Some Big Firms Line Up Against Health Reform

Even before President Clinton completes work on his health care reform plan, some of the nation’s biggest employers and insurers are already preparing to oppose it on grounds that it will create an unnecessary new government bureaucracy.

The most outspoken critics of the President’s approach include such large employers as TRW Inc., such major insurance companies as CIGNA and several key associations of employers and insurers, most of whom have been actively involved in efforts to restrain the nation’s health care costs.

As early proponents of reform, these are the very kinds of organizations that Clinton Administration officials were depending on to help sell the President’s managed competition plan to Congress and the American people.

On Wednesday, the President said he is still trying to iron out kinks in his health care reform plan. As a result, he said, the plan will not be unveiled in late June, as anticipated. He stopped short, however, of confirming reports that the announcement had been postponed until September.

Based on news leaks about the plan and private discussions with Clinton’s aides, some big employers and insurers have decided that White House health care planners have veered too far from the managed competition model for health care reform.

Instead of managed competition, these employers and insurers argued, the President’s plan would establish an extensive government bureaucracy akin to the Canadian-style, single-payer system of government-provided health care.

“We think it is a single-payer system in disguise,” said Lawrence P. English, president of CIGNA’s Employee Benefits Companies.

As it stands, the Clinton plan is expected to ask all Americans and their employers to purchase health insurance through quasi-governmental alliances established in every state. The insurance would be funded, in part, through a payroll tax paid to the alliance by employers and employees.

Not surprisingly, many large employers and insurers do not want to disrupt their existing business relationships to operate through a purchasing alliance. They are asking the Administration to allow them, instead, to continue doing business independently from the alliance.

“Many firms already are successful in doing what the Clinton Administration wants to achieve, which is to drive down costs and control spending,” said Michael J. McShane, manager of federal government relations for TRW. “Why would you want to break up something that successful?”

Although many employers share McShane’s view, not all of them are critical of the Clinton plan. In fact, Chrysler Corp. and the other auto makers, who devote as much as 20% of their employment costs to provide health care for an aging work force and retirees, appear to favor the Clinton plan.

Indeed, the Democratic National Committee is hoping to raise considerable amounts of money from these corporate donors for its campaign on behalf of the Administration’s health care package. DNC strategists hope that many companies, including those in the health care field, will donate funds either because they support the plan or are reluctant to get on the Administration’s bad side.

Walter Mayer, Chrysler’s director of federal relations, said the companies criticizing the Clinton plan want to be exempt because they have younger, healthier work forces that cost less to insure.

“That is bad public policy,” Mayer said. “It is precisely that idea of everyone looking out for their own interests that has led to the disintegration of the health care system in this country.”

The employers most critical of the President’s plan tend to be those that already have invested efforts in trying to trim health care costs by moving toward managed care, raising co-payments and deductions or driving a hard bargain with providers. They include members of the Employers Council on Flexible Compensation, such as Quaker Oats, Xerox, Procter & Gamble and Citicorp, all of which allow employees to design their own benefits.

Likewise, officials of several other big companies, including Allied-Signal, ARCO, IBM and AT&T;, are known to have been meeting informally in Washington in recent weeks to discuss their concerns about being forced to buy health insurance through purchasing alliances under the Clinton plan. Executives of two other big companies told The Times that they oppose the Clinton plan for similar reasons, but they declined to be identified.

For the same reasons, the Administration’s plan also has failed to win the support of the major insurance companies favoring reform, such as CIGNA, Aetna, Prudential, Metropolitan Life and Travelers. Ironically, these are the companies that have the most to gain from reform, which likely would drive many smaller carriers out of business.

For several years, these insurers and employers have advocated the managed competition model for health care developed by Alain Enthoven of Stanford University and other members of the so-called Jackson Hole Group. Under their model, small employers and individuals would join together in a health care purchasing alliance to buy insurance at favorable rates.

But the health care plan that the President appears to favor--also referred to as managed competition--more closely resembles a model advocated by Princeton sociologist Paul Starr and California health care expert Walter Zellman. It calls for all Americans to get their health insurance through a purchasing alliance, making those alliances powerful new agencies that can control health spending.

Insurers object to this model, in part, because it would give the health purchasing alliance tremendous authority to limit health care spending. CIGNA’s English predicted efforts to control prices would be a disaster.

“Price controls will freeze inefficiencies in place and drive away the capital investment needed to restructure the market,” he said. “Worst of all, they will not work. You cannot build a big enough bureaucracy to rule on the exceptions and you cannot hire enough price control police to uncover the creative means smart people would find to evade them.”

If all health insurers must sell their products through the quasi-governmental alliance, he said, they will “wind up being like a utility.”

Big employers object to the Clinton model because it would rob them of their ability to negotiate independently with doctors and hospitals for the lowest-priced care for their workers, as they do now. They said it would also stifle innovation in redesigning the health care delivery system that has lowered costs in recent years.

Ellen Goldstein, health policy director for the Assn. of Private Pension and Welfare Plans, which represents a wide range of firms with generous benefits, said Clinton wants big employers to pay for the new system without being able to influence how it operates.

To meet these objections, the big insurers and employers have asked Clinton’s health care planners to allow large companies to opt out of the health care alliances. Zellman, who is advising the Administration on health care, said earlier this week that their request is still under consideration. One possible option would permit firms with 1,000 or more workers to remain outside the alliances.

If the Administration agrees to it, however, the government likely would impose a stiff financial penalty on employers that choose not to participate--a penalty that might make the opt-out provision unattractive.

“Many large employees didn’t realize that health care reform would (affect) them as greatly as it will,” said Pam Bailey, president of the Health Leadership Council.