An Analysis of Senator Hillary Clinton’s Health Plan Proposal by Robert Laszewski

This is nothing like the Clinton Health Plan from 1993.

Senator Clinton has so far been running a smart campaign for President — at least on the policy side — and her health care reform strategy is no exception. She waited until after all of the leading Democratic, and most Republican, candidates had announced their plans and then stuck her plan right in the ideological middle of where her Democratic opponents put theirs. It also looks a great deal like a bipartisan plan enacted in Massachusetts and a bipartisan compromise in the works in California. So on the day it was released, it was correctly identified as being relatively centrist.

Predictably, Republicans tried to wrap 1993 and her failed health care reform effort
around her new offering. But their attempts to resurrect memories of
her catastrophic policy failure fell flat more often than not.

Former Massachusetts Governor Mitt Romney is a case in point. Before the day was up, Romney was on camera calling her new health plan, “Hillary Care.” But Senator Clinton’s plan is a virtual clone of the new Massachusetts health care law then Governor Romney signed and that he continues to say he is “proud of.”

So, Mrs. Clinton is out with a plan that looks very much like the new reform effort a leading Republican candidate signed into law.

Not something that would have occurred in 1993.

Reaction in the business community was also encouraging for Senator Clinton. The National Federation of Independent Businesses (NFIB) was an organization that had an outsized impact on defeating the 1993 effort because of the small business mandate that plan included.

Mrs. Clinton learned from that lesson—this time not including a small business mandate to buy insurance for their employees but including a very generous tax credit for those who do. As a result, an NFIB spokesman responded to the new Clinton plan release about as enthusiastically as the Clinton camp could have hoped for, “One of the standout features of this is it specifically looks to help small business owners, and that’s a good thing.” Now that’s a 360-degree turnaround from the group whose grass roots lobbying against the 1993 Clinton Health Plan was nothing less than devastating.

Even the health insurance industry trade association responsible for those famous “Harry and Louise” ads, also seen as key to defeating the 1993 plan, was cautiously supportive. The AHIP CEO said, “The new Clinton plan includes important ideas to make coverage more affordable.” But there was also a reference to all the very anti-insurance company rhetoric we have been hearing from Senator Clinton recently, “unfortunately some of the divisive rhetoric seems reminiscent of 1993.”

Many worry that this is just the old Clinton Health Plan and the old Hillary Clinton in election-year “sheep’s clothing.” There is some reason to worry about that.

In 1992, Bill Clinton’s campaign health plan drew from the pro-market “Managed Competition” proposals that mixed government incentives with free market health care that built on the private insurance markets.

But within days of taking office, President Bill Clinton announced that Hillary Clinton would chair a health care task force that ended up crafting a 1,400 page plan developed in secret that looked nothing like his campaign platform.

This one-and-a-half page Clinton Health Plan is clearly nothing more than a campaign-year outline of principles. By itself, that is generally what campaign-year policy proposals are.

Any piece of legislation reflecting this outline would run into the hundreds of pages—so there are lots of details left to be filled in.

On the one hand, that gives a new Clinton Administration lots of opportunity for mischief.

However, one of the very big lessons an inexperienced Mrs. Clinton came away with from 1993 was that you couldn’t craft a comprehensive piece of legislation at the White House and simply deliver it to the Congress.

Every successful President has learned that the best way to do policy is to stand for a clear set of principles, use the “bully pulpit” of the presidency to create the political imperative for action, and then stand back and let the Congress do the details of crafting the legislation.

Mrs. Clinton is not running for emperor. She won’t be the one doing the details in any successful health care reform effort—it will be the Congress with all of its checks and balances and special interest influence. It will be the “sausage factory,” not the White House that will fill in all the blanks.

But Mrs. Clinton has proposed an outline for reform that has a great deal of centrist support in the country.

While the Republican candidates for president have a different approach—one that builds on a more vibrant health care and health insurance market—that philosophy’s time seems to have passed. President Bush had six years with a Republican Congress. While he scored impressive private market victories with the Medicare Modernization Act of 2003—which created Part D and Medicare Advantage—as well as health savings account legislation (HSAs), that purely private market approach now appears to have given way to the approach that was enacted in Massachusetts and a number of states are now considering—not the least of which is California.

If a Republican is elected president next year, he will likely face a Congress more interested in the approach Senator Clinton favors than expanding HSAs further.

Only if Republicans regain both the White House and the Congress will the market-based approach most Republicans favor have a chance of going any further. It doesn’t look like a Republican sweep is in the offing.

Let’s take a closer look at Senator’s Clinton’s $110 billion health care plan (her estimate) using her campaign’s outline—keeping in mind that the details of any final bill would eventually be filled in more by Congress than the White House:

1.    Offer New Coverage Choices for the Insured and Uninsured:  The American Health Choices Plan gives Americans the choice to preserve their existing coverage, while offering new choices to those with insurance, to the 47 million people in the United States without insurance, and the tens of millions more at risk of losing coverage.

  • The Same Choice of Health Plan Options that Members of Congress Receive: Americans can keep their existing coverage or access the same menu of quality private insurance options that their Members of Congress receive through a new Health Choices Menu, established without any new bureaucracy as part of the Federal Employee Health Benefit Program (FEHBP). In addition to the broad array of private options that Americans can choose from, they will be offered the choice of a public plan option similar to Medicare.
  • A Guarantee of Quality Coverage: The new array of choices offered in the Menu will provide benefits at least as good as the typical plan offered to Members of Congress, which includes mental health parity and usually dental coverage.

This is the “something for everybody” section.

Her plan would put the federal government in the health plan marketing business by creating a new version of the FEHBP menu of options that would be available in the private market. This would also be very similar to the Massachusetts “Connector” that takes bids from health plans that must qualify with the regulator and offer minimum benefits.

It is also clear that she would set a comprehensive minimum benefit threshold in the FEHBP-like program equal to the level of benefits offered in the existing FEHBP program—that does include an HSA program.

While it appears that the individual market would continue, and people who have individual coverage could keep it, this would put the FEHBP-like program in direct competition with that market segment. It would appear that consumers could continue to purchase limited or high deductible plans on their own in the individual market. However, she is also proposing an individual mandate, which will have to set a minimum benefit level. In Massachusetts that provision disqualified 150,000 existing policies—many because of high deductibles.

This provision vaguely resembles the Health Insurance Purchasing Cooperative (HIPCs) of the 1993 plan where Mrs. Clinton called for far reaching regulation over how health plans were sold, how they were priced, and what they looked like. She has carefully steered clear of so far reaching a proposal this time and it is doubtful that the Congress would make this version anything close to that failed model.

Mrs. Clinton would also put the federal government in direct competition with private health insurance industry by creating a Medicare-like government-run plan.

This provision gives all sides in the debate something. The single-payer advocates get a Medicare-like plan in direct competition with the private market and a chance to push the private plans out of existence. Those that favor a vibrant private market full of choices arguably get that.

Just where the balance is ultimately struck between government-run health insurance and free market health insurance, depends heavily on the details. For example, would the government plan have the power to unilaterally set provider prices—including drugs?

As long as it’s a fair competition, neither side should have anything to complain about—but then gaining an advantage for their clients is what lobbyists do for a living.

If nothing else, there would be a direct competition between a Medicare-like plan and the private market. So long as that turned out to be a fair head-to-head competition it would tell us a lot about which is the best track to follow and one, public or private, might eventually come to dominate the other.

2.    Lower Premiums and Increase Security: Americans who are satisfied with the coverage they have today can keep it, while benefiting from lower premiums and higher quality.

  • Reducing Costs: By removing hidden taxes, stressing prevention and a focus on efficiency and modernization, the plan will improve quality and lower costs.
  • Strengthening Security: The plan ensures that job loss or family illnesses will never lead to a loss of coverage or exorbitant costs.
  • End to Unfair Health Insurance Discrimination: By creating a level-playing field of insurance rules across states and markets, the plan ensures that no American is denied coverage, refused renewal, unfairly priced out of the market, or forced to pay excessive insurance company premiums.

Presumably the “hidden taxes” are the administration costs she would hope to cut by simplifying the sale and underwriting of health insurance as well as moving the system toward a greater use of information technology—including a patient medical record and investing in disease prevention. While it is likely these steps can save money, the market has been moving to improve health information technology for years and has found that process slow going and very expensive in the short term. The market has also invested heavily in wellness and disease management programs over the past 20 years with only modest success toward controlling healthcare costs.

By mandating that all Americans have coverage, Mrs. Clinton hopes to have virtually everyone in the insurance pool. By doing that, she would eliminate the need to have the barriers to coverage that currently exist to protect the insurer against anti-selection and those now uninsured would get the treatments and preventive services that are necessary to keep costs down over the long run.

But this is also the place reality may have to confront hope.

We cannot have everyone in the pool if it is not affordable upfront for people to buy in.

Massachusetts started out with an individual mandate but quickly backed off on it when it was clear the program could not provide affordable coverage for everyone—particularly those who make too much money to qualify for a subsidy (or an adequate subsidy) and too little to afford family health insurance costs that still run in the $7,000 to $9,000 range for a family policy with a $2,000 deductible.

all comes apart if the subsidies are not adequate to make it affordable
for people to buy coverage. How do you mandate a family to do something
they just don’t have the money for?

She did not address the status that illegal aliens would have in her system—a highly contentious issue.

3.   Promote Shared Responsibility: Relying on consumers or the government alone to fix the system has unintended consequences, like scaled-back coverage or limited choices. This plan ensures that all who benefit from the system share in the responsibility to fix its shortcomings. 

  • Insurance and Drug Companies: insurance companies will end discrimination based on pre-existing conditions or expectations of illness and ensure high value for every premium dollar; while drug companies will offer fair prices and accurate information.
  • Individuals: will be responsible for getting and keeping insurance in a system where insurance is affordable and accessible.
  • Providers: will work collaboratively with patients and businesses to deliver high-quality, affordable care.
  • Employers: will help finance the system; large employers will be expected to provide health insurance or contribute to the cost of coverage; small businesses will receive a tax credit to continue or begin to offer coverage.
  • Government: will ensure that health insurance is always affordable and never a crushing burden on any family and will implement reforms to improve quality and lower cost.

This section is probably the lynchpin in her plan’s ability to succeed.

Insurance companies will gladly drop all of the front-end underwriting activity in exchange for a guarantee that everyone will be in the pool. This makes one wonder why Senator Clinton feels the need to continue demonizing the insurance industry. Her plan gives the private health insurers the potential to sign-up 47 million more customers in a market where they can’t be selected against.

Her comments about the pharmaceutical industry need a lot of clarification. Just what does she mean by “fair prices.” She has previously come out in favor of the federal government directly negotiating Medicare Part D drug prices and drug “reimportation.”

Her statement that individuals will have to buy health insurance because her plan will have made it affordable is probably the biggest challenge. How will she be able to mandate affordable health insurance costs when the average cost of employer-sponsored family coverage is already up to $12,000 per year? Aligning adequate subsidies with the mandate to buy coverage is the big one. If the plan fails to do that, we will still have plenty of uninsured, continued cost shifting, and presumably people who can’t get coverage when they get sick because they didn’t buy when it was first available to them.

This one takes the prize for the most naïve line in the plan: “Providers: will work collaboratively with patients and businesses to deliver high-quality, affordable care.” Oh really? Just what makes her think the biggest challenge in the health care system, aligning provider and payer interests, is suddenly going to be a snap?

The employer mandate has been much more carefully crafted this time. It is not clear where the small employer versus large employer break comes but comments from her campaign indicate that it is at 25 employees. So, all employers with, presumably, more than 25 employees will have to “play or pay.”

We also don’t yet know what businesses that don’t provide coverage will have to pay. In the California plan just passed by their legislature, those employers who do not provide coverage would be required to pay a 7.5% payroll tax.

While most large employers already offer coverage and will welcome other employers having to pay their share of these costs, setting the cut-off line at 25 employees may still be problematic for many small companies that have more that 25 workers.

But, by exempting small employers, she has effectively neutralized the small business lobby that had such a major role in killing her plan last time. The subsidies she would also offer these small employers have also helped with that special interest group. However, there is no information on just how helpful these subsidies would be. But give Mrs. Clinton credit for recognizing that small employers, a powerful engine in economic growth, can’t be mandated to pay these costs.

Her line, government “will ensure that health insurance is always affordable” may be more hope than anything.

I would label her plan access heavy and light on cost containment. To contain costs, she would focus on prevention, health information technology, care for the chronically ill, ending the cost shift from the uninsured, saving on insurance administrative costs by improving marketing and cutting underwriting expenses, creating a “best practices institute” to reduce wasteful medical spending, and implementing “common sense” (read that trial bar friendly) medical malpractice reform.

These high-level cost containment proposals are all good ideas. But almost all of them have been underway in the health insurance markets for two decades now and they have not more than blunted health insurance costs that have grown at three to four times the country’s economic growth over the last 20 years.

The biggest issue this plan faces is creating affordable health insurance/affordable care. Without that, we will just have the problems that Massachusetts is facing today as it falls far short of universal access.

How do you enforce a mandate if comprehensive family health insurance costs $12,000 a year? If you think that number is too high for a reformed system, just take a look at Massachusetts or current FEHBP coverage. You can’t mandate comprehensive coverage along the lines of the FEHBP plan and expect that the costs are going to be anything less than what the typical FEHBP plan offering costs today–an FEHBP that already have guaranteed insurability and the more efficient distribution model Mrs. Clinton is proposing.

But then maybe Mrs. Clinton already knows that. I have long believed that fundamental American health care reform will come in two parts. Access first, then when everyone is in an unsustainable and unaffordable system, it will create the political imperative for real cost control in a second phase a few years down the line.

4.    Ensure Affordable Health Coverage for All:  Senator Clinton’s plan will:

  • Provide Tax Relief to Ensure Affordability: Working families will receive a refundable tax credit to help them afford high-quality health coverage.
  • Limit Premium Payments to a Percentage of Income: The refundable tax credit will be designed to prevent premiums from exceeding a percentage of family income, while maintaining consumer price consciousness in choosing health plans.
  • Create a New Small Business Tax Credit: To make it easier—not harder—for small businesses to create new jobs with health coverage, a new health care tax credit for small businesses will provide an incentive for job-based coverage.
  • Strengthen Medicaid and SCHIP: The Plan will fix the holes in the safety net to ensure that the most vulnerable populations receive affordable, quality care.
  • Launch a Retiree Health Legacy Initiative: A new tax credit for qualifying private and public retiree health plans will offset a significant portion of catastrophic expenditures, so long as savings are dedicated to workers and competitiveness.

Senator Clinton defines affordability in political terms—the upfront cost of the insurance plan to the voter. Real affordability is the underlying cost of any insurance plan, of health care generally, and her cost containment strategy falls well short on what it will take to accomplish that.In her plan with something for everyone, she picks up on the idea of creating a refundable tax credit, popular among Republicans, to make it possible for families to be able to afford health insurance. Here again, the "devil is in the details." As we are seeing in Massachusetts, the subsides are nowhere near good enough for those between 200% of the poverty level and those rich enough to pay the prices.She also makes Republicans happy with her line, “while maintaining consumer price consciousness” when a health plan is chosen. While vague, this is a concession to those favoring a defined contribution approach to personal responsibility.With health care costs growing at two to three times the growth in our economy, and likely to continue to grow at close to those levels given her light approach to cost containment, how long will it be before health insurance costs outstrip any subsidy program?Her scheme to subsidize health insurance costs (limiting premiums as a percentage of income) is a great way to assure consumers that they will have affordability. The bigger question is just how much money will she need on day one to do that and how will she be able to sustain that strategy with such a light cost containment program?Her “Retiree Health Legacy” proposal will come as welcome news to America’s legacy industries, and state and local governments, that cannot afford to keep their retiree health promises. Labor unions will love the requirement that any benefit from government help has to find its way to workers. This proposal recognizes the enormous cost to bail out the unfunded retiree health care liability that is crippling American industry in global markets. But again, there is no “free lunch” here. To make any bailout affordable, even the federal government can’t continue to subsidize these incredibly rich benefits at current levels. That Mrs. Clinton does not deal with.

5.      A Fiscally Responsible Plan that Honors our Priorities:

  • Most Savings Come Through Lowering Spending Due to Quality and Modernization: Over half the savings come from the public savings generated from Hillary Clinton’s broader agenda to modernize the health systems and reduce wasteful health spending.
  • A Net Tax Cut for American Taxpayers: The plan offers tens of millions of Americans a new tax credit to make premiums affordable—which more than offsets the increased revenues from the Plan’s provisions to limit the employer tax exclusion for healthcare and discontinue portions of the Bush tax cuts for those making over $250,000. Thus, the plan provides a net tax cut for American taxpayers.
  • Making the Employer Tax Exclusion for Healthcare Fairer: The plan protects the current exclusion from taxes of employer-provided health premiums, but limits the exclusion for the high-end portion of very generous plans for those making over $250,000.

“Most savings come through lowering spending due to quality and modernization.” That is her most dangerous assumption.

This is a political proposal after all. And like any good political proposal, it is careful not to “gore” any political “oxen.” Her cost containment program is cost containment light because she fears alienating any key stakeholders—like the providers. You can’t lower, or even stabilize costs, without key players getting less than they would have had.

But real cost control might doom her plan. That’s why I continue to believe any successful health reform plan will come in those two parts: Access first, and when the new access skyrockets costs even further, cost containment next.

Her promise for fundamental reform without pain continues in her assertion that only the rich are going to have to pay for this. Dream on.

Finally, she picks up on another Republican idea (choice, consumerism, tax credits being others) to limit the employer tax exclusion on health insurance costs but she only applies it to those who make more than $250,000 a year. By doing so, she is giving a nod to conservatives who argue that the present system of tax exclusions on health insurance have encouraged health plans to provide rich benefits that have contributed to high health care inflation.

But by changing the exclusion only for the those making more than $250,000 a year, she has bowed to labor pressure not to break the employer/employee compact on health care benefits for everyone else.

Good Politics and Centrist Health Care PolicyThe other day I referred to Mrs. Clinton’s new health plan as centrist. A long-time Hillary Clinton critic was indignant that I would label Mrs. Clinton a centrist.

I pointed out that I wasn’t referring to Mrs. Clinton generally—I was referring to her health plan. I’ll leave the rest of that to your judgment.

The center in American health care politics has moved since 1993. With average costs up to $12,000 a year for an employer family plan, people are really worried not just about access but also about health care costs. They see the system as close to crashing and they’re worried.

Centrist voters will generally find this proposal as reasonable.

Those on the right of center will continue to see it as just more government intervention in health care—“Hillary Care.”

Those on the left will say she caved-in to special interests giving stakeholders like the health insurance industry too much–which may explain her anti-insurance rhetoric, that is so much worse than her policy proposal, as a way of deflecting that criticism.

American elections are won in the middle. She wasn’t ever going to get those on the right to vote for her. Who else will those on the left have to vote for?

The polls universally tell us that health care is the top domestic issue.

Politically, if she wanted to come out solidly where the middle is today on a critical issue, tackling what is possible, it looks like she got it about right.

But, this is a political proposal. As policy, it is a page-and-a-half that creates more questions then it answers.

For the Republicans to take the high ground here, they are going to need to do more then walk into a room and yell, “Hillary Care”––expecting that everyone is going to run from the room in terror.

Whatever she may be thinking deep down in her psyche, she is clearly not acting like the Hillary Clinton of 1993.

Must be driving her enemies nuts.

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4 replies »

  1. When it come to health insurance, the plan that would hurt our economy the least is Hillary Clinton’s plan. Everyone would have health insurance. WA, NJ, NY and a few other states who have already tried Obama’s proposed health insurance plan of not mandating coverage. These states have driven out of the better insurance companies. When anybody can get health insurance without having to go through medical underwriting, people won’t get coverage until they absolutely need it. Usually because of a serious illness. This causes health premiums to sky-rocket. That’s because insurance companies are only paying claims for unhealthy people. The plans in these states tend to not be that great either. If everyone has health benefits, the premiums would be less because healthly people would factor in on determining the premium.

  2. Great analysis Matthew with the addition of the hard to face reality of the affordabilty elephant in the room that most people prefer to ignore.
    Any system that gets support from the healthcare industry and small business will not work at also providing affordability and controlling costs for individuals. We are now finding out what gutless politicians who avoid contentious issues and a greedy health industry leave for future citizens to clean up and ultimately pay for. There is no free lunch.
    I for one will not be mandated into a corrupt and expensive system where maintaining special interest cash flow and profits in return for suppport is the backbone of the plan.
    In this case Obama’s plan looks best. But I don’t think any plan that actually controls costs and provides universal access will succeed yet and agree with Matthew: “But real cost control might doom her plan. That’s why I continue to believe any successful health reform plan will come in those two parts: Access first, and when the new access skyrockets costs even further, cost containment next.”
    There’s not enough pain yet.

  3. Thank you for this very informative analysis!
    I’m a consumer, who has a primary doctor with whom I am very satisfied; I’m also very pleased w/ the specialists to whom she has had occasion to refer me.
    So I’m wanting to know about burdens that the Clinton(s) and Obama plans will put on providers and/or on patient/physician relationships:
    1. Will *all* healthcare providers be required to be able to file reimbursement claims with *all* the possible insurers? Or might my choice of insurance plan limit my choice of doctors/clinics? Or, vice versa, in order to keep my medical relationship(s) intact, must I find out which insurers she will be doing business with?
    2. What are such plans going to mean for “privacy” (probably an anachronistic concept by now)? Is the technology for maintaining medical records going to have to become “universal”, too, thereby making personal information much more accessible to almost anyone (esp. anyone with minimal hacking skills)?
    Thanks again.