"These new mandatory government alliances ... another billion- dollar bureaucracy," sighs a distraught Louise. Yet she and fictional husband, Harry the TV couple in recent commercials sponsored by the insurance industry -- aren't the only people worried about health alliances, the proposed insurance purchasing pools in President Clinton's health reform plan. Equally troubled are members of Congress, who have doubts about the strange new creatures Clinton would set loose on the health care landscape. Most lawmakers now want to reshape these alliances or banish them altogether. But as politicians mull the issues, they'll have to tackle tough questions that Harry and Louise never ask.
In health alliances, much as in consumer buying cooperatives, small businesses and individuals band together to get better deals on health insurance. But are alliances really pivotal to making a reformed health system work? The answer hinges on whether the severely troubled "small group" insurance market -- the one for small businesses and lone individuals -- can be adequately fixed through other means. As things stand, small businesses pay more than large firms for health insurance, partly because insurers sock them for sharply higher "administrative" fees for underwriting policies. And because premiums for small firms are tied directly to employees' health status -- so that Joe's Corner Grocery pays sharply more if one of its workers develops cancer -- insurance prices can vary so much that many firms are frozen out of the market for affordable coverage.
Fixes. Most broad reform plans in Congress would tackle such problems through a series of insurance market fixes. For example, Clinton's plan, as well as rival bills backed by Democratic Rep. Jim Cooper of Tennessee and Republican Sen. John Chafee of Rhode Island, would compel "community rating" for insurance policies sold to individuals and small firms. This means that all such individuals and firms in the same geographic area would pay essentially the same price for health insurance, regardless of whether they or their workers were sick or healthy.
Would such changes be enough -- or would alliances also be needed to make the small-group market work even better? Many insurers say no to the latter, especially the sponsors of the Harry and Louise commercials, which primarily cater to that market. But alliance backers say yes. First, alliances could serve as aggressive advocates for small firms, who by themselves don't have much muscle in dealing with insurance companies. As alliances demanded better service and prices for participants, insurers that couldn't deliver would fall by the wayside. "It's no secret that one reason insurers are scared of alliances is that we make them try harder," says John Polk, senior vice president of the Council of Smaller Enterprises, a purchasing alliance of 11,300 small firms based in Cleveland.
Moreover, because alliances would offer a choice among a range of insurance plans, they'd give employees of small firms a chance to shop for coverage and wield their own buying clout with insurers. That contrasts with the situation at most tiny firms today, where workers can choose one plan -- the one their company picks.
Finally, Clinton's health advisers contend that alliances are central to making a system based on community rating actually work. If all health plans in an area had to be offered to big pools of buyers through alliances, the rates that plans charged would truly be "community" rates. Another key to community rating is so-called risk adjustment. Say that thousands of people enrolled in White Cross Health Plan unexpectedly developed AIDS or some other costly disease, running up exorbitant bills. To keep White Cross from going broke, money would have to be transferred from Blue Cross or some other plan whose enrollees were healthier. An alliance that monitored the entire market could readily calculate and enforce the necessary transfers -- and if alliances didn't exist, somebody else, such as the state insurance department, would have to. In short, the system could survive without this "bureaucratic" aspect of alliances, says top Clinton health adviser Ira Magaziner -- but only by shifting the bureaucratic responsibility elsewhere.
Alliances in some form will likely be included in a final reform package although vastly slimmed down from Clinton's behemoth version, which would compel roughly three quarters of the population, including all firms of up to 5,000 workers, to obtain coverage through them. But first, Congress will have to shake the perception that alliances must be Big Brother agencies staffed with indifferent bureaucrats. Consider California's state- sanctioned alliance, the Health Insurance Plan of California (HIPC), which opened for business last year and now has 2,300 small-business customers. Its operations have been contracted out to a private firm, Employers Health Insurance of Green Bay, Wis., which operates the alliance with just 70 employees. By state regulation, HIPC must answer 4 out of 5 phone calls in just 15 seconds -- a standard that it exceeds. That's just in case any inquiring Harry or Louise happens to call.
