    [Public Papers of the Presidents of the United States: William J. Clinton (1993, Book II)]
    [September 16, 1993]
    [Pages 1504-1514]
    [From the U.S. Government Publishing Office www.gpo.gov]

    Remarks and a Question-and-Answer Session With Small Business Leaders on
    Health Care Reform
    September 16, 1993

        The President. Thank you very much. First of all, I want to echo
    what Erskine Bowles said. I thank you for taking some time off today to
    come in here and just visit with me about this whole health care issue
    and about what we're trying to do and about your personal situations and
    whether we're responding adequately to them.
        Let me tell you that one reason we're a little late this morning is
    that I started the morning--some of you may have seen it on television--
    I started the morning with about 15 people of the 700,000 people who
    have written letters since I asked my wife to chair this health care
    group. Seven hundred thousand Americans have written us about their
    personal situation. A lot

    [[Page 1505]]

    of them were small business people. Some of the people who were there
    today at our morning meeting in the Rose Garden were small business
    people. A lot of them were people with sick family members, people who
    were locked into jobs they couldn't ever change, all the things that you
    know about. But I wanted to leave that group--and we had another 100
    people who've written letters who just were asked to come and be in the
    audience--I wanted to leave that group and come straight here because it
    is the small business community that, as business people, will arguably
    be most immediately affected, although there will be an impact on larger
    businesses, too.
        First, I'd like to thank our hosts, the Siegels, for letting us come
    to this great small business which goes back to 1866. Most of us weren't
    around back then. I really appreciate you doing that. I want to thank
    Mayor Kelly and so many of the DC City Council members for being here.
    And we're delighted to be here. Harry, I think we're in your district,
    aren't we? Your ward. We're glad to be here.
        Let me just make a few opening remarks, and then I'd like to hear
    from all of you. We have a lot of problems in this health care system.
    There are a lot of things that are right about it. Most all Americans
    get to pick their doctors. And we have high quality care if you can
    access it. But every month, hundreds of thousands of people lose their
    health insurance and over 100,000 of them lose it permanently, so that
    each year more and more people are without health care coverage. We're
    the only advanced country in the world that doesn't have a system to
    provide a basic health care package to all of its citizens.
        The second thing that happens is that the cost of health care,
    particularly since 1980, but really before that, but especially since
    1980 has being going up much more rapidly than inflation, 2 and 3 times
    the rate of inflation.
        The third thing is it's hitting small businesses and self-employed
    people much harder than bigger employees now because they tend to be in
    much smaller insurance pools. So if one person gets sick in that pool or
    one person gets sick in the employment unit, it can rocket your costs.
    We were with a person today earlier who between 1989 and 1992 had their
    premiums quadruple, from something like $200 and some a month to over
    $900 a month.
        The third thing is that very often small business people, to get any
    insurance coverage at all, have to have astronomical copays and
    deductibles, so that it becomes almost dysfunctional for their
    employees. And more and more small businesses every month are having to
    drop their coverage.
        Now, the flip side of that, believe it or not, is that many big
    businesses have been able to maintain generous benefit packages but only
    at the expense of never giving their employees a pay raise. And we're
    looking at a situation now that for the rest of this decade we could, in
    effect, take away all the pay raises for the work force of this country
    to go into higher health insurance premiums, unless we do something. So
    it's a very, very serious problem.
        You also have a health care system that is wildly inefficient. None
    of you could run your businesses and stay in business with a system that
    had the administrative overhead and the paperwork burden and the
    bureaucracy that the health care system does. The average hospital is
    hiring clerical workers at 4 times the rate of health care providers.
    The average doctor in 1980 took home 75 percent of the money that came
    into the medical clinic; by 1990 it had dropped from 75 cents on the
    dollar to 53 cents on the dollar--going to bureaucracy, paperwork, the
    way the insurance system is organized.
        So what we tried to do is to come up with a plan that would require
    every employer and employee to contribute something; would have a cap of
    7.9 percent of payroll as a maximum that anyone could be required to
    pay; would provide some subsidies for employers with under 50 full-time
    employees, which means you could have more if some of them were part-
    time, all the way down to 3.5 percent of payroll, depending on the wage
    rates; and would lower the cost increases of health insurance to all
    Americans.
        The most controversial aspect of this is requiring all employers and
    employees to contribute some portion of the cost of health care. The
    problem is if you don't do that, it's going to be very hard to get costs
    under control because unless everybody contributes, there will always be
    a lot of cost shifting in the system. That adds a lot of administrative
    costs. It also means that the people who are paying for health insurance
    are paying more than they would otherwise pay, because they alone pay
    for the infrastructure of health care, the hospitals, the clinics, the
    people that are there. And they alone pay

    [[Page 1506]]

    for the emergency rooms and the uncompensated care in that regard.
        So we're trying to work this out in a fair way that's bearable. But
    I believe it will aid the American economy and will help small business
    growth if we do it properly. That will be a big point of controversy as
    we debate this over the next few months.
        So I wanted to start on the first day right from the get-go, if you
    will, hearing from the small business community. And I'd like to--who
    wants to go first? Our host. And make sure that you've got the
    microphone close enough to you.

    [At this point, a participant asked if the economic situation would not
    be compounded as the new health care plan would force small businesses
    to raise prices.]

        The President. It would be, except most small businesses under this
    system will actually have lower costs. Keep in mind, most small
    businesses are providing some health coverage to their employees now at
    astronomical costs. Many small business families are self-employed and
    insure themselves as self-employed. Self-employed people, under our
    plan, will get much lower premiums, much lower, because they'll be in
    big insurance pools. And they'll also get 100 percent deductibility for
    their insurance premiums, not 25 percent, for the first time. So those
    will go down. All employers who offer anything will have their employees
    go down now. Employees with groups under 50 will start out, most of
    them, paying less than $1 a day per employee for health insurance under
    our system.

    [Administrator Bowles stated the new plan would enable small business
    owners to provide comprehensive, low cost coverage.]

        The President. I don't mean to minimize this, but let me tell you
    what the flip side of this is. Every year one of the things that adds to
    the cost of health care in America is cost shifting. So every time the
    Government doesn't pay for the people we're supposed to cover or
    somebody else doesn't pay and somebody shows up in an--somebody without
    health insurance normally won't get health care in a preventive and
    primary way where it's cheapest, but they'll get it when it's too late,
    when they're really sick, often showing up at the emergency room. All
    those costs get shifted onto someone else. And then their
    competitiveness is eroded, so they eventually drop their health
    insurance. And more and more people keep dropping it. It's just sort of
    in a death spiral every year where more and more people drop their
    insurance, more and more people are uninsured. And then the people who
    are insured are paying for all of them when they finally access the
    system.
        And as I said, we're the only country in the world that does it this
    way. We're the only country in the world with 1,500 separate health
    insurance companies writing thousands of different policies and trying
    to divide little small businesses up into smaller and smaller groups.
    Some of these groups are so small that the overhead, that is, the
    insurance company administrative costs and profit, is up to 40 cents on
    the dollar. We can't sustain the system.
        I don't pretend that even a dollar a day per employee won't be more
    difficult for some small businesses. It's just that we can't figure out
    any other way to fairly apportion the cost of this system and keep
    everybody covered and finally get the cost under control. The costs are
    spiraling out of control.
        The other alternatives are nobody gets coverage, or the taxpayers
    pay it. And if the taxpayers pay it then, in effect, we're raising taxes
    on people who are already paying way too much for their health care to
    pay for people who aren't paying anything.
        So I think this is a fair way. And what I would ask you to do and
    everybody in your circumstances is when we produce the copy, the final
    copy of this health care plan, because we're still in extensive
    consultations on it, but in the next several days, I'd like to ask you
    to go over it, calculate exactly how it will affect you, and then draw a
    conclusion about how you think it will impact you. Look at the specific
    facts and get back in touch with Erskine Bowles and tell him how you
    think it will affect you.

    [A participant asked who would be responsible if the new plan is
    overutilized and costs begin to rise.]

        The President. I'll answer your question, but let me say first of
    all, you're much more likely to have overutilization and exploding costs
    if we keep on doing what we're doing than if we adopt our plan. In other
    words, particularly for smaller employers, costs have been going up on
    average anywhere from 20 to 50 percent a year. Only the very biggest
    employers that

    [[Page 1507]]

    are able, in effect, to bargain more toughly with their own insurance
    providers have been able to hold their costs in line, and they've been
    able to do a little bit better job in the last few years simply because
    of their size.
        So under our system you would not only start out with a lower
    premium than you're paying now so you would get an immediate savings,
    you'd be part of a big alliance of employers and employees who would
    have some say over the governing of your big health care group. And if
    the evidence of every other country is any guide, if the evidence of the
    places which have started it in this country is any guide, the cost is
    going to go up much less rapidly under this system than it will if we
    stay with what we've got. In other words, the worst alternative that we
    can conceive is to continue to do what we've got for small business.
        Now, in addition to that, we've proposed to have a backup budget cap
    so that if by pure competition you can't keep costs as low as we think
    that--you know, basically to inflation plus the growth in people
    participating, we'll still have a budget to limit it.
        So the answer to your question is, there is no conceivable scenario,
    at least that I can conceive of, where you would wind up paying more
    under this plan than another. Also there are more incentives in this
    plan not to overutilize the system, not just for your employees but for
    the American people as a whole. Under our plan all the employees in the
    country would have to pay something towards their own health care up to
    20 percent, which is something that many don't now. And if they wanted a
    more generous plan than we cover, which is quite adequate, they would
    have to pay even more. So there will be a lot of incentives not to
    overutilize the system and not to run the cost through the roof.
        Let me also point out that over the next 5 years, since you
    mentioned the short-term period, that's the period over the next 5 years
    where we'll be realizing a lot of the administrative savings. Our
    country stands approximately a dime on the dollar more in paperwork than
    all of our competitors. That's a bunch of money in an $800 billion
    health care system. So if--let me just say this--if what we've tried to
    do in implementing this health care system is to phase it in over a
    period of years, to build in corrections so if something goes wrong, we
    will find another way to control the costs, not to increase your costs
    for this health care.
        We are spending--let me say--I want to drive this home. Today,
    America spends 14.2 percent of its gross domestic product on health
    care. Canada spends 9.4 percent. No other advanced country in the world
    is over 9. None. Not Germany, not Japan. And in the German system, which
    is about 8.6, 8.7 percent of their gross domestic product, the benefits
    are as generous as the best plans, more generous than most, and contain
    a lot of primary preventive health care. So unless we just all go to
    sleep at the switch, this is--you know, there is no way that you can't
    be better off under this new system.
        But there are protections. The way we've got it written, there are
    basically opportunities to recalculate, to avoid imposing undue burdens
    on employers 3 and 4 and 5 years down the road. The way it's written,
    we'll have to have opportunities to readjust it.
        The bottom line is, sir, none of us are going to do anything which
    put more small businesses out of work than are already doing it now,
    because most of the new jobs in this country are being created in units
    of under 50. So I wouldn't be doing this if I didn't think it was not
    only better for the health care of the country but also would tend to
    stabilize the environment for small business so we could get back to
    generating new jobs.

    [Administrator Bowles reaffirmed that the new plan would be beneficial
    to small businesses. A participant then asked about employees with
    catastrophic or preexisting illnesses.]

        The President. First of all, as you know, this is not an unusual
    condition. This has happened to millions of employers in America and
    millions of employees. For the employer, the burden is just what you
    suggested, you're put in this awful situation of having to fire somebody
    who may be a good employee and making their lives miserable or paying
    enormously increased premiums.
        For the employee, there's another problem for the American economy
    that's now come to be known under the rubric of job lock. We now live in
    a country where labor mobility is quite important. The average 18-year-
    old will change jobs eight times in a lifetime now. And we've got all
    kinds of folks who can never change jobs again because they or someone
    in their family's been sick. What we propose to do about it is to
    reorganize the insurance market

    [[Page 1508]]

    so, first of all, nobody can be denied coverage or dropped from coverage
    because of a preexisting condition, and secondly, so that small business
    employers of people with preexisting conditions don't have undue rises
    in their premiums because they are in very, very large buying pools. So
    that the preexisting condition that one of your employees or a family
    member has, say you've got 30 employees--or how many employees do you
    have? So you've got 14. That could wreck you if you're in a buying group
    with a couple of hundred or even a couple of thousand. But if you're in
    a huge buying pool with 100,000 people or more, or 200,000, then each
    preexisting condition would only have a marginal impact on you.
        We propose to go to what is called community insurance rating. It
    puts you in a large pool so that that will only have a marginal impact
    on the increased costs to the total people in the pool. All of them will
    be represented in bargaining for the package of health insurance
    benefits with the people who provide it. So it will provide a lot of
    protection for you, as well as protection for the employees. And it is,
    by the way, the way it is typically handled in other countries and the
    way it is generally handled in Hawaii, where 98 percent of the employees
    are covered by the requirement and where they have a community rating
    system.

    [A participant asked about the role of private insurance companies.]

        The President. Well, let me say that you have that in every country
    where you have universal coverage, because there are some people who may
    want a little extra coverage on this, that, or the other thing. But you
    also have that here, frankly. And a lot of even the better employer-
    employee plans here--there may be employers, for example, who go out and
    buy another policy. You see it in Germany also. You see it in nearly
    every country. But what you might call the customized insurance policy
    that covers an additional extra risk, you find everywhere. But that's
    mostly to guarantee more personalized care. Under our system, people who
    run out of that will have a Government back-stop, if you will, to take
    care of people and those kinds of problems.
        One of the reasons, however, we elected not to try to go to the
    Canadian system, even though the Canadian system is administratively the
    simplest, that is, they have the lowest administrative costs of any
    system we studied; the Australian system may be about there, and the
    British system is, but it's all government-owned. No one wanted to get
    that. The Canadian system is a private health provider system, publicly
    financed system where all insurance premiums are abolished. Everybody
    pays a tax, and you just pay it out. It's like Medicare, but everybody's
    on it. And there's no administrative costs to speak of. It's very low.
    We decided not to do that for two reasons. One is we thought there would
    be a lot of aversion to canceling all the premiums and converting it
    into a tax. And people probably distrust Government about as much as
    they do big insurance companies. Secondly, if you look at the German
    system, for example, which is more similar to what we're trying to do,
    we have private insurance companies with bigger pools for small
    businesses. We thought that more likely you'd have lower costs and
    better service if you could put some competition in it and give the
    employers and the employees some leverage and in effect bargaining with
    the health care providers for the comprehensive services that will be
    provided. And that, I think, will tend to keep costs down and keep
    services more comprehensive.
        But there is no country, including the United States, where there is
    not some what you might call third insurance market, over and above what
    the government does and what the employers do for speciality coverage.
    We expect that, in effect, there will be less of that here under this
    plan than would otherwise be the case.

    [A participant asked if the employer contribution for Social Security
    would increase and if the national health board would take the place of
    private insurance companies.]

        The President. No. First of all, the answer to your first question
    is none of us can totally perceive the future. What I can assure you
    of--and that's what I've said to Barry before--is that under this
    system, costs will rise much more slowly than they otherwise would.
        Let me tell you, we're at 14.2 percent of gross domestic product
    now. It is estimated that the United States will be at 20 percent of
    gross domestic product on the health care by the end of the decade and
    that no other country will be over 10. Canada might be a shade over 10.
    If we get to the point where we're spotting all of our competitors a
    dime on the dollar on health care, we're going to be in trouble sure

    [[Page 1509]]

    enough. It's bad enough where it is.
        So costs of health care will continue to rise. What we're going to
    try to do is to bring the health care system's cost in line with
    inflation plus additions to population. That is, if the population gets
    older and more people need different kinds of health care, of course,
    that will go up. But what we can't afford to do is to let health care
    continue to go up at 2 or 3 times the rate of inflation.
        The answer to your second is, the national health board is not going
    to replace insurance companies, but insurance companies will--if the
    little ones want to continue to do this they'll have to find a way to
    join with one another to get into big bargaining units because we've got
    to let the small business people be in bigger units, otherwise they
    can't get their costs down. The national health board will be
    responsible for making sure that there is a reasonable budget to keep
    the costs in line and for making sure that we have developed reasonable
    quality standards to make sure that there is no erosion of quality of
    health care in the prescribed services.

    [A participant asked if small businesses should be limited to obtaining
    insurance from an alliance program only.]

        The President. Well, each State will have the right to certify how
    many alliances they approve, and my presumption is, given just what you
    said, is that most States will choose to certify a number of alliances
    and then you can choose whichever one you want. You'll have the three
    basic policies that you can choose plus however many alliances there are
    in any given State or the District of Columbia. You can pick the one
    that you think will provide the highest quality care and perhaps the one
    that gets the better price. Keep in mind, we're talking about ceiling on
    payroll costs, and if they get a better price you get a better price.

    [Administrator Bowles reaffirmed the importance of alliance programs in
    driving down the cost of health care and stated that businesses will
    still be able to choose what kind of alliance they want.]

        The President. But as an employer, if there are more than one
    alliance covering your State, you would choose the alliance you wanted
    to be a part of.
        Q. Will those alliances compete with each other for prices, or will
    they----
        The President. Absolutely. What we're trying to do is get the
    maximum amount of competition in the system for the services that have
    to be provided at----
        Administrator Bowles. Harnessing the power of the marketplace to
    drive the price down, to put power in your hands instead of in the hands
    of insurance companies.
        The President. We are trying not to turn this into a system where
    the Government has to regulate it all or the Government tries to just
    fix the prices. We are trying for once to get marketing power. What
    happens now is the Government doesn't do it, but the private sector
    doesn't do it either. There's no effective competition except for big
    buyers.
        And let me just say, our estimated costs, which are dramatically
    less than the system's now but more than inflation, may be too high if
    you really get competition. The California public employees, for
    example, have a huge buying unit. And they can bargain for themselves.
    They got a 3 percent increase this year or something like that.
        Companies with over 5,000 employees that are in a position of
    bargaining for themselves have averaged 6 percent premium increases in
    the last 2 or 3 years. They've been able to do what we now want small
    business to be able to do by allowing them to join together. My own
    personal preference is you should have an option of different alliances
    to be in. But under the plan as it now is, that is a judgment that will
    have to be made on a State-by-State basis. And the reason we did that is
    that the States are in different circumstances. I mean, for example,
    availability of the number of alliances may be quite different in
    Wyoming, our least populous State, than it would be in California, our
    most populous State. So we think it has to be a State-by-State decision.

    [Administrator Bowles added that businesses will save money because they
    will no longer have to take the time to negotiate with insurance
    companies.]

        The President. Yes, sir. I like your tie, Save the Children tie.
    I've got one just like it.

    [A participant asked if small business employees would have the same
    coverage as Federal employees, whether the Government could help small
    businesses receive credit more easily, and

    [[Page 1510]]

    if employees would have to pay 20 percent of their salary on health
    care.]

        The President. First of all, let's start with your first question.
    We propose to put the public employee groups in buying alliances, just
    like people in the private sector. And in fact, we hope we'll have a lot
    of these alliances. We'll have both public and private folks within the
    same alliance.
        In effect, the employees and the employers that have preexisting
    comprehensive health benefits where the benefits equal or exceed what
    they're providing now, we don't propose to take those away from them,
    those that are paying more and do it, but even many of them will be
    better off.
        For example, General Motors--I don't think I'm talking out of school
    here. I believe it's General Motors--is now paying about 19 percent of
    payroll on health care costs, about two-thirds for existing employees,
    one-third for retirees. They will actually, over a period of years, have
    a very steep drop in their payroll costs, which will enable them to hire
    more people and also invest more money and do more business with their
    smaller contractors around the country. That's just one example.
        The short answer to your question is, yes, we want the public
    employees to be in the alliances as well.
        With regard to your second question, we believe that the credit
    system should be opened up. You may know, I've been trying since I first
    got in office to simplify the banks' regulatory system and to get them
    to be able to make more good faith loans again and to do a lot of that.
    I must say, we're trying to do a canvass of the country now. We're
    getting wildly uneven reports. I had three Congressmen, for example,
    from the heartland of the country the other day tell me they just had
    lunch together, and they were all three spontaneously talking about how
    much different it was and how banks were loaning money to small
    businesses again. But as I talked to most bankers and most business
    people in California, New England, Florida, just to give you three
    examples, I hear basically no difference. So maybe Erskine would like to
    address that. I do think that the general availability of credit to
    small business is still a big problem in this country.
        The third thing I would say is that most employees with modest wages
    will not be paying a great deal for their health care. If they get sick
    and have to get health care without any insurance, they may face a much
    bigger bill. Meanwhile, all the people who are paying something for
    their health care are in effect paying to keep the infrastructure of
    health care there for them.
        If I were to propose to you, for example, the following proposition,
    that it is unfair to make some people pay the gas tax because it's tough
    on them, there would be a riot in this country, because people think
    that we should all pay for the infrastructure of the highways. But there
    is an infrastructure of health care. And those of you who pay something
    for your health care have paid for it. You have paid just to have the
    hospitals there and the emergency room there and the doctors there when
    someone else needs it.
        It seems to me, if you want to simplify the system and control
    costs, one of the things that you've got to do is stop the cost
    shifting. So I would argue that even though it might be tough, that to
    ask employees to pay 20 percent of the cost of health care, if you're
    controlling the cost and--not only you're controlling it today and
    providing it to them cheaper than they could otherwise get it but also
    make sure that the cost goes up more in line with inflation instead of 3
    or 4 times the rate of inflation, that that is a fair thing to ask
    people to do.
        Do you want to talk about the credit issue for a minute?

    [Administrator Bowles discussed caps in the plan to prevent employees
    from paying too much and efforts to make credit more available.]

        The President. I guess I'd be remiss if I didn't say this. Most
    everybody in this room will be a net beneficiary from the fact that the
    recent economic plan increased the expensing provision from $10,000 a
    year to $17,500 a year. For people who don't have any insurance now and
    are going to provide some, that increased expensing provision will
    probably for many thousands of small businesses more than cover the
    increased cost of the premiums. They access it.
        Administrator Bowles. Mr. President, I did promise that I would get
    you back very quickly, so we don't have much more time.

    [A participant asked how preventive care would be addressed in the new
    plan.]

    [[Page 1511]]

        The President. Yes, wasn't that great? First of all, what I know
    about your situation, you will benefit, I think, considerably from this,
    from the premium cap. But secondly, one of the things that we built into
    this coverage was a preventive and primary care component.
        I don't want to pretend that the only reason health care is more
    expensive in America is because of the insurance system and the
    administrative costs, although that's a big reason, and because you
    don't have any buying power. But another reason is, we go way heavy on
    specialty care and high-technology care, which is great if you need it.
    And it will keep us from every get down to what some other countries
    have. That's why I think we're all willing to pay a premium because we
    know someday we or some loved one of ours may need that extra operation
    or that fancy machine.
        But it's important to recognize that in America, for example, only
    about 15 percent of the graduates coming out of our medical schools now
    are general practitioners. In almost all the other countries with which
    we're competing, about half the doctors are general practitioners. They
    do primary and preventive care.
        So we have done two things that I think are important. In this plan
    we will increase the money for medical research. But at the same time we
    will provide more incentives to the medical schools of our country to
    produce more primary care physicians, more family doctors, if you will.
    And in the health care plan, we will cover more preventive services,
    because it is just clear that the more you do preventive medicine, the
    more you lower the cost of health care and the healthier you keep your
    folks.

    [A participant expressed concern that the cost of the new plan would
    prevent some small businesses from competing in a global economy.]

        The President. Well now, I think the numbers do add up. Some small
    businesses will pay more, plainly. Those who aren't paying anything and
    those who are paying less than they would otherwise pay under the
    initial premiums set unless we are able to--our estimate unless in the
    bargaining power they'll even be able to bargain for lower prices, which
    is conceivable. But we have to start out with something.
        But there's a lot of talk about these numbers not being--I'd just
    like to tell you what we've done over the last 7 months. Number one, for
    the first time we've got four Government Departments that agree on the
    numbers, that the numbers are accurate at least, and we have run these
    numbers through 10 actuarial firms, private sector firms. So we have
    tried to get at least the first set of numbers that have ever been
    through this sort of vetting process from any private or public agency
    on health care. No one else has ever done as much work as we have tried
    to do to make sure the numbers work out. Keep in mind, we proposed for
    the Government to cover the uninsured who are unemployed.
        We believe you can't get costs under control and stop cost shifting
    unless you have some means of insuring everybody else. We believe
    employers should do something. There are those who may have to pay more
    because their premiums are quite low, and we're going to increase the
    coverage substantially. But all of our surveys show that is a distinct
    minority of the people who provide any insurance now, that many people
    who provide insurance now will actually get, unbelievably enough, lower
    premiums and more coverage. But some will pay more. I don't want to
    minimize that; some will. What I think all of you are going to have to
    do is two things. You're going to have to read the plan when you get the
    details, when we finally produce it, and say, ``How's this going to
    affect me, and can I live with it?'' And then you're going to have to
    say, ``How will it affect the small business sector of the economy as a
    whole, and are we net better off?''
        And more importantly, I would argue to you that even those of you--
    let's suppose there's an employer here in this group who will go from 6
    percent of payroll to 7.9 percent of payroll. If you look at where
    you've come in the last 5 years, if we don't do something to bring these
    costs under control, you're facing one of two decisions. You're either
    going to have to drop your coverage altogether with all the attendant
    insecurities and anxieties and problems that presents for your
    employees, or your costs are going to go through the roof.
        So my argument is--I really believe this, this goes back to the very
    first question Barry asked--my argument is that in 5 years from now,
    even the people who pay slightly more now will be better off because the
    overall system's costs will be controlled for the first time, and we're
    not going to be strangled with it. That's why we tried to at least do a
    phase-in for the smaller employers.

    [[Page 1512]]

    [A participant claimed the new plan would result in job loss due to
    increased health care costs for small businesses.]

        The President. How can it possibly triple your health care costs?
        Q. We're paying currently about 2.9.
        The President. To do what?
        Q. For major medical benefits--of payroll costs.
        The President. What does it cover?
        Q. What are they covering?
        The President. Yes.
        Q. Major medical, 80/20. Catastrophic care.
        The President. Well, we tried to have a catastrophic package,
    remember, a few years ago? And the whole country rose up against it.
        All I can say to you, sir, is that if we don't do something like
    this, then everybody's going to be going in the same direction you are.
    I mean, we are looking at a situation now where we're going to give the
    pay raises of American workers to the health care lobby. That's where we
    are now. We are looking at a situation, if we don't do something--maybe
    Erskine's got a specific answer to you. But if we keep on doing what
    we're doing, more small businesses will go bankrupt, more people will do
    without health insurance. We're basically going to give our economic
    growth to health care for the next 7 years if we keep on doing what
    we're doing.
        And if we don't require some uniformity of coverage, then everybody
    will want the lowest common denominator, and the Government will wind up
    picking up the bill for all the other health care costs. I mean, there
    is no way we can, I don't think, solve every problem. But if there is
    something we can do for people like between 50 and 100 employees, if
    there's something else we need to look at, we ought to do it. But I
    still believe--I will say to you--every study shows, the National Small
    Business United study shows, that the vast majority of small business
    people will come out way ahead economically on this. So the question is,
    are we going to lose more jobs doing what we're doing? Are we going to
    lose more jobs with the alternative? I argue to you that we have killed
    this economy now unconscionably for the last 12 years by letting health
    care costs go up as they have.

    [Administrator Bowles again stated that the new plan would enable
    business owners to provide comprehensive, low cost coverage. A
    participant then asked about low-profit small businesses, as compared to
    his own highly profitable restaurant.]

        The President. First of all, let's just take somebody's running a
    family restaurant and they make $20,000 a year. The following things
    will happen to them: First of all, they'll be capped at 3.5. Secondly,
    their expensing provision of the Tax Code went from $10,000 to $17,500.
    Thirdly, they're going to get a tax cut under the new tax bill because
    their family's working for a living and because of their low income.
        So those folks are going to do fine. The people that I'm concerned
    about here are people who have--people like him, say people who net
    between $50,000 and $100,000 income, have more than 50 employees, and
    aren't eligible for the cap the way the bill's now drawn. Anybody who is
    under 50 employees with anything like in the wage range we're talking
    about, I think will probably recover between the caps and the expensing
    provision, will probably be able to manage through this okay in the
    early years. The people that I'm most worried about are the people in
    the category of this gentleman here who spoke.
        Q. Won't there still be a cash flow problem for these small
    businesses, though? And how will that be addressed? Is this a percentage
    of their salary that will be withdrawn every paycheck, or how will that
    work?

    [Administrator Bowles stated that the cost increase per employee would
    not be appreciable.]

        The President. One of you asked a question about the employees, too,
    about how they could pay and whether they could pay. Don't forget that
    under this tax bill that just passed, most families, working people with
    children with incomes of under $27,000 a year, are going to get a tax
    reduction which will help them to deal--if they have no health care
    costs now--with the upfront cost of this. Most of them will have a tax
    reduction that exceeds what their 20 percent cost of the premium will
    be.
        I think the real problem, by and large, there may be some--I can
    conceive of economic circumstances under which these problems will occur
    that you talked about. But I think the real problem here in the way the
    plan is drawn now is the people in his category.
        Administrator Bowles. Can we close with one----

    [[Page 1513]]

        The President. Well, let's take two more. These folks in the back,
    and then our hosts ought to be able to close up.

    [A participant asked if the plan would address behavioral causes for
    increased health care costs.]

        The President. Yes, well, let me sort of reinforce what she said.
    I'm going to back off one step and then I'll come right back to your
    question. If someone asks me, is there any conceivable way America could
    get its contribution, that is, the percentage of our income we pay going
    to health care down to Canada's or Germany's, I would say no. And I
    would say no for some good reasons and then no for some not so good
    reasons.
        One good reason, though, that we probably all agree on is that we
    spend more money on medical research, advanced technology, trying to
    break down barriers, trying to help people live longer and better lives
    than any other country. And I don't think any of us would want to give
    that up. Let's just say that adds 1 or 2 percent to our contribution to
    health care. It also employs a lot of people, by the way, who make
    basically high incomes and make our economy stronger. So I don't think
    any of us would want to give that up.
        But here, to go back to your point, are the down sides. We have a
    lot of people who smoke, a lot of people who are overweight. We also
    have a higher percentage of teenage births which are far more likely to
    be low birth weight births, far likely to be very costly, and far likely
    to lead to children with mental and physical limitations. We have the
    highest percentage of AIDS of any advanced nation, and that's extremely
    expensive. And as, thank God, we find drugs to keep people alive and
    their lives better longer, it will be more expensive. We have to have a
    preventive strategy there. And perhaps most important of all, and here
    in Washington I think I could say it and get a cheer from the Mayor,
    this is the most violent advanced country on Earth. We have the highest
    percentage of our people behind bars of any country, which means that
    every weekend we've got more people showing up at the emergency room cut
    up or shot than any other country, and the rest of you are all paying
    for it.
        So yes, we need a strategy to change those behaviors. We could start
    by passing the Brady bill and taking semiautomatic weapons out of the
    hands of teenagers. It would change the environment. Nobody ever talks
    about it that way, but if you did something about this, it would lower
    health care costs. I mean, if you could get a spreadsheet on the cost of
    health care in Washington hospitals, you would see that an awful lot of
    it goes to the emergency room.
        So the answer to that is yes. One of the reasons I made the
    appointment I did to the Surgeon General's office is so that we could
    have a broad-based, aggressive, preventive strategy to change group
    behaviors as well as individual ones.

    [A participant asked what decisions were still to be made before the
    plan could be implemented.]

        The President. Well, there are a lot of hurdles that exist. But I
    think some of those hurdles are good hurdles. That is, I have been
    working on this issue for 3 years, over 3 years. Long before I ever
    thought of running for President, I agreed to head a project for the
    Governors on health care. And I started off by interviewing 900 health
    care providers in my own State. I then interviewed several hundred
    business people and employees about their particular circumstances. This
    is the most complicated issue that the United States has had to face in
    a long time. It has a very human face when you deal with the human
    dimensions of it. But it's extremely complex.
        So the first hurdle is to try to get everybody singing out of the
    same hymnal, as we say at home. For example, in the next few days,
    Congress is going to sponsor a 2-day health university for Republicans
    and Democrats just to try to get information and facts out, just to try
    to get the evidence so people will get a feel for all of your different
    circumstances and what are the problems, and how does the system
    presently work, and what are the costs, and where are we out of line,
    all things we've been talking about today. So getting the information
    out, I think is significant.
        Then I think the next big hurdle will be trying to make sure that we
    make decisions based on the real issues and not illusory ones. I've not
    tried to mask the fact today, and I won't in the debate, that there are
    some tough choices to be made and that in the short run we can't make
    100 percent of the people winners. For example, if you want to end job
    lock and preexisting conditions and really smooth out things

    [[Page 1514]]

    for small business, you have to go to broad-based community rating. That
    is plainly the best for small business and plainly the best for most
    Americans. If you do that, young, single, super healthy people may pay
    slightly higher premiums, because what you do is you merge them in with
    middle-aged people who get cancer but still can go back to work, for
    example. So there are tough choices to be made.
        Then thirdly, if you really clean out the administrative waste in
    this system and you go to a more preventive-based system, you will shift
    the way you are spending money. You will shift the dimensions of the
    health care system, and you'll shift money drastically away from
    administration and insurance costs into the provision of basic health
    care. And so there will be people who won't favor that and will fight
    it.
        You will also tend to favor either bigger providers of health care,
    and these big alliances are people who have joined together and do it
    jointly to provide an alliance. So then we'll fight through the winners
    and losers. That'll be the toughest part in the Congress. There is a
    real spirit of cooperation, I think, in the Congress now. A willingness
    to try to face this terrible problem, do something sensible about it,
    take our time and really listen to people, and do more good than harm.
    And I think that's very hopeful. We should all be very glad about that.

    [A participant asked how the Government could prevent the plan from
    becoming underfunded due to population age.]

        The President. Well, the way you can--arguably, Medicaid is
    underfunded now, although the truth is that it's wrongly funded. That is
    we're spending money on the wrong things. The Medicaid budget is still
    going up, over the next 5 years is projected to go up somewhere between
    16 percent next year and 11 percent in the 5th year, in other words,
    over 4 times the rate of inflation next year.
        Social Security, believe it or not, is now overfunded. That is, it
    got underfunded 10 years ago. If people hadn't made the right
    projections for the--it is now overfunded, but the overage is all being
    used to make the deficit look smaller. So we're going to have to stop
    spending Social Security on the deficit if you don't want the payroll
    tax for Social Security to bankrupt small business. Because when I,
    people my age--I'm the oldest of the baby boomers, people born from '46
    to '64--when we start retiring in the next century, we cannot at that
    moment still be using the Social Security tax to make the deficit look
    smaller, which is another reason it's so important to get control of
    this deficit now. We just can't do it.
        The answer to your question, sir, is Social Security is basically
    under control if we bring the deficit down. The problem with the
    Medicare and Medicaid system is that it can't control its membership
    since the system, the private system, is hemorrhaging. And it is based
    on a fee-for-service system where there is no regularization of benefits
    and where many of the beneficiaries don't assume any responsibility for
    themselves.
        So what we're going to try to do is to increase the amount of
    personal responsibility in the system as well as put some cost controls.
    Then, instead of just paying a fee-for-service system, what we want to
    do is put Medicare and Medicaid--starting with Medicaid because Medicare
    actually works pretty well, it's adequately funded and well-
    administered--but Medicaid, we want to put those folks in the same kind
    of health alliances so they'll be in competition, to go back to what you
    guys said, so there will be some competition for the services.
        Florida has started to do that, and their preliminary indications
    are there's going to be a big reduction in the cost of Medicaid if we do
    it. In other words, I think the mistake has been not to have Medicaid
    subject to the same sort of competitive environment that the bigger
    private sector employers are. If you put small business and the Medicaid
    in where a lot of the bigger employers are now and the public employees,
    you're going to see a real modification of the cost trends in the outer
    years in ways that will help you all as taxpayers as well as employers.
        Thank you very much. They say we've got to go. I wish we could stay.
    You were great. Thanks.

    Note: The President spoke at 10:15 a.m. at the W.S. Jenks and Sons
    hardware store. In his remarks, he referred to DC City Council member
    Harry Thomas, Sr.