[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.