Insurance Salesmen
Big, bad insurance companies aren't blocking ClintonCare. They're helping it along.
When Hillary Rodham Clinton stepped up to the podium at the American Academy of Pediatrics annual meeting in Washington on November 1, her political strategy was clear. To blunt growing criticism of the Clinton health plan, it was time to target a new villain. Drug companies, the old standbys, had made perfectly good punching bags for the Clintons throughout 1993. But since pharmaceuticals account for only 8 percent of health-care spending, there was an obvious limit to how much blame the industry could shoulder.
It was time to go after the insurance companies. "One of the great lies that is currently afoot in the country is that the president's plan will limit choice," Hillary Clinton said, responding to powerful insurer-sponsored TV ads challenging the Clinton plan. "To the contrary, the president's plan enhances choice." Then she continued shrilly, "It is time for you and for every American to stand up and say to the insurance industry: Enough is enough–we want our health-care system back." Loud applause.
The First Lady was being cleverly disingenuous. She actually likes a lot of what's going on in the $300-billion-a-year insurance industry, which is reacting to the prospect of federal control by accelerating toward a major shakeout. In 1991, more than half of the 150 million Americans covered by employee-sponsored insurance plans were enrolled in some type of managed-care program–a category including health-maintenance organizations, preferred-provided organizations, and similar networks of health providers and funders. In 1980, only 5 percent of insured Americans were in managed care programs. The Clinton plan is predicated on the notion that managed care is the answer to America's health problems, arguing that traditional doctor-patient-insurer relationships are inefficient and can't control costs.
Furthermore, the largest commercial insurers, the so-called Big Five–Prudential, Cigna, Met Life, Travelers, and Aetna–are moving rapidly out of the traditional insurance business and into managed care, as are the 71 nonprofit Blue Cross and Blue Shield associations. Already, 43 percent of all HMOs nationwide are owned by commercial insurance companies or Blue Cross, and that number is growing day by day.
In short, the Big Five and the Blues expect to survive the coming insurance industry shakeout. When the Clintons' "health alliances" select the few plans in each geographical area they will offer to subscribers, these firms are confident they will pass muster. To Mrs. Clinton, they say, in effect, "Sock it to us."
The Clinton health plan (in its latest, though potentially not last, incarnation) imposes strict rules on the plans that will be available to Americans. Each will have to include at least the minimum benefits identified by the federal government. Plans cannot turn down applicants for any reason and cannot charge different premiums based on health risk. To be approved by a health alliance, a plan will have to make it through a gauntlet of applications, hearings, and approval deliberations. It will help to have a large stable of lobbyists, in-house lawyers, public-relations specialists, and compliance officials.
A health alliance is, in fact, a cartel and, for all these reasons and more, is most likely to include only the largest firms in each market. Medium-size and small insurers who simply want to provide traditional indemnity and catastrophic coverage to employers and individuals will have no meaningful role in a cartelized market. A few will survive–in rural areas where HMOs can't function, for example–but most will vanish.
The Washington-based Health Insurance Association of America represents almost 300 of these threatened firms (serving about 35 percent of the market), and it–not the Big Five–is the organization behind the commercials that drove Mrs. Clinton to throw her carefully calculated fit. HIAA members understand all too well what the Clintons intend. "It's politically correct from [the administration's] point of view to put black hats on us," said Bill Gradison, HIAA president and a former congressman, at an October 12 news conference to rebut earlier shots across the bow by President Clinton.
Perhaps the administration had expected the HIAA to wither under fire. Less than two years ago, after all, Washington cognoscenti were writing the group's obituaries, as the Big Five pulled out of the association and embraced national health insurance along "managed competition" lines.
For years, the association had tried to straddle the fence between the large firms that paid the bills and the small firms that made up the bulk of its membership. Even so, it could never accommodate the divergent interests within the industry. The Big Five do most of their business with large, self-funded corporate health plans. This fact, together with their recent investment in HMOs, led the large firms to push the HIAA to embrace key elements of the managed competition model, such as health alliances, the virtual elimination of underwriting, and significant government control of premiums. As their smaller peers in the HIAA continued to resist these positions–particularly the notion that every insurer must take everyone regardless of risk and without significant difference in price–the Big Five began to withdraw from the association.
Cigna went first, in early 1992. Robert O'Brien, the firm's executive vice president, was a member of the Jackson Hole Group (a Wyoming-based think tank that originated the "managed competition" model) and saw little need to continue an affiliation with the HIAA. After health-care reform is enacted, he predicted to Congressional Quarterly in March, "about half of the insurance companies would be knocked out." Sharing Cigna's view that many HIAA members were doomed and that the association was taking too combative a stance, Aetna, Met Life, and Travelers withdrew over the next year. Finally, the last holdout, Prudential, left the HIAA in November 1993.
The Big Five moved much of their lobbying activity and political muscle to a new group, the Alliance for Managed Competition, as well as the Group Health Association of America, the major trade group for HMOs. These groups have been active behind the scenes in making conciliatory gestures to the Clinton health task force and members of Congress who support one or more of the various "moderate" managed competition plans. Public outreach efforts have included full-page ads in Beltway publications such as National Journal and The New Republic. While resisting taking specific positions in the ongoing debate, the Alliance for Managed Competition favors much of the Clinton approach but would rather see health alliances be voluntary rather than coercive monopolies.
The HIAA, for its part, has followed a more confrontational approach. Its budget suffered the loss of its biggest funders, but the association plowed its remaining resources into a $6.5-million advertising campaign. Throughout 1993, the association zeroed in on the leaked drafts of the Clinton health plan, arguing for consumer choice and against global budgets set by the federal government.
You've seen their ads, touting an HIAA-backed group known as the Coalition for Health Insurance Choices. In one a couple sits at a kitchen table talking about global budgets. "The government caps how much the country can spend on health care," says the woman. Her husband interrupts: "So, what if your health plan runs out of money?" She shakes her head. "There's got to be a better way."
The problem with the HIAA, though, is that its "better way" is itself deeply flawed, granting a great deal of territory to the Clintons. The HIAA endorses a government mandate that everyone buy relatively generous insurance. "Univer-sal, cradle-to-grave coverage must be achieved," the HIAA's plan reads, "by requiring all employers and individuals to pay for an essential package of benefits which should include primary, preventive, and catastrophic coverage."
The HIAA's plan eschews global budgeting, monopoly health alliances, and price controls, and would allow more variation in premiums than would the Clinton plan. But if you grant the necessity for every American to be in a government-approved "plan"–rather than just ensuring access to care through consumer choice of catastrophic insurance and medical savings–then you open the door widely to the Clintons' more expansive view of the role of the federal government. All you can do then is quibble over what will be in the standard package.
To find health insurers who want to stay in the business of managing risk rather than managing care and who perceive excessive third-party payment for medical services as a major cost-driv-er, you have to travel across the Potomac from the HIAA's still-plush offices in D.C. to a modest outfit in Alexandria, Virginia, called the Council for Affordable Health Insurance. Formed in March 1992, the organization currently has 32 members, mostly insurers in small-group or supplemental markets. Member insurers, including Universe Life in Lewiston, Idaho and Golden Rule Insurance in Indianapolis, cover about 4 million Americans.
Greg Scandlen, who heads the council, says that the concept of tax-free medical savings accounts is the cornerstone of his group's reform agenda, as are insurance reforms that would guarantee re-issue of policies after an insured person is in the system, extension of tax deductibility to individually purchased insurance, and the creation of "risk pools" for those with preexisting medical conditions who cannot qualify for private coverage.
Scandlen endorses plans such as Texas Sen. Phil Gramm's bill, which would allow people to self-insure with medical savings accounts and which focuses on the uninsured, rather than overturning the entire system. The HIAA, Scandlen says, has not been confrontational enough and has alienated potential allies such as the small-business lobby (by endorsing employer mandates), doctors (by promoting managed care as the solution to cost containment), and health underwriters (who'll be unemployed if the federal government eliminates true insurance).
Still, the HIAA is doing a good job in attacking the Clinton plan on television, something the council could never afford to do. And there is evidence that the HIAA's campaign is working. After a brief spike in the support for the Clinton plan right after the president's September 22 speech to the nation, Americans became increasingly skeptical of it, no doubt affected by the ads as well as comments by independent analysts and members of Congress. A USA Today/CNN poll by Gallup in late September found 59 percent of Americans in favor of the Clinton plan and 33 percent opposed, but by late November, after Clinton had presented his bill to Congress, another USA Today/CNN survey found 52 percent in favor and 41 percent opposed.
In polls, Americans express general satisfaction with their own health care and insurance, a little uncertainty about future coverage and the potential for "job lock" because of illness, a suspicion of any plan that sounds too "complex," and concern for the uninsured. This seems to be a mandate for something very similar to what Gramm, the Council for Affordable Health Insurance, and other market-oriented senators and organizations are pushing. "For us," Scandlen admits, "the process is going along just peachy."
That's why Mrs. Clinton felt it necessary to go after the small private insurers who won't make it into any government-created cartels. Unfortunately for the administration, they're fighting back–and, to some extent in spite of themselves, they may well succeed in stopping the administration's forcible takeover of one-seventh of the nation's economy.