February 2, 1994
"How to Fix Clinton's 'Socialized Medicine'"
San Jose Mercury News
By Timothy Taylor
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"VIRTUALLY any economist would say that Clinton's health care proposal
is a disaster," says Rudiger Dornbusch of MIT, a Clinton booster who heaps
praise on just about every other economic policy of the administration.
President Clinton made a serious tactical error in turning over control of
the health care agenda to Ira Magaziner and Hillary Rodham Clinton, rather than
setting up a broad bipartisan commission. Because of loyalty to an old friend
and to his wife, he has found himself saddled with a plan that is grandiose.
Clinton has said a number of times in the last couple of months -- and emphasized
again in his State of the Union address -- that as long as the result is universal
health insurance coverage, he is open to alterations. That's his way of begging
Congress to rescue him from a plan that he must suspect is not politically or
Alain Enthoven, the Stanford economist who is one of the intellectual godfathers
of the "managed competition" approach to health care, says that the
Clinton plan has "hijacked managed competition and turned it into socialized
medicine." But in a recent luncheon address for the Center for Economic Policy
Research at Stanford University, he laid out the five changes that, from his perspective,
would make the Clinton plan at least workable.
1. Limit tax-free employer contributions for health insurance. The idea here
is that employers would continue to pay for (most of) the basic health insurance
package. But if you want a Mercedes-style health insurance plan, with bells and
whistles, you pay for 100 percent of the extra cost, out of your own after-tax
Such a limitation makes people more sensitive to health care costs than if
their employer signs the check. Also, since less income would be distributed to
workers as untaxed health care, and more as taxed dollars, it would raise some
money to help pay for the uninsured.
2. Eliminate all provisions for price controls and spending limits. Clinton's
plan says that price controls will be imposed only if health care spending rises
too quickly. But the standard for "too quickly" is so stringent that
no country would have met it in recent years: not Canada, not Great Britain, not
Germany. In Enthoven's words, this is "setting the private market up for
failure." More than 500 economists recently signed a letter to the Wall Street
Journal in opposition to the threatened price controls. For now, Clinton should
excise these lurking price controls; if he still wants them in a few years, he
can propose them then.
3. Keep the health purchasing environment pluralistic. Many analysts argue
that the incentives and penalties built into Clinton's plan will force almost
all private businesses into state-run cooperatives. Instead of relying on competition
between different buyers to hold down costs, Clinton's plan relies on the power
of a single large buyer.
But federal and state government haven't had much success in holding down costs
where they are already enormous purchasers of health care, as in Medicare and
Medicaid. In the face of lobbying for expanded health insurance, private business
has shown far more ability than government to say "whoa."
4. Keep employers involved in cost containment. Clinton's plan offers employers
a guarantee that they won't have to pay more than 7.9 percent of payroll for health
insurance. While employers like the idea, it's misguided policy. If employers
have their costs capped, they have little reason to try to run corporate fitness
programs or take other steps to hold costs down. But corporate pressure has been
one of the major contributors to the recent slowdown in rising health care costs.
5. Eliminate the windfalls. Clinton's plan is stocked with goodies, like taking
the expense of early retirees off the backs of business, offering new insurance
for prescription drugs and nursing home care, and so on. But all these extras
cost money and add complications.
Remember, this country is already struggling to hold down its health care costs,
which far exceed those of other countries; it's trying to assure coverage for
37 million more people; and it's still running enormous budget deficits.
If this year's proposal can address the finance and coverage problems of the
current system, that's plenty.
Expansion of benefits can wait. Of course, this list of changes is not sacrosanct.
But it is interesting that while these objections are substantial, they are by
no means impossible. Enthoven points out that most of his five points are already
incorporated in the health reform package from Sen. John Cooper, which is receiving
considerable bipartisan support. Clinton has offered a powerful and persuasive
diagnosis of the problems of America's health system. But his vast 1,300-page
plan -- or rather, the plan concocted by Magaziner and Rodham Clinton -- is an
overdose of the wrong prescription. Henry Aaron of the Brookings Institution,
an economist with Democratic leanings who has offered strong support for major
health care reform, summarizes his wincing reaction to the overreaching Clinton
health plan by telling the story of a man who was standing at the bar when the
Titanic hit the iceberg. The man turned to the bartender and said: "I know
I asked for ice, but this is ridiculous."
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