Budget Office’s Health Ruling Called Damaging

The Congressional Budget Office plans to rule that the entire Clinton Administration health reform package should be treated as a new government program, not a private insurance plan, dealing the White House a potentially devastating political setback, Administration and congressional sources said Monday.

The ruling by CBO Director Robert D. Reischauer, to be announced in congressional testimony today, has been the subject of feverish speculation and intense Administration lobbying for more than two months.

Since late last week, a host of senior White House officials have contacted Reischauer and his top aides to try to talk him out of his position, White House aides said, but to no avail.

By characterizing the White House health intiative as a government program that must be reflected in the federal budget, the CBO will make it easier for congressional Republicans and other critics to characterize the Clinton plan as a form of socialized medicine controlled by government bureaucrats rather than private firms and their insurers.

“They would have done anything to avoid this--anything,” said one senior Senate aide who has been in close contact with the White House. “They tried like hell.”

“It’s a complication,” acknowledged a senior White House official. “Whether it’s a sustainable complication or not, I just don’t know.”

White House officials said late Monday they were still uncertain precisely what Reischauer would say in his testimony but were hopeful that they had won some points. In particular, they hope he will announce that CBO’s analysts basically agree that the Administration’s numbers add up.

Such an endorsement would lend credibility to the Administration’s claim that its plan, which is based on a requirement that all companies buy insurance for their workers, would finance itself without new taxes beyond the tobacco tax increase Clinton already has requested.

Equally important, White House aides said they believe that Reischauer will not call the required premium payment that employers and their workers would make under Clinton’s plan a “tax,” but instead would choose the less politically damaging moniker of “receipt.”

Those points, however, are secondary to the major impact of the CBO testimony, which is to politically demolish Clinton’s argument that his plan establishes a completely private program, not a new government spending plan.

Administration officials had said from the beginning of their efforts to come up with a health care plan that they would not propose a Canadian-style, government-run plan because the public would not support something that appeared to be such a major expansion of government. Under the CBO’s ruling, Clinton’s plan now suffers from the same liability.

“This gigantic contortion of a bill was done simply to avoid what Reischauer is saying tomorrow,” said the Senate aide.

Under the CBO interpretation, the money paid by employers to insure their workers would be considered a government receipt. Spending for health insurance would be considered a government expenditure. The effect would not widen the federal deficit if the plan pays for itself as the Administration argues it will, but it would dramatically increase the apparent size of federal government--boosting the budget by $330 billion, or roughly 20%.

“This is like having the L.A. earthquake and the Midwestern floods at the same time,” the Senate aide said. “This means the plan is dead.”

Administration officials and other congressional aides were more sanguine, insisting that the proposal could survive the blow. “This is February, not August,” said one senior House aide, noting that the process has many complicated turns to take before congressional votes even begin.

But even White House officials conceded that, at a minimum, key parts of Clinton’s proposal would have to be rewritten.

“My fundamental conviction is that this is going to be worked out,” said Clinton senior adviser George Stephanopoulos. But he admitted that “I can’t say exactly how.”

Stephanopoulos and other Administration officials insisted that the CBO decision is essentially a technical matter involving the arcane rules governing the “score-keeping” of the federal budget. “I can’t believe the American people are going to allow a scorekeeping issue to stand between them and getting guaranteed private insurance for everyone,” Stephanopoulos said.

Privately, officials conceded that the political damage will be serious. As word spread of the CBO decision, Republicans were quick to seize it and argue that it makes Clinton’s plan unworkable.

“Basically, they are going to have to throw out two-thirds of their plan. (The President) is in terrible shape,” said Rep. Bill Thomas (R-Bakersfield), ranking minority member of the House Ways and Means health subcommittee.

“Politically, (Reischauer) has just said you have to play the game by the rules. I don’t think (Clinton) can win if he has to play by the rules,” Thomas said.

Depending on its precise wording, Reischauer’s ruling could affect some Republican alternative reform plans as well. For example, the plan offered by Sen. John H. Chafee (R-R.I.), and sponsored by Thomas in the House, avoids a mandate that employers pay for insurance, but would require all individuals to buy insurance. That mandate, too, might be considered an “on-budget” receipt under the CBO rules.

One immediate political impact of the ruling is to give far more leverage to congressional leaders, such as Senate Finance Committee Chairman Daniel Patrick Moynihan (D-N.Y.) and key House committee Chairmen Dan Rostenkowski (D-Ill.), John D. Dingell (D-Mich.) and Henry A. Waxman (D-Los Angeles), who avoided locking their legislative positions in place before the CBO acted. Over the next several weeks, those legislators will likely begin rewriting the reform legislation in ways that will meet CBO’s rules.

Administration officials made no secret of their disagreement with Reischauer. Putting the health plan on the budget “makes no sense,” insisted White House aide Gene Sperling. “It would be the same as saying that private auto insurance the state makes a person pay to a private auto insurer should also be on the budget and considered a tax. Nobody would ever imagine auto insurance being considered that way.”

Nonetheless, an Administration official said, the White House has little choice now except to swallow its pride and head back to the drafting table.

“This is not rocket science. There are rules,” the official said.

Times staff writers James Risen and Edwin Chen contributed to this story.

* LITTLE IMMIGRANT AID: Clinton’s budget targets virtually no funds to pay for services to illegal immigrants. A3