Bill Clinton photo

Background Briefing by Senior Administration Official

October 26, 1993

Room 450

The Old Executive Office Building

7:50 P.M. EDT

MR. GEARAN: We now proceed to the second phase of tonight's briefing. And at this point we'll have -- did you want to --

SENIOR ADMINISTRATION OFFICIAL: Yes, let me just -- somebody just told me that on the public health portion I must have misread that. That's $29 billion. I may have used $65 billion on that, it's $29 billion.

Q: long-term care?

SENIOR ADMINISTRATION OFFICIAL: Long-term care was $65 billion.

SENIOR ADMINISTRATION OFFICIAL: They're going to pass out these sheets.

SENIOR ADMINISTRATION OFFICIAL: Let me tell you what's going on now.

Q: Public health was what?

Q: $65 billion.

SENIOR ADMINISTRATION OFFICIAL: $29 billion, longterm is $65 billion.

SENIOR ADMINISTRATION OFFICIAL: Public health is $15 billion, administrative costs are $14 billion.

SENIOR ADMINISTRATION OFFICIAL: Okay -- we'll have other -- we can get back to this -- what we're now doing is proceeding to the second part of the briefing. There's a handout that's being passed out and we'll proceed to the second part of the briefing. This is all on background. The officials that will be before you can be identified as senior administration officials and their comments are embargoed until tomorrow at 10:30 a.m. In this regard, also tomorrow we will have the bill available to you on a computer disk to save you time and natural resources.

We'll also have the Report to America available through the Government Printing Office or also -- on disk and we will have as many hard copies here in the White House as possible. As you all know, the President and Mrs. Clinton will go up to the Hill for 10:30 tomorrow morning.

Q: Is this all embargoed until tomorrow? Is the paper embargoed?


Q: do we get the disks and when?

SENIOR ADMINISTRATION OFFICIAL: We'll give you the information on the disks. I'll have my colleague come down.

SENIOR ADMINISTRATION OFFICIAL: Hi. I'm going to go over some of the things that my colleague touched on and I guess you do get to ask me questions so I'll give it to you broadly. And I'm sorry I wasn't paying full attention whether I take the questions when I'm finished or however we want to proceed.

Let me -- let me -- what I want to do is go through for you just broadly, as I think we've done before, the pieces of the overall structure of the President's health plan. I want to start by talking about what it is that people get under the plan. As my colleague indicated, they get the security of knowing that their health care coverage is always there. Very critical in that respect is that it is there whether they are working or not working, regardless of their age or health status. Regardless of their income, the coverage is always there. Equally important, that coverage is comprehensive. We have laid out the benefit package. The laying out of that benefit package includes not only the kinds of -- description of the kinds of benefits that people have come to expect in their insurance coverage like hospital services and physician services and prescription drug services -- but also an emphasis on preventive services. And we have defined a specific set of preventive services relying on the best available scientific evidence for effective screening services.

We can discuss some of those issues -- which I have received some attention, to date, in more detail -- if you wish. But we, as my colleague indicated, felt that it was critical that people understand what it is that they can count on in this plan. And in that respect we differ from many other plans which have left the benefits quite vague, just talking about their being defined at a later date. So we feel that knowing what people are getting is critical to their sense of security.

Let me turn to how they get it. We are building a private system. We differ in that respect from a -- from plans that would have government run the entire system. We are relying for financing on premiums in very much the same way that people pay premiums today, that is, relying on or building on the employeremployee contribution. The key difference in this proposal is that everybody is expected to contribute.

Now in that respect we differ in the structure of financing, as I indicated, from a government financed system. We also differ from proposals that would rely on individual mandates. A concern in that regard is that to establish requirements on individuals to provide coverage could, in fact, undermine the employer protections that are now provided -- actually, I think, impose greater burdens on individuals than they now face. And essentially, unless there were adequate -- or the alternative would be more extensive subsidies from government to reduce those burdens which would actually result in a shifting of financial responsibility from the private to the public sector. We haven't done that. We've created a system, or we are proposing a system, in which we believe that everybody contributes and everybody contributes fairly.

You know that we are requiring employers to contribute 80 percent of an average premium. You also know that we are providing help or discounts to employers in our regional alliances, and particular discounts to small employers. And this is one of the areas in which we are making some improvements in our legislative language. The draft proposal with which you are all excruciating familiar described a -- discounts for employers with fewer than 50 employees. In the legislative proposal that the discounts would extend up to employers with 75 employees. We have extended the discounts in order to provide the kinds of security that we believe -- and affordability, that we believe employers need and to smooth out that schedule across larger firms. The discounts will vary with the wages in a firm, the average wage, and with the size of the firm and a schedule of that we will be providing to you at a later time.

I want to talk about briefly -- about how people buy protection in the -- in a reformed marketplace. I think that there is widespread agreement that simply to change the financing system without changing the nature of the insurance marketplace would be to throw good money after bad and that is absolutely not our intent. So we believe that the market reforms are a critical -- the market and delivery reforms are fundamental to overall health reform. That means far more than changing the rules for health plans and -- although we have changes for those rules and do provide extensive reform in the -- with respect to community rating and open enrollments. I think if you'll pay careful attention to that -- far more extensive than is provided in some other proposals. But we also take other steps to restructure the marketplace.

One of those steps is to create purchasing pools that bring together individuals and all but the largest employers in states. Those purchasing pools, alliances, have received considerable attention and will be somewhat modified in their authorities and roles in the legislative language relative to the draft -- the September 7 draft. My colleague alluded to some of those changes. I think that they are best understood in a couple of ways, or most broadly it is properly understood as alliance being market-makers rather than regulators.

My colleague talked about alliances essentially accepting virtually all bids with the exception of -- they have the option not to take plans whose premiums exceed 20 percent of the average. But, otherwise, they are accepting all plans that meet the -- that are certified as provided in the guaranteed benefit package, meeting fiscal solvency requirements, and other standards, certified by the state, not by the alliance.

The alliance essentially takes all certified plans. In that respect the clarification of the state and the alliance responsibilities, I think you will see several clarifications in that regard -- a number of the responsibilities that we have talked about in the past, and sometimes not always being clear as to what are alliances' and states' responsibilities.

You will see the regulatory responsibilities, like making certain that plans are available in all places, assisting in developing or guaranteeing those plans, where none exist -- those responsibilities are primarily -- are located at the state level rather than the alliance. In that regard, again, it is the job of the alliance to make the market work and to establish an opportunity in which individuals, not employers, but individuals will choose plans not to regulate the system.

Let me move on to the actual issue of choice. The legislative language will reveal some increases in choice. The draft had some limits on the availability of fee-for-service plans, those limits will be gone. Essentially, there is no limit on the number of fee-for-service plans in an alliance. Also to promote open choice -- HMO's or closed-panel-plans, will be expected to offer themselves not only as closed panels, but also alongside a point of service option, so that even when consumers are looking at a composed panel, they will be making a direct choice as to whether to rely on that plan and its providers only, or to use it in conjunction with the point of service option. So that is an additional, we believe, protection or guarantee of choice.

Q: Is that a supplement to the plan, or is that --

SENIOR ADMINISTRATION OFFICIAL: It will be sold with a separate premium. They will be essentially be two plans with the same network base.

Q: It's a choice you make ahead of time?

SENIOR ADMINISTRATION OFFICIAL: That's correct. That's correct.

Q: Why do you have the differences in the Medicaid numbers --

SENIOR ADMINISTRATION OFFICIAL: That -- we'll, we'll get to that, let me just -- let me continue.

I wanted to move on to the cost containment. You know that our cost containment system relies on expanded choice and changes in the delivery system and competition in the marketplace, wherever that is feasible. It is not feasible in all parts of the country, but wherever it is feasible we rely heavily upon it. Throughout we are expecting and anticipating greater efficiencies in the system, as the primary way to slow the rate of growth in health care costs. And you know that is -- that changes in the marketplace have underneath them the backstop of a budget which is properly understood as a constraint on premiums. I don't think that you'll see any changes in that regard.

What you will see more broadly is the emphasis on the broader accountability of the financing system -- what my colleague referred to as the capped entitlements. Essentially we felt that it was critical, the President felt strongly that it was critical, to establish a mechanism for accountability in this system, not to establish an open-ended, or create an open-ended draw on the system.

We believe, as you will hear more about in the details on financing, that we have been conservative and thoughtful in our estimates, that we have adequately financed the system -- and you'll be hearing more evidence of that. But we also felt that it was necessary to establish a mechanism for review of the financing, should it, for an unforseen reason -- it become insufficient.

And it is --

Q: What happens if Congress refuses to fund additional money?

SENIOR ADMINISTRATION OFFICIAL: Well, then let's -- I mean, essentially what we're talking about is a mechanism that does look at review, in which the President is expected to make recommendations to the Congress. Congress then either accepts those recommendations in an expedited process, or potentially substitute it. And that's what we would expect to happen, just as in '83 when we had the Social Security system in a state of crisis and the checks didn't go out -- that essentially, there was action.

Q: What happens if they don't take action?

SENIOR ADMINISTRATION OFFICIAL: Well, I think, again, what we put forward here is a mechanism that holds the public officials accountable for public spending. It is not -- again, we're talking about a circumstance that we don't expect to happen, but if it does happen what we think we have put forward is essentially an action-forcing system, not necessarily a solution to the problem. And as the Social Security experience indicates, there is reason to expect that that solution would be forthcoming.

Q: Well, in Security what happens is the checks don't go out. In this system, if there is no action, what happens?

SENIOR ADMINISTRATION OFFICIAL: Well, I think essentially what we're talking about is providing and ensuring the continued fund flows on which the entire -- all that the whole system will depend. All of us will have a stake in assuring that that system stays whole and healthy. We will be able, through the system we're creating, to know well in advance should it be at risk. And again, at that point, all our elected officials will have a stake in making certain that it's secure for all of us.

Q: Would you elaborate more on how the mechanism works, what triggers it, what happens?

SENIOR ADMINISTRATION OFFICIAL: An indication that there is an insufficiency in the funds for the discounts would trigger a Presidential recommendation to the Congress on action to restore the adequacy of the funding. And essentially then Congress would act in an expedited fashion on those recommendations.

Q: There had been talk a while ago of --

SENIOR ADMINISTRATION OFFICIAL: Wait, can we let her finish her briefing, then go through the financing and then take questions? Because otherwise you're never going to get some of the financing answers that are related to these issues. It might be more helpful to let my colleague finish the review and then let the financing people speak to the financing, because the financing information relates to a lot of these questions, and it might just help to understand.

Q: On this specific point, on this specific point it's still unclear. Are you saying that in your eyes this is an openended entitlement?

SENIOR ADMINISTRATION OFFICIAL: No. What we are saying is --

Q: Because in effect, you're saying Congress has no choice but to approve what the President will recommend if you made a mistake.

SENIOR ADMINISTRATION OFFICIAL: What we're saying is that essentially we have a mechanism for review; that the funds are formally capped; that action, should those funds prove insufficient, that action would be necessary. The nature of that action is something for the President to recommend, and the Congress to review. And there are an array of actions that they could consider at that time. So essentially, that we -- we would leave that to the President and the Congress.

I would just conclude, really, by saying -- and letting my colleague go on to more information on the financing -- by emphasizing that we continue to believe that assuring everyone coverage for a comprehensive set of services is a necessary, but not a sufficient condition, for ensuring that everybody has got those services available when they need them. And so you will see in our package, I believe in a stronger way than, perhaps, than most other proposals, a commitment to changes or to the improvements in the availability of primary care services; an array of initiatives that range from changes in the financing for education through the support for public health initiatives throughout the nation; and a continued and strong commitment to long term care with heaviest emphasis on the development throughout the nation of home and community-based services, the services that people with disabilities want most, and seem to be most lacking in the current system.

I think my colleague wanted me to stop. Is that --

Q: Would you give us the explanation of how the -- picking up the early retirees' cost works?

SENIOR ADMINISTRATION OFFICIAL: Why don't we do the financing piece, and then we can just take questions all night long, or as long as people want to stay?

SENIOR ADMINISTRATION OFFICIAL: That is a better way to go.

SENIOR ADMINISTRATION OFFICIAL: I'll spend a few minutes going through some of the details that my colleague talked about. In particular, I'll start with Medicare and Medicaid, because a couple of questions have come up with that.

First, as my colleague mentioned, in our estimates we changed our underlying economic assumptions about the rate of inflation from 2.7 percent to 3.5 percent. Had we applied that budgeted rate of growth to the Medicare program, the savings that would have been generated from Medicare would have been substantially higher than $124 billion. Our decision was to stick with our original package of $124 billion in program savings.

With respect to the rate of growth in that program, a couple of things to note -- right now, even after the changes we've made in the budgets, the growth in the Medicare program between 1996 and the year 2000, is projected to rise at 10.8 percent per year. After the savings of $124 billion that we have talked about, the rate of increase in the Medicare program would be 7.4 percent per year.

With the drug benefits also put in the Medicare program, the rate of increase of Medicare would be 8.4 percent per year. If you compare that in growth in CPI -- as you can see the rate of increase in Medicare -- even with the programmatic changes that the President has proposed, it is still twice the rate of inflation plus some.

With respect to Medicare, a couple of things to note about Medicaid; one, as my colleague has already noted, that the schedule for phasing of the program, given two respects -- one is that there is a later expected passage date of the legislation, and second, we spent a substantial amount of time studying the administrative apparatus, and administrative time required, for states and for others to get the new system up in place. And we have come up with a revised time line that my colleague discussed about when states are likely to come in. That has pushed back, as my colleague mentioned as well, a little bit, the timing of when coverage would come in.

That effects the Medicare savings because much of the Medicare savings that we receive -- Medicaid savings that we receive -- come as the program is phased in. In particular, the Medicaid savings come from two sources that we've talked about, the savings from phasing out the disproportionate share not entirely as my colleague has mentioned -- that we do have a cushion that remains there. And second is that the Medicare program for the AFDC population is going to be included in the alliance structure.

The growth in the Medicaid program is going to rise at the general rate that the private budget is going to rise at, and to the extent that we've somewhat pushed back the timing of that, that almost completely accounts for some of the apparent lower savings, so that is what accounts for -- that's a question that we had earlier.

With respect to the retiree benefits, a couple of things to note about that, first of all, most of the benefits, due to the early retiree provisions simply come from the fact that retirees will now receive coverage through the alliance. The alliance has a community-rated premium. And simply by providing coverage through that apparatus, individuals, as well as companies, would achieve most of the savings by moving from their payment streams that they face today, to moving towards a community-rated system.

In addition, we have proposed that starting in January of '98, that out of our discount pool that retirees would be eligible for discounts on the 80 percent share of their premium that otherwise would have been paid out of -- under an income. So that provision would start in 1998. And when you see the more detailed budget estimates and tables tomorrow, you'll see that line in there.

I think that that's all that I want to say about Medicare and Medicaid. Let me just briefly talk about the premiums in the alliance structure because we have focused almost exclusively in the public financing of the program and have forgotten the other two-thirds of the financing structure of how we're financing the new system.

With respect to health insurance premiums under the new system, about 59 percent of those will be contributed from business, about 17 percent from households, with the government contributing about 24 percent of the total premium. So, as my colleague has discussed, most of the financing of this plan, in fact, nearly threequarters of the financing of this plan does come from private contributions, with the government, through its discount schedule, providing about 24 percent of the financing.

Q: Can I ask a question? The money that you are projecting to save by taxing big companies with 5000 employees plus, I think the numbers were $24 billion. What happens if those big companies decide not to opt out?

SENIOR ADMINISTRATION OFFICIAL: That is something I know -- we do have some people here from the Treasury Department. They can talk either after this or -- I know that they will have more detailed briefings about assumptions. There have been some assumptions made about the estimates of revenue from corporate alliances and the revenues that they receive. And I'm sure that you could ask them either directly, or I know that they'll have more detailed briefings on that.

Maybe before we get into any other questions, I think my colleague has a couple of words to say.

SENIOR ADMINISTRATION OFFICIAL: Our special consultant on this program was Fidel Castro. We thought we would exhaust you and then there would be no questions. (Laughter.)

Let me just say a word or two about the credibility of the numbers, because that has been a big issue. I think it depends a little bit about what you mean by credibility. People have said, "I don't understand these numbers. They don't add up," or whatever. Now, that could be a question of the technical competence of the people doing it. And there I think we can assure you we had the best people that we could find, we had models, we had actuaries. We pooled the knowledge of the health estimating community, and we did the best job we could to make the estimates of what this plan would cost and how it would be paid for. There is always a lot of uncertainty in any set of estimates, and this is a whole new enterprise. But I think this is the best job that could possibly have been done.

Another sense in which one might question the numbers would be a sense of disbelief that managed competition will really produce the kind of reductions in the rate of increase of costs that we are saying it will. Now, there are plenty of opinions on that, but there is considerable evidence on which to base the idea that the -- a different organization of the market for health care could produce a more efficient system and one that doesn't grow as rapidly.

And we've seen that happen. We have seen health plans that deliver good care for less, and we have seen the power of market bargaining when big business and organizations like CALPERS go into the market and bargain with plans to get the best deal for their employees.

The other sense in which one might question the numbers is the one that my colleague has talked about: do the federal costs make sense, and how do we have a realistic way of paying for them?

Now, obviously, we are adding some federal costs, some $330 billion over five years, largely, for the subsidies, for the Medicare new benefits, for home health care for the disabled, and for long term -- the Medicare drug benefit.

Those add up to substantial increases in federal costs, and the tax revenues are, admittedly, only part of that. We are saying that much of the program will be paid for by slowing the rate of growth of other programs, especially Medicaid. Is that true?

Well, if you were dealing with a country where most people weren't getting medical care, and you were adding a large number of uninsured people, I don't think it would be. If you were dealing with a country with an efficient health care system, I don't think it would be, or one in which the role of the government was very small.

But none of these things are true. We have a health care system in which most people are now getting care, including the uninsured when they're very sick, get it in the most expensive way, one which we know is inefficient, and one in which government at all levels already pays a large role -- 40 percent of health care is paid for by some level of government. And we believe that reorganizing that system gives us a way of channeling funds from more wasteful areas and from programs that the government already has that are growing extremely rapidly. My colleagues have walked you through those numbers, and I won't do it again, but we believe that these savings are possible.

Then there is the question of whether the Congress will actually do this, will they cut back on Medicare and allow Medicaid to be taken over -- Medicaid patients to go in the alliances? Well, that's anybody's guess. But we believe that the Medicare package is a very attractive one on balance. If we were not adding benefits to Medicare, one might question that. But we are.

And finally, there is the question of the past experience. We do know that past projections have been poor ones, that Medicare and Medicaid themselves have risen very rapidly. But I think there are two reasons for thinking that this could be a very different experience. One, is that we are capping the funds for the discounts, not allowing them to rise without limit. Medicare and Medicaid have always been uncapped entitlements. But much more important that these savings have to be seen in the context of reforming the whole system. The kinds of changes in Medicare and Medicaid that we are proposing are credible in the context of a system which is changing and in which the costs will be rising less rapidly and in which the alliances will be taking over part of the burden of paying for people now cared for by the government, and not credible if they are simply seen in isolation.

Thank you.

Q: What is the difference between subsidies and discounts?

SENIOR ADMINISTRATION OFFICIAL: I think we're using those words interchangeably, which is probably a confusing thing. They can be regarded as subsidies or, to put it differently, they are discounts on the premiums that would otherwise be paid with the government covering the discount.

Q: The last question --

Q: expedited mechanism on the caps. You say that you're putting caps on the spending and this is not an open-ended entitlement. But if you've made a mistake and the numbers don't add up and the President has to go back to Congress and ask for more money, what you're saying is that Congress will have no choice but to appropriate the additional funds.

SENIOR ADMINISTRATION OFFICIAL: Just as they have no -- right.

Q: Isn't that, in effect, the same as Social Security and Medicare right now?


Q: So what's the difference between the caps on this and the open-ended entitlement programs that you're trying to differentiate it from?

SENIOR ADMINISTRATION OFFICIAL: Well, we're not saying that they have no choice but to appropriate the funds. They could do lots of other things.

Q: They could cut the benefits, could they not?

SENIOR ADMINISTRATION OFFICIAL: They could raise the premiums. They could cut other spending. And, in fact, when Social Security was in danger of running out of money, the Congress did a combination of things. But they had to do something.

Q: So, in effect, it is the same as Social Security in your eyes?

SENIOR ADMINISTRATION OFFICIAL: It's a similar kind of mechanism.

SENIOR ADMINISTRATION OFFICIAL: Why don't we let our colleague --

Q: Could she answer the question?

SENIOR ADMINISTRATION OFFICIAL: Yeah -- actually -- I will -- let me just address that. Let me just address two things and then we can turn it over.

On the -- on this issue, we can't get -- I don't think the American people, I don't think most of the people here, I certainly don't think many people in Congress are of the view that if you decide to take government off auto-pilot on spending you are somehow in any way endangering any program. What you are saying is simply that things don't happen on auto-pilot.

In this system, first of all, we've put in a 15 percent cushion, number one, on the discounts. Number two, there is a carryover. So if money is saved in one year where it's not spent on a cushion, it carries over into the next year. In good years you could have a growing fund. Third, the alliances have options of things that they can do. They do have to pay -- they do have to provide the discounts and if they may be a little tighter some years, and they may be less tight other years, but they will have many options within their control. Fourth, they'll be early, early warning signs in a lot of these situations where you can try to -- Congress or the alliances can try to deal with the situation. And fifth, if you go to Congress, as I said, it's simply not on auto-pilot. There may be times when Congress would want to spend more because, for example, there was nothing necessarily wrong with the rise. For example, if you had a rise in inflation, just general inflation, that would also increase the amount of revenues that you were bringing in. That might not have any deficit effect if people's wages and income are rising because of inflation, that just ends up being a wash. One might find that that's -- Congress may make a determination. And in that case there is no negative deficit effect.

Another situation Congress might make a determination -- there is no negative effect -- is where, for example, unemployment insurance goes up during a recession. That is looked at as a positive counter-cyclical cushion that keeps demand in the society in a downturn. But if you have a situation where this program was simply rising out of -- where health care inflation was continuing to rise at exorbitant amounts over inflation, then the President's view is that if this system is not working, he's not going to stick those costs on the American people without making the Congress and himself come back and reconsider what's happening in the program.

And finally, if there is a question of whether the system we have has an adequate provision, in any way -- to make sure that there is universal coverage, we will be more than pleased to work with Congress to design a default mechanism, a fall-back provision, because there is one thing that is very clear: universal care that cannot be taken away is not up for negotiation. That is an absolute, non-negotiable issue on that. And we will not -- we just are not going to accept that you cannot provide a good benefit to the American people without also at the same time making their elected representatives in Washington be fiscally responsible, off autopilot, and make intelligent decisions about when costs are rising inappropriately and when they're not.

Q: How many -- a program that both caps and is universal? It seems to me that you have one or you can have the other. But how do you eat your cake --

SENIOR ADMINISTRATION OFFICIAL: It's a -- no -- no because take, for example, the kind of entitlement alarm warning bell that we did in the budget. What it says is that entitlements go up so much, Congress has to come back and deal with it. These are not -- maybe we have kind of a negative view of how the system acts here. But just to require the Congress and the President to make -- to confront an increase in spending, I don't see what the problem with that is. It just takes -- what people are complaining about, with some entitlements now and what's happened with health care, is that it rises on auto-pilot out of control. As I said, at times entitlements arise for reasons that make economic sense, like a downturn. At times a cost could go up just because of inflation, where you have offsetting revenues going up at the same time. But if you have a system like we have now that's broken, why is it a threat to the program -- I think it's just the opposite. I think making people come back -- Congress and the President come back if the system is broken does not mean they're going to backtrack from universal coverage. It just means that they're going to have to be responsible and deal with cost overruns.

Q: But if you create beneficiaries, though, and you say that you people are eligible for these benefits no matter what. You're covered, we guarantee it. And you create that expectation and the legislation that you pass has that expectation in it, and then you run out of money, how can you really then at that point expect -- to take the money --

SENIOR ADMINISTRATION OFFICIAL: The argument that you're making is that we could never make any essential guarantee, make any entitlement, unless we made a decision that Congress and the President are on auto-pilot. You are assuming an incapacity of Congress and the President to act intelligently and responsibly. But we're trying to do exactly the opposite. We're trying to make the system work so that if a program is broken they have to be forced to come back and confront it.

This administration has never blinked once in coming up with specific choices. We have never relied on caps. We have never relied on gimmicks. We came out and we presented our budget. We had every single line-by-line item 27 days after we took office. If there is a problem with this -- with overrun as I said, it may not reflect a fiscal problem. If it does reflect a problem that health care inflation is rising at exorbitant amounts, then the system is broken. And we don't want a program that just sticks the American people with costs with no checks on the system.

Q: But what happens --

Q: But you are going to ration care; aren't you?

Q: the options that would be available? You said there would be other alternatives besides raising revenues for the President and Congress. Your colleague mentioned two of them: raise the premiums and cut other spending. Now, raise the premiums would mean the money that the private employers and employees are paying, and that would go towards the discounts or subsidies; is that what that would be?

SENIOR ADMINISTRATION OFFICIAL: Congress has at its capacity any number of mechanisms to deal with any cost -- I just have to say for someone who's been through the budge process, all we heard was about accountability and fiscal responsibility and just because we are creating a mechanism in which the American people do not get stuck with the bill automatically without making people come back, does not mean that we are any less committed to this package and that we will not go to every mechanism to make sure that universal coverage is there in a system that is working appropriately.

We think -- I will repeat, we have several safeguards. We have a 15 percent cushion. We have a carry-over provision. Alliances will have options as to how they can deal with the tightness. If there's the feeling that there is too much being clamped on the alliances and that Congress has to act, then Congress -- then the situation will come and the Congress and the President will deal with it.

Q: Did you ask the question a different way, did you rule out Congress taking any specific action? In other words, did you rule out -- can Congress cut the benefit package, if it decides to do that, in order to bring it into alignment?

Q: Could Congress cut the benefit package?

Q: Is there anything that Congress is not allowed to do?

SENIOR ADMINISTRATION OFFICIAL: As I said, the thing that is non-negotiable for us is universal coverage. As long as we're in office and our program is passed and working, that will not be negotiable.

Q: Can I ask a question, please?


Q: There had been talk about capping employee premiums at one-and-a-half to two percent of their salaries. Is that cap still operative, or is there another cap on how much employees will have to -- the maximum employees will pay?

SENIOR ADMINISTRATION OFFICIAL: Right. There is a lot of discussion about -- there has been a lot of discussion about what is essentially the subsidy structure or the protections for individuals on their family share. And we have retained the protections that essentially protect people, for that share, up to 150 percent of poverty. But we have added to that an additional protection, and that is -- and it effects people who, essentially, who when they hit the 150 percent of poverty level and become fully responsible for the family share, for whom that might become a sizeable burden, we have set that cap at 3.9 percent of income, recognizing -- and it's very important that you recognize this --that that is a cap, that the average is much -- it is the average that people will pay in the 1.9 range.

Q: That is not for the average working person, that is only for the person at 150 percent of poverty?

SENIOR ADMINISTRATION OFFICIAL: No, it is for anyone. I'm saying that's where it hits. And it effects --

Q: Okay. So they pay no more than 3.9 percent of their income?

Q: What was it originally?

SENIOR ADMINISTRATION OFFICIAL: Essentially, we had a subsidy -- we had and still have, a structure that assists people with their share of premiums, people with incomes up to 150 percent of the poverty level. We found that there were some, that people fell off a cliff, in some instances. Or that people in high cost areas might face excessive burdens. And there is somebody here who will raise that problem, that issue, with me many times.

And this additional safety net provides improved protection.

Q: What is the timetable for your phasing in the long term care benefit, and have you postponed the expanded mental health benefits, and the adult dental health benefits by a year or two?

SENIOR ADMINISTRATION OFFICIAL: I don't think we've postponed the full -- no, the full fee -- the phase in of those benefits is not postponed. The long term care begins in '96 and is a longer phase-in than was in the original proposal. Phases-in, it becomes fully phased-in, I believe it's the last quarter of 2002. So the end of 2002, 2003.

Q: So you haven't delayed any of the expanded mental health coverage that was supposed to come in in 2001?

SENIOR ADMINISTRATION OFFICIAL: Those come in in 2001, as anticipated.

Q: What happens when the alliance begins to run out of subsidy cap? You know, across the country different alliances may run up to that cap in different cases, if you have higher risks, if you have poorer people. How is that going to be different?

SENIOR ADMINISTRATION OFFICIAL: Alliance funding, essentially, on an individual alliance basis, I think that there is the capacity to borrow, if need be, in terms -- for an alliance that is facing some difficulties. The previous mechanism we were talking about really relates to the pool of funds that is supporting the discounts. And that's when those events are triggered.

Q: But once there are too many discounts in that particular alliance -- there are people who need those discounts.

SENIOR ADMINISTRATION OFFICIAL: That is a question of borrowing and adjustment.

Q: Borrowing from where?

SENIOR ADMINISTRATION OFFICIAL: Essentially, the fund pool.

SENIOR ADMINISTRATION OFFICIAL: The caps are national caps. They're not caps on each individual alliance. So it's not a question of an individual alliance --

SENIOR ADMINISTRATION OFFICIAL: If it needs more money, it gets -- essentially, it gets more money, is essentially that's the way the system funds it.

Q: Yes, but it goes hack to the federal government and state government and says, we need more money because we have more AIDS cases or we have TB cases, or something like that.

SENIOR ADMINISTRATION OFFICIAL: Discounts get provided and then the cap is just on total national -- federal spending.

SENIOR ADMINISTRATION OFFICIAL: It doesn't -- essentially, it's not a question of, "I need more money because I have more AIDs cases." That's not the issue. The issue is, essentially, it's the circumstance, the eligibility for the discounts, is what it is, whether it's businesses or individuals, working individuals, early retirees, whatever it is. And those circumstance vary place to place, and there is a responsiveness to those different circumstances.

Q: Could someone take a try, again, at explaining the early retirees, the 55-to-65-year-old group? What, if any, changes there is there, that's in there?

SENIOR ADMINISTRATION OFFICIAL: Essentially, there are no changes. Essentially, we are for early retirees. It is the government who will assume responsibility for what is the employer share, if an individual is working, for the 80 percent.

Q: The 80 --

SENIOR ADMINISTRATION OFFICIAL: And that is --actually, there is a -- I believe that that starts in 1998. 1/1/98. It's not a phase-in, it starts in 1998.

Q: This briefing document says that that plan expands after --

Q: Just on that, what about the employer assessment?

Q: with prescription drugs, and the phase-in of long term care as it realizes savings in the growth of Medicare? In other words, it seems like the two are related. You have to get your savings from the growth in Medicare in order to have the --

SENIOR ADMINISTRATION OFFICIAL: No, we're not talking about that kind of arrangement.

I wanted to clarify the timing, we wanted to be certain that you understood the date at which all states would provide --must provide universal coverage, and that is as of January 1, 1998. I wanted to be clear on that.

Q: Your colleague said the end of the fiscal year.

SENIOR ADMINISTRATION OFFICIAL: It's essentially -- there is a phase-in related -- we looked at the coming in during a fiscal year, but the data requirement is January 1, '98. That's what I wanted to clarify.

Q: Could we correct that on the record, since he gave us one us one thing on the record?


SENIOR ADMINISTRATION OFFICIAL: My colleague asked specifically that that be corrected -- calendar year '97.

SENIOR ADMINISTRATION OFFICIAL: Wait. There was someone over -- it was -- oh, okay. The date that needs --

Q: Would you please repeat what that is?

SENIOR ADMINISTRATION OFFICIAL: The date that needs to be corrected is the date at which all states must have systems, must come into the system, and it is January 1, 1998.

Q: That piece of information is not embargoed until tomorrow?

SENIOR ADMINISTRATION OFFICIAL: That piece of information is not embargoed until tomorrow.

Q: Someone said there was going to be an assessment on corporations that get benefit early retirement over several years.


Q: What is that, and how much do they have to give back in that?

SENIOR ADMINISTRATION OFFICIAL: Fifty percent over three years.

SENIOR ADMINISTRATION OFFICIAL: Its 50 percent over three years.

Q: Back to '98?

SENIOR ADMINISTRATION OFFICIAL: Five-0. And it starts in '98.

Q: What are you doing in terms of setting aside primary care residencies at academic centers? Are you phasing that in?

SENIOR ADMINISTRATION OFFICIAL: We are phasing that in over a period. I believe it is '95 to 2000. I would want to check, I'm not absolutely sure.

Q: You are phasing it in as opposed to starting it at the beginning?

SENIOR ADMINISTRATION OFFICIAL: That's right. The -- essentially the mechanism and -- needs some time to get into operation, and that's the way we're phasing it.

Q: That is 50 percent of all residencies?

SENIOR ADMINISTRATION OFFICIAL: It's -- we have included in our definition of primary care physicians OB-GYNs, who were not included in the 50-50. And that takes it essentially to a 55-45.

Q: Are you -- you say that the board has changed. It is no longer an independent agency. Can you describe how it has changed and how it would not be as powerful as some people --

SENIOR ADMINISTRATION OFFICIAL: Its functions have not changed. Its functions -- what we talked about is its structure changing. And essentially it was a strong view that an agency with these responsibilities should be accountable to the President. And that means that essentially that the -- the tenure of its members and the review of its regulations are a part of a White House function. And that is the change that has been made.

Other than that, the board continues to have the responsibilities that we've always outlined as having. It's responsible for assessing compliance, that states have the systems they need. It is responsible for the enforcement of the safety --the backup, the budget. It has those other functions.

And as we have always said, it is not our intention to duplicate functions performed in other agencies. It is our intent that it be a board, that we continue -- we create a board of experts who then draw on other agencies to continue to perform roles in which they have expertise.

Q: Are you still prohibiting physicians from being on that board?

SENIOR ADMINISTRATION OFFICIAL: That, I think, was a clarification -- needs a clarification. They were never prohibited, and I think that that may be explicitly clarified. The restrictions -- who asked me the question, I'm not looking at anybody. Essentially, what we were concerned about restricting was active conflicts of interest in the time of service, and those prohibitions remain.

Q: States that choose to go with the single-payer option, could you justify how you relaxed the criteria to do that?

SENIOR ADMINISTRATION OFFICIAL: It was our intent, which we will clarify in the legislation, too, that there not be barriers to states who wish to do that. The primary issue there is that there is a concern about an ERISA waiver allowing them to incorporate the larger corporation. That waiver, essentially, becomes automatic.

There are also clarifications of the financing actions in states that want to go that way. Essentially, they may use any equitable financing mechanism, such that it does not cost employers less. And that's -- essentially, we don't want to see games played across states in dealing with employer financing.

Q: Were there changes in the benefits package, in the basic benefits?

SENIOR ADMINISTRATION OFFICIAL: There has been -- I mentioned the clarification of the -- or talked about the preventive services. The September 7 draft did talk about the mammogram every two years above age 50. We have added a provision that essentially says for -- and that's with no cost sharing, that is as a screen, a preventive screen -- we have added a provision that both for mammograms and for clinical breast exams that high risk women, identified by the board as high risk, would have the screenings more frequently with a periodicity recommended by the board.

There may be some other changes, but I think that they -- that's the one that is most common.

Q: Are you --

SENIOR ADMINISTRATION OFFICIAL: You already -- wait a minute. Just wait a second. That's not fair --

Q: Have you looked at the -- of rolling Medicare and the alliances at a future date certain?

SENIOR ADMINISTRATION OFFICIAL: Essentially, we have not -- the future dates -- we don't have a date certain for that, so we would not have looked at that. What the -- the argument --

Q: Isn't there a long term vision, though?

SENIOR ADMINISTRATION OFFICIAL: There are many, I think, that we would include ourselves in that number, who would like to see a single health system for the nation, and that everybody is in the same system.

States have argued to us that they could operate more efficient systems if everybody were in the same system. And so that would suggest, perhaps, a more efficient, more equitable system. By the same token, we don't want to rush it, and we think that the system needs time to adapt and that Medicare should be as it is in the immediate term.

Q: system that you could --

SENIOR ADMINISTRATION OFFICIAL: Well, what we've said is once the alliances are fully up and running -- I don't know that we have put an explicit time frame on that, but it does imply a time frame after the alliances are operating that states can apply for waivers. And that does require a waiver and an assurance that certain conditions are met.

Q: I'm mystified by your explanation about the difference to use Medicaid between the 65 and, what was it, 114 in the graph? And more generally, would you be willing to go through this chart on sources and uses and tell us how -- what figures in the graph plan compare to these figures, and how you got the changes? For example, take revenue gain. Wasn't that a $47 jillion figure in the draft plan?

SENIOR ADMINISTRATION OFFICIAL: On the revenue gains I would rather defer you to the Treasury Department to go through a detailed briefing of that. I just think it would be -- I mean, they would be willing to go through a more detailed discussion of the changes on that. Let me deal with the other ones first, and if there is somebody from Treasury here that can come up and address the question, would be happy to do it.

Q: Could you talk a little bit about distribution of the costs between the big client program and your program in terms of states, individuals --

Q: We're on the first question --

Q: Can we get the first question and then --

SENIOR ADMINISTRATION OFFICIAL: The tax -- the Treasury piece?

Q: why did it change so much?

SENIOR ADMINISTRATION OFFICIAL: Again, the Medicaid -- the major change in the Medicaid savings which before I believe we had it about $114 billion, we had it exactly $114 billion, is due almost entirely to the different rate of phase-in. You'll also notice that our gross subsidy -- our subsidy expenses are much lower as are our savings from the Medicaid program. And that is due to the fact that the program has a slower phase-in.

Q: So are these four-year numbers, not five-year numbers?

SENIOR ADMINISTRATION OFFICIAL: It starts in -- again, we're starting this in fiscal '96. Which as the director had discussed, that we're assuming that about 15 percent of the population in dollars come into the system in fiscal '96. And that about 40 percent would come in by '97, and that all would be in as of 1-1-98. That is a different schedule than the schedule that you're looking at, which was more ambitious in the sense that we had assumed a December '93 enactment. So the numbers are downstreamed --

Q: Can I just clarify --

SENIOR ADMINISTRATION OFFICIAL: Both the subsidy costs are downstreamed. The costs are downstreamed, meaning that the costs are lower and the savings as a result -- the flip side of one another are lower.

Q: The plan numbers were five-year numbers?


Q: Now we've got another set of five-year numbers and you're telling us that we should have shoved it off a year. But these numbers are substantially lower in many of these categories. So the question is what did merely moving it off one year -- how did it produce what appear to be, not only with regard to Medicaid, but some of these other numbers, substantially lower than --

SENIOR ADMINISTRATION OFFICIAL: Well, let's go through the sources briefly so we can make sure that we understand program changes from changes in the start date of implementation.

The Medicare drug benefit is expected to start at exactly the same point in time as it was before. The difference in the expense here is due simply to a difference in the estimate that the actuary has made regarding the cost of the program. It's not --

Q: That's originally $75 billion?


Q: So that's all -- that's a possibly $10 billion difference between that --

SENIOR ADMINISTRATION OFFICIAL: $6 billion -- right, the start date of the program is exactly the same.

The long-term care piece -- I think as my colleague discussed -- the difference there is entirely due to the difference in the phasing-in of the program before we had it fully phased-in, I believe, in the year 2000. Now we have it coming in through the year 2002.

Q: That accounts for the entire $15 billion?


Q: the $80 to $65 billion?

SENIOR ADMINISTRATION OFFICIAL: Yes. Right, the $80 to the $65 billion.

Q: Is there some trick here that you're just basically pushing off these -- I mean, somehow, maybe I'm being dense here, but I don't get how you're producing all these savings in a mere --

SENIOR ADMINISTRATION OFFICIAL: Actually, again, they're not savings since -- but both the costs fall and the savings fall. So if you look at our net subsidy expenses -- by net here I mean what the cost of the system is net of what Medicare and Medicaid are contributing to the alliance.

And if you look at our old draft, at the net expenses, and if you look at our new numbers -- net expenses, they're almost exactly the same. And the reason is that our savings have fallen and our costs have fallen for the two reasons I just talked about. One is due to the change in the CPI, and second is due to some differences in the timing of the assumption -- timing of the phasing assumptions. But the gross -- the net costs of our subsidy program remains almost exactly the same as what we've shown before.

Q? So if you took it another year, the numbers would be back to what your draft numbers were a month-and-a-half ago? Is that correct or not?

SENIOR ADMINISTRATION OFFICIAL: We're in the process of doing that. Remember that the savings in the out years -- I'll give you a quick example -- is that the deficit numbers in the year 2000 are quite substantial. They build up -- the deficit reduction are substantial.

Q: Say that again.

SENIOR ADMINISTRATION OFFICIAL: The reduction in the deficit by the year 2000 becomes quite substantial largely because the savings, relative to the baseline for Medicaid and Medicare, really start to accumulate. So once we get into the year 2001, 2002, the savings from the Medicare and Medicaid programs, as well as the other federal health programs, really start to accumulate. So I would expect that depending on the timing of the other benefits and the estimates around those, as well as the out-year growth rates, that the savings start to accumulate in the out-years much larger than they do in the earlier years.

Q: Based on those charts for the fiscal years 1996 through 2000 include --

Q: '95

Q: '95 to 2000?

SENIOR ADMINISTRATION OFFICIAL: Well, '95 only because there's some start-up costs, administrative costs starting in '95. Most of the programs -- the drug program starts in '96, the phase-in of the benefits --

Q: So it's a four-year --

SENIOR ADMINISTRATION OFFICIAL: -- and the cigarette tax starts in '95. So the totals go from '95 to 2000.

Q: So it's a six-year total. Six fiscal years?

Q: Is that a cigarette or tobacco tax?


Again, the other thing to recognize in these -- just real quickly in the subsidies -- is that the two main sources -- the difference that I want to talk about.

One is that I talked about the net subsidies are very similar because we've had a reduction in costs, we've had a reduction in savings due to the phasing.

Our net subsidies are likely to be a -- could be a little bit higher when we get the final numbers done due to some of the changes in the cushion, if you will, that we've put into this. The other reason has to do with, as I've mentioned, some of the differences in the timing of the phase-in. So we've assumed 15 percent comes in in the first year --

Q: What is the final number? These aren't the final numbers?

SENIOR ADMINISTRATION OFFICIAL: The final numbers that will be out with the bill tomorrow.

Q: good God --

SENIOR ADMINISTRATION OFFICIAL: The numbers that you have in front of you are the final numbers. What I meant is the more complete set of the final numbers that have the more detailed breakout of those.

Q: But it says in this chart that it's five-year totals, and it's six years --

SENIOR ADMINISTRATION OFFICIAL: I don't know that there's any blanks in the bill. But I certainly wouldn't anticipate that.

Q: Could you just say whether the Medicaid -- you said almost entirely due to the different -- is that the --

SENIOR ADMINISTRATION OFFICIAL: Some of it has to do with whether the changes that my colleague has mentioned about -- which is a minor change in it -- that for the wrap-around services, that is, those services for kids that are not included in our basic benefit package. That there's a small amount of those services for the Medicaid population that we're continuing. Those will be federally financed dollars. Those are counted against the Medicaid savings. So that's another factor why the Medicaid savings have fallen.

Q: How much do those cost?

SENIOR ADMINISTRATION OFFICIAL: I'd have to go back and get my other tables.

SENIOR ADMINISTRATION OFFICIAL: Let me clarify. I think the wrap-around is an important thing because there was a lot of concern about it. Why don't I elaborate on that a little bit.

Essentially, you remember in the September 7 draft that we essentially had retained the wrap-around, by which we mean, essentially, the services that are covered in Medicaid but not in the guaranteed package, the acute care services. That means transportation or rehab or whatever. There was a -- we had continued them for cash assistance population only. There was a concern that that was a loss of protection, particularly for kids and particularly for kids with disabilities.

And so what my colleague was describing, and I don't think that I went through, was essentially that we -- we are -- we have -- we intend to restore those services, to provide those services. And they will be in a new federally funded program that will deal with those services or provide those services for both the cash assistance kids and the non-cash kids who are currently eligible for Medicaid.

Q: What about adults?

SENIOR ADMINISTRATION OFFICIAL: I'm sorry -- no, no. It's essentially -- we will establish a new program to provide those services.


SENIOR ADMINISTRATION OFFICIAL: Well, I don't know. In terms of its operation, it may well, and one would expect it to integrate with the rest of the system. But it is -- it would be a new program and a lot of that definition is yet to be done. Essentially the Secretary would define a new program.

Q: Finance that will cost them?

SENIOR ADMINISTRATION OFFICIAL: It is essentially the financing -- that's right it is financed separately. It is a publicly financed program. And the concern --

Q: What about adults?

SENIOR ADMINISTRATION OFFICIAL: What about the adults? Adults have the wrap-around services. They are eligible for cash assistance. Many adults -- included pregnant women, most of whose services are included in the guaranteed benefit package. On some of the other services, there is a new long-term care program -- the home and community-based program that picks up some of them. There may be some changes or some others in the middle, but states essentially could continue to provide those services at their expense.

Q: Who exactly -- which children are left out? You said, if they're eligible for cash assistance, if children --

SENIOR ADMINISTRATION OFFICIAL: They are not -- there are no children left out, I'm happy to say. And that's because we've made this change.

Q: You said only if they're eligible for cash assistance.

SENIOR ADMINISTRATION OFFICIAL: Essentially this program -- what the concern here was essentially that Medicaid now provides protections not only for kids who are on -- eligible -- receiving cash assistance, but also for other low income kids. And so what we have done is to provide those services beyond the guaranteed benefit package. And what we are doing is creating a new program to provide it for those same populations.

Q: But if you're not a low income -- if you're not a kid born with a defect in a low income family, it is not part of the basic benefit package to receive long term therapy.

SENIOR ADMINISTRATION OFFICIAL: The issue, essentially, there is -- there are some rehabilitative services at issue here that some of those may qualify as medically needy in this new program as they do today. So we believe we've restored the protections in the current -- in the current system so that those children are not worse off.

Q: Do I understand correctly from what was said here tonight that the government share -- even though $300-odd billion extra is going to be spent -- will fall from 40 percent currently to 24 percent under the plan? And if business now pays -- or will pay 59 percent, how does that compare with what is being paid now?

SENIOR ADMINISTRATION OFFICIAL: Okay. Now, let me clarify that. You're looking at the pie chart in there? Can I just see the chart that you're referring to?

Q: It's this pie chart, and the comment about 40 percent was made earlier in the evening.

SENIOR ADMINISTRATION OFFICIAL: Right. What that pie chart is showing is for the covered set of services, the premiums associated with the covered set of services. It's this, who pays for health care. The premiums associated with our covered set of services in 1994 dollars -- assuming that it was implemented during 1994 -- is $321 billion.

And what this is saying is, of the $321 billion, how much of those premiums are paid by business, how much of those premiums are paid by household, and how much of it is paid by government. So this is not comparing today versus tomorrow. This is just simply saying for the covered set of benefits.

Q: Now, how does that compare with what is happening actually in 1993? And also, if you take the gross cost of our entire health scheme -- which 40 percent apparently is government now --what will that be subsequent under reform?

SENIOR ADMINISTRATION OFFICIAL: We'll have some charts where we're looking at -- but I think what you're asking is what happens to national health expenditures looking at the baseline, versus national health expenditures under the plan as it's phased in?

Q: What I'm asking is, what is the share of business now, what is the pilot like now? What will be the share of everybody after reform? You've limited this to the covered expenses. All right. Limiting it to covered expenses of the insured now, what are the comparative -- what would the comparative chart be? That 40 percent of the entire health scheme now, how will that compare with it --

SENIOR ADMINISTRATION OFFICIAL: Right. No, we'll have -- actually, once we have -- we've just finished in the last couple of days the federal pieces of this. And we're in the process -- and we're hoping for tomorrow to get a chart out looking at the change in national health expenditures by business, household and government, after reform, as well. So that would directly address your question.

Q: What time tomorrow can I ask you for it? Really, seriously.


Q: Four o'clock?

Q: The President delivered this health care plan in a speech that was well received, but you've taken a lot of hits in the intervening month because you weren't prepared with the legislation. Do you think with the benefit of some hindsight that you have a paid a political cost for not having this bill ready to go sooner after the President's address to Congress?

SENIOR ADMINISTRATION OFFICIAL: I think we're ready to go tomorrow and we're going to do just fine.

Q: Have you lost some of your momentum, though, that you had a month ago?

SENIOR ADMINISTRATION OFFICIAL: I think we're on our way, people care about health security and we plan to give it to them.

END9:00 P.M. EDT

William J. Clinton, Background Briefing by Senior Administration Official Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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