WASHINGTON - Borrowing by the states and regional health alliances under the Clinton health reform plan should be minimal, although the alliances may resort to emergency borrowing if, as some fear, their federal subsidies unexpectedly dry up, administration officials said yesterday.
In testimony before the Senate Finance Committee, Treasury Secretary Lloyd Bentsen said the alliances would be left "holding the bag" if the administration has miscalculated the amount of subsidies needed to finance universal guaranteed benefits.
An estimated 100 alliances nationwide would insure most citizens within their regions.
The federal subsidies would be provided for small businesses and low-wage and unemployed workers, and would constitute about a fifth of the alliances' cash flow, Bentsen said.
Most of the rest of the alliances' revenues would come from mandatory premiums to be paid by individuals and businesses.
But the plan also caps the federal subsidies at $10.5 billion in the first year and $274 billion over the first five years. Bentsen conceded that if the claims for subsidies exceed those caps, the cash flow from the Treasury to the alliances could be at least temporarily suspended.
Under the terms of the health reform legislation, the caps could be overridden only if the President and Congress enact legislation authorizing such an override or otherwise deal with the problem by cutting subsidies or finding a way to pay for them.
Bentsen told the committee, which has jurisdiction over the health-care plan, that he expects Congress and the President would resolve the problem "expeditiously," resulting in only a temporary cutoff of federal aid to the regional alliances.
In the meantime, he said, the alliances would have to make do using various financial maneuvers, including raising their premiums, lowering or "slowing down" payments to doctors and hospitals, and "adjusting" their cash flows.
While Bentsen did not specifically mention borrowing as an option, a Treasury aide at the hearing said borrowing on the open market at taxable rates would be another option for the alliances in case their subsidies unexpectedly run out.
"There's nothing to prevent them from doing that," the aide said.
According to Department of Health and Human Services officials testifying at a separate hearing Tuesday, the alliances could not use another option provided under the health-care reform bill to take out short-term loans from the federal government in the event of a subsidy shortfall.
Bentsen stressed that the administration does not expect actual subsidies to exceed the caps prescribed under the legislation. The administration has included a 15% "cushion" above its estimate of the subsidies to preclude that from happening, he said.
The Treasury will also know "well ahead of time if we are running into trouble," so that Congress and the President would have ample time to deal with any possible breach of the subsidy caps before it became a problem for the regional alliances, he said.
Judith Feder, principal deputy assistant secretary of the health department, also sought to minimize any problem associated with the subsidy caps, saying Congress would repeat its performance in resolving the Social Security financing crisis of 1983. She appeared before the House Energy and Commerce Committee's health and the environment subcommittee Tuesday.
But several members of Congress were less optimistic that the administration and Congress would rise to the occasion.
"We could have gridlock where the bills of the alliances could not be paid," said Rep. Alex McMillan, R-N.C. "Historically, this place has underestimated the cost of benefits it enacts into law."
Rep. Henry Waxman, D-Calif., the House subcommittee's chairman, noted that in fashioning the plan's financing aspects, the administration ventured into "uncharted waters." He said he also feared there could be a shortfall of funds to the alliances.
The administration officials also sought to assure committee members that the states would have to do little borrowing to finance the guaranty funds they would be required to establish under the legislation to pay off the claims of doctors and hospitals participating in insolvent health plans.
"There shouldn't be an extended length of time over which the guaranty funds have to pay claims," Feder said, since patients enrolled in an insolvent plan would be quickly reenrolled in another viable plan, preventing a buildup of claims.