Among the issues of the 1992 Presidential election was the need for reform of health care's financial structure in the United States. Although an issue on the continuing agenda of government, health system reform was catapulted to among the top priorities with the surprising victory of Senator Harrison Wofford in Pennsylvania over former Pennsylvania governor and U.S. Attorney General Richard Thornburgh. With health care the primary campaign issue, politicians and news media made this their focus for the next several months and ultimately a key issue of the 1992 Presidential election. Upon assuming office, President Clinton appointed a task force, chaired by his wife, to recommend a major alteration in the financing of health care. Although the basic reform direction was developed during the campaign and Presidential transitional period, the Task Force was called upon to develop many details and to present options to the President. The Task Force labored for months with some controversy over representation and secrecy. After several months of delay from the original target date, President Clinton formally revealed his plan in an address to the Congress on September 22, 1993. 

GOALS 

Problems that exist in financing of health care are well recognized. These problems clearly are not new, only their magnitude increased their visibility. At the turn of the century, there was extensive debate over financing of health care. The American Association for Labor Legislation led the unsuccessful fight to follow the emerging European example of a national health care system (Starr, 1982:244). Similarly the Committee on the Costs of Medical Care's report in 1932 urged reform, but President Roosevelt believed that it was too controversial to have it included in his Social Security bill (Stan, 1982:270). Truman's advocacy of a major overall of medical financing did not see fruition until the enactment of Medicare for the elderly and Medicaid for the poor (which often includes many elderly, especially for nursing home care) in 1965. 

Health care costs continue to escalate, exceeding inflation each year. It has taken an increasingly percent of our Gross Domestic Product, currently around 14 percent, more than any other nation, and projected to continue to increase. Both Federal and state government feel the cost escalation, not only because of the cost of their own employees health benefits, but because 40 percent of all personal health care are currently paid by government. States find that their share of Medicaid costs are among the three most expensive state programs. 

In the U.S. private health insurance became part of the fringe benefit of employers. Wage freezes during WWII led employers to increase compensation for employees by adding health insurance. At first a small addition to wage costs, but now health insurance has become a significant employment cost factor. Consequently, many smaller businesses do not provide health insurance for their employees, and many of those firms that do are asking employees to pay more in deductibles and co‑payments. Some insure the employee, but not the family. Some employers must pay significantly more in health insurance because they have older or sicker workers. Costs to these employers escalate as more insurance firms use experience rather than community rating for determining premium payments. 

The census bureau reports that 38.9 million people in the U.S. do not have health insurance or are covered by Medicaid on any given day during 1992 with 25 million being without health insurance during the entire year. An even larger number of Americans have inadequate coverage. Many poor with government provided Medicaid still have difficulty seeing a doctor because many physicians will not accept Medicaid patients in those states with low reimbursement levels. A still larger number of Americans who have coverage, about 85 percent, fear that they will lose this coverage if they become unemployed (a realistic situation with the many layoffs as firms downsize to become more competitive) or change jobs. 

Changing the financing of health must be achieved in the context of an overall high quality, high technology medical system in the U.S. Surveys repeatedly show that although many Americans are concerned about paying for health care, the overwhelming majority are satisfied with their physicians and the health care they are now receiving. Further, it is continually noted by health care providers and their interest groups, that the U.S. has more technology available, thus practically eliminating waiting times, than other advanced nations. We therefore are expected to change the wheels of the apple cart without disturbing a single macintosh. The goals of the Clinton Task Force were to recommend changes that would maintain this quality, improve access, provide security against loss of insurance, and contain costs. 

CLINTON ADMINISTRATION'S PROPOSAL IN BRIEF 

The Administration's proposal guarantees everyone health coverage by requiring business firms to provide heath insurance for their workers, including part-time employees (prorated for those working 10‑30 hours a week), with the government subsidizing small employers with low wage employees. Employees may be required to co‑pay up to 20 percent of the cost of health insurance, again with a federal subsidy for low income workers, currently defined as those making less that 150 percent of the poverty level. To gain this coverage, states will form regional Alliances to negotiate the best rates. Medicaid will continue for the poor with government paying 95 percent of employer and employee portions to the relevant Alliance. Providers would not know if they were seeing a Medicaid patient or an employed payer, thus correcting the problem of discrimination against medical assistance patients that now widely occurs. Medicare would not be changed except that those with incomes greater than $100,000 for individuals and $125,000 for couples would be charged a higher Part B premium, currently three‑quarter subsidized by the Federal treasury. States will have the option of including Medicare within their regional Advances. 

The President's proposal includes a standard benefit package, somewhat more extensive than in many proposals. For example, prescription drugs would be included for both Medicare and non‑Medicare patients after a $250 deductible is met. Patients would pay 20 percent of the cost up to a maximum $1,000 a year. Mental health benefits, vision care for children, and some expansion of long term care coverage are included. In 1973 it was a similar extensive benefit package required for HMOs to be eligible for federal support under Nixon that initially doomed the program. Only after a scaling down of the required benefits and a few other concessions did the federal effort at expansion of HMOs succeed. The plan does counter the problems of portability and preexisting conditions. Workers will be able to get insurance at their new job (portability), thus eliminating the problem known as "job lock". Workers will also be totally covered with an end to the insurance practice of excluding preexisting conditions. Further, the plan will require premium charges to be based upon a community rating, thus eliminating the increased use of experience rating which has driven up costs for small businesses and other firms employing workers that have had costly medical conditions or are older. Again, the cost question arises as the risk to insurers increases. No longer will insurers be able to try to insure only the least risky workers, a practice known as "cherry picking" (adverse risk selection). 

Several other changes are included in this comprehensive medical system overall. For example, auto and workers' compensation injuries would be handled through the Alliance. Insurance companies would be subject to antitrust which they currently are not. Doctors would be allowed to form networks with hospitals, clinics, and other health providers free from antitrust action. Other areas include malpractice reform with alternative dispute resolution made mandatory. Settlements may be paid over time rather than in a single payment. Even lawyers' fees would be limited to one‑third of award in malpractice cases. Medical schools would be directed to graduate 50 percent of their class in family medicine after a phase in period. Drug companies would be required to give Medicare recipients the same 15 percent drug discount that they give states for Medicaid recipients. In my view, it is not the managed competition that makes this proposal the most significant domestic public policy proposal in U.S. history, but the scope of other health system changes included in the proposal. 

ISSUES OF THE PROPOSAL 

Given the complexity of the Administration's proposal, many issues and uncertainties arise. A few of the more visible and contentious ones are as follows: 

1.      Will the Proposal Cost Jobs?

Despite conflicting estimates over job loses engendered by the proposal's implementation, the problem is that net job change will be small. Undoubtedly some small businesses, who do not now provide health insurance, will close because of added cost. But low wage firms will receive a subsidy with others being able to shift cost to workers with lower wages or reductions in other fringe benefits. Many will increase prices to pay the added costs. Small firms who currently offer insurance will be benefiting as their insurance costs should decline with the reduction of cost shifting and the use of larger labor pools based upon community rating to determine instance rates. Further, the proposal envisions the controlling of rate increases. Double digit increases now negatively impacts these firms. For small low wage businesses, the cost will be limited to 3.5 percent of payroll, estimated to be equivalent to a 15 cent to 35 cent increase in the minimum wage (Wartzman and Saddler, 1994: A15). 

Projections are that demand for labor in manufacturing and other sectors where health cost should fail will increase. This along with some expansion of jobs in the health sector as more of the uninsured receive coverage should result in the minimization of any job loses and may result in net job gains (Holahan, 1993: 3). 

2.         Administrative Cost of Health Alliances
          Since these institutions do not exist, their creation will result in added administrative costs. In contrast a single payer system would be less expensive as shown by the low administrative cost of Canada's health system and the low administrative cost of our own Medicare and Medicaid system, currently 3.3 percent (Anderson: 1992). Private insurance has an administrative cost of 11.9 percent of premium (Woolhandler and Himmelstein, 1991). The question is whether the added administrative cost of the Alliance is worth it for the functions performed. The Alliances will negotiate in a competitive market, will provide information to consumers including quality information, and will certify those eligible for government insurance subsidies. Some of the Alliance's cost will be offset by lower private administrative costs of insurers and physicians. 

3.       Choice in the Health Plan
         The Health Insurance Association of America (HIAA), representing small   insurers, has run commercials arguing that the Administration's plan significantly limits choice of physicians by patients. Mrs. Clinton, supported by the Alliance for Managed Competition, representing larger insurers, contends that the ads by HIAA are false. 

In fact Clinton's plan does provide choice and greater choice for some than currently available. For example, an individual will be able to select a managed care (e.g. PPO or HMO) or a fee‑for‑service plan. If your primary care physician is a member of a particular plan, you can select that plan. If not, you can select the fee‑for‑service option. The main factor controlling your choice could be cost. Your personal physician may be part of only the most expensive plan. The Plan's concern with choice is revealed by the requirement that at least one fee‑for‑service option be made available and that HMOs should have a point‑of‑service option, allowing individuals to see a physician not in the HMOs panel if the patient is willing to pay an additional amount. In 1992 nearly 90 million Americans received their health care from a PPO or HMO managed care plan, up from 25 million in 1985 (Wall Street Journal, Dec. 30, 1993: 1). Choice today is being limited by insurers who are removing higher cost physicians from their networks. 

Patients and physicians feel increasingly frustrated with the current system of managed care plans, where care provided includes attempts to contain utilization (Inglehart, 1992: 963). In the abstract this is a sensible system. But in individual cases, it often produces frustration as patient and physician perceive the system as providing inadequate care with non‑physicians or physicians who have not seen the patient determining hospitalizations, tests, and procedures that a patient may have. 

With limitations of insurance premiums resulting from competition and a restriction on yearly increases, it is difficult to imagine the system not increasing the use of utilization controls‑the very meaning of "managed" competition. Thus choice of physician, especially primary care physician, will be wide. But total freedom of doctor and patient to determine care will be limited as is increasingly the case now. 

4.       Global Budgets
          Similar to arguments on choice, opponents maintain that the Administration's plan has a health budget that will greatly limit the amount of health care provided. Global budgets have been used effectively to control the rise of health care costs in other nations, but if too restrictive will result in inadequate availability of services to meet the demand. In Canada it is the global budget for hospital expenditures that limit the availability of technology, not the single payer method of compensating physicians. 

A Global Budget as implemented in other nations is not proposed. What the opponents are referring to are premium caps that will be determined by a National Health Board. The limitation of services would result from utilization controls imposed to insure financial viability of the plans under premium restrictions. Further, Alliances are permitted to develop fee‑for‑service plans that would reduce payments to providers if the volume of services exceed utilization targets. This latter approach intends to avoid substantial premium differences between HMOs and fee‑for‑service plans (Holahan, 1993: 3). 

5.       Is the Financing Adequate?
         A major conflict is the ultimate cost to government. The plan includes a number of government expenses beyond the Alliances noted above‑drug benefits for those on Medicare, subsidies to poor and to small business, government financing of health benefits for early retirees‑to cite a few. 

The major financing of the plan includes an increase in the cigarette tax, a one percent payment by large firms who choose not to join an Alliance, and savings on Medicare and Medicaid (Robin, 1993). Unfortunately uncertainties make financing difficult to forecast. For example, if the increase in the cigarette tax, a regressive levy, results in fewer people smoking, then we will not have nearly as much revenue. Savings in Medicare and Medicaid depend on the ability of the new health plan to reduce the escalation in health costs. The Administration's cost estimate is based upon having the growth rate of health spending being below that of overall economic growth from 1996‑1999 as inefficiencies and fraud are routed out of the system. Such assumption is dubious. No doubt a tax increase or a slower implementation of benefits will be needed. Thus the proposal's cost is the most uncertain aspect of the plan. 

Today the financing of services for the poor are hidden. Service providers who render uncompensated care to those who can't pay and do not have insurance shift the cost to others. Thus businesses that currently provide health insurance for their employees are now paying for the health cost of the poor. If the cost is removed from the premium and paid by a tax, it will make visible what is now a hidden payment. 

OUTLOOK 

Clinton's proposal if enacted would be the most comprehensive domestic policy change in U.S. history. This is less true if one focuses just on the managed competition aspect for the health care system is currently moving in that direction. The proposal includes reforms from malpractice to physician education to workers compensation. In a nation whose approach to problems is essentially incremental, such a comprehensive approach will tap significant opposition. In the U.S. even Medicare had been opposed for decades with its implementation in 1965 through the private insurance system. 

Powerful interest groups, including the American Medical Association (the top national PAC), the Health Insurance Association of America, and a variety of business groups, will doom the proposal. They will argue that the system is not broken and needs only small repairs to correct the deficiencies. They will frighten those who now have health insurance, which represent the majority, with the argument that they will lose benefits and gain additional costs. And they will argue that the program empowers big government, unable to administer programs efficiently or effectively. 

In an election year with public opinion concerned with health financing, something probably will be enacted. The maximum may be an Alliance structure in a managed competitive system. But businesses below a certain size probably will not be required to provide health instance. In lieu of providing health insurance, they may be required to pay a tax to the government to provide benefits for their employees. A national board with power to determine maximum premium increases will be jettisoned in favor of recommended guidelines. A completely community rating system will not be implemented. 

As for the practice of medicine, institutional change will continue as the solo practitioner fades in favor of group practice, including more capitated payment methods, but with an enhanced flexibility for individuals to go outside the group if they are willing to pay additional costs. Larger institutions was prevail as physicians combine and larger insurers dominate through managed care plans. The concern about the escalating cost of medicine will not abate as new technology and the aging baby boom generation drive costs higher. 

WORKS CITED 

Anderson, Gerald F. 1992 "All‑payer Ratesetting: Down but Not Out." Health Care Financing Review. 1991 Annual Supplement. Pp. 35‑41. 

Holahan, John. 1993. "Clinton's Health Care Plan: Assessing the Criticism." Policy Bites. Washington: The Urban Institute. November. 

Iglehard, John K 1992. "The American Health Care System." The New England Journal of Medicine. 326:962‑967. April 2. 

Rubin, Alissa. 1993. "Clinton's Health Plan Envisions Reorganized Marketplace." Congressional Quarterly Weekly Report. Pp. 2458‑2463. September 18.

Starr, Paul. 1982. The Social Transformation of American Medicine. New York: Basic Books. Wall Street Journal. 1993. December 30. 

Wartzman, Rick and Jeanne Saddler. 1994. "A Fervetn Lobbyist Rallies Small Business to Battle Health Plan." Wall Street Journal. January 5. p.Al. 

Woolhandler, Steffie and David Himmelstein.1991. "The Deteriorating Administrative Efficiency of the U.S. Health Care System". New England Journal of Medicine. 324: 1253‑1258. May 2.