How to solve the health care dilemma.

• Author: Schnepper, Jeff A.

PRES. BILL CLINTON'S domestic Rubicon could be the red river of increasing health costs. At his pre-inaugural economic conference, he suggested that radical health care cost control, not pro-growth investment policies, must be the centerpiece of his domestic program. "We are kidding each other ... if we think we can fiddle around with entitlements and all this other stuff and get control of this budget, if we don't do something on health care. It's a joke. It's going to bankrupt the country."

Several proposals have been made to reform the U.S. health care system. One favors the play-or-pay version, whereby employers either could purchase private coverage for their employees or pay a flat payroll tax to a public authority that then would buy private or public insurance for the employees.

Another, introduced by Rep. Benjamin Cardin (D.-Md.), a member of the Ways and Means health subcommittee, favors controlling spending through national budgets set by a Federal board. He would create a national commission to establish limits on overall health care expenditures, apportioned among the states. This approach would allow them the flexibility to decide how health care delivery services would be structured and payments allocated.

An alternative plan was proposed by Rep. Jim Cooper (D.-Tenn.), who advocates a market-based approach relying on strong tax incentives to create a system of competitive Super HMOs. Under his plan, Accountable Health Plans (AHPs) would be formed by encouraging health care providers and insurers to combine into single entities resembling current health maintenance organizations, although some plans may choose to retain fee-for-service reimbursement. To encourage providers to form these partnerships and for employers to use them, the Cooper proposal would limit the amount any business could deduct for health insurance premiums to the cost of the lowest-priced. AHP in the region. AHPs would have to offer a standard benefits package and would compete for subscribers on the basis of cost effectiveness, not risk selection.

This play-or-else proposal would mandate that all employers offer their employees private health insurance. Employers would take bids from competing health care networks of doctors and hospitals. The administrative process by which these networks control internal cost is managed care. The formal regulatory structure that would force the networks to compete is referred to as managed competition. This proposal...