In the end, Ira Magaziner, Clinton’s health-care guru, did what government Planners have always done. He whittled and chiseled here and there, and then he indulged in what could be politely called “optimistic assumptions.” The president’s blueprint for health-care reform is an ingenious document that, on paper at least, creates a rational health system. But from a financial standpoint, it is the biggest exercise in wishful thinking since President Reagan promised to cut taxes, increase defense spending and balance the budget more than a decade ago.
The plan does make some concessions to fiscal reality. The Clintons cut back on some of the benefits earlier floated as part of the package, jettisoning dental care for adults and paring mental-health care to a minimum. And Clinton does propose to raise $105 billion in new taxes by the year 2000, mostly from tobacco. But that still left the Clintons at least $300 billion short of their goal of reducing the health-care portion of the federal budget deficit. How did Ira Magaziner bridge this gap?
The biggest savings are supposed to come from Medicare and Medicaid. In theory, by slashing fees paid to treat the old and shifting the poor from existing federal health programs to new health-care alliances, the government will save $238 billion between the years 1996 and 2000. Medicare and Medicaid are now growing at the rate of 13 percent a year. The Clinton plan aims to bring the increase in health costs for the poor and the elderly to under 5 percent.
But will Congress, ever wary of the senior citizens’ lobby, go along? Henry Waxman, the Democrat who chairs the House subcommittee that will actually handle the legislation, says that he is “skeptical.” George Mitchell, the majority leader of the Senate, bravely predicts that the elderly will accept reduced benefits in exchange for some new benefits. The Clinton plan offers, for the first time, long-term home nursing care and drug coverage. “If it takes $8 out of your left pocket and puts $10 in your right pocket,” asks Mitchell, “are you better or worse off than you were before?” The catch is that those new benefits will cost $152 billion between 1996 and 2000–more than wiping out the $124 billion in Medicare savings.
Clinton also claims he can save $47 billion by moving federal workers, the military and veterans out of their cushy health plans and into the health alliances with ordinary taxpayers. That may be a worthy goal, but it underestimates the political power of those groups. Clinton would save an additional $51 billion by a bit of supply-side sleight of hand. The administration wants to try to “recapture” some of the savings enjoyed by private enterprise from health-care reform. Magaziner believes that business will plow these savings back into wages (a questionable assumption), creating higher revenues for the government to reap. The actual impact on the economy could be lost jobs. Imposing health-care premiums on businesses that do not now offer insurance to their employees is no different from raising taxes. The cost to business is uncertain, but it could amount to $30 billion a year. The small-business lobby wildly suggests that 18.2 million jobs are “at risk.” A more conservative estimate would still be a half-million jobs.
The key to holding down the growth of health-care costs in the Clinton plan is fixing a flat amount that each health alliance can spend in a given year. But the reforms do little to hold down the forces that drive up costs, like new technology and lawsuits. Notably absent from Clinton’s Plan is any real reform of malpractice suits (the trial lawyers contribute heavily to Democratic lawmakers). Technology is hardly mentioned–except to say that the government will continue to fund new research. The result may have to be some kind of medical rationing–a possibility Clinton won’t even want to mention when he launches his plan. The alternative would be to give up on the cost savings, making a mockery of Clinton’s promise to reduce the federal budget deficit.
So Clinton has little choice. He has to rely on smoke and mirrors to launch his plan, and hope that later lawmakers can fix it when he is safely ensconced as a second-term president–or in retirement. After all, Clinton would hardly be the first president to sign on the buy now, pay later plan. In 1965, when Congress first passed Medicare, the Lyndon Johnson administration predicted that the cost to taxpayers would rise by $8 billion by 1990. Johnson was off by a mere $90 billion.
