Budget-Busting Issue No. 1

Health-care spending has the potential to overwhelm other priorities

NO single subject casts so large a shadow over the federal budget as health care.

The same pressures that health insurance premiums have been loading on business and family budgets have been sinking federal and state budgets as well. Health-care costs are at the heart of runaway deficits in the 1990s.

One seventh of all the goods and services that the United States produced last year was devoted to health care - $840 billion. The Congressional Budget Office projects $940 billion in health-care spending this year and $1.7 trillion by the year 2000.

The federal government pays nearly a third of the nation's health-care costs. By the time President Clinton's term expires, Medicare and Medicaid together could surpass the entire defense budget. By 1998, health care could consume about a quarter of the federal budget.

Is relief on the way?

Probably not in the budget that Mr. Clinton proposes in a few days. Clinton is proposing some budget trims for Medicare that will save $3 billion next year and $15.5 billion by 1997. But changes as vast as those under consideration will take years to take hold.

The effort the Clinton administration is throwing at its fast-track redesign of the health-care system is enormous. But even if the resulting proposals are swift and sweeping, the benefits could only begin to be felt by the end of Clinton's term, health care policy experts say.

The budget proposal Clinton announces will move through Congress just ahead of the health-care legislation he plans to propose in May. Senate Majority Leader George Mitchell (D) of Maine has proposed linking the major budget reconciliation vote with the health-care legislation in one grand vote.

Such a combination might avoid a filibuster. If health-care reform were wrapped into reconciliation, then it could be passed with only 51 votes instead of the 60 required to end a filibuster. But Mr. Mitchell has found little support for the idea so far.

Rep. David Obey (D) of Wisconsin, chairman of the Joint Economic Committee, says the budget alone is an issue "big enough to choke a horse."

The health-care overhaul effort is under the energetic supervision of Hillary Rodham Clinton, who makes regular trips to Capitol Hill where she does more listening than talking to members of Congress from both parties.

Her task force is managed day-to-day by business consultant Ira Magaziner, now a senior adviser in the White House. Mr. Magaziner has set up an elaborate process for crunching through options and developing a plan.

White House policy coordinator Robert Boorstin says that nearly 400 people are staffing the task force's 30 working groups. Many are federal employees. Many are academics on board as consultants. About 70 are aides on loan from members of Congress.

Many of the special interests with huge stakes in the process are ready to join rather than fight the overhaul effort so they have a voice. The White House spurned the American Medical Association's recent request to be brought into the task force.

The task force is still in the "broadening stage," says Mr. Boorstin, bringing more ideas into play. In about a week, it will move into a new phase where options are pared away. The goal remains to have legislation ready for the president to propose early in May.

The White House has two overarching goals in health care. One is to expand health-care coverage to everyone in the country. The other is to control costs.

The two goals oppose one another, and many experts have speculated that Clinton will have to ask for another tax increase to expand access to the system. He has publicly endorsed raising the cigarette tax, because of the long-term health-care costs associated with smoking. Another possible approach is to expand access very slowly as cost increases are reined in.

The general shape of the Clinton plan follows the concept of "managed competition." This would probably mean large health insurance purchasing cooperatives with government sponsorship to help small business pool risk and buying power.

But Clinton's speeches on health care have also suggested a strong element of direct government price controls. In the campaign, he proposed that government appointed panels would set state-by-state limits for total health-care spending. To gain contracts from these large new buyers, physicians, hospitals, and health-care organizations would join together to reduce costs.

Policymakers are reserving direct price controls as a sort of insurance policy; managed competition is relatively untried and no one is sure how effectively it will control costs.

Medicare and Medicaid account for about 85 percent of federal health-care spending. The rising tide of Medicare and Medicaid costs take a large share of blame for one of the great disasters in recent budget politics.

The 1990 budget agreement in which President Bush signed onto a tax increase actually worked. Its caps on discretionary spending held. But any savings were overwhelmed by the automatic costs of the recession and health care. So deficits rose to new records in spite of higher taxes, and Mr. Bush could claim no benefit from the political sacrifice he made.