Clinton lite: why would big business, in rejecting the Clinton health-care plan, go for one with many of the same features?

THE Clinton Administration's health-care bandwagon wobbled into February with two fiat tires and a twisted axle. Already some liberal Democrats were castigating the President for compromising too much, insurance-company ads on national TV were cutting into public support for the plan, and Senate Finance Committee Chairman Daniel Patrick Moynihan (D. N.Y.) was sending strong signals that he thought welfare, not health care, should be Congress's top priority in 1994. But the biggest speed bumps were yet to come.

In quick succession, four organizations-the National Governors' Association, the Business Roundtable, the U.S. Chamber of Commerce, and the National Association of Manufacturers-staked out positions either mildly or strongly at variance with the President's legislation. The Business Roundtable's announcement probably stung the most. Partisans of the Clinton plan, including the First Lady herself, had been lobbying members of the big-business group for weeks. By a large margin, however, its policy committee endorsed as a "starting point" in the debate a rival "managed competition" plan sponsored by, among others, Representatives Jim Cooper (D., Tenn.) and Fred Grandy (R., Iowa), and Senator John Breaux (D. La.).

Liberal lawmakers and Administration defenders were quick to spin ClintonCare's setbacks as expected and irrelevant. White House aide George Stephanopoulos hinted that the U.S. Chamber was "bowing to some sort of pressure--I don't know what." Senator Jay Rockefeller (D., W. Va.) told the New York Times that if the Administration had won business support for its plan "it would have been the upset of the decade." But the reality is much more interesting. Clinton partisans actually believed they could win significant business support for a muchexpanded government role in health care, and fought until the very end to get it. Nonetheless, business executives preferred the version of managed competition put forth by Cooper, which even he calls Clinton Lite. For average Americans seeking more health care for their dollars and more control over their medical destiny, however, Cooper versus Clinton could be a distinction without a real difference.

The Same, but Less

JIM COOPER, until recently a backbencher in the House, now plays an almost unbelievably powerful role in the health-care debate--lobbying Perot's United We Stand one day, talking to White House staffers the next, cozying up to medical and business groups the day after that. What's amazing is that his plan is so widely considered a palatable alternative to ClintonCare, when in fact it is so similar. Here's a comparison of the two plans' main elements:

--Both would create a national commission to specify a uniform benefits package that all insurers must offer--in Clinton's bill to be part of the system at all and in Cooper's in order to qualify for federal tax exemption. While the Clinton bill spells out many of these benefits, Cooper-Grandy provides broad outlines of allowable coverage and then leaves decisions on specifics to the commission. But in either case, the result will be a relatively generous package, with very low deductibles and co-payments. Defining a standard-benefits package will inevitably be a heavily politicized process, with lobbyists for each segment of the medical industry pushing to have its services or treatments included. We already find such a process in state capitals, where legislatures have imposed a large number of mandates on the provision of health insurance, ranging from chiropractic care and acupuncture to drug counseling and mental-health services.

Requiring all insurers to offer a standard package with low deductibles is no reform at all. Patients aren't really getting anything from the deal; they are still paying for services included in the basic package, but they're doing so up front, through high premiums, which decouples their medical consumption from the costs of that consumption, reducing their financial incentive to shop wisely for routine care. It is this system of pre-paid health care, in which the bill is funneled through third parties (insurers or the government) that drives a significant part of medical inflation. There are really two approaches to controlling the demand for health care: either give patients a direct financial stake in reducing their consumption, or else let the third-party payer "manage" the patients' healthcare consumption for them. Both ClintonCare and Cooper's Clinton Lite choose the latter approach. They would not permit "patient power" plans allowing consumers to buy catastrophic insurance with high deductibles and deposit their premium savings in medical savings accounts to pay for routine expenses directly.

--Both bills would authorize monopoly health alliances to pool purchasers of health insurance. But while Clinton's bill requires employees of all companies with fewer than 5,000 workers to join an alliance, the Cooper bill establishes a much lower threshold of 100 workers and simply ends federal tax deductibility for those under the threshold who purchase coverage outside an alliance. However, this still forces all small businesses and self-employed individuals to buy their insurance through a government-controlled monopoly or else be heavily taxed by Washington. And even though medium-sized businesses can escape participation in health alliances under the Cooper plan, they will still have to offer at least the standard benefits package in order to avoid punitive federal taxation. In effect, both ClintonCare and Clinton Lite would tell most employers and individuals what kind of insurance they can buy and from whom they can buy it.

--The Clinton plan requires employers to pay 80 per cent of insurance premiums, with employees picking up the other 20 per cent. Cooper's bill includes a number of provisions designed to reduce the price of insurance, as well as federal subsidies for low-income consumers, but it does not require business to pay for it. Naturally, business executives like the idea that they won't have to unravel current insurance arrangements. But again, the distinction may well be lost on the average worker. Whether he pays his premium directly, or his employer pays it and then provides less cash income to him, the result is the purchase of a relatively expensive health plan that may limit his choice of doctors and that may pay for services he neither wants nor needs, while denying him services he does want.

--While the Clinton plan sets price controls on insurance, the Cooper plan would limit the tax deductibility of premiums to the least expensive health plan in a given region--a provision which sounds as if it would reduce the current bias in the tax code toward insurance rather than wages. But it won't really, since even the "least expensive" plan meeting Cooper's standard-benefits rules would still be essentially a form of costly prepaid health care.

--Both plans would impose community rating on health-insurance premiums, thus prohibiting accurate pricing of risk. Subscribers who take care of themselves by exercising, eating healthful foods, and avoiding drug addictions will be charged the same rate as their slovenly, unhealthy peers. "Adopting this policy would be like prohibiting auto insurance companies from raising rates on drivers who commit more traffic violations," says Michele Davis, author of a recent analysis of the Cooper plan for Citizens for a Sound Economy.

--The Clinton plan would allow most poor people on Medicaid to buy the same coverage through the regional alliances as everyone else. The Cooper plan would repeal Medicaid altogether in favor of subsidies to the poor to buy insurance.

Look at the Others

THE Cooper plan clearly has some salutary aspects, not the least of which is that it isn't ClintonCare. It doesn't directly impose price controls or mandates on employers to pay for insurance. It ends the deeply flawed Medicaid program. And it allows many more employers to opt out of a "regional health alliance" system that seems destined to become especially politicized, bureaucratic, and regulatory. However, rather than staying neutral about what arrangements, freely chosen in a medical marketplace, advance the best interests of consumers, Clinton Lite, like ClintonCare, uses the power of the Federal Government to tilt the market heavily in favor of managed-care networks that collect most of their subscribers' medical dollars up front and then give them back grudgingly in the form of bureaucratically rationed services.

There are other bills already introduced or being drafted that would be much more beneficial to businesses and consumers. Attacking our over-reliance on third-party payment is one obvious goal of real reform, and one achieved to a great extent by Texas Senator Phil Gramm's bill and the House Republicans' bill, and to a somewhat lesser extent by the Consumer Choice Health Security Act introduced by Representative Clifford Stearns (R., Fla.) and Senator Don Nickles (R., Okla.). These bills all include at least some provision for medical savings accounts and do not impose an overly expensive "standard benefits package."

Why, then, are the better bills being overlooked by the business lobbies? For one thing, the lobbies' policy positions reflect the important influence of big insurance companies, which like third-party payment, dislike medical savings accounts and catastrophic insurance, and run much of the nation's managed-care business. The Business Roundtable's health-care task force, for example, was headed up by Robert Winters, chairman of Prudential Insurance Company of America. Prudential is one of the "Big Five" commercial insurers which, along with the Blue Cross and Blue Shield associations, already own a significant chunk of the managed-care market. They'd like government policy to ratify their decision to invest in managed care. Associations of smaller insurers, such as the Health Insurance Association of America and especially the Council for Affordable Health Insurance, have been more critical of government regulations that stifle market competition.

In addition, large firms that currently provide generous insurance policies have a strong incentive to require their smaller competitors to do the same. Cooper's bill accomplishes that by limiting federal tax deductibility to this standard plan alone.

Advocates of truly market-oriented reforms can work with business lobbies to combat ClintonCare, but that's about the extent of their common interests. As with so many other issues, consumers face an array of savvy, well-funded interest groups with a stake in government regulation. That's the bad news. The good news is that the ClintonCare bandwagon has lost another wheel and may (let's hope) be beyond repair.