WASHINGTON -- Two members of the House Ways and Means Committee said yesterday they are concerned that President Clinton's proposed state and regional health care alliances might have to borrow heavily if the administration has underestimated the cost of its reform plan.
"We're talking about an awesome amount of borrowing" by the regional alliances if insurance premium collections from businesses and individuals and federal and state subsidies fall short of financing their spending on health care benefits, said Rep. Phil Crane, R-111.
Reflecting the growing concern of committee members about the possible chain of events, Rep. Gerald Kleczka, D-Wis., asked, "Who is ultimately responsible should there be a shortfall in the alliances' premiums? Will this be like the savings and loan bailout?"
But Treasury Secretary Lloyd Bentsen assured Kleczka that any bailout required under the plan would be financed by the states and their regional alliances, not the federal government. "The states would have the bonding authority," Bentsen said.
Like several other committee members, Crane noted that both the administration and Congress have had a poor record of estimating the cost of health care entitlement programs. In one year alone, the Congressional Budget Office raised its forecast of Medicare spending by $100 billion due to "technical re-estimates," Crane said.
Both the premium amounts collected by the alliances and their federal subsidies would be capped under the Clinton plan, and thus they could be caught short because of misestimates. About one-fifth of the 100 or so alliances' revenues would come from federal subsidies, and most of the rest from premiums. The alliances are expected to have a combined annual cash flow of around $700 billion.
Under the plan, Congress would be charged with taking action if the administration's estimates of federal subsidies fell short, but it could respond by simply cutting the subsidies.
In addition, the alliances in setting their budgets each year might miscalculate the amount of premiums they need to charge to cover the plan's universal health benefits. In this event, alliances could raise their premiums only to a capped level that has been determined by the federal government.
If the premiums still fell short, Bentsen told the committee that the alliances would have to consider cutting or delaying payments to doctors and hospitals. This could lead to strains on some health care providers and even some insolvencies.
Under the Clinton plan, to protect the insured against insolvencies, the states would have to set up guaranty funds to fully reimburse doctors and hospitals that are participating in bankrupt health plans for any guaranteed health benefits that they provide.
While Bentsen confirmed that the states and the alliances would have unlimited authority to borrow on the open market to finance both cash shortfalls and the guaranty funds, the Clinton plan stipulates that any such borrowings will be treated as taxable, private purpose debt.
Committee members did not question the Treasury's determination that the borrowings should be taxable.
Bentsen said the alliances also would have authority to get direct loans from the Treasury if they experience cash flow problems due to premium miscalculations, but there would be a borrowing limit of $3.5 billion on all such outstanding loans.
A Treasury aide conceded that the limits the administration is placing on alliances borrowing from the Treasury might force them all the more into the open market. "We have to give them a safety valve" in case they have nowhere else to turn, the aide said.
On another matter, Rep. Pete Stark, D-Calif., said he was "disappointed that the President's plan does not establish a charity standard for hospitals to earn their tax-exempt status."
Rather than establish stringent new standards to obtain 50 1 (c)(3) tax status, the Clinton plan merely formalizes the Internal Revenue Service's previously informal guidance that nonprofit hospitals should demonstrate that they are serving their communities in a charitable way.
But Stark said that the committee and the administration should "work together to set a reasonable standard for charity care. At a minimum, we should have intermediate sanctions applied to nonprofit institutions to increase compliance with current rules on private inurement."