Capitol Comment 173 – ‘Gag Clauses’ in Managed Care Contracts: If It’s Already Fixed, Don’t Fix It

In September, President Clinton told a union audience he was proud of his 1994 attempt to impose a government-run health care system on America — in effect putting a government bureaucrat between every American and their doctor. He then told the audience how he intends to implement his failed health care take-over one piece at a time: “Maybe we can do it … a step at a time, until eventually we finish this.” The next few “steps” down the road to ClintonCare include one sponsored by Iowa Republican Rep. Greg Ganske in a bill called the “Patient Right to Know Act” (H.R. 586).

The genesis of “gag clauses.” The federal government has distorted America’s health care market to the point that third parties (usually employers or government) pay for most people’s health coverage. Because individual consumers are not (initially) footing the bill, they demand more and more medical care and have little incentive to keep costs down themselves.

In this environment, it falls to the third-party payers to control spending. Managed care caters to this need with various spending controls, one of which seems to have been the “gag clause.” According to lore, certain managed care companies have used “gag clauses” to contractually prohibit doctors from telling patients about expensive treatment options. Patients and doctors have rightly expressed outrage at this practice.

Where have all the gag clauses gone? H.R. 586 would ban “gag clauses.” That is, it would if it could find one. When the General Accounting Office studied the issue, it scoured nearly 1,200 managed care contracts from across the country and found exactly zero “gag clauses.”1 Not a single one. If ever there were any “gag clauses” out there, the market already got rid of them.

What’s the harm in making it official? The answer is simple: bureaucrats. One study estimates Uncle Sam would have had to hire up to 7,000 new bureaucrats to implement a prior draft of H.R. 586 — an awful lot of new hires to devote to a problem that doesn’t exist.2

Once in place, and without much to do, these bureaucrats would do what most bureaucrats do: lobby for and impose new mandates on consumers. The cost of the mandates they generate would be passed on to consumers through higher premiums.

As premiums rise, fewer people will be able to afford coverage. The Congressional Budget Office estimates that every one percent increase in premiums causes more than 200,000 Americans to lose coverage.3 This will generate even more pressure on the federal government for a Clinton-style takeover of the health care system.

Dr. Ganske protests that H.R. 586 would not lead to ClintonCare. Yet, numerous ClintonCare backers support H.R. 586 because they know it will be easier to reach their goal once this Trojan Horse is inside the gates. One can already see how they plan to build on H.R. 586. Legislative action on the bill has been postponed by members who, according to reports, “wanted to work on the Ganske measure because it is too narrow.”4

Never mind mandates, try consumer choice. Rather than impose mandates on consumers, Congress should put consumers back in control of their health care decisions. For example, the federal tax code traps millions of Americans in their employer’s health plan by making it twice as expensive for them to purchase their own coverage.5

Giving individuals the same tax treatment as employers would enable consumers to discipline health plans by voting with their feet. It would also eliminate many of the problems President Clinton and others use to argue for a government takeover of the health care system.

The market has already weeded out “gag clauses.” It will eliminate many more abuses once consumer choice is restored and consumers are given the ability to walk away from their employer’s health plans. Any further restrictions of consumer choice — like H.R. 586 — are steps down the road to government-run health care.

1U.S. General Accounting Office, Managed Care: Explicit Gag Clauses Not Found in HMO Contracts, But Physician Concerns Remain, GAO/HEHS-97-175, August 29, 1997, p. 3.

2Multinational Business Services, Inc., “Regulatory Requirements of H.R. 2976, ‘The Patient Right-to-Know Act of 1996,'” September 1996, p. ii.

3U.S. Congressional Budget Office, CBO’s Estimates of the Impact on Employers of the Mental Health Parity Amendment in H.R. 3103, May 13, 1996, p. 2, 4.

4″House Postpones Gag Rule Markup After Democrats Push for Broader Scope,” Bureau of National Affairs, No. 216, November 7, 1997.

5Joseph L. Bast, Richard C. Rue and Stuart A. Wesbury, Jr., Why We Spend Too Much On Health Care, The Heartland Institute (Chicago), 1993, p. 63.