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Economist leary of "quick fix" health plan.

Providing universal health-insurance coverage while reducing budget deficits could prove a losing battle for President Clinton, whose campaign mantra, "It's the economy, stupid", is taking on renewed relevance amid the health-care debate.

Dr. Sung Won Sohn, chief economist and senior vice president of the Norwest Corporation, Minneapolis, Minn. is concerned that Clinton's plan could negatively impact businesses through increased budget deficits and interest-rate hikes.

"I simply cannot believe that we can provide all these extra services, such as additional mental-health coverage and prescription services for seniors, and at the same time actually reduce budget deficits," said Sohn.

Sohn acknowledges that America's health-care system needs improvement, but he worries about quick-fixes and instead espouses fiscal responsibility and smart consumerism as the solution.

"I wouldn't say that it's a crisis, but it's a ticking timebomb that's taking too many resources out of the economy," Sohn said.

President Clinton's health-care reform plan would guarantee universal coverage by forcing firms to pay 80 percent of their employees' insurance costs; create regional insurance buying alliances to bargain down premiums; roll small firms and Medicaid beneficiaries into these alliances; limit growth of premiums; and ban discriminatory practices by insurers.

Since announcing the plan, criticism has come from politicians and economists alike, many fearing higher taxes and increased bureaucracy. And everyone seems to have an alternative plan. Senator Edward Kennedy (D-Mass.) recently proposed his own plan, with more proposals expected from other key Senate committee chairmen, including Daniel Patrick Moynihan, (D-N.Y.). There is no shortage of interest on the House side either, with at least two committee chairmen--John Dingell (D-Mich.) and William Ford (D-Mich.)--working on separate proposals. The hope is that some kind of health-care reform can be agreed upon before Congress adjourns in the autumn.

"The voters want a health-care reform bill by November," said Sohn, who lectures and writes on health-care and economic issues.

Sohn was a senior economist on the President's Council of Economic Advisors and has served as a board member of the Ministers Mutual Life Insurance Company and the North Memorial Medical Center. Currently, Sohn sits on the board of the American Heart Association and handles national, regional, and agricultural economics for Norwest, a bank holding company with assets of $50 billion.

"There's a high probability that health-care reform will pass Congress this year, but it's likely to be a very watered-down version of the Clinton plan," Sohn said.

But even Clinton himself sounds less optimistic about the chances of a bill this year. He told reporters in New York last month, "I kind of think we'll get something done this session . . . what I've tried to do is press the pace of change."

Waste, Fraud, Abuse Are Prevalent

Pushing for change is a laudable goal, according to Sohn, who believes that the current system suffers from fraud, waste, frivolous malpractice lawsuits, and consumer laziness. Rampant abuses in the Medicare and Medicaid programs also cost taxpayers billions of dollars annually.

In one case, a Pennsylvania heart bypass operation cost the patient more than $85,000. The same procedure under a new health plan in Minnesota costs roughly $25,000. Sohn views such discrepancies as proof that there is already enough money in the system. Cutting waste and abuse would save money and prevent a tax increase to pay for universal coverage.

"Money is not the issue, there's plenty of money in the health-care system," said Sohn, "we just need to use it more efficiently and wisely."

Another common wasteful practice involves doctors who fear malpractice lawsuits if they fail to thoroughly explore a patient's condition, which often results in unnecessary tests being performed on patients too intimidated to object. Sohn recommends judicial reform to remedy this, something that Clinton's plan does not address. This, says Sohn, is a shortcoming in Clinton's proposal.

The idea of judicial reform gained widespread attention when former Vice President Dan Quayle quipped that 1,000 lawyers at the bottom of the ocean was a "good start." Since then, many lawmakers have considered legislation to relieve overburdened courts of frivolous litigation.

To Sohn, this means limiting the amount that juries can award in malpractice suits and establishing practice criteria for doctors. Under such a plan, doctors would be responsible for following a list of approved procedures for specific operations and conditions. If the doctor followed the criteria, he or she would be immune from a malpractice lawsuit.

Spoiled Consumers Strain the System

Another integral part of health-care reform involves changing the way Americans consume health services. Without progress in this area, Sohn doubts real savings will be realized.

"We need to put more responsibility on the consumer to be a wise shopper," said Sohn, "right now people don't have any incentives to shop around."

The recent United Auto Workers Union-Ford contract illustrates a tendency among insured workers to overconsume rather than economize. Most workers under the UAW contract pay little toward their health-care coverage, so they lack incentive to shop around.

To combat consumer laziness, Sohn suggests increasing insurance co-payments. Though more costly in the short-run, increased payments would encourage employees to economize their consumption and thereby save money. Low-income families would receive a tax-credit to offset the increased insurance costs.

"Basically you would be telling people, 'Here's $100, do you want to get health care or do you want to buy cigarettes?"

Minnesota Plan Could Serve as a Model

Solving the problems in the current system is a monumental task, but Sohn points to the new Minnesota plan as evidence that reform can work.

About three years ago, Minnesota lawmakers devised their own health plan. The new system levies a 2 percent tax on health-care providers, who are prohibited from passing the cost on to patients. Tax revenue is used to purchase medical insurance for the uninsured. When the fund runs out, the door is closed until the next year. If the money runs out before the end of the year, the state legislature would have to approve emergency funds to cover health costs. Roughly 50 percent of state workers, meanwhile, are covered by HMOs.

Under this system, revenue is collected before it is spent. This, Sohn says, is the key to reform success.

"The beauty of the Minnesota plan is fiscal responsibility," said Sohn. "Whatever we decide to do, we want to make sure we raise the money first and then spend it. And if we run out of money, we stop. "We get away from the nonsense of politicians promising everything and never having to worry about where the money is going to come from."

Initially, many Minnesota health-care providers warned that they would close their doors or be forced out of state by the 2 percent tax. But Sohn says that has not happened and the complaints from providers have now ebbed.

Reform Will Impact Businesses

Along with health-care providers, business owners both big and small are anxiously watching the health-care debate with much at stake. With Clinton's call for universal coverage, many business owners are concerned about paying more for health benefits or having to provide insurance for employees not previously covered.

"Health-care costs keep going up and more of the companies that credit managers do business with will have difficulty making payments because they don't have much left to take care of the rest of the business," said Sohn.

Although all companies will be affected to some extent by health-care reform, Sohn believes that some industries will fair better than others. Manufacturers, in particular, should weather the reform process better because they already pay generally higher wages and almost always cover health insurance. Retailers and restaurateurs, on the other hand, will have a tougher time, since service-industry businesses rarely offer health insurance to employees.

Common wisdom holds that small businesses will also suffer because of health-care reform, but Sohn disagrees and has some encouraging words for small-business bankruptcy filings due to mandated employer-insurance contributions. Many small businesses already provide coverage and a small-business cap as low as 3.5 percent could actually save money for small firms. For those businesses hurt by increased insurance costs, Sohn believes that employers would reduce wage increases rather than fire employees.

"Ultimately, the cost of health insurance is passed on to employees, they're the ones who pay for it," said Sohn. "Studies have shown that when taxes go up on employees, wages go up at a slower rate to account for the extra cost. So employees bear the brunt of the burden."

Sohn cites gas stations as an example of this. When gas taxes were increased by 4.3 percent under the Clinton deficit-reduction program, gas stations did not lay off large numbers of minimum-wage, part-time workers, rather they froze salaries and raised prices. Similarly, Sohn expects small businesses with employees earning low wages to raise prices to cover health-care costs.

So the effect of reform on the unemployment rate will be negligible at first.

"I don't think we will see the impact of health-care reform on unemployment right away," Sohn said. "If we do a good job of controlling costs, that would improve economic growth and cut the unemployment rate."

Final Plan Must Cut Costs

Regardless of which plan is finally enacted, success in health-care reform must encompass fiscal responsibility, says Sohn. In addition, politicians must take on some sacred cows and get serious about cutting costs.

"We need universal coverage if we can pay for it," said Sohn. "The president has talked about all of these evil insurance companies gobbling up health-care dollars. I'm sure there's unnecessary paper work and insurance companies are not blameless, but you're talking about a small share.

"If you're serious about controlling health-care costs, you've got to get to hospitals and doctors and politically they are very powerful--obviously politicians don't want to touch that."

Kevin C. Naff is NACM editor/communications associate.
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Title Annotation:Norwest Corp. Vice-President Sung Won Sohn
Author:Naff, Kevin C.
Publication:Business Credit
Date:Jul 1, 1994
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