Health Care Status Jude Wanniski May 19, 1994

There are reports aplenty about the possibility that the Clinton health care plan is in such deep trouble that it may not pass at all this year -- which is what we predicted would happen last year. This should be the Republican Party's forthright position, as the GOP has everything to gain by deferring the issue to 1995, when they may have more than 200 seats in the House and control of the Senate. Indeed, for two months, the opinion polls have indicated a national preference for continued debate and delay of about 58% (roughly the number of people who did not vote for Clinton). Political commentators are thus far amazed that the Democrats have been unable to break into Republican ranks in sufficient numbers to guarantee a national health care scheme that would meet the President's minimum demands. Credit goes to Senate Minority Leader Bob Dole, who has been so emphatic and relentless in saying there will be no deal with the GOP on employer mandates (Read my lips) that the business community, large and small, has remained unified in opposition. Any crack in GOP principle would fracture the business community, the big guys splitting away to cut their own deals with Clinton. As the GOP continues to pick up seats in special elections, the health issue is being pulled into the orbit of the November elections. Embattled Democrats, who now assume the loss of at least six Senate seats in November, are beginning to talk about ramming through a health care package without significant GOP support -- on the assumption that this is the last chance they may have.

The White House, betting all its chips on health care, may soon be open to just such a desperation move. It is now conventional wisdom in Washington that Clinton's Haiti policy is being dictated by the health care issue, with the Congressional Black Caucus threatening to bolt on health care if Clinton accedes to Dole's call for a fact-finding commission on Haiti headed by Colin Powell. (The CBC wants an invasion of Haiti and de facto U.S. occupation.) The White House sees a potential opening on the health issue in the jurisdictional dispute between Senate Finance Chairman Pat Moynihan and Senate Labor and Human Resources Chairman Ted Kennedy. That is, if Moynihan continues to insist on a bipartisan plan, which would require Dole's support, the White House will throw its weight behind the bill that emerges from Kennedy's committee -- forcing it to be the mark against which amendments must pass. This puts pressure on Moynihan to find a bipartisan minimum. 

There are two avenues being discussed among Republicans: One is to help Moynihan report out a bare bones "phase one" plan around the core idea of Sen. John Chafee -- with Chafee apparently willing to drop the individual mandates that conservative Republicans oppose. This approach is fraught with danger, in that it offers the Democrats ample opportunities to pick off individual Senators on amendments that would enable a bill to emerge that is "almost terrible," and have it pass by one vote. GOP advocates of this approach say the "almost terrible" Senate bill could not pass in the House, and that the goal of killing health care in this Congress will have been achieved. I'm forced to point out that this is how the Smoot-Hawley Tariff Act passed the House in 1929, with members assuming the bill was so bad it would be killed in the Senate -- which passed it when Sen. Reed Smoot [R-Utah] picked off one Democratic opponent at a time with amendments tailored to their tastes.

The second avenue being discussed is for the GOP leadership in the Senate and House to simply announce that the President has run out of support and now requires a fresh mandate from the people. This approach would require the GOP to get behind a concept that it could take to the voters in November, much as it got behind the Kemp-Roth tax reduction concept in 1978, leading to the GOP landslide in 1980. The concept being put forward is that designed by the so-called Consensus Group, composed of health care experts of the conservative think tanks in Washington -- chiefly the American Enterprise Institute, the Heritage Foundation, CATO, the National Council of Community Hospitals, and Empower America. The concept would split the health issue into two parts, one addressing ordinary health care and the other catastrophic. Part one would simply transfer to individuals from businesses the power to deduct the cost of health insurance from gross income, for tax purposes. The efficiencies that result from this simple step are not only enormous, but they also solve many of the secondary problems such as portability that would otherwise require government legislation. Part two would require insurance companies to limit their increases in premiums by a factor of two for patients with catastrophic illness. As it is, premiums can rise by a factor of ten or twenty. This forces the companies, which are immeasurably better at risk management than government, to set premiums before the insured falls ill to any degree. 

It sounds almost too simple, but the most complex problems always seem to have the simplest solutions, and this is what the Consensus Group discovered after myriad meetings and discussions beginning last fall -- after Sen. Pete Domenici [R-NM] and Sen. Bob Bennett [R-Utah] asked the think tanks to develop a convergence of ideas. It was Bennett (who holds the seat once occupied by Reed Smoot) who originally suggested dividing the problem into two parts, ordinary and catastrophic, another simple stroke that cuts through a maze of complexity. Along these lines, the best single study of "The Economic Impact of Health Care Reform," by Grace-Marie Arnett, was published a few weeks ago by Montgomery Securities of San Francisco, copies of which we will send you on request. Ms. Arnett organized the Consensus Group at the request of the two U.S. Senators.

The only serious criticism of the Consensus Group concept among Republicans is that while it would work, it would be attacked by Democrats on the grounds that it would take away from employers their authority to deduct health insurance costs from gross income, for tax purposes. The Democrats will, Republicans fear, distort the debate by suggesting that the GOP favors financing the cost of Clinton care by eliminating the favorable tax treatment of existing employer-provided benefits. It is hard to imagine the Democrats getting the better of this argument, when individuals will get the power now given to corporations -- along with the option of buying insurance with larger deductibles, to use the cash income for other purposes. The AFL-CIO correctly opposes the kinds of tax caps suggested by administration officials as a way of financing the Clinton scheme. It is hard to see how Lane Kirkland could persuade union members that they are losing something when they not only get the cash income in lieu of insurance, but also get it tax free for health insurance purposes. In fact, unions should find they can get something extra in the paycheck for relieving businesses of the cost of administering unwieldy plans for myriad workers. The catastrophic "mandate" borne by insurance companies would be relatively painless, in that they would simply adjust their premium schedules to manage the added risk. According to Senator Bennett, who has discussed the idea with the top executives of Blue Cross/Blue Shield, it would add no more than 10% to the cost of insurance, a number dwarfed by the savings to the entire system by reducing the role of both government and business in the health care industry. One of the biggest expenses to Blue Cross/Blue Shield is in administering simple, ordinary health care costs, which would be drastically reduced when individuals could buy plans with higher deductibles -- and pay for nosebleeds and colds with out-of-pocket cash. 

Presenting this option would, of course, guarantee there would be no health care legislation this year, as the Democrats would be forced to oppose it on the, um, er, ideological grounds that it reduces the power of the state (shh!). The beauty of it is that it would put in the hands of all GOP candidates -- and any Democrats who want to be re-elected -- a plan that makes such extraordinary sense that it would win in a landslide if it were on the ballot as a national referendum. 

Which route will the GOP take? It's a toss-up at the moment, but the momentum is with the Consensus Group. We shall see.