PERSPECTIVES ON THE CLINTON HEALTH PLAN : It Will Balance Just Fine : There is plenty to debate, but that doesn’t include whether the proposed financing ‘adds up.’


President Clinton in recent days has been out talking with ordinary Americans about how his health-reform proposal will help meet their need for insurance security and affordability. Meanwhile, back on the talk show circuit and in the press, most of the conversation is a form of anxious hand-wringing about whether the President’s numbers “add up.” Words like fantasy and hopelessly unrealistic are thrown around whenever the topic turns to finance. Critics in Congress and elsewhere have tried to focus everyone’s attention on the single issue of “How are we going to pay for it?”

We have not been, nor are we now, partisans of the particular plan the President has put forward. But the questions about the plan’s cost and financing are being posed in the wrong way--a way that will discourage productive debate.

Asking these questions in the right way would lead to very different perspectives on what might be right or wrong with the reform plan the President has offered.

First, there’s no point in questioning simply whether the numbers “add up.” Of course they add up arithmetically. Hillary Rodham Clinton, Ira Magaziner and their task force members are not dopes. The critical issue concerns the assumptions built into the numbers in order to make them add up. For the President’s financial estimates, three sets of assumptions are crucial. It is the relative uncertainty about the assumptions that feeds the “do the numbers add up” frenzy.


Estimates of premium costs--of how much a family would pay for medical coverage--and population growth are the least uncertain. One can quarrel around the edges--the amount of small-business subsidies, for instance--but it is not a huge trick to look at existing payments for the type of plan the President has proposed and come up with reasonable predictions. The President’s plan does that, and population growth will not surprise us much over the period for which the numbers are projected--from now until the year 2000.

The second set of numbers in the President’s projections is more controversial. The Administration estimates that gross domestic product will grow between 4.2% and 5.4% over the whole period, with inflation never rising above 2.7% a year. These, admittedly, are optimistic estimates.

The question, however, is how these projections relate to the Clinton reform proposal. Is the accuracy of these estimates critical to whether the plan’s financing “adds up?” The answer is “no.” The financing plan does not rely on some particular percentage of growth or inflation. Instead, it pegs limits on spending to these growth rates.

The real question to ask is exactly how the President’s program proposes to tie health spending to these numbers, whatever they turn out to be. This in turn depends on how effective the techniques for containing costs--such as capping insurance premiums--are likely to be. It is not a question of whether the economic projections are realistic in the sense of being precisely right.


Finally, the President’s financing relies critically on revenues from certain “sin” taxes and “savings” from the Medicare and Medicaid programs. The sin tax revenues may be somewhat overstated but could easily exceed the current estimates if Congress persuades the President to change his mind and support new taxes on beer, wine, and domestically produced liquor.

The real trouble arises, according to the pundits, from estimates of future savings in Medicare and Medicaid. The critics seem to assume that these programs are sacrosanct or, alternately, rapidly growing and politically uncontrollable.

How did these critics get to be so pessimistic? The growth rate of Medicare’s hospital expenditures per enrollee was 6.9% annually in the period 1980-83. But when the government imposed reasonably effective payment constraints on hospitals in 1983, the results were dramatic. The growth rate per enrollee between 1983 and 1988 was only 1.3%. The Clinton reform projects Medicare growth rates to be 4.1% by the year 2000. In short, the rules controlling physician payments and pharmaceutical prices, combined with changes in the age distribution of the population, have generated projections that expenditure growth will be higher by the year 2000 than in the 1983-88 period. Why is this not a plausible, even a conservative, estimate?

Some critics will answer that Medicare’s regulation of costs was effective in the past only because hospitals (and now doctors) could “shift” some of their costs to private payers. Again, this objection seems plausible, but it ignores the facts.

Under a plan that limits all payers, this cost shifting would not be possible.

It is the experience of every industrialized democracy with a universal health insurance program that cost control becomes easier when the plan is universal, not harder.

The explanation is simple. When everyone is in the same boat, special pleading that leads to a breakdown in regulatory controls or shifting of costs becomes more difficult. Common gain and common sacrifice are a reality and radically transform the politics of medical financing.

Equally, a universal system makes someone accountable for overall costs in a way that cannot be ignored or avoided. If the Congress and the states fail to develop constraints that meet spending targets, the taxpayers will know about it. This is not politics as usual, something the critics fail to acknowledge.


Therefore the counsel currently offered by critics--go slow in adding new benefits until we can assure everyone that the savings are real--is advice that is likely to doom the plan to failure. Universalism and cost control go hand in hand. Otherwise it is politics as usual, full of special pleading.

There are valid concerns about the workability of the Clinton proposals. The employment-based premiums, avoidance of general taxes and reliance on uncertain techniques of cost control (particularly in the competing health plans)--all should give pause. There are safer, more reliable and more effective ways of organizing health insurance and health finance for all.

The real issue is how to get a sensible health system in place by the end of this decade. Fixation on the current Clinton numbers or the cynical politics of the moment will not get us there. In these respects, the critics have not yet started to ask the right questions.