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From the Winter 1994 issue of Policy Review magazine:

CLINTON'S FRANKENSTEIN
The Gory Details of the President's Health Plan

ROBERT E. MOFFIT

It is January 2, 2001. Today marks three years since you marched
down to the local office of your regional health alliance, enrolled
your family in the national health plan, and picked up your health
security cards. You thought the Clinton health plan would be the
answer to many of your old health care complaints, but frankly,
it's been a disappointment.

You thought you'd have numerous choices among health plans through
your alliance, but as it turned out, the alliance officials
approved only three plans to offer services in your region: one
fee-for-service and two health maintenance organizations. Your
doctor was not among the private practitioners in the
fee-for-service plan, so you joined an HMO because it was a little
cheaper.

You wait longer now to see a doctor than you used to, and when he
finally arrives, the doctor barely has time to say hello, look you
over, and write a prescription before he's off to the next patient.
Waiting in the long line for a chest X-ray, you feel cheated --
you're just a number on a chart to your HMO. Still, you're young
and healthy, and so is your family. The kids are finally used to
seeing a different doctor at every check-up, and the problems the
pediatrics office had last year with shortages of vaccines seems to
have stabilized.

Your elderly parents are not so lucky. The state they live in opted
to administer health care directly through a state agency, so there
are no alternatives to the type of care they receive. Because their
state includes several major cities with huge health care needs
that threaten to exceed the health care budget, physicians,
services, and the availability of some advanced technology is
sometimes scarce. The doctors in their state alliance are young and
inexperienced -- many of your parents' own doctors gave up on
medicine when the health plan was enacted.

Your mother has a heart condition that could be improved by a new
drug which has already been approved by the FDA. But because the
drug's cost might exceed the allotted budget, its inclusion in the
comprehensive benefit package has been delayed by the National
Health Board. Your father is in constant pain from arthritis and
needs a hip replacement, but the waiting list for this surgery is
five months long. Your parents feel they get short-changed compared
to younger people, whose health needs are fewer; you know this is
probably true.

You never thought, when Bill Clinton started talking about health
reform in 1992, that you'd actually end up  spending more for this.


Broken Promise
The plan we were promised is not the plan we got. Bill Clinton
promised Americans a new national health system based on free
market principles, a plan that would streamline the medical system
without nationalizing medicine. He continually stressed the
principles of security, simplicity, savings, choice, quality, and
responsibility.

In fact, the Clinton health plan is anything but simple, and many
of the other principles the President embraced have been
compromised in development of the plan as well. Moreover, the power
of the new federal bureaucracy, particularly the National Health
Board, the president has proposed to administer health care will
rival any in the history of the republic. The Clinton plan is
actually the largest federal power grab made over a sector of the
economy in peacetime. The president's plan promises top-down,
command-and-control micromanagement of one-seventh of the nation's
economy. As The Economist of London observed, "Not since Franklin
Roosevelt's War Production Board has it been suggested that so
large a part of the American economy should suddenly be brought
under government control."

Every aspect of the health-care system will be affected by the
legislation. The 1,342-page bill, officially called the "Health
Security Act," details sweeping government control of the health
sector of the economy. To consider just a few of the hundreds of
new rules in the bill is enough to illustrate its breathtaking
scope. One example: The Health Security Act regulates medical
education and the training of physicians, and will set limits on
how many medical school students may specialize in a given field in
any particular period. Too bad if Junior always wanted to be a
brain surgeon; he may be restricted to becoming a general
practitioner -- or a pediatrician, or an internist -- if he wants
to practice medicine at all.

Then there's the "I'm Okay, You're Okay" approach to insurance
coverage: The regulations stipulate that everyone is the same under
the Clinton plan, whether he's a tee-totaling jogger or a couch
potato who spends his day with a cigarette in one hand and a beer
in the other. This is promoting responsibility?

Another provision of the Act creates a government-sponsored
national data bank, into which the medical records of every single
patient in America must be entered. Maybe this information really
will speed communication between physicians and assist in
treatment; maybe too, it will prove to be the first step toward
nationalized care, and the end of privacy between doctors and
patients.

Finally, not content to control only the health insurance industry,
the administration is reaching out to grab the auto and worker's
compensation markets as well. These types of coverage will be
coordinated with the new standard benefits package required by the
health plan.


Controlling Mechanisms
Considering how deeply the new health regulations will be thrust
into our lives, it is essential that Americans understand the basic
structure of the Clinton plan. We must understand how fundamentally
different the plan is from the one described by the Clintons'
soothing rhetoric. And we must decide if we can tolerate the
government's new role as arbitrator in the most intimate decisions
of our lives. Today, lobbying for his health proposal, the
president continues to stress the principles he vowed would be the
foundations of his reforms. But the simplified, consumer-oriented
reform that Bill Clinton promised America is in reality a
full-scale, federal takeover of the $1 trillion health system.
Lodged within the body of the legislation are provisions that will
expand federal control over the financing and delivery of U.S.
health services, and expand the already-enormous government
bureaucracy devoted to health care.

Government control in the Health Security Act is exercised through
five key mechanisms:

The National Health Board (NHB), which will have general oversight
over the entire U.S. health system. Virtually every facet of the
health system will be monitored, decided or reviewed by this
presidentially appointed board.

Regional Health Alliances, the state-based system of
health-insurance cooperatives that will control the availability of
health plans, enforce health budgets, enroll employers and
employees in the new system, collect premiums, and generally
enforce national insurance rules and regulations. Every American
will be forced to obtain health insurance through these alliances,
or through similar corporate-sponsored plans if they work for a
large company.

A Standard Benefits Package, the detailed list of benefits that
must be included as standardized government health benefits. The
standard package contains not only major medical services, but also
coverage for routine care, such as eye and ear exams, and even
elective abortion and expensive treatments for substance and
alcohol abuse. The standard benefits will be tax free to all
Americans; those wishing more coverage than the standard package
must pay for it out-of-pocket with after-tax dollars.

Employee Mandates, which require all employers to provide at least
the standard package and to pay at least 80 percent of its cost,
with special subsidies and provisions depending on the size of the
company. Premium costs are limited to 3.5 percent of payroll for
small firms and 7.9 percent for larger companies. Firms with over
5,000 employees will still have to provide at least the standard
package, but they may opt out of the alliance system and form their
own cooperatives.

Government Budgets and Spending Caps. The Clinton plan is riddled
with price controls; the central cost control mechanism of the plan
is not competition, or even  "managed competition," but a rigid set
of caps on public and private health insurance spending, plus fee
controls for doctors in private practice. Under the plan, the
growth in health-care spending is to be forcibly ratcheted down
each year until it is in line with the growth of inflation. The
target date for this goal is 1999.

At first glance, the Clinton plan may not seem unreasonable  -- it
may even look generous and friendly. It is in reviewing the
details, which follow below, that the coercive nature of the plan
becomes clear.


The Supreme Court of Health
The first of the key elements is the National Health Board (NHB),
a new federal agency in the executive branch of government. It is
created primarily for the purposes of setting national standards
for the new federal system and for overseeing the administration of
the health care systems in the states once they are up and running.
The NHB will be comprised of seven members, appointed by the
president and confirmed by the Senate, each serving a four-year
term.  The chairman of the NHB will be able to serve a maximum of
three terms.

Secretary of Health and Human Services Donna Shalala, during
congressional testimony last October, described the National Health
Board as a "minor oversight group" -- completely miscasting the
board's power and scope. In fact, the board will have wide
rule-making, standard-setting, and oversight authority, making it,
in effect, the  "Supreme Court of Health." The National Health
Board's responsibilities include:

Oversight of the health-care system established in each state. The
board will establish standards and requirements for health
insurance plans in the states, approve state implementation of
health-care reform, and monitor compliance.

Control over changes in the comprehensive health-care benefit
package. The NHB will have almost absolute authority over which
benefits will or will not be included in the standard health
benefits packages available to Americans. Its decisions are final,
unless Congress intervenes. The NHB is also charged with
establishing and enforcing compliance with a global budget for
national health-care spending. The board will issue regulations for
implementing a national health-care budget in the form of price
caps on health-insurance premiums. The board will determine
per-capita premium targets, or baseline budgets, for every regional
alliance in the country, taking into account  "regional variations"
in price, inflation, and other factors. The board will also certify
compliance of the regional alliances with the national health
budget.

Establishing and managing a "quality management and improvement
system" for health-care delivery. The board is to establish and
have ultimate responsibility for a performance-based system of
quality management and improvement through a new federal program
called the  "National Quality Management Program." The day-to-day
management of the program is to be run by yet another new federal
agency, the  "National Quality Management Council," composed of 15
members appointed by the president who are "broadly representative
of the population of the United States" -- although none of these
members may be a doctor, health-care provider, insurance company
employee, or in any way connected with the health-care industry.
The council is to develop measures of quality -- through
consultations with doctors, consumers, insurers and state
officials, as well as other health experts  -- in order to
standardize the measurement of the performance of the health
programs. In other words, the council will attempt to quantify
"quality."

Monitor breakthrough drug prices. The National Health Board is not
authorized to set drug prices. However, the board is charged with
establishing a special committee of its own membership  -- the
"Breakthrough Drug Committee" -- which will, in conjunction with
another new group, the "Advisory Council on Breakthrough Drugs,"
monitor breakthrough drug prices to determine whether the initial
prices are "reasonable." A breakthrough drug is defined in the
language of the bill as a drug "considered to be a significant
advance over existing therapies." The bill language, however, does
not give either the Council or the NHB explicit powers to roll back
a drug price. But the National Health Board is no cheerleading
section for high risk investment in new breakthrough drugs.

The power and scope of the National Health Board is awesome.
Normally, the Office of Management and Budget (OMB) can review
regulations proposed by a federal agency and block them if they
would be too onerous. But the current language of the Health
Security Act suggests that OMB will not have this authority over
regulations passed by the National Health Board. In other words,
the board will be able to make its decrees without risk of being
over-ruled except by Congress. Considering how far-reaching the
Clinton plan is, this is an enormous concentration of authority for
one government agency. Moreover, it will be extremely difficult to
appeal Board decisions once they are made. In fact, all decisions
of the NHB over insurance pricing are exempt from either judicial
or administrative review.

The bottom line: The NHB will decide exactly what benefits and
treatments will be available and at what price. And unless the
Congress intervenes, no significant change in any aspect of the
American health-care system may be implemented without the approval
of the NHB. The Clinton administration has clearly attempted to
insulate the NHB from the normal means of review faced by other
federal agencies. No wonder some critics are calling it the "Health
Politburo."


The Apparatchiks
If the National Health Board is the Politburo of health policy, the
individual states are the apparatchiks. It will be the legal
obligation of each state to make sure that every citizen armed with
a "Health Security Card" is enrolled in a health plan. The states
will certify health plans, administer subsidies for low-income
individuals and small employers, collect data on health-alliance
and health-plan performance, and meet federal quality, management,
and fiscal solvency requirements. And by January 1, 1998, each
state must have established a regional alliance system for the
enrollment of employees and employers in approved health-care
plans.

The regional alliances are the powerful cooperatives through which
health coverage will be purchased and regulated. The alliances may
be either public or private entities, a matter left totally to the
discretion of state officials. They could simply be state agencies,
even an extension of the Governor's office. A board of directors --
made up of employers and consumer representatives, but no
representatives from any health-related agency or business -- will
help run the alliance system in each state.

Americans will be required to purchase their health coverage
through the regional cooperative to which they are assigned, based
on where they live. The boundaries for each region are to be
determined by the individual states; each geographic area will have
only one regional alliance. The only alternative method of
providing health care available to a state other than the alliance
system is a single-payer system. That is, a state may choose to
control health care directly through a state agency. Under a
single-payer system, of course, consumers are denied the freedom of
choice of alternative health coverage plans, because there are no
alternatives.

Although the Clinton administration is downplaying the regulatory
strength of the regional alliances, they will have impressive
powers. They will decide which insurance companies will compete in
their regions and which will be excluded, and will negotiate
contracts with the insurers and other health-care providers they
approve. The alliances will collect all health insurance premiums;
they also will strictly monitor and distribute consumer information
on the various plans allowed to participate. The alliances will
"represent the interests" of both employers and employees in
negotiating coverage with the plans in their regions, as well as
enforce the strict federal health budgets. The alliances also have
the authority to impose separate budgets and fee schedules on
doctors. Ultimately, all issues related to health care and health
insurance coverage in a particular area will be funneled through
the local alliance.


Political Health Care
The basic flaw in the alliance system is clear: Health concerns
will become political concerns. The alliance plan will politicize
health care at every level while severely limiting competition in
the health-care market.

First, since so much discretion in staffing boards of the
individual alliances is left up to the states, alliances will
inevitably reflect their local state politics. It is likely that
conservative governors or state legislatures, not immune to
pressure from their supporters, will develop an alliance system
that reflects their views; likewise for liberal state governments.
The structure of a state's alliance network will become a political
bargaining chip in state elections.

But partisan pressure will be just the beginning. Because of the
many competing groups that have interest in how the regional
boundaries for each alliance are drawn, there is the inevitability
of "gerrymandering" -- the creative drawing of regional district
boundaries -- in order to provide better prices to favored
constituencies.

Elizabeth McCaughey, a fellow at the Manhattan Institute in New
York who has written extensively on the Clinton plan in the Wall
Street Journal, notes that "The system promises to pit black
against white, poor against rich, city against suburb." There will
be strong pressures on state officials by groups wanting to be
included or excluded from certain alliances. Since each alliance
will be required to enforce strict budgets for total health care
provided in its region, voters will want areas with
higher-than-average incidence of older citizens or retirees,
pregnant teens, violent crime, or HIV infection excluded from their
alliances, and areas of low potential health cost included. As Ms.
McCaughey observes, "Everyone will figure out that you get more
health care for your dollar or pay lower premiums in an alliance
without inner-city problems. The plan will be an incentive for
employers to abandon cities and relocate." In spite of regulations
in the health legislation prohibiting any type of discrimination in
setting boundaries, there are likely to be intense political
battles and many lawsuits over this issue.

And laying aside geography, let's consider the intense lobbying
that will result from the alliances' veto power over insurance
plans. Technically, an alliance is required to approve any health
plan that wants to offer coverage in its region so long as the plan
meets all the federal requirements set down by the National Health
Board. But what will prevent a weak, but politically
well-connected, plan from being retained in the system? What
prevents a good plan from being barred from competing in an
alliance system because it poses a threat to politically
influential, well financed plans? If the Clinton health plan is
enacted, such political problems will spill over to the insurance
market place, already heavily politicized.

The only exception to enrollment in a regional alliance -- or state
health program, in those states opting to manage health care
directly -- is for companies with over 5,000 employees nationwide.
Such companies may elect to set up their own alliance rather than
join a state-based regional alliance. In general, corporate
alliances must meet all the same criteria as a regional alliance,
but oversight of these corporate groups is delegated to the
Department of Labor rather than the Department of Health and Human
Services and the National Health Board, and they may initially use
different insurance rating systems. The corporate option is
discussed further below in the section on employment issues.


I'm OK, You're OK
How will insurance be offered in the alliance system? There will be
standard methods, and each state will set up its individual
alliance system or systems in accordance with federal rules. But on
one issue there is no question: All insurance companies are legally
required to offer insurance at the same premium for any individual
or group, regardless of health risk. As opposed to the current
system, insurance companies are forbidden to take health histories,
lifestyles, and other factors that affect health risk into account
when offering insurance.

This insurance rating system -- known as community rating -- is
supposed to guarantee that no one will be denied insurance because
of his prior medical history; no one will have a "pre-existing
condition" that will affect premiums. But in the same way that
insurance rates will not discriminate against the sick, they will
not be able to reflect better health conditions either.

Imagine what this means. Those who overeat, smoke, drink, abuse
drugs, and engage in promiscuous sexual behavior will be rated
exactly the same as fervent health nuts. The logical outcome of
such a system is that the healthy -- who require less medical
services -- will subsidize those who are choosing riskier
lifestyles. Not only does community rating discriminate against the
healthy, it actually rewards those who abuse their health. So much
for encouraging personal responsibility.

Another problem with community rating is the stress it will cause
on alliances with higher-than-average incidences of health
problems. Alliances serving inner cities facing, for example, the
higher rates of drug abuse, violent assault, and premature birth
that are endemic to urban areas will spend their health budgets
faster than alliances serving suburban or rural areas. Premiums
will eventually have to rise to meet the higher costs for an
alliance with these pressures.

Where it has been implemented -- for example, in the state of New
York -- community rating has tended to result in higher average
insurance costs. Of course, the Clinton plan solves this problem by
simply capping premium costs above a mandated level.

The National Health Board is also directed to set up a national
risk-adjustment system to compensate for the inequalities inherent
to community rating. But these steps are unlikely to eliminate the
central weakness of community-rating systems: If a plan attracts
higher-risk individuals and groups, but its premiums cannot be
raised, the plan may face huge pay-outs and financial collapse. The
only alternative is to bail it out, and more costs to the taxpayers
are likely.


Keeping your Doctor
Although the president has emphasized consumer choice as a main
principle in reforming health care, the choice available to
families is limited by the government, with few exceptions. Unless
you receive health benefits through Medicare, military or veterans
benefits, or unless your spouse works for a large company, the law
will require you to buy health insurance from the limited choices
offered by your alliance. And all families must join a regional
alliance, or face penalties.

For many Americans, a basic concern is whether or not they will be
able to keep their own doctors under the Clinton plan.
Theoretically at least, they will be able to do so. The Health
Security Act requires each alliance to offer at least one
fee-for-service plan -- a plan where families choose the doctors
they want and the doctor is reimbursed by the insurance company for
his services. But the Clinton plan places harsh regulatory burdens
on those who practice fee-for-service medicine, including strict
fee schedules and budget limits. Politically, it is easy to clamp
down on doctor's fees. The fees doctors will be allowed to charge
are unlikely to even meet their overhead, much less allow them any
profit.

Many doctors may find it impossible to continue in private practice
under these conditions. As Newsweek recently reported, "Despite the
president's attempts to be reassuring about the changes that will
ensue, there is a very good chance that our relationship with our
current doctor will be disrupted -- the physician may leave
medicine altogether or join a health plan we do not choose to
join." The wealthy will still be able to go outside their plans and
pay for a physician's services out-of-pocket, with no tax
deductions, but for average Americans such expenses will be
prohibitive. Private practice medicine will become a luxury item
reserved only for those who can afford it .


One Size Fits All
A particularly mind-numbing section of the Health Security Act is
the 56-page section devoted to the standard benefit package that
every health plan must offer to its subscribers. This benefits
package is not just a minimum or catastrophic package. It is a
comprehensive benefit package covering a broad range of medical
services, and it is this precise package -- no more and no less --
that health plans are required to offer.

Bill Clinton promised America "Fortune 500 health care," and his
standard benefits package certainly gives that impression. It will
provide major medical coverage, including an impressive array of
hospital and physician services, diagnostic services, preventive
care, mental health and substance abuse benefits, family planning
and "pregnancy related services" -- including abortion --
prescription drugs, hospice, home health and rehabilitative
services, vision and hearing care, and preventive dental care for
children. Among the items specifically excluded from the benefit
package: in vitro fertilization, sex change operations, and dental
implants.

Who could argue against such lavish coverage? Some doctors and
patient groups do, claiming that it is still not comprehensive
enough. But the problem with the benefits package is not so much
what it covers now, but what it might not cover in the future. Once
the standard benefits package is finalized, approved by Congress,
and executed by the health alliances, it may become very hard to
amend.

Other federal experiences in setting benefits suggest that it will
be extremely difficult, once the standard benefit package is in
place, to add new treatments, procedures, or benefits to it.
Medicare, the federal insurance program that cover some 35 million
elderly and disabled Americans, provides a good example of the
delays that can occur in evaluating new technologies, medical
procedures, and medicines. The bureaucratic method used in the
Medicare system to evaluate new treatments involves several
government agencies and a lengthy review process. Consider medical
technologies: In 1991 and 1992, only 18 such evaluations were
completed of the many pending. Some assessments have been buried in
the bureaucracy for as long as three years. And when considering
the procedures for adding new benefits to the package, Americans
should also give serious thought to the history of long delays in
drug approval by the Food and Drug Administration. Bureaucratic
delays by the FDA in approving life-saving drugs actually caused
the Bush administration to launch an overhaul of the approval
process and expedite approval of drugs to treat deadly diseases
such as AIDS, cancer, and cystic fibrosis.

Americans should be alarmed at the prospect of approval procedures
like these for the general health care system. Not only might vital
new medicines, treatments, and technologies be excluded from the
benefits package, or only become available after long delays, but
such a system invites special interest pressure. Inevitably, what
is or is not included in the benefit package will become the
subject of intense political debate and heavy lobbying, with
Congress and the National Health Board pitted against medical
specialty boards, groups afflicted with particular conditions, and
other special interest groups. This will compound the
politicization of health care, already established through
state-government management of the regional alliances.


Your Health or Your Job
The Clinton plan places the enormous burden of insuring America on
American employers. Every employer in America will be required to
participate in the financing of health-care reform, whether that
employer is a private household employing a nanny or a huge
corporation employing hundreds of thousands.

For full-time employees, the employer must pay at least 80 percent
of the average premium for the individual or family coverage of the
employee. The employee pays no more that 20 percent of the average
cost, plus any extra premium for selecting a higher-than-average
cost plan.

Employers of under 5,000 workers -- small businesses -- must place
all their employees in a regional alliance; the employees will then
have their choice of plans from among those offered by that
particular alliance. The federal government has placed a cap on the
total contribution made by employers whose employees join a health
alliance: The difference between this cap and 80 percent of the
average premium will be picked up by the federal government.
Counting this subsidy, the employer contribution for firms with 75
or fewer workers, as a percentage of payroll, ranges from 3.5
percent for low-wage employers to 7.9 percent for high-wage
employers. No employer in a regional alliance will be obliged to
pay more than 7.9 percent of payroll for health insurance. Low-wage
workers -- such as minimum wage workers or some part-time employees
who join regional alliances -- will also receive government
subsidies to help them pay their share of the insurance premiums.
In the Clinton plan, no family with an adjusted income of less than
$40,000 will pay more than 3.9 percent of income in premiums.

A company with 5,000 or more workers has two options. First, it may
place all its employees in regional alliances, and take advantage
of the employer-contribution caps and other subsidies available for
those in the regional alliance system. Or the corporation can elect
to set up its own corporate alliance. If a business chooses this
option, the corporation's managers would organize their employees
into a distinct corporate purchasing cooperative, where at least
three different types of plans must be offered: a fee-for-service
plan and two other plans that are not fee-for-service. Oversight to
these corporate alliances is designated to the Secretary of Labor,
who may dissolve them if they do not meet budget targets on time.

Although the Clinton plan does provide the corporate option, there
are strong disincentives to creating a corporate alliance. Firms
choosing this option face a double whammy. First, it is the
employer, and not the government, that subsidizes the employee's
share of the premium for low-wage workers. And second, subsidies
are not available to corporate-alliance employees -- in other
words, the payroll caps on premiums do not apply to
corporate-sponsored alliances.


A "Small" Impact?

A simple rule of economics is that any mandate on employers to
provide health insurance necessarily adds to the labor costs of
firms that do not now offer health insurance, or offer a package
less generous than the Clinton benefits package. Higher labor costs
translate into higher prices for consumers or reduced compensation
for employees, either in wages or benefits. Depending on the size
of the firm, the higher labor costs will translate directly into
lower wages or job loss.

Since the Clinton plan places such a large additional cost burden
on employers, there is virtually no question that some workers will
pay for the plan with their jobs. Most economists, and even
administration officials, agree that job loss will occur, but
disagree on how much. Time magazine reported an estimate of 1
million jobs lost. A recent study conducted by Baruch College
Professors June and David O'Neill for the Employment Policies
Institute estimates the job loss caused by the new employer
mandates at 3.1 million. The more conservative estimates from the
Employee Benefit Research Institute range from 200,000 to 1.2
million. Even Council of Economic Advisors Chairman Laura Tyson
admits that job loss will occur, although she estimates the loss at
roughly 600,000 jobs  -- an impact she considers to be  "very
small."


How Much is Too Much?

President Clinton has always argued that one of the most important
reasons to reform the national health system was to get the price
of health care under control. And controlled it will be.  The
Clinton plan calls for spending reductions starting in 1996 that
will align health spending increases with the consumer price index
(CPI) by 1999. The National Health Board will set a global budget -
- the total amount that may be spent on health care in America in
a given year -- and set a per-capita premium target for every
regional alliance in the country. In other words, the federal
government will decide how much America can spend on all aspects of
health care, in what regions, and set a budget. And this budget
will become the law. To help achieve this budget, the plan will
constrain the price of health insurance, also by pegging its cost
increases to the CPI.

It will be the job of the National Health Board to enforce the
global budget. If a regional alliance in any state exceeds its
official budget target, an  "assessment"  -- in other words, a fine
-- will be imposed on each plan whose premium exceeds the limit for
the alliance. Fines will also be imposed on the doctors and other
health-care providers in the existing plans.

The wisdom of using the consumer price index as a benchmark for
health prices remains in doubt. The CPI is a particularly rigid
standard; moreover, the CPI is not a crystal ball that can
accurately predict coming health costs. Using the CPI target,
according to one federal expert, "would create a tighter spending
control system than that of any other nation." Elizabeth McCaughey,
writing in the Wall Street Journal, is also skeptical:  "Mandatory
limits on health care spending may wring waste out of the system
for the first year or two, but will cause hardship in succeeding
years as the 77 million baby boomers age and require more medical
care. Limiting spending growth to the CPI, in defiance of this
population trend, will have predictable results. In Britain, where
health care is rationed, people over 55 are routinely denied kidney
dialysis."

What will be the practical effect of the price cap on health
insurance? Ms. McCaughey has said it well:  "Limiting how much
people can choose to pay for insurance limits how much money is in
the pot to take care of them when they're sick."

What happens if health-care consumers in a regional alliance spend
their budget before the end of the year, even if there are still
patients left to treat? The alliance and the plans will cut, slow
down, or even stop payments to doctors, hospitals, and other
providers -- even though these same providers are legally required
to treat members of the alliance, regardless of whether payment
will be received.

It is entirely possible that, in a particular alliance, an
unanticipated surge in spending could result from a nasty flu
epidemic, an increase in AIDS in the region, or an outbreak of
other types of infectious disease. These are all pressures many
regions are facing today. But even such understandable spending
increases might be labeled excessive under a pre-set system of
rigid spending caps.

Insurance companies will be the organizations with the strongest
incentives to hold down costs in such a system. Desperate to avoid
fines, insurance companies will do everything possible to restrain
what they consider to be  "unnecessary" medical practices,
procedures, and diagnostic tests. The easiest way for insurance
companies to restrain costs is to refuse payment for certain kinds
of care. Doctors will be more hesitant to order treatments they are
afraid will not be covered. They may end up curtailing some
necessary procedures in the process.

The inescapable fact is that in a global budget system, the only
ways to hold down spending are to impose price controls and limit
services. The global budget will inevitably lead to rationed health
care.


They're Not Buying. . .

A final question every American should ask about the Clinton health
plan: If it's so great, why are federal workers refusing to sign up
for it?

Because today, federal workers are covered by a popular health
benefits system known as the Federal Employees Health Benefits
Program (FEHBP). FEHBP covers some 10 million federal employees and
retirees, including all members of Congress and the executive
branch of government. The program allows federal workers to choose
from among dozens of health plans; FEHBP relies on the principles
of choice and competition to control costs. Competition works: The
federal government recently announced that many workers enrolled in
the plan would actually see their premiums decrease next year, and
many will receive  "new or improved preventive care services."

The FEHBP has worked for federal employees for 33 years, and
they're not willing to give it up without a fight. So when
President Clinton proposed abolishing FEHBP and folding federal
workers into a national health plan, pressure from federal unions
and certain influential members of Congress forced him to delay
their inclusion in a system some of them will actually run. In an
extraordinary letter to Hillary Clinton, which highlights the
benefits of a delay, Office of Personnel Management Director James
King wrote,  "I think that it is important the FEHBP population be
given the opportunity to see that national health reform is working
before they are transitioned into it." It seems that not even those
government workers with access to the best information from the
White House are willing to take a chance on the Clinton plan. The
result: Federal workers are not to be enrolled in the Clinton plan
until January 1998, after everyone else.

The health plan that's good enough for you is clearly not good
enough for your congressman, your mailman, or any other federal
worker -- at least not until you try it out first. Think about that
the next time the president asks you to sign up and make your
"contribution."

To reprint more than short quotations, please write or FAX Ben
Morehead, Associate Publisher, Policy Review, 214 Massachusetts
Avenue, NE, Washington, DC 20002, FAX [phone].