[Congressional Record Volume 140, Number 98 (Monday, July 25, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: July 25, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                           HEALTH CARE REFORM

  Mr. JEFFORDS. Mr. President, I am here today to address my colleagues 
on the issue of health care. As we all know, we have difficult weeks 
ahead.
  First of all, I wish to praise President Clinton for his leadership 
in this area. Without him, I do not believe we would be in the position 
where we can hope for constructive improvement in our health care 
system. I am the sole Member of this side of the aisle who has signed 
on to his bill, and I did so because I believe it is a constructive 
step forward in providing us with a chance for universal coverage and 
meaningful health care reform. I am still a supporter of his goals.
  I also am a supporter of the Kennedy mark because, in my opinion, it 
makes significant, if not substantial, improvements in the Clinton 
health care bill. I also will continue to work with others in order to 
reach the goal of universal coverage within a reasonable length of 
time. In addition, I will work with others to redesign the delivery 
system to ensure good health care reform.
  I would also like to praise Senator Dole, for he has stepped forward 
and provided a plan for those who feel it would be better to let time 
pass so that the system can correct itself. I do not agree with this 
approach, but I do believe it was important for him to step forward. He 
has done an admirable job in allowing those--some 40 Members--to have a 
position they can support to help them as we move forward in the health 
care area.
  I would also like to commend Senator Chafee. I have attended 
faithfully his Republican health care task force meetings for a 
considerable length of time. He is working hard with the mainstream 
group of Democrats and Republicans trying to bring about health care 
reform. Finally, I am looking toward Senator Mitchell and his mastery 
to be able to provide the Senate with a package that will gain the 
necessary 51 votes. I worked with him on the Clean Air Act and so I 
have confidence he can do that. It is a difficult time to find a 
consensus, especially on the financing issue of this debate. I intend 
to spend most of my time talking about how that can be done.
  There is a likely consensus that significant if not substantial 
changes can and will be made in the delivery system, so that we can 
take advantage of the concepts of managed competition and insurance 
reform. We find though that when we try to do that, we get into serious 
problems because of the difficulties we are having with the present 
system which relies primarily upon the fee-for-service system. Thus, we 
have been moving--and it appears we will be successful--toward a system 
that encourages wellness rather than one that merely treats illness. 
This is important because presently, especially with the dual role of 
the Federal Government and the States, as well as the private sector, 
we have found that the present system provides for gaming. The current 
system has resulted in cost shifting. The fact that we have so many who 
are uncovered, their costs get shifted to those of us who do pay for 
our health care system. This results in the private sector paying an 
additional 40 percent of the cost, making up the difference from 
Medicare or Medicaid or from those who are not covered in the private 
sector.
  I will be suggesting a plan that will take care of this inequitable 
situation. But we are going to have to look very carefully at anything 
we do because if we do not take care of the cost shifting, the cost to 
the Federal Government to fund employer and individual subsidies within 
any health care plan can skyrocket into hundreds of billions of dollars 
if we are not careful how we reform the system.
  It also appears at this time, because of cost shifting of Medicare 
and Medicaid, it is highly unlikely we can get financing in order to 
cover all Americans at reasonable rates but also to get over the 
concepts of mandates, et cetera, which prevent us at this point from 
moving forward on any kind of consensus building to finance a health 
care plan.
  However, there does seem to be a consensus--and a main point of my 
discussion here this morning--is that we should allow State 
flexibility. States should have options to try themselves to find the 
financing answers. There are answers in my mind which can allow us to 
reach the goal of universal coverage far before the year 2002, some 8 
years from now. I am sure, purely coincidentally, that it happens to be 
2 years after the reelection of any of our present Members. I remain 
hopeful, and I believe that we can bring about universal coverage long 
before that time. This will only come about if we set that goal, and if 
we allow the States the flexibility to move forward. Right now we have 
between 8 and 14 States who are presently trying to redesign their 
health care system in order for us to be able to see how this can be 
done.

  I come from the State of Vermont. The State of Vermont almost made it 
this year. But my State failed not for effort, but because it could not 
finance it with its own tax structure and because of the inflexibility 
built into the present Federal tax structure. I will be suggesting a 
plan which is very close to that which was suggested in Vermont, which, 
if allowed to proceed forward, will bring us out of this financing 
dilemma. Right now, the problem with the present bills is that they 
provide only waiver authority with respect to the States with respect 
to Medicare and Medicaid. But without the utilization of the Federal 
Tax Code, States would not be allowed to move forward.
  We need to establish clear goals of what we will allow the States to 
do and what the Federal Government should do.
  First of all, the Federal Government should provide the support and 
the authority for an innovative financing system. We should provide, as 
the present bills do, for waiver guidance for innovative use of 
Medicare and Medicaid funds in hopes that we can utilize that kind of 
flexibility to create a ``seamless system.'' This is a word of art with 
respect to health care reform, but if we had everyone covered under one 
umbrella system, all the costs of cost shifting due to age, ability to 
pay, and sickness would go away.
  Also, we could and should provide guidance to ensure uniformity in 
the delivery system. State reform must be consistent with respect to 
what we are trying to accomplish in the national bill that we will 
pass. We must assure that multi-State regional formation and 
cooperation are included in any State flexibility.
  Further, we must provide guidance to obtain tax equity, and this is 
extremely important. The present system is filled with tax inequity. We 
should provide tax equity, and that can be done.
  Finally, we should provide assistance for the calculation of what the 
potential Federal cost would be, as suggested by any progress within 
these areas. We must, of course, be consistent with the goals of the 
final bill.
  Now, let me just go through the goals that should be looked at from 
the total perspective of a Federal system.
  First of all, universal coverage. There are very difficult problems, 
Mr. President, with obtaining universal coverage. They are potentially 
daunting problems. On the other hand, every industrialized nation, 
other than this Nation, has been able to provide universal coverage 
with a per capita cost, as a percentage of their GDP, about half of 
what this Nation presently spends. In other words, we spend twice as 
much per capita as other nations do. Yet, we have nothing to show for 
it other than extending life expectancy with sophisticated medical 
practice for weeks or months or years. This indicates to me a strong 
probability that we had some systemic changes that are necessary in 
order for us to reach our goals.
  Second--this is important to remember--that few people in this 
country go without acute care. But the costs of the uninsured are 
shifted to those that presently have insurance. This creates a problem 
as to how to increase insurance coverage with the present cost shifting 
in place. We have added to our present costs, the cost of acute care, 
which hospitals look to individuals to pay for. If we start dumping 
money in, if we add financing and subsidies to this system, what 
happens, until it finally works itself out with managed competition, is 
that the system becomes bloated for the providers. It will not only 
have cost shifting under the present system with established costs, but 
it will have new money to take care of those that they may no longer 
have to cover. That is a very difficult problem, it seems to me, to get 
around. However, the system I will talk about shortly can do that.
  Another problem we have is how do you cover the uninsured? Do you 
mandate the employers to cover all employees? Do you buy them all a 
plan and contribute toward a premium? On the other hand, the Vermont 
Retail Association suggested this year, to have an income-sensitive 
approach, which would take into consideration the ability of people to 
pay. They determined that employers can cover employees with nothing 
more than a small increase in the minimum wage for those small 
businesses that have low-wage employees.
  Mr. President, I believe very strongly that we can reach universal 
coverage and universal responsibility. That is, if everyone is going to 
get health care, they should also contribute to the cost of it 
according to their ability to pay. We need universal responsibility, 
where all individuals and businesses contribute to the cost of 
financing health care.
  We also must reduce the Federal deficit that is due to spiraling 
health care costs. This is critical to the Nation. I will go into that 
in more depth. But I will just say at this point, this plan that I 
recommend could get total health care costs under control in about 2 
years and save up to $1.5 trillion over the next decade.
  Tax equity, flexibility, and consistency. We need to have tax equity 
for everyone. We have been dancing around that issue with all the 
various bills. But the one I recommend will show how it can be done so 
everybody gets a chance to pay with present tax income. State 
flexibility as I have discussed, and the delivery system reform as I 
have discussed.
  Mr. President, I would like to suggest that what we need to do is 
just to take a look and say, What will happen if we start over now? We 
have a tendency in this body when we look at things to take a look at 
the present system and say, ``Wow, we have to fiddle with this and 
fiddle with that.'' In my mind, we suffer from Tax Code constipation. 
We are so involved in this situation that we cannot think beyond it. 
What would happen if we said, ``Let us not do that. Let us take a look 
at what we could do if we started over; take a look at a good, basic 
tax philosophy; take a look at good health care philosophy.''
  First of all, we must remove all the cost shifting. Second, we should 
have everyone pay according to their ability to pay by a flat rate. It 
gets to the conservative approach of taxation, which they have 
advocated for years. For instance, they have said if we have a flat 
rate on the income tax, we would raise the same amount of revenue with 
about a 12-percent tax and do away with all the complexities of the 
present Tax Code. We have had serious problems with implementing this 
approach in the past. With the problems of obtaining tax fairness among 
different individuals and employers. But for health care, if we are 
trying to get to universal responsibility, would it not make sense to 
find a system that would allow everyone to pay in accordance with their 
ability to pay? A flat rate would do just that.
  Also, the big cry is do not burden the private sector; do not burden 
businesses. Suppose we were to have a plan that raised no more 
additional funds from the private sector than the private sector 
presently contributes. Would not that sound pretty good?
  Let me now turn to the mechanism that can do it. I am doing this just 
to show that one State or any State, if they get a chance, can show how 
this can be done. And I point out that, if a simple financing 
mechanism, which I suggest Vermont would like to do, I believe, from 
looking at what they did--of course, we will have a new legislature 
next year, and I cannot guarantee anything. But I can say that the 
system that I am suggesting was endorsed by the Vermont Retail 
Association. That is, 20 percent of our work force in Vermont is mostly 
a low-income work force, minimum wage, et cetera. They endorse this 
effective approach.
  Also, I would say, just to give you a little bit of confidence in 
what I am going to do, that the Wharton Business Group at the 
University of Pennsylvania, which is studying health care reform, wrote 
this about my plan:
       As I mentioned, until last week I was unfamiliar with your 
     plan. However, I read it with increasing interest and 
     enthusiasm. It is, in my opinion, the best plan that I have 
     seen currently being discussed in Washington. The finance 
     system is admirably transparent, designed to bring together 
     all present resources in the system and allocate additional 
     burdens equitably.

  Mr. President, I will just say to take a look at my plan. All I am 
really asking is to give the State of Vermont and any other State the 
flexibility they need in order to bring about a health care reform 
system which can help all of us define what needs to be done.
  It makes some assumptions which, as I indicated, seem to be correct. 
Current expenditures now are enough to cover everybody for all 
necessary health care. There is no indication that we have any 
significant number of people who receive no health care. The problem is 
that you have to go bankrupt oftentimes in order to get Federal or 
State assistance. Plus there are other presumptions that you can make, 
I think, reasonably.
  There are studies which indicate that 50 percent of the health care 
that is presently delivered in this country is either nonproductive or 
counterproductive. That indicates that we ought to have a lot of 
flexibility in being able to meet our goals using current spending. 
That does not even take into consideration all of the other aspects of 
excessive paperwork, malpractice reform, and all of the things that add 
excessive costs to our system.
  So I am confident that the amount of money raised by this system 
would be enough to help reform the system. Suppose we were to have a 
system of using a flat 6 percent of adjusted gross income in order to 
bring about the money to do this. This would be financed mostly through 
the present employer/employee system. Employees would pay 2 percent and 
the employer 4 percent of earned wages, but we would allow individuals 
to deduct from their taxes for what they paid.
  In other words, you will be paying with pretax income. The 
idiosyncrasies which have come to us since World War II left us with a 
very inequitable tax system, because employees, due to the fact that 
during World War II, in order to keep the wages under control, we kept 
them under control; but to allow businesses to help their employees and 
attract employees, we allowed them to give them a benefit by having 
their health care premiums considered as pretax income, and it would 
not be income to the employee. It would treat everybody the same. The 
figures we got from Joint Tax indicate that that will raise the 
necessary revenue to cover the cost.
  We just took, again, the 6 percent, which is half of the flat rate 
utilized to raise all the revenue. In other words, 6 percent will raise 
about half of it. Again, I point out, the Vermont Retail Association 
endorsed this concept. Presently, if you have a $10,000 employee and 
you have to provide a $4,000 or $5,000 plan, this would be a 40 or 50 
percent increase in your payroll cost. That, obviously, is 
unacceptable.
  So what are we trying to do under the current plans? We are trying to 
subsidize business so they can afford the additional costs. But when 
you get into subsidies, you get into all sorts of administrative 
problems. What about the two-worker family? What about the worker with 
two jobs? What about part-time employees? How do you handle those 
situations? If you implement this system, we finance reform as a 
percentage of current AGI, and all of the administrative problems are 
eliminated.
  Is it equitable to distribute the financial burden? If it is 
distributed in accordance with the ability to pay, and if you phase it 
out for those at the low-income level, then you have a system which 
will provide an equitable method of distributing the financial burden.
  Let me give you an example of the impact upon individuals, because 
that is obviously what we are all interested in. First of all, take a 
poor family making $13,000. Their present yearly cost, if they try to 
purchase a plan, would be something like $4,000. If you go with the 
system where you phase them out for being low-income, then you find 
that the total comes from what they would have to pay, and they may not 
have to do this during Medicaid. If they had to pay for copayments or 
coinsurance, or if they had out-of-pocket expenses, it would go from 
$4,000 to $1,400.
  If you take a family up in the $52,000-a-year category, again, under 
the present system, their costs are about $4,034 a year. Under the 
shared-responsibility plan, their cost would be only $1,835 a year.
  You may say, how can that be? I know that before the Finance 
Committee, some of the Members said, ``That is just impossible; it is 
too good to be true.'' Well, my figures come from Joint Tax, from CBO, 
and from HCFA. That goes to show how much cost shifting there is and 
how many people there are that should be contributing to the system and 
are not doing it.
  Let us look at a self-employed family of four under the present 
system. Right now, they have a $6,000 cost, and it would go down to 
about $2,800. Let us look at businesses very briefly. A small business 
of under 20 employees, under the present plan, would pay about $55,000. 
Under the shared responsibility plan, it would pay about $13,000. A 
company with about 500 employees would pay almost half of what they 
presently pay. The same for other companies of different size.
  I think what I have proven is that we can do it. These are the 
figures which have been verified by Joint Tax, CBO and HCFA. I urge 
anybody that is interested, as I am, in finding a system which will 
help us get to universal coverage in a fair and equitable way, to look 
at my plan. Not only do we raise enough to cover all of the costs 
presently being spent in the health care system, but we may even have a 
surplus. What this means is that we can finance health care reform.
  It is necessary for us to get the health care cost in the Federal 
Government under control. By creating a seamless system and merging 
everybody, including Medicare and Medicaid, into a single private 
system would do the job. We would cap Federal spending at current 
levels, plus adjustment for growth. We would give a block grant back to 
the States. The Medicare and Medicaid funds they have now will be 
increased by improvements and increases in the GDP, and the States 
would have the burden of keeping things under control.
  With all of these excess costs presently in the system, which I 
talked about earlier, my State says they can do it. I asked Blue Cross 
and Blue Shield, ``If we give you this much money, could you take care 
of Vermont?'' They said, ``Yes.'' My plan is flexible. It can 
accommodate the single payer or managed competition approach to reform.
  Mr. President, this ought to be interesting. If my proposal is 
implemented, we could save the Federal Government, over 10 years, $1.4 
trillion. That is half of the present Federal deficit. If we can do 
that, then the deficit that now seems to be impossible to balance can 
be brought under control.
  Finally, I want to review the goals that we said should be 
established and point out that this plan accomplishes them all. It will 
provide universal coverage; it will spread the costs fairly; it will 
keep Federal health care costs under control; it will give you tax 
equity. Everybody pays with pretax income. States will be given an 
option in the ability of what they want to do--managed competition, 
single payer, or other approaches. The delivery system would be 
reformed in a way that will keep our costs under control.
  Mr. President, I am hopeful that as we move forward, we remember that 
an important goal for us to reach the kind of health care reform we 
need is to allow those States who are out front now to have the 
capacity to do what they can do well, take care of their own financial 
problems, and to give us a delivery system which will result in equity 
and fairness to all and allow this Federal Government to finally get 
its deficit under control.


    a suggested plan to address the problems of universal coverage, 
     employer mandates, tax equity, the federal deficit, and state 
       flexibility--the shared responsibility 6 percent solution

  The problems of going to universal coverage are daunting. The 
following is a suggested method of solving these problems as well as 
others associated with health care reform. It may look too good to be 
true. But computations from Joint Tax, CBO, and HCFA give it validity.
  Other industrialized nations have universal coverage and yet their 
costs as a percentage of GDP are about half of ours, with little 
statistical proof that we have a better health system, other than 
extending our lives a few months or years when acutely ill. This raises 
the possibility that we have systemic difficulties.
  Few people in the United States go without acute care, but the costs 
of the uninsured are shifted to those that presently have insurance. 
This creates a problem as to how to increase insurance coverage with 
all the cost-shifting presently in place, without creating windfalls by 
providing universal payment for all services rendered. That is, if your 
present fees have been adjusted up to include cost-shifting and the 
fees remain the same, when you get paid for all care, your income will 
jump. Further, total national health care costs will jump 
substantially. Eventually, if there is competition, premiums should go 
down. However, the system described below will take care of this 
problem immediately.
  How you do cover the uninsured? Do you mandate employers to cover all 
employees? Or do you require individuals to get their own coverage and 
pay for it? If by this you mean that each employer or employee must buy 
a conventional policy, substantial political and economic problems 
exist. How do you enforce it? How do you subsidize employers or 
employees that need financial help? How do you take care of part-time 
workers? Workers with two jobs? Families with two or three workers?
  What does the term ``mandate'' mean? Does it mean only that a 
``plan'' must be purchased? But if a plan were designed that each 
individual contributed a general premium based on ability to pay, a 
percentage of income, these daunting problems are substantially 
alleviated or removed. I would note that the Vermont Retail Association 
endorsed such a plan this year when Vermont was facing this issue. The 
``mandate`' issue was not raised. To them it was a solution, not an 
obnoxious ``mandate.'' They noted that businesses with low-income 
employees can better afford a small percentage hourly increase than a 
$4,000 mandated plan. The latter would be a 40-percent increase in 
compensation, the former a small increase in the minimum wage.

  If you have a premium based on 6 percent of adjusted gross income of 
individuals, paid with pretax income, and phased out for low-income 
people, you can raise all the money presently being spent by the 
private sector in health care, after deleting unnecessary care and 15 
percent for deductibles or copayments. If the employer picks up two-
thirds of the 6 percent then it's a pretty good deal for everyone. 
Furthermore, 4 percent--employer share--or 6 percent--total cost--is 
about one-third of what most employers are paying now. As the attached 
charts show, most everyone, except high-income people, would pay less. 
Even the bulk of Medicare people will pay less; thus, you can phase in 
Medicare and create a seamless system with no need for subsidies or age 
adjustments.
  By phasing in Medicare and Medicaid, you can cap Federal costs and 
bring the health care portion of the deficit to a screeching halt. 
Funds would be distributed through block grants to each State, which 
would include premium contributions collected by the Federal Government 
from State and Federal Medicare and Medicaid payments from the previous 
year--adjusted for inflation and GDP growth. This block grant, added to 
what the State and local governments are presently paying, will give 
the State all that was paid out for health care in the previous year. 
These funds could finance a managed competition plan or a single payer 
system.
  Several explanatory sheets and charts are attached. Also attached is 
a letter from the Wharton School of Business group that examined each 
of the plans introduced in Congress and noted that this one was the 
best.
  The figures used came from HCFA, CBO, and Joint Tax. Copies of the 
Joint Tax letters are attached.
  A plan that meets all our goals is worth reviewing.


              the shared responsibility 6 percent solution

                               tax equity

  Due to anachronisms from the days of wage controls during and after 
World War II, the cost of health care benefits are treated differently 
among various groups. Employees' costs are treated as tax-free income. 
Others pay mostly with after-tax income. The shared responsibility [SR] 
plan allows everyone to pay for basic benefits with pretax income. Tax 
equity is established.


                        federal government costs

  A major reason for health care reform is to bring Federal health care 
expenditures under control. Unless this happens, balancing the budget 
is virtually impossible. CBO estimates that if we do not cap expenses, 
the debt will grow by $1.5 trillion by the beginning of the next 
century due to health care costs alone. The SR plan will bring Federal 
costs under control almost immediately by bringing Medicare and 
Medicaid into a seamless system. Federal costs will be increased only 
by the rate of inflation and GDP growth. The budget problems are 
solved, billions are saved.


         health care costs, impact on pensions, early retirees

  One serious impact of increasing health care costs is the decrease in 
employer contributions to pension benefit plans. This fact combined 
with the increase in life expectancy resulting from better health care 
raises serious quality of life standards for our aging population. The 
chart attached demonstrates well the impact. In 1980 health and 
pensions were split 50-50. Now it is 79 percent health and 21 percent 
pensions. Employers only have a limited amount of money for benefits. 
If we can control health care costs and decrease the employer share by 
getting rid of shifted costs, a better quality of life can be obtained. 
Few want to extend their life a few years if it means living on a 
shoestring in a shack. Reducing payroll costs to 4 or 6 percent would 
free up substantial funds for pensions and other employee benefits.
  Another difficult problem encountered with health care reform is how 
to handle early retirees. Some are covered by contracts guaranteeing 
them coverage until they are entitled to Medicare. Others are left 
uncovered and find they cannot obtain coverage because of preexisting 
conditions, and/or the cost of a plan at their age is too high to 
afford on their fixed incomes.
  The SR plan reduces the health premium to 6 percent of income, making 
room available for increasing pension benefit levels to early retirees 
to cover this 6 percent premium cost to the retiree. Businesses who 
have current early retiree health care lability would be relieved of 
their responsibility since this class would be covered by the new 
program. Furthermore, since billions would be saved by those 
businesses, a recoupment of some share of that windfall should be 
appropriate.
  At a hearing before the Labor and Human Resources Committee, unions, 
businesses and individual retirees endorsed the SR plan in a slightly 
different form.


                           state flexibility

  For many reasons, it is better to get the States more involved in the 
health care delivery system.
  The closer the overseer of expenditures is to the receiver and giver 
of health care, the more likely the money will be spent wisely. This is 
especially true with a fee-for-service system. Medicare cost increases 
demonstrate that when the payer is a deep pocket in Washington, there 
is a tendency to want to keep hospital beds full, and to provide 
additional services. Control of service costs without utilization 
control allows gaming. This is especially true when Medicare and 
Medicaid cut reimbursements below cost.
  Fourteen or more States are considering their own reforms. They want 
choices for how their system will be structured. If they want a single 
payer system with Federal guidelines, they should have that option. If 
they wish to use a managed competition system with Federal guidelines, 
they should have that option.
  Variations in health care spending and overall cost of living among 
States make it necessary to provide options subject to Federal 
guidelines. The SR 6-percent solution provides these options. We must 
remain sensitive to the large multistate employers' needs for 
uniformity; therefore, an opt-out from a pure single payer system 
should be considered.


                   risk screening and age adjustments

  Any fair reform system must address the problems of risk screening. 
With increasing health care costs, there are incentives for employers 
to hire only healthy young people. This tends to shift the cost of the 
older, sicker workers to themselves, other employers, or society. On 
the other hand, community rating, requiring all to pay the same rate, 
makes insurance for young individuals much more expensive. Under the 
present system, this results in fewer individuals buying policies and 
higher costs must be absorbed by the remaining purchasers. Thus, a 
variation or age adjustment has been used to phase in the cost 
increases to the young and healthy in States like New York when a 
community rate is used.
  Under the Clinton and Kennedy plans, this risk screening problem was 
handled by creating large purchasing pools to make the universe 
reasonably well-balanced. This would be more effectively accomplished 
by creating one seamless system with universal coverage and funding 
under the SR 6-percent solution.


                    medicare in the seamless system

  Medicare has been a very successful program for providing good health 
care to our senior citizens. However, it has proven extremely expensive 
and inefficient from a cost control perspective. Because the aging 
population is going to grow due to age groups such as the baby boomers, 
and increasing life expectancies, changes are needed if Federal budget 
costs are to be brought under control. Cost-shifting from Medicare and 
Medicaid has resulted in an increase of some 20 percent in the premiums 
of those presently buying policies in the private sector.

  However, if we were to merge Medicare into one seamless, universal 
system, the costs of all individuals would be lowered. With universal 
participation, the additional payers not presently paying would reduce 
the average costs. Another 20 percent of present premiums is estimated 
to be caused by uncompensated care. The SR 6-percent cures these 
problems.
  The creation of a seamless, universal system is critical as we move 
into the future with an aging population.


                       total private sector costs

  An analysis of the total present private sector health care costs 
clearly indicates that if a seamless, universal system is created, 
health care becomes much more affordable. As can be seen by the 
attached schedules, total private sector health care costs, after 
deducting nonessential care and 15 percent for deductibles and 
copayments equals approximately $260 billion. This is approximately 
half of what the often talked about flat tax rate of 12 percent of 
personal income would raise, $534 billion. As shown on the attached 
schedules, this 6-percent premium, combined with deductibles and 
copayments, would raise enough funds to cover private sector health 
care costs. Thus, although a substantial sum is raised by the 6-percent 
premium, there is no significant additional money spent by the private 
sector. The burden is shared more equitably.
  The result also reduces premiums for most individuals, even senior 
citizens. These figures assume individual's portion of the premium, 
which is 2 percent of the 6-percent contribution, is capped on high 
incomes and phased out for low-income persons. Furthermore, it would 
result in a reduction of 40 percent or more for most employers' health 
care costs. For small employers with minimum wage employees, the cost 
would be similar to a small increase in the minimum wage.
  The ability to obtain these reductions is largely due to the 
elimination of cost-shifting, which will occur with universal payer 
participation. This system also eliminates the costly administrative 
problems and subsidies required by other plans.


          problems with alternative proposed financing systems

  Other plans try to rely on the existing premium system, but requiring 
employers to buy an entire plan for a worker creates many problems. The 
emotional adverse reaction to ``a payroll tax'' and a ``Federal'' 
mandate has made it politically dangerous to talk in these terms. But 
if you gets over that barrier and sees the advantages of such an 
approach, my experience indicates the plan gets serious favorable 
consideration.
  Alternative plans have to talk in terms of subsidies to employers and 
individuals, social taxes to cover the uncovered, et cetera. In 
addition, the administration burden created by part-time workers, two-
worker families, and workers with two jobs creates many other problems 
not associated with a universal premium and coverage as in the SR plan.
  Most importantly, the cost to small employers with low-wage employees 
is staggering. In the case of minimum wage employees, it is a 50 
percent increase in pay against a 20 to 30 cents an hour increase, less 
than a small minimum wage increase.
  Finally, this is basically an extension of the way employers 
presently pay for Medicare. The 6 percent is accomplished by increasing 
the present Medicare tax.


    the shared responsibility, universal 6 percent premium solution

  The financing system is relatively simple. Every individual that has 
taxable income would participate, but it is phased out for low-income 
persons and capped for higher income individuals. This would be paid 
for with pretax income. Each business would pay a 6 percent payroll 
tax, 4 percent by the employer and 2 percent by the employee. The total 
6 percent premium would be available as a tax deduction to the 
employee. Thus, in most cases an individual would have no additional 
cost. As noted below, this system allows the participation by the self-
insured through having a tax deduction against the payroll premium for 
most of the cost of the self-insured plan. Also, for most of the self-
employed, a tax deduction for the 6 percent could be used for the 
purchase of a major medical program and a medisave system. This feature 
should broaden supprt. The premiums would be collected by the Federal 
Government, and they would be distributed back to the States where they 
were collected.


                       state block grant program

  Above, we set forth the amount paid for the private sector. This 
amount would be collected by the Federal Government and placed in a 
trust fund. The amount collected from each State would be set aside. A 
comparison of the revenue that would be collected and the per capita 
costs of health care in each State shows a close correlation. To that 
amount would be added the Federal share paid to the State in the 
previous year for Medicare and Medicaid, adjusted for economic growth. 
After setting aside a small percentage for reinsurance and 
administration at the Federal level, the balance would be paid to the 
State as a block grant.

  The block grant would be supplemented by the current health care 
expenditures by State and local governments. Through vouchers or a 
similar means, these funds would be transferred through cooperatives to 
health care providers. Any shortfall would have to be made up by the 
States from the withheld funds or their own funds. This block grant 
would work within either a managed competition system or a single payer 
system.


           managed competition and the sr 6-percent solution

  Since managed competition relies on a capitated system, it will work 
well with the SR 6 percent solution. Each State would have available 
the funds in a block grant to pay for coverage by a capitated system. 
Federal expenditures would be the same amount that was spent in the 
State the previous year. The State would receive the money collected 
under the 6 percent AGI premium from its citizens. The State will have 
its own contributions as well as those of present local programs. In 
addition the State has the option to provide additional subsidies if it 
desires but would have to fund these subsidies.
  Private plans would compete for business from cooperatives or 
employers by offering better services, by including additional 
benefits, or by reducing deductibles or copayments--subject to Federal 
limits. Further, a cash rebate could be allowed but only if it was used 
for a qualified employee pension fund.
  Plans would set premium rates. The value of the vouchers or tax 
credits--as, noted below--could be set by the marketplace. The average 
premium in the market would dictate the value of any individual's 
voucher. Individuals, such as self employed or independently wealthy 
would remain price sensitive because if they purchase a plan that is 
less than the average they would receive a tax credit of tax-free 
income. But if they purchased a plan greater than the average cost they 
would have to pay the additional cost with after-tax income.
  Purchasing cooperatives could either be multiple and competing or the 
State could certify one per region and negotiate with plans, similar to 
the way California has set up its small employer cooperative.


           self-insured employers and the 6 percent solution

  In order to allow self-insured companies to continue to be active 
purchasers in the marketplace, a credit would be allowed for the money 
paid for services in the State from a provider up to the amount of the 
6 percent premium, or slightly less, in order that these plans 
contribute to costs that should be allocated throughout the State. If 
costs exceed the credit they would be tax deductible. Any amount owed 
for the system allocation fund would be owed however.
  Mr. President, I ask unanimous consent to print in the Record the 
letter from the Wharton school and the letter from the Joint Tax 
Committee, indicating the figures verifying our revenue, and excerpts 
from the retailers of Vermont as endorsing a similar type plan, in 
order to allow people to understand the validity of the concepts which 
I have discussed here today.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                         The Wharton School of the


                                   University of Pennsylvania,

                                 Philadelphia, PA, March 10, 1994.
     Hon. James M. Jeffords,
     U.S. Senate,
     Washington, DC.
       Dear Senator Jeffords: I would like to reiterate my 
     pleasure in sitting down with you Tuesday to discuss health 
     care reform. It was a pleasure to find one so involved in the 
     reform debate yet so willing to stop beyond the usual 
     stereotypes and labels to examine creative solutions to our 
     problems.
       As I mentioned, until last week I was unfamiliar with the 
     Medicore plan. However, I read it with increasing interest 
     and enthusiasm. It is, in my opinion, the best of the plans I 
     have seen currently being discussed in Washington. The 
     financing system is admirably transparent, designed to bring 
     together all the present resources in the system and allocate 
     additional burdens equitably.
       In fact, I believe it is quite compatible with the key 
     concepts of a reform model developed through the systems 
     analysis by the Institute for Interactive Management 
     (INTERACT), with which I am associated. We share, for 
     example, the idea of periodically adjusting the benefit 
     package to reflect the revenue stream available.
       The INTERACT proposal is built on an extensive series of 
     incentives with which, based on our conversation, I believe 
     you agree, and many of which are already reflected in 
     Medicore. In particular, numerous facets of its design could 
     be adapted to the Medicore plan to flesh out its health care 
     delivery side. I would welcome the opportunity to work 
     together with you to merge into the Medicore plan the vision 
     and incentives of the INTERACT approach.
       I look forward to continuing the discussion with you and 
     your staff.
           Sincerely yours,
                                      Sheldon Rovin, D.D.S., M.S.,
                                    Professor, Healthcare Systems.
         Congress of the United States, Joint Committee on 
           Taxation,
                                 Washington, DC, February 9, 1993.
     Hon. James M. Jeffords,
     U.S. Senate,
     Washington, DC.
       Dear Senator Jeffords: This letter is in response to your 
     request for revenue estimates of two proposals related to 
     your MediCORE project.* The estimates have been updated to 
     reflect revised Congressional Budget Office forecasts.
       The first proposal would impose a payroll tax of 4 percent 
     on employers and 2 percent on employees for compensation up 
     to $100,000 (indexed) per year. An additional payroll tax of 
     4 percent of compensation greater than $100,000 would be 
     imposed on employers only. Self-employed individuals are 
     treated as both an employer and employee. These taxes would 
     apply only to the compensation of employees under the age of 
     65.
       The value of employer-provided health insurance benefits 
     would be included in the gross income of the employee. This 
     amount would be subject to individual income tax as well as 
     the payroll tax described above.
       In addition, a surtax would be imposed on the adjusted 
     gross income (AGI) of taxpayers under the age of 65. The AGI 
     surtax would be based on the following rate structure:

------------------------------------------------------------------------
                                             Adjusted gross income      
                                     -----------------------------------
        Tax rate (percentage)                           Single and head-
                                        Joint return      of-household  
                                                             returns    
------------------------------------------------------------------------
1...................................   $10,001-$11,000     $7,001-$8,000
2...................................     11,001-12,000       8,001-9,000
3...................................     12,001-13,000      9,001-10,000
4...................................     13,001-14,000     10,001-11,000
5...................................     14,001-15,000     11,001-12,000
6...................................    15,001-162,000   12,0001-109,000
------------------------------------------------------------------------

       The employee's share of the payroll tax would be deductible 
     from the gross income of employees. The employer's share of 
     the payroll tax on compensation up to $100,000 would be 
     credited against the AGI surtax imposed on individuals up to 
     the amount of the AGI surtax. The employer's payroll tax on 
     compensation would not be deductible by the employer.
       The second proposal is identical to the first, except that, 
     in addition to the taxes described above, a tax of 6 percent 
     would be imposed on all otherwise tax-exempt interest 
     received by individuals.
       The following estimates assume the proposed taxes are 
     effective for compensation paid and taxable years beginning 
     after December 31, 1993. Estimated changes in FICA receipts 
     are shown separately.

------------------------------------------------------------------------
                               Fiscal years [billions of dollars]       
         Item          -------------------------------------------------
                         1994    1995    1996    1997    1998    1994-98
------------------------------------------------------------------------
Proposal 1:                                                             
    Income tax........   200.8   323.5   345.9   369.2   394.1   1,633.5
    FICA..............    21.9    33.6    37.1    40.8    44.9     178.1
Proposal 2:                                                             
    Income tax........   202.7   326.9   349.5   373.1   398.3   1,650.6
    FICA..............    21.9    33.6    37.1    40.8    44.9     178.1
------------------------------------------------------------------------
Note.--Details may not add to totals due to rounding.                   

       I hope this information is helpful to you. If we can be of 
     further assistance in this matter, please let me know.
           Sincerely,
                                                  Harry L. Gutman.

       *This project has been renamed SHARED RESPONSIBILITY: The 
     6% Solution.
  Mr. JEFFORDS. Mr. President, I yield whatever time I have back.

                          ____________________