September 25, 2007

September 25, 2007 | Commentary on Health Care

HillaryCare II: A Big Leap in Federal Control

In 1993, after heading up a 500-member task force on healthcare that worked behind closed doors for months, Hillary Clinton produced a 1,342-page monster. This mammoth prescription for health reform collapsed of its own weight and helped to bring down a Democratic Congress one year later. In a sharp reversal of historical trends, the Clinton Administration and congressional Democrats had lost public trust on the healthcare issue.

Government-run Plan

Two things have happened since then:

First, congressional Republicans have failed, miserably, to make the healthcare issue their own. They never mapped out a bold program to reduce the number of uninsured Americans and improve the way health insurance markets function. Instead, they blew an opportunity to gain public confidence in their desire and ability to reform the nation's health system.

Second, Sen. Clinton appears to have taken "centrist" classes and focused on the public relations of healthcare reform. The result: The junior senator from New York now liberally employs the language of "choice." In an artful lesson in policy makeover, she has re-packaged her health-reform agenda in a far less threatening fashion. Call it the new cosmetics of government control.

Sen. Clinton says her new health plan will not be "government-run" and will not create the big bureaucracy her initial effort would have erected.

Well, that depends on how you define "government-run."

Her latest program seems to hinge on juicing up existing federal agencies, requiring individuals and employers to buy health insurance and relying on federal officials to define insurance "affordability" with mathematical precision. A small-government approach it ain't.

Skeptics wanting to see the "details" of the plan have been blithely assured by the senator's aides that "congressional committees" will fill in those mind-numbing bits. But "planning by committee" seldom produces efficient or even workable designs -- especially when we're talking about politically driven committees. Those nettlesome "details" can hide a host of devils when the committees are steered by liberal chairmen such as Sen. Ted Kennedy (D.-Mass.) or Rep. Charles Rangel (D.-N.Y.).

Sen. Clinton now says that Americans satisfied with their health plans can keep them. That's a sharp reversal from her 1993 proposal, which would have required all Americans to buy a government-standardized product. Today, she says, the "only significant change" will be "modernization initiatives" -- a variety of technocratic changes such as enlightened use of information technology and best clinical practices -- aimed at improving value and reducing cost.

Such adjustments are desirable. Few argue against replacing paper files with electronic databases. But a free market can reliably deliver such modernization without special government "incentives" for medical professionals and health plans.

Massive Federal Takeover

Beneath these "modernization" adjustments to coverage, with little initial disruption of existing insurance arrangements, however, there would be a massive shift in regulatory authority over health insurance from the states to the federal government. Federal rules would henceforth govern all health-insurance products, and they would include, at least initially, requirements for guaranteed issue and renewal of coverage, federal rating requirements and minimum stop-loss ratios.

While a number of states have such rules, Mrs. Clinton would standardize them for the nation. In her explanation of the federal rules, Mrs. Clinton says that national rules would help ensure universal coverage, preventing people from being charged "excessive" premiums, while preventing "excessive" profits on the part of insurance companies. There are no explicit price controls, but obviously federal officials will be charged with making sure these objectives are met.

The proposed transference of control from the states to the federal government, of course, will have another broad consequence: It would spell the end of state insurance market reform or experimentation, including many promising efforts currently underway to expand access and improve the efficiency of the very different markets that exist at the state level.

Likewise, employers and employees and the uninsured will have the option of buying group insurance through a new "Health Choices Menu." The menu will include private plans offered in the Federal Employees Health Benefits Program (FEHBP), and the states will also have the option of joining together on a regional basis and offering the "same type of choices." Sen. Clinton says that the federal benefits will include certain mandates, such as mental health parity, as well as certain preventive services.

Once again, those who know the FEHBP know that it is indeed a well-run, popular program, fueled by the market forces of consumer choice and competition, with a high degree of consumer satisfaction. The best features of the program are choice and competition among a variety of health plans, and it has been historically free of the kind of micro-management that characterizes Medicare and Medicaid. The salient features of personal choice and national competition among a wide variety of plans have properly made it a model for reforming today's highly regulated health insurance markets, where personal choice and robust competition are conspicuously absent.

Hillary's proposal here deserves special scrutiny.

The few health care experts who really know the FEHBP -- as Sen. Clinton surely does -- also know that the director of the Office of Personnel Management (OPM), the agency that runs the FEHBP, has enormous residual power to negotiate rates and benefits for health plans and can impose a high degree of control if he wishes to do so.

The FEHBP under a Clinton Administration is not likely to turn out like the FEHBP under the free-market Reagan Administration. If all Americans get their health plans under federal rules, rest assured the federal government will administer private health insurance in the United States -- and private health insurance will end up being private in name only, vehicles for federal health policy. That is the danger of confining all Americans to a set of health plans administered centrally by the federal government.

Moreover, beyond the federally approved menu of private plans with federally approved benefit packages, Sen. Clinton is also proposing the creation of a government health plan -- explicitly modeled on the traditional Medicare program -- that will compete with private plans on a "level playing" field.

It will be cheaper -- and, therefore, more attractive to individuals and families -- because Mrs. Clinton envisions greater administrative savings. Maintaining fair and free-market competition between private health plans and a taxpayer-subsidized government plan would be a formidable challenge for policy experts with the best of intentions.

If the program is not to be "government-run," as Mrs. Clinton insists, well then, we will need some explanations. Drug companies, for example, will be expected to offer "fair" prices. Presumably, the definition of fairness will be left to federal authorities or the congressional committees. Likewise, "providers" -- doctors mostly -- will be expected to work "collaboratively" to provide high-quality care. That could mean the conformity of good citizenship in The Village. The problem is that some of the best doctors are those who pioneer clinical innovations, often the very medical geniuses who do not "play well with others."

The Washington Post editorialized favorably on one feature of Sen. Clinton's plan: a cap on the existing tax exclusion on health benefits for households with family incomes over $250,000 per year.

The Post is correct, but that is where Sen. Clinton passed up a major opportunity. There is an enormous consensus among health economists that the current tax treatment is unfair, regressive and undercutting even the possibility of a free market for health insurance.

The right prescription: Abolish the current tax treatment of health insurance and replace it with individual tax relief for the purchase of healthcare coverage, establishing the groundwork for broad personal ownership and control of health insurance policies. But that would not fit with Sen. Clinton's broader vision.

Robert E. Moffit is director of the Center for Health Policy Studies at the Heritage Foundation.

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies

Related Issues: Health Care

First appeared in Human Events