In Big-Time Health Care, Room for Compromise

Big business last week opposed President Clinton’s health care reform plan because it would use government price controls and regulations to reduce medical costs.

Small business is extremely suspicious of the Clinton plan because it would impose mandates on all employers, including store owners with a few helpers, to provide health insurance for their employees and pay 80% of its cost.

And the Clinton plan, drawn up under the leadership of First Lady Hillary Rodham Clinton, would determine total U.S. medical costs, region by region, through limits set by a National Health Board appointed by the President.

Is there a time warp here? Are the Clintons and their health care planners characters left over from a Soviet Politburo? Not really, although the Clintons believe in state power to regulate health care reform much more than does the business community.

But the Clintons also recognize something that the business community doesn’t talk about: That medical care in America, in going from a cottage industry of doctors’ offices and small and large hospitals to a business in which only big organizations can play, is becoming an oligopoly. That’s a big economic word that Webster defines as “control of a commodity or service in a given market by a small number of companies or suppliers.”

That’s a trend to be watched but it’s also inevitable. To handle more patients and deliver care under tighter cost guidelines, hospitals and medical practices and health maintenance organizations have been merging for years.

And the trend to bigness will continue whether the Clinton plan or an alternative proposed by Representatives Jim Cooper (D.-Tenn.) and Fred Grandy (R.-Iowa) or some combination of both becomes law.

In the present controversy we need to see where the Administration is on the right track and where it isn’t, and what intelligent compromise would bring truly beneficial health reform when the issue nears a vote in Congress in September.

First, let’s look at the health business, which is quite profitable these days. Insurance companies such as Prudential--whose chairman, Robert Winters, wrote last week’s Business Roundtable opposition to the Clinton plan--Aetna, Cigna and others, are doing very well. Health insurance profits in some cases are up 80%.

The reason is insurers are passing on the risk to health care providers and to the patients. That’s what happens every time the insurer tells a doctor it will cover only so much surgery, or tells the patient it won’t cover a certain treatment.

The business has shifted to managing risk rather than underwriting medicine on demand as used to be the case.

But premiums haven’t come down appreciably, and the Clinton Administration sees markets being distorted. So it threatens to limit premiums. The Administration also talks of regulating drug prices, believing that controls will hold down prescription costs.

However, the real effect would be to make medicine a utility like electricity, gas and local telephone service. “If you set prices in an industry, then you have to allow rate of return on investment and also eliminate competition,” notes Viren Mehta of Mehta & Isaly, a New York investment firm that specializes in the pharmaceutical field. “Utilities don’t often lower costs,” he adds.

Big companies, already lowering their own costs by making employees shoulder higher co-payments on care, don’t want to see a medical utility system, and they’re right. Innovation and unforeseen competition are much better than regulation at keeping oligopolies in line--witness what MCI did to the old AT&T;, or international competition did to the U.S. auto industry.

“Changes will come about as large organizations in the health market compete for patients, and technology and individual preferences come into play--Americans of Asian descent will seek out different types of physicians than Hispanic Americans,” says Dr. Schumarry H. Chao, a Los Angeles physician who is now a consultant to business.

Small business fears are different, and less justified in some cases. Today 98% of companies with more than 100 employees provide health coverage, and more than 70% of companies with more than 10 employees offer coverage--although not all pay for it. However, among the 3.5 million smallest firms--offices, workshops and stores--73% do not offer coverage for their employees. They face a hit.

But since there is no free medical care, we might ask who has been paying for their employees--who make up almost half of the 37 million uninsured Americans? The answer goes to the heart of the crisis in U.S. medical care.

Treatment for uninsured patients is paid for by shifting costs to the fully insured, typically 20% more on hospital bills, say medical experts such as Kenia Casarreal, a Los Angeles consultant who has worked with hospitals and large corporations.

Also, the uninsured go to emergency rooms for ordinary care, where the bill--paid for by taxpayers or fully-insured patients--might be $500 to treat a child’s stomach ache.

Those excesses would be eliminated if all Americans were brought under health insurance, so the cost of universal coverage would not be that large. By some estimates, total U.S. medical costs would rise by less than $50 billion in 1994 if universal health coverage were put in effect today.

That’s only a 5% increase in the country’s $900-billion annual health care bill. And long-term savings could follow from a healthier population as all Americans enjoyed a basic level of care.

So the Clintons are right to demand that small business offer insurance to employees. The argument is over who pays and how much--the boss or the workers. It’s an argument colored by unhelpful attitudes. Hillary Clinton’s widely quoted remark in testimony last year that “I can’t be expected to save every undercapitalized entrepreneur” reflected the disdain of a Washington elite toward ordinary business people.

Yet the small business owners’ stance that their employees’ health care should be financed by big business and taxpayers doesn’t make sense either.

An intelligent compromise would be for employers and employees to negotiate how they’ll split health premiums, with protection and public subsidy for the poorest workers.

That way individual good sense could come into play. Ultimately, if we acknowledge that neither government nor business has all the answers or the virtue, the country might get a better-financed health care system.