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By Otto Friedrich

A white-haired and bespectacled man who looks like the traditional family doctor he once was, Otis Ray ("Doc") Bowen served as a general practitioner for more than a quarter of a century in Bremen, Ind. He knows about the ravages of long illness personally as well as professionally: his first wife Beth spent the last three months of her life in a hospital before she died of bone cancer in 1981. The experience was "devastating emotionally," Bowen recalls, adding, "We have all seen how devastating illness can destroy the financial security of a family."

This is important to the crisis swirling around Doc Bowen, the first physician to command the Department of Health and Human Services, for he is now prescribing Government action against the havoc caused by catastrophic illness. Specifically, Bowen has proposed that by charging Medicare beneficiaries an extra $4.92 each month, the Medicare program could pay all hospital and doctor bills above $2,000.

"This is a social problem that has been smoldering for years," says Bowen. At present, Medicare pays hospital bills minus deductibles for the first 60 days only; after that the patient has to pay $130 a day for the next month, then $260 a day for another two months, at which point he is on his own. Patients also have to pay at least 20% of their doctor bills, which often run into many thousands of dollars. About 800,000 of the 28 million Medicare patients every year face bills higher than Bowen's proposed cap of $2,000. Some of them have private "medigap" insurance, but it is often inadequate.

A two-term Governor of Indiana before getting the HHS post, Bowen is not without political acumen, and he thought he had President Reagan's support for his new campaign. Not only has Reagan expressed sympathy for families with crushing medical burdens, he has also seen some of the consequences. Press Secretary James Brady, shot down by would-be Presidential Assassin John Hinckley, still needs considerable medical care, and his wife calls the costs for such care a "national problem crying for a solution." In the State of the Union message last February, the President formally asked Bowen "to address the problems of affordable insurance for those whose life savings would otherwise be threatened when catastrophic illness strikes."

Bowen's plan, which combines outright aid for major medical costs with a series of tax incentives for broader private insurance coverage, is no more than a very modest step. Only about 2% of Medicare patients would actually require extended benefits, according to one estimate. Most important, the proposal would not underwrite nursing-home bills, which now cost 1.4 million Americans an average of $22,000 a year each, with only about 2% of that expense covered by private insurance. Other important costs that are not covered, says John Rother of the American Association of Retired Persons: "Outpatient prescription drugs that cost $7 billion a year, extra physicians' charges that total $2.6 billion, eyeglasses at $1 billion and dental costs at $2 billion." Robert Maxwell, vice president of A.A.R.P., told a Senate committee hearing earlier this month that the "Secretary's proposal . . . is a minimal one . . . It is misleading to suggest that the Bowen plan would provide older Americans with protection against catastrophic health-care costs."

Yet the need for additional coverage is painfully evident throughout the U.S. Harry Williams, for example, is a retired attorney in Marietta, Ga., whose wife Jeanne died last October after a prolonged struggle with cancer. She was hospitalized eleven times in five years, including four operations, and finally, says Williams, "she just wore out." Williams, 75, now owes $14,000 in medical bills, and he is thankful that the hospital to which he pays $100 a month is not forcing him to sell his house.

Pat Beyer, a pharmacy clerk in San Francisco, is in even worse condition. Her octogenarian parents' life savings of $30,000 were devoured before her father's four-year battle with cancer and a heart condition ended in his death on Christmas day. She is still responsible for her mother, who suffers from Alzheimer's disease. "Now I am having to dip into my own savings, and I will probably have to go through all of it," says Beyer. "I have been to every agency to ask for help. I am bitter, but I try to take it one day at a time."

To the Government officials charged with holding down deficit spending, this all sounds like a familiar cry for a piece of the federal pie. Though Bowen argues that his plan will be self-financing, the Reagan budget cutters are concerned that Congress may start adding benefits to the basic formula. They also remember the original estimates that Government payments for kidney dialysis would cost only a couple of hundred million dollars; actual payments have grown to $2 billion.

Attorney General Edwin Meese is reported to be firmly opposed to Bowen's idea, and so is James Miller III, head of the Office of Management and Budget. "We have the standard reservation against more Government programs," says an OMB aide. "Let the private sector do it. Also, parts of the Bowen plan rely on new tax incentives. We have just closed major loopholes in tax reform, and now here come some new loopholes." To Beryl Sprinkel, chairman of Reagan's Council of Economic Advisers, Bowen's plan is "inconsistent with the Administration's policies to restrain the growth of federal spending, to use private-sector solutions whenever possible."

"I don't relish being bashed around," says Bowen, but he adds, "I'm not a quitter. If I believe in something, I want to give it my best shot." Bowen has recently made two appearances before Reagan's domestic-policy council, and last week he again took his sheaves of facts and figures to the White House. $ Reagan was a sympathetic listener. "We all know somebody who's been hit by something like this," the President said. "It's simply not fair that middle- class people can be wiped out financially by an unfortunate health problem." But Bowen's numerous critics were quick to raise questions about whether his program should be compulsory, whether it should include a means test, whether private insurance could not do more.

"Not a single person suggested we should do nothing," said one participant in last week's discussion. "But no federal program started in this century has ever had accurate predictions about its ultimate size and cost." At the end, the President once again postponed a decision, which may be disclosed only in his State of the Union address.

Regardless of what Reagan decides, Bowen is likely to find bipartisan support in the incoming Congress. Massachusetts Senator Edward Kennedy, long a believer in stronger national health insurance, is becoming chairman of the Senate Labor and Human Resources Committee and promises to see that Bowen's plan "receives the timely consideration and action it deserves."

Looking back on their row with the determined Doc Bowen from Indiana, some of the Administration budget cutters figure that they may have miscalculated. "The way we have handled this is dumb, dumb, dumb," says one. "We never should have allowed Bowen to make his report public. Now it's out there, and catastrophic insurance has a momentum of its own."

CHART:

Credit: TIME Chart by Renee Klein.

Caption: What Medicare patients pay on hospital bills.

Description: Color illustration: patient in bed; bar chart showing costs per 60 to 150 days.

With reporting by Patricia Delaney/Washington, with other bureaus