do. That is what they do well. That is what all these MBAs learn
to do, and leave the social contract, as every other industrialized
nation does, to the charity and the government, and let others
make Corvettes if they choose.
Dr. Rasell. I guess I would just offer that sometimes they have
a shortsighted view of what is in their own best self-interest.
Mr. Stark. Corporations?
Dr. Rasell. Corporations.
Mr, Stark. That isn't our worry.
Dr. Rasell. But government policy can influence sometimes.
Mr. Stark. But the only policy they salivate over is our defense
policy, and then they say we don't have a corporate policy in this
country. I would say, well, what do you think the Department of
Defense is? They are not very consistent, and that is OK. But I am
just saying let them alone, tax them and deregulate them for all
The Republicans are all harping about the death penalty. I could
get very enthused with the death penalty if you would make life-
threatening pollution a felony subject to the same sort of punish-
ment as armed robbery. I can make a case for that.
At any rate, I want to talk about the issue of the premium and
taxes and mandates for a moment. I think I am going to buy into
the Republican plan and suggest that the mandate ought to be an
individual mandate. At some point we have got to say everybody
must have insurance.
It seems to me we jump through a whole lot of hoops to mandate
an employer who will then jump through a lot of hoops to not make
you or me an employee. Do either of you have any trouble with just
saying we will make this an individual mandate?
Dr. Rasell. Well, I would say that the first question I would ask
is how is it going to be paid for?
Mr. Stark. We will get to that in a minute. I will tell you, as
a matter of fact.
Dr. Rasell. Potentially I could
Mr. Stark. Let me go through the scene. What do you think, Mr.
Podhorzer? I will tell you how to pay for it in just a second.
Mr. Podhorzer. I think there are a number of reasons whv al-
though we support something more progressive than employer
mandate, an individual mandate is worse than an employer man-
date. First of all
Mr. Stark. Why?
Mr. Podhorzer. First of all, I think that if you — the nature of
how people are compensated at the moment puts them in a position
where the stability that you would need to have a truly universal
individual mandate is much more iffy than an employer mandate.
With an employer mandate you have a more centrally collected rev-
enue stream that is
Mr. Stark. Oh, come on.
Mr. Podhorzer. Sure.
Mr. Stark. Look, try this.
Mr. Podhorzer. I am sorry, go ahead.
Mr. Stark. There is nothing more centrally collected than taxes,
right, the Internal Revenue Service?
Mr. Podhorzer. So you are saying add it as a tax? I thought
Mr. Stark. Let me just outline for you how you could do it so
Mr. Podhorzer. I was responding to
Mr. Stark. The day you are born you basically now get a tax
number, don't you? We don't call it a Social Security number, but
that is what it becomes when you go to work, and if your parents
are wealthy enough to give vou any money, then you have to go
and get a tax number. So it we just determine that the day you
are born you have a health program, it is a mandate, then we will
not be the second last country to give health care to everyone.
And let's assume for a minute that for an adult under 65 we
could provide health care, with the equivalent of Medicare, not too
generous but not bad, and put a $2,500 out-of-pocket cap, that old
catastrophic, so every tax return that gets printed has up in the
comer, "you owe us $1,500." Bang, it is stamped right on there, but
you also have Medicare.
Now, if through the good efforts of your union or the kindheart-
edness of your employer or because you are professionals incor-
porated and you are figuring you can get some of this tax free, you
have health insurance that meets at least these minimum stand-
ards, you get a note from your teacher that looks strangely like a
W-2 form and you staple it on your tax form and you don't owe
the $1,500. And it is interesting, there is no mandate now and
about 70 percent or something like that of Americans get health
care. There is no law that says the employers have to give it. So
let's assume that the employers, those good guys, will continue to
pay a good bit of perhaps a more generous plan. You just staple
that on your tax return.
Let's say you only work part-time. We put a basically what I
would call an increase in the minimum wage, $1,500 if they pay,
the employer pays 80 percent. That is 60 cents an hour on a 2,000-
an-hour work year, so there is a minimum.
You are Zoe Baird. You got a babysitter, 60 cents an hour. You
pay it along with that Social Security you are paying each quarter,
and then at the end of the year you only worked 100 hours. You
put $60 worth on there and then if you are poor, we don't charge
you the whole $1,500, below 2 times poverty. If you are a couple
times over poverty, we will charge you the difference. Everybody is
in the pot. Now it is going to take some money to pay for those peo-
ple who the employer isn't paying for.
How do you decide who pays for the kids? The Tax Code decides.
You get a divorce, who is going to continue to take the deduction
for the kids? That is who pays. You are a family with one worker
and a spouse, we double up the premiums the same way as, in the
inverse proportion to which we give you the head of household or
the married deduction. It is all decided for us.
You are too poor? You don't file a tax return? It is free. How do
we get all these guys out there selling leather belts and Rolex
watches on the sidewalk? They show up at the emergency room,
you don't call the immigration office, you call the IRS and say, hey,
we got a live one here, no card, and we will pick up a good bit from
the underground economy.
What is wrong with a plan like that?
Dr. Rasell. I don't have a problem with the concept of an indi-
vidual mandate. In fact, you could think of a single-payer system
as a mandate.
Mr. Stark. Oh, I do, I go to sleep at night dreaming of this.
Dr. Rasell. Could you envision it as a mandate on individuals
and your payment is your taxes. The problem in my mind with an
individual mandate is so often the financing is so regressive, so
Mr. Stark. Is Social Security regressive?
Dr. Rasell. It is slightly, yes.
Mr. Stark. Slightly. But it is better than the alternative, isn't it.
Dr. Rasell. It is better than some things. Yes, I agree with you.
Mr. Stark. When you think about the Medicare benefit level at
$1,500, you have just saved the private insurance industry because
there is a whole industry out there for supplemental insurance,
Medigap as we call it for seniors, and I don't think actually that
you would get to a single-payer that quickly.
There are some States where you could probably beat the $1,500
in managed care or where they don't pay much to doctors in hos-
pitals. All I am asking is that Medicare have a part C to provide
this insurance where insurance companies choose not to go. I am
just saying let me compete like everybody else. You want competi-
tion? I will compete.
Mr. PoDHORZER. I want to add something, too, I think that what
you described as an individual mandate in your new program is
fundamentally different from what is meant by individual mandate
in the Republican plans.
Mr. Stark. All they mean is it is available.
Mr. Podhorzer. Right, and to the extent
Mr. Stark. And that the Lord tells you that you ought to buy
insurance, but there is no law.
Mr. Podhorzer. That is right.
Mr. Stark. Mine is a mandate that is a mandate, not a mandate
that is a litany.
Dr. Rasell. One advantage of doing what you are talking about
is subsidies would be more evenly distributed. Unlike now, as — you
know what I am going to say — in big firms there is no subsidy for
Mr. Stark. Right. As a matter of fact, the 20 percent that the
low-wage workers might pay under the President's plan could
choke a horse in some cases. It could be very expensive for low
wage workers. No, the President's plan has a few details that don't
add up, but, OK, we have the mandate thing. At least you won't
kick me out of your clubs, right, if I do that?
Dr. Rasell. As long as you have cost containment.
Mr. Stark. We are short. It is going to cost the Nation. There
is no social cost to this, but there are winners and losers. There are
a lot more winners since the President gave the store away on un-
I wasn't even thinking of offering a tenth that much in my first
offer, but he gave the whole store away, and I don't know how we
bring that genie back into the bottle, but even if you capitate the
children, I guess that would be the word, and say every kid is in
the plan, and you don't charge the parents and then you take those
below two times poverty, and I would put Medicaid into this same
plan, so it is transparent. They don't know whether you are old or
rich or poor. You have just got a card.
We are going to be somewhere between $50 and $100 billion
short; so is the President. He doesn't know it, yet, but so would any
other plan that is going to pick up the uninsured or the poor, so
we have got to raise $100 billion a year or $50 or $75 [billion].
One percent on a payroll tax is 15, thereabouts. Cigarettes don't
raise much, 12. If you double that you get 20; 1 percent on all in-
come, including unearned and including tax-exempt? Sales tax of a
point or two, Federal sales tax?
I am led to believe that we can get away with anything. As long
as it doesn't go above 2 percent, the public is indifferent to what
we tax. You say 1 or 2 percent, they don't even ask you on what,
they just say OK, but you say 5 or 10 percent, the public would
throw us all out.
Now, where do we get the $60 billion?
Mr. Podhorzer. Well, I think the places to start are first with
the income tax and then with payroll taxes that don't have caps.
Mr. Stark. Very good. Very good.
Dr. Rasell. But remember that we already spend a lot of money
on health care, and I don't need to tell us this, but the one major
flaw with the Clinton plan
Mr. Stark. This isn't so bad, though, doctor, think of this. We
spend $950 billion, and after I reshuffle all of this we are going to
cut down the rate of increase. We aren't going to cut the $950 bil-
lion, you and I know that, but instead of going up 10 percent a
year, maybe we only have to go up 6 percent; that keeps us from
going broke, but there isn't going to be any more cost. We will
wring enough out just in administrative savings.
Dr. Rasell. That would be my hope. This one-time step up as
these people will come into the system
Mr. Stark. But it won't be as big as we think, $20 to $30 billion
a year maybe in administrative savings. But I am just saying the
winners aren't going to even acknowledge it. They are going to put
the money in their pocket and you think they are going to hire
more workers or drop the price of the Corvette. I will make you
bets on that, but I think they are just going to smile, not even say
thank you very much, and go off with their money. That is what
I think they will do, but I am not an economist so it doesn't count.
But nonetheless, the losers are going to complain. They will
threaten to unhorse me and leave the Democratic Party once and
for all, including a great number of union members who now don't
think they pay anything, that it is free. My father-in-law, he
doesn't pay anything to belong to Kaiser, and he thinks the Team-
sters do that with magic, and he is going to be madder than hell
if his son-in-law comes home and he has got to pay $50 a month
for what he is getting free.
Those will be some of the losers who, through any of these types
of plans, will be very unhappy, but the aggregate may only be an-
other $60 billion, and out of $950 billion, that isn't so bad if that
is the worst we have to do, but we have to make it palatable. How?
Dr. Rasell. It is the same problem we have all the time, how
to get money. I would go for the savings. I will throw an odd ball
out here. Some people where I work at the Economic Policy Insti-
tute are looking at a securities transaction tax.
Mr. Stark. Right on. Real estate wouldn't be bad. Have you refi-
nanced your home lately?
Dr. Rasell. I was going to.
Mr. Stark. How about you? You pay a point here, a point there.
By the time you get done with these points, you know, my house
didn't cost that much when I bought it as all the points, but people
do it, and I don't hear any screams. Now, what about a point, that
is why we dumped all the tea in the harbor a few hundred years
ago, but a stamp tax wouldn't be bad, one point on transactions.
Secretary Bentsen, did he suggest that? Or was that Bush?
Somebody suggested it, a transaction tax on Wall Street, and they
read them the riot act, but sure, capital gains, I can think of a few
things to raise a few bucks.
Mclntire, a friend of Mr. Podhorzer's, can think of a dozen more.
I will give you aircraft carriers, F-15s, star wars, you got it paid
Dr. Rasell. Right.
Mr. Stark. Well, let me go back one more time to what I asked
Secretary Bentsen. I am fairly convinced that we could, rather than
having every worker fill out what is a second tax form that is then
processed by some State alliance and investigated for fraud the
same way the IRS does. I just see a parallel tax collection system
and with the varying degrees of State income tax, and the Federal
income tax, to put this extra paperwork machine in there to deter-
mine where we are going to spend Federal subsidies, troubles me
some. The State or the alliance today, it isn't even necessarily the
State, determines who gets the subsidy, and I have to raise the
money to give it to them.
Is there anything that either of you see technically that makes
it bad other than we have to put it on budget if we do it as near
as I can tell, and somehow it becomes a tax? My opponents are
going to call these premiums a tax regardless, aren't they, Mr.
Mr. Podhorzer. Absolutely.
Mr. Stark. It waddles like a tax, quacks like a tax, they are
going to call it a tax. I am saying why not get up front on it.
Mr. Podhorzer. I think that is absolutely right, and I think that
the lengths that they have had to go to to try to get around it have
all been changes for the worse, and that we would be much better
off taking the same money out in a more efficient way.
Mr. Stark. It is like they are trying to take their socks off with-
out untjang their shoes.
Mr. Podhorzer. Right. I certainly hope this committee and Con-
gress deals with that issue. That is very important.
Mr. Stark. Anything else you can add that we ought to do?
Dr. Rasell. You have got a big job ahead of you.
Mr. Stark. It is going to be fun. If they think they are having
trouble finding votes for NAFTA, wait until they try to pass health
care reform with any cost to it. I hope you will continue to try to
keep us honest and advise us.
It is important, and check it out for me. Dr. Rasell. I want to see
about those cars, steel. I could never understand base point pricing,
so that is why Samuelson never let me continue, but maybe there
are people who do that, make a little money, raise wages.
Dr. Rasell. Well, you are talking to the wrong person to really
strongly defend this. Neoclassic economists would probably be able
to convince you that there is no other option. I, like you, am more
leery. I do think there are examples where it has happened
Mr. Stark. Let me try this. You are a friendly audience. What
do you think about competition? You are also a physician. Do you
think competition will work providing medical care?
Dr. Rasell. No.
Mr. Stark. Do you practice medicine? Have you?
Dr. Rasell. I have, yes.
Mr. Stark. Does the Economic Policy Institute provide health
Dr. Rasell. Yes, they do.
Mr. Stark. Do you know what I am going to ask you?
Dr. Rasell. No, go ahead.
76-304 -94 -5
Mr. Stark. Do you know how much is taken out of your pay-
check each month for your health insurance?
Dr. Rasell. No. There is no line item on my paycheck, and I
don't know what they pay, either.
Mr. Stark. OK So you don't actually have a deduction that
Dr. Rasell. No.
Mr. Stark. Do you, Mr. Podhorzer?
Mr. Podhorzer. Yes, I do.
Mr. Stark. Do you know how much it is?
Mr. Podhorzer. Actually, I am insured through my wife, and
that is through the Federal Employee Health Benefit Plan.
Mr. Stark. OK, but do you know how much that is?
Mr. Podhorzer. Yes, it is a month. It is $66.
Mr. Stark. You are pretty good. I can tell you, mine is in the
90s, but I can't even tell you exactly what it is.
Benefits, Dr. Rasell. What percentage of hospital room does your
health insurance pay?
Dr. Rasell. Well, I can say we recently changed plans, but I
didn't know before, either.
Mr. Stark. I knew it. I tell you, I can get the experts. How are
you going to compete for all this? See, you know the procedures,
you know what you ought to have. I don't know a proctoscope from
a horoscope. I am healtny, so what do I care about what I am going
How about you, Mr. Podhorzer?
Mr. Podhorzer. I get lucky again because we are at GW.
Mr. Stark. You are in an HMO. How many days of mental
health care do you get there?
Mr. Podhorzer. Thirty.
Mr. Stark. You know that. You are better off than most. You can
pass my test. What I say is most experts couldn't score 90 percent
on a test, and what I would also say is that nobody in the White
House or on that health bureau belongs to an HMO, even
Enthoeven doesn't. He goes to Stanford, but he can't get that care.
So all these guys will tell you, HMOs are good for you. The rich
get what they can afford; the poor get what they deserve. That is
Well, let's change it and get a good plan. Thank you very much
for helping us. Appreciate it.
The hearing will continue on Thursday, November 18, beginning
at 10 a.m. in this very room. The committee is adjourned.
[Whereupon, at 1:15 p.m., the committee was adjourned.]
FINANCING PROVISIONS OF THE ADMINIS-
TRATION'S HEALTH SECURITY ACT AND
OTHER HEALTH REFORM PROPOSALS
THURSDAY, NOVEMBER 18, 1993
House of Representatives,
Committee on Ways and Means,
The committee met, pursuant to call, at 10:04 a.m., in room
1100, Longworth House Office Building, Hon. Dan Rostenkowski
(chairman of the committee) presiding.
Chairman Rostenkowski. The committee will come to order.
Today the Committee on Ways and Means holds its second day
of hearings on the financing provisions of the administration's
Health Security Act and other health reform proposals. This morn-
ing many of our colleagues in the House will share with us their
views on the financing provisions of various health reform propos-
als. We look forward to hearing their views.
In addition, three panels of public witnesses will respond to the
questions asked by the committee in its press release announcing
these hearings relating to the employer and individual premium
payment requirements, the corporate assessment, the tax cap, to-
bacco taxes and other sources of financing. We ask that the wit-
nesses be as specific as possible.
Do any members have any opening statements they wish to
Now, I welcome our first witness today, our colleague on the com-
mittee, Hon. Pete Stark, chairman of the Health Subcommittee. I
see he is accompanied by several other outstanding members of
this committee whose names I need not mention but who had vi-
sion yesterday and helped the President of the United States.
Now, Mr. Stark, if you want to start, we are ready to take your
STATEMENT OF HON. FORTNEY PETE STARK, A REPRESENTA-
TIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Stark. Mr. Chairman, thank you. My purpose today is to
suggest a dramatic simplification to the structure of the financing
and the flow of funds under the President's health care reform bill,
and in brief my suggestion is to use the tax system and the IRS
to replace the financial functions of the so-called regional alliances.
The President identified six objectives for reform, and one goal
was to simplify the existing complex system for financing health
care. I support this objective, but I am sorry to say the President
has failed to meet this goal.
Two weeks ago, I asked the Congressional Research Service to
identify all of the transfers of funds within the Clinton plan, pay-
ments from one entity to another, based on its review of the avail-
able statutory language. And they identified 60 separate pipelines
of money from one organization or level of government to another.
I think the Members have it in their packet, called New and Modi-
fied Payment Flows to President Clinton's Health Security Act.
This chart designed for us by CRS and HIS, tends to outline
these, but it doesn't begin to show the complexity of the 60. In
some areas there just wasn't room on the chart.
Mr. Thomas. Will the gentleman yield briefly?
Mr. Stark. Yes.
Mr. Thomas. I wish to stipulate with the chairman that this
clearly is a simplification of the true flow lines for purpose of rep-
resentation. It is a great simplification of the actual flow lines.
Mr. Stark. The individual flows are outlined in the form
addended. I would like that to be made a part of the record.
[The information follows:]
New and Modified Payment Flows
President Clinton's Health Security Act
Payment for services as a result of auto
Assessment for transitional national risk pool
Guarantee funds for self-funded corporate
Premiums (if corporate alliance is insured)
Payments for services (if corporate alliance is
Optional regional alliance enrollment of
<100 employees in a given region
Premium for 2-earner family choosing
Assessment for coverage of early retirees
Rebate for choice of low-cost plan if employer
pays >80 percent of average
Share of premium
Modified tax treatment of pre-funded retiree
Increased deduction for self-employed
Modified tax treatment of long-term care
Personal care tax credit, disabled workers
Medicare beneficianes choosing alliance plan
Grants to hospitals serving vulnerable
Medicare prescription drug benefit
Pay services for enrollees, transitional risk
Payments for graduate medical education,
academic health centers
Tax incentives for practice in shortage areas
Premiums for Federal employees
New and Modified Payment Flows
President Clinton's Health Security Act
Subsidies for employers and individuals
Long-term care block grant
Payment for Medicare if State operates
Per capita payments for welfare recipients
Start-up grants for alliance system
Wrap-around plan for low-income children
and welfare recipients
Higher Part B premium for high-income
Increased Part B premium for prescription
Payback of subsidy for high-income retiree
Premium for transitional national risk pool
Tax on excess benefits received from
Tobacco taxes (actually collected from
manufacturers, importers, etc.)
Share of premium