How to solve the health care dilemma - Column

PRES. BILL CLINTON'S domestic Rubicon could be the red river of increasing health costs. At his pre-inaugural economic conference, he suggested that radical health care cost control, not pro-growth investment policies, must be the centerpiece of his domestic program. "We are kidding each other ... if we think we can fiddle around with entitlements and all this other stuff and get control of this budget, if we don't do something on health care. It's a joke. It's going to bankrupt the country."

Several proposals have been made to reform the U.S. health care system. One favors the play-or-pay version, whereby employers either could purchase private coverage for their employees or pay a flat payroll tax to a public authority that then would buy private or public insurance for the employees.

Another, introduced by Rep. Benjamin Cardin (D.-Md.), a member of the Ways and Means health subcommittee, favors controlling spending through national budgets set by a Federal board. He would create a national commission to establish limits on overall health care expenditures, apportioned among the states. This approach would allow them the flexibility to decide how health care delivery services would be structured and payments allocated.

An alternative plan was proposed by Rep. Jim Cooper (D.-Tenn.), who advocates a market-based approach relying on strong tax incentives to create a system of competitive Super HMOs. Under his plan, Accountable Health Plans (AHPs) would be formed by encouraging health care providers and insurers to combine into single entities resembling current health maintenance organizations, although some plans may choose to retain fee-for-service reimbursement. To encourage providers to form these partnerships and for employers to use them, the Cooper proposal would limit the amount any business could deduct for health insurance premiums to the cost of the lowest-priced. AHP in the region. AHPs would have to offer a standard benefits package and would compete for subscribers on the basis of cost effectiveness, not risk selection.

This play-or-else proposal would mandate that all employers offer their employees private health insurance. Employers would take bids from competing health care networks of doctors and hospitals. The administrative process by which these networks control internal cost is managed care. The formal regulatory structure that would force the networks to compete is referred to as managed competition. This proposal seeks to control health spending and provide more high-quality care by promoting managed competition among plans, accomplished via a series of tax code modifications, creation of a standard benefits package, and other changes.

During his presidential campaign, Bill Clinton proposed a hybrid plan that would require an employers to purchase coverage for their employees--preferably under conditions of managed competition. Employers could purchase such coverage directly through a private carrier or a government-run health insurance purchasing co-operative.

In an attempt to reduce the financial burden on employers of low-wage earners, the government would give tax credits designed to limit the insurance bill to a given percentage of total payroll. These would soften the effect on business of the managed competition play-or-else mandate by giving it the fiscal impact of the much milder play-or-pay version.

Whichever plan is adopted, it must rest upon at least four basic legs. The first is universal health coverage. Private insurers no longer would block sick people and those with pre-existing conditions from getting coverage. It also would be portable so workers could take it with them if they changed jobs. Second would be a guaranteed essential benefits package that would include primary and preventive care as well as catastrophic coverage. Third would be cost control, with rules to discourage unnecessary testing and wasteful procedures. Such cost shifting by health care providers as charging privately insured patients more to make up for lower reimbursement under Medicare and Medicaid would be prohibited. Fourth would be tax incentives or modifications to allow employers to expand health coverage on a physically prudent basis. Moreover, certain benefits in excess of prescribed limits might become taxable to higher compensated employees. For instance, if a basic plan costs $2,500, but a company is paying $3,500 per worker for a more extensive package, the employee would have to pay taxes on this extra $1,000 "enriched compensation." Revenues from this tax change would help finance coverage for the poor.

We would like to offer a fifth leg for added stability and fiscal consvatism--the institution of a National Health Corps. Under this plan, the Federal government would finance, either through direct grants or guaranteed loans, the medical education of physicians and other medical practitioners. In return, they would work off the loans by providing service in government health care organizations. These facilities, centered in or in conjunction with veterans' hospitals, would provide medical care to the poor or underinsured for a nominal fee that would be used to defray the cost of further medical education financing.