Health Care Math Leaves Critics Puzzled : Economy: Reform plan adds efficiency savings to ‘sin’ and corporate taxes to equal universal coverage. But some lawmakers are skeptical of the figures.

In theory, the economic beauty of the Administration’s untested health care proposal is that it will virtually pay for itself by rooting out the inefficiency, fraud and waste that are driving medical costs up an estimated 10% a year.

“We believe that there is the capacity to reallocate the money in both the public and private sector in efficient ways that will enable us to reach universal coverage and do so more cost-effectively,” First Lady Hillary Rodham Clinton said Friday.

Under the plan, the government’s cost of providing medical coverage to 37 million uninsured Americans and the 22 million who lack adequate benefits, plus covering such necessities as long-term care and prescription drugs, plus beefing up public health programs is estimated to reach $350 billion over the next seven years.

The Administration is quick to point out, however, that the benefits to the federal Treasury of curbing the rise in health care costs are almost as great--$336 billion. And with so-called “sin taxes” on cigarettes and unspecified corporate taxes raising $105 billion, that leaves $91 billion for deficit reduction.

But as details of the plan began emerging this week, critics who have been skeptical of the Administration’s arithmetic hardly seemed to be reassured.

But the fate of the Administration’s health care proposal is likely to hinge on whether it can convince a dubious Congress and American public that, when the bill for its national health care system comes due, the money will be there to pay for it--without massive new tax increases or adding to the already-bloated federal deficit.

Much of the plan would be paid by a payroll tax of 3.5% to 7.9% on business and 1.9% on employees.

Many lawmakers fear that, while the costs of the plan to the government will be very real, the savings will prove to be only wishful thinking.

“My colleagues who have taken the time to go look at (the proposal) are kind of appalled by the complexity of it all,” said Rep. Jim McDermott (D-Wash.), a leading backer of the more radical concept of a government health care system similar to Canada’s. “It’s magic. It is a house-of-cards kind of financing that is going to fall apart when people start to poke at it.”

The numbers will get their first serious scrutiny on Capitol Hill next week when the Joint Economic Committee opens hearings on the details of the plan.

One of the areas already raising concern is the Administration’s proposal to curb the growth of Medicare and Medicaid payments by $238 billion.

The Administration plans to achieve the reductions by linking the automatic increases in payments to doctors and hospitals, with the goal of slowing the overall growth in the programs to the rate of inflation. They now grow at a rate several times that.

By the Administration’s estimates, this can be done painlessly.

Medicare and Medicaid account for 40% of all health care spending in this country. If the Administration’s proposal succeeds in limiting the growth of overall health care costs to about 4%, proponents say, it stands to reason that the costs of those two programs will fall as well, without reducing the services that beneficiaries now enjoy.

“There’s not going to be a cut of a dime to any Medicare recipient in the program,” said Sen. Edward M. Kennedy (D-Mass.).

But other defenders of the two programs said that they remain unconvinced. “All of us are going to be concerned if the Medicare and Medicaid programs don’t have sufficient funds,” said Rep. Henry A. Waxman (D-Los Angeles), chairman of the House Energy and Commerce Committee’s health and environment subcommittee.

Another theory that will be debated is the idea that, once health care costs are brought under control, projected federal tax collections will rise dramatically, because corporations will not be deducting as much for the health care premiums that they provide their workers.

“When you slow down the rate of growth of private health care spending . . . you are taking a funding stream that’s tax deductible and it either goes to wages or corporate profits, both of which are not deductible,” one senior Clinton adviser explained. “So there’s a revenue gain to the Treasury.”

By Administration estimates, that will produce an additional $51 billion for federal coffers over the next five years. But if the plan fails to meet its goals of sharply limiting the growth in health care costs, those revenues vanish.

Also open to question are the new taxes envisioned under the proposal. The outline offers only an amount--$105 billion over five years--to be collected as “sin taxes and/or corporate assessment.”

Some critics have warned that those collections could fall far lower than projected, if the tax is so onerous as to encourage smokers to give up the habit. To expand the tax to alcohol risks losing the support of lawmakers in states, including California, where the beer, wine and liquor industries are located.

“I know that, for political reasons, they didn’t want to raise taxes (beyond the politically popular ‘sin tax’ proposal), but health care, as all Americans know, will have to be paid for,” warned a skeptical Waxman.