A GUIDE TO FLASHPOINTS,
OPTIONS, AND INSIDE MOVES

Up to now, much of the coverage of health care reform has focused on politics rather than substance. The ongoing Media Monitoring Project of The Times Mirror Center for the People and the Press, The Kaiser Family Foundation, and CJR has reported (see "Covering Health Care Reform: Round One," CJR November/December 1993) that, from April through July, stories about politics outnumbered stories about people by almost two to one, and that trend has continued throughout the fall. A prime example is the coverage given to the bill introduced by Representative Jim Cooper, which has captured media attention more for its political intrigue than its ability to solve the health care crisis (see page 20).

It's not surprising, then, that a Kaiser Family Foundation/Harvard University poll has found that the public is not well informed about either the underlying problems health reform is trying to solve or the major proposals that attempt to cure them. An uninformed public is vulnerable to the pleadings and propaganda of the major interest groups -- doctors, hospitals, managed care organizations, insurance companies, pharmaceutical makers, and employers -- some of whom have already waged multimillion-dollar ad campaigns to spread their message. A press more concerned with polits than substance is equally vulnerable to manipulation by special interests that use reporters to promote their lofty rhetoric while saving their real agenda for members of Congress at legislative mark-up sessions, at which members of Congress, with lobbyists in the wings, hammer out the bills they send to the floor.

What follows is a map of the coming legislative battle that journalists can use to acquaint themselves with the terrain over which the fight will be waged. It outlines the major flashpoints, options, possible compromises, and consequences to the public. The issues are complex and intertwined. How each is resolved significantly impacts on the others.

INSURANCE COVERAGE FOR ALL

Flashpoints: Whether all Americans will have health insurance is the pivotal question. What is meant by "coverage" and how it's to be provided will shape the answer. The jargon here is slippery. "Universal coverage" refers to a mechanism for providing actual insurance coverage for all people. "Universal access" has come to mean eliminating restrictions imposed by insurance companies that make it hard for sick people to obtain full coverage or any coverage at all. With universal coverage, everyone has insurance; with universal access, everyone has the chance to buy insurance if they can afford it. Options: Only two paths to universal coverage are given any odds for passage -- an employer mandate and an individual mandate. An employer mandate requires all employers to provide coverage for their workers and pay a portion of the premium (80 percent in the Clinton plan). Since half of the 39 million people currently uninsured are also employed and another 17 percent work a part of the year, supporters belie this is the most efficient way of achieving universal coverage. An individual mandate, on the other hand, gets employers off the hook by instead requiring all individuals to buy insurance for themselves and their families. (Employers can continue to provide coverage, but if they don't, individuals will have to buy it themselves.) The main route for providing universal access is simply to outlaw insurance company practices that make it difficult for sick people to buy health coverage.

Varying subsidies and premium discounts are important elements of each option. With an employer mandate, subsidies help small employers buy coverage for their workers and assist individuals not connected to the workforce who still must buy coverage. With either an individual mandate or a universal access strategy, subsidies would also be needed for individuals who will have trouble affording an insurance policy. Premium discounts, which give reduced prices for insurance, might also be necessary to put coverage within the reach of every citizen.

Enforcement mechanisms are also part of the employer and individual mandate options. They can make it tough for people to avoid buying insurance, or be so weak it will be easy for people to go bare.

Possible compromises: Although one-third of all small businesses provide insurance for their employees, the National Federation of Independent Business is fighting employer mandates on behalf of the two-thirds of small businesses that don't. At the same time, President Clinton has said he will veto any bill that does not provide universal coverage. Ways around this dilemma include:

* Further delaying the date when everyone must be covered. The president's bill calls for universal coverage by 1998, but the date could be moved well into the next century.

* Requiring employers to pay a smaller portion of the premium, say 50 percent instead of 80 percent.

* Requiring an employer mandate for firms that have more than a specified number of employees, such as 75 or 100, and requiring an individual mandate for employees of smaller firms.

* Increasing the level of subsidies (already generous in the Clinton plan) to small employers as a way of bribing them to support an employer mandate.

* Increasing the level of subsidies for individuals who have to buy their own coverage and making assistance available to more people. This option might make an individual mandate more palatable to some groups.

The universal access approach has its own compromises that will determine how fully and completely barriers to insurance coverage will be erased. They include:

* Allowing insurance carriers to refuse coverage for unhealthy individuals who must purchase their own insurance, but requiring carriers to cover all employees, sick or well, who work for small firms. This compromise, in effect, could perpetuate the status quo, in which individuals who have to buy coverage on their own would still be subject to the whims of insurance company underwriting practices.

* Allowing companies to consider applicants' health status when granting coverage, but limiting how much extra premium they can charge.

Consequences to the public: Compromises are almost certain to limit universality. A delay in implementing universal coverage means that the uninsured must wait longer, and gives Congress a chance to revisit the issue and perhaps repeal or further postpone universal coverage, which happened in Massachusetts.

Reducing the amount that employers re required to contribute toward workers' premiums shifts more insurance costs to employees. Employers who now pay 100 percent of the premium may decide to pay only the required 80 percent, 50 percent, or whatever percentage is chosen, and make their employees pay the rest. Individuals might also have to shoulder more of the premiums if an individual mandate is chosen and some employers choose to drop coverage they now provide. A further questions is whether employers who shed health insurance costs will pass on that savings to their workers in the form of higher wages, since foregone wages are thought to fund employer-provided health insurance in the first place.

With any approach, insurance might still be unaffordable unless significant subsidies are available or premiums suddenly become more "reasonable" as a result of wildly successful cost containment. For example, unless there are caps on the amount a low-income family is required to spend for coverage, a subsidy that kicks in when, say, a family of four has an income 50 percent above the poverty level, or about $ 21,500, wouldn't help those families with incomes just over the line. They might still have to spend roughly 22 percent of their income for insurance, assuming an annual premium averaging around $ 5,000.

A universal access strategy solves the problem for about one million people who have health conditions that prevent them from getting coverage. It would do nothing for the other 38 million who could get insurance but can't afford it.

WHO WILL PAY?

Flashpoints: With an employer mandate, employers bear most of the cost of covering the uninsured, but with all approaches, someone must pay for the subsidies to small employers and individuals. Who finances those subsidies, how much money will be available, and for what services are among the battle's most explosive issues. Options: Money can come from new revenue sources or be transferred from existing health care programs. A broad-based payroll tax, like the one that finances Social Security and Medicare, or a value-added tax on goods and services, paid by all citizens, could finance coverage for the uninsured. But only one proposal asks for such taxes. The others call instead for shuffling money around and imposing a few new limited taxes that are unlikely to generate significant opposition. Those options include:

* Cutting payments to doctors and hospitals under the Medicare program -- a major financing device in many proposals.

* Limiting eligibility for Medicaid benefits so that fewer people are covered.

* Imposing additional taxes on socially undesirable commodities such as cigarettes, alcohol, ammunition, and weapons.

* Imposing taxes on employers who decide to offer workers an insurance package that is richer than benefits provided in a prescribed standardized plan. If employers choose richer plans, they would be taxed on a portion of the premiums that exceeds a set amount that varies from proposal to proposal. Besides being a revenue raiser, this provision is supposed to control health care costs.

* Imposing taxes on employees by treating employer premium contributions for richer insurance benefits taxable income to the employee.

* Imposing taxes on employers who choose not to belong to the regional health alliances that some proposals rely on for cost containment.

* Creating a less comprehensive benefit package. Some proposals call for a standard set of benefits available to everyone, including payment for all doctor, hospital, and laboratory bills, and depending on the plan, some coverage for prescription drugs, mental health services, and long-term care.

Possible compromises: A major compromise will involve how much to slash Medicare payments to doctors and hospitals. Proposals call for cuts ranging from $ 124 billion to $ 33 billion over the next five years. Health care providers will wage a fierce fight on this one, and the level of cuts will probably fall somewhere in between. The Clinton plan counts on additional cigarette taxes to raise about $ 89 billion, but smaller Medicare cuts could be traded for additional taxes on alcohol, ammunition, or weapons.

Compromises are also possible on the taxation issues. Although some proposals call for a tax on employers who choose to offer a better-than-standard benefit package, a tax levied on individuals could sneak into the financing mix. Currently the amount of premium an employer pays for each worker is not counted as taxable income to the employee. But that could change, and workers might well find themselves paying taxes on the value of their health insurance premiums. The date such taxes take effect and the amount of the tax penalty are negotiable, depending on how desperate the revenue need.

As a way of reducing the pot of money required, the standard benefit package might be reduced. For example, if prescription drugs are included, people may have to pay large copayments or deductibles before the coverage begins. Mental health coverage might include fewer days of treatment. Abortions may be excluded altogether.

Consequences to the public: Inadequate financing means many of the uninsured will remain uninsured.

Since much of the financing burden falls on Medicare, insufficient cuts and therefore insufficient money available for subsidies could exclude certain groups now targeted for assistance; for example, early retirees between the age of 55 and 64 who, under the Clinton plan, would have to pay only 20 percent of the cost of their coverage, with government subsidies paying the rest. On the other hand, if Medicare cuts are too severe, current Medicare beneficiaries might suffer. Medicare now pays about 60 percent of what private insurers pay doctors, but if that amount falls much lower, some doctors might stop treating Medicare patients.

Funding compromises could also tough Medicaid recipients. The cuts prescribed by the Clinton plan would result in some 6 million Medicaid beneficiaries losing health coverage -- coverage that is now comprehensive and free. When those former beneficiaries are turned loose in the marketplace, they could end up paying substantial out-of-pocket costs not only for premiums bur also for services that were covered under Medicaid -- eye glasses and dental care, for example.

Any taxation of insurance premiums would fall heavily on middle-class employees. If employers chose to provide richer benefits and pay the tax penalty, they might reduce workers' wages to cover those additional expenses. If instead they reduced benefits to avoid the tax, some workers would find their benefits less comprehensive than before. And if a portion of employer contributions were counted as taxable income to workers, their tax bills would go up. For workers who now have coverage, such a tax would be regressive; employees with lower incomes would pay a higher portion of their income in additional taxes. That's because the amount currently excluded from taxation represents a greater percentage of a lower-wage worker's income. Middle-class employees might also have to pay additional out-of-pocket costs for extra coverage from a supplemental policy which might be necessary if the standard benefits are skimpy.

COST CONTAINMENT

Flashpoints: The U.S. health care system is the costliest in the world and the only one without effective cost containment. The rhetoric from special interests (and some politicians) demands that costs be controlled, their lobbying strategy demands otherwise. Under the guise of "fair financing" or by raising the specter of health care rationing, every major interest group will try to avoid measures that will control the cost of medical services and reduce the amount of money its members make. Meaningful cost containment is up for grabs. Options: Major vehicles for containing costs are:

* Health alliances or purchasing cooperatives. In theory, all employers would pay premiums to the alliances for their workers. All individuals who must buy coverage on their own would also pay premiums to the alliance. The alliance would pool the money, purchase the coverage selected by employers and individuals, and pay the health plan a fee that would cover the cost of providing medical services to each person covered under the plan. Although a variety of plans would be available, each would offer one plan containing the same required standard benefits. Health plans sold by insurance companies and managed care organizations through the alliances would compete to offer the lowest-cost plan to attract employers and individuals. They would achieve those low-cost arrangements by pressuring providers in their networks to keep fees down. As a result, growth in the nation's health care bill supposedly would slow. In addition, alliances would establish fee schedules for health care providers who chose not be in a managed care network. In other words, all doctors would be under some kind of fee control.

* Premium caps. The Clinton plan calls for limits on the amount that insurance premiums can increase. Through complicated formulas, a newly created National Health Board would determine a per capita premium target for each alliance area. Insurance companies and managed care organizations selling health plans through the alliance would have to achieve the target premium. If they don't, the board would require them to reduce fees to providers to bring their premiums in line with the targets. In other words, by controlling the amount premiums can rise, the mechanism would indirectly control the costs of medical services. ST* Taxing premiums. Taxing premiums paid by employers that exceed the cost of the lowest-priced plan offered in an alliance, as well as including as taxable income to employees some of the premiums paid by employers on their behalf, is supposed to force employers and employees to become cost-conscious and choose the cheapest plans. Since all the plans would try to offer the cheapest covage, fees paid to providers would eventually come down, resulting in a reduction of health care costs overall, or so the theory goes. If people choose the cheapest plan that offers minimal benefits, they may use fewer medical services, and that in turn saves money for the system.

Possible compromises: Big compromises are probable here as lobbyists pull out all stops to defeat cost controls. Compromises will center on:

* Number of alliances required in a region. Choices are between one alliance per region or multiple alliances.

* Structure of the alliances. All employers or only some may be required to join. The Clinton plan requires all employers with fewer than 5,000 employees to join, but there will be pressure to require alliance participation for only employers with a small number of workers, perhaps 100 or less, which would result in only about half of all U.S. workers being covered under the alliances. Compromises involving the size of a firm that must join and whether participation is voluntary or mandatory will be aimed at maintaining business as usual for employers, preserving lucrative markets for insurance companies and their agents, and keeping the control of the system fragmented and diffuse.

* Power of the alliances. An alliance may have power to actually set premium rates and force health insurance carriers to lower them; it may be allowed to use only moral suasion to nudge carriers into line; or it may be able to do neither. It may be able to establish fee schedules for doctors who don't participate in any formal managed care network (those who want to practice traditional fee-for-service medicine) and prohibit them from charging patients amounts above what they'd receive from the fee schedule. Or it may have none of those powers. An alliance may be able to reject certain plans in which the quality of care is questionable, or it may have to offer any health plan as long as the plan's premiums are not too outrageous (a provision in the Clinton plan).

* Whether to have premium caps. If the caps survive, the amount of the increase allowed in the formulas for setting the per capita targets might be more generous than currently called for in the Clinton proposal, with the result that premiums might rise faster and have less impact on controlling costs.

Consequences to the public: Multiple, voluntary alliances with weak powers and no premium caps mean minimal, or no, cost containment, as well as higher

Columbia Journalism Review, March 1994

administrative expenses piled onto the health care system. To the extent that premiums will continue to rise because health care costs are unrestrained, insurance will still be unaffordable to many. A nation that spends an ever-increasing percentage of Gross National Product on health care has fewer resources to spend on other goods and services.

Cost containment may also affect the quality of care people will receive, the kind of choices they can make, and perhaps the extra costs they may have to pay. If alliances have no control over the quality of medical care provided by the plans, then people may have no assurance they are getting quality along with low cost. Furthermore, unless the plans selling through the alliances offer what is known as a "point-of-service" option and allow people to pay more, opt out of the plan, and choose their own doctors, those people could find their choice of providers somewhat restricted. Of course, the more people outside the cost control mechanism the more difficult it will be to control provider costs..

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