Behind Closed Doors

By MICHAEL DUFFY and DICK THOMPSON WASHINGTON

The moment Bruce Reed knew for sure that the health-care system was out of whack came in December 1991 when three men in dark suits paid him a visit. Reed, a little-known analyst working in a dimly lit Washington campaign office for dark-horse candidate Bill Clinton, listened politely as the three veteran lobbyists from a major pharmaceutical company pleaded with him to delete price controls from the health-care proposal that Clinton was soon to unveil. "If you guys can afford to send three high-priced lobbyists to buttonhole somebody like me," Reed told his visitors, "then you are charging too much for drugs."

Reed, a Princeton grad and Rhodes scholar from Idaho, was struggling to remake the ungainly and politically unworkable idea for health-care reform favored by most Democrats. Called "pay or play," the plan would have required employers to extend basic insurance to all their employees or contribute to a public trust that would provide the entitlement instead. Huddling with a brainy Rhode Island business consultant named Ira Magaziner, Reed spent several weeks souping up "pay or play" into a more ambitious- sounding plan that would use savings from cost controls and more efficient management to insure 37 million uninsured Americans.

In early January, Reed took the finished draft to Manchester, New Hampshire, where Clinton and his wife were campaigning. The three spent a Saturday night in the Clintons' cramped hotel room going over the plan. Dining on takeout Greek food, Clinton sat on a bed poring over Reed's draft while Hillary paced | the room suggesting changes. The session lasted several hours until the three were satisfied. The Clintons went to a late movie; Reed went to look for a printer. Two days later, Clinton released his "National Health Insurance Reform to Cut Costs and Cover Everybody." He claimed he could provide universal coverage without new taxes and without turning the medical industry inside out. It was pie in the sky, but that hardly mattered: Nebraska Senator Bob Kerrey had a plan and had been telling audiences that Clinton did not. The Arkansas Governor declared his plan to be "uniquely American" and promised to enact it in the first year of his administration. The tactic worked: campaign pollster Stan Greenberg noted later that once Clinton put his plan out, the issue went away.

Clinton's pledge was the first of many promises he and his health team would have to adjust to reality. Over the next 18 months, Clinton's reform plan grew from a necessary campaign plank into a centerpiece of his presidency, and the President's attitude was marked by a whatever-it-takes practicality. For one thing, his aides reworked the timing of the scheme. Clinton now concedes he will need another year to enact his plan and three more to put it fully into place. After insisting that raising taxes wasn't necessary, Clinton's aides made an increase part of the strategy, then scaled the proposed taxes back to just a levy on cigarettes. Clinton fashioned the plan to curry the support of large insurance companies, hospitals, unions and a fearful middle class. Remarkably, however, his early vision of paying for reform mostly by controlling costs and reducing paperwork remains the proposal's central feature. This is the inside story of Clinton's revolutionary plan, a wonky, made-from-scratch idea that endured despite the efforts of nearly everyone, including its own creators, to second-guess it to death.

THE DEVIL IN THE NUMBERS

After weeks of writing and rewriting, Bill Clinton was ready in June 1992 to publish Putting People First, a slim volume on his entire foreign and domestic program. After a brutal primary season, Clinton was running third in the polls, behind both George Bush and Ross Perot, and the Democrat's aides hoped the book would help jump-start his campaign. But on June 22, as the plates of Clinton's book were literally going on the presses, Little Rock, Arkansas, headquarters called for a halt. One line in a single chart just didn't make sense. The problem was with the health-care numbers.

"They were not only uncertain," recalls a Cabinet officer, "they were big. The numbers bedeviled the process all the way through." Everyone knew that the numbers belonged to Ira Magaziner, the longtime Clinton friend whose consulting work for hospitals during the 1980s earned him a place as the candidate's most trusted health-care adviser. A tall, balding man with a weakness for jargon, Magaziner seemed to live in a world with its own brand of mathematics. He contended that Clinton could cover 37 million uninsured Americans by putting controls on costs and eliminating waste. Nearly every Democratic health-care expert, however, concluded that efficiencies alone would never be enough: Clinton would have to raise taxes as well.

Magaziner was not popular among health-care pros in Washington; he dismissed them -- often to their faces -- as too isolated to be part of the solution. Inside the campaign too there were private worries about Magaziner's math. After he had finished his work on the book, the grumbling turned public. As a result, Clinton launched one more conference call with his top health-care advisers on June 22. From the Governor's mansion in Little Rock, he reached Magaziner at a miniature-golf course near his home in Providence, Rhode Island, where he was relaxing with his children. He located Bruce Reed at Georgetown University Hospital, where his own health-care bill was rising while his wife was undergoing tests for a stomach ailment. He found Joshua Wiener, a Brookings Institution fellow, clipping hedges at his home in Washington. Wiener grabbed some of his kids' purple-dinosaur scratch paper and, at his kitchen table, retabulated the costs and savings one more time. He figured Clinton needed $50 billion for a bare-bones benefit package, and he doubted Magaziner's savings could generate that.

During the testy 45-minute call, the debate boiled down to Magaziner vs. Wiener. Clinton probed both men over and over, even as he kept one eye on a golf tournament on television. Magaziner's numbers were appealing, but Wiener wouldn't budge. At that point, Clinton came alive not in anger but in frustration. "Goddammit," he said, "now I know why no President has ever fixed this problem." Reed, who had been listening quietly, finally suggested a third way. Everything on a chart listing budget changes, Reed noted, had to fall under a column labeled SAVINGS or a column marked INVESTMENTS. If Magaziner and Wiener couldn't decide whether health-care reform saved money or cost money, why not just leave it out of the budget chart entirely? Recalls Reed: "Everyone jumped at the idea." The problem had been finessed for the moment. The presses rolled.

THE SMORGASBORD APPROACH

Three months later, Clinton was ahead in the polls but losing traction on health care. Top advisers noticed that he sounded confused on the stump, skipping back and forth between reform plans without clarifying which one he was for. Health-care groups with various agendas bombarded Clinton's Little Rock campaign headquarters with faxes charging him with backing away from the issue. In fact, the campaign was in a deliberate straddle. Clinton's aides, led by James Carville and pollster Greenberg, told him health care was important but cautioned him that the less specific he was, the better. After all, distilling his plan into 30-second commercials was nearly impossible. The Clinton priorities were aptly summed up by the sign Carville had erected in the war room. One line -- IT'S THE ECONOMY, STUPID -- became such a cliche that it overshadowed the other lines: CHANGE VERSUS MORE OF THE SAME. DON'T FORGET HEALTH CARE.

Clinton realized in the wake of Perot's surge that he couldn't stick with an expensive, government-run system such as "pay or play." This also meant that the great liberal hope, a single-payer system in which the government would become everyone's insurer, was a nonstarter. Clinton needed a new approach. In August his health advisers began moving toward the notion of providing universal coverage but relying on market forces to hold down costs. Known as "managed competition," the system would create regional alliances that would buy coverage in large, economical packages from rival groups of doctors, hospitals and other health-care providers.

On the morning of Sept. 22, Clinton was hurriedly briefed on the plan in a crowded Holiday Inn suite in East Lansing, Michigan. Ronald Pollack, the executive director of Families U.S.A., a foundation that develops programs for the elderly, told Clinton that managed care was a secret weapon he could spring on Bush. Clinton could strike a populist chord by helping business lower costs, by providing Americans with cradle-to-grave coverage and by standing up to such special interests as doctors, drug companies and insurance firms. Best of all, the plan required no new taxes. Clinton loved it. As he heard the details, he punched the air with his fist time and again.

< Clinton was so excited that he asked if he could release cost estimates based on the managed-care idea to the public. Magaziner was all for it. Others opposed the move, however, saying the numbers would stir debate, even if the new approach was sound. Pollack told Clinton that his group would soon release a "bipartisan" report detailing managed competition's effect on the budget. Why not, Pollack said, let his group put numbers out? Clinton agreed. That way the numbers would be available but could not be directly linked to Clinton's plan. Two days later, after a 48-hour marathon of speech writing, Clinton spelled out his new, improved plan to an audience at the Merck pharmaceutical company in New Jersey. Clinton's blueprint for reform was now in place.

A FOUR-ALARM FIRE

One week after Clinton took the oath of office, Magaziner circulated a secret 26-page memo to the First Lady, Cabinet officers and a few close political advisers of the President. Drawing on the Merck speech, Magaziner asserted flatly that managed competition -- with caps on payments -- was the model for Clinton's reform. Ruling out more radical approaches, Magaziner's memo said further that the chief goal of the coming months was to work out the most controversial aspect of the plan: how to finance the new system.

Magaziner and the Clintons cooked up the task force during the transition as a way to buy time to work out the details, build consensus among the experts and lobbyists, keep skeptics at bay, generate more ideas, and test the financial assumptions on the government's supercomputers. But most of all, Magaziner needed to conduct what one task-force member called "Ira's own heuristic process. This is the way Ira decides things," the official said. "He gets as many people in a room and talks for as long as everyone can stand." Of course, to a lesser extreme, it was also the way Clinton decided things. "Managed competition was a thesis that needed to be proven," admits Mark Gearan, White House communications director. "That's what the task force set out to do."

Clinton imposed a daunting 100-day deadline for Magaziner: he asked for a report by early May. In his Feb. 17 speech to Congress about his economic program, Clinton went further, ad-libbing a line that repeated his impossible campaign promise to enact the measure in 1993. And then he turned his attention to the budget.

Organizing the task force and its 450 members quickly devolved into frenzy. On leave from other agencies, 200 federal officials trekked daily to the Old Executive Office Building, only to discover they had to wait in long lines at the Secret Service checkpoints. The service's computers routinely deleted the names of people who just went out for lunch. A code of secrecy meant that no directory was widely available to assist task-force members in contacting one another. Sessions were delayed or completely canceled for lack of space in meeting rooms. Robert Valdez, a UCLA public-health professor who eventually served as co-chairman of the benefits working group, arrived in Washington late one night only to be told he was presenting an overview at the first meeting the next morning. "Presenting?" asked Valdez. "Presenting what?" Recalls Harvard internist Arnold Epstein: "The whole thing was like a four- alarm fire."

Magaziner called his biggest conferences "tollgates," a management-theory term applied to meetings in which progress reports are delivered and course corrections made. Linda Bergthold, a private consultant from San Francisco, remembers them as "a cross between Ph.D. orals and the Spanish Inquisition." Members crammed a meeting room on the fourth floor of the Old E.O.B. until the room grew so crowded that they sat on the floor and windowsills and peeked in the door. A lack of coatracks forced members to dump wraps on the floor. At each session, task-force leaders would present their progress on, for example, the emerging benefits package. Magaziner would listen, ask questions and nudge members in the direction he wanted. Magaziner kept the Clintons abreast of progress, and the President sometimes invited individual members over for briefings in the Roosevelt Room of the White House. Tollgates would go on for 10 or 12 hours, sometimes 16, break for three or four, and then resume, often late at night. The process reached an absurd point when a tollgate continued past 2 o'clock on a Sunday morning.

Magaziner's eccentricity drove his colleagues to distraction. Little was committed to paper because nothing was decided with any finality. "Everything just keeps accumulating in Ira's head," said a task-force member. At one point, members pushed Magaziner to lay out the plan -- as it then stood -- in a two-page memo, but he resisted the idea, warning colleagues that too many details were leaking. In what some took as divine intervention, a flu epidemic swept through the task force in late spring, temporarily sidelining dozens of ! participants. Even Magaziner, who was bearing up better than most, caught walking pneumonia. Late one night, while toiling over financing provisions so arcane that even he found them confusing, Magaziner quipped, "Next time, I'm voting for Perot."

Yet it was "policy-wonk heaven," said Bergthold, who noted that years of health-care ideas were being dusted off and hotly debated. And the details came together. Benefits moved fast: at a Saturday-morning session in the Roosevelt Room, a jogging suit-clad Clinton ordered Magaziner to come up with a standard benefits package as good as or better than that of the typical worker, which meant the plan had to emphasize preventive care, including physicals and baby checkups, and some controversial procedures like abortion. But it would exclude cosmetic surgery, eyeglasses and borderline therapies, such as weight reduction. The mix was critical: too skimpy a package would anger the middle class; too rich a proposal would spark charges of a giveaway.

Meanwhile, Magaziner was making enemies on Capitol Hill, where he was regarded as a political klutz who did more to damage the Clinton case than to help it. At one meeting with Republicans on legislative strategy, Magaziner dismissed such talk as "minutiae." The First Lady was dispatched to the Hill to soothe bruised egos and keep liberals on board. Working closely with West Virginia Democratic Senator Jay Rockefeller, Mrs. Clinton would often consult with a dozen lawmakers in person and via telephone. She probed for weak spots in support and likely criticism, but gave nothing away. Leaders of both parties came to sense that if Hillary Clinton had the authority to negotiate, she was reluctant to use it. Her mission instead, they concluded, was to proselytize, spread goodwill and encourage the partisans of competing approaches to stay loose. Their hunch was right: though she traveled widely to keep her husband's promise of reform alive while he was distracted with the budget, she kept her distance from the day-to-day decision making. After her father had a stroke in March, she withdrew from the task force for a month.

By early June, Magaziner's plan was largely complete, except for wrangling about the financing. But Clinton's agenda was threatened by his declining fortunes: the first 100 days were a near disaster. His popularity had dropped in the wake of continuing self-inflicted mistakes; his party had handed him several big defeats and was approving his budget plan in part to keep his presidency from faltering completely. Longtime aides watched in tight-lipped frustration as Clinton brought in Reagan White House veteran David Gergen to beef up his personal staff. With Congress resistant to more taxes, some in Clinton's Cabinet quietly put out the word that health care should be postponed -- perhaps indefinitely.

Clinton wouldn't go that far. Aides let it be known that the issue would wait until July, well, maybe September. That gave Magaziner three more months to crunch numbers. It gave skeptics from Lloyd Bentsen's Treasury Department and Laura Tyson's Council of Economic Advisers time to gather ammunition to scale back the proposal. Clinton wavered, but not for long; he still wanted to introduce it in the fall.

WHEELING AND DEALING

The last two months of planning were a giant exercise in practical politics. Most of the likely allies were on board. Big Labor and senior citizens were natural supporters: both had been granted huge concessions early in the spring. Nurses and hospitals, also beneficiaries of reform, could be courted and perhaps won. Some of the big insurers were playing along; others were coy; small firms were downright hostile. Small business was opposed, probably forever. But Magaziner wanted to sign up the politically powerful American Medical Association or, short of that, keep it neutral.

In July, A.M.A. executive vice president Jim Todd spent a Sunday afternoon in Magaziner's office eating Chinese takeout food and raising questions about the plan. "Reserve judgment," Magaziner said. Many advisers close to Magaziner thought his courtship of the A.M.A. was futile or even dangerous. He had already agreed to suppress one type of liability reform opposed by the doctors, and Clinton's advisers feared that more concessions were inevitable. They were right: by midsummer, price controls were gone, abandoned in favor of caps on insurance premiums. "We could kneel on broken glass and give the A.M.A. everything it wanted," said one task-force member, "and still they will oppose it. They are going to push us as far as possible, and then they are just going to screw us."

Two weeks ago, Todd was back with more demands, including malpractice relief: a $250,000 cap on jury awards for pain and suffering. Magaziner resisted. "What about a $500,000 cap?" asked Magaziner. Todd hesitated, but later threw a Hail Mary: "Could we appear in the Rose Garden behind the President when he announces?"

Magaziner's bartering worked. Late last week, the A.M.A. had yet to criticize the plan. It was the sort of tinkering that explained why the White House insisted into the weekend that everything was subject to change, particularly in return for support from Congress and interest groups.

Clinton's final health-care meetings took place in five two-hour sessions two weeks ago. Some aides were surprised at the lineup: attending were Clinton, his wife, Vice President Al Gore, his wife Tipper, most of the Cabinet, their top aides and leading White House advisers. The first day didn't go well: Clinton's conclusions leaked almost in their entirety to the press. For the next four days Clinton sat quietly, listening to his aides argue, taking notes and deciding later behind closed doors. He backed away from a plan to tax alcohol and opted instead to tax only cigarettes. He considered three forms of premium caps and decided on the one that would be the easiest to explain.

Clinton listened to his top advisers debate the wisdom of cutting $238 billion out of Medicare and Medicaid over the next five years, and heard warnings that House liberals led by Henry Waxman of California would oppose the plan if a slash that deep was made. But Clinton reassured them, "We need to lead with what we think is the best approach. If Congress changes it, fine, but we will have looked at all the options and we will know why we chose what we choose."

That is the Clintons' attitude as they prepare to launch the sales job this week. "We do not believe we have all the answers," said Hillary Clinton in a speech last Friday. "If there are any better, more efficient, less costly, quality-driven ways of doing any of this . . . we are open to that." The Clinton plan has been open to change and compromise from the beginning; what seems to give the President special satisfaction is the durability of the basic ideas that underlie his proposal. Standing in the Oval Office only two weekends ago, Clinton thumbed a copy of his soon-to-be-released plan and remarked to an aide, "You know, this is awfully close to what we put out in New Hampshire."