Paging Dr. Clinton

By Janice Castro

DOCTOR, DOCTOR, GIVE US THE news!

The clamor for decent, affordable health care has reached a fever pitch. President-elect Bill Clinton, who won plenty of votes by promising that he would work to deliver such a system, is now under heavy pressure to deliver on his pledge within the first 100 days. As he prepares to take office, the problems with America's health-system have reached a critical condition. Medical costs have begun to accelerate at an even faster pace than was expected. More and more employers, unable or unwilling to shoulder the financial burden any longer, are canceling or slashing benefit plans. Millions more Americans are learning that they simply can no longer afford basic medical care.

The crisis is distorting the shape of the U.S. economy. The Commerce Department reported last week that health-care costs climbed 12% in 1991, to $838.5 billion, at a pace four times the rate of overall inflation. Medical bills now account for 14% of the entire American economy, up from 9.4% in 1980. The total cost, which was expected to top $1 trillion by the year 2000, seems likely to hit that level as early as next year.

Employers, who provide coverage for 85% of their workers, are staggering under the costs. Among the hardest hit are industrial giants, which support millions of aging retirees, whose medical bills far exceed those of younger people. Ford Motor, for example, was compelled to make a fourth-quarter write- off of $7.5 billion to account for the costs of providing medical coverage + for its retirees, a blow that will probably force the automaker to report the largest annual loss (nearly $7 billion) ever suffered by a U.S. corporation. AT&T expects to take a similar write-off this year, and General Motors, with far more retirees, may face a catastrophic deficit when it finally takes the health-care hit.

Insurers are also suffocating. New York State's vast Empire Blue Cross-Blue Shield plan, which insures 1.4 million mostly poor and elderly patients, temporarily averted insolvency this month thanks to a state-financed bailout plan. Even with a one-time $100 million infusion, though, customers will face average rate increases of 20%. As a result, hundreds of thousands of New Yorkers may be forced to join the ranks of the uninsured.

Some of Clinton's advisers are urging him to re-evaluate the health-care- reform package that he promised to unveil as one of his first major initiatives. To cope with the price inflation, Clinton must decide how he can reconcile his aim of expanding coverage while curbing costs. Any plan that could achieve both of those goals, however admirable, would require many Americans to pay more for care, give up benefits -- or both. "Any reform will create millions of winners and millions of losers. Health care is the most emotional and personal of all public policy issues," says John Rother, director of legislation and public policy for the American Association of Retired Persons.

So far, Clinton has been neither consistent nor clear about the methods he would use to achieve his goals. His model for reform shifted several times during the campaign, moving from a simple call for preventive care to a more ambitious "pay-or-play" plan that would require all employers either to "play" -- provide insurance for their workers -- or to pay taxes into a huge new government-run insurance program. In the final weeks of the campaign, Clinton settled on the broad outlines of the plan he is now trying to make work. The program is guided by five goals:

-- All Americans must have access to medical coverage.

-- Employers should continue to bear most of the cost of insuring workers.

-- The Federal Government must not micro-manage medical care.

-- The states, which provide about 45% of Medicaid funding, must have enough flexibility to adjust health programs to the needs of their citizens and to the limits of their resources.

-- Total medical costs must be contained under an "enforceable budget," a reference to a cap on total public and private health spending with built-in price controls.

To achieve these goals, Clinton is fashioning a new amalgam of several different models for reform. The central feature of the emerging plan is so- called managed competition, under which American workers and retirees would be grouped into huge insurance pools. Employees of small companies, for example, which normally would be unable to negotiate affordable coverage for a handful of employees, would gain the advantage of being represented as part of larger worker pools. The pools would have the clout to negotiate better rates and benefits with medical providers, including hospitals and physician groups. All employers, no matter how small their enterprise, will almost certainly be required to provide basic coverage for their workers.

To control spending, Clinton said during the election campaign that he would set up a national board of physicians, public officials and consumers, who would set price controls for medical caregivers. The board would have another important task: to define a basic package of standard benefits that must be available to everyone. Clinton has said such a package should include not only preventive care like prenatal screenings and mammograms but also inpatient and ambulatory care, prescription drugs and basic mental-health coverage. High on Clinton's agenda: a requirement that insurance companies sign up all those who want to buy coverage, regardless of their health, a prospect that profit- minded insurers dread.

Clinton's package includes a wish list of other reforms that could reduce waste and inefficiency, but it remains to be seen which ones he will fight for. His aides support, for example, the standardization of more than 1,500 kinds of insurance forms currently in use, a notion previously endorsed by Louis Sullivan, Bush's Secretary of Health and Human Services. The measure could reduce wasteful billing costs and save as much as $4 billion annually.

Clinton endorses malpractice reform to curb huge litigation costs and the insurance premiums that doctors pay. He has spoken approvingly of establishing a set of physician practice standards, or generally accepted rules on what responsible doctors should do for a patient in a given circumstance. This reform, endorsed by many medical research centers and academics, would free physicians from the expensive practice of "defensive medicine," in which they order unnecessary tests and perform unneeded procedures to give themselves extra protection from malpractice suits. Defensive medicine may cost Americans as much as $100 billion a year. During the campaign, Clinton promised to put a stop to price gouging by pharmaceutical companies and doctors who own the laboratories they send their patients to for tests, often at jacked-up rates.

Clinton has also said that in the interest of fairness he may tax the benefits that companies give their workers. Taxpayers spend about $84 billion a year subsidizing tax-free medical care for the mostly middle-class and upper-class corporate workers.

These and other reforms that Clinton has embraced include a number of good ideas that were also tepidly endorsed by President Bush and many other people. Most of them have never been carried out because they would offend one or more powerful interest groups, including patients, doctors, insurers and drug companies. To get any program in place, Clinton will have to use up some of his political capital.

"We're facing one of the biggest political and policy fights ever seen in this country," observes Cathy Hurwit, legislative director for Citizen Action, a health-care advocacy group that favors a Canadian-style system, under which the government would provide health care to everyone.

Clinton is still pondering many important choices. One problem is that some of his health-care ideas conflict with the rest of his economic agenda. He has promised, for example, to nurture leading-edge U.S. research firms. Yet he may impose new taxation and other burdens on medical research and pharmaceutical firms that could drive them overseas. Several companies, including Upjohn and Eli Lilly, have announced major plans to restructure, cutting back on spending in anticipation of Clinton belt tightening.

More important, some of the reforms favored by Clinton aides threaten to undermine his promise to create jobs, since he aims to streamline America's most recession-proof industry: health care. Most of the 290,000 jobs created since the recession officially ended in March 1991 have sprung up in the health-care industry, which employs 9 million Americans. Since the election, Bristol-Myers has announced that it is cutting 2,000 of its 53,000 jobs, and Warner-Lambert expects to eliminate 2,700 of its 35,000 positions. Insurance companies, a principal target of Clinton's reform philosophy, are bracing for the worst. Aetna and Travelers have both announced plans for major layoffs.

Finally, many economists maintain that Clinton appears to be combining contradictory ideas that will cancel each other out. Paul Ellwood, a pediatric neurologist and health-policy expert who helped develop the managed-care idea, insists that his model cannot work in conjunction with price controls. Says he: "That would be like Yeltsin saying, 'We're going to introduce market forces here in Russia, but we're going to start out with the government setting the prices.' Price controls are not compatible with price competition." In Ellwood's system, costs would be controlled by competition among health-care suppliers to serve the members of the large pools of consumers. He believes that such incentives would eliminate the need for price controls. But Stuart Altman of Brandeis University, a top Clinton health-care adviser, thinks that the two mechanisms can work together. Challenged during a meeting of the Clinton health-care brain trust last week, Altman dismissed criticism of the apparent conflict: "I don't think Congress is going to give us the keys to the Treasury to do what I really think needs to be done, and that is to guarantee every American a decent insurance system and to make sure that low-income people are covered." Altman conceded that he suspects that Americans lack the political will to reform the medical system.

It seems unlikely that the new President can begin fighting for a comprehensible plan within the first 100 Days. He has yet to decide which changes he will fight hardest to achieve. If he shifts his focus from managed competition and gives price controls his highest priority, the balky process of creating a price-regulating bureaucracy will take time. And time is the one thing no incoming President can afford to waste, least of all one committed to reforming a major part of the American economy that has stalled every attempt so far at substantial change.

CHART: NOT AVAILABLE

CREDIT: NO CREDIT

CAPTION: HEALTH CARE WITH A DIFFERENCE

HAWAII, OREGON, CALIFORNIA, CANADA

With reporting by Bernard Baumohl/New York and Dick Thompson/Washington