Local Health Alliances to Hold Prescription for Power : Insurance: In Clinton plan, the agencies can set doctors’ fees and patients’ choices. Many questions remain about the omnipotent new system.

Something new in American life and politics--the local health alliance--will become the all-powerful umpire of health care, deciding on every fee for doctors and hospitals and determining how many choices consumers will have in picking health plans under the ambitious health care reform proposed by President Clinton.

A single Southern California alliance, for example, might have the unprecedented authority to license and certify the health plans available to all 14.5 million residents of the vast Southern California area.

“It’s not clear how directly accountable the alliances will be,” said Cathy Hurwit, legislative director for Citizens Action, a consumer organization long active in the campaign for health reform. “There are lots of questions.”

Clinton Administration officials said that the virtues of the White House plan are simple: Everyone should be covered, employers should not be able to restrict or eliminate health insurance and workers should not lose protection if they are laid off or suffer a devastating illness.

However, skeptics see the threat of the heavy hand of government: a single one-size-fits-all group of benefits, administered by an all-powerful agency answerable to neither voters nor the companies that will pay 80% of the tab.

Under the proposal, the thousands of different health plans now in place in American business would give way to a single, federally designed standard package of benefits, and the annual premiums would be controlled by a tough formula aimed to slow inflation.

California already has a health alliance, a fledgling voluntary system, the Major Risk Medical Insurance Board (dubbed “Mr. Mib”), which helps small employers with 5 to 50 workers purchase medical insurance at reasonable rates.

Since starting in July, it has enrolled more than 800 businesses with 9,500 workers and dependents.

It offers a selection of health maintenance organizations and preferred provider networks of doctors and hospitals.

But the board now is the tiniest of players in the California market, a gnat against the mammoths of the private sector, such as Blue Cross, Aetna, Kaiser, Blue Shield and Prudential.

If Clinton’s proposal becomes law, the health alliances would cover at least a single metropolitan area. In Southern California, for instance, separate health alliances might be formed for Los Angeles-Long Beach, with 8.8 million people; for Orange County, with 2.4 million; for San Diego, with 2.5 million, and Ventura County, with 669,000. Alternatively, the entire region could be consolidated under a single alliance.

The alliances could admit firms such as Kaiser and Blue Cross and Prudential as authorized health plans, provided they offer federally mandated benefits.

Under the White House plan, the alliances would be governed by a board of employers and consumers. The plan does not specify their size or how members would be appointed. Those details presumably would be left to the states.

Each alliance would sign annual contracts with authorized health plans, paying a fixed amount for each resident in the region with money collected from employers and employees.

Under orders from Washington, where a national health board would create a formula limiting spending increases, the local alliances would place strict controls on health plans.

In 1996, for example, prices would be permitted to rise by the general cost of living plus 1.5%. By 1999 and beyond, health providers would be held to the general rate of inflation. This would be a radical change--historically, medical costs rise at at least twice the rate of inflation.

“As long as competition is based on controlling costs and keeping quality, we’ll do well at our company,” said Leonard Schaeffer, chairman and chief executive officer of Blue Cross of California. “But the broader question is whether this new system is good for people.”

Under the Clinton proposal, the health plans must follow the orders of the alliance and obey its pricing limits. If the price-increase ceiling in 1996 is 4.5%, and a health plan finds its costs rising faster, it would have to become more efficient or curtail services.