Jackson Hole plan gaining support - Jackson Hole, Wyoming health care reform plan - includes related article - Reforming Health Care: State and Local Actions

Business & Health, Annual, 1993 by Kenneth M. Coughlin

Managed competition emerges as a front runner in the debate over health care reform.

Long renowned for its spectacular scenery, Jackson Hole, Wyo., has been gaining a reputation among federal and state legislators as the site of a 1990 meeting that spawned an ingenious and increasingly influential blueprint for health care system reform.

Formulated by the Jackson Hole Group, an informal gathering of some of the nation's most respected health policy experts, the proposal has captured the interest of a number of lawmakers at both the state and federal levels. It is particularly attractive to those seeking a health care reform proposal that would not be administered directly by government.

The cornerstone of the plan is a regional approach to providing universal access, cost containment, and quality control. It relies on market forces to rein in health care costs. The key to the plan is managed competition, an idea developed by Alain Enthoven, Marriner S. Eccles professor of management at Stanford University's Graduate School of Business. Paul Ellwood, M.D., president of Inter-Study, Excelsior, Minn., a health policy research organization, is another principal architect of the plan. Ellwood also hosted the meeting in his Wyoming home.

Jackson Hole ideas have influenced at least four state reform proposals, including those offered by state study commissions in Charleston, W. Va., and Olympia, Wash. When lawmakers return to their state capitols in January to begin their 1993 legislative sessions, many will likely consider bills that contain Jackson Hole-compatible reforms.

"A lot of good thinking has gone into the Jackson Hole proposal," says Ray Scheppach, executive director of the National Governors' Association in Washington. "It's a pretty sensible approach that builds on our current system. Most of the other reforms talk about major change. We don't know what would happen under those kinds of systems."

At the heart of the Jackson Hole proposal is the conviction that price competition is virtually non-existent in health care. Although cost-effective managed care systems do exist, employers and employees have little incentive to select them over less efficient fee-for-service systems. It is often more profitable for insurers to cut costs by selecting good risks and shunning bad ones than by managing care more effectively.

The Jackson Hole plan would use the tax system to inject price competition into the health care market. Insurers and health care providers would form associations called accountable health partnerships (AHPs). These would be large, integrated systems that combine finance, administration, insurance, and health care delivery functions. An example of this type of arrangement is the familiar HMO.

Health care sponsors, which might be large employers or purchasing cooperatives, would entertain bids from these AHPs to provide health coverage to their members. Each AHP would have to guarantee that everyone it covered would receive a set of uniform effective health benefits similar to those offered by major corporations today.

To encourage the AHPs to bid low, the Jackson Hole plan would make the least expensive plans most attractive to consumers. Employers buying health care from the least expensive AHP in a particular region would not have to pay taxes on those premiums. That means a buyer seeking health care from an AHP that charges more than the lowest bidder would pay taxes on those premiums. That means a buyer seeking health care from an AHP that charges more than the lowest bidder would pay taxes on the amount of the premium that exceeds the lowest bid.

Buyers could also opt for coverage from a non-AHP provider. But none of the premiums they pay would be tax-excluded. (Limiting tax-free employer contributions in this way will require changes in federal and state tax laws.)

The architects of the Jackson Hole plan anticipate that large employers would have the market clout to contract with the AHPs for services. However, they also recognize that small businesses and individuals would need help. Therefore, the proposal calls for establishing health insurance purchasing cooperatives (HIPCs), which would serve as collective purchasing agents for these health care buyers. An employer would have to participate in such a pool if it wanted to buy health care for employees with money that would not be considered employees' taxable income.

New government rules and organizations would be needed to implement the Jackson Hole plan. For example, a federal law would be needed to mandate uniform effective health benefits for all. In addition, the AHPs would be evaluated by an independent federal agency, a national health board, which would determine each AHP's ability to deliver mandated benefits. AHPs would also be publicly accountable for their impact on health costs and outcomes. All would have to issue reports to buyers on health outcomes, among other requirements.

Jackson Hole at the state level

The Jackson Hole plan was developed too late to be included in the 1992 state legislative sessions. However, it will be represented in many 1993 state plans. Kala Ladenheim, a senior research associate at the Intergovernmental Health Policy Project, a clearing-house for state health policy information that is part of George Washington University in Washington, says, "I think we will see similar plans proposed in most states. But the extent to which they are adopted will vary."