Health Package Fails Math Test, Critics Charge

Considering that he has been described as a “policy wonk,” it has come as something of a surprise that so many of President Clinton’s broad initiatives have been criticized for relying on poor math and giant leaps of faith about the future.

To make his sweeping program for health care reform financially viable, for instance, Clinton is relying in part on imposing caps on future growth of Medicare--a strategy congressional Democrats sharply rejected when George Bush tried it. The plan makes similarly optimistic assumptions about the ability to control everything from the cost of hospital stays to doctors fees to the price of drugs.

To a much greater degree than his controversial economic plan, the health care package--which calls for overhauling as much as 14% of the U.S. economy--is certain to become a major test of Clinton’s credibility.

That test begins with Clinton’s proposal to pay for his massive health care plan without raising broad new taxes. The President foresees no new levies other than “sin taxes” on cigarettes and perhaps alcohol.

Yet those taxes will cover only a fraction of the plan’s costs, which the Administration estimates will reach a total of $441 billion between 1994 and 2000. Those taxes, are supposed to raise $105 billion through the year 2000.

There has also been discussion within the Administration of collecting a 1% tax on the value of self-funded health plans from large businesses.

Companies would pay a “premium” estimated at 7.9% of payroll and their workers would pay about 1.9%. That would replace existing premiums paid by corporations that now provide health care, but it would represent a new and mandatory cost for firms that do not cover their workers.

Small firms and low-income workers that cannot afford such costs would receive federal subsidies.

Those subsidies, along with coverage for the unemployed and other uninsured Americans, represent the most devilish aspect of health care financing for the Administration--and the portion of the plan that faces the greatest level of skepticism.

“Where will he get the money to pay for it?” asked Jim Weidman, a spokesman for the National Federation of Independent Business, a conservative group that represents small businesses.

Clinton’s answer is complicated. He is proposing that the bulk of the money for those benefits will come not from taxes but from new spending caps on the future growth of Medicare and Medicaid, caps that the Administration says will achieve savings of $238 billion through the end of the decade.

Of that $238 billion, $124 billion will come from Medicare and $114 billion from Medicaid.

Clinton’s new caps will limit the growth in Medicare and Medicaid under a new formula that will begin at just over the general rate of inflation, far below the current runaway rates of growth for health care costs.

By the time the program is in full force, the Administration plans to lower the caps so that they would keep health care costs down to the rate of consumer inflation.

Yet in its plan, the Administration has not offered specific spending cuts to comply with those caps. Such specifics certainly would be immediately attacked by the powerful senior citizens lobby.

The Bush Administration tried and failed to win congressional approval for broad caps on Medicare and other entitlement programs as part of its deficit-reduction efforts last year--also without offering specifics.

Not only did the Democratic Congress reject the Bush caps, but it fiercely resisted much smaller reductions in Medicare proposed during the budget battle earlier this summer.

To cover still more of the costs of his plan, Clinton is counting heavily on the reform effort itself to bring about a broad reduction in the overall growth in health care costs.

Administration planners say the reductions will come largely because the plan’s new regional health care alliances, which will buy health care coverage from insurers for consumers, will have the economic clout to force the insurance industry and the medical community to hold down costs and price increases.

That in turn will lead to savings in Medicare, Medicaid and in the amount of taxpayer subsidies the government will ultimately have to provide in its health care package to help small businesses and low-income workers afford the basic health care package proposed by the Administration.

The Administration projects that its overhaul of the health care system eventually will bring the annual growth in health care costs down from the current level of about 10% to roughly 4%.

“That’s a very, very sharp, large and fast slowdown in the growth in spending,” said Henry Aaron, a health care expert at the Brookings Institution. “And the question we have to confront is how we can finance the additional costs of an aging population, the acquisition of new medical technologies and still achieve these savings from Medicare and Medicaid to pay for health care reform. That is the place where the debate over Clinton’s program needs to focus.”

In the first three years of the plan’s existence, the nation will pay more for health care than under the current system because of the initial costs of covering the 37 million Americans who are now uninsured.

But by 1998, Clinton projects that overall reductions in the rate of growth in health care costs will begin to outweigh the expense of the added coverage for the uninsured and the subsidies for low-income workers and small businesses.

But critics say the cost assumptions on which Clinton has based his promise of affordable health care for all Americans are educated guesses at best and wildly optimistic at worst. And, if the estimates prove to be wrong after the plan is in place, the government will have little choice but to consider broad new taxes to make up the difference.

“They are hinging the proposal on exceedingly ambitious projections for cost containment,” Aaron said. “Had they chosen to propose some broad taxes, they could use more reasonable cost-containment forecasts.”

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