Debt and taxes: the hidden costs of ClintonCare

Reason, May, 1994 by Rick Henderson

IF YOU THOUGHT THE SAVINGS-AND-loan bailout was a whopper, just wait. Inside the bowels of President Clinton's Health Security Act is a debt-creation scheme that could make S&L looters look like pikers.

Under the bill, individual health plans that get into financial trouble--say, by offering overly generous benefits--could stave off cash shortages by rationing care or by borrowing from the state, which would raise the money by taxing financially sound plans within the same regional health alliance. If an entire alliance runs out of money, Title IX, Subsection C allows it to borrow from the federal government. Such loans are permitted for shortfalls that result from an "estimation discrepancy," "an administrative error," or "the relative timing during the year in which amounts are received and payments are required to be made."

An alliance is supposed to repay its loans by increasing premiums or by getting more money from the state--in other words, by raising taxes. The secretary of the treasury can also unilaterally impose a payroll tax on members of the alliance to cover outstanding loans.

But antsy state and federal legislators could easily refuse to raise taxes merely to cover a health alliance's errors. Instead of cutting back health services, lawmakers would let the alliances off the hook and allow them to not repay the loans. It's also unlikely that a cabinet official would commit political suicide by raising taxes without the consent of Congress.

Rep. Christopher Cox (R-Calif.), a member of the House Budget Committee and the Joint Economic Committee, says the alliances might initially get a blank check. Once an agency gets the statutory authority to borrow money, he argues, it's easier to raise its debt limit than to repeal its borrowing powers. Cox predicts that alliances will use this credit scheme to run up huge tabs. But they won't have an endless source of funds. Ultimately, he says, "we'll get both--borrowing and rationing of care."