Task Force Considers Caps on Health Policy Premiums

Urgently seeking ways to slow rising health care costs, the Clinton Administration is considering a limit on the amount of money insurance companies can charge for health policies, sources said Friday.

The idea, perhaps the most drastic one now on the table, is viewed as a mechanism for placing an overall ceiling on the nation’s health care budget--a controversial step that many of President Clinton’s advisers believe is the fastest way to contain health spending.

Although the proposal is short on details, it is gaining support within the White House Task Force on National Health Care Reform, according to sources familiar with the group’s deliberations.

Several insurance-industry officials acknowledged Friday that they have been told by Administration officials that a cap on insurance premiums is under consideration, looming as a major new element in the emerging debate.

And telegraphing the industry’s intention to vigorously resist such caps, one official warned that the move could drive many insurers out of business.

Members of the presidential task force, chaired by First Lady Hillary Rodham Clinton, view the proposed cap favorably for two reasons, sources said.

They believe a cap can retard the rising cost of health care by thrusting upon the insurers the toughest part of the job--forcing doctors, hospitals and other providers to curb their rates. Under the current fee-for-service system, the providers control spending.

Task force members also believe that by taking on the powerful health insurance industry--something President Clinton repeatedly vowed to do during the campaign--the White House can elicit broad popular support for a larger health care overhaul agenda.

For now, the cap on premiums is being viewed as a “backup strategy” within a package of insurance reforms. Those reforms would, for example, bar insurers from excluding people who have pre-existing illnesses and make it easier for people to take their insurance policies with them when they change jobs.

Clinton remains committed to providing health insurance to all Americans, but his advisers have told him that the revamped system he favors, known as managed competition, will further drive up overall medical spending for up to five years before any tangible benefits become evident. Costs would rise simply because more people would have access to health care than currently do.

Thus the task force and its technical staff of about 100 analysts and consultants are under intense pressure to come up with ways to bring medical costs under control quickly.

But even as the idea of imposing caps on premiums gains support within the task force, few members have details about how it would be carried out. “There’s a little bit everybody doesn’t understand,” said one congressional source who met with Mrs. Clinton and her top advisers when they visited Capitol Hill Thursday.

“The idea is very appealing. But the problem is how you do it,” the source said.

Another source familiar with the task force’s debate put it this way:

“The idea is: You develop a standard benefits package. You set the (premium) price at, say, $2,000 per person. Multiply that by the 250 million people in the system, and, bingo, you’ve got a global budget. And by limiting the price of insurance premiums--as opposed to prices that individual providers charge for each and every service--you greatly simplify the regulatory task.”

Such a system would be “much less cumbersome than trying to set prices on so many different services,” said Ed Howard, executive vice president of the Alliance for Health Reform, a nonprofit group that promotes understanding of health care issues.

“Politically it makes a lot of sense to look at it, especially if you are going to go the regulatory route,” one analyst added.

An insurance industry official conceded that a cap on premiums may be the “easiest way” for government to control health care costs, but cautioned: “This is one notion enjoying currency right now, but the debate is long from over.”

Under managed competition, Washington would establish rules that lead to the pooling of businesses and individuals into large purchasing networks with sufficient economic clout to demand--and get--reasonably priced services of top quality.

Managed competition purists believe the concept is incompatible with global budgeting, which refers to the setting of an annual budget for total national spending on health care.

But President Clinton is known to favor a hybrid system that combines both features.

And one well-connected analyst Friday described the cap on insurance premiums as “the principal idea of how to marry managed competition and global budgeting.”

Even so, analysts said, the task force needs to consider many more details before making any final decisions.

“This issue raises an enormous number of technically difficult questions,” said analyst Richard I. Smith of the Washington Business Group on Health, a lobby organization for large private and public employers. Among them is how to account for age and regional differences in setting a ceiling for premiums--especially when the entire health care system may be undergoing transformation, he said.

Carl Copp, insurance industry analyst for Conning & Co. of Hartford, Conn., predicted that a cap on premiums would drive many insurers out of the business of providing health coverage, adding that such a cap would have the same impact on insurance companies as state-mandated rates have had on auto insurance. In those states that have mandated rates, many insurers have simply stopped writing policies.

Other insurance industry officials said providing health coverage already is one of the least profitable types of insurance, arguing that simply capping premiums would do nothing to dampen the underlying causes of rising health care costs.

But Bill Custer, research director of the Employee Benefits Research Institute, said the Administration probably would depend upon a premiums cap to limit costs only in the short term. In the long term, he said, the underlying costs could be dampened through universal coverage under managed competition.

Times staff writer Robert A. Rosenblatt also contributed to this story.