How Clinton's Health Plan Got That Way

When President Clinton goes before a joint session of Congress to launch his health-care reform plan on Sept. 22, his audacity is sure to win applause. But that may not be enough to drown out the continuing dissension within the Administration over the shape and cost of the plan.

For months, White House economic and health advisers have battled over the proposal. Clinton's health and political aides insisted on sticking with the President's campaign promise to provide coverage to all Americans without a broad tax increase. But the economists fear that the cost to employers of workers' coverage will kill jobs. They worry that the plan, based on what they call overly optimistic cost projections, will swell the deficit.

Nearing the 11th hour, the differences still aren't resolved. But the economic advisers appear to have lost the crucial skirmish: The President's proposal essentially ignores their objections.

SECRECY. The seeds of that defeat were planted when the President put Hillary Rodham Clinton in charge of his health-reform task force. The move effectively ensured that her clout would mute such critics as Treasury Secretary Lloyd M. Bentsen and Budget Director Leon E. Panetta, both of whom worried about the plan's budget-busting potential.

Hillary Clinton, distracted by the death of her father, gave free rein to health czar Ira C. Magaziner. He aggressively pursued the untested idea that squeezing inefficiencies out of the health-care system can generate huge savings. The task force toiled in secrecy, allowing Magaziner to craft a scheme that received little scrutiny from industry lobbyists or top White House advisers. Some Administration health experts grumble that Magaziner ignored warnings that some of his financing assumptions were shaky.

When Magaziner emerged with his ambitious proposal, the economic advisers were shocked. At a May 21 meeting with the President, the economic team tried to slow the reform juggernaut. Council of Economic Advisers Chair Laura D'Andrea Tyson and National Economic Council chief Robert E. Rubin argued that the plan was too generous and needed a longer phase-in. Bentsen objected to price controls. Panetta warned that Congress would not cut so deeply into Medicare and Medicaid. And despite entreaties from White House officials, the CEA chief and others remain reluctant to testify to Congress that the plan would boost job growth.

Eventually, though, Clinton approved the Magaziner proposal nearly intact, with a slightly longer phase-in. Price controls were dropped, but many economists regard the caps on insurance premiums as only a bit less onerous. The requirement that businesses pay 80% of health-care premiums was hardly debated and survived unchanged.

Moving the plan's financing to a sounder footing proved even harder than reining in benefits. After Congress rebelled at the tax hikes in Clinton's budget plan, even economic policymakers knew they couldn't win a major revenue increase to pay for the rich benefits. Trial balloons for a value-added tax and a cap on tax deductions for health-care benefits were quickly shot down.

OVERRULED. With new taxes off the table, Magaziner and Hillary Clinton scrambled. "They overpromised, and they had to find a way to deliver," says one aide. To generate funds, the White House, over the protests of Health & Human Services Secretary Donna E. Shalala, returned to Medicaid and Medicare. The White House is considering $238 billion in savings from these programs over five years--a number that stunned lawmakers when they were briefed by Hillary Clinton on Sept. 9.

Administration insiders say the White House knew the Hill wouldn't buy such a big cut but put it in the plan to make the numbers work. Says one White House adviser: "Clinton's saying to Congress, `If you come up with a better way to pay for this, fine. You'll have to take the fall because I don't want to raise any new taxes."'

Magaziner defends his numbers and maintains that he won over the economists by documenting "huge amounts of waste" in the system. And the plan's subsidies for small employers will head off job losses. Indeed, he says: "When you look at the whole job picture, there will be significant job gains."

Congress isn't likely to buy that. Even political aides worry that legislators won't paper over questions about the plan's financing and economic impact. "What we are sending up to Congress is a bloody mess," says one aide who helped formulate the plan. The economists may win out in the end--if Congress does the dirty work for them.

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