Social Policy: Rx Band-Aids To Patch Up Health Care

By DAVID ELLIS

The idea that every American should have access to affordable health care has been gathering political force since Democrat Harris Wofford used it to trounce former Attorney General Dick Thornburgh in the Pennsylvania Senate race last fall. Here, Democrats believed, was a domestic issue they could use to help drive George Bush from the White House -- and Republicans feared they were right. And so last week the President, unnerved by declining approval ratings and a tepid response to the hodgepodge of tax cuts he proposed in his State of the Union address, unveiled his own prescription for reforming the health-care system.

Bush's plan is designed to make it easier for the 36 million Americans who currently lack medical insurance to obtain it, while leaving the basic structure of the health-care system intact. Working families who earn less than $14,300 annually would receive vouchers worth as much as $3,750 to pay health-insurance premiums. Middle-class families with earnings of up to $80,000 a year could deduct premiums of as much as $3,750 from their federal tax returns. To cut the cost of policies, Bush urges small businesses to band together in "health-insurance networks" that could bargain for lower rates.

Health insurers -- who would gain millions of new customers under Bush's plan -- hailed the proposal. The President was praised for addressing one of the major flaws in the existing insurance system: denial of company-sponsored coverage to new employees if they suffer from "pre-existing" ailments. With Bush's plan, companies could no longer legally turn down applicants no matter what their health status, but the cost of private coverage would still be prohibitive.

But Bush's reform plan has huge drawbacks. One is that his $3,750 tax credit and deduction will not cover the $5,600 price of insurance premiums for an average family. Another is that it will do little to curb the skyrocketing costs of medical care, on which the U.S. spent $800 billion last year and which are rising at a rate much higher than that of inflation.

Moreover, Bush did not spell out precisely how to pay the $100 billion, five-year cost of his program, saying, "We'll figure that out." He sent Congress a 38-page list of financing options, none involving higher taxes.

Some of the money would come from restrictions on federal payments for Medicaid, the program that serves 27 million Americans, including half of all nursing-home patients. The plan would also hike Medicare premiums for the wealthy, an idea that is certain to provoke protests. In 1988, the last time Congress attempted to make upper-income retirees pay more, a revolt among seniors forced repeal of the catastrophic-care law the following year. Fear of a similar backlash led Bush advisers to drop the idea of reducing tax deductions for company-paid health insurance, a subsidy expected to cost $43 billion this year. Administrators of teaching hospitals, often the care providers of last resort for the poor, are poised to battle Medicaid cuts. They note that even now they do not receive enough money to meet the task.

The feverish partisan atmosphere of an election year almost guarantees that neither Bush's prescription nor any other competing scheme will be enacted before November. At least 30 different health-care bills are under consideration on Capitol Hill, and every presidential candidate has brandished his own proposal. Most of the ideas fall into three broad categories:

Universal Care. Under this system, the government would draw up a portfolio of minimum care for all Americans. Private companies would continue to offer coverage to workers under employer-paid plans and could devise policies to defray the costs of risky or experimental procedures. A more advanced form of universal care is the "single-payer" system, in which the government would completely replace private insurers and regulate physician fees. Such a system exists in Canada, and Nebraska Senator Bob Kerrey has made a modified universal plan the centerpiece of his presidential campaign.

Universal care has little chance of being adopted. The plan is under assault by the insurance industry, and Republicans find the concept an unacceptable intrusion into the free-enterprise system.

Play or Pay. The idea with the most support from Democratic leaders, it would require businesses with 25 or more employees to provide worker coverage or pay a 7% payroll tax for the uninsured. To hold down spending on common medical procedures, a federal board would monitor fees and streamline the claim process.

The nation's first comprehensive play-or-pay program was enacted by Michael Dukakis when he was Governor of Massachusetts to provide a shield for 400,000 uninsured state residents. Under the Dukakis program, companies were compelled to contribute to a state fund for each uninsured worker. But the plan soon ran into resistance from business leaders, who said the levy was cutting into profits. Current Massachusetts Governor William Weld has promised to repeal the program.

The Administration opposes play or pay. Health and Human Services Secretary Louis Sullivan claims that many employers would opt to pay the tax rather than foot the bill for private care. If the bill passes, Bush will veto it and attack the legislation. The message, a senior White House adviser says, will be "the Democrats are for socialized medicine, and we're not."

Managed Care. This approach is designed to maximize the clout of consumers by encouraging them to organize into groups to negotiate with health providers and insurers. Employers, providers of group insurance, and agencies representing the poor and unemployed would aggressively lobby for lower-cost coverage. The downside: plan members would have a limited choice of doctors and face restrictions on the use of specialists.

The idea has been partly embraced by Democratic candidate Paul Tsongas and practiced by financially strapped local governments. Dick Phalen, president of the Cook County, Ill., board of commissioners, used managed care to reduce the cost of care for his 25,000 public employees and their dependents. Using the strength found in numbers, Phalen was able to obtain private coverage at a cost of just $2,100 for an employee with no dependents. "We're protecting our employees against the world's vagaries at a savings," says Phalen, who may open the program to all Cook County residents.

In time the health-care-cost explosion could be stemmed by a modified version of managed care, which is already being practiced by many health- maintenance organizations. It could be funded by a modest increase in taxes to provide coverage for the uninsured, though the Bush Administration would resist it.

Providing comprehensive care, cutting red tape and getting more bang for the medical buck are easy ideas for politicians to embrace. The question is whether they can deal honestly with these issues in an election year. If the pressure of debate shoots down some gimmicks and forces a candid discussion of the nation's health-care priorities, America might get the reform it desperately needs, perhaps as early as next year.

With reporting by Dan Goodgame and Nancy Traver/Washington and David Seideman/New York