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Health care reform #1 domestic priority for Clinton Administration.

How do you provide health care coverage to 35.2 million uninsured Americans without creating an economic burden to employers and/or employees? This is the "billion-dollar question" now facing President Bill Clinton. Having declared health care his #1 domestic issue, the President now confronts a keenly sensitive, if not tenuous, economic challenge.

Health Care as an Economic Challenge

Health care spending in 1970 comprised 7.1% of the Federal budget. By 1992, that percentage doubled to 16.1%. By 1998, the Congressional Budget Office (CBO) estimates health care will account for 23.6% of all Federal spending.

While Federal programs excluding health are expected to grow at an annual rate of 2.5% between 1992 and 1998, CBO estimates Medicare and Medicaid spending will rise at annual rates of 9.4% and 10.6%, respectively.

Two critical elements of any forthcoming health care reform initiative must be cost containment and a reduction of the growing burden placed on the Federal budget deficit. The trick is reforming the existing system, implementing "effective" cost containment techniques, reducing the Federal budget deficit and providing health care coverage to 35.2 million uninsured Americans (at an estimated cost of $50 billion). Is this beginning to look like a good plot for a novel?

Moving Into Position

To move his administration toward a consensus on health care reform, President Clinton has established the President's Task Force on National Health Care Reform, chaired by First Lady Hillary Rodham Clinton, to develop a workable health care reform package for May 1993 introduction to the Congress. The task force, which is meeting around the clock in the "war room" of the Old Executive Office Building, is working with variations of President Clinton's "managed competition" concept. A managed competition system is a blend of government regulation and free-market enterprise under which large health insurance purchasing networks representing employers and individuals negotiate with health care providers to provide a standard package of health benefits set by the Federal government.

The work of the task force will not be quick or easy. President Clinton has indicated he wants:

* Implementation of a managed care program, to include national budgeting and government rate-setting to control health care spending;

* Development of a "National Expenditure Board" to develop health care rates and expenditure targets for a managed care system;

* Establishment of a cap on the tax deduction for employer-sponsored health insurance;

* Alteration of the tax code to prevent employers and employees from providing and receiving tax-free health benefits;

* A limitation on the amount businesses could deduct for health insurance premiums, not to exceed the cost of the lowest-priced standard benefits package offered by a Federally qualified plan; and

* A tax advantage for utilization of health care plans that offer a standard plan based on a Federally-defined package of health benefits.

Still other dilemmas exist that will complicate the development of any health care reform package. How will the task force implement managed competition health care reform in rural areas where there aren't many health care providers? How will the task force expand access to long-term care while simultaneously reducing health care spending? Beyond a doubt, this is a multifaceted problem that will not be resolved quickly.

Taxing Health Care Benefits--Seen As Necessary

Rep. Jim Cooper (D-TN), primary architect of managed competition legislation now advocated by President Clinton, has urged policy makers to cap the current $66 billion a year tax subsidy at a lower level to discourage wasteful spending on health care benefits and promote wise shopping for services. Rep. Cooper has specifically avoided the issue of raising revenue by capping the tax exclusion for employees; however, he has recommended that policy makers raise the needed revenue by capping employer deductions.

Under Rep. Cooper's proposal, the tax code would be changed to limit the amount businesses could deduct for health insurance premiums to the cost of the lowest priced standard benefits package offered by a Federally-qualified plan in their region. The employer cap, considered the linchpin in the managed competition model, is expected to raise $15-$20 billion per year. This revenue, as well as savings from eliminating the Medicaid disproportionate-share program and raising the Medicare tax earnings limit, would be used to fund Medicaid expansion.

Fate of the 25% Deduction Remains Uncertain

It appears that S. 162(l), the 25% annual allowable deduction for health care expenses by self-employed individuals, is being wrapped into current health care reform considerations. Thus, it is likely that Congress will only reauthorize the popular deduction, which expired July 1, 1992, for a short period of time. It appears unlikely that any reauthorization will be retroactive.

Out of the provisions that expired last July, congressional aides have indicated that revenues may be found to fully reinstate only "a few." Aides further indicate that lawmakers have conveyed an interest in making as many as two of the reinstated provisions permanent. Finally, out of all of the tax breaks that expired in July of 1992, only the one deemed most closely targeted to economic growth will be extended retroactively. The question on everyone's mind now is, "Where does S. 162(l) fall on this spectrum?" Even if the deduction remains intact when Congress is finished, it appears the administration's health care reform package could eliminate this business deduction and reduce the deduction for C corporations.

Small Business Leaders Take Action

Recognizing the "fast track" upon which President Clinton has placed health care reform, approximately 100 leading small business associations met in Washington, D.C., to develop a health care reform alternative for submission to the President and the Health Care Reform task force.

As developed, the Small Business Reform package seeks to:

Provide Access

* Improve access to health care at the individual level by providing a refundable tax credit for health care expenses to assist low- and middle-income Americans who purchase health insurance and health services;

* Reauthorize and increase the health insurance costs for self-employed individuals, authorize the social welfare system to pay for the health care of the uninsured and encourage the use of high risk pools (at the state level) to provide insurance to high risk individuals;

* Encourage the creation of more voluntary small business "buying group" support-guaranteed portability and guaranteed renewability of health insurance, prohibit selective cancellation or selective rate increases of health insurance policies based on the claim experience of individuals and require the pre-existing condition limitations on health insurance policies be met only once;

* Exempt insurers offering a basic plan from any state-imposed mandated benefit; and

* Authorize the establishment of a national center for small business health care and insurance information to function as a clearinghouse for information on various health care benefit programs for small business and their employees.

Expand Medicaid

* Extend Medicaid to all individuals below the Federal poverty line;

* Permit individuals with up to 150% of the poverty level to purchase Medicaid coverage for primary and preventive benefits through premiums related to income; and

* Utilize concepts of managed care within Medicaid.

Encourage Cost Containment

* Establish a Federal commission to establish global spending goals for national expenditures on health care, as well as specific rate bands for all health care providers' services and encourage open competition and fair pricing in the sale of drugs and other services; and

* Encourage the establishment of state and local health expenditure boards to recommend rate structures that reflect local circumstances.

Small business representatives hope to introduce these reform concepts to President Clinton and his Health Care Reform task force this month. At this early stage of the new administration, it is relatively difficult to predict the response of either President Clinton or the task force.

The Role of the Independent Accountants

As small business advisors and business owners, it is important that independent accountants monitor this issue closely. The forthcoming health care reform package will affect every small and large business in America. Now more than ever, small businesses will need to rely on the advice of the independent accountant to successfully prepare for the future.
COPYRIGHT 1993 National Society of Public Accountants
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Capitol Corridors
Author:Barr, Dorothea
Publication:The National Public Accountant
Date:Apr 1, 1993
Previous Article:The attest engagement and the practice of accounting.
Next Article:Capturing the earned income credit.

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