THERE is a perceived "bad guy" in America's health care crisis - the health insurance industry.
Hundreds of thousands of people complain of coverage dropped, prices hiked, or policies refused when needed. Doctors and hospitals bemoan the industry's morass of rules and regulations. And businesses of all sizes say the high cost of health insurance makes it difficult to compete.
The insurance industry itself points to the spiraling costs of health care, and then joins the call for reform.
"Nobody's arguing for the status quo," says Richard Coorsh of the Health Insurance Association of America (HIAA), a trade group that represents 270 commercial insurers. "We're all after the same thing, cradle-to-grave coverage for all Americans."
To accomplish that, most industry analysts agree, the health insurance industry will have to undergo a major transformation. Of the nation's estimated 1,500 health insurers, only a few hundred larger companies are expected to survive in the fiercely competitive system proposed by the Clinton administration.
"I think the bigger question is not whether the little companies will get hurt, but whether retaining them in a new system holds any advantages," says Mark Schlesinger of the Yale School of Medicine.
According to the HIAA, 277 commercial insurers, or about 20 percent of the total number, account for more than 94 percent of the $270 billion dollars spent annually on health insurance.
The remaining smaller companies fall into two main categories, neither of which is well suited to compete in a system that emphasizes managed care and universal access.
The biggest potential losers are known as "boutique insurers." These are companies that specialize in what is called "creaming." They aggressively recruit younger, healthier people into lower cost plans and shun older, potential claim filers. In that way the companies limit their own liabilities. But they increase costs to other insurers by leaving the other companies with only those more likely to file claims.
"I don't know what social utility [the boutique insurers] serve," says Edward Howard, president of the Alliance for Health Reform. "They might provide a specific service to specific people, but they create a market distortion."
Other companies expected to lose out are in the "niche" market. They offered health along with life, casualty, and other insurance. The policies are based on the fee- for-service model, where people are reimbursed whenever they get medical care.
As health care costs sky-rocketed, such traditional policies became less profitable. These companies then began questioning policy holder's medical expenses, imposing new restrictions, and increasing rates to almost anyone who made claims.
The practices helped create the web of rules and regulations that fuel administrative costs. About 25 cents on every health-care dollar now goes to administration. Many of these niche market companies have become frustrated with the system and are looking to drop their health insurance lines.
"I think in the old days when companies just paid the bills anyone could do it," Mr. Schlesinger says. "Now people are expecting insurers to provide certain guarantees of quality and cost effectiveness in the services they're providing."
Those expectations are shifting the focus more toward managed care systems, like health maintenance organizations (HMO), where groups of doctors and hospitals work together to provide all of an individual's health care for a set price. They can keep administrative costs down because they establish their own guidelines. They also curb overall medical costs by emphasizing lower cost preventive care.
Such managed care systems, and insurance companies that have begun offering them as options, are seen as the potential winners in the proposed reforms.
"It's the kind of fix that will last," says Gary Fendler of the Aetna Insurance Company, a major commercial insurer which shifted to a managed care model in 1991. "We listened to our customers. They said we have to do something different here, so we did. And it's working, undeniably, it's working."
Schlesinger expects the insurance industry to eventually look like the hotel industry. There will be a few large chains with national brand recognition, and many smaller, localized groups, most probably health maintenance organizations that have developed reputations in local communities.
But such consolidation in the industry worries some reform advocates.
"The danger is you create an oligopoly, with just a few companies running the whole industry, without the proper controls to keep costs down and prevent discrimination," says Ellen Shaffer, health policy advisor to Sen. Paul Wellstone (D) of Minnesota. The senator is an advocate of the single payer system.
Ms. Shaffer says it is impossible to safeguard quality and keep costs down as long as competition remains at the heart of the health insurance delivery system.
"As long as you have companies competing to keep costs down, you're going to have discrimination [against the people who need insurance the most]," Shaffer says.
But advocates of the competitive model argue that other reforms in the insurance industry, such as guaranteed access and elimination of exclusions based on preexisting health conditions, will safeguard consumers.
Schlesinger also contends that the economist model of competition has never worked in the health care system.
"You either have to believe that kind of oligopolist competition is good enough or you have to forget about the competitive model altogether," Schlesinger says.