Flies in the Ointment

By Dan Goodgame/Washington

Last September, economist Henry Aaron was preparing to meet Bill Clinton to talk about health care when he got a call from a Clinton aide who said abruptly, "Don't come." A scholar at the Brookings Institution in Washington, Aaron had been asked to advise the presidential candidate, then campaigning in Michigan, on ways to finance his expansive health-care goals. Aaron agreed to brief him, but declared in advance that he rejected the easy assumptions of Clinton's staff members that health insurance could be guaranteed to all merely by targeting "waste, fraud and abuse." Aaron stated that "the savings that some people think can be realized are baloney." Then he learned, Aaron says, why he had been disinvited: "Clinton didn't want to hear that."

What Clinton desperately needed a year ago was not an economic quarrel but an attractive campaign issue: a proposal to expand health insurance to everyone without asking for any painful trade-offs from the vast majority of Americans. Now that he's President, however, Clinton is finding it difficult to deliver the four-course free lunch that he promised. The health-care initiative he unveiled to the nation last Wednesday, though widely praised for boldness and compassion, is drawing fire on precisely the point identified by Aaron and others: the rosy assumptions that undergird its financing. Senator Pat Moynihan of New York, chairman of the powerful Finance Committee, spoke for many fellow Democrats last week when he dismissed those assumptions as "fantasy" and warned that "we mustn't pretend that this is going to be free." And Republican lawmakers who attended the President's address wore lapel buttons that asked WHO PAYS?

The White House claims that only about one-fifth of Americans would pay more for health care under the Clinton plan. Losers include small-business owners who don't currently provide health insurance to their workers and would be forced to do so; some low-wage workers who would lose their jobs as a result of that new burden; young adults who feel they need no insurance but would be forced to take -- and pay for -- it; upper-income families, who would pay more to keep the health coverage they have; and smokers, who would pay a new cigarette tax of about $1 a pack. Under the Clinton plan, according to White House calculations, most Americans would pay the same or less for health care comparable to what they now receive.

Many citizens, however, will dispute the Administration's idea of "comparable" care. Most Americans with insurance currently receive treatment through a fee-for-service arrangement with a particular doctor, and they would have to pay more to keep that arrangement. The Clinton plan includes strong price incentives for patients to switch to more economical health maintenance organizations and preferred provider organizations, in which groups of doctors and hospitals provide care for a flat fee -- and usually at a cost to the patient of longer waiting times and rationing of specialists' services. "Most people would be forced into HMOs because that's all they would be able to afford," says Representative Jim McDermott, a Democrat from Washington State who has proposed a "single-payer" health-care system similar to the one in Canada. White House officials privately explain that pushing more Americans into HMOs and PPOs is crucial to cost control, but that is a point the President prefers not to discuss.

Perhaps for that reason, early carping about the Clinton plan has been focused elsewhere, especially on its proposed cuts of $124 billion over five years from Medicare, the federal program that insures the elderly. Representative Henry Waxman, a California Democrat, warns that "there's a lot of concern on the Hill about the magnitude of savings this plan hopes to achieve, especially in Medicare." Moynihan says bluntly, "It's not going to happen." For its part, the White House contends that the elderly as a group would enjoy a net gain from the health plan, since the amount Clinton is planning to cut is less than the $152 billion he would spend on new benefits for senior citizens, including prescription drugs and long-term care. Probably the softest number in Clinton's proposal is the assumption that its reform will achieve savings that rise to nearly $200 billion a year -- about one- sixth of the health-care spending covered by Clinton's plan -- mainly by reducing fraud, health-care paperwork, "inappropriate" treatments and other inefficiencies. Economist Aaron estimates that even if reform "miraculously eliminated all useless, defensive medicine," slashed doctors' incomes 20%, cut drug prices enough to eliminate all pharmaceutical-company profits, doubled the number of Americans in the most-cost-saving HMOs and accomplished all plausible administrative efficiencies, it still "would have achieved barely half the savings called for in the President's plan."

Several top officials who helped draft the plan agree that a more realistic estimate of savings would be about 10%, rather than 17%. "The assumptions are not dishonest," insists a key Clinton adviser, "but they are optimistic." Expert estimates of the savings available ranged widely, from about 10% to 30%. "We had to pick a number, and we picked a high one."

If the Clinton plan is passed and fails to achieve the promised savings from waste, fraud and abuse, health-care experts fear that the result could be sharp pressure on doctors and other care providers to cut costs through rationing of medical treatment. That might hold down total health-care spending and help the rest of the economy. But unless Clinton prepares Americans for such a sacrifice, many will feel that reform is costing them much more than they were promised.

With reporting by Dick Thompson/Washington