Politics of Health Care Reform: Market Magic, Bad Medicine

Against the Current, No. 37, March/April 1992

Colin Gordon

THE DEBATE OVER health care reform is a lot like the U.S. health care system itself Both encourage limited participation and both generate far more paper than results.

In late 1990, business anxiety over health care costs and a panoply of Congressional studies generated a flurry of interest in national health care reform, even national health insurance. While the prospects for real reform soon faltered (apolitical casualty of Operation Desert Storm), Harris Wofford’s startling run in Pennsylvania seems to have revived the debate Don’t hold your breath.

In the past year, the politics of health care reform have narrowed considerably. Employers have focussed on concessions rather than legislation. The administration has cluttered the debate with cosmetic reform and “cost containment.”

Congressional Democrats have backpedalled furiously—admitting that scoring debater’s points against the administration is one thing, but risking business patronage in an election year is quite another. And Republicans—having ignored the issue for months— scrambled to take the wind out of the Wofford postelection sails with a grab-bag of insurance regulation and tax reform.

Real and False Solutions

As 1992 approaches, political and corporate attention has drifted from the examples of Canada or Germany to a market-coated political placebo: “managed care” Before considering the implications of “managed care,” we should look a little more closely at the fate of more substantial solutions.

The most obvious alternative to the povertyof the U.S. health care systemcan be found north of the border. The Canadian system is atestamentto the viability of a complex and federated national health system.

In Canada, provincial governments, with financial assistance from the federal government, act as the sole purchasers and insurers of health care. Basic health insurance is usually paid through payroll deductions and often supplemented by employers, but it is not a job benefit All citizens participate in the same plan, their premiums based on a sliding income scale. For example, a single worker earning $20,000 a year pays $30 a month.

This standardized and universal system not only dampens the inflationary bias of for-profit care, but also streamlines its delivery. In U.S. hospitals, the billing department juggles the uninsured, the underinsured, and almost 1500 vendors of private insurance. In Canadian hospitals, the billing department opens its window for the occasional patient from the United States.

Academic, business, and medical conservatives, however, are quick to marshal problems in the Canadian system against any similar solutions south of the border. The American Medical Association (AMA) has charged that the Canadian medical system is technologically backward and slow to provide elective or non-emergency surgery.

The price of universal coverage, as the AMA implies, is that patients can no longer act as consumers in a glitzy inedical shopping mall, and must queue miserably in the equivalent of a Moscow bread line. This view, of course, flies in the face of any index of accessibility or health in the two countries, and is supported by anecdotal evidence from the far right of Canadian medicine and politics. (AMA conservatives lean heavily on the Ontario Libertarian Party and the Vancouver-based Fraser Institute.)

Somewhat inconsistently, the AMA also argues that a public health system would cost thousands of jobs in the private health industry—an argument aimed at job-conscious legislators, but with which medical reformers, who note that most of the present administrative costs are unnecessary, would agree.(1)

While there is more self-interest than scholarship behind this campaign, it has encouraged a general feeling that Canadian-style health care is too costly, too “egalitarian’ (as one health policy think-tank complains), and too difficult to enact Democratic Majority leader George Mitchell admits that he is loudly booed every time he tells his Maine constituents they can’t have a version of the Canadian system, which he considers a legislative impossibility (a comment on both the public mood and the state of American politics).

A loose coalition of medical progressives, union activists, and crusading legislators (including independent socialist Bernie Sanders and Democratic Representative Marty Russo) continue to lobby for a Canadian-style system. For business, the health care industry and the leadership of both parties, however, “health care reform” is a catchphrase for much more modest and cosmetic changes.(2)

The Play-Or-Pay Copout

Last spring, the Democrats proposed a “pay or play” solution to the nation’s health cam crisis “Play or pay” legislation would levy a punitive tax on businesses not providing health care and use the proceeds to insure the unemployed and the underemployed. Although “play or pay” has the support of the AFL-CIO and a number of key corporate interests, it is little more than a pastiche of Congressional opportunism and business anxiety.

Business sees the legislation as an escape from the fiscal and managerial burden of current and retiree care, as an alternative to triennial concession battles with organized labor, and as a means of shifting health care costs to small firms, competitors, and employees.

As national policy, “play or pay” shows little promise. The health care system would remain tied to private employment, leaving insured workers subject to the concessionary whims of their employers, and everyone else reliant on a ragged safety net of public care. A state-level “play or pay” plan recently went belly-up in Massachusetts.(3)

Given the contradictory motives and dubious promise of”play or pa legislation, the Democrats quietly backed off. Lookingfor fiscal credibility and business support in an election year, the Democratic Leadership Council (whose $2.5 million annual budget is covered by leading defense, insurance, tobacco, and energy firms) has encouraged the party down a path of “socially progressive fiscal conservatism.”

This oxymoron loosely translates intoawillinness totaIkabouttraditonal’ Democratic concerns without spending any money on them.

At the DLC’s May convention, business lobbyists, like good shareholders, voted alongside party members on policy resolutions. The self-conscious “white men in suits” wing of the party rejected any new spending on health care.

“The center of the issue, argued Bob Shapiro of the Progressive Policy Institute (the DLC’s think-tank), Is not the 33 million people who don’t have health care; it’s the 215 million who do?”(4) The Democrats, having pinned their electoral hopes on middle class frustration, are less interested in equitable and accessible health care than in smoothing the feathers of voters who feel that their existing coverage might be threatened.

Not only have the DLC’s poster boys—Paul Tsongas (self-proclaimed “pro-business liberal”), Bill Clinton (leader of the Sunbelt conservatives), and ex-candidate Douglas Wilder (an Un abashed fiscal conservative)—shunned the health care issue, but more progressive Democrats have also fallen silent. Despite substantial popular support for national health insurance, Democratic candidates still flinch at the shadow of “new taxes.”

Tom Harkin, perhaps the sharpest mainstream opponent of both Republicanpolicy and the DLC’s back-door Republicanism, has offered only the haziest suggestions of health care reform, financed (like everything else on Harkin’s shopping list) by reinvesting the elusive “peace dividend.”

Nebraska Senator Bob Kerrey, the only Democratic hopeful to flesh out a proposal for health care reform, seems to have put his foot in his fundraising wallet by speaking out on the issue. According to Business Week, Mutual of Omaha Insurance, Nebraska’s largest private employer, is not pleased.(5)

“Managed Care” Debacle

As November 1992 approaches, the golden rule of campaign support and constituency service encourages Democrats to slap away the hands that cast the ballots so they can shake the hands that write the checks. Potential presidential nominees seem particularly bound to the DLC’s generic Reaganism, but even local candidates must worry about the fiscal credibility of their upcoming campaigns.

The Pennsylvania Senate race may prompt many to reappraise the electoral utility of the health care crisis. But the Republicans are so easy to outflank on the issue that Democrats (following WoffoM) need only float the vaguest reforms. And at least in the eyes of centrists Democrats, such appeals will not play well outside the rustbelt.

The fallback position for both fiscally-anxious reformers and those who have no interest in reform whatsoever is “managed care? Long the darling of conservative academics, “managed care” promises cost-containment through “the introduction of marketplace logic.”(6) Some judicious tinkering would solve the health carecrisis without public expenditure and, so the reasoning goes, let the genius of competitive markets do for health care what it has already done for trucking, banking and air travel.

In recent months, this solution has been featured prominently in the pages of Business Week, Fortune, The New York Times, and The Journal of the American Medical Asstiation.(7) And it has allowed Democrats and Republicans to stump the health care issue without making uncomfortable promises.

The reasoning of “managed care” is quite simple Health care inflation is fed by the demands of doctors and patients who have no incentive to limit costs or care, and by third-party insurers who have no incentive to cover medical or monetary risks. Under “managed care,” patients would be grouped in geographical pools, and “sponsors” (insurers or large employers) would directly determine the costs and range of care.

Small businesses and the self-employed would purchase insurance from a public contractor which, by grouping such customers, would have the same market clout as large corporations. Private and quasi-public insurance pools would then drive the health care industry into a cost-conscious system of HMOs competing for big contracts. With costs driven down by competition, the government would be in a position to pick up the tab for those who fall through the cracks.

However appealing it may be as an academic exercise, “managed care” raises some serious political and ethical problems. Most striking, it treats health care, a cornerstone of the welfare state in all other industrial democracies, as a simple commodity which can (and should) be bought and sold like breakfast cereal or muffler repairs.

Sellers are pressured to reduce prices to attract consumers. Employers, who are paying for care but not receiving it, are unlikely to act as responsible brokers and have every incentive to minimize their purchases and shift the burden to employees. And individuals are scarcely in a position to play the shrewd consumer. As even Fortune admits, the consequences of personal, cost-conscious choices about present and future health are more serious than buying a bum computer.”(8)

Even more serious is the question of equity. Under ‘managed care,” health care providers would compete to drive down the price of a uniform product (much like standardized auto insurance), while the wealthy would be free to purchase additional services. In an effort to cut costs, providers would narrow the range of basic services, including many that the presently-insured middle class now take for granted. And employers—on behalf of their employees—would seek out the sparest and cheapest plans.

This would resemble less the private health care system reaching down to the uninsured or underinsured, than a skeletal and penurious medicare/medicaid system reaching up to encompass much of working poor and middle class.

“Managed care” would cement class distinctions in the health care system. Almost all the variations on the Hcompeti five model” build a national system on the quicksand of employment-based care.

This leaves the primary responsibility for organizing the nation’s health care in the bands of private employers. These employers are anxious to unshoulder even indirect responsibility for the uninsured, to “restore some discipline at the point of service” by making many services optional and prohibitively expensive, and to give hospitals “an incentive to squeeze out waste. “(9)

For employers, “managed care” will Mate costs and responsibilities under the pretense of expanding coverage. A health care system which is cheaper and broader, yet still driven by profits and organized through labor markets, will clearly come at the expense of those currently insured.

Bosses Like It

Critics of incentive-based reform need look no further than the piecemeal pursuit of “managed care” by a number of firms in recent years. In many respects, the academic model merely proposes a systematic adoption of the “managed care networks” which are now eroding employment-based health benefits.

Recent attempts by insurers to market “barebones” health plans to small business failed to attract any new customers despite complementary state and federal tax incentives.

Employers with established health care plans, however, have flocked to the standard of “managed care.” Such “managed care” networks demand higher deductibles, channel employees to company-sanctioned “preferred providers,” and often make care conditional on “wellness” provisions backed by systematic testing for drugs, alcohol, tobacco, and AIDS.

For workers, reform-through-incentives has already meant less care, and an unprecedented involvement of employers in the scope of care and the conduct of employees. Indeed, not since Prohibition have employers taken such a systematic interest in the conduct of workers outside the workplace.

Not surprisingly, the editors of Fortune attribute health care inflation largely to the “reckless pregnancies” of “welfare mothers,” alcohol and drug abuse, mental health care, and AIDS—burdens that could be weeded out through discretionary or conditional insurance.(10)

The business press has trumpeted the ability of “managed care” to rein in health care inflation, but dearly it only denies care to those most in need (and least able to pay) and shifts health care costs onto the backs of workers. And despite their material success, these plans have also created new problems.

Close involvement in the details of employee care has raised the specter of employers’ malpractice liability. The fetish of “managed care” has spawned a new industry of cost-review consultants. And organized labor has not confused reform with retrenchment, battling concessions at every turn. For these reasons, business would just as soon politicize the management of “managed care.”

Finally, and quite aside from its pointed inequity, “managed care” would be hard pressed to deliver its promised savings. Between twenty and twenty-four percent of health care spending in the United States is devoted to the overhead of a complex and sprawling system of billing and insurance.

Last spring the General Accounting Office admitted that the adoption of a Canadian-style national insurance plan (under which administrative costs run between eight and eleven percent) would save $75 billion a year–enough to cover all those currently uninsured.(11)

Yet both the piecemeal pursuit of “managed care” in the private economy and proposals for a national plan merely inflate the administrative burden. As Steffie Woolhander and David Himmelstein of Physicians for a National Health Program have pointed out, any public system of “managed care” would leave the existing health bureaucracy untouched and add another layer.(12)

Dismal Choices

The health care debate in the United States has narrowed to a range of dismal options. Some business interests continue to promote mandated “play or pay” care in the hope that someone else (taxpayers or competing businesses) will assume some of the costs. Increasingly, however, employers and politicians are looking at plans which restrict services rather than simply spread their costs.

In this view, the draconian solution to unequal health carera is the erosion of all existing benefits—a ce to the bottom which will slash government responsi bilities and business costs in the name of global competitiveness.

The catchwords “managed care” or “managed competition” run through business’ cost-containment tactics, the Democrats’ tightfisted reformism, and the Republicans’ cynical effort to bury the issue before November 1992.

This blithe faith in market-based reform reflects less a reasoned assessment of the health care crisis, than it does the stifling confines of American politics. Despite the palpable inequities of the American health care system—suffered by almost 50 million Americans with no regular source of care—recent calls for reform may merely provide business interests the opportunity to offer “management” in lieu of real reform.

Perhaps Wofford’s victory will inspire a renewed interest in curing the health care crisis. Given the bedside manner of Democrats and Republicans thus far, it seems more likely that Congress will prescribe a limited dose of “managed care” and hope that it at least quiets the patient until November.


  1. James H. Sammons (AMA) letter to New York Times 28 Ma 1989; “Debating Canadian Health Model, New York Times 29 June 1989; “Health Care in Canada,” Washington Post 18 Dec. 1989.
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  2. Andrew Kopkind, “Seizing the Historic Momeat,” The Nation 16 Dec. 1991,770; Colin Gordon, “Dead On Arrival: Health Care Reform in the United States,” Studies in Political Economy (i press).
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  3. CoHn Gordon, “Cosmetic Surgery: Health Care the Corporate Way,” The Nation 25 Mar. 1991,376-380.
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  4. 4. Quoted in The Economist 7 Sept. 1991, 25.

  5. Business Week, 1 April 1991, 37.
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  6. Fortune 1 July 1991, 43.
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  7. Fortune 1 July 1991, 43-59; Business Week 7 Oct 1991,58-66; New York Times V May 1991; JAMA: Journal of the American Medical Association 15 May 1991,2532-2536.
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  8. Fortune 1 July 1991, 49.
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  9. Fortune I July 1991, 58; Business Week 7 Oct. 1991, 60.
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  10. Fortune I July 1991, 45.
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  11. Adminisrative expenses from New Engjand Journal of Medicine 2 May 1991, 1253-1257; GAO report from New York Times 4 June 1991.
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  12. Woolhanderand Himmeistein letter to New York Times 13 August 1991.
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March-April 1992, ATC 37