Power to the patients: why alliances matter.

President Bill Clinton's Health Security Act has had its first congressional committee vote, and already health alliances, a key feature of the bill, have been left behind by policymakers. If health alliances are dead, then consumer protection is in mortal danger. Far from a peripheral issue, alliances are at the heart of government's natural and moral obligation to regulate the purchase of insurance in the public interest. In a competitive market, alliances are the market-maker, assuring consumers of quality and providers of fairness. That no strong constituency has emerged to defend alliances says more about the politics of health reform than about rational health policy. That the Clinton administration appears willing to jettison alliances suggests, at the least, a confused state of leadership.

Why are health alliances so important? They perform several functions critical to a strategy of cost containment, access to care, and quality improvement. By pooling large numbers of individuals, a basic principle of social insurance is restored: spreading the risk over the greatest number of people. If the alliances are "voluntary," as some would have it, adverse selection is certain to occur, as it always has with voluntary arrangements. Only individuals with the most risk would be covered, forcing continuous subsidies and bailouts.

Alliances also protect consumers by giving them unbiased counseling about their choices among competing plans. Experience shows that in the absence of such an intermediary, marketing abuses flourish. Health insurance is a purchase of vital importance. Consumers deserve factual information to make informed decisions. They should not have to cut their way through hype and distortion to understand what they are buying.

It may not be necessary to give alliances the broad regulatory authority envisioned in President Clinton's proposal. Many of these regulatory provisions can be exercised by the states, although at the cost of some additional complexity. Nevertheless, it is important that alliances exist to handle enrollment, disenrollment, and contracting with health plans for service. If the government abdicates this role, it will also forfeit the anticipated benefit of market efficiency in health plan competition. These efficiencies are realistic only in an orderly marketplace.

Fundamental to the notion of managed competition is that health plans should manage risk, not avoid it. Health alliances promote competition on the basis of price and quality. The incentive for providers is to improve value and productivity. The existing disincentives for high-quality, portable coverage are eliminated.

In a competitive model, the case for alliances is compelling. Why then, are they sinking under an onslaught from special interests? Where are their natural defenders? The answer is that most public interest groups do not support a competitive model. They favor a single-payer system of health-care finance, and are unwilling to spend political capital trying to make another model work. This is foolish, and a little dangerous.

We need healthy competition in health insurance for the same reason we do in other phases of our economic life. It promotes efficiency and innovation. For a variety of cultural and political reasons, it is extremely unlikely that Congress will ever enact a single-payer system. They haven't done so for fifty years, and the votes clearly aren't there now.

By taking the sidelines on this important feature of the Clinton proposal, consumer groups are repeating the same mistakes that led to stalemate and failure in every previous attempt to win universal coverage. The balance of power still rests with moderates and conservatives. It would be tragic if progressives refused to work for the improvement of health reforms that are achievable, while holding out for the unattainable.

The White House strategy is inexplicable. It seems to say, "We'll hang back now, and try to sort it out later. We just want a commitment for universal coverage." The principles of universal coverage and a regulated market place are indivisible. Without the latter, chaos will result. If the White House is too timid to stand for the importance of alliances, it cannot expect legislators to resurrect the concept after the battle is over.

If it is already too late to rescue alliances, there are two other options worth exploring in hearings on the Health Security Act. One is to trim back alliance roles and responsibilities to be more like the Health Insurance Purchasing Cooperatives (HIPCs) envisioned by the Jackson Hole group, and called for in Congressman Jim Cooper's (D-Tenn.) legislation. The other option is to leave it to the states to organize purchasing arrangements for individuals and small groups. I prefer HIPCs, not because I don't trust the states, but because HIPCs offer the promise of more uniform administration. Without the burden of administering a premium cap, HIPCs may also stand a better chance of garnering business support.

This issue should not be pushed aside for later consideration. The soul of health reform is, yes, to empower individuals to make better choices for their health-care needs. It is a principle that summons defense.