Budget Office Sees Health Plan Widening Deficit

In a major setback for the Clinton Administration’s health care initiative, the Congressional Budget Office said Tuesday that the reform plan would create a massive new government program that ultimately would prove more costly than Social Security and would widen the federal deficit by $74 billion during its first six years.

In its long-awaited report, the nonpartisan budget agency said the mandatory insurance premiums that employers would be required to pay under the Clinton plan should be considered government “receipts” and included in the federal budget.

Characterizing the payments as receipts is a less politically charged definition than using the term “tax,” but the budget office suggested that the mandatory premiums would have essentially the same effect as new payroll taxes on American workers.

Under the Clinton plan--which the President has asked Congress to approve this year--most employers would be required to pay at least 80% of the cost of providing insurance for their workers, with employees picking up the remainder. The government would subsidize premium costs for some small businesses and low-income workers.

The CBO, which provides official budgetary rulings for Congress, said that the Clinton health plan should be regarded as a huge new federal entitlement program. The premium payments and government subsidies would rise to an estimated $513 billion annually by the year 2004, nearly 20% more than projected Social Security outlays in that year, the agency said.

Dealing another blow to the Administration’s reform campaign, which has sought to portray the President’s initiative as a private-sector solution to the health crisis, the CBO said that the network of health alliances it would establish should be considered government entities.

As envisioned by the Administration, the alliances would act as insurance buying cooperatives for consumers and employers. The quasi-public entities would collect the mandatory premiums from employers and their workers, and then use the funds to buy insurance from a handful of large private insurers on their behalf.

The CBO report is politically damaging because it directly challenges many of the basic assumptions on which the White House health care plan is founded. The Administration has argued that its “managed competition” plan represents a sophisticated public-private partnership designed to harness the power of the marketplace to extend coverage to all Americans, while reining in runaway health care costs.

Administration officials have taken pains to design the plan so that it would not be characterized as a significant expansion of the federal government’s role in an industry that accounts for 14% of the nation’s economy.

By defining the proposed system as a new entitlement in the tradition of Social Security and Medicare, the CBO has made it much easier for opponents to portray the Clinton plan as a form of socialized medicine.

In rendering its bombshell ruling, the CBO resisted intense pressure from White House officials, including the President and First Lady Hillary Rodham Clinton. The Clintons argued that the insurance premiums, and most of the plan’s costs and expenditures, should be left out of the federal budget.

By determining that the President’s reform effort would create a new government program, the CBO report also will impose much tougher budgetary and cost discipline on the White House program.

CBO Director Robert D. Reischauer told the House Ways and Means Committee Tuesday that including the health plan in the federal budget would make it far more difficult for the government to use “accounting chicanery” to hide its true costs.

The CBO’s verdict that the plan would increase the federal deficit is another blow to the Administration. The White House has stressed repeatedly that its health reform campaign offers the only path to deficit reduction, because it will restrain the exploding costs of the government’s existing health care programs--Medicare for the elderly and Medicaid for the poor. The Administration has estimated that its plan would reduce the deficit by $58 billion between the years 1995 and 2000.

But the CBO disagreed. Although the agency concurred that some form of health care reform is needed to curb the deficit, its report found that the Clinton plan would actually increase the shortfall by $74 billion for the remainder of this decade. The figure would increase to $126 billion by the year 2004. The budget office said that the Clinton plan would not result in significant deficit reduction until well after the turn of the century.

In another troubling observation, the report agreed with private studies that say the Administration has underestimated by at least 15% the costs of providing health care to all Americans. While the White House has said that insurance premiums would cost about $4,200 a year for an average family of four under its proposal, the CBO projected a cost of $5,565 for an average two-parent family.

Testifying at a packed committee hearing, Reischauer said that the costs are understated largely because the White House failed to anticipate many of the consequences of providing universal coverage and subsidizing firms and workers who can’t afford to pay the premiums.

The CBO estimated that the subsidies for employers would cost $58 billion annually by the year 2000, or $25 billion more than the Administration’s forecasts. Reischauer said the CBO estimates reflect the agency’s determination that the Clinton benefit package would be more generous than the average health care plan available to American workers today.

Reischauer stressed that his agency’s report was not intended to be a condemnation of the Clinton plan. The CBO forecasts that by the year 2004, the Clinton reform measure would reduce overall national health care spending by 7%, and “holds out the promise of reducing the deficit” sometime after the year 2004, Reischauer said.

Clearly stung by the report, the White House and its Democratic allies in Congress immediately sought to downplay its significance.

The President, traveling in Shreveport, La., insisted it was a minor problem. Following the Administration line, Democrats on the House Ways and Means Committee stressed that the question of whether the Clinton health care system would be considered a government program is an “inside-the-Beltway issue.”

Rep. Robert T. Matsui (D-Sacramento), a member of the panel, insisted that the report is “good news for the Administration” because it shows that, under the Clinton plan, both overall health care costs and the deficit would finally begin to decline by the year 2004.

But Ways and Means Chairman Dan Rostenkowski (D-Ill.) acknowledged the adverse political impact of the report. “I’ve always said that the Clinton plan would be modified,” Rostenkowski said.

Clinton’s critics agreed that the report could prove politically devastating. In effect, it strips away the distinctions the White House has sought to create between its managed competition concept and a more direct government intervention in the health care system.

“Today, CBO confirmed what many of us recognized months ago--the Clinton health care reform plan requires substantial new taxes,” said Sen. Pete V. Domenici (R-N. M.).

Times staff writers Karen Tumulty and David Lauter contributed to this story.