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Executive Summary

A federal agency modeled on the Securities & Exchange Commission would collect data on health care plans, including their medical treatment outcomes, under the managed competition health reform proposal issued by the Democratic Leadership Council on Dec. 7. The proposal is outlined in one chapter of a book entitled "Mandate for Change," which is intended as a policy blueprint for the new administration and Congress and prepared by the DLC's think tank, the Progressive Policy Institute. Under the plan, consumers would choose among an array of health plans that are managed by a health insurance purchasing cooperative (HIPC). Only plans that meet federal guidelines, including data reporting, would be offered by the HIPCs and qualify for federal tax benefits. "In order to create better information for both consumers and health providers, the federal government would define a set of reporting requirements for health plans on such data as their use of resources, health outcomes and patient satisfaction," the book explains. This data "would not only help consumers make informed choices among health plans, it would also become a critical body of data in helping providers determine what procedures and technologies work best." The certified, or "accountable," health plans would "report the required information on a periodic basis to a new federal agency, just as competitors on our stock exchanges are required to report on their performance to the Securities and Exchange Commission," the document explains. "A private-sector panel would set reporting standards, just as one now sets accounting standards to ensure that corporate reports flowing to the SEC are comparable." The DLC and its book are receiving widespread attention because President-elect Bill Clinton was one of the DLC's founders in 1985. A quote from the incoming president is emblazoned on the front-cover of "Mandate for Change," lauding the plan as a "bold new course for reviving progressive government." The book's health chapter is authored by Jeremy Rosner, the institute's VP for domestic policy. The creation of an SEC-like agency seems intended to add a quality-of-care component to the managed competition plan. The DLC's proposal is not coupled with a global health care spending target or cap to hold down health expenditures. Global budgets have recently developed some currency among congressional Democrats (see related story, p. 9). While not directly addressing the global targets concept, the health chapter comments that "public budgeting" programs and cost- control efforts used by programs such as Medicare neither control the volume of services, "weed out" the "low value" health plans and services, nor avoid cost shifting. "Since most budgeted plans do not change the system's inflationary incentives, their effect would be like putting a lid on a boiling pot without first turning down the heat," the authors comment. The DLC maintains that much of the health care reform debate has been focused on a "false choice" between relying on "'the market' without fundamental reform," and relying on a government- run system. The DLC contends instead that the "proper role for government, on health care as elsewhere, is neither to let broken markets run amok, nor to replace the market with bureaucratic mechanisms that set prices and allocate resources. Rather, government's primary role should be to improve the market's ground rules in order to decentralize decision-making, spur innovation, reward efficiency and respect personal choice." Key principles in the DLC proposal include consumer choice, universal coverage, informed consumers, tax reform, insurance reform and state innovation. The DLC would ensure universal health care coverage by requiring that states must implement plans for such coverage by a specified date. States would have flexibility on the types of systems set up. Under the proposal, the acute-care portion of Medicaid would be abolished; but states would receive the same amount of funds as under Medicaid in order to subsidize the purchase of private coverage through HIPCs for the poor and disabled. "Federal waiver policies for both Medicare and the long-term care portion of Medicaid would be amended to create more presumption toward innovation. Ultimately, Medicare and Medicaid could be fully integrated in the HIPC-based system," the document states. To "promote scrutiny" of each state's approach, the federal government would annually publish state-by-state data on per capita health costs and outcomes. Many of the incentives/penalties for the health system restructuring would derive from changing current federal tax provisions related to health care. Under the DLC proposal, for example, employers could deduct health benefit costs only if they offer employees a choice of at least two accountable health plans and "contribute a fixed dollar amount for each employee's basic health coverage, regardless of which plan was chosen, with the amount not to exceed 100% of the lowest cost accountable plan in the region." This provision "ensures that consumers bear the full extra cost, or pocket the full savings of choosing a costlier or cheaper plan, and would steer employer contributions toward accountable plans," the book states. The DLC proposes that employer contributions would be newly treated as income to employees, and the current tax exclusion would be replaced by a refundable fixed tax credit for all households, "up to some maximum income level," providing the family was enrolled in an accountable plan. The DLC remarks that this approach would provide for a more progressive tax treatment of health costs. Taxpayers would be required to attach a certificate of health coverage enrollment to their federal tax returns. The HIPCs would be "intermediaries" between consumers and insurers and could not be health insurers themselves. HIPCs would have to meet certain federally-set minimum requirements and could be "quasi-public agencies, nonprofits and potentially could take other forms as well." Enrollees would choose their health plans each year, with a standardized package of minimum benefits to be designed by a national board. The HIPCs "would provide their customers with materials that describe the plans and their performance and act as the sole point of direct marketing allowed between insurers and consumers -- another provision essential to prevent [health care] plans from risk skimming." The annual selection process would be similar to the "open season" used by the federal government employees health program. The proposal includes a number of other provisions to ensure coverage, such as forbidding health plans from turning down applicants due to pre-existing conditions. Both the HIPCs and the SEC-like agency could "discipline" any health plans with practices aimed at avoiding higher cost patients. In addition to the federal employees program, "Mandate for Change" cites the health programs for state employees in California and Minnesota as embodying some of the DLC-advocated principles. The federal program has held insurance premiums increases to 12% annually during the 1980s, versus 14% for the private sector, it notes. The two states have held premium increases in the 6%-7% range after implementing reforms, versus double-digit inflation in preceding years. In a footnote, the authors emphasize the distinction between "managed care" and "managed competition." Managed care "refers to health care delivery systems that take steps to coordinate and oversee patients' use of care," the group explains. "Managed competition, in contrast, refers to the process of establishing a well-constructed market in which consumers can choose among competing health plans. While many proponents of managed competition believe that managed care systems would do well under such a system, the competition also could be open to other delivery systems, such as unmanaged fee-for-service systems."

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