View Header


Office of the Press Secretary

For Immediate Release October 26, 1993
                            PRESS BRIEFING
                    AND OMB DIRECTOR, LEON PANETTA
                               Room 450
                  The Old Executive Office Building

7:20 P.M. EDT

MR GEARAN: -- briefing. We expect just about four or five hours worth of briefing for you this evening. (Laughter.) For someone who went to evening law school, I feel quite at home here sitting through this.

My name is Mark Gearan, and let me go through our agenda for this evening and the terms of the arrangements that we've set up. We'll go in the following order: Ira Magaziner, the Senior Advisor to the President will speak on the record and not embargoed.


MR. GEARAN: Is that a groan or a sign of excitement?

Q Can we get TV cameras in here?

MR. GEARAN: No. No, we're proceeding. Secondly, Leon Panetta will follow Mr. Magaziner under the same arrangements -- on the record and not embargoed. We will then go through some more details of the legislation that will be as previously announced embargoed until the President and Mrs. Clinton go up to Capital Hill tomorrow. Judy Feder, who is the principle Deputy Assistant Secretary for Planning at HHS; followed by Alice Rivlin, the Deputy OMB Director; Nancy-Ann Min, who is the Associate Director for Health for OMB; Ken Thorpe, who is the Deputy Assistant Secretary of HHS; and Gene Sperling, who is the Deputy National Economic Council Director. The latter individuals that are embargoed will follow Mr. Magaziner and Mr. Panetta who due to previous commitments will have to leave. We will take questions at the end of all of the remarks.

Q We can't ask Ira a few questions after he briefs?

MR. GEARAN: No, we'll have to proceed to get through this. Mr. Magaziner.

MR. MAGAZINER: First let me apologize for not returning a lot of phone calls over the past couple of days, we've been a little busy. And secondly, I guess the biggest change I want to start with in our program is we have decided to nationalize all health care facilities in the country starting tomorrow; it's a bit of a change from what we said to you before. Somebody is going to believe that and write that I'm sure. (Laughter.) It's on the record, right. Now it's going to be played back, now I'm in trouble.

Here we go. First, let me describe what we have been doing this past period since the document that we took to the Hill for limited briefings on September 7th became a best seller in Japan. We have been consulting, as we said we would, with many different people on the Hill: governors, different groups that have written in, people that had comments. And we tried to prepare a fairly thorough grid of suggestions that were put to us and concerns that people had, and then to try to review our document while we were updating and preparing our legislation.

We also went through a fairly thorough process that Leon will describe to you of OMB and Treasury examiners rerunning through the numbers and trying to reestimate each piece and to make sure that the numbers were scrubbed thoroughly. And then we have drafting the legislation and preparing some policy materials that we'll be issuing over the coming week. And those materials will describe in detail the rationale for the policies that we're proposing, as well as the actual legislation itself, and we'll also provide detail on the backup assumptions for the numbers that we're releasing. Information about the computer models we've used, and kinds of processes we've gone through to get the numbers.

And this speaks to something which we feel very strongly about and it's something you'll have to figure out how you regard, but it's something that's important to us. One of the things we've tried to do with this -- if you look at all the health care bills that are out there right now, they tend to leave a lot to the imagination in terms of both how things will work and how much things will cost. And we didn't want to do that. We have been chastened in looking at what has happened with past reform efforts, particularly in health care where estimates were often widely off, and where general legislation led to very, very detailed regulations after the fact, and after legislation was passed, that often altered the intent and certainly the cost of what was put out. And so, what we wanted to try to do, for example, was to define a benefits package in detail, not to say some board at some future time will figure out what the benefits package is, but rather to define one, and then have many different sources try to cost it out and go through a careful methodology to figure out what it would cost to have that benefits package under the kind of circumstances we're proposing. And then to subject that and the different subsidy and discount structures that we are proposing to the same kind of scrutiny and lay them out.

It's very easy in a bill, as many of the bills do and have done, to kind of put a paragraph or two in which says, well, we're going to provide subsidies -- low income people to 250 percent of poverty or 150 or whatever. That's an easy statement to make. There's a tremendous amount of difficulty to actually figure out how you're going to do that and not make it bureaucratic. Exactly what is the schedule going to be and how much is it going to cost and who's going to get what, and to try to project forward different scenarios of what the would actually look like. And we have tried to do that and to do it in a thorough and responsible way.

And so, as people talk about how long our legislation is, and it's not the shortest legislation ever submitted to Congress, part of the reason is because we've tried to make those kinds of definitions. The definition of a benefits package might take up all of a paragraph or a page in other health care bills. It may take up 50 times more than that in our bill because we are defining out specifically what's there. We feel the American public deserves to understand what's going to be in the benefits package, and similarly with things like discounts and other things.

So, to that extent we are going to be throwing out for everybody's review what we have done, and everybody's scrutiny, and then being quite prepared to discuss it as we go through this discussion.

In the way in which we envisioned things going forward, we are going to present this detailed proposal. We don't pretend that we have the good ideas in the world, or that we have thought of everything, or that others won't find some mistakes in what we have put forward. What we hope to do is to try to go through a process of improving upon what we are putting out now during the course of a couple of months of national discussion.

What is most important to us as we go through that discussion, we won't be defensive about it and when we agree to make changes or feel that other people have suggested ideas that were better than ours, and I'm sure that's going to happen in many respects in the details of the plan, we won't view it as a retreat or a defeat or this or that. We'll basically view it as trying to build a consensus and improve upon the product that we have put out.

As you know, health care is very complicated, those of you who have covered it, and it's something that we're going to be improving upon for the rest of the decade as we implement the changes in the health care system that are needed -- and this will be the first stage in that. But what will always be there in our minds as we go through and have flexibility about these changes is the six principles that the President laid out. And I'd like to just reiterate what we see as important in that.

We believe that this health care reform has to be about health care security. And that means that there needs to be a comprehensive set of health care benefits that are there for people no matter what happens to them -- whether they lose their job or change a job or become ill, or a child becomes ill, or move to another state, whatever -- that has to be there.

And so by making a requirement for employers and individuals to make payments into the system, and by requiring that everybody have health insurance, and by setting in motion processes to make that affordable, we are guaranteeing that health security. And to us that does not mean just universal access to unaffordable health care -- that's not security -- it does not mean a catastrophic plan with $2,000 deductibles and $3,000 deductibles, that is not security. It needs to be comprehensive and it needs to be guaranteed to people and it needs to be affordable. And that principle will always be there in what we put forward. And at the end of the day that has to be there. It doesn't have to be done in every detail as we have suggested it in this proposal, if other people have better ideas on some of the specifics -- but it has to be there.

Secondly, the simplicity. We have taken some steps, and what you will see in this legislation, to try to simplify somewhat what we have proposed in the draft. We've taken to heart things people have said about things that they thought might be too regulatory, and we've tried to simplify some of that regulation in what we are putting forward. For example, the alliances we are setting up will not have the kinds of abilities that were in that initial draft to restrict health care plans, and the acceptance or the offering of health care plans, except if the plan is a certain percentage above an average. There won't be other more open-ended ways in which it can restrict health plans -- and things of this sort. We've done a fair amount to try to simplify even what we have proposed before.

What I will say to you on this, though, is that -- and I think I've said this to some of you who have been at other meetings - - when you really look at the health care system we have today, if you put 1,000 of the brightest people in the country in a room and said, "Design the most complicated health care system you can," they could not possibly come up with today's system. It defies the human imagination in how complex it is. And we are trying to simplify that, but also we don't want to make too much of a radical departure from what exists. And so we are living with a little more complexity than we would like, but that is in order to provide continuity. However, we have simplified significantly what was initially proposed and what is in the current system.

The third principle -- costs, getting costs under control. At the end of the day we don't want to rely on somebody's wish about getting costs under control. It's very easy to say you're going to put some kind of general cap on the rate of growth -- of Medicaid, or whatever else, or Medicare -- and not define exactly what you're going to do. What you will see in our proposals is very specific, scorable definitions of what we propose to do.

Similarly, in the private sector we have put out -- and you'll see in the packets we hand out in the next week -- materials which talk about how we expect the introduction of competition and the changing of incentives to bring about savings in the system. But we also are proposing to control the rate of growth in our premiums in the legislation as a backstop to the competition. And, again, we're not inflexible, but at the end of the day there needs to be some assurance that the universal coverage that we are proposing and the requirements for everybody to have insurance doesn't bankrupt the economy, That basically we get the growth of these costs under control.

Fourth issue that is of great importance has to do with choice. We do increase choice -- in fact, in one of the changes we are making from the September document we go a bit further, and that is that we require a point of service option to be offered by all health plans. For those of you who are not into health care in a significant way, what that means is that even if you joined an HMO or a preferred provider organization, that you would always have the option to go to some specialist across town or across the country if you wanted to. You might have to pay a little bit more, as you would today to do that, but that that option always will be there for you. So we are trying to maximize choice in the way in which we have structured the system.

Quality is the fifth principle. We don't have a quality system in health care right now that works. Quality outcomes are often unknown and they're very disparate around the country and we are, for the first time, going to try to put a total quality management system in place that will collect the kind of data that allows us to develop good practice parameters and to help measure quality outcomes in the health care system. This is something that I think is widely supported around the health care community, but that system does not yet exist and we're going to try to get rid of the kind of micro-managed system we have today that doesn't really work to ensure quality, but just adds bureaucracy.

And finally, the question of responsibility. And for us that means not only responsibility for your own health, of which I'm probably a hypocrite, but we are talking more about responsibility for preventive care, responsibility for taking care of one's own health, but also responsibility for everybody contributing to the system. Where we want everybody to make some contribution, according to their ability to do so, to their own health care coverage. And for us the requirements that employers and individuals make payments to the health care system is both a way to ensure universal coverage. And finally, to share the responsibility among everybody and not have the kind of free rider situation we have today.

So for us, those principles have to be there, but there is a lot of details in health care reform and we look forward to a constructive discussion with those who are sincerely interested in reform.

Let me just emphasize a couple of other points before I turn it over to Leon. We are very encouraged that somewhere around 260 people in Congress have now signed on to some health care bill. It shows the seriousness with which people understand that we need to deal with this problem. We hope that the bill we put forward will set a new standard for the kind of detail in addressing the problem that we think is necessary to make sure that we make a careful and responsible reform. But then we look forward to discussing with others who are sincerely interested in reform, and trying to build a bipartisan consensus over a number of months which will allow us to succeed with health care reform.

A couple of issues that I'll close with that represent ways in which we've tried to refine and balance what we are proposing: There are dueling concerns that are legitimate concerns that we have tried to balance. One concern is to ensure and guarantee health care security. The other concern is not to have some kind of open-ended entitlement which does not create a sense of responsibility about the affordability of that health security. And we saw what happened when Medicare was first introduced and Medicaid was first introduced, and it was essentially evolved into a kind of cost-plus system for a while that skyrocketed out of control.

And so what we want to try to do is to set up a mechanism that guarantees the health security, which we have done. But then also to cap the entitlements for the discounts that are part of the plan, but then set up a mechanism, a series of mechanisms to protect the health security. So, for example, you will see in what we put forward that as we have talked about the amount of discounts we need nationally, we've costed those carefully but then we've added in a 15 percent contingency above that. And that contingency will help give us some cushion against possible behavioral effects, and we've tried to take a lot of those qualitative behavioral effects and some of them lower costs, some of them raise costs, but we wanted enough a cushion in there so that we knew we had enough money in this pool. Then if, in some way, in a given year that were to be reached so that we needed more money to insure, then we've set up an expedited mechanism for Congress to then have to go back and find a way to secure those funds. So that way you focus attention on the problem. It's not something that's open-ended, it is something that is capped. But you have to deal with the problem, you can't breach the health security. And we think that while we don't expect that kind of backstop to ever be used, we think it needs to be there to ensure the health security and also ensure some fiscal responsibility as we go.

Second thing that you might want to focus on is that as we have gone through trying to make our numbers ones that tie together when the bill would likely be passed in the first go-around in June and July when we produced our models, we still were modeling for a December '93 passage which was still our hope in June. I think that's not likely now, and so we think it's more likely that spring or summer of '94 we will have passage. And so what you'll see is that our numbers, in a sense, are all moved backward in time, somewhat. We've done a lot of consultation with states and governors and so on, legislators, to think about realistic time frames for when states might be ready to come into the new system. Some states meet every two years in their legislature, and so on. And so we have a phase-in schedule now that meets the new passage date and also has a kind of, we think, realistic assessment of when states would be ready to enter the system.

The third thing we have done is to use updated inflation factors. When we were modeling in June and July, we used the January CBO inflation forecast which were about 2.5 percent a year -- sorry, 2.7 percent a year. Since then, in August, the Council of Economic Advisors, and in September CBO came out with revised forecasts. The CBO at I think 3.1 and CEA at 3.5. In order to be conservative, we took the CEA numbers and we're now projecting forward based on those inflation factors.

So those are some of the significant differences that you'll see. The net effect of that, as Leon will show you, is some rearrangement of the ways the numbers look, although the basic structure of what we're proposing remains intact.

The only other point I'd like to highlight before I finish is that one of the things that we want to try to do a better job of is, over the next week to two weeks, and then ongoing through the debate, is to try to spend enough time with you in the kind of detailed discussions that we are going to begin tonight so that you understand the background of what we're doing, you know, the extent to which you're interested in doing so, and to try to go through the detail, let you understand the assumptions. You may question them, just as the American public may do, and then we need to discuss them, and that's part of what the policy debate should be. But at least we want it to be based upon as good of information as possible about what is actually in the numbers.

And sometimes because we're so busy, and sometimes because you're often on deadlines, things have to get done quickly or through short phone calls, and as a result there can be misunderstandings, which are nobody's fault, about what is really in numbers. What we want to try to do is provide enough information, because this is going to be a long process of discussion, so that you have a full sense of what we're doing.

So that's where we are right now. I'll turn it over to Leon now, who is going to go through the numbers in a little more detail.

Q Ira, did you have a backslide on your retirement?

MR. MAGAZINER: No, that's the same provision.

DIRECTOR PANETTA: To paraphrase Winston Churchill, this is not the end, and it's not the beginning of the end, but maybe in the very least, it's the end of the beginning.

This has been a very long and exhaustive process that we've been through in trying to scrub the numbers and put this package together. When I entered this process early in the year I knew one thing, that there was no way that we could sustain the costs of the existing health care system that we were working with, that we were essentially really headed toward bankruptcy with the existing system -- no matter what the President did on an economic plan, no matter what we did in terms of trying to reduce the deficit -- that ultimately, unless we were successful with trying to deal with health care costs and the health care system in this country, that we would never be able to truly strengthen our economy for the future.

And so, with that in mind we took on, obviously, what is a very huge task for any administration to take on. But it's a necessary task. Our hope is to, obviously, move the legislation to Capitol Hill tomorrow. And I'd like to give you some idea of the process we went through as we were developing and putting together the numbers to support the package.

The Office of Management and Budget and the Treasury Department basically carried out a responsibility to, a very literal way, look at each line of the legislation. This is a 1,300 page bill that will be going to the Hill. A line-by-line analysis of each of the policies, the assumptions behind those policies, and then obviously, the legislation itself to ensure that it met our tests that we traditionally apply at the Office of Management and Budget.

While there have been some small changes in policy, I think the real challenge has been to calculate what are basically the interactive affects of various policies. Every time you move a policy, or every time you implement a policy, you've got to look at what its impacts are on other parts of the plan. And that was obviously the effort that took the most time, was to be able to analyze each of those effects throughout the legislation. If you adjusted one policy, or you changed one number in a proposal this complex -- whether it's an economic assumption, or whether it's a subsidy, or whether it's a benefit -- it can have an impact on every other part of the package. And that was the challenge, was that every time something moved, as you met, and as there were discussions, and as there were minor changes -- even minor changes had to be analyzed in terms of their impact across the board.

When all is said and done, we believe that over the past several weeks we have considered all of the issues associated with the policies that we are proposing. We've examined the assumptions behind each of the numbers to try to make sure that these policies work and that the numbers are accurate, and we have made the changes that we believe are necessary. We've updated, as Ira pointed out, the economic assumptions. We have to present the most updated assessment of where the economy is going, and that's why we used the updated assumptions of the Council of Economic Advisors.

We have adjusted the phase-in period for implementation of health care reform, which now runs from fiscal year '96 through fiscal year '98. We're looking at about 15 percent of the population coming under the plan by the end of fiscal '96, 40 percent by 1997, and 100 percent by the end of fiscal year 1998. That compares to what was initially proposed, which was to move from 25 percent to 90 percent to 100 percent. We believe these phase-in assumptions are realistic and that they make good sense.

The bottom line is this, that the numbers that we present we believe are credible, they're responsible, and they are, most of all, conservative estimates of what we believe these costs will be. It is exactly the same test we applied to the economic plan: When we were faced with two different estimates, we always chose the more conservative estimate. When two agencies came up with different estimates, as they are likely to do in many instances, we always tried to choose the more conservative estimate.

As always in these situations, when you're trying to do responsible financing, it's much easier to simply throw numbers on a paper if you want to just get by. But if you're trying to do this in a responsible way, you have to ask questions every time a new number appears, every time there is a minor change. And so that's what we've done here.

Let me try to present, if I can, just a quick summary of the numbers that we have in the bill in terms of its cost. Let me, first of all, assert, as I have before, that the primary cost of the basic benefit plan is covered by the premiums that will be paid by the businesses and individuals. That's where the primary costs are. On the federal side, though, these are the costs that we will face, and how we pay for them.

The costs that we are looking at primarily are the costs of providing, first, the premium discounts for businesses and families. That's the largest cost -- it's about $116 billion. The numbers I give you are cost estimates for '95 through the year 2000. So the premium discounts are estimated at about $116 billion over that period of time. There is a self-employed tax deduction. It's 100 percent tax deduction for the self-employed -- that's $10 billion. The Medicare drug benefit, the additional drug benefit that is provided to those on Medicare -- $66 billion. Long term care that we are providing for those in home and in institutions -- $65 billion. And the public health administration, to try to expand public health services and try to cover those that will be caught inbetween -- $65 billion.

The cushion that was mentioned by Ira is another factor here. I've mentioned the basic cost, but what we did on the subsidy, in order to try to protect ourselves, again, in terms of the cost estimates, was basically to estimate each year what those premium discounts would be and then add 15 percent as a cushion to protect us. And the costs of that over that period of time are $45 billion.

When you add up all of those costs, it comes to a total cost of $331 billion. To pay for that we have used the following: First, we will get revenue gains that Treasury estimates at $71 billion. This is basically the net estimate of the gains that we think we can achieve in revenues by virtue of the reductions in health care costs.

The second is the federal programmatic savings that we will achieve through, obviously, picking up some of these individuals in care with the alliances. Those are savings in federal programs such as DOD, Veterans, as well as public employment health care plans for civil servants. That total is $40 billion.

The tobacco tax and corporate assessment: tobacco tax, as you know, is 75 cents -- produces about $65 billion in revenues. The corporate assessment, which is a one percent assessment on those corporations that are 5,000 and above that don't join the alliances, that's about $89 billion -- I'm sorry, $24 billion. So you have $65 billion plus $24 billion, the total revenues would be $89 billion.

Medicaid savings -- $65 billion, largely through savings and disproportionate share. And then Medicare savings -- we have 25 specific proposals that we are presenting to the Hill for savings in Medicare that total $124 billion.

So again, the revenue gains, the programmatic savings, the taxes -- the tax revenue of $89 billion, the Medicaid savings of $65 billion, Medicare savings of $124 billion produces a total savings of about $389 billion. That leaves us deficit reduction at the end of this period of $58 billion. Those are the core numbers that we will be presenting in the bill and to the Congress. And they are numbers that I believe -- as in the economic plan -- that we can defend and that we can justify in the process of going through the debate.

The politics may be one thing in this issue, and people may disagree with the elements that are a part of this. People may disagree with the different portions of the plan as to how we pay for it. And that's okay -- we can disagree. But I think on the numbers that we have presented they are credible, they are real, and we can defend them to the Congress and to the country. So that the debate can then focus on what kind of services, what kind of benefits, we want to provide the American people.

Let me just end on this note. I served, as many of you know, for 16 years as a member of Congress. In that 16 years, health care became a bigger and bigger problem. And during that period, I think Congress largely ignored the crisis. As costs for families and businesses and governments continued to spiral out of control, a number of -- the large number of uninsured Americans continued to grow as more and more families began to fear the loss of their insurance coverage. There was a failure to deal with this issue. And, obviously, we are paying the price now. We saw lots of suggestions, lots of ideas, lots of concepts that were proposed -- never did we see anybody step up to the plate and present a comprehensive plan that was fully paid for. And so what the President and First Lady have presented here to the country and to the Congress is what I believe to be a comprehensive, responsible, detailed plan that will begin the debate on health care reform in this country.

I would urge you, as others propose alternative plans, to hold them to the same standard. There can be no shortcut to providing comprehensive coverage for Americans in this country. We look forward to an honest debate. This is the beginning of the process. There's a long process ahead of us. We anticipate that we're going to continue to work with Democrats and Republicans in the Congress as we try to craft final legislation over these next months.

The President we think has taken a huge first step in putting health care reform in place for this country. This is the end of the beginning. But we think we will wind up with a very successful end in providing health care coverage for all Americans in the United States.

END7:50 P.M. EDT