VIEW FROM WASHINGTON / JAMES RISEN : Health Care Fact and Fiction: Cost Cuts Unlikely to Pay for the Package

Bill Clinton came to Washington promising fundamental economic change.

Well, he and his advisers have changed one thing. They’ve put a new twist on the techniques by which the nation’s leaders are accused of--how to put it politely?--dissembling about the numbers backing up their major policy initiatives.

The Reagan years brought us the “magic asterisk” and the “rosy scenario.” It has taken more than a decade for the government to recover its credibility on budget deficit calculations since David Stockman’s creative accounting tricks.

Now, the Clinton Administration has given us a new term: “the accurate fantasy.” Health care reform may hinge on Clinton’s ability to make that phrase quickly disappear from the lexicon of public policy.

That may be difficult unless Clinton first alters his policies.

That searing description of the way the President proposes to pay for his ambitious medical package came first from one of Clinton’s friends, Sen. Daniel Patrick Moynihan (D-N.Y.), the powerful Finance Committee chairman who will oversee the legislation in the Senate.

It is still early in the health-care battle, but so far, the “accurate fantasy” label has stuck--mainly because many lawmakers and a wide range of leading analysts in the medical field agree with Moynihan that Clinton’s financing plans are not realistic.

And Clinton, they warn, has avoided spelling out the painful consequences that might lie ahead if his plan is enacted without a more credible financing mechanism: severe health-care rationing, deterioration of service and higher taxes, to name just a few.

What is an accurate fantasy?

In this case, it means Clinton has proposed a plan with a $400 billion-plus price he says will simultaneously pay for coverage of the nation’s 37 million uninsured, provide subsidies to small businesses and low-wage workers, offer new prescription drug benefits to Medicare recipients and long-term care for the elderly, cover most medical bills of early retirees not yet eligible for Medicare, cut the health-care inflation rate in half, subsidize hospitals treating illegal immigrants and still reduce the federal budget deficit by $91 billion.

All that without imposing broad new taxes.

Clinton proposes to pay for the program largely through massive reductions in the growth in spending on Medicare and Medicaid. Medicare will be called on to produce $124 billion in cost savings and Medicaid a further $114 billion. New taxes will pay less than a third of the costs: a total of $105 billion, including politically correct levies on cigarettes and other tobacco products and charges for big companies that remain outside the “health alliances” that will be formed to negotiate with doctors and hospitals on behalf of the consumer.

Ultimately, caps on the growth of Medicaid, Medicare and private insurance spending would also cut the rate of health care inflation in half and bring about further cost savings, the plan projects.

Clinton promises he can wring those enormous costs out of the system without harming service or care. Rather, reducing paperwork duplication and other kinds of waste in the health care industry will lead to big productivity savings, he contends, and leave the United States with a much leaner and more efficient health care system.

Administration officials say, quite emphatically and quite rightly, that their numbers add up--on paper.

“People can question the policies, they can question the politics and, obviously, that’s a process we’re going to go through after we’ve presented the plan to Congress and the country,” said White House Budget Director Leon Panetta. “But if, in fact, we can get all these elements passed by the Congress, then we believe we can hit these numbers.”

Deputy Treasury Secretary Roger Altman, a close adviser to Clinton, added that the Administration is in the process of scrubbing all the projections in the health care plan. When the revised figures come out in the next two weeks, Altman said, “no one will be able to question them.”

But, as Moynihan and other critics have noted, any fool can run numbers that will add up through a Lotus spreadsheet, but that doesn’t make them valid or realistic public policy options.

And that is where the “accurate fantasy” comes in.

Clinton’s plan counts on productivity gains as a magic bullet that will enable him to avoid all the other nasty questions raised by severe cost containment in Medicare, Medicaid and the private system.

“There is an arithmetic solution that works with these numbers,” said John Shiels, an economist at Lewin-VHI, a health care consulting firm outside Washington. “If you cut health care inflation in half, you can save up to $1 trillion over 10 years. The problem is you reduce the quality of care, unless you get nearly endless productivity improvements. The question is: Can you do five times as well in productivity gains in health care over the next decade as we have done in manufacturing?”

In many ways, in fact, Clinton’s plan rests on the idea that he can play the role of King Canute, commanding the rising tide of health care costs to recede painlessly.

“I don’t think the White House has a clue whether it can really get the money it wants from these caps on spending,” said Uwe Reinhardt, a health care economist at Princeton University. “The caps are not a total fantasy; it is just that you have no guarantee that what you will be cutting is really waste.”

In the end, Clinton’s proposal is a product of this year’s political facts of life. American voters are in no mood for another round of new taxes and Clinton is in no mood to force another round of taxes down their throats. In fact, Administration officials privately acknowledge that they backed off from a number of new taxes proposed as ways to pay for health care--including a payroll tax surcharge, levies on doctors and hospitals and even a federal value-added tax--after this summer’s budget battle.

The end result was a less credible financing system, but one that avoids some hard and painful questions that the nation may not be ready to answer.