White House Starts Work on New Health Reform Plan : Legislation: Leon Panetta says the new proposal will emphasize cost containment and may not initially include steps toward universal coverage.

Clinton Administration officials have begun work on a new health reform proposal that will emphasize cost containment but may not include immediate steps toward universal coverage, White House Chief of Staff Leon E. Panetta said Tuesday.

“This country is headed toward a train crash in terms of fiscal policy. If we don’t deal with health care costs, eventually it will bankrupt us,” Panetta said. “From that point of view, dealing with health care reform is absolutely essential.”

Senior Administration officials and First Lady Hillary Rodham Clinton have spoken in recent days about their commitment to continuing the fight for health reform. Yet many in Washington have chalked those comments up to wishful thinking, doubting that the Administration really has the desire to fight the health battle over again with a Congress likely to be more Republican and more conservative than the current one.

Panetta’s comments, made in an interview with a group of reporters, were the strongest indication yet that those doubts are misplaced and that the Administration does intend to plunge back into the fray.

A new plan, Panetta said, will be prepared in December, in time to be included in the budget Clinton submits to Congress in January. And this time, he said, the plan will concentrate much more heavily on controlling costs, which he described as “one of the issues that was lost in the debate” this past year.

When asked about universal coverage, Panetta said: “Obviously that’s going to be part of the discussion.”

But Panetta indicated that the signature element of Clinton’s initial plan likely will be downplayed--a strategy that could cause rifts between the White House and its more liberal allies, and even within the Administration.

“You have a linkage between effective cost controls and universal coverage,” Panetta said, referring to arguments that it would be difficult to truly control costs unless everyone were part of a universal system. But whether it takes one bill or several pieces of legislation, and how long it takes to phase in expanded coverage are all still decisions to be made, he said.

Panetta’s emphasis on cost control could collide with the desires of congressional Democrats, who would prefer to concentrate on expanding benefits. A core group of liberal Democrats, for example, intends early next year to push for coverage of pregnant women and children as a first step, or “down payment,” toward comprehensive health care reform.

Designed to reach up to 10 million needy children, this approach would provide full insurance premium subsidies for families whose incomes are as high as twice the federal poverty level, or $24,640 for a family of three. Partial subsidies would be available to families with incomes up to roughly $50,000.

Revenues for such subsidies would come from a 45-cent-per-pack increase in the federal cigarette tax.

The primary proponents of the “kids first” campaign, Sens. Harris Wofford (D-Pa.) and Tom Harkin (D-Iowa), say they would also include in a bill half a dozen other elements that they believe would enjoy broad bipartisan support. Those include insurance market reforms that would guarantee that companies cannot cancel insurance when a person gets sick, a first step toward a long-term care program, continued tax deductibility for insurance premiums paid by the self-employed and administrative simplification in the insurance industry.

But already some opposition has surfaced. While the “kids first” benefits would be paid by the federal government, states might bear the burden of implementing and administering them--a chore that Administration experts privately note could be very costly.

At the same time, critics also have warned that the “kids first” approach could cause employers to drop coverage for dependents, arguing that the government would simply pick up the slack. If employers did that, costs to the government would rise rapidly.

Nonetheless, Panetta’s comments about the Administration’s desire to try again reflect a fundamental reality of the health care issue: As difficult as the debate is, doing nothing also has a high price.

Administration forecasters estimate that 50% of all increased federal spending in the next decade will be caused by higher health care costs for Medicare, Medicaid and veterans.

“There’s no way we can maintain the deficit path we’ve established” without controlling health costs, Panetta said.

The problem with any bill that emphasizes cost control, however, is that any serious proposal to reduce costs will require new limits on benefits. In the plan that died this year, for example, the Administration had proposed setting an overall budget on health costs. Even though Administration officials insisted the budget was merely a standby authority to be used if market forces failed to control costs, critics accused Clinton of proposing to ration care.

The Administration also had proposed limiting Medicare costs by paying doctors and hospitals less and by requiring some elderly Americans to pay slightly more for laboratory tests and some other medical expenses. Those proposals all proved highly controversial. Panetta declined to say whether any of those proposals would resurface.