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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 49, No. 2 February 1993
``MANAGED COMPETITION'': WAVE OF THE
The ``health care reform'' promised by the incoming
Administration is like the perfect antibiotic: universal
coverage, no side effects, and low cost.
The new front-running idea-``managed competition''-is an
outgrowth of the Jackson Hole proposal (see pp. 2 and 2S).
Developers include Paul Ellwood, MD, the father of HMOs; John
Ball, MD, President of the American College of Physicians; John
Iglehart, correspondent to The New England Journal of Medicine;
William Roper, MD, former HCFA Administrator; and John Kitzhaber,
MD, author of the Oregon plan for medical rationing. The concept
enjoys some backing-with assorted caveats-from the Health In-
surance Association of America (dominated by large insurance
companies that deal in managed care); the US Chamber of Commerce;
and many Fortune 500 companies. AMA delegates say they will
accept the plan if (among other conditions) the AMA is exempted
from antitrust laws to allow group negotiations (AM News 12/21/-
The 178-page congressional version-the Managed Competition
Act of 1992 (HR 5936)-was introduced by Representatives Jim
Cooper (D-TN) and Charles Stenholm (D-TX) and authored by Atul
Gawande from India, who took time off from his studies at Harvard
Medical School to work for Rep. Cooper.
The plan would use tax-code changes to encourage the
consolidation of insurers and providers into single entities.
The only tax-deductible medical benefits would be premiums for
``Accountable Health Plans'' (AHPs), probably in an amount
limited to the lowest premium offered in the region. A tax of 34%
would be imposed on any ``excess'' (or unqualified) health
benefits that employers offered.
According to the proponents' summary of HR 5936, the plan
would ``allow consumers to shop wisely for health plans.'' The
Act would simplify shopping by restricting options. All AHPs
would have to offer a ``uniform set of effective benefits,''
defined by a 5-member, politically appointed National Health
Board. Actual enrollment would be accomplished through a Health
Plan Purchasing Cooperative (HPPC) established by the State. The
HPPC would collect premiums and distribute them to the AHPs,
shifting money from one AHP to another to compensate for varying
rates of subscriber nonpayment and enrollment by low-income
``Accountability'' means that AHPs would have to provide
data about prices, types of treatments, outcomes, and standard-
ized measures of enrollee satisfaction.
Medicaid would be repealed and replaced with a new federal
program to help low-income individuals purchase AHP coverage.
Long-term care would be turned over to the states; federal
assistance would be phased out.
Cost containment is supposed to be achieved by competition
between AHPs vying to offer the lowest premium price. The usual
methods used by insurance companies-such as experience rating, or
charging lower premiums to subscribers at lower risk-would be
specifically forbidden. AHPs would not be allowed to dis-
criminate against high-risk enrollees but would have to accept
all eligible persons on a first-come, first-served basis.
Therefore, other ways of lowering costs would have to be found;
hospital and physician charges would be the most obvious targets.
The bill also provided that:
(1) Coverage would be limited to treatments judged
effective by the National Health Board.
(2) The middlemen (HPPCs) would be permitted a maximum
service charge of 5% of premiums.
(3) Providers would not be allowed to balance bill.
(4) Cost-sharing by non-low-income enrollees would be
required, except for effective preventive interventions.
(5) Prevention would be emphasized in order to avoid
spending for illness, but overspending for prevention would be
limited by means other than cost-sharing. For example, the
maximum charge for stool guaiac screening for colon cancer would
be $5 in persons over the age of 50 ($0 for others). Screening
sigmoidoscopy could be paid for every 59 months and guaiac
testing every 11 months.
(6) Malpractice liability would be limited.
The Act is claimed to be budget-neutral. The financing for
universal access is to come from abolishing the limit on income
subject to the Medicare tax and from the posited increase in
income tax revenues. The latter would occur only if funds now
spent for ``excess,'' currently deductible medical benefits are
turned into taxable income-and only if huge managed-care networks
really achieve cost savings despite their previous disappointing
The Managed Competition Act does not explicitly outlaw
private medicine or medical insurance. However, the cost of
alternate insurance would, in effect, be doubled because it could
be purchased only with after-tax dollars. This creates a steep
grade in the playing field in favor of managed-care arrangements-
hence the term ``managed'' competition as opposed to free
Cooper stated: ``my guess is that fee-for-service medicine
will be discouraged and mostly die out'' (BNA, 12/4/92).
If private medicine and insurance should still manage to
survive, all eligible individuals might be required to obtain
medical coverage through an AHP, if the National Health Board's
1996 report to Congress showed evidence of adverse selection
(American Farm Bureau Federation Health Issues Brief, Dec. 1992).
(Adverse selection is the extent to which people enrolled in AHPs
have a greater need for medical services than those who are
eligible but choose not to enroll.)
Many private physicians and small insurers worry that this
``magic bullet'' prescription is aimed at the heart of private
Questions to Ask about ``Managed Competition''
- Will patients be forced to pay for procedures they
consider morally abhorrent, as a condition for having tax-
deductible insurance premiums? (Examples include
sterilization and abortion on demand.)
- What is the evidence that expenditures for ``prev-
entive'' services decrease total outlays for medical care?
(Immunizations are clearly cost-effective. But most
``preventive'' services, such as screening and treatment for
hypertension, clearly do not pay for themselves in dollars on a
societal level, however desirable they may be for decreasing
individuals' morbidity and early mortality.)
- What is the evidence that administrative changes will
result in a net cost savings? What is the
additional cost of requiring a form to be submitted for every
service, whether or not insurance coverage is desired or
warranted? How does this compare with the alleged savings from
requiring uniform claims forms? What is the cost of collecting
the extensive data to be demanded from ``accountable'' health
- What is the scientific validity of outcomes data
collected by insurers? The politically appointed National
Health Board would be empowered to issue practice guidelines
based on information submitted in order to collect payments. Yet
procedure codes are frequently judged to be inaccurate (nearly
half the time, according to some reviewers.) Where are the
defined populations, the control groups, the analysis of
confounding variables, the scrupulously careful description of
findings, the peer review-all essential for truly scientific
studies? How much do these cost (cf. research like the
- Which is better for the economy: an increased in-
dividual savings rate (as in MediSave accounts) or increased
pooling of funds controlled by prepaid monoliths? Most
workers would probably choose the former for their personal
- What is the cost, in dollars and jobs, of any proposed
mandates on employers??
One should also ask ``Why?'' with reference to specific
provisions of the Managed Competition Act of 1992, e.g.:
- Each small employer shall have an agreement with the HPPC
or face civil monetary penalties not to exceed $500 for each day
on which violation occurs. Attorney fees would be awarded to
successful complainants about failure to comply with the
agreement (Sect. 105, p. 18).
- Enrollment with AHPs must be for a specified minimum
period-enrollees would be locked in (p. 34).
- Physicians would retain risk of nonpayment. If the AHP
failed to make payment for the ``uniform set of basic benefits,''
enrollees could not be held liable for any payment other than the
predefined cost-sharing amount (p. 50).
- All AHPs would be required to maintain written policies
and procedures regarding advance directives (p. 51).
- ``In establishing such set [of effective benefits], the
Board shall judge medical treatments, procedures, and related
health services based on their effectiveness in improving the
health status of individuals and their long-term impact on
maintaining...productivity and on reducing the
consumption of health care services'' (p. 66, emphasis
The Jackson Hole Model: the SEC
The comprehensive plan for a 21st century American Health
System-a ``private-public partnership''-is modeled on the
Securities and Exchange Commission (SEC), according to Policy
Document #4 of 4 for the Jackson Hole Group (Sept. 4, 1991).
Along with the Federal Reserve Board and the Financial
Accounting Standards Board, the SEC establishes a ``successful
precedent'' for a ``uniquely American blend of government and
private-sector responsibility and accountability.''
An autonomous agency modeled on the Federal Reserve Board
would have ``too little public accountability given the scale and
public sensitivity of health care reforms.'' On the other hand,
the Dept. of HHS is subject to ``partisan political direction and
lengthy administrative delays.'' Thus, an independent, ``quasi-
nongovernmental'' agency like the SEC is the best model, in the
view of the Jackson Hole Group (JHG).
The ``possible overstepping or misuse of the federal govern-
ment's new regulatory authorities'' would be ``checked and
balanced'' through a collaborative private-sector role in stan-
dard setting. The process would be sponsored by ``major
insurance, employer, consumer, and health provider groups,''
which would ``assess medical technologies, medical practice
effectiveness, and consumer opinions on health.''
Just as the SEC registers securities, Accountable Health
Partnerships would be registered by the National Health Board
based on ``generally acceptable health accounting practices''
(Policy Document #1).
Since healthy persons are not expected to enroll voluntarily
in AHPs if they have a choice, various means of compulsion are
suggested: ``incentives'' for employers, a payroll tax on all
noncovered employment (e.g. part-timers), and a tax on the
adjusted income of nonemployed persons with incomes. The Jackson
Hole Group envisions that ``eventually, all care should be
purchased in this way [with capitation payments]'' (Policy
Document #2, emphasis added).
A photocopy of the JHG 21st Century plan is available from
AAPS for $5.
Choice for Chelsea-Only
The Clinton family's choice of a $10,400-a-year private
school for Chelsea was ``highly defensible,'' according to an
editorial writer for The Arizona Daily Star (1/8/93).
However, ``enabling [other] Americans to flee underfunded,
understaffed public schools in favor of private ones would weaken
Could the same be said for public and private medicine?
Tax Law and the Uninsured
Of persons who have access to 100% tax-free, employer-
provided coverage, 2.8% are uninsured.
Of persons eligible for a 25% tax deduction for self-
employed coverage, 28.6% are uninsured.
Of individuals who must purchase insurance on their own,
without a tax deduction, 67.5% are uninsured.
Cato Institute, Policy Analysis #184
About 1% of the population is uninsurable due to
chronic illness or other problems (BNA's Medicare Report
``I read your damn book.''
George Patton, on seeing Rommel's tanks in formation
Patients the Key to Challenging State Mandatory Assignment
Predictably, the movement to mandate physician participation
in Medicare was begun by Massachusetts. Chapter 47 of the
Massachusetts Act of 1985 provides that, as a condition of
licensure, any physician who treats a beneficiary of Medicare
must agree not to collect from such beneficiary any amount in
excess of the ``reasonable charge'' for that service as
determined by the US Secretary of HHS.
The Massachusetts statute was immediately challenged
(Massachusetts Medical Society v. Dukakis 637 D 684 D.Mass. 1986)
on the ground that it violated the Due Process Clause of the
Fourteenth Amendment to the US Constitution because the
requirement did not have a rational connection with the
physician's fitness to practice medicine. (The Due Process
Clause forbids any condition that is not directed to protecting
against the consequences of ignorance and incapacity or deception
and fraud.) The Court disagreed, and the US Court of Appeals for
the First Circuit affirmed, stating that the ban on balance
billing is a rule, and on entering the profession, a physician
must promise to follow the rules.
The State of Pennsylvania followed this lead, enacting the
Health Care Practitioners Medicare Fee Control Act in 1990,
providing that it is ``unlawful'' for ``any health care
practitioner...to balance bill.''
Physicians challenged the validity of the statute on the
grounds that it violated the ``Supremacy Clause'' of the federal
Constitution (Article VI, clause 2). They argued that the state
is preempted from legislating in the ``field'' of Medicare by
Congress, and the Medicare Act clearly provides that physicians
may balance bill.
A sharply divided US Circuit Court of Appeals for the Third
Circuit upheld the Pennsylvania statute on the ground that there
was an ``inadequate showing'' that Congress intended to protect
balance billing from state prohibitions, as one of the goals of
the Medicare program (Pennsylvania Medical Society v. Marconis,
942 F. 2d 842, 853 (3rd Circuit, 1991). A dissenting Judge
asserted that the holding has rendered the Supremacy Clause
In the challenges to state statutes that ban balance
billing, one significant party has been left out: the patient.
In the case of Stewart v. Sullivan (DCNJ, 1992), Dr. Lois
Copeland and five of her Medicare patients challenged the
Secretary of HHS in his attempt to prevent them from entering a
private contract for medical services. The Court found that
``neither the [Medicare] statutes nor the regulations expressly
address the issue.'' Assuming the absence of a federal law
prohibiting private contracting, a major conflict arises. In
Massachusetts and Pennsylvania, the states have banned the
patients from privately contracting!
A new prohibition against balance billing has been enacted
in Ohio. A test of the law is currently being prepared. The
challenge will take the success in Stewart v. Sullivan one step
further. It will squarely ask the Court to assess the
beneficiaries' rights to privately contract, and whether
the Ohio statute conflicts with Congressional intent and is
therefore violative of the Supremacy Clause. This time, the
challenge will be spearheaded by patients!
Message from the President
In passing H.B. 478, the Ohio Legislature has clearly and
literally sanctioned involuntary servitude (slavery) for a
segment of the population of Ohio citizens. Doctors! H.B. 478 is
in violation of Article 13 of the Amendments to the US
Constitution and of Article 1, Sec. 10 of the US Constitution.
[No State shall...pass any bill of attainder, ex post facto law,
or law impairing the obligation of contracts.]
I am not aware of any situation wherein the consumer sets
the price for what he wishes to buy and arrogates to himself the
power to inflict damages, including incarceration and
expropriation of private property, from the producer of the
desired goods and services if the producer would refuse to agree.
(Of course, robbers do this all the time!)
No legislature would dare to commit such plunder or mandated
discrimination upon certain other minorities in our great
country. But now the medical minority can be plundered at will!
It is ironic that these developments should occur in America
while the whole world is striving to access our fundamental
principles of freedom. What has become of the law of the land?
And the oath taken by all civil servants in public office to
uphold and defend the US Constitution? If all continues to be
mere words, then for how long will America be the land of the
free and the home of the brave? Have we forgotten that America
was rescued from being the land of the slave and the home of the
knave? Are we regressing?
from a letter to Governor George Voinovich
Nino Camardese, MD, Norwalk, OH
Some Economic Indices
Between 1989 and 1992, the tax and regulatory cost per
worker rose from $4,000 to $5,300 while profits per worker fell
from $3,000 to $600, according to a study commissioned by the
Joint Economic Committee of Congress (MGMA Washington Report Dec
Since 1980, the federal debt has jumped from 35% of the GDP
to fully 80% of GDP, or almost double the level in Germany...In
the US, the supply of personal savings is only around $220
billion, which is hardly enough to cover the deficit (Martin
Weiss' Safe Money Report 12/4/92).
Since 1973, the median real income has fallen by 30% for
families with children which are headed by persons under 30.
Twenty years ago, a typical 30-year-old male made 6% more than a
typical 60-year-old male; today, he makes 14% less. Since 1979,
the inflation-adjusted income of all adult men under age 35 has
sunk more than 20% (Atlantic Monthly Dec 1992).
How Are Doctors Responding to Medicare Laws?
A follow-up to our 1990 survey on the impact of new Medicare
laws and regulations is enclosed. Please return it at your
earliest possible convenience so that we may share the results
with the architects of these changes.
``With health care, you have a chance to clean up the
rottenest system in the industrial world.''Jim Cooper (D-TN)
AAPS welcomes Drs. Billy Alexander of Forest, MS; Joseph
Austin of Bellevue, WA; Robert B. Belk of Anderson, SC; Adil
Rashad Cheema of Houston, TX; Jan S. Connelly of Spokane, WA;
Christopher M. DeGiorgio of Los Angeles, CA; Mathew Foster of
Roswell, NM; Joe Gardnir of Joplin, MO; Todd Garvin of Bremerton,
WA; Peter Gordon of Decatur, GA; William Hurwitz of Washington,
DC; Charles A. Isham, Jr. of Lafollette, TN; Warren Kluger of St.
Augustine, FL; Paul McManus of Decatur, GA; George Niesen of
Chesterfield, MO; Ronald L. Peters of Ashland, OR; David W. Price
of Denton, TX; J. Daniel Scott of Lake Jackson, TX; Micke J.
Smith of Rome, GA; David G. Stanley of Oak Ridge, TN; Jerry
Thomas of Paris, TX; Benjamin Wilson of Salem, OR; Daniel A.
Brzusek of Bellevue, WA; Serafina Corsello of New York, NY; James
Flowers of Port Angeles, WA; Donald J. Hesch of Seattle, WA;
Russell R Holtz of Federal Way, WA; Arthur C. Jones, III of
Boise, ID; Chris Jordan of Tacoma, WA; Gary Kato of Renton, WA;
Roger K. Larson of Seattle, WA; Joel Lehrer of Teaneck, NJ; John
M. Livingston of Boise, ID; John W. Mannschreck of Olympia, WA;
Phillip A. Medina of Bellevue, WA; R. Anders Rosendahl of
Houston, TX; Michael Schneck of Morristown, NJ; and John R. Vasko
of Seattle, WA.
A Letter to Patients
AAPS received a copy of this letter through a patient. For
22 years, her physician has sent such a letter to his patients at
Christmas is a happy and joyous time of the year for most of
us as we count our many blessings. However, this particular year
and this season bring real concerns. Our nation's and state's
economy brings hardship to a number of my patients.
Many of you also are on pensions or have rather limited
fixed incomes from various sources. Others of you have special,
unique situations affecting you at this time.
I hope this thought from me will be helpful to you: As you
handle your account, please feel free to make whatever reduction
you need as a result of your family's particular situation. I
want you to determine the amount as, of course, you know your
situation better than I.
This is a very private matter between you and me, and no
discussion with my office is needed. It will be helpful to my
bookkeeper if when you return your statement you will please note
that you have taken a reduction and indicate the amount.
During this season, let us pray for our country and her new
leaders. Merry Christmas!
Richard L. Blount, MD, Jackson, MS
Guest Editorial from Georgia
The issue [is] whether we will remain an independent and
compassionate profession or become an enslaved government trade
union....We are poised for a uniquely American version of
socialized medicine (we do not learn from other people's
mistakes). Moreover, to placate conservative critics, the
package will have a veneer of capitalism covering a hard core of
socialism....From the new school of Democratic Socialilsm, we
will be imbued with the philosophy of equal suffering....
[H]ere is the scenario....As a result of ``managed care
networks'' with a ``fixed amount of money for meeting the full
needs of consumers,'' medical costs will be brought down
primarily at the expense of one group, the doctors.
Physicians will be reimbursed 40% to 50% of their present
fee schedules, as well as continuing to be targeted for intimida-
tion and scare tactics by enforcement of vague and cryptic rules
-all part of the novus ordo seclorum of health care delivery.
But what about decreased fees and productivity?...HCFA
presupposes that less physician reimbursement (less compensation
for their honest work) would result in the ``greedy'' physicians
working twice, or maybe three times as hard to compensate for
their lost income. Is this presupposition indeed correct? The
answer is of paramount importance.
Let us look at a transcendental lesson from history...The
great Russian patriot Alexander Solzhenitsyn in ... The Gulag
Archipelago exposes an inescapable analogy....[T]here were two
types of people in the gulags: those who resisted, and those who
collaborated with the enemy by doing what they were told, and
working as hard as they were capable for the promised reward of
extra rations. For their additional work, the collaborators were
given just a smidgen more food, just enough to convince them that
they were better off than the others.
The bitter truth was that the extra rations were not enough
to provide the compensatory nourishment to sustain their intense
labor. The collaborators in the political prison camps uninten-
tionally hastened their own demise by...acquiescence in the face
of their own predicament....
Likewise in medicine, physicians beware. Let us not
acquiesce thereby hastening not only our own demise but also that
of our profession.
Miguel A. Faria, Jr., MD
excerpted with permission from the BCMS Bulletin, Dec. 1992
Bibb County Medical Society, Macon, GA
Feb. 6. Board of Directors meeting and dinner program,
Dallas-Ft. Worth Airport Marriott.
Oct. 5-9. 50th annual meeting, San Antonio, TX.
Legislative AlertNew HHS Team Takes Shape.
HHS Secretary Shalala. Bill Clinton surprised official
Washington with his selection of political scientist and educator
Donna Shalala, Chancellor of the University of Wisconsin, as the
next Secretary for the Department of Health and Human Services
(HHS). Most Capitol Hill observers expected her to be named to
the Department of Education. Like Marian Wright Edelman, another
top contender for the job, Shalala is a leader of the Children's
Defense Fund, a liberal advocacy group.
During the early seventies, Shalala taught political science
at City University of New York and Teachers College of Columbia
University. From 1977 until 1980, she served as Assistant
Secretary for Policy Development and Research at the Department
of Housing and Urban Development (HUD). Shalala is considered a
strong administrator with the ability to get an organization
moving in her direction.
Politically, Shalala is typical of many academic Sixties
Kids, checkmated by the last twelve years of Republican control
of the Executive Branch. Her social criticism is hotly spiced
with an unmistakable Sixties flavor. According to a recent column
by Mona Charen in the The Washington Times, Shalala said:
``American society is racist and sexist. Covert racism is just as
bad today as overt racism was 30 years ago. In the 1960s, we were
frustrated about all this. But now, we are in a position to do
something about it.''
Shalala has been a champion of educational ``multi-
culturalism.'' Her stewardship of the University of Wisconsin has
been marked by controversies concerning ``political correct-
ness,'' including her administration's development of ``speech
codes'' governing discussions of race and sex for Wisconsin
students and professors.
Shalala has no in-depth experience with medical financing
issues. Her appointment virtually guarantees that medical policy
is likely to be run directly out of the Clinton White House.
The New Surgeon General. One of Clinton's inner
circle, Jocelyn Elders, MD, taught medicine at the University of
Arkansas and practiced for 26 years before joining the Clinton
Arkansas Cabinet in 1987. Elders states that her top priorities
will be to secure ``universal access to health care'' and ``com-
prehensive health education'' for America's youth, particularly
concerning teenage pregnancy, AIDS, and violence. She is likely
to find herself on a collision course with Congressional
conservatives. Last January, at an ``abortion rights'' rally in
Little Rock, AR, she told opponents of legalized abortion to
``get over their love affair with the fetus.'' Whatever she
brings to the job, it won't be diplomacy.
New HHS Management. The character of the huge, half-
trillion dollar department will be largely determined by the
Deputy Secretary, the Assistant Secretaries, and the Deputy
Assistant Secretaries, Clinton's lieutenants who will run the
policy shops on a day-to-day basis.
A strong contender for Deputy Secretary, the number two
post, is defeated Congressman Tom Downey of New York. Downey's
personal experience is in the field of welfare. A former member
of the House Ways and Means Committee, he is seen by
conservatives as an inveterate opponent of genuine welfare
reform, such as serious work requirements for those on public
assistance, favoring instead an expansion of federal welfare
funding. If selected, Downey can be expected to play an
aggressive role in the managerial side of HHS, rooting out any
remaining vestiges of Republican personnel and policy.
Another possibility is that the Clinton transition team will
recommend a management reorganization of the giant Department and
create two deputy secretaries at HHS: one to handle human
services and the other to handle health. A second Deputy
position, if the Clinton transition decides to create one, could
go to Stuart Altman, an economist and Dean of the Heller Graduate
School at Brandeis University. Altman is a member of the National
Academy of Sciences and the American Public Health Association.
He is also chairman of the Prospective Payment Commission, the
panel that advises Congress on Medicare hospital reimbursement
(DRGs). Previously, he served in the Dept. of HEW under
Presidents Nixon and Ford.
The HHS Transition Group. Under the leadership of Tom
Downey, the transition team has been designing policy and program
recommendations at HHS itself. Although HHS civil servants, like
the rest of the federal bureaucracy, are protected from dismissal
by civil-service laws, the talk about ``reinventing government''
and the promised reduction of 100,000 government positions has
many career officials feeling uneasy.
The team has a heavy concentration of senior Democratic
congressional staffers, most with solid liberal credentials.
Many will occupy key domestic policy positions after January 20.
They include Fernando Torres-Gil, a chief staff aid for retiring
Congressman Ed Roybal (D-CA), author of a comprehensive national
health insurance plan backed by organized labor; Bill Carr, who
formerly worked for Rep. Henry Waxman and Senator Howard
Metzenbaum; Wendell Primus; David Abernethy; and Sandy Wise.
If moderate or conservative Democrats, such as those
represented by the Democratic Leadership Council or the
Progressive Policy Institute had any serious interest in manage-
ment or personnel at HHS, obviously they lost-and lost big.
Transition Team's Toughest Task. No one envies Judith
Feder, the 45-year-old political scientist heading up the Clinton
health care policy transition effort (see January Legislative
Alert). She's being bombarded with contradictory proposals,
she's on a tight deadline, and her ``client'' (the next President
of the United States) has publicly pledged to overhaul an $800
billion medical industry. She's got the toughest job in town.
Clinton promised to get something up to Capitol Hill in the
first 100 Days of his Administration. Clinton is also reiterating
the line that he can't get the federal deficit under control
unless and until he can control health care costs, and he wants
to get something done on health care cost control within six
Word is that Feder's team is having a tough time balancing
the two big health care policy balls at once: ``universal
access'' and ``cost containment.'' Compounding the problem is
that even within the Clinton camp, there are profound
philosophical differences. Before the Presidential campaign,
Feder widely published and debated in favor of a huge role for
the federal government in setting price controls and mandating
employers to cover uninsured workers and their families. She was
reflecting, of course, the views of the Pepper Commission, which
previously employed her as Staff Director. But influential
moderate and conservative Democrats, particularly House Members
led by Congressmen Charles Stenholm of Texas and Jim Cooper of
Tennessee, will not tolerate price controls nor a federal
``global budget'' for medical care. Weighing in on the side of
the conservative House Democrats is the Progressive Policy
Institute (PPI), the new Washington think tank spawned by the
Democratic Leadership Council, a ``moderate'' caucus that Clinton
himself created and which helped get him elected. The PPI has
just published its long-awaited Mandate for Change, now a
Washington best seller, spelling out in detail its own version of
``managed competition'' as the model for the Clinton
Administration. The PPI is calling for a change in the tax
treatment of health benefits, limiting the deductibility of
health packages and creating a system of tax credits for in-
dividuals to promote ``consumer choice'' within the framework of
What Is ``Managed Competition''?
In one sense, the internal battle among Clinton's minions
and moderate and conservative Democrats is over exactly how to
define the strange concept of ``managed competition.'' Is it a
framework for genuine free-market reform, or a trap door to even
greater government control over American medicine? The godfather
of ``managed competition'' is Stanford economist Alain Enthoven,
who favors the creation of ``markets'' within a new framework of
government regulation. The basic question distinguishing the
several variants on the idea is: How much competition, and how
much government management?
On the politically explosive issue of limiting tax
deductibility for health benefits, Clinton is embracing serious
change. Over the past several weeks, The New York Times, the
National Governors Association, the Conservative Democratic Forum
in the House of Representatives, business organizations, and even
insurance associations have endorsed a cap on the deductibility
of health care benefits.
The proposal to change the tax treatment of benefits is
nothing new. It has been a staple of conservative and libertarian
medical reform efforts over the past several years. But here, as
elsewhere, the devil is in the details. Will the removal of
unlimited, favorable tax treatment for employer-based health
insurance be replaced with tax breaks for managed-care plans
only? Will it just change the current restrictions on markets
from employer-based coverage, no matter how rich, to managed-care
options, no matter how poor?
The Clinton Plan
The Clinton Plan, taking shape around the concept of
``managed competition,'' is still vague. But the key components,
aside from an as-yet-unspecified tax change, thus far seem to be:
- Global Budgets and Core Benefits Package. These
would be set by a National Health Board, for both public and
private medical spending at the federal and state level.
The Board would be composed of consumers, providers, and
representatives of business, labor, and government.
- Collaborative Health Networks. These networks will
negotiate fees with doctors and hospitals within the limits
set by the global budgets. This is a variant of the idea of
Health Care Purchasing Cooperatives, as outlined in the
``managed competition'' proposal of the House Conservative
Democrats (see p. 1).
- Community Rating for Insurance. Insurance would be
required to cover all groups and persons within groups,
regardless of their medical status. Premiums would be the
same for all enrollees, based on the projected total costs
for all enrollees. In effect, this is a price control
regime for insurance.
- Employer Mandates. Companies would be required to
provide health insurance for their employees. Small busi-
nesses that cannot afford to do so would be helped with tax
Clinton has to add up the political selling points of any
plan he sends to the Hill. Democrats on Capitol Hill expect
Clinton to do a series of ``town hall'' type meetings around the
country and build popular support for a reform on the ``managed-
competition'' model. (More bus tours ?)
Liberal Democrats in Congress realize that both Canadian-
style national health insurance and the ``Play or Pay'' version
of employer mandates, as promoted by the Democratic leadership in
1992, are not on the table. But they will look for an opportunity
to shape any health care reform package more to their liking.
The list of alternate reform models is short and broadly
market-oriented: ``Small Group-Market Reform'' (Sen. Chafee of
Rhode Island), ``Medisave Accounts'' (Sen. Coats of Indiana, Sen.
Breaux of Louisiana, and Rep. Santorum of Pennsylvania),
``Consumer Choice'' (Sen. Hatch of Utah and Sen. Stevens of
Alaska), and ``Managed Competition'' (Reps. Cooper of Tennessee
and Stenholm of Texas). Beyond the narrowing of Congressional
options, there is a huge lingering political question: Will the
public buy into any fundamental reform? Will the electorate
accept the trade-offs inevitable in any comprehensive change of
American medicine? The Medicare Catastrophic Act debacle of 1989
is still fresh in the minds of many leading lawmakers, who point
out that while medical insurance reform is high on the list of
public concerns, no popular consensus on what to do about it has
emerged. The 1992 election gave nobody a mandate for any
particular type of reform. In fact, the 1992 election gave nobody
a mandate for anything in particular. A majority of the
electorate, after all, voted against them all: Clinton, Bush and
The battleground will not simply cover the legislative
definition of ``managed competition'' itself, but also ``global
budgets'' or explicit price controls, with Republicans and
conservative Democrats trying to strip these features away from
any proposal. Employer mandates, even with tax relief for small
business, is bound to be a serious political problem. Clinton
realizes that he faces a formidable opposition if small business,
which employs about 60% of the American workforce, should
marshall its awesome political power. A flat employer mandate on
the California 1992 ballot was crushed by a margin of two to one.
And Clinton also knows that while Senate Republicans, especially
sensitive to the concerns of small business, have not gained any
seats in 1992, they have no net losses either. Senate Minority
Leader Robert Dole of Kansas has more than enough to work with in
The future contest could boil down to a debate between Con-
gressional proponents of ``managed competition'' and proponents
of stronger, market-oriented reform models. The questions then
become: Are Members of Congress willing to give the free market a
real chance at reform? Can consumers be trusted to buy insurance
for themselves? Will doctors and patients be able to enter into
free contracts with one another?