That’s good tactics. But Clinton has not answered (and, in fact, never raised) the two biggest questions before Congress and the voters: how his reform plan would really work, and why he thinks his approach is better than the possible alternatives. This omission was surely intentional. There will be plenty of time in the months ahead for the president to argue the case for his bold (and, some would say, visionary) attempt to overhaul the nation’s health-care system. Further, the administration clearly believes that the most important goal for its current marketing bill is to reassure the country that reform won’t hurt, or at least not very much. That is exactly what Clinton said in his speech to a joint session of Congress: “The vast majority of the Americans watching this tonight will pay the same or less for health-care coverage that will be the same or better than the coverage they have tonight. That is the central reality.”
But there are many realities in a proposal as revolutionary as Clinton’s. He and his advisers want nothing less than a top-to-bottom restructuring of an industry that comprises 14 percent of the U.S. economy–a vast, sprawling and grotesquely ill-managed behemoth that sooner or later touches every single American in profoundly personal ways. Clinton has been candid in saying that health care can never be free, and that reform will cost some Americans more. He has acknowledged that there are large differences of opinion about the right way to fix the system, and he has been candid, up to a point, in describing his hope of attaining more efficiency from doctors and hospitals through “a combination of private-market forces and sound public policy.” But he has not told us–not yet, anyway–just how difficult and risky his strategy for reform must inevitably be.
NEWSWEEK’S latest polling suggests the public is ready to take risks. An overwhelming majority–79 percent–say the U.S. health-care system needs fundamental changes or needs to be “completely rebuilt.” Fifty-one percent approve of the way Clinton is handling the health-care issue, and 56 percent approve of his decision to name Hillary Rodham Clinton to head the administration’s task force on reform. Equally important, there is relatively little evidence that the voters have exaggerated expectations for reform. Fifty percent of the NEWSWEEK sample expect to wait longer for health-care services, 49 percent expect to lose the power to choose their doctor and 57 percent expect to pay more for health care. Seventy-three percent think reform will mean higher taxes and, in what may be a warning to Congress and the president, support for higher taxes to finance health care has dropped from 65 percent to 48 percent since February. Still–and this is the good news for reformers–57 percent think Americans will become “more responsible” about using health care and 55 percent think Clinton’s proposals would be good for the country.
The Clinton plan is essentially based on two gigantic gambles, and it is only fair to say the administration has been coy about both of them. The first gamble is that there is enough waste and misspending in the system to pay for universal health-insurance coverage for the poor and the uninsured without raising taxes (except, of course, for the proposed new tax on tobacco). Many experts, including analysts for the Congressional Budget Office, are skeptical that the amount of wasteful spending is really as high as Clinton claims. Last week he cited C. Everett Koop, the former U.S. surgeon general, in support of his estimate that we could save $200 billion a year without compromising the high quality of American medicine. Still, Clinton and his advisers have repeatedly avoided specifics of how much waste there is–a crucial issue. “We subjected the numbers in our proposal to the scrutiny not only of all the major agencies in government…[but also] to actuaries from major accounting firms and major Fortune 500 companies,” Clinton said. “So I believe our numbers are good and achievable.” He didn’t say what the numbers were–and he didn’t say how much it would cost to provide health insurance to the estimated 37 million Americans who don’t have it, or how much it would cost to improve benefits for the estimated 22 million Americans who are regarded as underinsured. He also didn’t say how much money the administration expects to save by making the health-care system more efficient. What he said, in effect, is “Trust me”–and never mind that if he and his advisers are wrong, the costs of extending health care to the uninsured would ultimately require new taxes.
CLINTON’S SECOND BIG GAMBLE IS THAT Congress actually wants to limit U.S health-care spending. Nobody disagrees that health-care costs are out of control. But cutting back on health spending–even the future growth of health spending–can be politically risky. The nation’s health budget has soared from 5.9 percent of GDP in l965 to 14 percent in 1992. That money comes out of workers’ paychecks, and it has cost the average American plenty at least half the increase in real income throughout the 1980s. But the income loss is invisible and the concept of health costs as a percentage of GNP is only an abstraction. And in truth, there is little agreement about which percentage, exactly, is “right” for America. It could be 17.3 percent, which is Clinton’s goal for the year 2000, or it could be more: it’s our choice.
There can be no dispute that the effort to constrain the nation’s health spending must ultimately cost somebody something. That “somebody” could well be the health-insurance industry, which under the Clinton plan will probably suffer a major shakeout at the cost of thousands of jobs. It could be the nation’s 630,000 doctors: the Clinton plan almost certainly means that doctors will lose some income, and it probably means that many physicians will see their professional lives changed in dramatic and unsettling ways. It could be hospitals: Michael Bromberg, executive director of the Federation of American Health Systems, predicts that many hospitals will be forced to close. And it could be patients. If government sets limits on health spending nationwide, as Clinton wants to do, there must be some reduction in the levels of care and probably restrictions on the style of care that we have come to expect.
The blunt word for this is rationing–nd it is arguably true that Clinton’s plan implies at least some kind of health-care rationing for all of us. This “rationing” will probably be marginal-delays of service and care that won’t particularly affect our health or our lives. And it is a powerfully pertinent fact that America rations health care now, and does it cruelly. Those who can’t afford insurance and those who can’t get insurance because of “preexisting conditions” are routinely denied necessary care by the current system. This is morally wrong and economically counterproductive: it is the great failure of the American health-care system. But the issue for all of us-House and Senate members, doctors and hospital administrators and, ultimately, we voters-is whether we are willing to tolerate slightly less medicine in return for a lot more fairness while still controlling costs. That’s the trade-off-and it will surely be the primary point of contention when Clinton’s plan reaches Congress next month. Do we want to control health spending or not? And if we do, how should we try to do it?
The Clinton plan proposes a double dose of cost containment the new and largely untested notion of “managed competition,” and a backup system of very tough government regulation. These two proposals are designed to work together, with the regulatory system reinforcing the attempt to create competition in the health-care industry. Clinton and his advisers hope competition will slow the growth of health spending without any need for using the regulatory weapons they propose. But no one knows whether managed competition will work on a nationwide scale, and no other nation has tried anything like it. It might work in some areas of the country. Administration officials cite Minneapolis St. Paul, where spending has dropped sharply, as an example of successful reform. But it may not work, or work well enough, if and when it goes nationwide. And if it doesn’t, the regulatory provisions will, as policy wonks say, “kick in.”
SO WHAT DOES MANAGED competition really mean, and how does it work? Basically, it is an attempt to promote price competition in the national health-care “market.” Like any other market, the health-care industry consists of buyers (patients) and sellers (doctors and hospitals). But as economists see it, medicine differs from other markets because both the buyer and the seller are usually able to ignore the cost of the services that are sold and consumed. The reason is that most Americans do not pay for health care with their own money: doctors’ fees and hospital bills are paid by insurance companies from premiums paid mostly by employers. In most cases, these “third parties” do not make the decision to seek care: the patient does that. They also do not make the decision to provide treatment: the doctor does that.
This means the health-care market is broadly dysfunctional when it comes to controlling costs. Consumers rarely know what a specific medical service should cost and almost never price-shop: for obvious reasons, sick people seek the best treatment, not the cheapest. Consumers usually don’t know which insurance policies offer the best value. The market is a buyer’s nightmare of different premiums, deductibles, co-payments and restricted coverages. Even employers, who pay most of the premiums for working Americans and their families, have trouble sorting out the options. Some insurance companies shape their policies to discourage high-risk patients and attract younger, healthier people. This helps keep losses down and profits up. But it also undermines the stability of U.S. health-insurance markets by sending disproportionate numbers of high-risk patients to companies like Blue Cross and Blue Shield that are required by law to insure all comers.
ALL of this would change under Clinton’s plan. Insurance companies would be barred by law from refusing coverage to people with pre-existing conditions and from charging discriminatory rates to small companies and high-risk-patients. The federal government would define a “core-benefit package” (page 43) as a benchmark for employers, insurance companies and consumers alike. The creation of this standard package does not mean government will subsidize all health insurance, nor is it primarily intended to establish a certain level of health benefits as an American right (although it would obviously have that effect). The real purpose is to establish an easily understood, fully comparable product for the health-insurance industry. That would make it possible for consumers, employers and the alliances to comparison-shop.
This benchmark benefit package is the beginning of Clinton’s attempt to bring competition to the healthcare industry. The plan also calls for the creation of wholly new institutions known as health alliances. The health alliances would be quasi-governmental bodies created by the states-large organizations that would represent consumers in a given region, like metropolitan Detroit. They would collect premiums paid by employers, individuals and the federal government, and use those premiums to purchase health-insurance coverage for all their enrollees (Companies with more than 5,000 employees would be allowed to buy their own insurance or to self-insure.) The health alliances would provide more bargaining power and more expertise in selecting healthcare coverage for smaller companies, self-employed workers and the unemployed
The intent is to “level the playing field” for a more competitive game. The other team consists of health-care providers organized as “plans.” As the Clintonites see it, plans could be formed by doctors, hospitals, insurance companies or any combination of the three. The plans would bargain every year with the health alliances to provide the health services defined in the core-benefit package to the alliance enrollees. These negotiations would include guarantees of quality and service, but they would almost certainly focus on price. The bargaining would force the plans to bid on the basis of a fixed annual payment-about $1,800 for each individual and $4,200 for a family, if the administration’s estimates are right.
The result, beyond any doubt, would be a fundamental change in the way physicians, hospitals and health insurers do business. The plans would operate financially much as health-maintenance organizations do now. HMOs sell health care at a fixed, prenegotiated price, which eliminates the incentive in fee-for-service medicine to run up the bills by ordering more tests and treatments. The Clintonites say fee-for-service medicine would continue to exist, but this is somewhat disingenuous: under the president’s plan, fee-for-service doctors would operate under price schedules established by the alliances. Further, many experts think even this regulated version of fee-for-service medicine will gradually be destroyed by the changing economics of the industry. Most doctors would be forced to take salaried jobs as health-plan employees. This change in the structure of the medical profession is well advanced in California, where HMOs and other forms of managed care dominate the market. If the trend goes nationwide–and it already is, owing to pressure from employers to control costs–it would mean the end of medicine as a cottage industry of self-employed professionals.
BUT THE THEORY MAY NOT work. Aside from the vast problems of creating such a system, with all that it entails for the health industry and for government, managed competition may fail to control costs as well as its designers hope. The history of state and federal efforts to contain costs is replete with failure. Time and again, through the Carter and Reagan years, government tried to limit medical spending–and time and again, doctors and hospitals gamed the system" to frustrate those efforts. When the Feds limited fees, doctors responded by ordering more treatments. When the Feds tried to limit the spread of high-tech, high-cost facilities like cardiac-care units, hospitals and doctors ganged up to beat the regulators. And although managed competition attacks the cost problem at a deeper level, it is perfectly possible the industry will get even. It could do so by forming provider plans so big–as big as General Motors, say–that the bargaining power of the health alliances would be neutralized.
Then what? Regulation. The Clinton plan contains regulatory weapons that would allow the Feds to penalize state governments for noncompliance. It would also allow the Feds to intervene in the bargaining between any alliance and any health plan. The primary control mechanism is budgeting–a so-called global budget set every year by a National Health Board, which would then be translated into state-by-state budgets and budgets for each alliance. Computing these budgets is not as difficult as it may seem: it’s similar to what HMOs and health-insurance companies do now. And it is therefore highly unlikely that a budget shortfall would leave anyone without health care.
Still, government budgeting would put the whole health-care industry under gradually tightening cost controls. There is a formula in the Clinton plan that sets national spending limits for the first five years of the reform era. It allows health spending to rise by a percentage that is equal to the predicted rise in the cost of living, plus the predicted growth of the U.S. population, plus a three-year fudge factor to ease the pain of transition. It would allow spending to rise from $1.2 trillion in 1996 to $1.5 trillion in 2000. By the administration’s estimates, the nation would save about $700 billion through the year 2000. That’s paltry, considering the seven-year total ($10 trillion): Clinton clearly hopes to bring soaring U.S. health costs down to a soft landing.
His advisers say this form of cost control differs from all previous regulatory plans because it does not set prices or “micromanage” the industry. They say they are not trying to cut U.S. healthcare spending, but merely limit its growth by establishing annual “caps” on premiums. They are probably right on all counts. If budgeting works, it will force doctors, hospitals and health insurers to decide how to control their own costs–there will be no government bureaucrats telling anyone what to do. Crucially, in the Clintonites’ view, the annual budgets will stiffen the spines of those who run the alliances in their negotiations with provider plans. Alliance managers can say there is only so much money in the bank–no chance to bid the total up. And if a provider plan fails to control its costs–if it runs over the price it negotiated the year before–it eats the loss. To Ira Magaziner, Clinton’s health-care guru, this simply means doctors and hospitals will be forced to operate like all other businesses: bad judgment means less income and possibly even bankruptcy.
Critics–and we will hear all their arguments in the months to come–raise many objections to this part of the Clinton plan. One contention is that the administration wants to limit spending too abruptly and that its five-year budget formula is too severe. Magaziner doesn’t buy it: like Clinton, he believes the health industry is full of wasteful spending and unnecessary care. During a recent White House briefing, he said that the budget could be more generous “if we were starting from a system that was already a trim system.” But the system, Magaziner said, is “completely bloated” and the administration’s proposed budgets are designed to eliminate the fat. “I get frustrated…[with] the attitude which says you can never get cost savings,” he said. “For the period that we’re projecting, from now to the year 2000, we think there’s going to be tremendous one-time savings.” Maybe. But economist Henry Aaron of the Brookings Institution says that estimating the potential savings from reform is “analytically impossible”–there are just too many unknowns.
AND THERE IS REAL dispute about the whole idea of trying to control costs. Health economist Dr. Rashi Fein of Harvard Medical School, who is skeptical that managed competition will produce real savings, says budget limits are “sensible and necessary.” Norman Daniels, the author of a book on health-care policy’ says no nation “has kept costs down without some type of budget cap.” But the American Medical Association, though officially neutral on the Clinton plan, opposes the very notion of limiting health-care costs through government regulation. The AMA and the American Hospital Association say they are willing to consider flexible don’t like the hard budgeting in the Clinton plan. Michael Bromberg of the Federation of Health Systems, another hospital group, says that Clinton’s attempt to control private-sector spending is unconstitutional-it is, he says, like telling parents how much they can spend on their children’s education.
The coming congressional debate is also likely to revolve around the issue of cost controls-according to Magaziner, that is the standard by which any competing plan should be judged. There are bills for a “single payer” system that would turn government into the national health insurer; Washington would control prices the way the Canadian government does, through annual fee negotiations with medical associations. Conservative Democrats and the Republican leadership in the House, on the other hand, want to try managed competition without the global budgeting, which would leave the restructured health-care market to determine national spending levels without limits set by government. Some conservatives want to try tax-deductible “medical savings accounts,” which would avoid both managed competition and cost controls. The Clinton plan, with its combination of market reform and government budgeting, lies near the middle of this spectrum. But given the huge stakes for Congress, the health industry and the public, no one can say whether the middle is the right place to be.
But let’s assume the Clinton plan passes, and that some day soon perhaps as early as 1995–we Americans are getting our care from a radically transformed health system. What will happen to us as patients and consumers? 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. OK, switching doctors isn’t the end of the world, at least for the vast majority of Americans who are healthy. But it can be very threatening for those with serious medical conditions, and it can undermine the quality of care. And what about the quality of care? Clinton’s staff promises that health alliances will issue annual reports on quality and that we all will know what to expect from the health plans we join. But it isn’t that simple–nobody in medicine knows how to measure quality. There is another risk, too–that quality will be eroded when doctors make medical decisions on a cost-conscious basis. It isn’t supposed to happen, but it does. “People with the best of intentions, including the Clintons, may create a system that imposes cost constraints,” says Dr. Bobert Brook of the University of California, Los Angeles, and the Rand Corp. “The thing that slips out is quality.”
Brook’s research shows that the attempt to eliminate unnecessary care cuts about as much muscle as it does fat–which brings us back to rationing. Rationing–the dreaded R word–is easily exaggerated, and it is very unlikely that or bureaucrats make life-or-death decisions for cost reasons. But that’s not the whole story. “What we’ve found in other countries when the lid has gone on [are] longer waiting lists, deterioration of facilities and a marked slowdown in the adoption of new [medical] technologies,” says Dr. James Todd of the AMA. “It’s an economic model that does not deal with the real world of the doctor-patient relationship.” Todd is wrong: the world is real enough in Germany, Britain and, up to a point, Canada. And the question we Americans face is whether we still want a healthcare system that offers care without compromise or whether we believe it is costing us too much.
Will President Clinton’s proposed health-care plan mean:
61% More security that health care will be available, whatever a person’s medical or financial problem
26% Less security
42% More simplicity for doctors and patients
45% More bureaucracy and paperwork
36% Real savings on nation’s health-care costs
47% No real health-cost savings
44% Enough choice for patients among various
39% Not enough choice
55% The same or better-quality health care
37% Lower-quality care
Will the mixture of cost savings, employer-employee payments and new taxes cover the cost of Clinton’s plan, or will it require more taxes than he has proposed?
73% More 17% Cover costs
FOR THIS NEWSWEEK POLL, PRINCETON SURVEY RESEARCH ASSOCIATES INTERVIEWED A NATIONAL SAMPLE OF 75[1] ADULTS BY TELEPHONE SEPT. 23-24. THE MARGIN OF ERROR IS +/- 4 PERCNTAGE POINTS. SOME DON’T KNOW AND OTHER RESPONSES NOT SHOWN. THE NEWSWEEK POLL (C) 1993 BY NEWSWEEK INC.
