Community rating is a closely related idea. Every health-care-reform scheme in America is concerned with holding down costs. In most businesses market competition does the job, but competition in the health-insurance area often works in a perverse way. Insurance companies have tended to compete not by improving the incentives, habits, and nature of medical treatment—which in the long run is the only way to limit expenses—but by becoming choosier about whom they will insure. If they can limit their coverage to young, healthy people and rule out those who are already sick, then they can offer coverage at a lower price, without having done anything to improve the efficiency of care.
This is what has happened to the health-insurance business in the past generation. In the old days Blue Cross offered coverage to everyone in the same geographic area at the same price. Now younger, healthier people can get cheaper coverage—which many of them skip anyway, figuring they don't need it—while prices rise for those most likely to need care. Fewer of them can afford to buy it, more must take advantage of the cruel and inefficient fallback of emergency-room coverage, and overall costs keep going up. The young, healthy people eventually become old and sick, and are caught too.
This cycle is known as adverse selection, and it has been talked about in the health care-reform business for years. Community rating is the main response. It is designed to average each person's medical costs over the course of his or her whole life and to make sure that people have coverage at the times of their lives when it's most necessary. In proposing community rating the Clinton team was hardly making waves.
Even the part of the plan that sounded strangest and most radical, its "mandatory alliances," is already familiar to millions of Americans under a different name. Anyone who works for a big company or a state or federal agency knows about the open-enrollment system for selecting health insurance. The company or agency negotiates with HMOs, insurance companies, and local medical networks that want to offer coverage to its employees. Once a year employees choose which plan they want. The employer then deducts money from their paychecks, adds its own share, and passes the money on to the medical providers.
This, with small variations, is also how the task force's mandatory alliances would have worked. They would have taken bids from insurance companies, HMOs, and other health providers and then let each household choose the plan it liked best. Each provider would have been required to set a price for a standard benefits plan, so that customers could make easy price comparisons among the offerings. The alliances would not, as has often been assumed, have tried to provide medical care themselves, through big new government clinics.
The most ominous-sounding aspect of the new alliance system was its "mandatory" nature. Everyone would have been obliged to choose and buy a standard benefits plan from an alliance. (Contrary to repeated claims by opponents of the bill, people would have been free to buy any extra coverage they wanted, or get any additional treatment from any doctor they chose, as long as they did it with their own money. Employers would also have been free to offer additional coverage.) The health-care task force argued that the alliances had to be mandatory in order to create the community-rating effect. Otherwise, young, healthy people would stay out of the system, and the pernicious cycle of adverse selection would begin. An exception was made for employees of very large companies, who would still have been able to buy through their own firms' open-enrollment plans. The reasoning was that a General Motors or an AT&T had a work force large and diverse enough to constitute a community-rating pool all by itself. Everyone would have been forced into a pool one way or another.
Some health-care-reform plans have no mandatory component. Several versions of managed competition, for instance, would set up alliances like those in the Clinton bill but not require anyone to buy from them. It is virtually impossible, though, to achieve universal coverage without some element of compulsion. (Medicare offers universal coverage for those over sixty-five, but everyone who works is compelled to pay a Medicare tax.) Moreover, Magaziner argued, for most people the mandatory system would in practice mean more choice and freedom than they now enjoy.
When he ran a small business in Rhode Island, Magaziner said, he covered all health-insurance costs for his employees but could give them only two plans to choose from. Handling the bidding and paperwork for a broad range of plans would have been impossible. "If there had been an alliance, I could have paid my dues to the alliance and let people choose among all the plans." The alliances in the Clinton bill would have been required to offer customers a choice among all plans that met basic certification requirements. In big cities a dozen or more plans might be available. The minimum offering would be three kinds of coverage, including at least one fee-for-service plan that would permit a family to stay with the independent doctor it had been using.
After the plan was withdrawn, Uwe Reinhardt, an economist at Princeton University, told The New York Times, "No one understood this, but the average American patient would have had more choice under the Clinton plan than they now will. If you work for a particular company, your choice of HMOs is whatever that company offers you." Some critics argued that the Clinton plan would destroy the market for coverage beyond the plan's basic benefits, and that as a result people would find it difficult to buy as much coverage as they might like. But that is different from the widespread belief that extra coverage would be against the law- and for most people the range of choice would probably be broader under Clinton's plan.
Far from concocting a system that would look and feel radically different from what Americans were accustomed to, the task force believed that it was changing the surface of health care as little as possible while altering its underlying economic structure. The alliance system, despite its strange name, was meant to look familiar to people who already had coverage. The employer-mandate system of finance, in which companies would bear most of the health-insurance costs, reflected the fact that 90 percent of the people who now have insurance (excluding those on Medicare) get it through their employer. The employer mandate is a de facto tax but a well-established one, and a familiar concept in health-policy circles. Many Republicans, including Robert Packwood and Richard Nixon(!), have over the years endorsed employer-mandate plans.
Indeed, none of the individual elements of the Clinton plan was a shocking new entrant into the health-care debate. The plan's system for controlling expenditures, through premium caps that limited how fast the cost of basic coverage could rise, departed from Paul Starr's recommendations. But it closely resembled a plan offered by a group of congressional moderates that included the Republican senators John Danforth and Nancy Kassebaum.
To say that the resulting package of proposals was "too complex" is like saying that an airplane's blueprint is too complicated. The Medicare system is complex. So is every competing health-care-reform plan. Most of the 1,342 pages of Clinton's Health Security Act (which I have read) are either pure legal boilerplate or amendments to existing law. Conventional wisdom now holds that the sheer bulk of the bill guaranteed its failure. The Nafta bill was just as long, and so was the crime bill that passed last summer. If the health bill had been shorter and had not passed, everyone would know that any proposal so sketchy and incomplete never had a chance.
Fifth count: It was a coercive approach to one seventh of the economy—and to a problem that was solving itself.
Much of the problem for the plan seemed, at least in Washington, to come not even from mandatory alliances but from an article by Elizabeth McCaughey, then of the Manhattan Institute, published in The New Republic last February. The article's working premise was that McCaughey, with no ax to grind and no preconceptions about health care, sat down for a careful reading of the whole Clinton bill. Appalled at the hidden provisions she found, she felt it her duty to warn people about what the bill might mean. The title of her article was "No Exit," and the message was that Bill and Hillary Clinton had proposed a system that would lock people in to government-run care. "The law will prevent you from going outside the system to buy basic health coverage you think is better," McCaughey wrote in the first paragraph. "The doctor can be paid only by the plan, not by you."
George Will immediately picked up this warning, writing in Newsweek that "it would be illegal for doctors to accept money directly from patients, and there would be 15-year jail terms for people driven to bribery for care they feel they need but the government does not deem 'necessary.'" The "doctors in jail" concept soon turned up on talk shows and was echoed for the rest of the year.
These claims, McCaughey's and Will's, were simply false. McCaughey's pose of impartiality was undermined by her campaign as the Republican nominee for lieutenant governor of New York soon after her article was published. I was less impressed with her scholarly precision after I compared her article with the text of the Clinton bill. Her shocked claim that coverage would be available only for "necessary" and "appropriate" treatment suggested that she had not looked at any of today's insurance policies. In claiming that the bill would make it impossible to go outside the health plan or pay doctors on one's own, she had apparently skipped past practically the first provision of the bill (Sec. 1003), which said,
"Nothing in this Act shall be construed as prohibiting the following: (1) An individual from purchasing any health care services."
It didn't matter. The White House issued a point-by-point rebuttal, which The New Republic did not run. Instead it published a long piece by McCaughey attacking the White House statement. The idea of health policemen stuck.
So did the idea that one seventh of the national economy would be transformed overnight. Of the vast American commerce in health care, more than 40 percent is already paid for by the federal government, mainly through Medicare. Under the Clinton plan the rest of the money would still go through most of the insurance companies, HMOs, doctors, hospitals, and laboratories that are receiving it now.
The final element in the conventional wisdom is that this cumbersome, flawed plan was in any case unnecessary, because the health-care problem was going away. Medical costs rose by "only" 5.9 percent in 1993—yet that was more than twice as fast as wage growth and almost twice as fast as the overall inflation rate. Over the past several decades medical costs have risen about three percent faster than the overall inflation rate; in 1993 the gap was 2.9 percent.
"There is no persuasive evidence that we are in either a stabilized or an improving health-care-financing environment," Hillary Clinton told me. "In fact, many of the problems will only continue to get worse. The problems that middle-class Americans care the most about—like what doctor they can see—will likely become appreciably worse, because many will be forced into managed care over which they have no say. Employers will make those decisions. They will pay more for fewer benefits. How deeply this sinks in and how much it motivates political action, I don't know."
If this plan did not perish because it had been designed in intolerable secrecy, or because its designers knew nothing about politics, or because it was full of unacceptable new ideas, or because it was so much more complex than any predecessors, then what happened to it?
The Administration's view, for which, again, there is ample evidence, is that it went down because of two zero-sum games, one political and one economic. Health care reform became a battle in which some would win and others would lose—and Clinton lost.
Through most of 1993 the Republicans believed that a health-reform bill was inevitable, and they wanted to be on the winning side. Bob Dole said he was eager to work with the Administration and appeared at events side by side with Hillary Clinton to endorse universal coverage. Twenty-three Republicans said that universal coverage was a given in a new bill.
In 1994 the Republicans became convinced that the President and his bill could be defeated. Their strategist, William Kristol, wrote a memo recommending a vote against any Administration health plan, "sight unseen." Three committees in the House and two in the Senate began considering the bill in earnest early in the year. Republicans on several committees had indicated that they would collaborate with Democrats on a bill; as the year wore on, Republicans dropped their support, one by one, for any health bill at all. Robert Packwood, who had supported employer mandates for twenty years, discovered that he opposed them in 1994. "[He] has assumed a prominent role in the campaign against a Democratic alternative that looks almost exactly like his own earlier policy prescriptions," the National Journal wrote. Early last summer conservative Democrats and moderate Republicans tried to put together a "mainstream coalition" supporting a plan without universal coverage, without employer mandates, and without other features that Republicans had opposed. In August, George Mitchell, the Democratic Party's Senate majority leader, announced a plan that was almost pure symbolism—no employer mandates, very little content except a long-term goal of universal coverage. Led by Bob Dole and Newt Gingrich, Republicans by September were opposing any plan. "Every time we moved toward them, they would move away," Hillary Clinton says.
"We always knew that in the end people's trust of the President and First Lady would be crucial," Ira Magaziner says. "The debate was going to be complicated, and that trust factor was very important." Whitewater eroded the trust factor. The President looked beatable, and he lost.
Economic factors counted too. Doctors had fought bitterly against Medicare in the early 1960s, but for the most part they sat this battle out. If they weren't controlled by the government, they would be controlled by insurance companies, which in some ways were worse. But other interest groups had more to lose. Health-insurance agents would be put out of business. Health-insurance companies could have their premiums capped. For-profit hospitals thought they would lose money. Manufacturers of medical equipment thought that market growth might slow. Large businesses that did not already offer health care for workers knew the employer mandate would cost them money. (These were mainly corporations like PepsiCo and General Mills, which own restaurant chains whose part-time workers are uninsured.)
During the 1992 campaign the Clinton war room excelled at answering negative charges immediately, before damaging impressions could set in. But even flatly untrue attacks on the health plan went unanswered—direct-mail campaigns saying that everyone would have to go to a government clinic, daily doses of misinformation from Rush Limbaugh, TV advertisements fanning McCaughey style fears of jail terms for people who wanted to stick with their family doctor. Last March The Wall Street Journal found that a panel of citizens preferred the provisions of the Clinton plan to the main alternatives—when each plan was described by its contents alone. But when pollsters explained that the preferred group of provisions was in fact "the Clinton plan," most members of the panel changed their minds and opposed it. They knew, after all, that Clinton's plan could never work.