When candidate Bill Clinton unveiled his health-care plan last fall, he claimed the savings generated by reform could pay for medical coverage for all Americans--with money to spare. "We can cover every American with the money we're already spending," he said, and "save hundreds of billions of dollars for the private sector." But under President Clinton, the emphasis seemed to change. Leaks about generous benefits and coverage for the poor led to projections that the overhaul plan would require up to $90 billion a year in new taxes--numbers that sent business to the barricades.
Now, six weeks before Clinton is scheduled to take his plan public, the idea of self-financing reform is back. White House economic advisers panicked when they saw the costs of the new social program promoted by Hillary Rodham Clinton and sent the health team back to draft a cheaper version. Now, such costly benefits as mental-health coverage have been trimmed. And the Administration insists its plan will save enough money to insure all Americans with just one new revenue source--$15 billion in higher taxes on cigarettes and alcohol.
"TROUBLE." The Administration hopes its renewed emphasis on cost containment will rekindle Corporate America's enthusiasm for reform. But it may be disappointed. Health analysts question whether the Clinton team's math adds up. Clinton has "pretty substantial trouble with these numbers," says John F. Sheils, an economist with Lewin/VHI, a health consulting firm in Fairfax, Va.
Business may have other gripes. Small companies oppose the mandate that all employers buy coverage for their workers. And big companies may be wary, too, though the Administration has sweetened the plan by dropping a proposal to replace health premiums with a payroll tax--and by letting large companies continue to run their own benefit plans. "Employers don't want to pay for a system if they don't have much influence over how it's run," says James A. Klein, executive director of the Association of Private Pension & Welfare Plans.
Clinton's plan is still built around managed competition, the blueprint he embraced during the campaign. The system would be dominated by state-run purchasing cooperatives called health alliances. Families would pick their coverage through the alliances, choosing a "managed care" network of providers or a traditional insurance plan. Each plan would offer a standard package of benefits. Employers would pay at least 80% of the average premium for their region, with employees picking up the rest with pretax dollars. Washington would subsidize premiums for low-wage workers and buy coverage for the unemployed.
The White House has decided to let large employers--probably those with 5,000 or more employees--run their own health plans. That's good news to Margaret H. Jordan, vice-president at Southern California Edison Co. "We run a very effective health program, and it makes no sense to push us into an untested cooperative," she says.
SPEND AND TAX. White House staffers are gambling that competition among health networks will help squeeze costs out of the system. But if that's not enough, a cap on premiums--which would be allowed to grow no faster than the economy by the late 1990s--is designed to force savings.
It's those savings the Administration figures will pay for universal coverage. Employers would pick up premiums for workers who now receive Medicaid and Medicare--saving about $19 billion. The scheme also envisions capping premiums so that the U.S. would spend $22 billion less than projected to cover the uninsured. As costs come under control, families and businesses would have more income--and pay $19 billion more in taxes.
A pipe dream? Health analysts think so. Hospitals project their "uncompensated care" to be $13 billion in 1994, far short of the Administration's $22 billion figure. In the short run, requiring employers to provide coverage will cut profits and reduce the tax take. Longer-term savings would come from reducing the incomes of doctors and other health workers--whose lower taxes would offset much of the added revenues from employers whose health costs have dropped.
White House aides insist that their seven-month study of the health system shows that the savings can be captured. They'd better hope so. After a bruising budget battle, the President is in no position to pitch a health plan that will require yet another round of tax hikes. If his savings estimates go up in smoke, so may his whole health-reform dream.
FUNDING HEALTH REFORM: CLINTON'S PLAN SOURCE ANNUAL AMOUNT Billions Tax hikes on cigarettes and alcohol $15 Savings from Medicaid and Medicare $19 Savings on coverage for the uninsured $22 Higher tax revenues as profits reflect lower health costs $19 DATA: BUSINESS WEEK