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Will Clinton’s Plan Be Fair?

Health Security Act

103d Congress, 1st Session
US Government Printing Office, 1,342 pp., $45.00 (paper)

1.

President Clinton’s Health Security Act is the most important piece of domestic legislation since the Civil Rights Acts, and because it is an attempt to reform one seventh of America’s economy, it could prove the most significant economic change since the New Deal. Though no congressional vote is expected for about a year, the act has already been comprehensively analyzed and debated by politicians, doctors’ associations, health-care economists, insurance companies, small and large business groups, and journalists. Very little attention has been given to the most profound issue it raises. How do we decide whether the Health Security Act, or any other structure for medical care in the United States, is fair?

Everyone agrees that the United States now spends too much on health care. Medical services accounted for 14 percent of our gross domestic product in 1991—France and Germany spent 9 percent and Japan and Britain 8 percent—and economists predict that without reform medical expenses would grow to 18 percent by the year 2000. But how much should a nation like ours spend on its citizens’ health? How do we know that other nations are not spending too little, rather than that we are spending too much?

Most people also agree that health care is unjustly distributed in America. Forty million Americans have grossly inadequate medical coverage, or none at all, and many who do have adequate insurance now will lose it, because they will lose their jobs or develop a disease or condition that makes them uninsurable. In all, without reform, a quarter of all Americans will be without health insurance for some period during the next five years. But how much health care should a decent society make available for everyone? We can’t provide everyone with the medical care that the richest among us can buy for themselves. How do we decide what lesser level of care justice demands even the poorest should have?

Clinton’s act is long and elaborate—1,342 pages and 240,000 words. I shall summarize its main features. It aims to achieve universal coverage by requiring every resident of the United States to participate in some form of health plan. To reduce overall costs it would require people not to negotiate directly with a plan as individuals, but to join a large purchasing cooperative (called a regional health-care “alliance”) which would use its size and bargaining power to secure the lowest possible rates for health-care coverage. Each alliance would enter into contracts with a variety of plans and would offer its members a choice among them.1 Under the Health Security Act, state governments must create these alliances by 1998, and each state has considerable leeway in deciding how many to create and what territory within the state each will administer.2

Alliances must enter into contracts with any state-certified health-care “plan”—whether it is sponsored by an organization of hospitals and doctors similar to the health maintenance organizations (HMOs) that many Americans have joined in recent years or by a more traditional private health insurance company. But an alliance need not make a contract with a plan that charges more than 120 percent of the average premium of the other plans in the alliance; and all plans must offer the basic medical coverage the act defines as the “comprehensive benefits package.”

Plans may charge different premiums for that basic coverage, and may choose one of three arrangements, set out in the act, by which patients share some part of the cost of particular medical services: (1) a “low-cost sharing” plan under which individuals join an HMO and pay little or nothing when using doctors or facilities that are associated with it, but pay 40 percent of the cost when using other doctors or facilities; (2) a “fee-for-service” plan that allows patients to choose their own doctors, but provides for a substantial deductible amount and also provides for patients to pay 20 percent of the cost of any treatment themselves, subject to limits on the total amount any patient may be required to pay in any one year; and (3) a “combination” plan that includes membership in an HMO, higher charges than what the low-cost sharing basis imposes for the use of the plan’s own doctors and facilities, but much lower charges than it does for the use of outside doctors or services. These options allow individuals to judge how important it is for them to have a wide choice of doctors and hospitals when they are sick, and to pay higher charges for such a choice if they wish.

Each alliance must offer at least one “fee-for-service” plan, and doctors reimbursed under such a plan must adhere to fee schedules negotiated between the alliance and the region’s doctors, who will negotiate collectively under a special exemption from anti-trust laws. Alliances must review all plans they offer to assess their quality. They must collect and distribute information about the relative success of the care and treatment each has provided, and collect payments and premiums from members on the plans’ behalf. Plans must accept any applicant, unless they are oversubscribed, and they must fix their charges on the basis of “community rating,” which means that they may not charge more for those who are at greater risk of disease or accident.

Employers must pay, on behalf of their employees, 80 percent of the average annual premium of plans within the alliance jurisdiction, which means that an employee who chooses the cheapest plan will pay less than 20 percent of its annual premium, while one who chooses the most expensive plan will pay more.3 People who are self-employed or unemployed must pay the full cost of the plan they choose, but the national government would subsidize these costs, on a sliding scale, for anyone who could not afford them. (The act accepts a limit on such subsidies, in order to reassure fiscal conservatives who worried that the size of the federal commitment would potentially be very great.) Insurance companies may offer “supplemental insurance” policies that cover treatment beyond the basic package, provided that these policies are offered to everyone within the same health plan on the same basis. The act alters the tax law so that after the year 2002 payments for supplemental insurance are no longer deductible, and employees must count as taxable income any contributions that firms make to its cost.

The great bargaining power of the alliances should substantially reduce health-care costs, as I have said. The act nevertheless provides further financial safeguards. It creates a new national agency—the National Health Board whose seven members are to be appointed by the president—which is charged with reducing the annual rate of increase in health-care costs to the rate of inflation by 1999.4 The board would notify each alliance of a target rate of increase for its average premium costs in each year, and alliances would have the power to reduce the premiums set by the more expensive plans if that proves necessary to meet those target rates. In that way, the act provides a limit on the rate by which insurance premiums may rise, and that provision has, not surprisingly, provoked strong opposition in the insurance industry and among congressional conservatives.

If Clinton’s health care act were passed in its present form, it would provide coverage for everyone which no one could lose by falling ill or getting old or losing or changing a job. It would also provide mechanisms for slowing the rate of growth of aggregate medical costs. Much of the already intense debate over the health care act has centered on economic and medical issues. Would the cost-containing features actually work to hold down health-care costs? Would those features oblige doctors to compromise on medical care, rushing patients through treatment, or withholding desirable diagnostic studies or procedures, to meet their reduced budgets? How many people would be able to afford fee-for-service plans that allow them to choose their own doctors? How many would find their health-care costs actually increasing under the new plan? Would the new regulatory roles of states and the national government produce more rather than less bureaucracy, and make American medicine less rather than more efficient? Would forcing all employers to buy insurance for their employees cause many small firms to go out of business? These are crucial issues, and the public’s opinions about them—as well as pressures from interest groups—may decide whether the act is adopted and in what form.

But I shall concentrate on the issues of justice I described. Though the administration is careful not to mention the word, the act plainly rations health care when it defines the basic coverage which all plans must provide, and which will be guaranteed by the government for everyone. The act defines part of the basic package in detail: it describes, for example, a comprehensive schedule of immunization for infants and children, and routine screening and physical examinations by age groups: physical checkups, for example, every three years from age twenty to thirty-nine, every two years from forty to sixty-five, and every year thereafter, and mammograms to detect breast cancer for women every two years starting at age fifty. Some benefits—in dental, eye, and mental health care—would be limited at the start, but more generous after January 1, 2001. The act also explicitly excludes some kinds of treatment from the basic package altogether—most cosmetic surgery, for example.5

The act’s most important rationing provision, however, is not detailed but extremely abstract: it provides that medical treatment is part of the basic package only if it is “necessary and appropriate,” and it assigns the National Health Board the responsibility of determining what kinds of treatment are necessary and appropriate and in what circumstances. That board would have to decide, for example, whether bone-marrow transplants or other experimental forms of treatment are necessary and appropriate for particular diseases; it would determine whether most people can have such expensive procedures when doctors tell them that is their only chance, slim though it may be.

Does the act—or would the board—ration health care fairly? Should women have routine mammograms before age fifty? When should expensive magnetic resonance imaging be covered? Should the board ever include speculative bowel and liver transplants? If we cannot buy all the tests and treatments that everyone might want, how shall we decide, as a nation, how much we should spend, collectively and on each of us?

Some critics deny that health-care rationing is really necessary: they argue that if the waste and greed in the American health-care system were eliminated, we could save enough money to give men and women all the medical treatment that could benefit them. But though administrative expenses account for a significant part of hospital costs,6 and American doctors’ salaries are extremely large by other nations’ standards,7 the greatest contribution to the rise in medical costs in recent decades has been the availability of new, high-tech means of diagnosis, like magnetic resonance imaging and new and very expensive techniques like organ transplants and, on the horizon, monoclonal-antibody treatment for cancer. America is not paying all that much more for the medicine it formerly bought more cheaply; rather it now has so much more medicine to buy.

  1. 1

    People now covered by Medicare would continue to be covered, but could join alliances later. States would have the option to integrate Medicare patients into the alliances, if they provided coverage as good as Medicare does. Medicaid patients would be absorbed into the alliances, and receive the standard comprehensive benefits.

  2. 2

    The act gives each state the option, however, of establishing a “single-payer scheme,” under which the state itself pays all the costs of the medical care of its residents, including the salaries of the doctors and other professionals who provide that care. Many nations, including Canada, Germany, and Britain, have such single-payer schemes, and Clinton has been criticized for not pressing for a national single-payer scheme here. He did not do so, he has said, because he thought there was no chance Congress would approve one.

  3. 3

    Employers would not be required to pay more than 7.9 percent of their payroll in the aggregate, however; government subsidies would make up the difference. Large firms, which employ at least 5,000 full-time employees, are given the option of forming their own alliance for their own employees.

  4. 4

    Some economists argue that healthcare costs must inevitably rise at more than the average of inflation, unless the quality of medical care is seriously compromised, because the rate of medical productivity cannot rise as fast as that of other products and services. See William J. Baumol, “Health Reform Can’t Cure High Costs,” The New York Times, August 8, 1993, p. 13, and “Do Health Care Costs Matter,” The New Republic, November 22, 1993, p. 16.

  5. 5

    The act, as now drafted, includes abortion in the basic package of coverage. Section 1116 provides that a doctor or facility need not provide any service if he or it “objects to doing so on the basis of a religious belief or moral conviction.”

  6. 6

    According to a New England Journal of Medicine study, administrative costs were 25 percent of hospital costs in 1990. See Erik Eckholm, “Study Links Paperwork to 25% of Hospital Costs,” The New York Times, August 5, 1993.

  7. 7

    The average medical salary in the United States in 1992 was over $160,000. Salary varies dramatically by medical specialty: the average salary of a cardiovascular surgeon was $574,769 and a family practitioner $119,186. See “Health Plan Would Hurt Most the Doctors Who Make the Most,” The New York Times, November 7, 1993, p. 1.

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