The plague or the cure?

WHEN President Clinton’s universal healthcare plan died in 1994, the most visible fingerprints on the murder weapon belonged to a bland middle-class couple named Harry and Louise.

Harry and Louise weren’t real, but they were deadly nonetheless. They were the stars of an advertising blitz from the health insurance industry that undermined support for Clinton’s plan by deriding it as a government takeover of the medical system. In the end, Clinton’s plan collapsed without ever reaching a vote on the floor of the House or Senate.

Ever since, supporters of healthcare reform have mostly steered a wide berth around the insurance industry. But that truce is breaking down as politicians, in Washington and in state capitals across the country, begin wrestling again with the intertwined challenges of how to control costs, improve quality of care and provide health insurance to the nearly 45 million Americans without it.

All of those dilemmas force political leaders to grapple with a threshold question: What role should private insurance companies (which now provide coverage to almost three-fourths of Americans with insurance) play in the future of the healthcare system? The answers are coming back in three distinct categories: Regulate them. Liberate them. Or eradicate them.

The “eradicate them” school -- whose cause has received a boost from “Sicko,” the movie from agitprop filmmaker Michael Moore that opened Friday -- wants to replace private insurance companies altogether with a government-run, single-payer system. (That’s a system in which one single entity linked to the government contracts with doctors and hospitals and pays for all healthcare costs.)

The arguments about single-payer are familiar. One side says it saves money and improves care by eliminating the profit motive that drives the insurance industry; the other says it discourages innovation and causes long waits for treatment through shortages and bureaucratic delay.

For all the passion it evokes, the single-payer idea remains at the fringe of political viability. Though the cause energizes the left, the idea of the federal government completely replacing the private health insurance industry is so far outside the American experience that even the vast majority of health reform advocates consider it politically dead on arrival for the foreseeable future.

Agreeing with that analysis, the leading 2008 Democratic presidential candidates have all placed themselves in a second group: the “regulate them” camp, which would allow insurance companies to continue operating but under new rules.

The class of 2008’s ideas represent a clear evolution away from the strategy that President Clinton, in the plan designed largely by his wife, Hillary, developed for dealing with insurers. The Clintons’ universal coverage plan did not eliminate insurance companies, but it subjected them to extraordinarily detailed government regulation -- down to controlling their annual premium increases -- that would have converted them into something approaching public utilities. That prompted the furious industry counterattack that made stars of Harry and Louise.

This time, the leading Democrats are hoping to avoid such a direct collision, employing ideas “that allow a marketplace to [function] with some ground rules, as opposed to saying that government is going to make all the decisions,” said Ron Pollack, executive director of the liberal healthcare group Families USA. Barack Obama, Hillary Clinton and John Edwards, for instance, want to nudge insurance companies into investing more in prevention and programs to coordinate care of chronic disease (which could help contain costs over time) by requiring companies that sell policies in government-run purchasing pools to offer those services.

More provocatively, all three have proposed national rules that would bar insurers from denying coverage based on prior health problems. More provocatively yet, Edwards and Obama have proposed limits on insurance industry profits. And both (with Clinton likely to follow when she releases her full plan) have called for creating a government-run health insurance plan that would compete with the private insurers in what could function as a small-scale test of the single-payer approach.

“If in fact the insurance companies ... are trying to squeeze higher profits out of the system without improving quality, then over time people are going to opt out of those private insurance-based systems, and that is OK,” Obama said in a recent interview.

These ideas could force the insurance companies to compete less by selecting risk -- that is, trying to avoid selling policies to people with expensive health needs -- and more by producing better healthcare results at lower cost. The plans Gov. Arnold Schwarzenegger and Democrats in the Legislature are debating are designed along the same principles. “You would make money by delivering better outcomes ... so you can offer a premium cheaper than your competitor,” said Len Nichols, health policy director at the New America Foundation, a centrist think tank that has consulted with Schwarzenegger.

The leading 2008 Republican presidential candidates, meanwhile, fall into the third camp: They also want to restructure the insurance market, but they contend that “liberating” the companies is the best way to increase competition and ultimately reduce costs. None of the top GOP contenders have yet put forward specific healthcare plans. But all have signaled sympathy for this camp’s central argument, which maintains that the key to covering the uninsured is to reduce the cost of insurance by reducing regulatory mandates on the industry. Toward that end, the Republicans have touted ideas that would exempt insurance companies from rate regulation and state requirements to cover specific services, and that would allow insurers to sell their policies nationwide, thus bypassing state rules by a different route.

The 2008 Republicans are also embracing the liberator argument that Americans spend too much on healthcare because it costs them too little (at least directly). President Bush’s top healthcare priority has been to encourage a system in which Americans would buy insurance only for catastrophic expenses and cover much more of their day-to-day healthcare costs out of tax-favored accounts. Former New York City Mayor Rudolph W. Giuliani suggested that he will push even further in that direction when he said in a recent debate that “health insurance should become like homeowners insurance” -- used not for routine expenses but for serious emergencies, such as when the roof caves in.

So far, the health insurance industry has mostly kept its head down as these ideas have been discussed. It generally likes the Republican proposals to preempt state mandates (“We have to be permitted to offer affordable packages,” said Karen Ignagni, president of America’s Health Insurance Plans, the industry trade group.) And it is predictably dubious about the Democratic plans to require more investment in prevention and disease management (the industry is already doing so, Ignagni says) or to create a public insurance competitor to the private companies.

But the industry hasn’t denounced the Democratic ideas as it did Clinton’s heavier-handed plan. And it isn’t quite as sold as GOP politicians on the idea that an unfettered market that shifts more cost to consumers will inherently stabilize the healthcare system; Ignagni’s group has even joined with Pollack’s on a proposal to cover more of the uninsured through tax credits and expanded public programs.

Which means that the insurance industry may be a wild card in the next stage of reform. If it allies solely with Republican liberators, it could block all the plans of the regulators, just as under Clinton. But Democrats might be able to attract at least portions of the industry with a package that expands coverage for the uninsured (which, after all, means more business for insurers) while weaning the companies from the practices that generate the most backlash (like denying coverage to those who need it most). Schwarzenegger has already done something like that in California.

If America ever reaches universal health coverage, the solution probably won’t look like Canada, Britain or Cuba, the places where Moore finds inspiration in his film. But if Moore’s movie energizes the eradicators, that threat might encourage the insurance companies to cooperate more productively in crafting an American solution that blends public and private sector responsibility.

An American healthcare system without private insurance companies is (and probably should be) beyond the realm of political possibility -- but a system in which the companies contribute more to the solution than to the problem shouldn’t be.

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ronald.brownstein@latimes.com