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Volume 49, No. 2 February 1993


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/- 92).

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 persons.

``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 performance.

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 competition.

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 medicine.

Questions to Ask about ``Managed Competition''

  1. 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.)

  2. 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.)

  3. 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 plans?

  4. 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 Framingham study)?

  5. 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 economy.

  6. 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 added).


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 public schools.''

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 12/4/92).

``I read your damn book.''
George Patton, on seeing Rommel's tanks in formation

Patients the Key to Challenging State Mandatory Assignment Legislation

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 virtually meaningless.

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 1992).

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)


New Members

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 time:

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


AAPS Calendar

Feb. 6. Board of Directors meeting and dinner program, Dallas-Ft. Worth Airport Marriott.

Oct. 5-9. 50th annual meeting, San Antonio, TX.

Legislative Alert

New 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 months.

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 ``managed competition.''

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 breaks.

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.

Market-Oriented Alternatives

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 Perot.

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 a showdown.

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?