Prognosis: Fewer Jobs

By Dick Thompson/Washington

WHILE BILL CLINTON RELAXED ON Martha's Vineyard last week, staff members were sweating and fretting back in Washington, studying computer models for answers to one of the most explosive questions facing his health-care-reform proposal. That question -- the subject of a showdown meeting scheduled with the President this week -- is, How many jobs will be lost during the long transition to reform?

Clinton has publicly stated that health-care reform will "boost job creation," a claim that unnerves many of his advisers. What they know -- and what some of them fear Clinton has not been told -- is that the Administration's own preliminary computer-aided studies of the "employment effects" of health reform predict "significant" job losses.

TIME has learned that according to one computer run, the plan would slow net employment growth by as many as 1 million jobs over the next five years. Other Administration forecasts -- based on computer simulations of the U.S. economy at various government departments and the Urban Institute, a Washington think tank on contract to the White House -- have produced lower estimates of job losses, sources said. But they do not support Clinton's claims of job gains.

Sources caution that these forecasts resulted from a draft of the health- reform plan that is still being refined, and was tested on an econometric model that included "faulty assumptions" about the ways in which employers, workers and health-care providers are likely to respond to health-care reform. Still, these estimates -- and others by independent economists who predict job losses in the 200,000-to-600,000 range -- galvanized Clinton's health-reform advisers last week into a crash program to refine both their computer models and the health-care plan in order to minimize their forecast of unemployment. Says a worried official: "The jobs issue is probably the most sensitive one we face in health-care reform."

Privately, several of the President's advisers contend that the current runaway spending on public and private health care is a growing burden on the economy, which, like a surgical patient who must feel worse before he can get better, might need to endure modestly higher unemployment for several years as the price of reform. Trouble is, Clinton has not prepared the public for any sacrifice. He and his top health-care strategist, Ira Magaziner, have been selling health-care reform as a four-course free lunch. Everyone will be covered. It won't require new taxes. It will immediately boost job creation. And it will immediately reduce the federal deficit. "Several of us," says a political adviser to Clinton, "are worried that we're creating expectations for health care that can't be met."

No business will be required to pay more than 7.6% of its total payroll for health insurance. For big companies, such as automakers, which now pay about 19%, the potential savings would provide an incentive to hire new workers. But for small firms that now provide no health insurance, the requirement will add to the cost of labor. Some of these firms will cover the cost by cutting profits, raising prices, withholding raises or extending overtime hours. But many firms will not have these options. Most vulnerable are enterprises like restaurants and farms, which employ many of the nation's 4.8 million minimum- wage workers and often operate with slim profit margins. For them, cutting jobs may be the only option. The National Federation of Independent Business has estimated that 1.6 million jobs will be lost over five years. A new study, financed by restaurant owners, forecasts losses of 3.1 million.

The White House rejects these figures as flawed because they don't sufficiently account for jobs created in firms that save money through lower insurance costs and because they are based on false assumptions about the tightly guarded reform plan. The next computer runs, to be conducted on the Urban Institute's microsimulator (called TRIM, for Transfer Income Simulator), will include various "transition subsidies" designed to minimize job losses for small businesses and low-income employees. His advisers plan to present Clinton with four options this week for easing the transition, but one official said they were having trouble designing subsidies that were not "a nightmare to administer."

Hillary Clinton, who heads the health-care-reform effort, is committed to a rapid phase-in, by January 1996, for universal coverage and a generous basic- benefits package -- though few others believe this schedule is realistic. She has waved off warnings of job losses as the propaganda of greedy business interests. Her strong views and assiduous hunting of suspected leakers have exerted what one official describes as a "chilling effect" in sessions she attends. Nevertheless, at a recent meeting, her colleagues report that Laura Tyson, chair of the President's Council of Economic Advisers, cautioned that once the plan is released, respected outside economists will run it through standard econometric models, which will probably show job losses, "and some of those numbers might be big."

Clinton health-care planners have tried to address the concerns raised by small business, which enjoys great influence in Congress. They emphasize that under the proposal, the smallest businesses will pay as little as 3.5% of their payroll for insurance, rather than the 7.6% top rate, with taxpayers subsidizing the rest. And the smallest businesses will be allowed a slower phase-in of the new expense. Insists Magaziner: "We think we can do this without having a negative employment effect." Magaziner, backed by Hillary Clinton, has so far insulated the President from internal assessments that might challenge his rosy scenario. But that, officials say, will change in the meeting scheduled this week.

Many small-business owners who want to provide health coverage for their workers will back reform because the current situation inflicts large and growing burdens on them. Audrey Rinker, owner of a graphics shop in New Port Richey, Florida, has been denied coverage by three insurance companies because her workers have pre-existing illnesses. Says Rinker: "We need something done right now." Even when they can get insurance, small companies pay some of the highest rates. Barbara Silver Miller, co-owner of a vending-machine firm in Phoenix, Arizona, has seen premiums for her employees rise 20% to 30% a year.

To reform this festering mess, some Clinton officials argue privately, the transitional loss of a few hundred thousand jobs is not a high price to pay. Certainly not in an economy that employs 120 million workers and creates 2 million jobs a year. Yet for the individuals involved, a single job lost on a Nebraska farm isn't really "a net wash" when a new job -- requiring relocation and training -- is created in a Detroit auto plant.

With reporting by Dan Goodgame/Washington