With reform, 'black hats' could thrive Drug companies, insurers eyeing big profits


WASHINGTON -- In the national health care debate, President Clinton repeatedly casts the health insurance and pharmaceutical manufacturing industries as the villains.

Some executives in the two industries accuse the president of scheming to destroy their profitability and to force some firms out of business.

But behind the cross-fire, one of the best-kept secrets of the president's proposal is that it also offers these "black hats" some extraordinary opportunities. Some drug and insurance firms could profit handsomely from reform, especially if -- as expected -- they persuade Congress to ease up on the most onerous features of the health care blueprint.

Mr. Clinton's proposal to guarantee health coverage for all Americans could bring the insurance industry 60 million new customers. Drug manufacturers would benefit from Mr. Clinton's proposal to include prescription drugs for the first time in Medicare coverage for the elderly, and they surely would sell more of their products to the millions of newly insured Americans under 65.

"The idea that these guys are going to get killed by health care reform is wrong, even though there is some truth to what they are telling us about the problems it will create for them," said John Shiels, health economist for the Northern Virginia consulting firm of Lewin-VHI.

The president's reasons for singling out the insurance and drug industries for public criticism are no secret. Polls show that Americans blame insurers and drug companies for skyrocketing medical costs.

Yet even the president's health policy advisers readily admit that every sector of the nation's health care system has contributed to the problem of rising costs. In fact, health insurance premiums and drug prices account for less than 15 percent of what the average Americans spends for health care.

For the pharmaceutical companies, the Clinton proposal would stimulate sales by providing all Americans -- including Medicare beneficiaries -- with a generous drug benefit.

But in exchange, the government wants the industry to pay a rebate estimated at $2.5 billion a year to help cover the cost of the drug benefit for Medicare participants.

Increased emphasis on managed care -- health maintenance organizations and less formal networks of doctors and hospitals who agree to control their costs -- is expected to drive many health insurers out of the business.

Yet some well-positioned insurers -- the larger managed-care companies such as Cigna, the Blue Cross/Blue Shield insurers and the smaller companies that enjoy a large market share in certain metropolitan areas -- are expected to thrive under the Clinton plan.

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