A solid plan with unrealistic costs


FOR years, Americans have helplessly watched as medical costs have consumed an ever greater share of the economy and millions of people have gone without decent care for lack of insurance.

Last night President Clinton outlined a serious, innovative and detailed proposal that provides a starting point for real reform. But the plan rests on unrealistic assumed savings from cost control. Those assumptions need to be scaled back in the interests of realism and safety.

When Glendower brags in "Henry IV, Part I" that he can call spirits from the vasty deep, Hotspur replies, "Why, so can I, or so can any man; but will they come when you do call for them?"

Just so, any plan to contain health costs must spell out, step by careful step, how it would change the way doctors and other providers behave in the real world, how it would reduce the quantity or price of care and how patients could be induced to accept fewer services.

The administration plan would assure universal health insurance coverage and greatly extend benefits under current programs. All employers would have to pay most of the cost of health insurance for their employees. Large subsidies to small businesses and to low-income households would make insurance affordable. Regional and corporate health alliances would set and enforce severe limits on the growth of insurance premiums.

The plan projects impressive national savings, amounting to more than $200 billion a year by the year 2000 -- about one-sixth of the health-care spending that comes under the president's plan.

The Congressional Budget Office forecasts growth in health-care spending, after adjustment for inflation, of 4 percent per person per year for the rest of the decade if the system isn't changed. In contrast, the president's plan assumes that growth will slow sharply after 1995 and cease after 1999.

Responding to criticism from Sen. Daniel Patrick Moynihan and others that the White House projections are a "fantasy," the administration argues that such savings are indeed possible. Other industrial democracies spend far less per person, yet their infant mortality and life expectancy rates are better.

U.S. physicians are paid more, relative to average earnings, than physicians in other industrial countries. And in some places a large share of some procedures are unnecessary. Surely, it is claimed, enormous potential savings, like mature fruit, are ripe for picking.

These arguments seem powerful, but they do not explain how to cut the price or quantity of health services by one-sixth in four years. The public instinctively agrees that health-care costs can be contained by slashing waste, fraud and abuse, but "instinctively" is the key word. Here are the discouraging facts:

* If physicians' incomes were slashed by one-fifth and drug prices cut enough to eliminate all drug company profits -- neither of which anyone has had the bad sense to advocate -- savings would be about 4 percent of total health-care spending.

* If one could miraculously eliminate all useless defensive medicine, the savings would be about 2 percent of total health-care spending.

* Plausible estimates of savings from simplified administration, something that the complexities of the president's plan make hard to imagine, run around 2 percent of total health-care spending.

* If 20 percent of Americans (double the present number) moved into health maintenance organizations that employ their own doctors -- the only HMOs that consistently cost less than ordinary fee-for-service providers -- savings would be about 2 percent of total health-care spending.

Such changes are unlikely to happen by the end of the decade under a plan that would not be in full effect until 1997. But even if they did happen, one would have achieved barely half of the savings called for in the president's plan.

So it is clear that most savings would have to come from changes in medical practice. Physicians would have to administer fewer tests, hospitalize less often, do less surgery and prescribe fewer medications. Unfortunately, little evidence indicates that eliminating entirely useless therapies can save more than a few percent of aggregate spending.

And none suggests that physicians' practices will change fast ,, enough to achieve the claimed national savings.

For these reasons, reductions as large as those the Clinton plan requires are improbable. The mechanisms for enforcing the limits are therefore crucial.

The government could withdraw subsidies to small businesses and low-income households. Or it could take over the opera tion of health alliances that failed to meet targets for saving, thus acknowledging failure of the plan's fundamental structure.

As with nuclear weapons, it is hard to imagine use of such penalties. Determined efforts to reach the saving targets are likely to provoke a backlash from providers and patients.

The difficulty of cutting costs does not mean Mr. Clinton's plan should be scrapped or rethought from the beginning but that the administration's chances for success will be greater if it introduces its promising but untried ideas more gradually.

Universal insurance coverage may have to be phased in. Benefits like dental care for people under age 18 may have to be deferred. Relief for companies with large retiree health costs or the generosity of drugs for the elderly may have to be reduced. The government might even have to impose direct limits on hospital budgets. And, yes, some taxes beyond those already on alcohol and tobacco will probably be necessary.

Savings and new benefits would come more slowly but more reliably. As goals were met and problems solved, standards could be tightened.

If the president's cost-containment plan undertakes too much, the rival version offered last week by Senate Republicans promises too little. It contains no direct cost containment other than cutbacks in Medicare and Medicaid, which the president also recommends.

Such cuts can lower federal and state spending. Without changes in medical practice, however, squeezing public payments simply shifts costs to private payers.

The Republican plan would also reform malpractice insurance and streamline the insurance market for small groups and individuals. Such reforms are overdue, but they promise little cost control. Because these savings could be achieved only once, they would not slow the long-term growth of spending.

Despite the shortcomings of both plans on the table, the prospects for constructive legislation are bright. The plans have important common elements -- the creation of regional health alliances, although with different kinds of powers, and limits on excessive insurance premiums.

And the tone of the debate has been encouraging. Republicans and administration officials have stressed the common elements their plans and complimented each other on good-faith efforts. If such a tone can survive the tensions of a congressional election year, centrist lawmakers may be able to fashion milestone legislation building on elements of both plans. The basis for a deal exists.

Given the urgency of health-care reform, the good citizen's response can only be: "Thank God. At last."

Henry Aaron, director of economic studies at the Brookings Institution, is the author of "Serious and Unstable Condition: Financing America's Health Care."

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