The problem with purchasing pools - under proposed Clinton healthcare reform plan - Washington Report - Column

The size, shape, and power of health insurance purchasing pools have become flashpoints in the Clinton health reform plan.

Employers have blasted the administration for proposing that all businesses with 5,000 workers or fewer be required to refer their employees to the alliances for coverage. They have also sharply criticized elements in the plan that would, they claim, make it financially unpalatable or risky for large companies--and Taft-Hartley plans--to stay outside of the public pools. For example, large companies could be subjected to state and federal taxes "to help fund coverage for the uninsured" if they opt out of the pools. Individual large companies that opt out of the public alliances could be competing against the giant health alliances--which would cover about 80% of the population at the 5,000 cutoff level--to get the best price for health insurance.

For its part, small business, which likes the idea of pooling to gain some market power, is deeply suspicious of large government-run, state-controlled purchasing alliances that will contain the uninsured, the Medicaid population, the disabled, part-time workers, and early retirees. In some urban areas, such as Los Angeles, New York, Philadelphia, and Washington, the public alliances could be especially top-heavy with high-risk groups.

The alternative scheme proposed by several employer groups and coalitions is that 1) the 5,000 number be dropped to 100 or 500; 2) employers retain the right to establish their own purchasing pools that would, in effect, compete with the public alliances for enrollees from small and large businesses; and 3) consideration be given to making all purchasing pools, whether public or private, voluntary initially.

Commenting on this scenario, a highly placed Clinton administration official said last month, "If you do all that, you will almost certainly end up with a two-tiered health care system with the higher risk groups in the public pools paying higher rates. And we won't have changed as much of the health market as we need the change."

But the critics of the purchasing pool requirements in the Clinton plan have a legitimate complaint. As conceived by managed competition guru Alain Enthoven, the pools were never meant to encompass such a large segment of the population. They were conceived for employers with 50 or fewer workers. Indeed, several states--California, Florida, Minnesota, North Carolina, and Texas--have forwarded health reform proposals in the past year with that cutoff.

But several of Clinton's key aides have apparently convinced him that 1) what is good for small business and its employees would be good for almost everyone else; and 2) what they call managed competition won't work unless the public insurance pools dominate the market. These aides argued that public pools, limited to companies with 50 or 100 employees, would wield some market clout in some areas but not much in others. They would still be vulnerable to cost shifting because large private companies would get the best deals. Moreover, most employers--and most Americans--would be outside of the public health care arena.

Along with business, many law-makers aren't buying these arguments. Both the Republicans and a group of conservative Democrats in Congress last month proposed alternative health reform plans that would limit the role of purchasing pools. The Republicans would create voluntary cooperatives for companies with 100 or fewer workers. The conservative Democrats would require employers with 500 or fewer workers that do purchase health, care for their workers to do so through purchasing pools. States could allow larger employers (those with 500 or more workers) to buy care through the public pools as long as their inclusion does not cause the pool to exceed 50% of the market, under the conservative Democrats proposal.

I think the conservative Democratic approach--on this issue anyway--is the way to go. The Clinton plan concentrates too large a segment of the population in an untested institution. The lower cutoff of 500 would allow many more companies to keep their own plans and negotiate their own rates--something many say they prefer even if it means risking spending more for health care. These employers would also have the option to join what is sure to become a proliferating number of private insurance purchasing pools. Such pools are already slowing cost increases in many cities.

To be sure, private pools competing with public ones may create a risk-stratified market. But there are ways around that problem. The private pools should be required to take all comers. In other words, they should not be able to bar companies that want to join, as some do now. The pools also might need to be of minimum size--say 250,000 covered lives. And they could be risk-adjusted just as the public pools would be. Some states may even want to allow Medicaid patients, the self-employed, and early retirees to joint private purchasing pools, though such a move could get complicated.

The question then becomes: What's the point of having private pools if they can't negotiate better rates than the public ones? In the world of health care reform, such thinking is politically incorrect since the aim is to achieve broad community rating and to level the playing field. Rather, the chief reason for private pools is this: Their presence should prevent the public pools from becoming the health care equivalent of the bureaucratic motor vehicle administration. If the private alliances truly cater competitively to the needs of employers and employees, they should in theory challenge the public pools as Federal Express, UPS, DHL, and others have forced the U.S. Postal Service to become more efficient.

Recognizing this, the Germans voted this year to change their health care system to foster competing pools. Health insurance in Germany is purchased by 90% of the population through 1,240 sickness funds, which are, in essence, purchasing pools. Germans are now required to join the fund of their employer group or geographical region. But beginning in 1997 they will be able to choose among the funds, which vary in their range of services and health plan costs.

The Clinton administration chose the wrong road in designing purchasing pools. It should reassess its position--and do so quickly--so no political capital need be expended on this issue when so much else needs to be done to reform the health care system.

COPYRIGHT 1993 A Thomson Healthcare Company
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