What they're saying about the Clinton health reform plan; from the employer mandate to the support for fee-for-service, our panel of experts finds much to criticize - Panel Discussion - Cover Story

From the employer mandate to the support for fee-for-service, our panel of experts finds much to criticize.

From the wood paneled boardrooms of major corporations, to the vaulted hearing rooms of the Capitol, to the corner deli, Americans are talking health care reform. To get the deepest perspective on what employers are saying about the Clinton plan, Business & Health invited 12 experts to New York on Sept. 28 to react to the Clinton plan and to discuss health reform. Given that the panelists represent a variety of health care backgrounds (see "The participants in the B&H panel," page 29), it should not be surprising that they did not always agree. The discussion, as printed here, has been edited for space and clarity.

Business and Health: Jim (Michaud, Alcoa), do you think Sharon (Miller, president of Immediate Temporary Help) should be required to cover all her employees as you do, and pay for that coverage?

Michaud: No. We don't think employers should be mandated to pay for health insurance, even if there is a subsidy pool for small employers. We support a mandate on individuals instead.

B&H: John (burns, Honeywell), do you agree?

Burns: Yes, with a caveat. I think the easy way would be to mandate that employers cover their workers. I agree that the focus should be on an individual mandate. But the problem is that, given a chance to opt out of providing health benefits, most businesses will probably jump at the chance to get it off their books. So I think you have to force those of us who now have benefit plans to maintain them and then you can turn to an individual mandate to bring the others in the system somehow.

B&H: Does anyone here favors an employer mandate?

Brown: It seems to me that the individual mandate has some serious problems, though I see its philosophical appeal. First of all, as John says,w hat happens if the employers do retrench from their existing benefits or level of contributions? That could throw a lot of people into the uninsured category, increasing the public subsidy required. And who would pay for that? It would seem that employers will end up paying the cost anyway. When you take all the cost factors into consideration, I think we are stuck with an employer mandate at this time.

B&H: Sharon, can you respond to that? Tell us what your company does now and the burden it would be if you are required to pay for health insurance for your workers.

Miller: Currently we offer health insurance to all of those who work 30 hours a week or more. But a large percentage of them opt out, mostly the young. They say they don't want insurance or need it. They'd rather have the money in their pocket. That is one of the reasons I, too, favor making individuals, rather than employers, responsible.

Basically, I am terrified [of an employer mandate]. It will make me responsible for just one more thing. I worry about the cost shift, too, if large companies will still have an advantage even with the regional alliances. And I am concerned about the administration of the alliances. The government has done a poor job on Medicare and Medicaid. Now we are going to another system when we have not perfected in 30 years the ones we have in place. Finally [if I have to cover everybody, including part-timers], I may have to hire someone just to keep track of the hours. That changes weekly in my line of business.

B&H: Steve (Caulfield, William M. Mercer Inc.), what was your own and your clients' reaction to the Clinton plan?

Caulfield: I think employers are pleased that the president has put the issue squarely in the public policy arena. Now they are trying to figure out whether they are going to be winners or losers. But I find several threads of universal concern. Most of our clients do not believe the [Clinton plan] numbers at all. And why leave fee-for-service in there in areas where there are good managed care options? There is also a real concern that the public policy process, with 1994 elections and 21 Democratic senators up for reelection, is going to result in a cherry-picking of this package, with all the easy things being done and the hard things deferred until some later time.

But the big issue seems to be the way the alliances are set up. One, there is grave concern about their ability to run what they are being asked to run. And that they [the alliances] will basically be a single player, controlling 80% to 90% of the marketplace if indeed companies with fewer than 5,000 workers must be in them. Our recommendation would be to drop that number to 1,000 and not allow companies larger than that to opt into the alliances.

Also, there's the issue of bench-marking the employers' contributions to the alliances to the average community price, which blends three kinds of plan designs. And one of those plans is fee-for-service, noted for its inefficiency and high costs. Say we have an alliance that is delivering through, for the sake of argument, 10 health plans. They are arrayed in efficiency from 1 to 10. The first plan is quite efficient. The 10th plan is quite inefficient. Jim, at ALCOA, has [for several years] selected three very efficient plans, which offer great access and great quality to his employees and their dependents. He is now being told that he has to offer all 10 and he has to price the contribution against the homogenized rate of all 10. That's a bad concept. If you have a mandate, tell the employer, "yes, you have a mandate but you can shoot your people into a plan that meets access, quality and service requirements."

The Clinton plan also seems to allow all health plans [and insurers] to participate. But the alliances need to have the political power and will to get rid of the inefficient delivery systems. I have asked some of the authors of the plan about that directly and they have said, "We would prefer for the Darwinian process of the marketplace to eliminate the inefficient providers." That is going to take a lot longer time.

B&H: Can you comment on that, Mary (Lehnhard, Blue Cross/Blue Shield Association)? Should the alliances have that kind of regulatory power from the start?

Lehnhard: No. That really concerns us. The original Jackson Hole idea started out that any health plan could be offered. They would compete on price, offering a standard benefit package. Then consumers would make the choice, armed with information on the plans. We would be alarmed if alliances are given the liberal powers to drop plans.

But I want to make another point. You don't have to have alliances to do many of the things that the president wants to do. Insurance reforms alone can do a lot of it. When you ay to an insurance company that it has to open its doors to anybody who is sick, and we know that 4% of any population generates 50% of the claims costs, insurers are going to have to become efficient or they will be forced to leave the market. Insurance reforms will automatically move many employers and employees to managed care networks.

Instead [of requiring insurance pools or alliances everywhere] we think some states should be allowed to go forward with voluntary alliances. The administration has created a very high-risk political strategy to have alliances up and running nationwide before any cost cutting kicks in, and you really don't need to do that.

Halvorson: I also have a lot of concern about the role of the health alliances both in their power and scope. The power to select [health plans] is the power to destroy them. If you have health alliances in a given market that basically control the market and those alliances can narrow down the market to say three big players, that creates a significant barrier to entry of all players, and puts them in a position of defining and controlling the way health care is delivered. Each alliance might well have its own dispositions toward a particular model or approach, for example, which basically can eliminate competition in the market.

A far better is to have alliances be a conduit for every health plan that qualifies, then put the choice in the hands of the consumer armed with data on the plans.

B&H: What about private alliances? Should companies of under 5,000 workers and employer coalitions be able to form their own purchasing pools that would in effect compete with the public alliances? The administration's planners oppose this because they think it will inevitably lead to fragmentation of risk pools into high and low categories, with the public pools becoming a dumping ground for bad risks.

O'Keefe: Yes, there most certainly should be private pools. The administration appears not to understand or appreciate what is going on out there in the real world. The whole goal is to pool those without market power together to give them purchasing power and let competition reign, among alliances as well as among the plans.

Brown: Yes, but stratifying the risk and fragmenting the pools would seem to be a real concern. Even with the public alliances, the Clinton plans turns on what I think are heroic assumptions about our ability to do risk adjustment correctly.

The economists I have talked to indicate that only about 20% of utilization can be accounted for by our present risk-adjustment methodology. So how are we going to balance out the private alliances and the public alliances?

If risk adjustment is not done right, many perfectly good health plans may be driven into bankruptcy. This would seem to have enormous implications for the disadvantaged and poor, whom the public pools will be obliged to take in and whom you want them to take in.

Halvorson: I agree. Actuaries cannot predict risk with any degree of accuracy now. Even if you go into the individual health status of people, you rarely get to a 50% level in terms of the accurate prediction of risk. Billions of dollars will be based on an inaccurate formula.

Casey: I am in the strange position of saying a good word about risk adjustment. To be sure, it is not a science that is perfected. But it is being rapidly developed and used by a number of purchasers and providers and physicians in various communities--Cleveland, Memphis, and Cincinnati to name a few. But I agree with what has been said about creating a true market in health care, and that means private alliances. You cannot mandate a system to become efficient. Only the marketplace will create that, and that's as true of the alliances as of the health plans themselves.

Michaud: From our point of view as well, the private pools are critical. Otherwise we will lose all of the successes business and employer coalitions have had.

B&H: Anne Marie (O'JKeefe, Washington Business Groupon Health), does the Clinton plan go far enough toward weaning the nation from fee-for-service medicine?

O'Keefe: If you were a man from Mars and you read the plan, you'd think the goal was to preserve the fee-for-service plan in the country.

Formica: We [the American Medical Association] did not get that feeling at all.

O'Keefe: We don't think the plan goes far enough toward creating organized systems of care. You have to read between the lines to see that. And in our opinion, one of the biggest mistakes in the proposal is leaving Medicare out there flying in the universe on a fee-for-service, consumer-driven choice basis. This is the case because it is too politically hot to bring it into the system. So we think the administration speaks with a forked tongue on this issue.

Rothstein: (Ruth, Cook County Hospital, Chicago) And let's not forget that Medicare will face big cuts [under Clinton's plan] even as it remains largely fee-for-service. This is going to put tremendous pressure on hospital budgets.

Michaud: I agree that a major flaw in the plan is the allowance of fee-for-service. I don't mentally see how we are going to get where we want to go when they allow that. What little success we have achieved in containing costs is where we have eliminated the fee-for-service environment. Now we are going to say that environment is okay and we hope the patient's expectations will change.

Brown: I think the most explosive and potentially troubling sentence in all of the 239 pages [of the initial draft of the Clinton plan] is the line which says that consumers who choose the lower cost plans will pay less and those choose the costlier plans will pay more.

This sounds straightforward, but the linchpin assumption they are relying on to get people into managed care and HMOs is that after the employer pays his 80%, there will be a big price spread there and fee-for-service will be financially unappealing to much of the population. I'm just not sure that assumption is correct. It is a big gamble.

Michaud: But in rural areas like central Texas, it's going to take years to get to managed care. Fee-for-service is unavoidable in those areas.

Halvorson: I don't agree. The health care delivery system in the country is reconfiguring even as we speak. There are [managed care] organizations waiting in the wings all over the place to come in. This is not going to take that much time. The providers are very market-responsive. As soon as you convince them that the market is going to reward a different behavior, that behavior will appear.

B&H: What about the issue of state versus federal controls over health care? Are we going to see a multiplicity of dramatically different state plans evolve under the framework of the Clinton plan?

Caulfield: I think we will. Our clients are desperately afraid that this is going to replicate the worker's compensation experience. States are going to have different rules and those different rules and those different rules are going to be hard to track and difficult to administer. Some states are going to move aggressively, some are going to move conservatively. And it's going to be a mess in those metropolitan areas, like New York, Washington, and Philadelphia, where two or three states are involved. It may well be that a single employer with a geographic concentration of people here in Manhattan will have to operate with three different rules of engagement: one for New Jersey, one for Connecticut, one for New York.

O'Keefe: State control is going to end up being a powerful inducement for business to just put money out on the stump and walk away. The administration is making the assumption that large employers will jump through all of the regulatory hoops, pay all of the increased premiums and surcharges, and continue doing what they are doing. Frankly, I think their actual plan is to discourage large employers from doing that.

Brown: There is no question the states get a very large menu of new activities. They would set up alliances, decide the governing and structure, and how many alliances there will be in the state, oversee them, and meet budget targets. And states will certify the health plans. Somebody had better think through whether this is coherent, or even feasible. I question whether many states can do all this with any degree of efficiency.

Michaud: I agree with that. What we don't like about the current proposal is that it will force us to do different things in many different marketplaces under different rules. What works in central Texas may not work in Washington State.

Lehnhard: I agree with Larry [Brown's] comment. We shouldn't soon forget the varying degrees of success states had with health planning [in the 1970s]. They went about things in very different ways. I think the federal government must set some firm rules for the system.

B&H: Jim, do you want ALCOA to be able to do whatever it wants in different areas around the country? To put 1,000 workers in one state into the public alliance and 2,000 in another state into a private pool, for instance?

Michaud: I think that would be extreme. I don't think we have a problem with [the way the plan is written] saying any groups under 100 can opt into the public alliance and groups over 100 we need to have in a corporate plan. But we would like some flexibility to put them into private pools in areas where these are up and running and allowed to continue to exist.

Lehnhard: Our perspective is that you shouldn't push a state which does not have the heart or the will to have a big public alliance to have one. Some states can let insurance reform or private pools do the job.

Casey: Have you watched the spokespeople for single-payer respond to this issue of state flexibility? The unrestrained glee they have? They talk about it with just a twinkle in their eye. Vermont has made its decision already, I think.

Brown: Well, let's not forget that Canada has basically 10 different systems. It is a single-payer system but there is great diversity in many ways among those provinces, so that it can be made to work. And it did not take 2,000 pages in the Federal Register. They [the Canadian provinces] just have to adhere to a simple set of rules that takes up about half a page.

Lynne: There is another phenomenon, too, from an urban perspective. A large number of people in the urban areas, either on Medicaid or uninsured, are used to the public hospital system. I think they are going to have a very hard time changing their behavior in a new system. I have one of those people as one of my employees, and I pay an outrageous amount of money to cover her, but she still wants to go to the clinic, to the emergency room. So some states or areas may have to continue to rely on that greatly.

Rothstein: I'd like to second that and remind us all that we live in a country that has a tremendously heterogenous population. We must design a plan that meets the needs of the poor.

B&H: Let's talk about taxes. The Clinton plan either wimped out on this or took a bold, appropriate approach, depending on your perspective. Did they do the right thing?

Burns: Absolutely not. They didn't have any guts. Their testosterone level was at an all-time low. There should be caps on deductibility right away [not 10 years out as the plan proposes]. It is the best way of putting a budget in the system, by essentially saying we are going to reward cost efficient providers and penalize greed.

Brown: This is an area of the plan where the political imperatives were very visible. This is their way of saying, "Hey, we are not tax-and-spend Democrats. We are not Big Government. We are in favor of market forces." I agree that they lacked the guts to come to terms with the tax exlcusion for health benefits. But if you look at the larger context in trying to come up with a plan that is centrist enough to have a chance of passing, it goes with the territory.

Caulfield: I think the biggest black box here is the concept that they are going to finance this out of the increased productivity that business is going to gain from spending fewer dollars in health benefits.

O'Keefe: It's only $51 billion!

Caulfield: It'll never materialize. And do they really believe they are going to get a quarter of a billion dollars out of Medicare over the next five years without cost shifting?

B&H: What about the regulatory cost control in the plan, the premium cap? Is this a good idea?

Lehnhard: No. They say the caps are a fall-back measure. But I think the cap and budget mechanisms the plan proposes are misunderstood. What they do in the first year is have the National Health Board set in a national health budget. This is then adjusted down to the level of each alliance. Each alliance basically gets a per capita amount and to the extent the health bids come in and the alliance exceeds its budget it has to go back and renegotiate or come into compliance. The obvious pressure here is that they are now going to have Medicaid [and later Medicare] eligibles and the uninsured in health plans and they are going to pay market rates to providers. So how are plans going to absorb those costs and control expenditures? They won't, and the government caps will be triggered, we think.

Caulfield: I'm not sure about that. We just negotiated on behalf of a client with a large Midwestern physician-hospital organization. It was a five-year contract on a capitated basis and the rate we got was CPI [Consumer Price Index]. The pressure is on providers now to keep rate increases very low.

B&H: Politically, will the premium cap be scrapped in Congress?

Brown: I would bet on that. They described it as a backstop in the plan so right off it would seem expendable.

Lehnhard: But the global budgets won't be scrapped. The federal government is going to say, "Here's how much money you have regardless of what the costs are." The question is whether it will be enough. The danger also is that as frustration grows with the global budget idea, or if it doesn't work, the inclination may be to come back and look at price controls.

Halvorson: A big problem with all this is the widely varying level of health spending per state. For example, we know now that in the Medicare capitation, we get $200 less per month for seniors in Minnesota than they get in Florida and New York. If they continue to use that model, it will reinforce the high-cost states and punish those that are efficient.

B&H: Many employers swear by their wellness and prevention programs, and don't want to end them. But the Clinton plan would seem to give them an incentive to do that if workers are being shunted through public purchasing alliances. What's the thinking on that?

Michaud: It is the same old story, like the investments we put into the marketplace in other areas. We have a certain amount of cynicism about what kind of success they are going to have with these programs running them inside of the different health plans. Some HMOs do great things and others don't put much effort into wellness at all.

B&G: Do you plan to continue your wellness programs, Jim?

Michaud: In certain situations or areas, yes, I think we would.

O'Keefe: The White House thinks large companies will continue to do that.

Burns: Most enlightened companies will continue with their health promotion programs. And they should. We need to deepen the understanding that health promotion is cost effective in the short term--not only the long term--when you factor in productivity and time lost to illness, not just big health expenditures.

B&H: How much will the single-payer argument influence the coming debate and the final legislation? Amazingly, it seems to be holding its own or even gaining momentum.

Halvorson: No one in the rest of world would be naive enough to go to the single-payer model as proposed in this country. Every other country that does that merges it with budgets. What is being proposed here is a return to the golden age of fee-for-service, extending the Medicare system to everyone. There is a myth about what single-payer is in the rest of the world, and that myth is being imposed on the U.S. policy debate.

B&H: We have only a few minutes left. What are the three things employers should be fighting for now in the health plan as it goes into Congress?

Burns: Number one is the ability to contract directly for a specified health product or plan within a system that is based on medical necessity as opposed to a benefits entitlement. Second is more emphasis on individual responsibility. And third is for the business community to be allowed to showcase how health care can be efficient and profitable.

Michaud: Number one is the ability to play in the system site-by-site. That is critical for us. Number two, 10 years to bring in tax exclusion or tax deductibility is not real.

Casey: Businesses large and small need to keep their eye on the doughnut, not the hole. They have to realize their areas of mutual concern and concentrate on those. They have squandered a lot of resources alreadsy in this debate. Plus the CEOs have to get involved and be vocal.

Miller: I agree. The dialogue in the business community has to improve. We shouldn't just sit back and let this happen. We also need to keep the focus on quality.

Brown: This is kind of a magic moment, to use Clinton's term, for privat sector health care purchasers to overcome those internal divisions which have hamstrung business in the political process before. Health care is now close to a trillion-dollar-a-year-enterprise. This is part of everybody's income. Business can and should play a leadership role as the debate moves forward, helping frame the issues and drive the compromise.

Burns: This is a testosterone issue for business, too.

Lynne: The business community ought to be planning to build private purchasing alliances. And we need to minimize the penalties that are in Clinton's plan for having a corporate or private purchasing alliance.

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