Kennedy Drafts Own Health Care Plan : Reform: The measure, which would exempt the smallest firms, will go to his committee next week. The President calls it ‘a good start.’

Senate Labor and Human Resources Committee Chairman Edward M. Kennedy (D-Mass.) bowed to political reality Monday and backed away from President Clinton’s proposal that all employers help pay their workers’ health costs, drafting a bill that would exempt the smallest, lowest-paying firms.

Kennedy plans to make his draft the starting point when his committee begins crafting its version of comprehensive health legislation next week.

The President, attending a health care promotional event in New York, called the senator’s proposal “a good place to start” and said that he remains confident the so-called employer mandate will remain the cornerstone of health care reform.

Clinton noted that Kennedy’s alternative meets his basic goal of assuring that all Americans have health coverage by Jan. 1, 1998.

Speaking before the Assn. for a Better New York and later at a town hall meeting in Cranston, R.I., the President reiterated his hope that Congress would pass health care legislation this year, saying “it would be irresponsible to walk away from this.”

“I was hired to press (the pace of change),” he said. “And that’s what I’m going to do.”

Pounding his fist on a table at one point, Clinton ardently defended an array of controversial provisions of his plan, including caps on premiums, coverage for all Americans by 1998, a refusal to pay for reform through a broad-based tax and a requirement that businesses bear the largest share of employee health care costs.

Of all the provisions, the latter, the so-called employer mandate, has proved to be the single most controversial element. As proposed by the President, it would require businesses to pay up to 80% of the cost of their workers’ coverage.

Small businesses, in particular, have argued that the expense would force them to lay off workers and perhaps even shut down. The President’s proposal to provide discounts for small firms has done little to quell the criticism.

Kennedy’s committee is the more liberal of the two Senate panels that will draft major health bills. His decision to scale back the employer mandate is the most conclusive indication yet that the provision is unlikely to survive in Congress exactly as Clinton has proposed it. Instead, it appears some other arrangement will be made for workers in the smallest firms.

A similar approach is under discussion by the House Energy and Commerce Committee. All five congressional committees with major jurisdiction over health care are struggling to produce bills by Memorial Day. Meeting that timetable would help Congress’ chances of passing final legislation this year. Thus far, only one House subcommittee has approved any health reform legislation.

Kennedy’s draft also is an effort by the Massachusetts Democrat to address some of the concerns expressed by moderate Republicans. They have complained that the Clinton plan is too complicated, burdensome and bureaucratic.

However, initial reaction among Republicans to the alternative plan Monday was unenthusiastic. “Sen. Kennedy’s plan moves some of the pieces around but basically it is President Clinton’s proposal done up in new packaging,” said Sen. Nancy Landon Kassebaum of Kansas, the committee’s ranking Republican and a potential swing vote. “The Kennedy plan includes the same heavy mandates, extensive government controls and a high price tag that have already turned the American people away from the President’s plan.”

Kassebaum contended that Kennedy’s plan actually might be harder on small business than Clinton’s, because it would provide them fewer subsidies to lighten the burden of paying for health coverage.

Thus far, only one Republican in either chamber of Congress, Sen. James M. Jeffords of Vermont, has endorsed the Clinton proposal. Over the last several months, however, Kennedy has been engaged in intensive talks with other GOP senators believed by Democrats to be willing to negotiate.

Kennedy made several modifications in the Clinton plan. They include:

* Exempting the smallest firms from the responsibility of providing coverage: specifically, firms employing fewer than five workers making an average of less than $24,000 a year--roughly 3.3 million companies employing about 5.5% of the work force. Companies that do not pay for benefits would instead pay a 2% payroll tax.

* Requiring workers in small firms that do not provide coverage to buy their own. Low income people would be eligible for government-financed discounts and no one would pay more than 3.9% of income toward health premiums.

* Eliminating Clinton’s plan to force the majority of Americans to buy their coverage from government-run purchasing cooperatives. Instead, joining a so-called “alliance” would be one of several options available to workers in firms employing more than 1,000 people.

* Giving everyone the option of joining the health plan now available to government workers, including members of Congress. “If it’s good enough for us, it’s good enough for all Americans,” he said.

* Redirecting government subsidies to business. Instead of basing them on a firm’s average payroll, they would be doled out according to individual wages.

Times staff writer Edwin Chen contributed to this story from Rhode Island.