A Roar Of Discontent

The seismic tremors started registering about a year ago. In survey after survey, pollsters began picking up distress signals from middle-class voters worried about health care costs. Under pressure from employers, workers were being forced to dig deeper into their pockets to pay for medical bills. For recession victims or those worried about losing their jobs, there was a more palpable fear: the nightmarish prospect of losing the safety net provided by health insurance.

These rumblings triggered a political earthquake on Nov. 5, when lightly regarded Democrat Harris Wofford upset former Attorney General Richard Thornburgh in Pennsylvania's U. S. Senate race. Wofford managed the feat by railing against indifferent politicians in Washington -- and declaring health care "a basic right." For business, the message was clear: Health insurance had been transformed from a problem for the downtrodden into a middle-class concern (poll). "This says people are serious about fixing the health system," observes American Hospital Assn. President Dick Davidson.

Naturally, there's no shortage of Dr. Fix-its lining up in Washington. With the Presidential campaign under way, Democrats are homing in on the health care "crisis." They're scoring points by depicting President Bush as out of touch -- and out of town. Most of the Democratic contenders are embracing ambitious health-reform plans, and Capitol Hill is abuzz with competing proposals.

KEY CHOICES. The fury of the debate has caught the Administration flat-footed. Initially, the President's advisers hoped to delay any serious debate on a national health strategy until after the election. Now, his aides are scrambling to cobble together a proposal for the January State of the Union message. "The blessing of the Pennsylvania election is that it came one year before President Bush has to face voters," says Burton Yale Pines, senior vice-president of the Heritage Foundation. "He'd be resoundingly rejected if the election were held today."

Despite the rising clamor for reform, health experts caution that the complexity of the problem makes successful surgery an iffy proposition. Policymakers are split over the key question of whether the private sector or the government should be the central player in a new health scheme. The choices range from a Canadian-style socialized system to "choice" plans that give consumers tax credits and encourage them to shop for the best medical bargains (table).

Business is deeply divided, too. Big corporations, whose cost-control measures have failed to contain soaring medical expenses, are coming to the reluctant conclusion that a national system may be their last chance for relief. That, they hope, will shield them from health care providers' current practice of shifting the cost of caring for the uninsured onto large private payers. But small businesses, which often don't provide coverage for their workers, worry that they'll get socked with huge new mandated costs. Hospitals and doctors also will oppose any changes that could dictate fees and reduce profits.

About the only thing everyone agrees on is that the current system is out of control. Medical costs have risen faster than the rate of inflation in 14 of the past 15 years and now account for 12% of gross national product, or a whopping $ 657 billion a year.

At the moment, political rhetoric is outpacing some of the thorny financial calculations on who pays for what, and when. In Pennsylvania, Wofford remained studiously vague on how his national health plan would work. Democrats "can tap into a large seam of inchoate discontent," says the Brookings Institution's Henry J. Aaron. "But the more specific their solutions, the more they'll run into problems."

That's not stopping Democrats from offering cures. Nebraska Senator Bob Kerrey, who is making health reform a key issue in his Presidential campaign, backs legislation calling for a federal takeover of the health care system. The government would write the checks in a system financed by payroll taxes and higher levies on the wealthy.

While this "single-payer" approach is simple, the potential drawbacks are many: higher taxes, more government bureaucracy, and waiting lines for expensive surgical procedures. The White House and most of the health care Establishment oppose this model.

CONVERTS. Other Democrats, including Senate Majority Leader George J. Mitchell (D-Me.), back "play-or-pay" programs. These plans give business two options: Provide a core package of health insurance to employees, or pay a federal payroll tax of about 8% to support a government-insurance fund for the uninsured. This approach builds on the existing private system, but critics say it won't hold down costs. Although it faces stiff opposition from small business, play-or-pay is winning converts. On Nov. 12, a coalition of unions and large corporations, including Xerox, Safeway, and Georgia-Pacific, backed it. House Democrats may decide on a similar tack.

Where does all this leave President Bush? Mainly on the defensive, insisting that health policy is too complex to be fixed in the unseemly rush of an election campaign. But after Pennsylvania, that message is being drowned out. "Politicians who defend the status quo and say health reform is too complicated are missing the point," says James Carville, Wofford's campaign manager. "The country is clearly ready for something other than what it has."

One reason for Bush's hesitancy is the GOP's inability to come up with a consensus approach. Moderate Republicans, led by Rhode Island Senator John H. Chafee, want to move incrementally. They would start by making it easier for small businesses to buy insurance and by limiting malpractice awards. Some would even consider a new government program or employer mandates.

Free-market conservatives, led by White House Chief of Staff John H. Sununu, oppose new mandates on business and higher taxes. That leaves little maneuvering room. "It aggravates one of the biggest Republican weaknesses," says Democratic pollster Harrison Hickman. "They'll try not to insult the insurance companies, and they'll protect their friends in business."

Budget Director Richard G. Darman, who is directing White House efforts to come up with a plan, leans toward a tax-credit scheme that gives individuals maximum choice. He's also exploring a cap on employers' tax deductions for insurance premiums. The higher taxes would be used to fund benefits for the uninsured. But neither free-market approach is given much chance of winning congressional support. And with Congress set to adjourn, none of the plans will start moving until well into 1992. Even then, it's far from clear how profound the changes will be, given the lack of political consensus.

Meantime, the political heat will only intensify. "We conceded the health issue to the Democrats," laments Republican pollster Linda DiVall. Gleeful Democrats couldn't agree more. Says pollster Celinda Lake: "Health care could well be the Social Security of the '90s -- an issue that defines a political party to an entire generation."



This is the Canadian approach, in which everyone is covered whether or not

working. While hospitals and physicians remain private, all bills would be

paid from a single purse -- the U.S. Treasury. Rates would be strictly

regulated to control costs. In theory, administrative savings could come

to $75 billion a year. This scheme is endorsed by Senator and

Presidential hopeful Bob Kerrey (D-Neb.) and House Democrats such as

Representative Marty Russo of Illinois


Individuals would shop for their own health coverage, and the government would

provide tax credits or vouchers to everybody. Low- and middle-income

families would receive a government check if the value of their credit is

greater than their income tax liability.

The conservative Heritage Foundation and Budget Director Richard Darman

favor this plan, but President Bush hasn't endorsed it yet


Building on the current system, this would require businesses to provide

health benefits or pay a payroll tax to support a fund for their workers,

the unemployed, and the poor. This plan is advocated by Senate Democrats

led by Majority Leader George Mitchell (D-Me.). Democratic Presidential

candidate Paul Tsongas has endorsed a variation in which the taxes would

go into regional funds to buy private insurance


This plan would reform the current system, help small businesses buy

coverage, create tax breaks for the self-employed, and urge employers to

control costs through prepaid plans and managed care programs.

This approach is backed as an interim step only by prominent Democrats,

including Senator Lloyd Bentsen of Texas and Representative Dan Rostenkowski

of Illinois. It's the centerpiece of Senate Republicans' reform ideas

Before it's here, it's on the Bloomberg Terminal.