(FORTUNE Magazine) – ) POLITICAL tides can sweep in with astonishing power. A previously apathetic public suddenly demands action. Sensing opportunity, leaders reach for arcane remedies understood by a handful of experts and urge them on millions. It's happening at last with health care. Those who have quietly debated and refined concepts for reform could scarcely believe their ears when President Clinton, informing a joint session of Congress in late September that a ''magic moment'' has arrived, said so many of the right things. And, alas, some wrong things. In the months of hearings and headlines that stretch ahead, it will be important not to lose sight of what could make the final legislation a landmark worthy of emulation around the world -- or a lemon. The President is dead right in believing that by building a more competitive market for health care, as his plan would do, ''we can find tens of billions of dollars in savings.'' But he's wrong in wanting price controls and far- ranging regulation just in case competition doesn't deliver results fast enough. In an era when socialism is in decline, Clinton wants to impose economic planning on a $900-billion-a-year health system as big as Britain's GDP. The President and the plan's chief architect, First Lady Hillary Rodham Clinton, evidently regard controls as the only way to hold total medical spending down and cover the 37 million uninsured by 1997 without imposing major new taxes. Ira Magaziner, the President's senior health policy adviser, has played down the reform plan's bureaucratic bent. Basically, he has said, government wants to ''get out of the way'' and rely on competition to streamline the system. Experts who have pored over the plan's briefing book get a different impression. John O'Donnell, director of health care policy at Buck Consultants in New Jersey, says the document calls for ''an incredible amount of control and regulation of just about every aspect of the financing and delivery of health care.'' That would be a travesty of the original concept of ''managed competition,'' the intellectual wellspring of what's good in the President's blueprint. Listen to the concerns of two venerable reformers who are to managed competition what the Wright brothers were to the airplane. Economist Alain Enthoven of Stanford University, who coined the term in 1986, fears that the Clinton plan will be ''a giant step toward a single-payer system'' like Canada's, in which government pays all the medical bills, and in which the & allocation of resources will be based on ''political considerations rather than economic merit.'' Because of weak incentives in the Clinton plan, Enthoven warns, ''price controls will be the first line of attack, not a mere 'backstop' as advertised.'' The other Wright brother is Dr. Paul Ellwood, president of the Jackson Hole Group, a policy research outfit based in Wyoming. He too is disappointed with what the Administration has crafted. But he remains hopeful because key elements of managed competition are woven into the Clinton plan, as well as into two alternatives advanced by a group of moderate Republicans in the Senate and by conservative Democrats in the House. Says Ellwood: ''I think virtually every part of the Clinton plan can be modified in a satisfactory way. All the pieces are there. We're just talking about how you tweak it to make it work.'' Signs abound that competition is already beginning to check health care inflation. The last survey of employers by the Foster Higgins consulting firm showed that health insurance premiums grew 10.1% on average in 1992, the smallest increase in five years. The trend continues downward, says John Erb, a principal for health care policy at the firm: ''We're looking at single- digit ((increases)) in 1993 and 1994. I know this sounds like capitalism, but how about letting the market work?'' IT'S WORKING at Xerox, whose success in applying managed competition on its own was cited by the President in his speech to Congress. Helen Darling, Xerox's manager of health care strategy and programs, reports that premium increases quoted for 1994 by the company's ''benchmark'' health maintenance organizations -- generally the lowest-cost plans that employees can choose in a given city -- average less than 4%, down from 5.5% for 1993. Incentives at Xerox enable employees to save money if they select lower-priced health plans, and the company leans on all HMOs to restrain premium increases. Says Darling: ''If anybody comes in with an increase greater than 5%, we want to know why.'' Making companies like Xerox the rule rather than the exception does not require complex new legislation and elaborate control machinery -- a potential nightmare given the immensity of the health care system. All it takes is enough law to oil the wheels of competition. Here's a basic set of requirements to look for as the issue works its way through Congress: -- For starters, every citizen must have health insurance. The best approach is to require all employers to pay for it -- the so-called employer mandate -- and for government to subsidize low-wage employers who might otherwise be ruined by the expense. An alternative, as called for by the moderate Senate Republicans, is to require individuals to buy health insurance if the employer does not. The point is that everybody must be onboard, and not just for compassionate reasons. It's expensive to treat the uninsured in emergency rooms when diseases are advanced -- a cost already borne by the rest of society. -- Another cardinal principle of managed competition is informed, cost- conscious choice of health plans by workers. It sounds logical and simple, but in health care it takes some arranging. Employees must be given a menu of health plans from which to choose, with an annual sign-up period, as called for by Clinton and the conservative House Democrats. That's crucial, because the ability of consumers to go elsewhere deters HMOs and other efficiency- minded health plans from skimping on services. Health plan benefits must be standardized by law so that workers choose purely on price and the quality of service. The present welter of plans blurs such comparisons. Plans must also issue annual report cards showing data on performance and the results of consumer surveys. Even before the law requires it, the National Committee for Quality Assurance, a nonprofit organization, is working with 22 managed-care plans to develop such a report card. -- Employers should limit their contributions to health plan premiums. That's where cost-consciousness comes in. A worker should be free to choose a fee- for-service health plan offering unlimited choice of doctors and hospitals, but if the premium is higher than a benchmark plan, as it usually is, he or she should pay the difference. Xerox and Stanford University follow this policy, which has caused many workers to switch to lower-cost plans. The Clinton proposal does not call for such an approach. It would merely require employers to pay 80% of the average premium in an area, leaving them free to pay the other 20% if they wish, as well as all the extra costs of a higher- priced plan. That blunts the marketplace effects. If your employer will buy you a Cadillac, why pick a Chevrolet? The government doesn't need to set a limit on the employer's contribution if it uses a less intrusive weapon at its disposal. Enthoven calls it ''the single, most crucial point'' in the whole scheme. At present, not a penny of an employer's contribution to health plan premiums is taxed as income to the employee. By making any contribution above the cost of a benchmark plan taxable, as advocated by the Jackson Hole Group, Washington would induce workers to shop more carefully. It would also generate revenue -- real revenue, not just promised savings from Medicare -- that would help pay for the uninsured. Lynn Etheredge, a Washington health policy consultant, notes that the federal government already limits tax breaks for other fringe benefits: ''Health care just stands out.'' But the Clintons, wimping out on this one, would tax only benefits beyond those in their generous standard package -- and not for ten years if an employer already provides them.

Meeting these basic requirements would create a level playing field for health plans. To save after-tax income, most workers would gravitate to HMOs and other managed-care plans that have no incentive to pile on extra tests or procedures. But even if people clung to fee-for-service systems, it would no longer matter from a policy standpoint because they, rather than employers or government, would be shouldering the extra cost. The same effects would occur among small businesses, which would get more predictable prices than now by buying jointly through regional purchasing cooperatives or ''health alliances.'' A cooperative that recently began operating, the Health Insurance Plan of California, serves 12,000 workers and dependents and is adding 5,000 a month. Steven Levine, who heads a six-person advertising agency in Los Angeles, is a happy customer. A diabetic who has had a kidney transplant, Levine previously saw his outfit's health insurance premium soar to nearly $4,000 a month before he lost coverage for himself. Now he's buying through the new cooperative, and everybody's insured for a total of $894 a month. Of the features that Congress should throw out of the Clinton plan, the most objectionable is price control. Several weeks ago the President said he was for no such thing, but he was speaking narrowly about fees for physicians' services and certain other items. Starting in 1996 he wants a proposed National Health Board to limit the rate at which health plan premiums can rise. Call it what you want, but this has the quack, as well as the waddle and webbed feet, of price control. History shows that it never works for long. One of the many possible bad outcomes, says Sylvester Schieber of the Wyatt Co. consulting firm, is that ''you will see effects on quality'' if Washington's czars start applying the limits before the health system is able to achieve widespread savings through greater efficiency. In a regime of price control and national health care budgets, the regional health alliances would balloon from the mere ''trading floors'' for health plans that Enthoven wants to quasi-governmental enforcers of those budgets. Clinton would allow only firms with more than 5,000 workers nationwide to stay outside the alliances, and some say the plan is designed to lure much of the FORTUNE 500 crowd in. If a mature company with a relatively old work force signed up workers through the alliances, down the road it would enjoy the rates available to a younger pool of workers. Says consultant Robert Laszewski of Health Policy & Strategy Associates in Washington: ''This is the greatest deal for Chrysler ever.'' A Chrysler spokesman says it's premature to say what it might do. The potential disappearance of major buyers from the health care market concerns Ellwood. ''I want to keep those big buyers in there, exercising their clout,'' he says. Without them, says Enthoven, it's just a matter of time until the alliances turn into mini-single-payer systems. The plan needs careful scrutiny so it doesn't tilt decisions on joining alliances one way or the other, and the 5,000-employee cutoff also needs to be lowered drastically to keep more companies in the market. The Clinton plan also needs to be altered so that states cannot adopt single-payer plans or create a patchwork of regulations.

That sounds like a lot of tweaking, which could postpone the day when everybody in the land is covered unless Congress passed a new broad-based tax. Compared with the alternative -- new governmental machinery that might require more new jobs than the 252,000 federal positions Vice President Gore wants to eliminate -- even a tax would look good.