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Elements of the American Health Security Act of 1993.

The composite problems of increasing costs and decreasing access in health care are now recognized by the American public. In August 1991, Los Angeles Times-Gallup released a poll indicating that 91 percent of the American public believes there is a crisis in health care.(1) In recognition of increasing public unease with the health care system, in the 1992 Presidential campaign, Clinton pledged to tackle the health care reform problem and proposed solutions to access and cost issues.

Since President Clinton assumed office, his Administration has invested considerable effort in defining a comprehensive plan for health care reform. Although the Clinton reform package will no doubt be modified as part of the political process, it is clear that all other proposals will be weighed against the principles and standards proposed within the American Health Security Act of 1993.

Defining the Problem

Most policymakers would agree that the health care system suffers from an increasing inability to provide accessible services at reasonable cost. More than 35 million American citizens do not have access to basic health care services. The White House, in its effort to generate support for health care reform, has cited various facts that define the American health care crisis (table 1, page 5).

Few health policy experts would argue that the American health care system is without problems and, therefore, in need of no change. In fact, health care reform appears to be a bipartisan concern. On September 15, two different Republican coalitions introduced health reform legislation. One group consists of moderate Republican leaders (moderate Republicans are led by Senators Robert Dole of Kansas and John Chafee of Rhode Island, who have been in the forefront of the health care debate for the past several years) and has proposed an alternative to the Clinton health reform package based on the managed competition model. The second coalition, led by Newt Gingrich of Georgia and Robert Michel of Illinois from the U.S. House proposed a reform package that encourages the creation of personal medical savings accounts. The latter proposal demonstrates a clear difference of opinion with the Administration on the underlying structure of health reform. Although there are important differences between the moderate Republican proposal and the Clinton plan, it is equally clear that there are certain key commonalities in the two proposals.

Because of bipartisan interest, many proposals have been considered in recent years that represent the diverse political constituencies on Capitol Hill. One of the guiding principles of the Clinton Administration and most other advocates of health care reform has been the desire for "comprehensive" health care reform rather than incremental changes in the existing system. Several options have been considered in recent years. Two major models, however, have dominated the discussions.

The first major option is the single-payer or pay-or-play model. Essentially, the single-payer approach entails a complete reworking of the health care system along the lines of the Canadian and British health systems. Proponents of this scheme argue that the only way to effectively control costs, eliminate waste and redundancy, and ensure adequate access for all Americans is to shift the underlying motives of the health care system from a commodity approach to a public service approach. The single-payer approach assumes total administrative, financial, and regulatory responsibility for all aspects of the health care system under a central authority.

The second major option is an employment-based strategy often referred to as "pay or play." There have been numerous variants of such a program, but all include the requirement that employers provide coverage for a comprehensive benefit package ("play") or contribute ("pay") to some public system, such as Medicare or a state-based program providing similar benefits to those not otherwise covered.

The third major reform option, the managed competition model, also offers a comprehensive strategy for health care reform but incorporates many elements of the current health care system. In recent years, the health care system has begun to change rather dramatically, even without policy direction from Washington, D.C. The managed competition model would use these changes as the foundation for a new, highly organized system of health care delivery. The intent of the managed competition model is to stimulate market forces so that health plans and providers compete on the basis of quality, service, and price. In effect, the health care system would be organized around integrated systems of delivery that include managed care programs and a comprehensive array of services. The organized health plans are then required to compete in a managed environment, i.e., managed competition.

Regardless of the outcome, we seemed destined for extensive reform of the current health care system. Reform most certainly will not represent the embodiment of any pure model, but rather an amalgam of approaches leaning heavily toward the managed competition end of the continuum. It will be designed to be acceptable to a broad range of individuals and interests within the context of cost, access, and quality as final determinants for evaluation.

Overview of Single Payer

The single-payer model is patterned after programs in Canada and Great Britain, in which private insurance for at least the comprehensive benefit is eliminated (in Canada, it is illegal) and a government entity (national or provincial government) becomes the payer to providers for all health services. Advocates of such an approach argue that there is extreme waste and inefficiency in the 1,500 private insurance companies that currently perform this function, that employment is not the proper focus for health security, and that cost containment has proved impossible to achieve in a privately based system. They point out that in the United States the Medicare program is an effective example of a single-payer system, providing access to comprehensive services at reasonable cost with streamlined administrative procedures. In fact, several single-payer proposals are essentially "Medicare for all." They assume universal coverage for a comprehensive benefit package, provider organizations would receive a fixed annual budget for their operations from the state or national payer, and physicians would be paid directly on a fee schedule, feefor-service basis.

With regard to financing, resources would come from public funds, including payroll taxes (38 percent); continuing government support at the federal, state, and local levels (26 percent); new federal taxes (21 percent); and out-of-pocket individual contributions (15 percent). Proponents argue that administrative savings from such an approach might amount to about $50 billion, which would offset new expenses of the uninsured.(2)

Overview of Pay-or-Play

The basic premise of the pay-or-play models is the contention that the patchwork system of coverage provided to American citizens is overly costly and complex and inherently unfair. For example, in 1988, of the 244 million Americans, fully 85 percent were provided coverage through some mechanism, with 57 percent covered by employer-based health insurance, 13 percent by Medicare, 9 percent by individual plans, and 6 percent by Medicaid. The remaining 15 percent were uninsured.(3) Proponents of the pay-or-play model build on the two strongest elements of the current system: employer-based insurance coverage provided to many workers and the Medicare system. Davis notes that such a "plan would achieve greater efficiency and simplicity by establishing a common basic benefit package under both Medicare and employer plans, and establish common provider payment methods applicable to both Medicare and employer plans."(4)

The basic structure of the pay-or-play model requires both full- and part-time workers and their dependents to be provided coverage through their work situation (i.e., "play") or for the employer to pay a payroll tax (i.e., "pay"). The basic benefits in most such schemes are defined as the Medicare package, with the addition of preventive care, prenatal care, women's health coverage, and pediatric care. Standard approaches that include the use of deductibles and coinsurance are part of the usual approach in defining benefits under pay-or-play models.

Clinical provider payments under the pay-or-play model generally incorporate the Medicare system provider payment methodology using the Medicare Fee Schedule. To accomplish the cap on expenditures, a maximum limit on balance billing would be set for all services, regardless of payment source. Hospital payments would be made on a modified diagnosis-related group (DRG) basis.

One of the principal advantages of the pay-or-play model is that it draws on many of the features of the existing system while incorporating a simplification of the benefit and provider payment structure. Proponents argue that such a simplified system promotes cost efficiency within the health care system. The other major advantage of the approach is that it does not adopt new structures (i.e., health alliances), new delivery systems (i.e., accountable health plan), or new administrative structures to accommodate the health reform initiative.

Overview of Managed Competition

The managed competition model, developed over the past decade by Stanford University economist Alain Enthoven, PhD, and others, offers to some a less radical approach to health care reform: "Universal health insurance has not attracted overwhelming support in this country. Those who favor it should consider carefully the sources of opposition and seek to avoid designing a plan with features so objectionable to large numbers of American people or key interest groups that the plan would not be considered seriously in the political process." (5) Enthoven, who characterized the U.S. health care system as one of "excess deprivation," suggested that costs could best be controlled by combining systems of managed care with market competition and government regulation. Enthoven noted that the problems with the current health care system could be characterized as:

* Cost-unconscious demand. A great amount of care is delivered to individuals who are not directly knowledgeable of the costs involved and, as a result, have no incentive to consider other--often more cost effective alternatives. To increase conscious demand for health care, the system would stimulate competition among alternative health care delivery systems for the consumer's health care business. Such a system, Enthoven argues, would make health care consumers aware of associated costs.

* Health care system not organized for quality and economy. Under the traditional fee-for-service system, Enthoven argues, poor performers are actually rewarded and paid more than performers who provide equivalent quality services with less intensity at less cost. Furthermore, the system of small practices is largely inefficient in terms of economies of scale, he says.

* Market failure. Insurers maximize profits via biased risk selection and have an economic incentive to exclude preexisting conditions. In essence, the present system denies coverage to those who need it most, while providing extensive services to those who need it least.

* Public funds not distributed equitably. The unlimited tax exclusion on employer health care contributions is the second largest federal health care "expenditure," according to Enthoven. The federal budget lost $46 billion in 1990 to this tax break, the bulk of which went to households with above average incomes.(4) Enthoven suggests that, unless the tax exclusion is part of any reform proposal, the American public will continue to be relatively isolated from the costs of health care.

Managed competition transforms the health care system into an array of managed care plans competing to attract subscribers through effective cost control of the benefit package and improved quality of service. The intent is to make the delivery of health care competitive and to ensure the application of sound economic principles in the process. As Enthoven has noted: "Contrary to widespread impression, America has not tried competition of alternative health care financing and delivery plans, using the term in the normal economic sense (i.e., price competition to serve cost-conscious consumers). When there is price competition, the purchaser who chooses the more expensive product pays the full difference in price and is thus motivated to seek value for money."(6)

Managed competition proponents argue that their model offers real price competition by organizing providers and consumers into coherent units. These units engage in negotiations to provide high-quality care and obtain services at a reasonable cost. As an example, under such a system large companies are able to negotiate with organized managed care providers for health care packages by virtue of their bargaining "clout," associated with the great number of employees the company is able to offer the provider. Smaller employers, the unemployed, and the self-employed also have increased bargaining "clout," because their services are contracted through a "public sponsor" who contracts with competing private delivery and financing organizations and acts as a purchasing cooperative.

Enthoven's plan calls for all employers to offer a choice of plans to employees. Coverage under the conceptual model requires that the employer pay 80 percent of the cost of an average plan, or an 8 percent payroll tax to the public sponsor on the first $22,500 of income for uninsured, seasonal, and part-time employees. Employees would pay the difference between their employer's contribution and the actual cost of the plan. Small employers would participate through the public-sponsor plan at a contribution level of 8 percent of payroll.

The Enthoven system purposely maintains the employer-based system of health care coverage while extending coverage to individuals who are unemployed, self-employed, or otherwise uninsured. Individuals not covered through regular employment would contribute to the system at the rate of 8 percent of adjusted gross income and would benefit from the bargaining power of the public sponsor. Under the system, it is anticipated that, of the 35 million presently uninsured, 22 million would be covered through employment and 13 million by the public sponsor.

Individuals living at or below the poverty level could choose a health plan having a premium at or below an average premium and receive a subsidy for the full amount. Those between 100 and 150 percent of the poverty rate qualify for the subsidy on a sliding scale basis. Thus, managed competition creates universal access, although it does not guarantee universal coverage. In addition, although the employer contribution (i.e., 80 percent of the cost of an average plan) would remain tax-free, there is no incentive to provide more costly plans, so the $46 billion currently lost to the unlimited tax-break is capped, saving an estimated $11.2 billion per year.

One of the acknowledged advantages of the managed competition approach is that it preserves freedom of choice. Individuals have a range of health care plan options. Those who want more in the form of noncovered care and who are willing to pay outof-pocket can purchase it from a traditional fee-for-service provider. Other purported advantages are that it creates cost-consciousness among consumers, encourages real price competition, and maintains the employer-based system of health coverage that is familiar to the vast majority of American citizens.

Although the benefits are undisputed, the managed competition model is not without its problems. Kronick et al. point out that there could be a lack of competition under this system in rural and metropolitan areas where the markets are insufficiently large to support the recommended three or more managed care entities.(7) They argue that, because rural and small metropolitan markets are too small to support several large providers, the anticipated cost savings from "competition" will not work as proposed in the model. The problem is not insignificant, because roughly one-third of the United States population resides in such areas.

Other concerns center around whether controlling costs through managed competition would adversely affect quality of care by creating an incentive to provide less care to those in need of health care services. It is also argued that managed competition is fundamentally flawed and unworkable because market principles do not apply easily to health care. While Enthoven argues that managed competition creates true price competition, where consumers evaluate the "product" they purchase on the basis of price, value, and quality, detractors argue that, in the relatively arcane world of health care, consumer selection of health services is extremely difficult to accomplish. They further argue that managed competition limits individual choice through the market forces of supply, demand, and unit price. The incentives to choose the cheapest coverage will be so strong for many that real "choice" becomes as unattainable as in the current system.

Finally, some have argued that managed competition is more radical than a single-payer scheme because it has never been tried on a national level. Others argue that the system is unnecessarily complex compared to a single-payer arrangement. Nonetheless, managed competition has been one of the most influential reform proposals in recent history and may be the best compromise available to satisfy the demands of so many diverse interests.

The Clinton Plan: How It Works

Overview. While single-payer or pay-or-play models place the locus of control for the health care system within a central, public domain, the managed competition approach places much of the responsibility within the private sector. The Administration's final health reform package adapts elements of several different proposals supported by various constituencies on Capitol Hill. Although the Clinton reform proposal is based on the principles of managed competition, it also includes some elements of the single-payer models (e.g., global budgets, standardization, and defined access). From the purists' perspective, the "mixed" approach of the Clinton plan is one of the central points of discussion.

The general framework of the plan provides that health plans must meet national standards on benefits, quality, and access to care. Within the context of these national standards, however, each state may tailor the new system to local needs and conditions. The intent is for the program to encourage local innovation within the national framework. In addition, there is a set of core principles (table 2, right) in the Clinton plan. These principles were developed by the Task Force on National Health Care Reform chaired by Hillary Rodham Clinton. The politics of the Clinton reform package will represent an interesting challenge for advocates of health care reform. During the weeks prior to Clinton's announcement, advocates for all of the various perspectives on health care reform were beginning to unveil their strategies. For the present, it would appear that the managed competition model will receive a fair hearing on Capitol Hill, especially as managed competition has been embraced by both Republican and Democrat policy makers as a workable model for health care reform. It is a safe bet that the final product passed by Congress--probably in 1994--will be a modification of the policy proposal presented by President Clinton.

General Structure. The President's plan will adapt many elements of the managed competition model while including some Clintonesque qualities. The plan will revolve around a cooperative partnership between the federal government and the states. As a former state governor, President Clinton is very attuned to the individual needs of the states in addressing complex problems such as health care. As a result, while the federal framework will provide overall guidelines, states will be given flexibility to implement key elements of the reform package. The purpose of a federal framework will be to reduce significantly the degree of interstate variability and not to require the states to implement a mandated package over which they have little or no control, such as has existed within the Medicaid system. This overarching policy was developed in recognition that local and state flexibility often fosters more effective solutions than those developed at the federal level.

At the state level, coordinating bodies will be established to serve as purchasing entities for consumers' health care benefits. These organizations, referred to as health insurance purchasing cooperatives (HIPCs) under Enthoven's plan, are referred to as health alliances (HAs) under the Clinton plan. The alliances will serve as conduits for purchasing health insurance while also having a role of public advocate. The alliances would provide oversight to a number of accountable health plans (AHPs) that would actually provide the health care services to the public. Each AHP would receive a capitated fee for each enrollee and assume the risks for the spectrum of health care services required by enrollees during the course of the year. The intent of the plan is to move toward a system of provider-based health care plans where health care providers are integrated with the insurer system and to discourage continuation of the existing proprietary insurance system.

Global Budgets. While a pure managed competition arrangement relies solely on competition as the methodology for containing costs, the Clinton plan incorporates a global budget to ensure health care spending is contained within certain set limits. In essence, the plan proposes to use the global budget as a back-up to the modified managed competition model. Table 3, page 10, outlines a comparison of the gross domestic product (GDP) allocations anticipated under the plan. It is projected that, in the year 1999, a leveling off of health care costs would occur either through effective cost containment under the managed competition model or through premium limits tied to the actual growth in the consumer price index (CPI).

The exact methodology for the global budget scheme is yet to be defined, but it would be developed under the purview of the National Health Board (NHB). The board would set state-level premium targets, and the states in turn would set premium targets for the various health alliances within their boundaries. In addition, the states may be given the authority to control the rate of premium increases through regulation, establishment of an all-payer system, ability to freeze the rate of premium increases, and/or establishment of a surcharge on high-cost health plans. In setting the initial global budget targets, it is anticipated that historical cost levels will be used for each state. A ceiling would then be established for the rate of premium increase allowed under the new system over time.

National Health Board. A National Health Board (NHB) will be established to provide oversight to the health care system. It will be organized in a fashion similar to other federal oversight bodies, e.g., the Federal Reserve system. The board will consist of seven members or governors who will work on a full-time basis, much as do the governors to the Federal Reserve system. Board members will be appointees and will have a background in health care delivery, health care economics, intergovernmental health care finance, consumer information and protection, employee health benefits, or delivery of care to vulnerable populations. All members will be appointed for a period of four years and be eligible for one reappointment. The chairman may serve a maximum of three terms. During the term of appointment, board members will serve as employees of the federal government and may hold no other employment. The board members will also not be allowed to hold any financial interests in the health care industry.

The board will be charged with maintaining a national standardized database and creating a system of state accountability. As proposed by the Administration, it will be the task of NHB to define a national health benefits package. (All plans across the nation will be required to offer a set of services that is at least as inclusive as that defined by NHB). The board may recommend to the

President and Congress appropriate adjustments to the nationally guaranteed benefits package to reflect changes in technology, health care needs, and methods of delivery. Other responsibilities of the board include recommending the national health care budget, determining health care workforce recommendations, defining standards of practice for utilization review, providing technical assistance to the states on implementation issues, and establishing grievance and redress procedures.

Individual states will be responsible for providing oversight on implementation of the plan under federally defined goals. Each state will submit a plan to NHB outlining the state's plans for implementation of the health reform program. States will be required to designate an agency that will be responsible for plan development and oversight responsibilities. Examples of the potential state role includes ensuring that various alliances meet federal standards regarding plan enrollment; overseeing coverage and services provided by alliances, satisfaction, and quality of care; and collecting data for the NHB standardization database, specifying the boundaries for individual health alliances within federal guidelines, monitoring HA performance, and sanctioning alliances that fail to meet specified standards. Each state will also establish a complaint and redress system. The extent of state involvement will no doubt be a point of debate over the next year.

Health Alliances. Health alliances are purchasing cooperatives that pool the purchasing power of large numbers of people in order to acquire certain economies of scale. Under the Clinton plan, states will be given some latitude in detailing the number of alliances within their boundaries. In some states, it is anticipated that there may eventually be only one alliance. A single-payer system is one in which the state or a designated agency makes all payments to health providers with no intermediaries, health plans, or other entities assuming financial risk. Under such a system, providers may assume risk by accepting capitated payments to cover the health needs of individuals. Furthermore, when the population of a state is small or the state deems it is in the best interest of the populace, it could even collaborate with one or more other states to create a single alliance. Although the political likelihood of interstate collaboration seems remote, the plan will allow such considerations. In such a case, the alliance may not cross state lines, although two or more contiguous states may coordinate the operation of alliances under their jurisdiction. Coordination may include adoption of joint operating rules, contracting with health plans, enforcement activities, and fee negotiation with health providers.

The states will define the geographic boundaries of the various alliances under their jurisdictions. Generally, an alliance will serve a minimum population of approximately one million people. There are at least 18 states, therefore, where only one health alliance will be created. The upper limit for the alliances will be a population level of around two million people, except for Standard Metropolitan Statistical Areas (SMSAs), which will be part of one health alliance regardless of population size.

The overall intent of the population limits is to ensure that a wide degree of services are provided under local control. In the original managed competition framework, the size of the regions varied from 250,000 to 350,000. Population groupings of such a size are insufficient to support an array of services that are increasingly important to the public. For example, it is difficult to sustain transplant programs with small population bases. Larger population groupings ensure that the people within a geographic area will have control over most aspects of their health care system. Furthermore, larger alliances will be able to attract better managerial talent, and federal oversight by NHB will be less difficult with a smaller number of alllances throughout the nation.

A major concern with states' establishing geographic boundaries for the alliances is the pattern of gerrymandering that presently occurs with some districts for the U.S. House of Representatives. A "gerrymandered" region for purposes of health care would create significant problems. As a result, it is anticipated that the plan will require that the alliances be in geographic contiguous areas. Alliances will not cross state boundaries, although, as mentioned above, multistate programs could be established if the states decided such an approach would be mutually beneficial. Finally, the alliances will assume responsibility for building health networks that meet the needs of rural and urban areas with inadequate access.

Each alliance will establish a board of directors with diverse representation, including consumers and individuals with expertise in the needs of low-income, underserved, and vulnerable populations. In addition to a board of directors, each regional alliance will establish a provider advisory board made up of representatives of health care professionals who practice in health plans administered by the alliance.

An alliance will have primary responsibility for oversight of the accountable health plans within its geographic boundary. In addition, the health alliance will delineate the service boundaries, establish enrollment rules, provide information to consumers regarding options and changes, and provide information to providers regarding AHPs or plans. AHPs will be selected on the basis of their ability to meet or exceed minimal federal standards, to assure consumers a range of providers, and to meet standards related to community availability.

Once the consumer selects a specific plan, the health alliance would provide a capitated payment based on the negotiated premium. Although the primary option will be a capitated system of payments to the participating AHPs, at least one plan will be organized as a fee-for-service program. Under the fee-for-service plans, it is anticipated that the payments for services might be less than under the capitated system. It is also anticipated that a passive system of incentives will no doubt exist to strongly encourage the consumer to sign up with managed care or integrated delivery systems. Whether payment is on a capitated or fee-for-service basis, the same basic benefits will be offered to consumers.

One of the major questions is who would be required to participate in plans supervised by the health alliances? The Administration will propose that any company with fewer than 5,000 employees must participate in the plans defined by the regional health alliance. If an employer, as defined under the ERISA statute, has more than 5,000 employees, it may establish a corporate health alliance, establish a self-insurance program and contract with plans independently, or join the regional health alliance. Once a company makes the decision to develop an independent self-insurance plan, it will be allowed to reconsider and join in the health alliance. Once a company joins the health alliance, however, it will not be allowed to return to a self-insurance plan. Also, if a corporate health alliance drops below 4,800 employees, it must join a regional alliance. Medicare recipients will also be incorporated in the alliance program.

All federal, state, and local government employees would be included under alliances, as would self-employed, unemployed, and retired individuals, except those with employer-provided retiree health benefits and those covered by Medicare and/or CHAMPUS until these are merged into the new system.

At the plan level, a health security card will be provided to each American citizen and legal resident. The card will provide eligibility for coverage through the health plan. Eligible individuals enroll in a plan unless they are covered under a government-sponsored health program that continues after implementation of the new reform program. These programs include Medicare, military personnel covered by the Department of Defense, the Department of Veterans Affairs, and the Indian Health Service. The exclusion of these programs is a major point of criticism by some policymakers. In particular, there is considerable debate on the inclusion of Medicare recipients in the new scheme. Most policymakers say that it is imperative to include one of the largest elements of the current health system rather than deferring reform for this important segment of the population. It is anticipated that, over time, the Medicare system will be drawn into the health alliance structure.

Accountable Health Plans. Under the Clinton Administration's plan, each enrollee would select an AHP. All AHPs would offer the basic benefits package and meet at least the minimum requirements set by NHB. Under such a system, the health plans would provide coverage for the nationally guaranteed comprehensive benefit package through contracts with regional or corporate health alliances, if the plan is state-certified. Another important feature of the health plans is that they will be community-rated.

It is anticipated that AHPs will develop and evolve from existing provider-based health care organizations (e.g., the Cleveland Clinic), hospitals, community or regional health delivery networks (e.g., Kaiser Health Plans), or insurance companies (e.g., Aetna). The designated AHPs within the geographic boundaries of the alliances will essentially serve as integrated systems of health care delivery.

Each alliance will include among its offerings at least one plan organized around a fee-for-service system. The alliance will negotiate with fee-for-service providers to establish a fee schedule. All plans will be required to use the same schedule under their fee-for-service, point of service option. Also, states may choose to adopt a statewide fee schedule.

AHPs will be required to provide care throughout the geographic area of the health alliance or according to parameters established by the alliance. Although alliances will be confined to specific states, AHPs will be allowed to cross state boundaries and provide services, if they are designated by a health alliance. In essence, an alliance must offer a contract to each qualified health plan seeking to serve its area unless the proposed' premium exceeds the weighted-average premium within the alliance by more than 20 percent; the plan's quality of service or care is unsatisfactory as determined by the state; the plan engages in practices that have the effect of discriminating against one or more classes of persons based on race, ethnicity, gender, income, or health status; or the plan fails to comply with contract requirements.

While the alliances will pay AHPs on a capitated basis, AHPs will be given some latitude in selecting the method of payments to providers. As a result, an AHP may opt to use a contractual scheme, a capitated system, or an indemnification plan for reimbursing providers. In addition, except for the fee-for-service component, a health plan is authorized to limit the number and type of providers who participate in the plan, require participants to obtain all services from participating providers except emergency services, require participants to obtain a referral for treatment by a specialized physician or health institution, establish different payment rates for participating providers and providers outside the plan, and create incentives to encourage the use of participating providers. Each AHP, however, will be prohibited from providing supplemental insurance that covers the cost-sharing provisions of the benefits package.

All AHPs will be required to maintain central data covering basic enrollment information (i.e., identifier and basic demographic data), relationship to other enrollees, and patient problem lists compiled at least annually using major diagnostic categories, uniform hospital discharge data, and resident assessment data. The uniform data reporting sets will be used over time to compare the performance of participating AHPs. It is clear that data systems must proliferate throughout the health care system for these requirements to be met.

An AHP will be charged with establishing a local policy-making body that includes consumers, physicians, and nonphysician provider inputs. These bodies will ensure that the AHP complies with rules established by the health alliance and provides the full scope of benefits. Funds will be available through a federal loan program to assist in the development of community-based health plans.

The AHP board will also establish licensure and certification standards for participating physicians and other types of health care providers. It is also anticipated that the AHP will be responsible for certification of facilities under its purview, although these requirements could be waived if the facilities are accredited by organizations whose standards have been approved by the National Quality Management Program of the Department of Health and Human Services. There has been considerable discussion regarding the need to revise the current system, which encourages duplication of certification requirements for facilities. Once a facility is "certified," it is anticipated that all other standards, with the exception of fire safety, sanitation, and patients rights, would be phased out.

Benefits Package. The benefits package is the key element of the Clinton reform package. In formulation of the benefits package, certain general principles were identified:

* Simplicity. The Task Force reviewed a considerable number of existing benefits packages from plans throughout the nation. The goal has been for the package to be easily understood by consumers and easily implemented by providers.

* Uniformity. The same basic package of benefits will be available in every state and locality and for all enrollees. In addition, the benefits package will be portable, so that there will not be problems for those who move from one area of the nation to another.

* Comprehensive. The package will be at least as good as that available to the majority of consumers at the present time.

* Catastrophic. A catastrophic illness clause is provided in the overall standard benefits package.

* Fair. Equitable treatment of all American citizens is a key feature of the plan, so that levels of care do not evolve that create disparity among the populace. The plan will not require inordinate contributions to the system to obtain basic health care coverage. All citizens will contribute at the level they can afford.

* Primary care- and prevention-oriented. The benefits package will be focused on primary care and preventive medicine. The emphasis of the new system will be a shift toward a more upstream, prevention-focused strategy in the delivery of health care and away from the acute care, specialty orientation of the current system.

In formulating the benefits package, the task force reviewed more than 100 general health plans from throughout the nation, including traditional indemnity and managed care plans. These plans were compared and analyzed for benefits content to determine the general benefits package available to the average American citizen. Based on the information, the benefits package was developed, as shown in table 4, page 14.

Each health alliance will be required to offer at the least the national benefits package. By the specific request of the President, however, services under the health care reform package are not to be defined by the professionals who will provide them. Instead, the types of services to be provided and the individuals eligible to provide them will be determined by the states under state licensure statutes.

The federally mandated basic benefits package will be established by NHB. In addition, NHB will have responsibility for setting eligibility criteria, determining acceptable outcomes parameters for purposes of research, establishing acceptable effectiveness and efficaciousness standards, and reviewing cost efficiency of the system, among other tasks.

Financing. Payments for health coverage will consist of three shares: contributions by individuals and families, contributions by employers, and subsidies by the government. Four categories or family types are defined under the Clinton plan: single individual, couple without children, single-parent family, and two-parent family. Premiums for the categories will be different because the cost of health care for each group is different. In essence, for the working individual or family, the employer will contribute 80 percent of the average priced plan in the alliance for the particular category of employee. The family or individual will pay the difference between the employer contribution and the actual cost of the plan they select (figure 1, page 15).

The required participation of all employers is one of the key features of the Clinton plan. The provision is controversial, however. The National Federation of Independent Businesses and other constituency groups of small businesses have strongly lobbied in the past against any provision requiring small business to provide health insurance to employees.

To address the concerns of small business, the Administration is proposing that no employer in a regional alliance be required to pay more than 7.9 percent of payroll for health coverage on an annual basis. Firms with fewer than 50 employees will be eligible for caps varying from 3.5 to 7.9 percent of payroll, depending on the employer's average wage (figure 2, page 15). Subsidies for small business will be made through the health alliances by the Department of Health and Human Services, with the alliance maintaining responsibilities at the local level for appropriate audits and controls. Finally, at least through the year 2000, contributions of employers will not be counted as income to employees.

Financing issues beyond the premium structure are quite complex and will require a more in depth analysis in another forum. The general source of funds (figure 3, left) for the reform effort, however, will be derived from a combination of Medicare savings, sin taxes, Medicaid savings, savings from other federal programs, revenue gains, and shifts of current Medicare and Medicaid recipients to coverage under the health alliance plans. These funds will be used to pay for long-term care, the new Medicare drug benefit, public health and administrative enhancements, subsidies for low-income firms and workers, and deficit reduction.


It is clear that the nation has embarked upon a substantive debate related to the future of the American health care system. The convergence of a national economic imperative, diminished access to basic services by many, the presence of political leadership within the White House in an environment of bipartisan dialogue if not consensus on the need for reform, and the support of disparate constituency groups, such as business, the elderly, labor unions, and even the medical establishment, create a situation for serious debate. In fact, many policy makers believe that the current environment is a historic opportunity for real reform unequaled since the passage of Social Security. We are clearly in the formative stages of the debate. Expectations on the part of many political pundits place passage of a health reform package sometime in mid- to late-1994.

President Clinton's American Health Security Act will not be the only serious proposal put forth during the next several months, but it will no doubt be the most formidable. Within days of the plan's announcement, it was viewed as a moderate proposal--not as extensive as traditional single-payer proposals and not as conservative as incremental change. Clearly, the proposal will serve as the focal point for discussion over the next year. Regardless of one's political opinion, the plan is one of the most thorough, comprehensive, and pragmatic proposals ever offered to the American people.

Finally, in comments before a group of 100 physicians at the White House on September 20, 1993, President Clinton extended his offer to "negotiate the mechanics. If someone has a better approach, we'll listen and discuss. If it's a better idea, we'll adopt it. Our goal is health care for the American people."As physicians involved in administrative medicine, it is imperative that we become knowledgeable about the proposal and about other options under consideration by the nation.



1. "The Health Care Poll." Los Angeles Times-Gallup, August 1991.

2. Grumbach, K., and others. "Liberal Benefits, Conservative Spending: The Physicians for a National Health Program Proposal." JAMA 265(19):2549-54, May 19, 1991.

3. U.S. Bipartisan Commission on Comprehensive Health Care. A Call for Action. Washington, D.C.: The Pepper Commission on Comprehensive Health Care, 1990.

4. Davis, K. "Expanding Medicare and Employer Plans to Achieve Universal Health Insurance." JAMA 265(19):2525-8, May 19, 1991.

5. Enthoven, A., and Kronick, R. "A Consumer Choice Health Plan for the 1990s. Universal Health Insurance in a System Designed to Promote Quality and Economy." New England Journal of Medicine 320(1):29-37, Jan. 5, 1989.

6. Enthoven, A., and Kronick, R. "Universal Health Insurance through Incentives Reform." JAMA 265(19): 2532-6, May 15, 1991.

7. Kronick, R., and others. "Special Report: The Marketplace in Health Care Reform: The Demographic Limitations of Managed Competition." New England Journal of Medicine 328(2):148-52, Jan. 14, 1993.

Kevin Fickenscher, MD, is Assistant Dean and President /CEO, Michigan State University Center for Medical Studies, Kalamazoo, David Kindig, MD, PhD, is Director, Program in Health Management, and Professor, Preventive Medicine, Administrative Medicine Program, University of Wisconsin Madison. The authors wish to express their appreciation to Larry Heinonen who contributed by collating inforamtion for the article.
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Author:Kindig, David
Publication:Physician Executive
Date:Nov 1, 1993
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