Unhealthy numbers - problem with the economics of Bill Clinton's health reform proposals

National Review, Oct 18, 1993 by Brit Hume

ON SEPTEMBER 21, the President walked into an auditorium in the Executive Office Building to find a roomful of irate radio talk-show hosts. They had been invited to Washington for briefings on the Clinton health-care plan and were not having a good time. It had taken some of them forever to get past the front gate. Part of the problem was that security checks had turned up some felony convictions. A tough crowd, it seems, in more ways than one. But the Clinton White House was leaving out no one in its push to sell the health plan, even before its formal unveiling.

Eventually, they all got in, and many were back two days later to broadcast live from the White House front lawn. That did not go well either at first, because the White House neglected during the critical morning-commute hours to send its top officials out for interviews. Don Wade of WLS in Chicago was furious. "This has been a major mistake and a major blunder to bring radio stations here and treat us like this," he said. "The phone lines are bad. The communications stink. At six we're on the air and there's nobody from the Administration over here to sell their job." Eventually, James Carville, George Stephanopoulos, and Mack McLarty came out to make the rounds and pitch the plan. That seemed to help, even if they couldn't answer all the questions.

One reporter asked Carville, for example, why, if this is a plan designed to save money, it is necessary to raise more than $100 billion in new taxes to pay for it. He brushed off the question, saying he was no "numbah crunchah." Later, though, he told the reporter that it was a good question and he was going to find out the answer to it. Carville may not be a number cruncher, but he knows a politically troublesome question when he hears one. There were several such questions around well before Mr. Clinton made his impassioned address to Congress, and the subject of most of them was "the numbers."

The answer to the question that stumped Carville, of course, is that Mr. Clinton's plan isn't primarily intended to save money. Indeed, cutting costs is a means, not an end. The plan is first and foremost a whopping expansion of medical benefits. The White House estimates the total cost over the first five years at $350 billion. Of this, $152 billion will go to one politically potent and highly health-conscious group: the elderly. They would now be guaranteed free prescription drugs and long-term home and community-based health care. Most of the rest of the $350 billion is consumed by an estimated $160 billion in subsidies to businesses with fifty or fewer employees. The purpose is to help them pay for the generous health-insurance package they would be required to offer their employees under the Clinton plan. The Administration is understandably worried that this new mandate could overwhelm small firms and stall the engine that creates the bulk of the nation's new jobs.

Even with the subsidies, the Administration privately estimates 200,000 jobs will be lost, a figure some consider wildly optimistic, especially since Mr. Clinton is claiming that small-business job loss will be more than offset by jobs created at larger firms. Their insurance costs, he believes, will decline since their premiums will no longer reflect the costs of care for the uninsured. "There are bound to be job gains when you lower the payroll costs that a lot of major employers are paying today," he said.

The Administration proposes to pay for these new entitlements largely by wringing $238 billion in waste out of Medicare and Medicaid. That number, more than any other, evoked gasps of disbelief when a nearly final draft of the Clinton plan leaked ten days before his speech to Congress. Pat Moynihan called it "fantasy" and said his Senate Finance Committee would not use the figure in its deliberations. "We're going to be grown-up and serious," he said. The President insisted, however, that such savings are realistic. "Most people in Washington don't believe it," he said September 23, "but everybody I've talked to outside of Washington who is in health care believes it because they live awash in the waste every day. Everybody I talked to believes that."

The White House, though, was sufficiently worried about the credibility of its claimed savings that it sent virtually the entire economic-policy team out together on the eve of Mr. Clinton's speech. Bob Rubin, chairman of the National Economic Council, said, "There shouldn't be any debate on the validity of these numbers. They were developed with enormous care and enormous carefulness." Budget chief Leon Panetta said the Administration had developed "the most sophisticated models in the business of analyzing health care . . . there aren't any others, really, out there." Panetta, of course, was talking about computer models. All such programs are based on a multitude of assumptions about how people will respond to new policies. Thus even the most sophisticated models are necessarily based on guesswork. Even Panetta acknowledged approaching such estimates with "humility and trepidation."