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FINANCING
Smead.
FLEX-I-VISION® HANGING FOLDER
HASTINGS, MN
LOS ANGELES-CHICAGO-LOGAN, OM
MoGREGOR, TX-LOCUST GROVE, as
PHOTOCOPY
PRESERVATION
PHOTOCOPY
PRESERVATION
FINANCING ING
THE HEALTH SECURITY ACT:
A FINANCIAL AND DISTRIBUTIONAL ANALYSIS
THE HEALTH SECURITY ACT:
A FINANCIAL AND DISTRIBUTIONAL ANALYSIS
I.
NATIONAL HEALTH EXPENDITURES
II.
IMPACT ON FEDERAL GOVERNMENT
III. IMPACT ON BUSINESS
IV. IMPACT ON FAMILIES
THE HEALTH SECURITY ACT:
A FINANCIAL AND DISTRIBUTIONAL ANALYSIS
List of Charts and Graphics
I.
NATIONAL HEALTH EXPENDITURES
1
National Health Expenditures Under Current Policy and the Health Security Act: 1994 - 2000
2
Chart IA. National Health Expenditures as a Percent of GDP, Under Current Policy
and the Health Security Act: 1994 - 2000
3
Chart IB. National Health Expenditures in Dollars, Under Current Policy and the
Health Security Act: 1994 - 2000
4
II.
IMPACT ON FEDERAL GOVERNMENT
5
Financing Health Care Reform, Totals: 1995 - 2000
6
Chart II-A. Financing Health Care Reform, Totals: 1995 - 2000
7
Medicare Program Under Current Policy and the Health Security Act: 1994 - 2000
8
Chart II-B. Medicare Program Under the Health Security Act, Growth With and Without the
Health Security Act (With Prescription Drug Benefit): 1994 - 2000
10
Chart II-C. Medicare Program Under the Health Security Act, Growth With and Without the
Health Security Act (Without Prescription Drug Benefit): 1994 - 2000
11
Chart II-D. Sources of Medicare Savings, Beneficiaries v. All Others: 1994 - 2000
12
Medicaid Program Under Current Policy and the Health Security Act: 1995 - 2000
13
Chart II-E. The Medicaid Program Under the Health Security Act, Growth With and Without the
Health Security Act
14
Cost of Discounts, For Families, Businesses, and Early Retirees, Totals: 1995 - 2000
15
Chart II-F. Cost of Discounts, For Families, Businesses, and Early Retirees, Totals: 1995 - 2000
16
III.
IMPACT ON BUSINESS
17
Employers' Premium Payments Under the Health Security Act: 1994 - 2000
18
Chart III-A. Employers' Premium Payments Under the Health Security Act, Annual Employer-Paid
Premiums: 1994 - 2000
20
Chart III-B. Employers' Premium Payments Under the Health Security Act, Average Annual
Percent of Payroll: 1994 - 2000
21
Chart III-C. Employers' Premium Payments Under the Health Security Act, Average Annual
Premiums per Worker: 1994 - 2000
22
Employers' Premium Payments Under the Health Security Act, For Firms Currently Offering
Health Insurance: 1994 - 2000
23
Chart III-D. Employers' Premium Payments Under the Health Security Act, Annual
Premiums For Firms Currently Offering Health Insurance: 1994 - 2000
25
Chart III-E. Employers' Premium Payments Under the Health Security Act, Average Annual
Percent of Payroll for Firms Currently Offering Health Insurance: 1994 - 2000
26
Chart III-F. Employers' Premium Payments Under the Health Security Act, Average Annual
Premiums per Worker for Firms Currently Offering Insurance: 1994 - 2000
27
Employers' Premium Payments Under the Health Security Act, For Firms Currently Offering
Insurance, For Firms with Greater or Less Than 5000 Employees: Year 2000
28
Chart III-G. Employers' Premium Payments Under the Health Security Act, Average Annual Percent
of Payroll For Firms Currently Offering Insurance, For Firms with Greater or
Less Than 5000 Employees: Year 2000
29
Chart III-H. Employers' Premium Payments Under the Health Security Act, Average Annual Premiums
per Worker For Firms Currently Offering Insurance, For Firms with Greater or Less
Than 5000 Employees: Year 2000
30
Employers' Premium Payments Under the Health Security Act, For Firms Currently Offering Insurance,
By Firm Size: Year 2000
31
Chart III-I. Employers' Premium Payments Under the Health Security Act, Average Annual Percent of
Payroll For Firms Currently Offering Insurance, By Firm Size: Year 2000
32
Chart III-J. Employers' Premium Payments Under the Health Security Act, Average Annual Premiums
per Worker For Firms Currently Offering Insurance, By Firm Size: Year 2000
33
IV.
IMPACT ON WORKERS AND FAMILIES
34
Workers' Premium Payments Under the Health Security Act: 1994 - 2000
35
Chart IV-A. Workers' Premium Payments Under the Health Security Act, Average Annual Percent
of Payroll: 1994 - 2000
36
Chart IV-B. Workers' Premium Payments Under the Health Security Act, Average Annual Premiums
per Worker: Year 2000
37
Families' Premium Payments Under the Health Security Act: Year 2000
38
Chart IV-C. Families' Premium Payments Under the Health Security Act, Average Annual Premium
Spending: Year 2000
40
Chart IV-D. Families' Premium Payments Under the Health Security Act, Average Annual Premium
Spending as a Percent of Income: Year 2000
41
Chart IV-E. Families' Premium Payments Under the Health Security Act, Average Annual Savings
on Premium Spending as a Percent of Income, By Income Category: Year 2000
42
Families' Expenditures Under the Health Security Act: Year 2000
43
Chart IV-F. Families' Expenditures Under the Health Security Act, Change
in Health Care Spending: Year 2000
44
Families' Expenditures Under the Health Security Act, By Current Insurance Type: Year 2000
45
Chart IV-G. Families' Expenditures Under the Health Security Act, Average Annual Saving and
Spending by Current Insurance Type: Year 2000
48
Chart IV-H. Families' Expenditures Under the Health Security Act, Average Annual Percent Change
in Spending, Families Which Currently Have Employer-Sponsored Insurance: Year 2000 49
Chart IV-I. Families' Expenditures Under the Health Security Act, Average Annual Percent Change
in Spending, Families Which Currently Purchase Insurance Individually: Year 2000
50
Chart IV-J. Families' Expenditures Under the Health Security Act, Average Annual Percent Change
in Spending, Families Which Are Currently Uninsured: Year 2000
51
NATIONAL HEALTH EXPENDITURES
NATIONAL HEALTH EXPENDITURES UNDER CURRENT POLICY AND THE
HEALTH SECURITY ACT: 1994 - 2000
Absent comprehensive reform, health care would consume 17.5 percent
of GDP, or $1.653 trillion, in the year 2000. [Charts I-A and I-B]
Under the Health Security Act, health care will consume 16.9 percent of
GDP, or $1.597 trillion, in the year 2000. This is $56 billion lower than
if there were no comprehensive reform. [Charts I-A and I-B]
Under the Health Security Act, there will be a short-term increase in
national health expenditures. Between 1995 and 1998 national health
expenditures will consume 0.1 percent to 0.2 percent more of GDP than
they would have without comprehensive reform. By 1999, health care
will consume a lower percentage of GDP under the Health Security Act
than if there were no comprehensive reform. [Charts I-A and I-B]
Over the entire period from 1994 to 2000, savings will exceed addition-
al expenditures by $37 billion. [Chart I-B]
2
NATIONAL HEALTH EXPENDITURES AS A PERCENT OF GDP
Under Current Policy and the Health Security Act: 1994 - 2000
18%
Without Reform*
+
17.5%
With Reform
16.9%
17%
16.6%
+
-+
16.9%
16.7%
Percent of GDP
16.1%
16.4%
16%
15.6%
15.9%
15.4%
15.0%
15%
14.9%
14.5%
14%
1994
1995
1996
1997
1998
1999
2000
Chart I-A
SOURCE: Administration Estimates.
* CBO baseline with Administration's economic assumptions.
3
NATIONAL HEALTH EXPENDITURES IN DOLLARS
Under Current Policy and the Health Security Act: 1994 - 2000
$1,700
Without Reform*
$1,653
+
With Reform
$1,517
$1,597
$1,500
$1,407
$1,492
Dollars in Billions
$1,392
$1,300
$1,290
$1,275
$1,179
$1,168
$1,100
$1,072
$1,069
$982
$900
1994
1995
1996
1997
1998
1999
2000
Chart I-B
SOURCE: Administration Estimates.
* CBO baseline with Administration's economic assumptions.
4
IMPACT ON FEDERAL GOVERNMENT
FINANCING HEALTH CARE REFORM
Totals: 1995 - 2000
Under the Health Security Act, federal sources of funds (savings and
resources) will total $409 billion for the period 1995 to 2000. The total
federal cost (expenditures) of health reform will be $351 billion over that
period. Thus, health reform will contribute $58 billion toward deficit
reduction in the first five years alone. [Chart II-A]
The total estimated cost includes a $44 billion discount "cushion",
designed to ensure that there is adequate funding in the event of unan-
ticipated economic or behavioral changes. [Chart II-A]
6
FINANCING HEALTH CARE REFORM
Totals: 1995 - 2000
450
TOTAL SOURCES: $409
400
Deficit Reduction $58
Debt
Service $4
Other Revenue
TOTAL COST: $351
350
Effects $86
Cushion $44
Federal Program
300
Savings $40
Premium Discounts
Dollars in Billions
250
Tobacco Tax and
$117
Corporate Assessment $89
Self-Employed Tax
200
Deduction $10
Medicaid Savings
150
Medicare Drug Benefits
$65
$66
100
Medicare Savings
Long-Term Care
$124
$62
50
Public Health/Administration/
Miscellaneous $53
0
Sources of Funds
Uses of Funds
SOURCE: Office of Management and Budget
Totals may not add due to rounding.
Chart II-A
7
MEDICARE PROGRAM UNDER CURRENT POLICY AND THE HEALTH
SECURITY ACT: 1994-2000
Absent comprehensive reform, Medicare spending would grow at an
average annual rate of 11.1 percent from 1995 to 2000. [Charts II-B
and II-C]
Including spending for the new prescription drug benefit, Medicare
expenditures under the Health Security Act will increase at an average
annual rate of 8.7 percent from 1995 to 2000. This is an average de-
crease of 2.4 percentage points due to the Health Security Act. [Chart
II-B]
Without spending for the new prescription drug benefit, Medicare
expenditures under the Health Security Act will increase at an average
annual rate of 7.2 percent for the same years. This is an average
decrease of 3.9 percentage points due to the Health Security Act.
[Chart II-C]
Not including spending for prescription drugs, the Health Security Act
will reduce Medicare spending by $47.1 billion in the year 2000 alone.
If spending for prescription drugs is included, Medicare spending will
drop by $30.9 billion in that year. [Charts II-B and II-C]
8
Only 13 percent of all Medicare savings will be financed by beneficia-
ries. These savings will result from provisions such as coinsurance for
home health care and laboratory services. [Chart II-D]
Beneficiaries with annual incomes over $90,000 for individuals and
$115,000 for couples will pay higher Part B premiums.
Older Americans will pay an additional $11.00 a month for the prescrip-
tion drug benefit.
9
THE MEDICARE PROGRAM* UNDER THE HEALTH SECURITY ACT
Growth With and Without the Health Security Act
(With the Prescription Drug Benefit): 1994 - 2000
$275
Without Reform
$265.0
+
With Reform
$255
$238.5
$235
$214.9
$234.1
Dollars in Billions
$215
$215.2
$194.9
$195
$200.4
$175.7
$192.0
$175
$172.0
$156.5
$155
Average Annual Growth (1995-2000)
Without Reform = 11.1%
$154.0
With Reform = 8.7%
$141.8
$135
1994
1995
1996
1997
1998
1999
2000
Fiscal Year
Chart II-B
SOURCE: Office of the Actuary, HCFA.
* Net of Offsetting Receipts
10
The proposed Medicare drug benefit becomes effective in 1996.
THE MEDICARE PROGRAM* UNDER THE HEALTH SECURITY ACT
Growth With and Without the Health Security Act
(Without the Prescription Drug Benefit): 1994 - - 2000
$275
&
Without Reform
$265.0
+
With Reform
$255
$238.5
$235
$214.9
Dollars in Billions
$215
$194.9
$217.9
$195
$200.0
$175.7
$175
$186.2
$178.5
$156.5
Average Annual Growth (1995-2000)
$155
$165.4
Without Reform = 11.1%
$154.0
With Reform = 7.2%
$141.7
$135
1994
1995
1996
1997
1998
1999
2000
Fiscal Year
Chart II-C
SOURCE: Office of the Actuary, HCFA.
11
* Net of Offsetting Receipts
SOURCES OF MEDICARE SAVINGS
Beneficiaries V. All Other: 1995 - 2000
Beneficiaries
13%
All Other
87%
Chart II-D
SOURCE: HHS, OASMB
12
MEDICAID PROGRAM UNDER CURRENT POLICY AND THE HEALTH
SECURITY ACT: 1994-2000
Without comprehensive reform, federal spending for Medicaid would
grow at an annual rate of 12.2 percent from 1995 to 2000. [Chart II-E]
Under the Health Security Act, federal Medicaid spending will increase
at an annual rate of 8.5 percent for the same years. This is an average
decrease of 3.7 percentage points due to the Health Security Act.
[Chart II-E]
The Health Security Act will save $27.8 billion in federal Medicaid
spending in the year 2000 alone. [Chart II-E]
13
THE MEDICAID PROGRAM UNDER THE HEALTH SECURITY ACT
Growth With and Without the Health Security Act*
$185
Without Reform
$178.0
+
With Reform
$165
$159.0
$141.0
$145
Dollars in Billions
$150.2
$126.0
$136.7
$125
$130.7
$112.0
$122.0
$105
$111.1
Average Annual Growth (1995-2000)
Without Reform = 12.2%
$99.9
With Reform = 8.5%
$87.4
$85
1994
1995
1996
1997
1998
1999
2000
Fiscal Year
Chart II-E
SOURCE: Office of the Actuary, HCFA.
14
* Federal expenditures only.
COST OF DISCOUNTS
For Families, Businesses, and Early Retirees
Totals: 1995 - 2000
The federal government will provide discounts totalling $349 billion for
the period from 1995 to 2000. This cost will be partially offset by
$188 billion which will be saved because some persons who used to be
in public programs will move into alliances. Thus, the net cost of the
discounts will be $161 billion for the period from 1995 to 2000. [Chart
II-F]
The net cost includes a $44 billion "cushion", designed to ensure that
there is adequate funding in the event of unanticipated economic or
behavioral changes. [Chart II-F]
Excluding the cushion, about $184 billion (60 percent of the total cost)
will be used for premium discounts for families. About $100 billion (33
percent) will be for discounts to businesses. Approximately $12 billion
(4 percent) will be for discounts for early retirees, and $9 billion (3
percent) will be for individuals' out-of-pocket expenses. [Chart II-F]
15
COST OF DISCOUNTS
(For Families, Businesses, and Early Retirees)
Totals: 1995 - 2000
450
400
$349
350
Cushion $44
300
Out-of-Pocket $9
Dollars in Billions
250
200
Families $184
$188
Medicare $28
$161
150
Early Retiree $12
State Maintenance
of Effort $75
100
Net $161
(Includes $44
Business $100
Medicaid $85
cushion)
50
o
Gross
-
Offsets
II
Net
SOURCE: Office of Management and Budget
Chart II-F
16
IMPACT ON BUSINESSES
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT:
1994 - 2000
Absent comprehensive reform:
Employer premium payments will increase from $180 billion in 1994 to
$303 billion in 2000. [Chart III-A]
This correlates to an increase in percent of payroll spent on health
insurance from 5.8 percent of total payroll to 7.0 percent of total
payroll, and an increase in per worker premium expenditures from
$1,540 in 1994 to $2,473 in 2000. [Charts III-B and III-C]
This represents an overall increase in premium payments of nearly 70
percent.
Under the Health Security Act:
Employer premium payments will only rise from $180 billion in 1994 to
$276 billion in 2000 --- $27 billion less than would have been the case
without reform. [Chart III-A]
This correlates to a smaller increase in percent of payroll spent on health
insurance -- only 6.4 percent with reform. [Chart III-B]
18
Per worker premium expenditures increase at a slower rate, from
$1,540 in 1994 to $2,245 in 2000. [Chart III-C]
19
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Annual Employer-Paid Premiums: 1994 - 2000
$315
$303
$295
$276
$275
$256
Dollars in Billions
$255
$253
$235
$218
$215
$215
$195
Without Reform
+
With Reform
$180
$175
1994
1996
1998
2000
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Chart III-A
Includes premiums paid by public and private employers for covered services in corporate and
regional alliances.
20
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Average Annual Percent of Payroll: 1994 - 2000
7.5%
7.0%
7%
6.6%
Percent of Payroll
6.5%
6.3%
6.5%
6.4%
6.2%
6%
5.8%
Without Reform
+
With Reform
5.5%
1994
1996
1998
2000
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Chart III-B
Includes premiums paid by public and private employers for covered services in corporate and
regional alliances.
21
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Average Annual Premiums per Worker: 1994 - 2000
$2,500
$2,473
$2,300
$2,245
$2,118
$2,100
$2,097
Dollars
$1,900
$1,834
$1,808
$1,700
Without Reform
+
With Reform
$1,540
$1,500
1994
1996
1998
2000
Chart III-C
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Includes premiums paid by public and private employers for covered services in corporate and
22
regional alliances.
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
For Firms Currently Offering Insurance: 1994 - 2000
Absent comprehensive reform:
Employer-paid premiums for firms that currently offer insurance would
rise at a rate of approximately 70 percent, from $180 billion to $303
billion between 1994 and the year 2000. [Chart III-D]
This results in an increase in percent of payroll spent on health
insurance from 6.8 percent of total payroll to 8.2 percent of total
payroll, and an increase in per worker premium expenditures from
$1,923 in 1994 to $3,086 in 2000. [Charts III-E and III-F]
Under the Health Security Act:
Employer premium payments will rise from $180 billion in 1994 to only
$244 billion in 2000 -- $59 billion less than would have been the case
without reform. [Chart III-D]
This results in a smaller increase in percent of payroll spent on health
insurance -- only 6.6 percent with reform, versus 8.2 percent without
reform. [Chart III-E]
23
Per worker premium expenditures increase at a slower rate, from
$1,923 in 1994 to $2,481 in 2000, an overall increase of only 29
percent. This equates to savings of $605 per worker in the year 2000.
[Chart III-F]
Under the Health Security Act, employers who now offer insurance will
experience immediate savings.
24
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Annual Employer-Paid Premiums for Firms Currently Offering Insurance: 1994 - 2000
$315
$303
$295
$275
$256
Dollars in Billions
$255
$235
$244
$215
$224
$215
$212
$195
Without Reform
+
With Reform
$180
$175
1994
1996
1998
2000
Chart III-D
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Includes premiums paid by public and private employers for covered services in corporate and
regional alliances.
25
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Average Annual Percent of Payroll for Firms Currently Offering Insurance: 1994 - 2000
8.5%
8.2%
8%
7 7%
Percent of Payroll
CURRENT
7.5%
-|- REFORM
*
7.2%
7%
+
6.8%
6.8%
6.6%
6.5%
1994
1996
1998
2000
Chart III-E
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Includes premiums paid by public and private employers for covered services in corporate and
regional alliances.
26
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Average Annual Premiums per Worker for Firms Currently Offering Insurance: 1994 - 2000
$3,100
$3,086
$2,900
$2,700
$2,645
Dollars
$2,500
$2,481
$2,300
$2,256
$2,317
$2,230
$2,100
Without Reform
+
With Reform
$1,923
$1,900
1994
1996
1998
2000
Chart III-F
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Includes premiums paid by public and private employers for covered services in corporate and
regional alliances.
27
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
For Firms Currently Offering Insurance
For Firms with Greater or Less Than 5000 Employees: Year 2000
Firms with more than 5000 employees are eligible to form corporate
alliances. Employees of firms with less than 5000 employees will enroll
in regional alliances.
Under the Health Security Act, the average employer that currently offer
insurance will pay less, per worker and as a percent of payroll, on health
insurance premiums for their employees than would be the case without
reform.
Firms with less than 5000 employees that currently offer insurance will
save $621 per worker in the year 2000 alone. They will spend only 6.5
percent of total payroll on employees' health insurance premiums.
[Charts III-G and III-H]
Firms with more than 5000 employees that currently offer insurance will
save $551 per worker in the year 2000 alone. They will spend only 7.0
percent of total payroll on employees' health insurance premiums.
[Charts III-G and III-H]
28
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Average Annual Percent of Payroll for Firms Currently Offering Insurance
For Firms with Greater or Less Than 5,000 Employees: Year 2000
10%
8.2%
8.3%
8.2%
8%
7%
6.5%
6.6%
6%
Percent of Payroll
Without Reform
With Reform
4%
2%
0%
< 4,999
5,000 +
Total
Firm Size
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Chart III-G
Includes premiums paid by public and private employers for covered services in corporate and
regional alliances.
29
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Average Annual Premiums per Worker for Firms Currently Offering Insurance
For Firms with Greater or Less Than 5,000 Employees: Year 2000
$4,000
$3,533
$3,500
$3,086
$2,959
$2,982
$3,000
Dollars
$2,481
$2,500
Without Reform
$2,338
With Reform
$2,000
$1,500
$1,000
< 4,999
5,000 +
Total
Firm Size
Chart III-H
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Includes premiums paid by public and private employers for covered services in corporate and
30
regional alliances.
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
For Firms Currently Offering Insurance
By Firm Size: Year 2000
On average, firms with fewer than 5000 employees that currently offer
insurance will save, both as a percent of payroll and per worker, under
the Health Security Act. [Charts III-I and III-J]
Small firms with fewer than 25 workers will experience the largest
savings as a percent of payroll under the Health Security Act. They will
pay a full 2.6 percentage points less of their payroll - $771 per worker -
on premiums after reform. [Charts III-I and III-J]
31
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Average Annual Percent of Payroll for Firms Currently Offering Insurance
By Firm Size: Year 2000
10%
9%
8.6%
8.2%
8.1%
8.2%
8%
7.3%
6.7%
6.5%
6.6%
6.4%
6.5%
6.3%
6%
Percent of Payroll
Without Reform
With Reform
4%
2%
0%
< 25
25 99
100 - 499
500 - 999
1,000 - 4,999
< 5,000
Firm Size
Chart III- I
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Includes premiums paid by public and private employers for covered services in corporate and
32
regional alliances.
EMPLOYERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Average Annual Premiums per Worker for Firms Currently Offering Insurance
By Firm Size: Year 2000
$4,000
$3,500
$3,373
$3,223
$2,959
$3,000
$2,881
$2,695
$2,623
Dollars
$2,465
$2,500
$2,407
Without Reform
$2,355
$2,338
With Reform
$2,129
$2,000
$1,924
$1,500
$1,000
< 25
25 99
100 - 499
500 - 999
1,000 - 4,999
< 5,000
Firm Size
Chart III-J
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Includes premiums paid by public and private employers for covered services in corporate and
regional alliances.
33
IMPACT ON WORKERS AND FAMILIES
34
WORKERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT:
1994 - 2000
Absent comprehensive reform, workers' premium payments would rise,
on average, from 1.4 percent of payroll in 1994 to 1.7 percent in 2000.
[Chart IV-A] By the year 2000, workers would contribute an average of
$600 each year for their share of their premiums. [Chart IV-B]
As states phase in universal coverage under the Health Security Act,
workers' premium payments will fall from 1.5 percent of payroll in 1996
to 1.2 percent in the year 2000. [Chart IV-A] By the year 2000,
workers will contribute an average of $437 per year for their share of
their premiums -- 27 percent less than if there were no comprehensive
reform. [Chart IV-B]
Thus, under the Health Security Act, workers's premium payments will
be 0.5 percentage points less of total payroll costs in the year 2000.
[Chart IV-A]
35
WORKERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Average Annual Percent of Payroll: 1994 - 2000
1.8%
Without Reform
+
With Reform
1.7%
1.7%
1.6%
1.6%
Percent of Payroll
1.5%
1.5%
1.4%
1.4%
1.3%
+
1.3%
1.2%
1.2%
1.1%
1994
1996
1998
2000
Chart IV-A
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
36
WORKERS' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Average Annual Premiums per Worker: Year 2000
$700
Without Reform
$600
With Reform
$600
$500
$437
$400
Dollars
$300
$200
$100
$0
Reform Status
Chart IV-B
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
37
FAMILIES' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT:
Year 2000
Absent comprehensive reform, families' average annual spending in the
year 2000 on health insurance premiums would be $373 higher than
under the Health Security Act ($1062 versus $689, respectively).
[Chart IV-C] This translates to their spending 2.3 percent of income on
premiums without comprehensive reform, as opposed to 1.5 percent
under the Health Security Act. [Chart IV-D]
Families with annual incomes between $30,000 and $50,000 would
spend an average of $377 more for premiums in the year 2000 if there
is no comprehensive reform than they would under the Health Security
Act ($1171 versus $794, respectively). [Chart IV-C] This translates to
their spending 3.1 percent of income on premiums without comprehen-
sive reform, as opposed to 2.1 percent under the Health Security Act.
[Chart IV-D]
38
All families, regardless of income, will save money on premium pay-
ments in the year 2000 under the Health Security Act. [Chart IV-E]
On average, families with annual incomes between $30,000 and
$50,000 will spend 1.0 percent of income less on health care in 2000
under the Health Security Act. [Chart IV-E, Chart IV-C]
On average, the Health Security Act will save families 35 percent of
their premium costs in the year 2000. Families with annual incomes
between $30,000 and $50,000 will save 32 percent. [Chart IV-C]
39
FAMILIES' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Average Annual Premium Spending: Year 2000
$2,000
Without Reform
With Reform
$1,708
$1,548
$1,500
$1,416
$1,171
$1,154
Annual Spending
$1,062
$1,009
$1,000
$915
$794
$709
$689
$492
$500
$377
$98
$0
UNDER 10K
10 - 30K
30 - - 50K
50 - - 70K
70 - 90K
90K +
Total
Household Income
Chart IV-C
40
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
FAMILIES' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Average Annual Premium Spending as a Percent of Income: Year 2000
12%
11.6%
Without Reform
With Reform
10%
8%
Percent of Income
6%
4%
4%
3.1%
3.1%
2.9%
2.5%
2.3%
2.1%
2%
2%
1.6%
1.5%
1.3%
1.3%
0.9%
0%
UNDER 10K
10 - 30K
30 - 50K
50 - 70K
70 - 90K
90K+
Total
Household Income
Chart IV-D
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
41
FAMILIES' PREMIUM PAYMENTS UNDER THE HEALTH SECURITY ACT
Average Annual Savings on Premium Spending as a Percent of Income
By Income Category: Year 2000
8.5%
8.2%
Percent of Income Saved
6.2%
4.2%
2.2%
1.1%
1.0%
0.9%
0.7%
0.4%
0.2%
< 10K
10-30K
30-50K
50-70K
70-90K
90K+
Average Annual Income
Chart IV-E
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
42
FAMILIES' EXPENDITURES UNDER THE HEALTH SECURITY ACT
Year 2000
In the year 2000, under the Health Security Act:
Of those families which are currently uninsured at least part of the year,
43 percent will spend the same or less for health care than they would if
there were no comprehensive reform. [Chart IV-F]
Of those families which currently have employer-sponsored insurance,
73 percent will spend the same or less for health care than they would if
there were no comprehensive reform. [Chart IV-F]
Of those families which currently purchase their insurance individually,
92 percent will spend the same or less for health care than they would if
there were no comprehensive reform. [Chart IV-F]
43
FAMILIES' EXPENDITURES UNDER THE HEALTH SECURITY ACT
Change in Health Care Spending: Year 2000
100%
92%
80%
73%
Percent Saving and Spending
60%
57%
Change in Spending
43%
Spend More
40%
Spend Less or Same
27%
20%
8%
0%
Uninsured
Employer-Sponsored
Individually Purchased
N = 41,856,000 Households
N = 42,212,000 Households
N = 6,797,000 Households
N = 69,486,000 Persons
N = 98,751,000 Persons
N = 11,480,000 Persons
Type of Insurance
SOURCE: HHS and Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Chart IV-F
Includes premium and out-of-pocket spending in regional alliances.
Uninsured includes 31.8 million persons uninsured part-year.
44
FAMILIES' EXPENDITURES UNDER THE HEALTH SECURITY ACT
By Current Insurance Type: Year 2000
Under the Health Security Act:
Employer-Sponsored Insurance
38 percent of all families which currently have employer-sponsored
insurance will experience savings of up to $1,000 in overall health
care spending (premiums and out-of-pocket expenditures) in the
year 2000. [Chart IV-H]
30 percent of all families which currently have employer-sponsored
insurance will experience savings of more than $1,000 in overall
health care spending in the year 2000. [Chart IV-H]
On average, families which experience savings in overall health care
spending will enjoy a decrease of $109 per month ($1,309 for the
year) in the year 2000. [Chart IV-G]
5 percent of all families which currently have employer-sponsored
insurance will experience no change in overall health care spending
(premiums and out-of-pocket expenditures) in 2000. [Chart IV-H]
45
Families which will be spending more on overall health care expendi-
tures will spend on average an additional $31 per month ($367 for
the year) in the year 2000. [Chart IV-G]
Individually Purchased Insurance
The vast majority (85.9 percent) of families which currently pur-
chase health insurance individually will experience savings of more
than $1,000 on overall health care spending (premiums and out-of-
pocket expenditures) in 2000. [Chart IV-I]
On average, families which experience savings in overall health care
spending will enjoy a decrease of $375 per month ($4,501 for the
year) in the year 2000. [Chart IV-G]
Families which will be spending more on overall health care expendi-
tures will be spending an average of an additional $75 per month
($903 for the year) in 2000. [Chart IV-G]
Currently Uninsured
28 percent of all families which are currently uninsured at least part
of the year will experience some savings in overall health care
46
spending in the year 2000, due largely to reductions in high out-of-
pocket expenditures. The average decrease will be $148 per month
($1,772 for the year) in 2000. [Charts IV-G and IV-J]
15 percent of all families which are currently uninsured at least part
of the year will experience no change in overall health care spending
in 2000. [Chart IV-J]
Families which will be spending more on overall health care expendi-
tures will be spending an average of an additional $43 per month
($519 for the year) in 2000. [Chart IV-G]
47
FAMILIES' EXPENDITURES UNDER THE HEALTH SECURITY ACT
Average Annual Saving and Spending by Current Insurance Type: Year 2000
$4,000
Change in Payments
Average Decrease
Average Increase
$2,000
$903
$519
($75 per month)
($31 per month)
$367
($43 per month)
Dollars $0
$1,309
- $2,000
$1,772
($109 per month)
($148 per month)
- $4,000
$4,501
($375 per month)
- $6,000
Uninsured
Individually Purchased
Employer-Sponsored
Type of Insurance
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Chart IV-G
Includes premium and out-of-pocket spending in regional alliances.
Uninsured includes 31.8 million persons uninsured part-year.
48
FAMILIES' EXPENDITURES UNDER THE HEALTH SECURITY ACT
Average Annual Percent Change in Spending
Families which Currently have Employer-Sponsored Insurance: Year 2000
N = 42,212,000 Families
35%
30%
30%
25%
Percent of Families Saving/Spending
20%
Savers
Spenders
15%
13%
No Change
12%
10%
10%
9%
7%
6%
5%
5%
4%
3%
1%
0%
No Change
$0 - 100
$100 - 250
$250 - 500
$500 - $1,000
$1,000 +
Amount Saved/Spent
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Chart IV-H
Includes premium and out-of-pocket expenditures for those in regional alliances.
Totals may not add to 100% due to rounding.
49
FAMILIES' EXPENDITURES UNDER THE HEALTH SECURITY ACT
Average Annual Percent Change in Spending
Families which Currently Purchase Insurance Individually: Year 2000
N = 6,797,000 Families
100.0%
85.9%
80.0%
Percent of Families Saving/Spending
60.0%
Savers
Spenders
40.0%
No Change
20.0%
5.4%
0%
.7% .5%
2% 1.6%
.7% 0%
1.1%
2.2%
...
77
0.0%
No Change
$0 - - 100
$100 - $250
$250 - $500
$500 - $1,000
$1,000 +
Amount Saved/Spent
SOURCE: Center for Intramural Research, AHCPR.
Chart IV-I
Includes premium and out-of-pocket expenditures for those in regional alliances.
Totals may not add to 100% due to rounding.
50
FAMILIES' EXPENDITURES UNDER THE HEALTH SECURITY ACT
Average Annual Percent Change in Spending
Families which are Currently Uninsured: Year 2000
N = 41,856,000 Families
20%
18%
16%
16%
15%
15%
Percent of Families Saving/Spending
Savers
10%
10%
Spenders
No Change
7%
6%
5%
5%
3%
2%
2%
0%
No Change
$0 - 100
$100 - 250
$250 - $500
$500 - $1,000
$1,000 +
Amount Saved/Spent
Chart IV-J
SOURCE: HHS and The Urban Institute's TRIM2 Model, benchmarked to HCFA's National Health Accounts.
Includes premium and out-of-pocket expenditures for those in regional alliances.
51
Totals may not = 100% due to rounding. Uninsured includes 31.8 million persons uninsured part-year.
How Reform Is Financed
($ billion, 1994-2000)
Sources of Funds
Uses of Funds
Medicare Savings ($124)
Long-term Care ($80)
later years
Sin Taxes ($105)
Medicare Drug Benefit ($72)
early years
Public Health/Admin ($29)
Medicaid Savings ($114)
Subsidies for low-Income
Other Federal Program Savings ($47)
firms and workers* ($169)
Revenue Gains ($51)
Deficit Reduction ($91)
Former Medicare and Medicaid
Recipients Now Covered by
Alliance Coverage ($259)
Alliance Plans ($259)
* Includes self-employed tax deduction.
Estimates are preliminary and do not incorporate interactive effects.
19
06-Sep-93
GROWTH RATE OF HEALTH CARE SPENDING
(GROWTHRATES IN PERCENT)
Calendar Years
1994
1995
1996
1997
1998
1999
2000
GDP Growth Rate
5.4
5.3
5.0
4.6
4.3
4.1
4.2
CPI Inflation Rate
2.7
2.7
2.7
2.7
2.7
2.7
2.7
Population Growth
1.0
0.9
0.9
0.9
0.8
0.8
0.8
Private Sector
baseline
baseline cpi+pop+1.5 cpi+pop+1 cpi+pop+0.5 cpi+pop
cpi+pop
Medicare and Medicaid*
baseline
baseline cpi+pop+2.4 cpi+pop+1.9 cpi+pop+1.4 cpi+pop+0.9 cpi+pop+0.4
Private Sector
Baseline
7.4
7.6
7.7
7.6
7.2
6.8
6.4
Reform
7.4
7.6
5.2
4.7
4.1
3.6
3.5
Medicare (Fiscal Years)
Baseline
11.6
11.2
11.1
9.5
9.1
9.0
9.0
Reform**
11.6
11.2
7.4
5.7
5.1
4.6
4.1
Medicaid (Fiscal Years)
Baseline
16.5
14.3
11.7
11.6
11.2
11.0
11.0
Reform**
16.5
14.3
7.5
5.7
5.1
4.6
4.1
* Assumes differential growth of 0.9 percent in the public sector.
** Reform estimates are on a fiscal year basis for public programs.
06- Sep- 93
BUDGETARY EFFECTS OF HEALTH CARE REFORM
(billions of dollars)
Fiscal Years
1994
1995
1996
1997
1998
1999
2000
1994-00
Total New Spending
1
7
45
64
71
79
83
350
Subsidies Net of Offsets
0
5
25
33
34
33
30
160
elf-Employed Tax Deduction (100%)
0
0
1
2
2
2
2
9
Long- Term Care
0
0
5
10
15
22
28
80
Medicare Drug Benefit
0
0
10
14
15
16
17
72
New Public Health Spending
0
1
3
3
3
4
4
18
Administration
1
1
1
2
2
2
2
11
Total Savings
-12
-15 -
-36
-59
-81
-104
-134
-441
Medicare Savings
0
0
-7
-15
-23
-33
-46
-124
Medicaid Savings
0
0
-7
-15
-22
-30
-40
-114
Other Federal Program Savings
0
0
-5
-8
-10
-11
-13
-47
Revenue Effects of Mandate
0
0
-2
-6
-10
-14
-19
-51
Sin Taxes and/or Corporate Assessment
-12
-15
-15
-15
-16
-16
-16
-105
Change in Deficit
-11
-8
9
5
-10
-25
-51
-91
* Estimates are preliminary and do not incorporate interactive effects.
19
06- Sep- 93
DETAIL OF SUBSIDY COSTS
(billions of dollars)
Fiscal Years
1994
1995
1996
1997
1998
1999
2000
1994-00
Subsidies Net of Offset
0
5
25
33
34
33
30
160
Gross Subsidies
0
14
58
80
86
89
92
419
-52
-56
-62
-259
Total Offsets
0
-9
-33
-47
State Offset for Medicaidin Alliance
0
-3
-10
-14
-15
-15
-16
-73
Federal Offset for Medicaidin Alliance
0
-4
- 15
-22
-25
-28
-31
-125
Federal Offset for Medicarein Alliance
0
-2
-8
-11
-12
-13
-15 -
-61
* Estimates are preliminary and do not incorporate interactive effects.
19
06-Sep-93
BUDGETARY EFFECTS OF HEALTH REFORM
(billions of dollars)
Fiscal Years
1994
1995
1996
1997
1998
1999
2000
1994-98
1996-00
Changes in Outlays for Existing Programs
0
-5
-28
-53
-73
-94
-123
-159
-371
Medicaid
0
-4
-21
-36
-46
-57
-70
-107
-230
Liberalized Long-term Care Eligibility
0
0
1
1
1
1
1
3
5
Offset for Medicaid-eligibles in Alliances
0
-4
-15
-22
-25
-28
-31
-66
-121
Savings Due to Cap
0
0
-7
-15
-22
-30
-40
-44
-114
0
-2
-5
-12
-20
-30
-44
-39
-111
Medicare
Cost of Drug Benefit (with Rebate)
0
0
10
14
15
16
17
39
72
Offset for Employed Beneficiaries
0
-2
-8
-11
-12
-13
-15
-33
-59
Savings Due to Cap
0
0
-7
-15
-23
-33
-46
-45
-124
Veterans
0
0
-1
-2
-2
-2
-2
-5
-9
Defense Department Health
0
0
0
0
0
0
-1
0
-1
Federal Employees Health Benefits
0
0
-2
-4
-5
-6
-7
-11
-24
New Public Health Initiaties
0
1
3
3
3
4
4
10
17
-13
Public Health Savings
0
0
-2
-2
-3
-3
-3
-7
Added Outlays for New Programs
1
12
52
76
86
95
103
227
412
Long-Term Care (Net of Premium)
0
0
3
8
13
19
25
24
68
Subsidies (a)
0
14
58
80
86
89
92
238
405
less State Offset for Medicaid in Alliance
0
-3
-10
-14
-15
-15
-16
-42
-70
New Administrative Costs
0
0
1
2
2
2
2
5
9
Start Up Costs
1
1
0
0
0
0
0
2
0
1
68
41
Total Outlay Changes
1
7
24
23
13
-20
Receipts Changes
12
15
15
18
23
26
31
83
113
Sin Taxes/Corporate Assessment
12
15
15
15
16
16
16
73
78
0
0
-1
-1
-1
-2
-2
-3
-7
Tax Incentives for Long-term Care
Expanded Deduction for Self-Employed
0
0
-1
-2
-2
-2
-2
-5
-9
Effects on Other Taxes of the Mandate (b)
0
0
2
6
10
14
19
18
51
Deficit
-11
-8
9
5
-10
-25
-51
-15
-72
(a) From Urban Institute using HCFA premiums.
19
(b) Unofficial estimate.
* Estimates are preliminary and do not incorporate interactive effects.
06-Sep-93
NATIONAL HEALTH EXPENDITURES
(billions of dollars)
Calendar Years
1994
1995
1996
1997
1998
1999
2000
CBO Baseline
998
1,089
1,185
1,288
1,395
1,510
1,631
% GDP
15.1
15.7
16.3
16.9
17.5
18.2
18.9
% change
9.4
9.1
8.8
8.6
8.4
8.2
8.0
Reform
999
1,112
1,237
1,314
1,376
1,438
1,495
% GDP
15.1
16.0
17.0
17.2
17.3
17.4
17.3
% change
9.4
11.3
11.2
6.2
4.7
4.5
4.0
Change in Spending:
New Alliance
0
19
71
83
86
90
93
Other New Spending
1
4
13
20
25
33
38
Savings
0
0
-32
-77
-130
-195
-267
* Estimates are preliminary.
19
Financing
Non
Description of Financing
Financing of health care under the health security plan builds on
the financing of health care today.
--
Regardless of how the Administration and Congress agree
to fund discounts for small businesses and low income
participants, 80 percent of the cost of covering
Americans who are not on Medicare or cash assistance
recipients (AFDC and SSI) is funded the way it is
today, through employer and individual premiums.
Premiums will finance most costs
The cost of providing coverage for all Americans who are not on
Medicare or cash assistance (AFDC and SSI) will cost $325
billion. Except for individuals and small businesses who qualify
for discounts, the financing will be provided the same way it is
today -- through employer and individual premiums.
--
Employers will pay approximately $205 billion a year
through required 80 percent employer contributions.
--
Individuals will pay approximately $55 billion through
the 20 percent share for of individual or family
coverage.
--
80 percent of the system is financed the way health
care insurance is presently financed -- through
employer and individual premiums.
Discounts are fully financed
Funding for discounts for low income individuals and small
businesses -- $65 billion -- is fully accounted for:
--
The tobacco tax and corporate assessment will produce
$15 billion.
--
$10 billion in State payments for the current non-cash
assistance Medicaid population who will be brought into
the new system.
--
The federal government will provide $15 billion from
funds currently spent on this population through
Medicaid.
--
Since universal coverage will eliminate the problem of
widespread uncompensated care, spending on the current
disproportionate share payments will be phased out,
providing approximately $10 billion a year of funding.
--
The federal government will save $10 billion a year
because Medicare recipients who continue to work will
be covered by the alliance system.
--
The cap on Medicaid spending will provide the final $5
billion annually.
Medicare and Medicaid for AFDC and SSI Recipients
Spending for Medicare recipients will continue to be funded as it
is today -- through the Medicare trust fund and Part B premiums.
Funding for the cash assistance Medicaid population -- people on
AFDC and SSI -- will continue to be paid for by the federal and
state governments as payments into the regional alliances.
PAYING FOR REFORM
BUILDING UPON AN EMPLOYER-BASED SYSTEM
WHAT'S RIGHT WITH THE CURRENT SYSTEM
THE MAIN WAY WE PAY FOR HEALTH REFORM IS BY BUILDING UPON AN
EMPLOYER-BASED SYSTEM:
IT'S THE WAY MOST PEOPLE GET THEIR INSURANCE TODAY
ROUGHLY 90% OF ALL INSURED PEOPLE RECEIVE THEIR
INSURANCE THROUGH THEIR EMPLOYERS. EMPLOYERS PAY THE
LION'S SHARE OF THE PREMIUM; EMPLOYEES PAY A SMALLER
AMOUNT OF THE PREMIUM AND PICK UP OUT-OF-POCKET
SPENDING.
EMPLOYERS AND HOUSEHOLDS PAY $271 BILLION FOR HEALTH
INSURANCE. (CHART 1)
THIS SYSTEM WORKS FOR THE VAST MAJORITY OF AMERICANS. IT'S
WHAT'S RIGHT ABOUT OUR SYSTEM. UNDER REFORM, WE WILL PRESERVE
THIS BASE OF FUNDING.
PAYING FOR REFORM
BUILDING UPON AN EMPLOYER-BASED SYSTEM
WHAT'S WRONG WITH THE CURRENT SYSTEM
A LACK OF SECURITY
I
THE CURRENT EMPLOYER-BASED SYSTEM PROVIDES SOME OF THE HIGHEST-
QUALITY CARE IN THE WORLD FOR THOSE WHO ARE COVERED.
YET, 37 MILLION PEOPLE DON'T RECEIVE HEALTH INSURANCE. AND, 22
MILLION PEOPLE RECEIVE INADEQUATE INSURANCE.
FOR THE MILLIONS OF AMERICAN FAMILIES WITHOUT INSURANCE, A HEALTH
CARE CRISIS CAN MEAN ECONOMIC RUIN. FOR THE REST OF US, IT MEANS
WE GET HIT WITH AN EXTRA COST ON THE PREMIUMS WE'RE ALREADY
PAYING. HOSPITAL EMERGENCY ROOMS DON'T TURN AWAY THE UNINSURED.
THEY GET THE CARE. THE REST OF US PAY THE BILL.
PAYING FOR REFORM
BUILDING UPON AN EMPLOYER-BASED SYSTEM
WHAT'S WRONG WITH THE CURRENT SYSTEM
A LACK OF SECURITY
II
WHO ARE THE UNINSURED?
2/3 OF THE UNINSURED ARE EMPLOYED. MOST OF THEM WORK
IN SMALL COMPANIES THAT CANNOT AFFORD THE HIGH COST OF
HEALTH CARE PREMIUMS.
EVEN THOSE OF US WHO CURRENTLY HAVE INSURANCE ARE AT RISK OF
LOSING IT AT ANY POINT - - IF WE CHANGE JOBS, MOVE, OR LOSE OUR
JOB.
REFORM NEEDS TO PRESERVE WHAT'S RIGHT ABOUT OUR SYSTEM - - A
STABLE SOURCE OF FUNDING. THAT'S THE EMPLOYER-BASED SYSTEM OF
FINANCING.
IT ALSO SEEKS TO FIX WHAT'S WRONG - - PROVIDING SECURITY FOR ALL
AMERICANS.
PAYING FOR REFORM
BUILDING UPON AN EMPLOYER-BASED SYSTEM
PROVIDING SECURITY
EMPLOYER RESPONSIBILITY
TO PAY FOR SECURITY, OUR PLAN REQUIRES ALL EMPLOYERS TO PAY FOR
HEALTH INSURANCE FOR THEIR WORKERS.
THIS IS WHERE THE MOST SUBSTANTIAL PART OF THE PROGRAM COMES
FROM NOT FROM GOVERNMENT MONEY OR NEW TAXPAYER DOLLARS, BUT
FROM MAKING EMPLOYEES AND EMPLOYERS PAY THEIR SHARE.
SOME CALL THIS AN EMPLOYER MANDATE, BUT WE THINK OF IT AS
RESPONSIBILITY - - ENDING THE PENALIZATION OF FIRMS THAT DO PROVIDE
INSURANCE FOR THEIR EMPLOYEES.
THE MAJOR PIECE OF FINANCING FOR THOSE UNDER 65 IS THE REQUIREMENT
THAT ALL EMPLOYERS AND EMPLOYEES WILL BE RESPONSIBLE FOR THEIR
HEALTH CARE. THEY PAY $ BILLION. (CHART 2)
PAYING FOR REFORM
NEW GOVERNMENT SPENDING
GOVERNMENT IS NEEDED TO PROVIDE PROTECT JOBS AND PROVIDE SECURITY
WHEN AMERICANS LOSE THEIR JOBS:
IF THIS WERE ALL WE WERE DOING WE COULD RELY SOLELY ON
PRIVATE SECTOR FINANCING, AND OUR PLAN WOULD AFFECT ONLY THOSE
WHO DO NOT PROVIDE OR GET HEALTH COVERAGE.
THIS SYSTEM LEAVES THREE HOLES THAT ARE STILL LEFT BY EVEN
MAKING THIS SYSTEM.
FIRST, WE DO NOT WANT TO MAKE THIS NEW COSTS ON EMPLOYERS BE
TOO DIFFICULT AND HURT THESE PLACES. so WE PROVIDE SIGNIFICANT
SUBSIDIES TO ANY BUSINESS, BUT MOST GENEROUSLY TO BUSINESSES
WITH UNDER 50 EMPLOYEES. THE PRIVATE SECTOR IS STILL CARRYING
MOST OF THE BURDEN, BUT THE SUBSIDIES ARE KEY FOR HELPING
SMALL BUSINESSES AND INDIVIDUALS WHO ARE TOO POOR TO PAY
THEIR FULL PREMIUM. AS YOU CAN SEE THE YEARLY AMOUNT OF
GOVERNMENT SUBSIDY IN THIS PICTURE IS NOT GIANT. OF THE
ADDITIONAL COSTS THAT WOULD BE ON EMPLOYERS AND EMPLOYEES
IF THEY HAD TO BEAR THE ENTIRE BURDEN, YOU CAN SEE THAT
GOVERNMENT SUBSIDIZES ONLY %. THUS, THE YEARLY COSTS IS
,
AND OVER FIVE YEARS IT IS . WE ALSO INCREASE COSTS TO SELF-
EMPLOYED so THAT THEY CAN DEDUCTION 100% OF THEIR HEALTH
COVERAGE.
SECOND, THE PRIVATE SYSTEM ALONE, DOES NOT PROVIDE EVERY
AMERICAN WITH TRUE SECURITY BECAUSE IT DOES NOT ANSWER THE
QUESTION OF WHAT WE DO FOR AMERICANS WHO LOSE THEIR JOBS,
THEIR HEALTH INSURANCE AND POTENTIALLY ALL OF THEIR SAVINGS
IF THEY WERE TO FALL ILL WHEN THEY ARE UNEMPLOYED. so WE
NEED PUBLIC SECTOR FUNDING IF WE ARE TO SAY TO EVERY AMERICAN
THAT THEY WILL ALWAYS BE COVERED EVEN WHEN THEY ARE
UNEMPLOYED. THE SUBSIDIES FOR UNEMPLOYED WORKERS IS
.
TOGETHER WITH SMALL AND OTHER BUSINESSES AND AMERICANS WHO
LOSE THEIR JOBS, THE TOTAL SUBSIDY IS $160 BILLION. WE PAY FOR
THIS WITH A SIN TAX AND THROUGH MEDICAID SAVINGS
[AT THIS POINT, WE HAVE FINISHED THE UNDER 65 GOVERNMENT
BENEFITS, AND COULD GIVE THE UNDER 65 GOVERNMENT FINANCING,
5
WHICH WOULD BE SIN TAXES, CORPORATE ASSESSMENT, AND PART OF
THE MEDICAID SAVINGS]
THIRD, WHILE MEDICARE WORKS WELL OVERALL, ITS COSTS RISE TOO
HIGH AND THEREFORE MEANS WE SPEND SUCH HIGH RATES ON
PROVIDER PAYMENTS THAT WE DO NOT HAVE ENOUGH FUNDS TO PAY
FOR BENEFITS SENIORS VERY MUCH NEED -- DRUG BENEFITS AND
LONG-TERM CARE. THEREFORE, WE TRY TO CUT PROVIDER PAYMENTS
ON MEDICARE so THAT WE CAN SHIFT THOSE FUNDS TO PAY FOR THE
LONG-TERM CARE AND DRUG BENEFITS.
HOW DO WE PAY FOR THE PUBLIC COSTS?
HERE I WOULD DIVIDE UP 65 AND UNDER AND 65 AND OLDER AND SAY
HOW WE WILL PAY FOR IT. WE PAY FOR THE $169 BILLION IN SUBSIDIES
FOR SMALL BUSINESS AND THE UNEMPLOYED THROUGH $105 BILLION IN
SIN TAXES AND $68 BILLION IN MEDICAID SAVINGS THROUGH CUTTING
DISPROPORTIONATE MEDICAID SAVINGS THAT ARE NO LONGER NEEDED
NOW THAT EVERYONE WHO WALKS THROUGH THE DOOR WILL BE
COVERED.
WE RAISE AN ADDITIONAL $46 BILLION FROM MEDICAID AND $124
BILLION FROM MEDICARE THAT MORE THAN PAYS FOR THE
ADDITIONAL $152 BILLION IN LONG-TERM CARE AND DRUG BENEFITS.
THE MEDICAID SAVINGS COME FROM PUTTING ALL OF THE MEDICAID
RECIPIENTS IN THE NORMAL PRIVATE SECTOR SYSTEM INSTEAD OF THE
MEDICAID SYSTEM THAT NOW GOES UP BY 16% A YEAR.
THIS ESSENTIALLY PAYS FOR IT. OTHER TWO THINGS PAY FOR THE $29
BILLION PLUS SOME DEFICIT REDUCTION.
SHOW OVERALL BALANCE SHEET.
III. HOW DO WE KEEP COSTS LOWER so AVERAGE PEOPLE GET LOWER
PREMIUMS AND BUSINESS SPENDING ON HEALTH CARE GOES DOWN:
WHETHER OR NOT ONE AGREES WITH OUR POLITICAL ASSESSMENTS;
WHETHER OR NOT ONE AGREES WITH OUR POLICY JUDGMENTS AS TO HOW
FAST HEALTH CARE SPENDING CAN BE LOWERED, IT IS IMPORTANT TO AT
LEAST HAVE COMMON GROUND ON THE VALIDITY OF THESE NUMBERS.
THE MAIN DISAGREEMENT THAT PEOPLE HAVE HAD IS THAT THERE IS
DIFFERING OPINIONS AS TO HOW MUCH COST CAN COME DOWN.
6
1. COSTS WILL COME DOWN THROUGH ENDING THE SHIFTING THAT COMES
WITH UNCOMPENSATED CARE. [CHART ON THIS] [UNCONTROVERSIAL --
SHOULD BE LAID OUT SEPARATE AND AT BEGINNING]
2. WE BELIEVE THAT COSTS CAN COME DOWN OVERALL FROM GETTING RID
OF WHAT WE BELIEVE ARE PERVERSE INCENTIVES IN OUR HEALTH CARE
SYSTEM.
CHARTS ON PROBLEM:
HERE IS GDP COMPARISON
PAPER WORK
CHARTS ON SAVINGS FROM REFORM
CHARTS ON EVIDENCE
IV. WHAT IF SOMETHING GOES WRONG?
NOW SOME WILL SAY, THAT WHAT THEY WANT TO KNOW IS WHAT IF
SOMETHING GOES WRONG? WHAT IF WE DON'T GET ALL THE SAVINGS WE
SAY? I WANT TO ADDRESS THE MAIN ARGUMENTS ONE BY ONE.
1. CAN GET MEDICARE: TAKE IT ON, HEAD ON. AT END SAY, IF PEOPLE FAIL TO
SEE WHAT A GOOD DEAL IT IS FOR SENIORS WE WILL PHASE-IN SLOWER.
2. WHAT IF GROWTH DOESN'T COME DOWN THAT FAST. GIVE EXAMPLE, AND
SHOW THAT WE CAN LIVE WITH IT. PREMIUMS AND SUBSIDIES COULD GO UP,
BUT IT IS MANAGEABLE. WHY SHOULD WE SHOOT so LOW?
CAPS AS DISCIPLINE MECHANISM.
3. ALSO SHOW THAT THINGS COULD GO RIGHT. GIVE STRONG ARGUMENT ON
COST-SAVINGS FROM PREVENTATIVE CARE AND SAY HOW THAT IS NOT EVEN
SCORED.
7
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September 19, 1993
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FINANCING AND JOBS COMMUNICATIONS:
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Goal: To ensure that top economic and health spokesperson for the Administration agree on
dented
the message for major economic issues and questions. We should leave with understanding of
process
answers for key questions. These agreed on answers will be circulated on Monday morning.
more anyone
FINANCING:
pay 3.7% of
Men cricome
Major Decisions:
Avg person
I. Framework for Addressing Financing Issue:
1.9%
50mg
How to frame the issue: overall health care costs or
as federal deficit
state
issue
Public as audience
Elite Press and Congress as audience
region
II. The Case for the Numbers:
Unprecedented Process
Describing Stage: final or preliminary
How much could numbers change
CBO: expectations and deference
Likely Ouestions for Economic Team:
1. Deficit Reduction and GDP
2. International and Domestic Evidence that Costs Can be Cut to this level.
3. How to Describe Budget and Cap Process: (Refuting the regulatory charge. Do we make
this debate about seriousness over the deficit. Entitlement caps.)
4. Sin Taxes + corporate ancements - no more Then LOS
Previsection
5. Medicare:
Why it is real
Why it seniors still benefit
We're controlling rate granth
savings Come Y
Why it is comparable to other both health care and entitlement cap proposals
from caps
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II. Is their an official Administration Number or Study?
likely criticism
distinguishing between straightforward economic proposals
(like jobs bill) and complex moving parts like NAFTA and
health care.
Better to look at job and competitiveness trends
Recommendation:
1.
Current Studies are Bogus:
2.
Administration could come up with positive jobs number, but we really feel that
because of the complexity of the issue, it is not appropriate.
3.
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so great.
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QUESTIONS AND ANSWERS ON FINANCING
Q: How can you cover everybody and maintain quality and give comprehensive benefits and
add preventive care and new drug benefits and look at me with a straight face and say that
you're going to pay for all that by cutting waste?
A: I'm glad you asked that because that's not how this plan will be financed. Let me tell you
how we propose paying for health care reform.
There are three basic sources of funding.
1. First, we ask the 37 million people who don't have insurance and companies who don't
provide it to their employees to take responsibility and contribute to the system. Right now,
all of the rest of us are paying the price for the uninsured - and that's just not right. But it's
also not right to continue a system in which the vast majority of the uninsured -- 85% of
them who are working people or their families -- can't afford health insurance. We're going
to ask them to take responsibility to help finance the health care system, but we're also going
to make sure they can afford to with discounts for low income workers, the unemployed,
and low-wage and small businesses.
Two-thirds of the financing for premiums to ensure that all people are covered comes
from asking employers and employees who don't pay now, to start taking some responsibility.
Now, there are a number of different proposals about how those 37 million should
contribute to the system. We propose an extension of the current system where employers
take the primary responsibility, but individuals share that responsibility. That's a pretty
conservative idea which was first introduced by Richard Nixon. Others believe that primary
responsibility should be only with the individual -- an individual mandate, not an employer
mandate. Many fear that an individual mandate will disrupt the current system: that it will
cause employers to drop people from their coverage. I assume that's a debate that Congress
will have in the coming months.
2. Second, we are going to limit the growth of government spending. We all know that it's
tough to stop government spending, but we do think we can slow it down. And unlike other
proposals in the past, we won't do it with vague caps. We will do it with specific, scorable,
line-by-line savings proposal.
In the past, we haven't been able to achieve savings in the growth of Medicare or
Medicaid for a few reasons: First, because it was outside the context of health care reform,
savings were assumed to be from the cuts in the middle class or poor. Let me be clear, this
President has no intention of putting those beneficiaries at risk. Indeed, Medicare recipients
will see their benefits increase through the President's plan.
1
IL GOVERNMENT IS NEEDED TO PROVIDE PROTECT JOBS AND PROVIDE
SECURITY WHEN AMERICANS LOSE THEIR JOBS:
A health plan could, of course, do nothing more than require all employers and
employees to pay their fair share. If this were all we were doing we could rely solely on
private sector financing, and our plan would affect only those who do not provide or get
health coverage.
This system leaves three holes that are still left by even making this system.
First, we believed that it would be too hard on business and some low-income
individuals to require those who do not provide to do so right away with no
transitional help from government. We believe that everyone should be responsible,
but we recognize that as it has not been that way, we must provide assistance to
business -- particularly small business -- so that the cost of transition is manageable
and will not hurt job growth.
Some have said our discounts to small business and to some large manufacturer have
been generous -- and to this we plead guilty. But I think we need to find a way to
have small businesses that create jobs and provide health care to their workers and I
think we cannot ignore the harmful effects to our competitiveness and manufacturing
base when a car made in America has $1100 more dollars due to health care than one
in Japan.
Second, another key reason that an requiring all employers to provide alone would not
be significant, is that this alone would not provide the core of our plan and the core of
what we believe Americans most want -- health security. Employer coverage alone,
does not provide every American with true security because it does not answer the
question of what we do for Americans who lose their jobs, their health insurance and
potentially all of their savings if they were to fall ill when they are unemployed.
So we need public sector funding if we are to say to every American that they will
always be covered even when they are unemployed.
All together the subsidies and discounts needed to provide discounts to small - and
some large - business, and to the working poor and the unemployed comes to $160
billion - a $169 billion if you include the 100% deduction to the self-employed
between now and the year 2000.
The third reason that we believe we need to look to benefits beyond full employer
responsibility is that we believe that there are holes in the coverage we provide senior
citizens. While Medicare works well overall, its costs rise too high and therefore
means we spend such high rates on provider payments that we do not have enough
funds to pay for benefits seniors very much need - drug benefits and long-term care.
2
Therefore, our plan cuts provider payments on Medicare so that we can shift those
funds to pay for the long-term care and drug benefits.
Unlike other proposals in the past, we won't do it with vague caps. We will do it with
specific, scorable, line-by-line savings proposal. In the past it has also been difficult to
achieve significant savings in the growth of Medicare or Medicaid for a few reasons:
First, because it was outside the context of health care reform, savings were
assumed to be from the cuts in the middle class or poor. Let me be clear, this
President has no intention of putting those beneficiaries at risk. Indeed,
Medicare recipients will see their benefits increase through the President's plan.
For every $1 of savings we are calling for that affect Medicare beneficiaries,
we are proposing $3 in increased benefits in long- term care and drug benefits.
Second, past proposals weren't reforming the private sector side, people rightly
worried that costs would be shifted to the premiums of the insured middle class
and small businesses who were already taking the worst hit, and
Third, this would create a differential between Medicare patients and others. In
the context of a plan to bring down private sector costs, however, we can
reduce Medicare savings without shifting costs or creating a differential.
The costs of the long-term care program over five years is $80 billion and the costs of
the prescription drug benefit is $72 billion. As with the under 65 benefits, the financing of
these benefits is straightforward and largely uncontroversial. 80% of the costs are paid for by
$124 billion in Medicare savings. The rest is more than paid for by capping the amount of
Medicaid spending by taking these Americans out of Medicaid and putting them with
everyone else in the private, alliance system.
Now, many may not agree with our policies. Others may not think you can pass these
many Medicare savings. Again, we disagree. But let's be clear. These are line, by line
specific scorable savings in Medicare, and it is a disservice to public discourse for people to
in any way say that these are not real.
Our plan and every Democratic and Republican plan that has been proposed
recognizes that with national health care reform, we can save money in the rate of growth in
Medicare and Medicaid. Indeed, the other serious proposal so far have comparable Medicare
savings, and the Senate Republican budget proposal received 43 votes and received had at
least as much savings - with no offsetting benefits. You will debate how fast those savings
can be achieved and how big those savings can be, but I think we all agree that there will be
savings that will be our second major source of financing for health care reform.
3
PRIVATE AND PUBLIC NUMBERS ON HEALTH SECURITY PLAN
L PRIVATE FUNDING OF HEALTH SECURITY PLAN
Two-thirds of premium cost of ensuring health security for all Americans, comes
from making all those who don't pay now, and can afford, start bearing responsibility
for health care.
That means in the first year (1994 dollars), the overall costs would be approximately
$61 billion. $25 billion would be from business spending; $14 billion from
households, and $21 billion from government.
[NOTE: The $21 billion government cost grows to average $32 billion a year, $160
billion over five years, because of inflation and of because of a $20
billion cushion built in as a contingency against uncertainty.]
ILSEVEN YEAR TOTAL FEDERAL COSTS FOR HEALTH SECURITY PLAN
USES OF FUNDS FOR HEALTH CARE REFORM:
Long-term Care
$80 billion
Medicare Drug Benefit
72 billion
Public Health/Admin Costs
29 billion
Discounts for Businesses and Workers
160 billion
100% Self-Employed Deduction
9 billion
Total For Health Care
$350 billion
Deficit Reduction
91 billion
TOTAL HEALTH CARE/DEFICIT REDUCTION
$441 billion
SOURCES OF FUNDS:
Medicare
$124 billion
Medicaid
114 billion
Reductions in Federal Programs
47 billion
Reduction in Growth of Tax-Free Benefits
51 billion
Sin Taxes/Corporate Assessment
105 billion
TOTAL
$441 billion
4
THE $259 BILLION SHIFT: The Clinton plan has inaccurately been described as calling for
$700 billion more in government health care spending. The source of this confusion is the
shift of $259 billion among federal programs, which amounts to an accounting change.
Currently, under Medicaid, the federal government and the states reimburse providers. Now,
rather than sending that money directly to providers, the government will send the same
money to cover the same people through the regional alliances. If a company spent $1 million
on employee health insurance through Insurer A, and then shifted to Insurer B, no one would
see that company as spending $1 million more. The same is the case here. In addition, more
Medicare beneficiaries who work will have employer-paid insurance as their primary payer,
reducing costs to the Medicare program.
III. EVIDENCE AND EXAMPLES OF WHY THE CLINTON HEALTH SECURITY PLAN
WILL BRING SAVINGS:
There are many people who doubt that we can save money when we reform our health
care system. But evidence in this country and abroad shows that the kinds of changes we are
proposing -- increased competition backed up by a limit on premiums - can control costs.
1) By reducing uncompensated care, we will achieve clear savings.
Today, the government reimburses doctors and hospitals for $25 billion worth of
"uncompensated care" -- care given to uninsured patients who can't afford to pay their
medical bills. With universal coverage, that cost will disappear.
2) Our international competitors control costs and provide security to all their citizens.
Germany and Japan have been able to keep the growth in their health care costs down to
GDP while ours have been growing at 9% and 10%.
3) States that have tried reform have been able to control costs.
Look at Minnesota. It has kept its annual rates of increase 2% below statewide trends for the
last two years after reform.
4) Health plans today that are cost-efficient, provide high-quality care, and emphasize
prevention can control costs.
The Mayo Clinic has kept its growth down to 3.9%.
In Northern California, Kaiser Permanente members have 25% fewer hospital days per capita
than other residents.
5
5) More information about health outcomes can point to potential areas of savings. More
money spent doesn't always mean higher quality care.
Open-heart surgery that costs $21,000 in one Pennsylvania hospital costs as much as $84,000
in another hospital in the same state. And, the lower-cost hospital had better outcomes.
The Central Florida Health Care Coalition persuaded hospitals to analyze why costs and
quality of care differed for patients with the same illnesses. With this information, costs per
hospital discharge fell 2%.
6) Streamlining administration and cutting paperwork will save money.
Under today's system, up to 30-40% of the premiums paid by small firms goes to
administrative costs. Under reform, firms with 5,000 or fewer employees will join together to
lower administrative costs.
A growing share of the health care dollar pays for processing paper. For every doctor hired
at a hospital, there are four administrators hired. Under reform, a single claims form replaces
the hundreds of different forms. One comprehensive benefits package, and standardized
reimbursement rules, procedures and regulations will cut administrative costs.
7) Putting consumers in the drivers' seat and forcing health plans to compete for their
business will bring down costs.
In California, when consumers joined together in a large purchasing pool, they received bids
on one plan that were as much as 55% lower than the same plan offered by the FEHBP.
In Orlando, the 78-member Central Florida Health Care Coalition succeeded in negotiating
better prices with regional hospitals that enabled the Orange County School Board to keep 20
teaching jobs it had planned to cut.
In Memphis, eleven employers, the Memphis Business Group on Health, commissioned a
study in 1987 that found that some hospitals charged as much as 80% more for the same
service. The group published the findings and took competitive bids for its business (25,000
employees). One hospital, Baptist, offered discounts of up to 20%, and the members of the
coalition believe that they have saved tens of millions of dollars.
8) Prevention will save money in the long-run.
Look at Birmingham, Alabama. In 1983 the city government's health care expenses were
rising at twice the national average. Officials launched a full-scale prevention program. From
1985 to 1990 the city's health costs did not rise, even as the price of care skyrocketed. By
investing $3 million in health promotion. Birmingham officials estimate they saved $10.5
million over five years.
6
SUMMARY OF FINANCING FOR HEALTH SECURITY PLAN
L THE MAIN WAY WE PAY FOR HEALTH INSURANCE IS BUILDING OFF THE
OUR SYSTEM OF PRIVATE SECTOR FINANCING THAT WORKS BEST.
Under our current system, most people are covered through their employers.
Currently, 90% of Americans who have private insurance through their employers.
Yet, some do not pay, which is bad for millions of families without insurance who
live in fear, and bad for those of us with who end up paying for the costs of the uninsured,
because when they get sick we don't turn them away, we give them care in emergency rooms
and the rest of us pay the bill.
Because a fundamental premise of our plan is to build on the building blocks of our
health system that work, our plan builds on the employer-based, private sector provision by
making employers who do not provide insurance to their workers pay for comprehensive care
for all of their workers. Some call this an employer mandate, but we think it is about
responsibility, about ending the penalization of firms that do provide insurance for their
employees.
Many people who are interested in financing have missed the basic fact that the
substantial portion of the financing for health security comes from extending our current
system. Currently, insured employees and their employers cover 140 million Americans. As
you can also see today, 22 million receive inadequate coverage and 37 million receive no
health insurance. The major piece of financing for those under 65 is the requirement that all
employers and employees will be responsible for their health care. Indeed, of the funds
needed to pay for proving all Americans health security, two-thirds comes from the simply
making all American employers and employees who can bear responsibility for health care.
So the simple answer to the question, how can we cover so many people without a
general tax increase is that we are asking every employer to be as responsible as the great
majority of employers are today.
So while we believe that nearly every American will be better off through the Health
Security Plan, there is no free lunch. Those who do not pay for health coverage for their
employers or themselves currently, will pay more under our plan.
For every $1 of savings we are calling for that affect Medicare beneficiaries, we are
proposing $3 in increased benefits in long-term care and drug benefits. Second, past proposals
weren't reforming the private sector side, people rightly worried that costs would be shifted to
the premiums of the insured middle class and small businesses who were already taking the
worst hit, and that third, this would create a differential between Medicare patients and others.
In the context of a plan to bring down private sector costs, however, we can reduce Medicare
savings without shifting cost or creating a differential.
Our plan and every Democratic and Republican plan that has been proposed
recognizes that with national health care reform, we can save money in the rate of growth in
Medicare and Medicaid. Indeed, the other serious proposal so far have comparable Medicare
savings, and the Senate Republican budget proposal received 43 votes and received had at
least as much savings -- with no offsetting benefits. You will debate how fast those savings
can be achieved and how big those savings can be, but I think we all agree that there will be
savings that will be our second major source of financing for health care reform.
3. Third, we're going to place a tax on tobacco. This plan has no broad-based tax, but I think
it's appropriate when we're trying to encourage health in this country to put a tax on tobacco
which everyone acknowledges will help discourage smoking and therefore promote good
health. And finally, we're going to ask those large corporations that form their own alliances
to help support the backbone of our health care system -- academic health centers and
research.
Other plans that have been proposed suggest a different approach to taxes - a tax on
health care benefits above the comprehensive benefits package. Most of these proposals would
call for taxing the benefits of at least 35 million American workers. We would prefer to raise
around $100 billion through a cigarette tax and corporate assessment. Again, these are things
that we can debate, but I think most of us agree that no broad based tax is needed and
Congress will debate what new revenue sources are appropriate.
Those are the three primary sources of private and public sector funding that will pay
for health security for every American. That will guarantee that every American has a
comprehensive package of benefits that can never be taken away. We believe that it is a fair
approach to financing: one that asks responsibility of everybody involved. It is also a
conservative approach. We are not counting in cost savings that we believe will come from
emphasizing prevention, and by encouraging competition in the health care system.
2
PRIVATE AND PUBLIC NUMBERS ON HEALTH SECURITY PLAN
L PRIVATE FUNDING OF HEALTH SECURITY PLAN
Two-thirds of premium cost of ensuring health security for all Americans, comes
from making all those who don't pay now, and can afford, start bearing responsibility
for health care.
That means in the first year (1994 dollars), the overall costs would be approximately
$61 billion. $25 billion would be from business spending; $14 billion from
households, and $21 billion from government.
[NOTE: The $21 billion government cost grows to average $32 billion a year, $160
billion over five years, because of inflation and of because of a $20
billion cushion built in as a contingency against uncertainty.]
ILSEVEN YEAR TOTAL FEDERAL COSTS FOR HEALTH SECURITY PLAN
USES OF FUNDS FOR HEALTH CARE REFORM:
Long-term Care
$80 billion
Medicare Drug Benefit
72 billion
Public Health/Admin Costs
29 billion
Discounts for Businesses and Workers
160 billion
100% Self-Employed Deduction
9 billion
Total For Health Care
$350 billion
Deficit Reduction
91 billion
TOTAL HEALTH CARE/DEFICIT REDUCTION
$441 billion
SOURCES OF FUNDS:
Medicare
$124 billion
Medicaid
114 billion
Reductions in Federal Programs
47 billion
Reduction in Growth of Tax-Free Benefits
51 billion
Sin Taxes/Corporate Assessment
105 billion
TOTAL
$441 billion
3
The White House
Health Care Reform Today
September 13, 1993
The financing estimates in the administrations proposal are both
conservative and credible.
Our financing proposed was developed under the most rigorous and
conservative forecasting standards. While some of the specific preliminary
numbers leaked by outsiders last week may change as fine-tuning occurs in
the consultation process, the overall financing structure is rock solid and
will remain intact.
From the very beginning, the Administration has devoted countless hours
developing the most credible and conservative estimates ever in the history
of health care forecasting. A group of actuaries, health economists and
other financial analysts from within and outside government have been
working together almost daily.
The group includes representatives from every federal agency involved in
fiscal accounting and financial projections, including the Department of
Treasury, the Department of Health and Human Services, and The Office of
Management and Budget. This is the first time all federal health care
forecasting efforts have been brought together.
Administration officials are not considering a new Federal tax on
hospitals.
The administration is not considering a new tax on hospitals. Ira Magaziner,
senior policy advisor to the President made it crystal clear at a White House
briefing yesterday: the administration is not considering a tax on hospitals in
order to pay for this reform. There have been no discussions of such a thing since
May when we were considering every idea that was presented to us. And any
suggestion to the contrary is absolutely untrue. We feel that hospitals must remain
the cornerstone of our health care system and our plan fully recognizes their
critical role.
Health Care Reform Today - Page One - 9/13/93
The administration proposal will not cut Medicare and Medicaid,
forcing reductions in the quality and amount of health care services.
There are no Medicare or Medicaid cutbacks in the reform proposal.
The plan calls only for slowing the rate of growth in future Medicaid and
Medicare spending. Under this proposal,. Medicare and Medicaid will
continue to grow at a rate faster than private sector health spending and
faster than other goods and services in the economy.
The proposal does not cut benefits to seniors. It protects what they have
and gives them more -- prescription drugs and better long-term care. Every
cent -- and then some -- of Medicare savings will go toward new long-
term care and prescription drug benefits for Medicare recipients.
For the next two years, Medicare and Medicaid will continue to grow at
their current projected rates - - which are substantially in excess of
the growth in private sector health expenditures. For 1994 and 1995,
Medicare will still grow at 11.2%.
To solve the problem of skyrocketing health expenditures, we have to
address what's going on in Medicare and Medicaid. These programs are
growing at astronomical rates - - 11% and 14% respectively, compared to
about 7:5% in the private sector. If we let them continue to grow at these
rates, they will be responsible for over 2/3 of the increase in government
spending during the next decade.
It also must be remembered that savings in Medicare and Medicaid will
come alongside billions of new revenues for providers from the creation of
millions of newly insured paying patients. Doctors and hospitals will not
be beggared, and access will not be diminished.
Finally, the savings in these programs must be taken in the context of re-
straints on private sector health spending growth. That eliminates the
question of whether federal program cuts will shift costs to private patients.
Health Care Reform Today - Page Two - 9/13/93
Hospitals dependent on Medicare will not close. This plan will
not have a real impact on low-profit and high Medicare population
hospitals,
The administration reform proposal guarantees universal coverage
and access to every American. Specific provisions increase funding
for hospitals and other providers serving inner city and rural
communities and strengthens them.
Firms that now do not insure some or all of their workers would
be able to purchase insurance at a discounted rate.
Requirements that firms not now insuring contribute to coverage
would amount to only $1 per day per worker in the lowest--wage
small firms -- roughly a 75% discount from what would be an
already much lower prevailing premium. And that's for solid,
comprehensive guaranteed coverage. The vast majority of small
firms that don't insure now because they can't afford to would leap at
an offer like that.
A firm with an average payroll of $20,000 per full-time worker would pay
no more than $1100 per worker, or approximately $3 a day.
President Clinton's health care plan will mean higher costs and
fewer benefits quite the opposite.
The two things that people will see that's fundamentally different from what
they get today are that they will never lose their health coverage and that
they won't face skyrocketing increases in their premium rates. As they do
today, most Americans will have most or all of their health care costs paid
for by their employers. More than they do today, all Americans will have a
choice of health plans and doctors. Finally, the benefit package, as com-
prehensive as what's offered by most Fortune 500 companies, is the
minimum level of benefits guaranteed to all Americans. Employers who
want to offer more benefits can continue to do so under our plan.
Health Care Reform Today - Page Three - 9/13/93
Many people whose entire cost of health care is now provided by
their employers would not be required to pay as much as 20 percent of
the premium price.
That's not true. The plan sets a floor on employer contributions (at least
80%), not a ceiling. Firms paying 100% of premium now can continues to
do so without penalty.
The plan does not call for government to set and monitor price
controls on public and private-sector health spending.
The emphasis in the news media on what it calls "caps" in the rate of growth
for health insurance premiums and on major government health programs
misses a critical point:
The Clinton plan for health reform is built around making the competitive
market in health coverage work to control costs and bring down rising
premiums, prices and government spending.
There are no government price controls in the plan. There is an emergency
brake that standards as an extra safety net to guard against the outside
chance that competitive forces will not prove strong enough to control
rising health care costs in some areas.
But it is an emergency brake - not the mechanism for bringing the rising
cost of health care under control. Under the Clinton plan, employers pay a
minimum of 80% of the cost of the comprehensive benefit package. As
they do today, some firms may choose to pay the full share of the premium.
Health Care Reform Today
The White House
202-456-2566
Fax: 202-456-2362
Health-Care Reform Costs: Rumor Is Scarier Than Reality
Policy: An understanding of current
1
WHAT WE PAID LAST YEAR
2
WHERE HEALTH-CARE MONEY COMES FROM
spending will make it easier to accept the
First. put the speculative proposals in context:
The $840 billion of spending on health care in 1992 comes
more "expensive" forms of change.
out to about $3,330 for every man, woman and child in the
United States. (That would mean $13,000 per year for the
Total U.S. gross domestic product
Total U.S. payroll
By THEODORE MARMOR and JERRY MASHAW
hypothetical average family of four.) But payment for the
$5,978.5
$2,923.5 billion
bill comes from several sources. Figures for 1991:
uch of the current
A recent Times headline
billion
Medicaid (state)
Medicaid
M
interest in health-care
speculated: "Health Plan May
(federal)
4%
reform focuses on how
Call for 12% Payroll Tax on
7%
Other government
much il will "cost" and
Firms." As reported, the 12%
13%
how it will be financed.
estimate was for the "most
Medicare
There has been plenty
generous of the three possible
17%
of hype, but little
benefit packages" presented to
attention to the fact that most
President Clinton. The sugges-
Health-care payments
Out of
Private health
from employers
pocket
insurance
of the cost of reform will be
tion was that less generous
substituted for what we
plans would "cost" less, maybe
(premiums and taxes)
20%
35%
already pay, not added on top
7% to9% of payroll.
Health-care portion of GDP
$412 billion
of it And we already pay. from
Let's compare these pro-
$840 billion
Other private
14% of payroll
one source or another. a dou-
posed payments into a new
4%
14% of GDP
ble-digit chunk of national
national system to the way we
income for health care.
currently pay for medical care.
Source Economic Report of the President. January, 1993
Source Congressional Budget Office, *Managed Competition and Its Potential to Reduce Health Spending*
4
WHO USES MEDICAL CARE DOLLARS
3
HOW IT PAID
The amounts spent on behalf of individuals, of course, differ
Current financing is a jumble of payers. Any national plan must start from this state of affairs:
radically. For example, 1% of the population accounts for
30% of health-care expenditures; half of the population uses
In billions
almost no health-care dollars. This is another way of saying
that most of us are not seriously sick most of the time and that
Business
Citizens and taxpayers
insurance- private or public-redistributes burdens from the
well to the sick and, sometimes. from the rich to the poor.
Health-care
Population percentiles
MMM
$265
$219
expenditures
by expenditure
Top 1% of users
Top 2%
$147
$34
Top 5%
Top 10%
Premiums
Premiums
30%
Top 30%
41%
Top 50%
$366
$299
58%
Government
Private insurance
72%
Total
Remaining 3% of
$840
billion
91%
expenditures are
$175
Out of pocket
97%
distributed among
the remaining 50%
14% of GDP
of the population
Source Berk and Monheit
Sources: Estimates based on data from Health Care Financing
"The Concentration of Health
Admin. Commerce Dept. and Congressional Budget Office
Expenditures: An Update. Health Attairs (Winter, 1992)
-6
50
5
HEALTH-CARE COSTS AS PERCENTAGE
INCOME
6
CUTTING UP THE
MEDICAL DOLLAR
Conclusion: Costs Can Be Controlled,
On the other hand, the higher their income, the lower the
This chart illustrates the
proportion of their income that Americans pay for medical
care. Families in the bottom 10% (incomes below $6,000 a
confusion created by
year) spent a whopping 27% of their money on medical care
focusing on the "costs" of
(including the portion of taxes that goes to government health
various reform plans, some
but Not By Wishing Them Away
programs). By contrast, the figure was 15% for families with
of them more generous
incomes of $22,000 to $27,000 and only 10% for families with
than others. Just because a
Imagine a Clinton proposal that
within that budget. allocate care to
regarded as ordinary medical care
incomes above $93,000. Any effort to have all Americans pay
plan excludes some service
excluded hospital care in its "least
the sick.
in order to control costs would be
a comparable proportion of their incomes for universal health
does not mean that the
With 14% of our national income
service or its costs would
gene "ous" plan. Would hospital
very shortsighted. Even the costs
insurance will obviously produce winners and losers, no
care not be provided, its costs not
allotted to medical care, we spend
of a "generous" package of benefits
matter what the precise nature of the benefit package.
disappear.
incurred? Not on your life. The
more than any other society on
are controllable by a combination
costs would just be in different
Earth. To expand insurance cover-
of budgeting, negotiation and regu-
Percentage of family income spent on health care
30%
Where health-care funds are spent:
accounts and in somewhat differ-
age to all, with a broad range of
lation.
ent amounts.
services eligible for payment, is
That is the lesson of reforms in
25
Taxes
So, what benefits are "covered"
certain to mean we will not spend
Hawaii, Maryland and New York-
Hospitals
influences but does not determine
less than that, at least initially. But
not just Canada, Germany and
20
Premiums
38%
Physicians'
what is spent or by whom. Yes, pri-
there is no reason to believe we
Japan. And surely it is this sort of
services
vate insurance companies current-
must spend 14% or more forever.
reform that Americans want-not
Out of pocket
15
19%
ly estimate costs by what what is
And there is even less reason.
some misbegotten effort at fiscal
All others
covered in a particular plan. For
given the level of current expendi-
prudence that "saves" dollars by
10
27%
them. more extensive benefits nec-
ture, to regard 12% of payroll as an
drawing artificial boundaries
essarily mean greater costs. But
astounding amount. If our total
between covered and uncovered
5
this is accounting. not economics,
outlays are very large. the compo-
medical care.
Nursing
and certainly not public finance
nent parts of our financing will
0
Drugs and
homes
economics.
have to be large. The only way to
nondurables 8%
8%
Another way of proceeding,
reduce those outlays is to pay less
Theodore Marmor teaches man-
Poorest
10%
Deciles by family income
employed in much of the developed
for the care we give. give less care,
agement and Jerry Mashaw teaches
10%
Source: Congressional Budget Office,
world, is to set a national medical
pay less for administration or do
law at Yale University They are co-
"Managed Competition and its Potential to
budget, cover what ordinary
some of all three.
authors of "America's Misunder-
Source: Rosell et al, Economic Policy Institute. briefing paper, April, 1993. based on 1987 data
Reduce Health Spending, May. 1993
Americans regard as medical care,
Limiting benefits to only some of
stood Welfare State" Basic Books.
then let the medical professionals,
the procedures that are widely
1992)
Melanne Verveer
Office of the First Lady
THE WHIT
Room 101 OEOB
Office of the P
For Immediate Release
September 21, 1993
PRESS BRIEFING
BY
DIRECTOR OF COMMUNICATIONS MARK GEARAN,
ASSISTANT TO THE PRESIDENT ON ECONOMIC POLICY BOB RUBIN,
OMB DIRECTOR LEON PANETTA,
TREASURY DEPUTY SECRETARY ROGER ALTMAN,
COUNCIL OF THE ECONOMIC ADVISORY CHAIR LAURA TYSON
The Briefing Room
1:16 P.M. EDT
MR. GEARAN: Let me start out with giving you a road map
of what we're about to do today. We have Bob Rubin --
Q
Mark, before you do that could we just get a little
reaction to what's happening in Russia?
MR. GEARAN. I'm going to do that, yes. Yes. I'm going
to do road map, then reaction. It's not alphabetical.
Bob Rubin, Leon Panetta, Laura Tyson, and Roger Altman,
who will give a briefing on some of the questions that have been
raised in terms of the financing of the health care system. They
have a limited amount of time, so we'll go to them quickly.
Let me give you just a preliminary on events in Russia.
We are just learning of the events unfolding in Russia ourselves at
this time. We're in the process of getting more information and will
be assessing it as the hours progress. We expect to have a statement
later on in more detail and with more information than we're
receiving at this point.
Q
So we were not informed before the action by
Yeltsin?
MR. GEARAN: No. Mr. Pickering was called in with some
of the other foreign ministers in advance of it.
Q
In advance of it?
Q
How far in advance?
MR. GEARAN: Soon in advance of it. It was not --
Q
Well, they're saying in Moscow less than an hour.
Is that correct?
MR. GEARAN: I think that's correct.
Q
What were they informed? The details of what
Yeltsin would say, or just that Yeltsin would speak?
MR. GEARAN: They were informed of the speech. Let me
leave it at that. That's about all we can provide.
Q
When was the President informed?
MR. GEARAN: As the events were proceeding.
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- 2 -
Q
Mark, what form will the statement be?
MR. GEARAN: I'm sorry.
Q
What form will his statement --
MR. GEARAN: We're waiting to see who will best respond
or how we'll do that -- and whether it will be someone from the White
House or Secretary Christopher will --
Q
Do you know who told the President of these
developments?
MR. GEARAN: The national security staff.
Q
Before or after the National Service event?
MR. GEARAN: It was I'll have to confirm that. My
understanding I think it was afterwards. Let me confirm that for
you in terms of when he was told.
Bob.
MR. RUBIN: Thank you, Mark. I'm Bob Rubin, the
Assistant to the President for Economic Policy. We're going to
discuss the financing of the health care plan, which seems to be a
subject of some interest. And let me start with a few general
comments, and then we'll get into the specifics of the financing.
As was true in the economic plan -- and you heard the
President say this in reference to the economic plan he'll say the
same thing about the health care plan. From the very beginning, he
insisted that we take enormous care with the numbers with respect to
accuracy; that we have accurate, conservative, valid numbers, and
that our policy decisions be based on such numbers so that there will
never be a question about our numbers.
With the economic plan and again with the health care
plan, his position was that he's happy to have all the debates people
want to have about policy, but he does not want to have anybody
validly questioning the validity of his numbers. And it's on that --
with that mandate that these numbers were developed.
There obviously will be a debate -- a national debate on
health care policy, and there will be all kinds of issues. But what
there shouldn't be any debate on is the validity of these numbers.
They were developed with enormous care and enormous carefulness with
respect to making sure that we had numbers that would withstand any
kind of challenge.
I've been involved in my own career with enormous
numbers of number developing processes. (Laughter.) I guess that
fits together. And I can tell you, this was an exhaustive process.
HHS, OMB, Treasury, CEA, actuaries, internal within the government
involved with developing the numbers. And then there were external
-- accountants and actuaries reviewed the models and reviewed the
development of the numbers.
I can remember early in the process when there would be
disagreements and there would be debates about the numbers. And
Ira's position throughout it was that we had to have accurate numbers
and then we make our policy decisions and these differences will
eventually narrowed and brought down to numbers that everybody could
agree on.
Finally, let me make one more comment on the process,
itself. This was an exhaustive process of debate and discussion. We
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- 3 -
had endless meetings amongst ourselves, and then with the President.
Well, the ones with the President weren't endless, but we had endless
meetings amongst ourselves and a goodly number of very lengthy
meetings with the President. We all the ability to state whatever it
is we wanted to state. There were healthy debates, there were
lengthy debates, there were real differences of opinion just as there
were with the economic plan. The groupings would be different over
each issue. We had one grouping on one issue, another grouping on
another issue. And out of it all came a plan, as was true in the
economic plan, that all of us felt was a good plan and that realized
the purposes that the President started out with, which was to
develop a way of reducing or eliminating the enormous excess
expenditure, which is I think unquestionable in our health care
system, and then utilize those savings to fund the realization of his
objectives. And that's what this plan is all about.
With that, let me turn it over to Leon Panetta, who will
get much more involved in the specifics of the numbers.
DIRECTOR PANETTA: Let me again, preface these remarks
by trying to compare a little bit of this to the economic plan. I
mean, the fact is with the economic plan, there were models that were
in place over the years. We had very good estimates about various
proposals, either on the tax side or on the cut side, that have all
been estimated before. There are economic consequences that have
pretty well been estimated. So we basically had models in place that
made us much more comfortable, obviously, with the numbers that we're
dealing with.
In this instance, we're dealing with an unprecedented
effort at reform of the entire health care system in this country.
And the problem we had from the beginning is obviously to develop
models that could estimate the impact of that kind of broad reform
with regards to health care. What happens when you suddenly pick up
almost 60 million Americans who are uninsured or under-insured, and
bring them into a health care system? What are the costs of that?
What is the impact on the health area? What are the behavioral
consequences of bringing people into that kind of system? Then
determining the cost impact, not only on business, but on employees,
individuals as well as the health industry, as well as the Treasury.
So, obviously, those were the questions that we had to develop
approaches to if we were going to try to develop the most accurate
numbers that we could develop in the reform plan.
Over the last six months, we have basically been
involved in trying to develop that kind of modeling system. We've
had representatives from OMB, from Treasury; economists who have been
part of that, HHS, the various actuaries that are involved with
health care issues generally have participated in that effort. And
so at the conclusion of that, we tried to develop the most credible
and conservative kind of estimates of the impact of health care
reform as we could. You have to look at again, what -- if you
develop a basic benefit plan, what does that look like? What are its
impacts? What are the characteristics of the people that we're
dealing with? What are the households that we're going to be
impacting, employers, employees, and obviously just the whole cost
issues.
After six months, we believe we've developed I think the
most sophisticated models in the business of analyzing health care
costs. They are the best in the business. There aren't any others,
really, out there. And that was our problem. But I think that as a
result of the work that we've done, we've got the best in the
business. And so the estimates that we have here, I believe, are
credible and I believe, again, can be defended when we present the
plan itself to the Congress.
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- 4 -
Like the economic plan, I think it's important to
understand that people can question the policies, they can question
the politics. And, obviously, that's a process we're going to go
through after we've presented the plan to the Congress and to the
country, and that's legitimate. But if, in fact, we can get all of
these elements passed by the Congress, then we believe we can hit
these numbers.
Now, let me speak a little bit about the specific
numbers that we're working with in terms of the elements of the
program and the financing for those elements. Let me begin with a
very important promise here that I think a lot of people are losing
sight of. The most important premise that we're operating with is
that most of the money comes from where the money now comes from to
pay for health care, which is the contribution by employers and
individuals into a premium process to pay for their health care
plans. That process is still there. That premium base is still
there. People who are now paying for health care will continue to
pay health care premiums. So that is a base that's there and that is
going to continue to be funded through the premium process.
With regards to the federal side of it, let me describe
what those elements are, because that's where legitimate question can
be asked: how is the federal government then going to pay for those
benefits? Again, I want to condition all of this to say that it's
subject to continuing adjustments. We're still looking at these
numbers and there will be, I think, minor modifications in the final
numbers that appear in the bill. But right now, the numbers that I'm
going to present to you are estimates between largely 1995 and the
year 2000. Some of these numbers basically will ratchet-in,
depending on the particular program that you're looking at.
On the new benefits, let me describe the new benefits
that will be part of the program. The new benefits include a long-
term health care program for the elderly, and that program largely
targets on home health care, community-based health care for seniors.
The estimate on that is about $80 billion.
Q
Over?
DIRECTOR PANETTA: That is between - it ratchets in
starting in I believe 1995 '96, and goes to the year 2000.
Q
Is that an annual number?
DIRECTOR PANETTA: That's the total number for that
period of time and it ratchets in.
Q
Four years?
DIRECTOR PANETTA: Five-year numbers.
Q Does it start low and grow? I mean, that's --
DIRECTOR PANETTA: Essentially, in this area it ratchets
in and it starts to escalate in terms of the costs.
On the Medicare drug benefit, it's the same over that
period of time. That's about $72 billion. That basically provides
for drug benefits to those on Medicare with a deductible, small
deductible. That's $72 billion.
The third piece of it is that there are public health
care investments that are part of this, in which there are targeted
increases, particularly for rural clinics and community clinics that
try to serve those at the low income levels. And there will be about
-- in addition to that piece, there are start-up costs for the basic
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- 5 -
system itself that will come to $29 billion over that period of time.
We will be providing a 100 percent self-employed
deduction for those who pay in, those who are self-employed with
regards to their payments. They' have a 100 percent deduction.
That costs $9 billion.
And then lastly is the largest portion here, which are
the discounts for subsidies, as they've been called, to businesses
and the employees at the low income level who would qualify. And the
price tag on that is $160 billion. And that's the one, very frankly,
that continues to we need to continue to scrub that number,
because we need to analyze just exactly who's going to receive those
subsidies as we work through the plan. But that's -- $160 billion is
the estimate right now. So that the total cost we're looking at of
the new benefits that will be provided by the federal government are
$350 billion.
How do we pay for this in terms of trying to make sure
that each of these is covered? The first area, obviously, deals with
the two principal health care programs that are the costliest at the
federal level: Medicare and Medicaid. And let me preface this by
saying that, again, all of you know that we're dealing with programs
that, in terms of the federal budget, are escalating at double and
triple the costs. We're looking at taking these programs from
roughly three to four times the rate of growth in the economy down to
about two times the rate of growth. So we're basically trying to
reduce the very high level of growth that we're seeing in these
programs.
On Medicare, we're looking at about $124 billion in
savings over that same five-year period. These savings will be
specific. We're not talking about a cap. As you know, there's often
times been a discussion in the Congress about setting some kind of
arbitrary cap with regards to these expenditures. We are going to
present specific proposals to achieve these savings. An example of
some of those proposals would be requirements for additional co-
pays, competitive bidding with regards to medical equipment, some lab
co-insurance requirements. These are proposals that have been in the
mix in terms of the discussions on Medicare savings as long as I've
been involved in the budget process. And we are selecting, we think,
they policies that make sense, both from a substantive point of view
as well as a savings point of view.
The same thing is true on Medicaid, which will be $114
billion in savings over that period of time. Most of that will come
from a reduced cost on the disproportionate share, which is basically
what we now pay hospitals that are the targeted hospitals that serve
an excess number of individuals on Medicaid. We think we obviously
will be able to reduce that disproportionate share provision as a
result of the other elements of health care reform.
The second area is the savings that we hope will flow,
and we were confident will flow from the fact that other federal
programs that serve people, people will be moving gradually into the
health care system itself, into the alliances, and we estimate that
we will get savings from veterans programs, from Department of
Defense programs, and also, obviously, from the federal employee
health programs where we now cover all of those costs, federal
employees will be part of the new health care system. We expect
savings there of about $47 billion.
The fourth area of savings relates to our ability to
move away from tax-free benefits, which we now provide in large
measure, obviously, through deductions in which we cover health care
payments. Our hope is that obviously as we reduce the cost of those
payments, that not only will we reduce the amount of benefits we have
to provide through the tax system, but in addition, we will incur
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- 6 -
some additional revenues from those who receive profits and
additional wages as a consequence of that. And that's a pretty fair
estimate that we generally use. It's a little bit like looking at a
mortgage deduction, and as you reduce interest rates obviously the
consequence of that is to produce more money to the individual which
then becomes subject, hopefully, to additional taxes flowing to the
federal government.
The estimate there is $51 billion, what we estimate in
that area. And this one that we, again, in terms of our own process
we're trying to nail down with Treasury and with OMB looking at these
numbers continually.
The last area is sin taxes. Sin taxes are approximately
$105 billion. The final decision on the exact elements of that have
not been decided, but --
Q
You're kidding.
DIRECTOR PANETTA: Whose kidding? (Laughter.) No, I'm
not kidding. They have not been decided. We're looking obviously at
cigarette taxes, and whether we go beyond that, or how much the
cigarette taxes will be is still being discussed.
Q How can you come up with $105 billion figure
without knowing precisely what is involved?
DIRECTOR PANETTA: Well, there are proposals that are on
the table and we estimate that we have to look at somewhere between
$100 billion to $105 billion in order to make these numbers work.
And that's what needs to be done.
Q How big does the cigarette tax have to be without
some other kind of taxes in order to come up with that amount of
money?
DIRECTOR PANETTA: Well, if you're just looking at
cigarette taxes you're probably looking at somewhere around $1 a
pack. But if you were doing less on cigarettes then you've got to
make it up elsewhere.
The total number on that from what we estimate in income
is $441 billion from what I've just described, meeting a cost, as I
said, of about $350 billion, and that is what leads us to a hoped-
for deficit reduction of around $91 billion over that period of time.
And that's particularly important from my perspective because I think
I've often argued that if you're going to get the deficit down
further you've got to be able to get this kind of return on health
care.
Now, let me just conclude by saying that as always, you
know, when you're putting numbers like this together based on the
models that we've developed, the numbers fit just as they did in the
economic plan. But just as what we faced in the economic plan,
obviously, there will be political implications of a continuing
consultation process with the Hill, the concerns that are raised on
Capitol Hill as we go through the process, and that will obviously
require some adjustments as we work through the legislative process.
Secondly, there is going to be a continuing assessment
on the numbers themselves. We are currently in the process, between
OMB and Treasury, over these next two weeks, where we are going to be
scrubbing all of the numbers I've just presented to you. And we do
not expect -- I should make clear -- we do not expect any major
changes from that process, but there may indeed be some adjustments
that will have to be made as we again revisit these numbers.
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I think the President's goal is to begin this process.
And this is the beginning of the process of the debate on health care
reform in this country. He has presented -- and I think it was his
intention and the First Lady's intention to present a bold plan for
health care reform to the country. But like any smart negotiators we
know that there are going to be bargaining that's going to have to be
done with the Congress. We're going to face a number of special
interests who are going to force us to fight this battle. And our
view is that it's much better to start with a bold approach as we
begin that process.
DEPUTY SECRETARY ALTMAN: I'm so happy to be here that
I'm compelled to be brief. Secretary Bentson would have been doing
this instead of me, except that he is in New York, on his way to
speak to the Economic Club of New York tonight.
As Leon alluded, Treasury has responsibility for
estimating the revenue issues, the revenue impacts of this plan. The
sin taxes, the revenue effects of the mandate, the self-employed
deduction, and the others. I simply want to say that we're using the
same Treasury estimating model and the same methodology that was used
in the economic plan and that is always used to assess possible
changes in tax policy or legislative initiatives.
We are continuing to scrub these numbers. It will be a
couple of weeks before we finally finish doing so, together with OMB
and others. There may be some moderate changes before the final
details are released. But I'm confident that the numbers we do
release will withstand the scrutiny which will be very tough --
that, of course, they'll be subject to.
I think we've been very cheered so far by the
congressional reaction. A lot of us have been up on the Hill for the
last couple of days in various workshops, which have been
extraordinarily well attended, I might add. Extraordinary how many
members of Congress have come for hours on end. And they've all
said, among other things, even some that aren't happy with the plan,
that we've put forth the most-detailed and the best-researched health
care plan that's ever been put on the table by a lot.
As Leon said, the congressional process is just
beginning. It will take quite a few months, there will be
undoubtedly changes in the proposal that we put forward and we
welcome that process.
The only point I'd add in addition is that in the event
that anyone does point out a true flaw in our numbers -- can prove to
us that they're off, well, then, of course we'll adjust them. And
we'll adjust them on the cost side. In other words, if it turns out
that people convince us that something we've estimated at X will cost
more than that, well, we'll reduce costs in some other area. What we
will not do, beyond the sin tax proposal that will be made shortly,
what we will not do, is to propose any further changes on the revenue
increasing side, on the tax side.
I think Laura's next.
MS. TYSON: I will just end by reaffirming or
emphasizing, the comments made by Bob Rubin at the beginning. The
process by which these numbers was developed was a process which was
exhaustive and inclusive. The CEA and other agencies of government
were involved in the process from the very beginning. We did not
just rely on internal experts, however. We consulted a wide variety
of external experts on all aspects of the health care system. So it
really was, as the First Lady has correctly said, an unprecedented
process in terms of inclusiveness, exhaustiveness and precision. So
I don't think there really is any question about the numbers.
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- 8 -
Now, it's been reported in a number of places that I
have raised questions about these numbers and that the CEA has raised
questions about the numbers. That, in one sense, is true and in one
sense is misleading. It is true in the sense that it is the role of
the CEA to raise questions. We love to raise questions, that's one
of our jobs -- we raise questions. The reports are misleading
because they seem to indicate often that our questions were not
answered. That is not correct. Our questions have been answered.
They have been answered as part of this exhaustive process. So, for
example, if we raised a question about Medicare and where the
Medicare savings would come from, there are now precise, specific
policy proposals backing up the Medicare savings.
So the process has been unprecedented and exhaustive
and, I believe, has moved the information base on how the current
health care system is functioning and what we heed to do forward by
an order of magnitude relative to anything anyone knew when we
started. So I think one should, at this point, welcome debates about
policy and welcome debates about politics. But really, the numbers,
it seems to me at this point, are not really debatable. They came
from a very credible process and a very exhaustive process. And
that's really all I wanted to say.
Q Despite the fact that you insist that there aren't
going to be new taxes, we have a poll out today that says 80 percent
of Americans still believe that that's how it's going to be paid for.
DIRECTOR PANETTA: Well, interestingly enough, we ran
into the same problem with the economic plan. I mean, obviously,
everybody felt that when you debate any kind of revenues or indicate
that even if there's going to be sin taxes, that people automatically
assume that somehow there's going to be some sort of broad-based tax.
And, as we pointed out in the economic plan, 80 percent of that
affected those of $200,000 and above. I think people are beginning
to understand that now. And as we go through the debate on this, I
think people will also understand that there is no broad-based tax
here.
Now, again, having said that, the premium is here.
Let's make clear that the premiums that people are paying now, that
most of the money in this process for this health care reform, is
going to come from the same area that it comes from now, which is
businesses and people paying taxes on health care. That needs to be
made clear now, because I think there's a sense that there's these
other taxes. It's based largely on the premium base.
Q
You presumably realize some savings from the
elimination of cost shiftings since everyone is now included. Under
which number, or numbers, is that included? Where is that number
reflected?
DIRECTOR PANETTA: You're basically in the -- I think
it's going to be in the reductions. While the reductions in federal
programs will probably be part of that, I think the Medicare to the
extent -- I mean, we're going to be doing specific savings on
Medicare, so you --
Q
I know, but that's going to affect nearly -- that
cost shifting is paid for by all the private consumers of health care
insurance. Presumably there will be a saving to them of some untold
sum of money. What is the sum and where is it reflected here?
DIRECTOR PANETTA: Okay, we think that when the plan is
fully implemented, that there's about $25 billion in uncompensated
care that's currently embedded in what private insurance and what
private payers pay. That is, everybody gets coverage so that money
will go away over time. So the dollars are really reflected in the
premiums that we are estimating. So they're not specifically shown
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in this line item here that the Director has talked about. But
rather, if you reduce uncompensated care, the premiums that people
will have to pay for health insurance, those costs will fall.
Q
Do you really think that you're going to see $91
billion in deficit savings at the end of five years? Do you think
that these models clearly estimate people's behaviors?
DIRECTOR PANETTA: I don't think -- no, it's not a
problem of the models. I think that if we achieve these kinds of
savings with regards to these kinds of costs, then I think we can
produce that much in savings in terms of deficit reduction. I mean,
that's our goal. Our goal was basically to start with making sure
that we achieve deficit reduction over this period.
Obviously, I have to tell you -- as I think we found out
on the economic plan, where our investments were vulnerable, I think
the deficit reduction number is going to be vulnerable on Capitol
Hill. The large question for Capitol Hill to answer is do you want
to achieve this much in terms of deficit reduction, or do you want to
lessen the amount of deficit reduction and lessen the hit in terms of
some of the other programs. You're going to see some trade-off here.
Q
In terms of trade-offs, it was so difficult to get
to the $57 billion in Medicare savings. What makes you think you're
going to reach $124 billion?
DIRECTOR PANETTA: As long as I've dealt in the budget
process, every time we've dealt with Medicare and Medicaid savings, I
have heard all of the expressions of fear -- that the hospitals are
going to close, that the doctors are going to go out of business, et
cetera, et cetera, et cetera. And it hasn't happened. The fact is
that there are tremendous cost increases that are taking place in the
Medicare and Medicaid program. We know that. We see that in the
budget. And I think as a result of that, we have been able to
outline a whole series of very specific proposals that from a policy
point of view I think makes sense.
Now, you're asking me really what I think is more a
political question than a substantive question, because sitting in
that room people are always nervous -- do we want to cut Medicare
this much? Can we cut Medicaid this much? But ultimately, if you
can justify the policies based on substance, then I think we can come
very close to these numbers. And that's going to be the test.
Q Mr. Panetta, can I ask you a question about -- you
started your account by saying that the bulk of the money was, of
course, going to come from where it now comes from -- from the
private sector. And yet, what all of you have said addresses only
the public portion of this. We need to give the American people a
picture of the whole thing. Could you tell us what the private
portion of this is going to look like? And it would be very helpful
if it was year-by-year what the business sector is going to pay, what
the household sector is going to pay, and what you either think
they're going to save or net -- have to pay to make this system work?
DIRECTOR PANETTA: Oh, Ken? (Laughter.)
MR. THORPE: We didn't pass that out? (Laughter.) of
course, we're -- as we continue to go through this, we focus first in
terms of our first step of an estimate is to try to get a handle
on what the federal and state and local piece of this is. And we're
in the process right now of doing exactly what you've asked. As
you've seen from your documents, that's -- I'm sure that you've read
through. We do have a table in the back that looks at the change in
national health expenditures under the proposed plan. We will,
during the course of the next several weeks, be developing exactly
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what you're talking about -- a sector-by-sector impact during that
time period.
Q
That chart at the back is entitled National Health
Expenditures. Is that the chart you're referring to?
MR. THORPE: Right.
Q
It appears to show that in the first three years of
this, if I understand how to read it, that the private sector in
aggregate is going to bear -- one year it's $23 billion in extra
costs, the next year it's $50 billion in extra costs, the next year
it's $30 billion. And only in the very end of the five-year period
are you going to see it -- the savings, in effect, be greater than
the costs. Is that true? In essence, the private sector is going to
bear increased costs during the early years?
MR. THORPE: No, we think that due to the fact that
we're covering $37 million under uninsured and we're providing
comprehensive benefits not only to that population but to individuals
that don't have as comprehensive benefits -- that is, you can see
from the chart that for the first two or three years that the amount
of spending in the system will rise slightly. But by 1998 -- I don't
have the figures with me. It's in the back of your --
Q
The point is that the private sector is going to
bear --
MR. THORPE: No, that's total spending public and
private. What we don't have and what you could not infer from that
chart would be the specific public-private impacts which we are still
working on.
Q Ms. Tyson, could you tell us whether or not the
proposal will increase --
MR. THORPE: I don't have the figures with me.
Q
Mr. Panetta, could you tell us --
DIRECTOR PANETTA: Could I -- Andrea, let me just add
another point that I think is important on the Medicare and Medicaid
aspect of this. Normally, the cuts in Medicare and Medicaid have
usually been done for the sake of deficit reduction in the sense that
you basically are doing it as part of an economic plan. In this
instance, you're doing it as part of comprehensive health care reform
with a long-term health care element as well as a drug benefit
element. And I think that gives us a little better arguing point
with regards to those that are concerned about who's going to be
impacted by that.
Q
Mr. Panetta, one of the central features of your
plan is cost controls on the growth of insurance premiums. How can
you convince the public that their services aren't going to be held
down, constrained, rationed by the doctors and hospitals as they're
living under these insurance caps at a time when you're trying to cut
inflation and health care in half?
MR. THORPE: Well, again, we think that if you take --
again, you can't just look at the cost containment piece. I think
it's important to look through and look at the plan in its entirety.
Because what we're proposing in the health reform proposal is really
comprehensive change in the delivery system. We believe that there
are substantial administrative savings in hospitals and physicians,
as well as insurance companies that we've talked about. We've talked
a little bit about reductions and uncompensated care that's sitting
out there.
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And one thing I think that will be useful to do is that
if you look at the dollar savings, don't look at the percent changes,
but actually look at the dollar savings in the private sector
associated with what we're proposing. And if you look at what we
think is going to happen in the system in terms of cost conscious
selection of health plans, administrative savings, reductions in
uncompensated care, moving toward a delivery system that is no longer
an open ended, uncoordinated delivery system. It is really something
to focus on much more effective and we believe, not only cost
effective, but better quality medical care. That any one of those,
individually or serially, will develop and create the types of
underlying cost reductions that the plan is talking about.
Q
But you and Mr. Rubin can stand here today and
assure people there will be no rationing of care under this Clinton
package?
MR. RUBIN: Let me try as a nonprofessional to take a
shot at that. Having sat through, I guess it's six or seven months
now of meetings with enormous numbers of health care professionals
on, as you know, a very complex subject -- when you hear them come
through all this, I think where you come out is it sounds from what
they've said -- let me put it differently. I came away persuaded
having listened to them, that this thing ought to work, that the odd
ought to be very, very high that there is very substantial excess
expenditure in the system. And you compare the 14 percent of GDP
that we spent on health care with less than 10 percent in any other
developed country, and I think it sort of validates that notion. And
it ought to be possible to create a plan that does that without
creating untoward effects.
But if there are problems there is a contingency in
these numbers, number one. Number two, as you know, it's going to be
phased in somewhat gradually so the first dates, hopefully, will come
in '95, and they will continue to come in through '97. So if you
start to see problems you can correct course.
And thirdly, and I find personally most importantly,
there is tremendous flexibility in this system and there is
tremendous flexibility within each state to adjust the system as it
goes along. So I think you have, in effect, a self-correcting
mechanism if problems develop.
Q
Laura, can you comment on the job impact, what your
models have shown in terms of --
DR. TYSON: We're actually going to have a briefing on
that issue on Thursday. We'll talk about the employment effects on
Thursday. Secretary Reich will -- we are trying to sort of have a
discussion today of financing, and a discussion on Thursday of --
Q What is the hold up in figuring out how the sin
taxes are going to be apportioned and are there discussions going on
with, for example, representatives from tobacco states as you're
figuring out how these taxes are going to be apportioned?
DIRECTOR PANETTA: I think it's -- you know, it's
obviously -- the issues are on the table with regards to the elements
of sin taxes. The one question is this corporate assessment and
whether or not we will look to this corporate assessment for
additional revenues as part of that package. And that -- frankly,
it's that element that's being evaluated right now. We have not come
to any conclusions on that. But depending on whether or not you
include that element, that tells you a lot about what you do then on
the sin tax.
Q
How much might that produce, the one percent
corporate assessment?
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DIRECTOR PANETTA: I mean, again, it depends on how many
corporations are going to be impacted, and that's something we're
analyzing right now. Because it depends to some extent on which ones
are dropping out of the process and which ones stay in the process.
Q The goal was to --
Q
Can we just clear up the payroll tax?
DEPUTY SECRETARY ALTMAN: We're not going to give you an
exact number, because we're continuing to refine that. But it's not
a huge number in the context of this plan. You have to make certain
assumptions about which businesses opt into the alliances and which
businesses, 5,000 and over, employees may opt out and so on. But
it's not a gigantic number.
Q
There may be no decision on alcohol tax by tomorrow
night, is that correct?
DEPUTY SECRETARY ALTMAN: I don't know the answer to
that. Someone asked that question earlier about when the sin tax
decision was going to be made.
Q Are you deliberately not deciding to not ignite the
lobbyists more?
DEPUTY SECRETARY ALTMAN: I heard somebody say the
President's upstairs having a drink and a cigar and would make that
decision shortly. (Laughter.)
Q
You said the President's goal was to have a
situation where people could argue politics and policy, but not about
the numbers. It hasn't been hard for people here to find economists
and politicians who are arguing about the numbers. What is the
problem? Where is the disconnect?
MR. RUBIN: Let me take one shot at that and let other
people take another shot at it. You know, when you read the reports
and then you speak to some of the people -- and I've done both -- I
think there is a bit of a muddling here. And I think sometimes when
people talk about concerns about the numbers, they're really talking
about the politics or they're talking about the policies. And I
think if you take somebody and you say, okay, you've said you have
concerns about the numbers, what do you really mean?
Usually, at least in my experience, it has turned out to
be either they simply need more information, or they're really
raising a question about political feasibility or policy impacts.
And that, I think, is -- to an awful lot of it.
Q
Well, to what extent did you --
MR. RUBIN: Can I make just one more comment? These are
very complex calculations. I've heard a lot of it developed, and
I'll tell you -- and I've had a lot of experience in developing
numbers these are very complex numbers developments. And I think
what's going to happen over time is, people who have serious
questions about numbers as opposed to policy or politics, they'll sit
down with the people who developed it, and I think they'll come out
satisfied on the numbers.
Q To what extent did you factor in political
feasibility in creating your models?
MR. RUBIN: Well, numbers are one thing and political
feasibility, I think, I would argue, a separate one.
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DIRECTOR PANETTA: There is no model you can develop for
that. (Laughter.)
MR. RUBIN: Leon has a perfect model for political
feasibility, and he comes out with -- (laughter) --
Q
obviously, there are policy assumptions that are
going into the numbers. I mean, you seem much more optimistic than a
lot of independent experts about how quickly waste can be gotten out
of the system, for example. I mean, those assumptions are built in
--
MR. RUBIN: Those assumptions are in here, as we said.
You've got an interactive process with OMB, Treasury, HHS, you've had
outside actuaries and outside accountants, and enormous numbers of
them, and they've come out and concluded that these kinds of savings
can be achieved in these kinds of time periods.
Q
Mr. Altman, you said in your remarks that if you
were convinced your numbers were wrong, you would make adjustments on
the spending fight, not the revenue side. Does that mean if Senator
Moynihan is correct, that it's not politically possible to achieve
this level of Medicare savings, that would put at risk these
proposals for new long-term and drug benefits for seniors?
DEPUTY SECRETARY ALTMAN: No, I didn't say that. I
didn't say that at all. I simply said that if anyone can prove to us
that there are flaws in our estimates of the costs of this, I mean,
really prove it, which I doubt, I strongly doubt, as I mentioned
earlier -- we would make adjustments on the cost side. We would --
Q
You're talking about a technical thing, you're not
talking about --
DEPUTY SECRETARY ALTMAN: Well, if someone could prove
to us that we've underestimated the cost of X or the cost of Y, you
know, really win the argument --
Q
But it's all based on predictions of future
behavior of all kinds.
Q
You're saying --
Q
-- what would you cut, then --
Q
-- which is kind of an interesting standard, isn't
it?
DEPUTY SECRETARY ALTMAN: -- in some other area the
costs to offset that. All I'm trying to say is, we would not turn to
the revenue side of the equation.
Q
But would that affect the core benefit package
then?
DIRECTOR PANETTA: Let me mention -- you've got -- all
of the pieces are here now. And, obviously, there's going to be some
adjustment on these pieces as we go through the political process and
as we go through, obviously, the discussions with regards to the
accuracy of the numbers and what have you. But there are key pieces
now that you can work with here.
If we decide, for example, that we want to do a phase-
in, a longer phase-in on this, we have some phase-in already built
into the process. That's something obviously that can be looked at.
It doesn't mean you're reducing the benefits; you're reducing the
benefits in the short term for some, but in the long run everyone's
going to get the same benefit.
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But we have the ability now with the plan that we're
working on to give us the flexibility to make those kinds of
adjustments without impacting on the basic principles that the
President wants to present in the health care plan.
Q
Given the record of economic modeling over the last
10 or 12 years, don't you approach the modeling of this entire sector
of the economy with some humility?
DIRECTOR PANETTA: Humility and trepidation.
Q
Can you tell us, is there any reaction from the
President on the Moscow coup?
MR. GEARAN: In terms of events in Russia, we have no
further reaction to that.
Q
The President did not react at all?
MR. GEARAN: We'll just leave it at that. We'll keep
you posted whether there will be a further statement.
END
1:55 P.M. EDT
To Find Out Whether Clinton Numbers Add Up
In Health Plan, Ask People Who Crunched Them
By DAVID WESSEL
[David] Stockman deficit trap.' Mr. Stock-
changed scores of others. David Cutler, a
And RICK WARTZMAN
man. Mr. Reagan's budget director. cut
White House economist among the inner-
Staff Reporters of THE WALL STREET JOURNAL
taxes and figured spending cuts would
core of number-crunchers. likens the en-
WASHINGTON - Richard Helms
follow; they didn't. Mr. Clinton, she says,
deavor to "a huge Rubik's Cube."
winced as he listened to one particular
would enact popular benefits now and must
Take the projection in the leaked draft
passage in President Clinton's health
be counting on tax increases later. Mr.
of the plan that the government will collect
speech to Congress last week.
Clinton insists broad taxes aren't needed.
S51 billion in taxes over five years because
"So then we gave these numbers to
If competition doesn't keep health-care
companies will spend less on health care.
actuaries for major accounting firms and
spending down, he says, then the spending
The Treasury assumes that whatever em-
major Fortune 500 companies who have no
caps written into law will.
ployers don't spend on tax-free health care
stake in this other than to see that our
For the Clinton planners, even getting
will be given to workers in taxable cash.
efforts succeed.' the president said. "So I
the math right wasn't simple. Health-care
But that figure wasn't based on all the
believe our numbers are good and achiev-
numbers are huge, even by government
same projections as the rest of the draft.
able."
standards. The new Medicare drug benefit
When the final figures are issued later this
Mr. Helms, an executive at Principal
by itself is said to cost $14 billion a year,
month. the estimate is likely to be smaller.
Financial Group, a Des Moines insurer, is
double the Environmental Protection
"Instead of 51, it may be 41 or 31," Mr.
one of those actuaries. "If it gave someone
Agency's entire budget. The numbers are
Magaziner says.
the impression that we looked at all of the
so big that administration officials call
Even that multibillion-dollar issue is
numbers in fine detail and signed off on
some disagreements over $2 billion a year
them." he says, "it was potentially mis-
minor compared with the big one: the
"rounding errors." David Ellwood, Mr.
leading."
terms of the cap on private insurance
Clinton's welfare-reform expert, once
Mr. Helms and others on the seven-man
premiums and government health spend-
joked that he would gladly accept as the
team of actuaries consulted by the White
ing. Mr. Magaziner argues that the advent
entire budget for welfare reform the
House agree that the administration put
of competition will bring down health
difference between cost estimates of any
the proper price (an average of $4,200 a
spending so the caps may never bind. But
part of the health plan made on two
family) on the insurance package the
because of the way congressional score-
different days.
president wants to guarantee all Ameri-
keeping works, the caps drive the num-
But the issue isn't whether the numbers
cans, and that the methods used to calcu-
bers. If they were looser, there would be
add up. "Of course they add up. They're
late government subsidies are sound.
less money to subsidize employers and
not dopes." says Theodore Marmor, a
But they don't all accept that Mr.
families or to pay for new Medicare
professor at Yale's School of Organization
Clinton can squeeze as much waste and
benefits. Allow private premiums and pub-
inefficiency out of the health system as
and Management. "The critical question is
lic health spending to grow just one per-
what assumptions do you make to make
swiftly as he envisions without disrupting
centage point faster than Mr. Clinton's
the numbers add up.'
the market or undermining the quality
proposed caps provide, and projected fed-
In Washington. numbers often drive
of care - an assumption that is crucial to
eral spending goes up by about S5 billion
policy, a point that wasn't lost on Mr.
in 1997 and about $13 billion in 2000.
many of the numbers in the plan.
Magaziner. Early on, he took control of the
"That's the real question. Is it [Mr.
While a host of health-care experts
Clinton's proposed cap on spending] so
numbers. He bypassed a layer of veteran
question the wisdom of imposing such
government number-crunchers by assem-
tight that you couldn't make it? That's
strict caps as quickly as Mr. Clinton pro-
bling a team that reported primarily to him
hard to say." says Richard Ostuw, chief
poses, Mr. Magaziner hasn't any doubts.
and economist Kenneth Thorpe at the
actuary at Towers Perrin, who led the
"We didn't set these budget caps by
Department of Health and Human Serv-
outside team. "There would be some
sticking our finger in the air.' he says.
ices. He used private economic models to
places where there would be problems. But
challenge. and sometimes change, govern-
I don't know if that's 1% of the population
ment estimates. Only now, after all the
Applying the Brakes
or 50% of the population."
major decisions have been made, are the
White House estimates. as of Sept. 7, of the
Ira Magaziner, designer of the health
plan, says in an interview that the actuar-
senior analysts at the White House budget
growth rate of private-sector insurance
office and Treasury "vetting" the num-
premiums with and without the Clinton-
ies weren't supposed to judge whether the
bers. as Mr. Magaziner puts it. The
proposed caps
proposed caps anticipate squeezing sav-
budget office recently sent Mr. Magaziner
10%
Without caps
ings out of the system too rapidly that
30 pages of questions.
With caps
other outside experts did.
Yet Mr. Clinton's economic adviser,
"We have done things differently," he
8%
Robert Rubin. said much the same thing as
says. "We have ruffled a lot of feathers.
the president when he assured the press
We have basically gotten a lot of stuff out to
last week that "enormous numbers" of
the surface that is usually buried. We
6%
government experts and "outside actuar-
thought it was the only way to get it done in
ies and outside accountants" have "con-
a decent amount of time where I could look
4%
cluded that these kind of savings can be
the president in the eye and say, 'I under-
achieved in these kind of time periods.'
stand what's in the models.'
In an interview yesterday. Mr. Rubin
Mr. Magaziner's staff held tedious
2%
1994
*95
'96
*97
'98
'99
said, "I just spoke to Ira Magaziner a few
meetings to figure out why estimates from
2000
minutes ago and he reconfirmed that out-
one arm of HHS. the Health Care Financ-
side experts have checked the savings and
ing Administration. were SO different from
He offers a list of experts who back the
found them to be reasonable.' If Congress
those at another. the Agency for Health
Clinton approach. But some of them raise
differs, he added. "and it'll obviously have
Care Policy Research. One conference call
questions about the caps. Phil Nudelman.
a thorough process of its own. then we'll
among number-crunchers during the
chairman of Group Health Cooperative of
have to work with Congress to adjust
spring began at 9 a.m. and lasted until
Puget Sound, calls the plan "realistic" and
the programs accordingly."
5 p.m., with an hour off for lunch, and
an "excellent foundation." but adds in an
This is no small issue. If the govern-
covered only three narrow topics. After-
interview that the private-sector premium
ment promises benefits but savings don't
ward, Mr. Magaziner's aides met with him
caps "may be a slight bit ambitious."
materialize, taxpayers are on the hook.
from 6 p.m. to 10 p.m. to brief him.
Urban Institute economist Stephen Zucker-
Deborah Steelman. a health-industry lob-
For the "quantitative analysis" team.
man says that the inefficiencies are there,
byist who worked in Ronald Reagan's
as it was known. the rub was that the plan
but wonders whether the machinery to
budget office. calls it "the flip side of the
kept changing. Changing any one number
squeeze them out can be built as quickly as
the plan anticipates. John Wennberg, a
Dartmouth physician-researcher. is sure
that "there is sufficient excess capacity SO
patients don't have to worry about being
harmed" by the Clinton plan, but says he
THE WALL STREET JOURNAL FRIDAY. OCTOBER 1. 1993
doesn't have the expertise to vouch for the
specific caps.
In the end, Mr. Magaziner draws on a
lesson from his days as a management
consultant. Just as the Japanese forced the
steel and consumer electronics industries
to cut costs faster than U.S. executives
ever thought possible. spending caps will
do the same for the bloated health-care
industry. "I think they will meet as tough
a goal as they have to," Mr. Magaziner
says. "That's human nature."
63
White House
Poised to Offer
ATF Top Officials Told Deliberate Lies
Energy Initiative
About Waco Raid, U.S. Report Charges
Plan Calls for Tax Incentives
By CHRISTI HARLAN
killing four and wounding as many as 20.
Staff Reporter of THE WALL STREET JOURNAL
The Federal Bureau of Investigation
To Boost Natural Gas,
WASHINGTON - Top officials of the
then stepped in. overseeing a 51-day siege
federal Bureau of Alcohol. Tobacco and
that ended April 19 when agents pumped
Domestic Oil Industry
Firearms deliberately lied about the raid of
tear gas into the compound. After a few
the Branch Davidians compound that cost
hours, cult members set the compound on
four agents their lives, the Treasury
fire, and more than 71 people died.
By TIMOTHY NOAH
Department concluded after a five-month
Justice Department Report Due
Staff Reporter of THE WALL STREET JOURNAL
investigation.
WASHINGTON - The Clinton adminis-
As a result, Treasury Secretary Lloyd
A Justice Department report of the
tration is preparing to propose tax incen-
Bentsen removed five ATF officials from
FBI's actions is expected to be released
tives and other measures in an effort to
their posts, pending disciplinary action.
next week, as is a Justice Department-
stimulate the domestic oil and natural gas
Mr. Bentsen said some allegations against
Treasury report on how law enforcement
industries.
the officials may be referred to the Justice
agencies can deal with similar situations.
The proposals, according to a partial
Department for possible criminal action.
Mr. Bentsen said he couldn't comment on
draft obtained by The Wall Street Jour-
He also said more members of the agency
the Justice Department report, but that he
nal, include expanding tax breaks aimed
will face disciplinary measures.
hoped it would be as candid as the Trea-
at encouraging gas and oil exploration,
The Treasury report dealt only with the
sury report.
increasing research and development
ATF's role in the Feb. 28 raid of the Branch
The extensively detailed report was
funds, and reducing regulatory barriers at
Davidians compound near Waco, Texas.
hardest on the top ATF officials who
both the federal and state levels.
where agents believed illegal firearms and
insisted that the raid supervisors didn't
The administration's aim in part ap-
grenades were being manufactured. An
know that the Branch Davidians were
pears to be to soothe the oil industry, which
attempt to serve a search warrant at the
aware of the impending raid.
has complained that the administration is
compound turned into a firefight after cult
"Disregarding the far more persuasive,
more focused on conservation and promot-
leader David Koresh learned of the im-
and rapidly growing, evidence that their
ing renewable fuels than on boosting do-
pending raid and ambushed the agents.
account was false, ATF's top managers
mestic oil production.
uniformly said, in substance, that ATF's
Shut Out of Negotiations
raid comanders had not known that the
element of surprise had been lost before
Industry officials were all but shut out
they made the decision to go forward." the
of the negotiations leading to Mr. Clinton's
Treasury report said.
proposed tax on nearly all forms of energy
The report stopped short of accusing
based largely on heat consumption as
outgoing ATF Director Stephen Higgins of
measured in British thermal units. But
deliberately lying about the raid, but
fierce lobbying efforts by the industry
-Reducing regulatory and legal bar-
faulted him for relying too heavily on his
helped to quash the BTU tax and replace it
riers to export of oil from Alaska's North
top law-enforcement officials, who were
with a milder transportation tax.
Slope, which is now restricted largely to
accused of ignoring evidence that contra-
Now, the Clinton administration is
domestic use.
dicted their statements.
eager to show its sympathy for the oil
-Accelerating the process for receiv-
industry's woes. "This is an industry that
ing tax deductions for geological and geo-
Magaw Named Acting Director
has lost 450,000 jobs over the last decade,"
physical costs.
Earlier this week. Mr. Higgins said he
said an Energy Department official. He
-Urging states to eliminate regula-
would retire effective Oct. 30, saying he
said the energy initiatives would "create
tions that inhibit the use of natural gas in
disagreed with some of the findings and
jobs," "stimulate markets for natural
vehicles.
recommendations in the report. Mr. Bent-
gas," and reduce dependence on foreign
Funding a research program aimed
sen named a 26-year veteran of the Secret
oil.
at "everyday problems" of small indepen-
Service, Director John Magaw, as acting
The partial draft - a table of contents
dent oil companies.
director of the ATF. Mr. Bentsen picked
for the report that lists the energy initia-
-Creating tax incentives for oil explo-
Guy Caputo to be acting director of the
tive - doesn't indicate the projected costs
ration on the outer continental shelf, prin-
Secret Service.
of the proposed initiatives, which were ar-
cipally in the Gulf of Mexico.
Mr. Bentsen also named the special
rived at through talks between the Energy
-Removing "net income limitation"
agent in charge of the ATF's New York
and Treasury departments and other exec-
for independent companies that claim de-
office, Charles Thomson, the acting top
utive branch agencies.
ductions under the percentage depletion
law-enforcement official at the ATF. Mr.
The Energy Department is expected to
program: currently these deductions are
Thomson oversaw the ATF's investigation
issue the report later this month. and a
capped according to income.
of the World Trade Center bombing. which
department spokesman warned that the
-Expanding existing credits that en-
came two days before the Texas raid.
initiatives still are being developed and
courage "enhanced oil recovery," or oil
Mr. Thomson succeeds Daniel Hart-
that many of the items listed in the draft
exploration requiring sophisticated
nett. one of the officials removed yester-
already have been dropped.
methods such as steam injection.
day. The others placed on administrative
But the policy initiatives included in the
-Expanding. or considering expansion
leave were Edward Conroy, Mr. Hartnett's
draft document give a clear signal that the
of, the Energy Department's role in re-
top aide: David Troy, the ATF's chief of
Clinton administration wants to ease bur-
search and development on combating oil
intelligence; and two supervisors of the
dens faced by the oil and gas industries.
spills.
Houston office, which oversaw the raid.
The draft proposals include:
Many of the draft proposals, such as
Mr. Hartnett and Mr. Conroy have said
-Creating tax credits to stimulate new
accelerating depreciation for capital-
they intend to retire from the ATF. They
oil and gas exploration, aimed specifically
equipment costs associated with environ-
and Mr. Troy couldn't be reached for
at encouraging new exploration technolo-
mental regulation, were considered by the
comment.
gies.
Bush administration but never became
Mr. Bentsen said the Treasury's find-
law.
ings shouldn't be a factor in considering
Also listed in the table of contents is a
the Clinton administration's proposal to
proposal to create floor prices for oil and
merge the ATF into the Justice Depart-
gas through an oil import fee. But this
ment. But he said he isn't opposed to
proposal has since been dropped, an ad-
examining merger possibilities to "see if
ministration official said.
you can save the taxpayers some money
and see if you can preserve the expertise"
of the ATF.
THE WALL STREET JOURNAL FRIDAY, OCTOBER 1, 1993
07/28/93 10:24
703 237 6515
AMER HEALTH LINE +++ LISA CAPUTO
5.
005/012
Bradley (D-NJ), "whose state is home to many pharmaceutical
companies." And before the budget conference commenced, the CEOs
of Baxter Int'l, Warner-Lambert and Searle visited House Ways and
Means Chair Dan Rostenkowski (D-IL), pointing out drug COS.
operating in Puerto Rico buy $380M/year in products from the
Chicago area. Chairs at Pfizer, Merck, American Home Products
and Bristol-Myers Squibb Co. "recently pressed their case with
Rostenkowski and Rep. Charles B. Rangel (D-NY)." They also hired
ex-Rep. Beryl Anthony (D-AR), a "close friend" of Clinton, to
lobby the WH (Michael Weisskopf, 7/27). N.Y. TIMES reports
Moynihan and Rostenkowski have agreed on the Senate's proposal
for reducing Puerto Rican tax breaks (Rosenbaum, 7/28).
AARP: COX NEWS reports AARP is opposing proposed Medicare
cuts and increases in Social Security taxes. While conferees
"tentatively have agreed to increase the threshold on the Social
Security taxes," AARP's Judith Brown says the higher threshold
could still force elderly people with high medical or long-term-
care bills into poverty (Larry Lipman, 7/26).
ROSTY: NEWSWEEK's Howard Fineman: "Unless and until he's
actually indicted, he has more clout up there than just about any
other member of either the House or the Senate. ... He is
necessary for the mechanics" of the budget deal, "but he's death
on the politics of it" ("Equal Time," CNBC, 7/27).
COMMENTARY: Balto. SUN editorial: "And while the country
adjusts to new taxes and spending cuts, the uncertainty that has
plagued business and discouraged new hiring will remain. why?
Because health care reform, which will require new revenues from
somewhere, will hang out there as next year's fiscal question
mark" (7/28).
ELEMENTS OF REFORM
-----
*3 THE PLAN: WH ADVISERS BACK FINANCING PROPOSAL
"Employees would pay 20% of their medical insurance premium
under a health care reform financing plan favored by [WH]
advisers," USA TODAY reports. Premiums would vary regionally,
but employers would pay 80% and workers would contribute 20%. A
mandate on employers not currently providing insurance would be
phased in and small businesses would be subsidized (Judi Hasson,
7/28). In a separate article, USA TODAY reports employers would
pay a pro-rated share of premium costs for part-time workers.
This proposal "apparently carries more weight than past trial
balloons because top [WH] health advisers are behind it. It
replaces a much-criticized payroll tax." While the concept of
employers and employees sharing health costs "will be familiar to
most people," the "difference" is that "all employers -- even
those with just one worker -- would be required to provide
insurance" (Judi Hasson, 7/28). For example, "even those who
hire only a domestic worker like a nanny" would have to provide
coverage. The admin. would place $60B in expected savings from
reform in a fund to provide coverage for the uninsured and to
subsidize premiums for low-income workers and small businesses
(Hasson, 7/28). The expected savings include: $9B in Medicaid
and $11B in Medicare, since some current recipients would get
5
Taxing Payrolls
Committee Chairman John LaFalce,
(D., N.Y.), who in the past has supported a
For Health Care
single-payer national health-care system,
said after the meeting that the plan will be
"sensitive to small businesses that can't
Is Out of Favor
afford coverage." The committee's rank-
ing Republican, Rep. Jan Meyers of
Kansas, said the plan Mrs. Clinton out-
lined could offer some stability to small
Clinton Advisers Push Plan
companies that already offer health insur-
ance, but would be a new burden for those
For Employers to Pay
that don't. "In general, Republicans don't
like government mandates," she added. It
Portion of Premiums
wasn't clear after the meeting exactly how
the plan would hold down costs for very
small businesses, Mrs. Meyers said. "The
By HILARY STOUT
meeting lasted only an hour and 15 min-
And JEANNE SADDLER
utes; she was talking fast and obviously we
Staff Reporters of THE WALL STREET JOURNAL
were listening fast," she said.
WASHINGTON - President Clinton's
advisers have generally ruled out propos-
ing a payroll tax to finance the administra-
tion's health plan.
Instead, officials are pushing a pro-
posal that would require all employers to
pay a portion of each employee's health
Study Supports Early Use
insurance premium, probably 80%. Though
Mr. Clinton will make the final decision, a
Of AZT for Slowing AIDS
White House official said administration
WALL STREET JOURNAL News Roundup
advisers generally agree that businesses
New research, conducted by a Euro-
and individuals will be more "comfort-
pean-Australian AIDS research group,
able" with a standard premium than a
contends that the Wellcome PLC drug
payroll tax. Some details of the premium-
AZT slows the progression to AIDS when
based plan were first reported by USA
taken by people in early stages of infec-
tion.
Today.
The prospect of a payroll tax has been
The study, financed by the Wellcome
controversial. Many of the president's
Foundation, which is affiliated with Well-
aides became enamored of the idea, which
come PLC, is published in this week's
they termed a "wage-based premium,"
edition of the New England Journal of
Medicine.
this spring, largely because they consid-
ered it more progressive than assessing a
Researchers said 993 patients with
flat premium on all firms. But others
symptom-free HIV infection were ran-
within the administration, including a
domly assigned to receive capsules of
number of the president's economic ad-
AZT or a placebo for two and a half years.
visers, warned that financing health cover-
Among treated patients, the risk of wor-
age through a percentage of payroll was
sening disease was reduced to about half
too radical a change.
that of the control group.
What administration officials are now
These new findings will add fuel to an
coalescing behind is actually a hybrid of
already fractious debate between U.S.
the two concepts. They want to require that
proponents of early treatment, and au-
all employers pay a portion of the market
thors of an Anglo-French study that
premium for a health plan for employees
disputed the benefits of early treatment.
and their dependents. But to make sure
Last month, an expert panel convened by
premiums don't break small, low-wage
the National Institutes of Health backed
firms, the administration probably will
away from its prior recommendation in
propose that each employers' share of the
favor of early treatment, leaving it sim-
premium not be allowed to exceed a cer-
ply an option to be decided between
doctor and patient.
tain percentage of its payroll.
In a meeting with members of the
In an editorial accompanying the new
House Small Business Committee yester-
study, John G. Bartlett of Johns Hopkins
day, Hillary Rodham Clinton, who is lead-
noted the early treatment debate is com-
ing the administration's efforts to overhaul
plicated by questions of cost, side effects,
the health-care system, tossed out a cap of
and viral resistance. None of the studies
3% to 4% for small, low-wage firms as a
disputes that the antiviral drug is useful
possibility. But an administration official
in treating AIDS, and all three recognize
said those numbers weren't definite.
that AZT's benefits are limited.
President Clinton has been preoccupied
with his budget package, the Midwest
floods and other matters, officials said,
and probably won't turn to the hard deci-
sions on his health plan until after the
budget is passed, probably next month.
Mrs. Clinton described key components
of the health-care package to the commit-
tee. In a session lasting more than an hour,
she stressed the parts of the plan that are
likely to be attractive to small concerns,
including phasing in compliance, a cap on
costs for small firms and a "rainy-day
fund" to help pay health-care costs for
business owners who can't afford insur-
ance. Mrs. Clinton also said self-employed
people would be able to deduct the entire
cost of their health insurance from their
taxable income, and the cost of workers'
compensation insurance would be included
in the insurance premiums employers pay
under the plan.
62