The role of the New Democrats in the explosion of managed care

Original Reporting | By Meade Klingensmith |

Feb. 20, 2013 — The “New Democrats” of the 1990s — those who thought the Democratic Party should move further to the right and position itself as a “centrist” alternative to the GOP — promoted a model of health care reform called “managed competition.” Fundamental premises behind the strategy — such as the idea that the interests of insurers would be aligned with the interests of those needing a doctor and that Americans, if anything, were getting too much medical care — were much more faith-based than evidence-based. And some of the negative consequences of the greater reliance on “managed care” created a short-term backlash. Nevertheless, the assumptions and rhetoric of the New Democrats live on, embedded in the architecture of the Affordable Care Act (ACA) and in the rhetoric of a wide range of politicians and journalists, as well as many of the experts who study the health care industry.

cost control Über alles

This is the second in a series of articles examining the phenomenon by which health care policy has come to be dominated by a single-minded desire for cost control, while concerns about maximizing the quality of care have been downgraded or ignored entirely.

The first article in the series described the origins of the Health Maintenance Organization (HMO) model, the modern incarnations of that model, and the evolution of HMOs into the vehicles through which a for-profit health insurance industry came to dominate the market by the 1990s.

This article describes the crucial role that the Clinton-era “New Democrats” — played in promoting the view that the principal problem to be addressed was cost control, and that the best and only solution to providing health care was through a for-profit, market-based system of insurance (albeit a regulated one), not a single-payer or not-for-profit HMO model.

— Editor

Will Marshall was a co-founder of the Democratic Leadership Committee (DLC), for more than two decades the heart of the New Democrats (the DLC shut its doors in 2011). He was also the founder and is still the president of the Progressive Policy Institute (PPI), the organization that provided the blueprints for many of the policies advocated by the DLC.

In an interview with Remapping Debate, Marshall described managed competition as “a system of private provision, competing health care providers who are under the supervision of public law and regulation that protects patients.” The idea, he said, was to create marketplaces in which health insurers sold their products, either to companies or directly to enrollees. (In the 1990s, these marketplaces were called “purchasing alliances”; in 2010, they were later incorporated into the ACA as “exchanges.”)
The marketplaces would be the only way to purchase health insurance in the United States, and all products sold within them would be required to meet certain standards of coverage. Under the Clinton plan, every employer in the U.S. would have been required to provide health insurance to its employees. And, crucially, managed competion models in general assumed that for-profit managed care organizations would become the dominant actors in the system, as their lower cost would naturally attract purchasers.

Theoretically, adoption of the model would achieve three things: (1) it would control health care costs by guiding patients into managed care organizations, forcing insurers to directly compete over customers, and enabling mass-scale group purchasing; (2) it would ensure universal coverage; and (3) it would do these things through regulated market mechanisms rather than a national health program, thereby appealing to what Marshall views as “the American economic and cultural outlook.”


Aligning incentives?

A central claim of managed care is that it aligns the incentives of health care providers with those of their patients. In the original formulation by Paul Ellwood (the “father” of managed care), found in his 1971 article for the journal Medical Care, the argument went as follows: “Since the economic incentives of the contracting parties [provider and patient] are identical [to keep the patient healthy], both would have an interest in maintaining health.”

“What you want to do is manage the population. You want to have the healthiest population you can, deny the most care you can, and get away with it. That’s about managing cost. That has nothing to do with managing care.” — Dr. Jim Scott

Remapping Debate asked Marshall whether, even if managed competition and managed care could control costs and provide some form of universal coverage, it would do so by denying medical services to patients who need them. Marshall insisted managed care would theoretically not deny useful procedures. Its goal, he said, was to “eliminate unnecessary procedures, root out waste, and, when it’s done right, try to bring together specialists and general practitioners to take a holistic approach to the health care of the patient, rather than parceling them out by body part or disease and never communicating with each other.”

When asked whether PPI ever worried about the potential for managed care to deny necessary services, Marshall said it did. “If you can get away with dropping coverage and denying services,” he said, “some actors will do that, and did.” Then why would a for-profit managed care organization ever prioritize quality of care over making a profit? “The customers leave,” Marshall responded. “We have exit…I remember being in several HMOs that I didn’t like, and I left them and got into something that I thought was better care for me. Choice and exit are powerful forces.”

According to Dr. David Himmelstein, a professor of public health at the City University of New York School of Public Health at Hunter College and a co-founder of Physicians for a National Health Plan (PNHP), however, the argument does not stand up. Because managed care is a profit-driven enterprise, he said, “The incentive…is to recruit the healthiest patients you can, to make them look on paper as sick as you can, and to avoid giving them care as much as you can.” Or, more simply, “if you deliver less care, you profit. If you deliver more care, you lose.”

Dr. Jim Scott, president-elect and vice president of internal affairs at the National Physicians Alliance, a physician advocacy organization, agreed.  He told Remapping Debate that from the perspective of a for-profit managed care organization (as opposed to the doctors who work there), “what you want to do is manage the population. You want to have the healthiest population you can, deny the most care you can, and get away with it. That’s about managing cost. That has nothing to do with managing care.” Calling such organizations “managed care,” he said, is “a lie.”

Send a letter to the editor