Washington: A Dose of Reality

Why ClintonCare is ailing

Washington entered the hot summer months in a fever over health-care reform, the centerpiece of the Clinton presidency and potentially the biggest government program since Social Security. But what started in the Clinton campaign's "war room" as a sure-fire way to lure the electorate back under the Democratic tent is with astonishing rapidity assuming the shape of a political debacle.

How long ago that evening last fall now seems, when a vibrant Bill Clinton stood before the nation and a joint session of Congress, waving in his hand a piece of plastic that looked just like a credit card. With this card, Clinton promised, 38 million more Americans would get health insurance, with better benefits than the richest Fortune 500 plans, for less money, with savings in fact so vast that the deficits that haunt the nation's financial stability would begin to vanish.

For all the endless talk of gridlock stymieing government, and special interests corrupting it, the political process seems to be working. Rebellion by the health-care industry, by American business, and most of all by the constituents of every member of Congress may be cracking the charming demagoguery of false promises and patently contradictory claims. Rep. Sam Farr, a freshman liberal Democrat from California who supports a nationalized health-care system, says his constituents have told him: "I like what I've got. Don't change it. And for God's sake, don't let the government run it."

Once the fanfare of Clinton's announcement had passed, disturbing details began to come out. The government would dictate to medical students whether or not they could specialize. People would not be allowed to buy private insurance that duplicated the government package.

Health-care czar Ira Magaziner had adopted a classic central-planning approach, masterminding a top-down restructuring of the entire health-care sector. Designed to disguise a government takeover of medicine, the plan's complexity created a different but very serious political problem. The plan baffled nearly everyone. It was difficult if not impossible to explain to the public, even as it offered hundreds of ripe targets to attack.

While Clinton claimed his plan would cut waste by streamlining the messy health-care market, crazy flow charts began appearing to illustrate the stupendous Rube Goldberg bureaucracy Magaziner had designed. The monstrous scope of the undertaking became apparent. Duane Garrett, campaign manager for Sen. Dianne Feinstein, a Democrat running for re-election in California, recently put it this way: "Any health-care bill, because of the huge stakes, is going to have some impacts that people aren't completely prepared for."

Respected, nonpartisan experts began to issue warnings. Analysts for the American Academy of Actuaries said it is "very likely that the financial estimates will be off," leading to "higher taxes to cover the deficit." The Committee for a Responsible Federal Budget warned that the government chronically underestimates costs. "Costs are already growing too fast," the group said. "Adding more demand and new funding…could be like throwing gasoline on a fire."

The Congressional Budget Office not only found the White House deficit projections off by tens of billions of dollars, it also warned that "estimates of the interactive effects of so many complex changes to an industry that encompasses one-seventh of the economy are highly uncertain."

By politicizing medicine, every element of the Clinton plan—from abortion coverage to cigarette taxes—excited fierce debate. Every interest group from the Children's Defense Fund to Chrysler Corp. promoted an agenda. Shock troops of dentists, drug counselors, and chiropractors converged on Washington.

By mid-June, with public support rapidly eroding, the political ground began shifting fast. Democrats remained deadlocked over fundamental issues in the major health-care committees. Feinstein quietly removed her name from the Clinton bill. House Majority Leader Richard Gephardt (D-Mo.) told reporters that it might be OK if Congress postponed health reform to next year.

At a June press conference in the hallway of the Dirksen Senate Office Building, Sen. Edward Kennedy (D-Mass.) hailed as a breakthrough his labor committee's passage of a Clinton-style bill. Maryland Democrat Sen. Barbara Mikulski stood by his side and claimed to be "making history." But when another door opened and out came Finance Committee Chairman Daniel Patrick Moynihan (D-N.Y.), joined by ranking Republican Robert Packwood of Oregon, the pack of some 40 reporters suddenly turned heel, abandoning Kennedy to the C-Span cameras. The real news was that Moynihan had given up trying to design a bipartisan bill that would pass the Senate, introducing instead another Clinton-like version that Packwood and other liberal Republicans swiftly denounced as unacceptable. The Republicans had clearly closed ranks.

Conservative Democrats joined in. The bill "starts with too much government intervention," said Oklahoma's David Boren. "The worst thing we can do for the country is press forward with a bill that is on a party-line basis." The reason, he added with a not-too-subtle reference to potential losses in November, is that "then you subject the whole direction of health care to possible reversal or sharp changes in direction every two years."

But predictions are dangerous on Capitol Hill. Democrats may still pull off a major health-care bill, especially if they get away with the discordant reasoning that continues on most major fronts:

? Deficit control. One of the main reasons for tackling health care, the White House originally said, was that Medicare and Medicaid threaten to bankrupt the country. True enough. If all other spending were cut enough to balance the budget today, these two health-entitlement programs would push annual deficits back up to $300 billion within a decade, warns the Committee for a Responsible Federal Budget. By 1998, health care will surpass Social Security and defense as the biggest item in the federal budget, alone consuming a quarter of federal spending. Yet the main health plan now before the House Ways and Means Committee calls for a huge expansion in…Medicare. The plan would roughly double Medicare to cover between 60 million and 75 million people.

? Employer mandates. The plans advertise themselves as largely free of new taxes. But the chief financing mechanism to extend health insurance to everyone is the employer mandate, which would require firms to pay 80 percent of their workers' health-insurance costs. The mandate was chosen precisely because it is a hidden payroll tax. Levying a direct tax that large is politically unthinkable.

But employers do not "pay" for insurance. They offer it as part of the wage package. Mandating it will reduce money wages or employment. The CBO said the mandate is a tax. Proponents of nationalized health care, such as Ways and Means Chairman Sam Gibbons (D-Fla.) and health subcommittee Chairman Pete Stark (D-Calif.), say it is a tax. But because the tax appears to be levied on employers and not workers, it retains some public appeal.

? Cost containment. The administration, hoping that constant repetition of patent falsehoods will erode the truth, has insisted that its plan has no price controls. Congressional Democrats have adopted the term "cost containment" for the variety of price controls that are a key element of the major Democratic bills offering insurance to all Americans. Price controls remain in the legislation despite strong Republican opposition because they are the only thing standing between expansion of coverage and fiscal meltdown.

Price controls do not work. Government cannot contain by fiat an explosion in health-care demand. If controls hold, non-price rationing will set in, sharply reducing the quality of care. If the resulting political pressures become too intense and the controls are eased, costs will skyrocket. In fact, price controls now operating in Medicare and Medicaid are causing the cost shifting that is helping to drive up the price of private insurance.

As economists have been saying for decades, the health-care market is not functioning properly. As time goes by, the dysfunction gets worse. The source of the problem is the tax code. The tax exclusion of employer-provided health insurance ties health care to the workplace, insulates patients and providers from cost, drives up demand, fosters inequities, and limits individual choice.

In classic fashion, Congress and the administration are trying to remedy a problem caused by government with more government. But should they fail this year, perhaps Clinton, who ignited this giant debate, will have done the nation a great service after all—if the lessons learned clear a path toward true reform.

Contributing Editor Carolyn Lochhead is Washington correspondent for the San Francisco Chronicle.