 million elderly
        and disabled Americans, provides a good example of the
        delays that can occur in evaluating new technologies,
        medical procedures, and medicines. The bureaucratic
        method used in the Medicare system to evaluate new
        treatments involves several government agencies and a
        lengthy review process. Consider medical technologies:
        In 1991 and 1992, only 18 such evaluations were
        completed of the many pending. Some assessments have
        been buried in the bureaucracy for as long as three
        years. And when considering the procedures for adding
        new benefits to the package, Americans should also give
        serious thought to the history of long delays in drug
        approval by the Food and Drug Administration.
        Bureaucratic delays by the FDA in approving life-saving
        drugs actually caused the Bush administration to launch
        an overhaul of the approval process and expedite
        approval of drugs to treat deadly diseases such as
        AIDS, cancer, and cystic fibrosis.
        
        Americans should be alarmed at the prospect of approval
        procedures like these for the general health care
        system. Not only might vital new medicines, treatments,
        and technologies be excluded from the benefits package,
        or only become available after long delays, but such a
        system invites special interest pressure. Inevitably,
        what is or is not included in the benefit package will
        become the subject of intense political debate and
        heavy lobbying, with Congress and the National Health
        Board pitted against medical specialty boards, groups
        afflicted with particular conditions, and other special
        interest groups. This will compound the politicization
        of health care, already established through state-
        government management of the regional alliances.
        
        
                        Your Health or Your Job
        
        The Clinton plan places the enormous burden of insuring
        America on American employers. Every employer in
        America will be required to participate in the
        financing of health-care reform, whether that employer
        is a private household employing a nanny or a huge
        corporation employing hundreds of thousands.
        
        For full-time employees, the employer must pay at least
        80 percent of the average premium for the individual or
        family coverage of the employee. The employee pays no
        more that 20 percent of the average cost, plus any
        extra premium for selecting a higher-than-average cost
        plan.
        
        Employers of under 5,000 workers -- small businesses --
        must place all their employees in a regional alliance;
        the employees will then have their choice of plans from
        among those offered by that particular alliance. The
        federal government has placed a cap on the total
        contribution made by employers whose employees join a
        health alliance: The difference between this cap and 80
        percent of the average premium will be picked up by the
        federal government. Counting this subsidy, the employer
        contribution for firms with 75 or fewer workers, as a
        percentage of payroll, ranges from 3.5 percent for low-
        wage employers to 7.9 percent for high-wage employers.
        No employer in a regional alliance will be obliged to
        pay more than 7.9 percent of payroll for health
        insurance. Low-wage workers -- such as minimum wage
        workers or some part-time employees who join regional
        alliances -- will also receive government subsidies to
        help them pay their share of the insurance premiums. In
        the Clinton plan, no family with an adjusted income of
        less than $40,000 will pay more than 3.9 percent of
        income in premiums.
        
        A company with 5,000 or more workers has two options.
        First, it may place all its employees in regional
        alliances, and take advantage of the employer-
        contribution caps and other subsidies available for
        those in the regional alliance system. Or the
        corporation can elect to set up its own corporate
        alliance. If a business chooses this option, the
        corporation's managers would organize their employees
        into a distinct corporate purchasing cooperative, where
        at least three different types of plans must be
        offered: a fee-for-service plan and two other plans
        that are not fee-for-service. Oversight to these
        corporate alliances is designated to the Secretary of
        Labor, who may dissolve them if they do not meet budget
        targets on time.
        
        Although the Clinton plan does provide the corporate
        option, there are strong disincentives to creating a
        corporate alliance. Firms choosing this option face a
        double whammy. First, it is the employer, and not the
        government, that subsidizes the employee's share of the
        premium for low-wage workers. And second, subsidies are
        not available to corporate-alliance employees -- in
        other words, the payroll caps on premiums do not apply
        to corporate-sponsored alliances.
        
        
                           A "Small" Impact?
        
        A simple rule of economics is that any mandate on
        employers to provide health insurance necessarily adds
        to the labor costs of firms that do not now offer
        health insurance, or offer a package less generous than
        the Clinton benefits package. Higher labor costs
        translate into higher prices for consumers or reduced
        compensation for employees, either in wages or
        benefits. Depending on the size of the firm, the higher
        labor costs will translate directly into lower wages or
        job loss.
        
        Since the Clinton plan places such a large additional
        cost burden on employers, there is virtually no
        question that some workers will pay for the plan with
        their jobs. Most economists, and even administration
        officials, agree that job loss will occur, but disagree
        on how much. Time magazine reported an estimate of 1
        million jobs lost. A recent study conducted by Baruch
        College Professors June and David O'Neill for the
        Employment Policies Institute estimates the job loss
        caused by the new employer mandates at 3.1 million. The
        more conservative estimates from the Employee Benefit
        Research Institute range from 200,000 to 1.2 million.
        Even Council of Economic Advisors Chairman Laura Tyson
        admits that job loss will occur, although she estimates
        the loss at roughly 600,000 jobs  -- an impact she
        considers to be  "very small."
        
        
                         How Much is Too Much?
        
        President Clinton has always argued that one of the
        most important reasons to reform the national health
        system was to get the price of health care under
        control. And controlled it will be.  The Clinton plan
        calls for spending reductions starting in 1996 that
        will align health spending increases with the consumer
        price index (CPI) by 1999. The National Health Board
        will set a global budget -- the total amount that may
        be spent on health care in America in a given year --
        and set a per-capita premium target for every regional
        alliance in the country. In other words, the federal
        government will decide how much America can spend on
        all aspects of health care, in what regions, and set a
        budget. And this budget will become the law. To help
        achieve this budget, the plan will constrain the price
        of health insurance, also by pegging its cost increases
        to the CPI.
        
        It will be the job of the National Health Board to
        enforce the global budget. If a regional alliance in
        any state exceeds its official budget target, an
        "assessment"  -- in other words, a fine -- will be
        imposed on each plan whose premium exceeds the limit
        for the alliance. Fines will also be imposed on the
        doctors and other health-care providers in the existing
        plans.
        
        The wisdom of using the consumer price index as a
        benchmark for health prices remains in doubt. The CPI
        is a particularly rigid standard; moreover, the CPI is
        not a crystal ball that can accurately predict coming
        health costs. Using the CPI target, according to one
        federal expert, "would create a tighter spending
        control system than that of any other nation."
        Elizabeth McCaughey, writing in the Wall Street
        Journal, is also skeptical:  "Mandatory limits on
        health care spending may wring waste out of the system
        for the first year or two, but will cause hardship in
        succeeding years as the 77 million baby boomers age and
        require more medical care. Limiting spending growth to
        the CPI, in defiance of this population trend, will
        have predictable results. In Britain, where health care
        is rationed, people over 55 are routinely denied kidney
        dialysis."
        
        What will be the practical effect of the price cap on
        health insurance? Ms. McCaughey has said it well:
        "Limiting how much people can choose to pay for
        insurance limits how much money is in the pot to take
        care of them when they're sick."
        
        What happens if health-care consumers in a regional
        alliance spend their budget before the end of the year,
        even if there are still patients left to treat? The
        alliance and the plans will cut, slow down, or even
        stop payments to doctors, hospitals, and other
        providers -- even though these same providers are
        legally required to treat members of the alliance,
        regardless of whether payment will be received.
        
        It is entirely possible that, in a particular alliance,
        an unanticipated surge in spending could result from a
        nasty flu epidemic, an increase in AIDS in the region,
        or an outbreak of other types of infectious disease.
        These are all pressures many regions are facing today.
        But even such understandable spending increases might
        be labeled excessive under a pre-set system of rigid
        spending caps.
        
        Insurance companies will be the organizations with the
        strongest incentives to hold down costs in such a
        system. Desperate to avoid fines, insurance companies
        will do everything possible to restrain what they
        consider to be  "unnecessary" medical practices,
        procedures, and diagnostic tests. The easiest way for
        insurance companies to restrain costs is to refuse
        payment for certain kinds of care. Doctors will be more
        hesitant to order treatments they are afraid will not
        be covered. They may end up curtailing some necessary
        procedures in the process.
        
        The inescapable fact is that in a global budget system,
        the only ways to hold down spending are to impose price
        controls and limit services. The global budget will
        inevitably lead to rationed health care.
        
        
                        They're Not Buying. . .
        
        A final question every American should ask about the
        Clinton health plan: If it's so great, why are federal
        workers refusing to sign up for it?
        
        Because today, federal workers are covered by a popular
        health benefits system known as the Federal Employees
        Health Benefits Program (FEHBP). FEHBP covers some 10
        million federal employees and retirees, including all
        members of Congress and the executive branch of
        government. The program allows federal workers to
        choose from among dozens of health plans; FEHBP relies
        on the principles of choice and competition to control
        costs. Competition works: The federal government
        recently announced that many workers enrolled in the
        plan would actually see their premiums decrease next
        year, and many will receive  "new or improved
        preventive care services."
        
        The FEHBP has worked for federal employees for 33
        years, and they're not willing to give it up without a
        fight. So when President Clinton proposed abolishing
        FEHBP and folding federal workers into a national
        health plan, pressure from federal unions and certain
        influential members of Congress forced him to delay
        their inclusion in a system some of them will actually
        run. In an extraordinary letter to Hillary Clinton,
        which highlights the benefits of a delay, Office of
        Personnel Management Director James King wrote,  "I
        think that it is important the FEHBP population be
        given the opportunity to see that national health
        reform is working before they are transitioned into
        it." It seems that not even those government workers
        with access to the best information from the White
        House are willing to take a chance on the Clinton plan.
        The result: Federal workers are not to be enrolled in
        the Clinton plan until January 1998, after everyone
        else.
        
        The health plan that's good enough for you is clearly
        not good enough for your congressman, your mailman, or
        any other federal worker -- at least not until you try
        it out first. Think about that the next time the
        president asks you to sign up and make your
        "contribution."
        
        -------------------------------------------------------
        To reprint more than short quotations, please write or
        FAX Ben Morehead, Associate Publisher, Policy Review,
        214 Massachusetts Avenue, NE, Washington, DC 20002, FAX
        (202) 675-0291.
        
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