Insurers Quibble With Reform's Details

PRESIDENT Clinton may have dropped the idea of a national health insurance system, but the nation's 1,500 private insurers are still tentative about the alternatives.

With annual health care costs rising at twice the rate of inflation, 37 million Americans uninsured, and another 100,000 losing their insurance each week, even the most conservative industry analysts admit that the status quo cannot last. The point of contention with the White House is how much change is needed, and how fast it should be implemented.

For the last five years, the industry has pushed a package of reforms that includes guaranteed access to health insurance, elimination of exclusions based on preexisting health conditions, support for managed care over the traditional fee-for-service model, and the creation of portable insurance, which would allow employees to carry insurance with them from job to job.

Some industry analysts say implementing these reforms, along with an overhaul of the government's Medicare and Medicaid systems, would be enough to bring the system under control. Other analysts are less certain.

"No one knows what would happen if we did those reforms and waited five years," says Edward Howard, president of Alliance for Health Reform. "The problem is we don't have five years. Health care costs are going up $100 billion a year, and the causes of the market inefficiencies are much more complex than cost shifting" - from Medicaid to patients with private insurance.

The Clinton proposal embraces the industry's reforms, but only as part of a comprehensive overhaul termed "managed competition." It would encourage health maintenance organizations (HMO), create consumer purchasing alliances, impose overall budget caps, and implement community rating.

"The devil will be in the details," says Richard Coorsh, spokesman for the Health Insurance Association of America (HIAA), that represents 270 insurers. "We want to see reforms that would allow market decisions to be made by the marketplace."

The most controversial point in Clinton's proposals is a budget cap. "If it comes out heavy on price controls we will not be supportive," says Gary Fendler of Aetna Insurance Company.

MR. Fendler argues development of managed care systems has already begun to stem the rate of cost increases. In a managed care arrangement like a health maintenance organization doctors and hospitals offer a range of services for a set fee. Fendler argues that budget caps would thwart a market system that has begun to heal itself.

The health insurance industry also has concerns with the administration's proposed "health alliances." These would be local boards made up of consumers, businesses, and health care providers that would bargain with insurers for the best package. They would act as local purchasing agents for businesses and consumers, who would have to buy their coverage from the alliances. Health insurers say they would limit competition.

"We think people demand choice, not only of their health care provider, but also in how they wish to finance their coverage," says Mr. Coorsh of the HIAA. He says his group would only support the alliances if private insurance companies could compete directly for consumers' business.

Another major point of contention is community rating. Currently, health insurance companies determine the cost of coverage based on a "risk pool." They analyze the age, sex, and overall health of a group and determine how risky it is to insure the group. As a result, large companies with lots of employees generally have lower rates. Small businesses and self-employed people often find themselves priced out of the market.

"We don't think it's fair to include the 30-year-old marathoner with the the 56-year-old two pack-a-dayer in the same rating system," says Neil Trautwein, director of governmental affairs for the National Association of Health Underwriters.

Advocates of community rating admit insurance rates for younger people have shot up, in some cases as much as 100 percent, in states that are experimenting with community rating.

"It's clearly a transitional problem," Howard says. "It argues for starting with [risk] bands and phasing them out. But the whole idea behind insurance is shared risk and shared responsibility, isn't it?"