NEWS ANALYSIS : Politically Softer Approach Enters Health Care Pageant : Legislation: Senate leader’s plan eases cost controls and employer mandates. That could woo support.

The health care reform plan that Senate Majority Leader George J. Mitchell (D-Me.) unveiled Tuesday offers his fellow Democrats a tempting escape from immediate political peril--a way to take a giant step back from the thicket of government price controls and federal mandates that provoked so much of the criticism and concern over President Clinton’s original proposals.

But Mitchell’s politically attractive approach comes at a potential price for American consumers, the business community and the nation’s health care system: He has abandoned many of the tough, government-enforced cost control measures that are central to the Democratic alternative under consideration in the House. In their place, Mitchell would rely on watered-down cost containment measures and--probably more important--on a continuation of recent trends toward slower growth in the rise of health costs nationwide.

Unlike the Clinton plan, or the similar blueprint put forward by House Majority Leader Richard A. Gephardt (D-Mo.) last week, Mitchell’s approach offers a strong vote of confidence that the free market can ultimately extend high-quality, affordable medical coverage to nearly all Americans--with only occasional nudges from Washington.

If, however, Mitchell’s gamble on the free market should come up short, consumers could see costs and taxes begin to climb or the quality and freedom of choice of their health care begin to erode--or all of the above.

Gone from Mitchell’s Senate proposal are such features as drug price controls, strict caps on health insurance premiums and provisions for the mandatory use of government-sponsored insurance buying cooperatives.

While critics have challenged the government-mandated cost control provisions of the House proposal, the absence of comparable features in Mitchell’s plan raises questions about his ability to finance a sharp expansion of health coverage. Those doubts are heightened by the fact that Mitchell’s plan envisions the creation of a rich package of health benefits similar to the best corporate plans now on the market.

Mitchell’s goal is coverage for 95% of Americans, somewhat short of Clinton’s call for “universal” coverage. But the senator provided few hard-cost estimates for the major provisions of his proposal, and the Congressional Budget Office has not yet completed its official analysis of the plan.

One concrete feature for financing Mitchell’s plan is a 25% “assessment” on so-called “high-cost” health care plans, that is, plans whose costs for basic services exceed still-to-be-established federal guidelines.

It is unclear exactly how such a penalty would be imposed in practice, but it almost certainly could mean a direct or indirect cost increase for millions of Americans whose employers are paying substantially above average costs under their existing insurance programs. This is especially true in regions where the trend toward health maintenance organizations and managed care are much less advanced than in California.

Such increases could come as a shock to many middle-class Americans who now enjoy health care coverage that they consider normal, not luxurious--including wide freedom to choose doctors under the traditional fee-for-service system.

Even so, the ability of such an assessment to control costs significantly remains unproved.

As the battle over health care reform comes down to the wire, the Clinton proposal has been left for dead politically. Both Congress and the White House will focus their efforts in the weeks ahead on the Mitchell and Gephardt proposals. Reform, if it comes this year, will be some combination of those two approaches.

Above all, Mitchell’s plan differs from both the Clinton and Gephardt proposals on employer mandates, the issue that has become the key dividing line in this year’s health care debate.

Rather than establishing mandates right away, Mitchell’s plan would call for relatively small mandates only to be triggered under certain circumstances--and perhaps only in certain states--after the turn of the century.

Failure to achieve a 95% coverage rate by the turn of the century would trigger automatic employer mandates in states with low coverage rates under Mitchell’s plan, something a future Congress could overturn.

Under his proposal, the mandates would require companies and employees to each pay 50% of the costs of insurance premiums, compared with an 80% employer contribution under the Gephardt formula. Moreover, if federal costs of providing subsidies for the working poor and others exceed set guidelines, then Congress will be forced to reduce the subsidies. Yet without sufficient subsidies, health care insurance would remain unaffordable for a larger percentage of Americans, triggering the mandates.

Mitchell stresses that he is confident that despite such questions, his plan will prod the free market to gradually increase the rate of insurance coverage, thus avoiding his mandate triggers.

“My bill . . . lays the groundwork for universal coverage through a voluntary system,” he said in asking his colleagues to act in the coming weeks.

The plan clearly draws heavily on the compromise crafted by the Senate Finance Committee, which the CBO criticized for pushing off too much responsibility to the states for managing and supervising a new health care system.

The CBO argues that the states are ill-equipped to take a leading role in the overhaul of an industry that accounts for one-seventh of the American economy. Mitchell said Tuesday that he expects the CBO to offer the same criticism of his plan as well.

Still, Mitchell’s efforts to find a pro-market, middle way in the health care policy debate drew praise from Senate moderates Tuesday. “George Mitchell has taken a major step forward on health care legislation based on market reforms rather than relying on bureaucratic mandates and regulations,” said Sen. John B. Breaux (D-La.).

Mitchell’s bill even attracted relatively sympathetic comments from business groups that have been dead-set against both Clinton’s plan and the House version of health care reform. The National Assn. of Manufacturers, for instance, complained that it had some qualms about Mitchell’s plan but said that “it improves upon the House leadership’s package” and noted that it should not create broad new government activities requiring mandatory federal spending.

“The most important distinction between the two bills is that the Senate plan wisely stays away from creating a new entitlement program,” said NAM President Jerry Jasinowski.

In fact, the House leadership proposal creates a major expansion of the Medicare system to provide a source of insurance coverage for millions of workers at small companies and for the unemployed. The Senate plan, by contrast, assumes that market reforms can be relied upon to make it so attractive to employers that they will voluntarily buy insurance for their workers over the next six years.

Both proposals, meanwhile, provide subsidies for the working poor and small firms with low-wage employees.

Mitchell hopes to pay for his plan, including the subsidies, with savings from Medicare, the federal health plan now available for those over 65 and the disabled, and the elimination of Medicaid, the federal health program for the poor.

In addition, Mitchell has sought to avoid yet another major flap over cigarette taxes by accepting a 45 cent-per pack tax that has already passed the tax-writing House Ways and Means Committee and which is included in Gephardt’s proposal as well.