Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, November 7, 1993                   TAG: 9401140021
SECTION: EDITORIAL                    PAGE: D3   EDITION: METRO 
SOURCE: Geoff Seamans
DATELINE:                                 LENGTH: Medium

THE CASE OF THE UNHIRED WORKER

As someone trying to make a modicum of sense out of the various arguments about health-care (or, more precisely, health-delivery) reform, I can see why Mr. Bill would want his plan to be thus considered.

First, of course, because the existing system seems so flawed. The worse that A looks, the better that B looks in comparison.

But perhaps more important is a second reason: Anything approaching perfection in a health-delivery system seems so difficult to construct in the imagination, let alone in real life.

Some of the difficulty stems from the fact that the issue involves a welter of competing, sometimes actively conflicting economic interests.

Physicians vs. pharmaceutical firms. Hospitals vs. health-care insurers. Big businesses that already insure their employees vs. small businesses that can't or won't. The young and the hale vs. the old and the frail.

But the difficulty with health-care reform also seems to stem from the nature of the beast.

Consider, for example, the case of the unhired worker.

An oft-cited point about the need for reform is the high cost of health in the United States: Health spending is approaching 15 percent of the gross national product, more than in any other industrialized nation.

Oft-cited, too, is the fact that millions of American working families are underinsured or not insured at all. A single serious illness or accident could drive them into poverty.

But perhaps less familiar are subtler ways in which the current health-delivery system operates as a drag on the economy.

Among Americans who are adequately covered, fear of losing health-insurance coverage (including for pre-existing conditions) brakes the job mobility and entrepreneurial enterprise that help keep an economy vibrant and flexible.

And the high cost of health benefits is a serious deterrent to employers' hiring new workers - even when business conditions otherwise would suggest it.

Instead of hiring new full-time workers, and thus having to pay health benefits, more workload is placed on the existing labor force - which can mean swapping the high-productivity toil of fresh workers for the lower productivity of work performed at the upper margin of the workweek.

Or a strategy is adopted of hiring part-time workers, which jeopardizes the long-term quality and loyalty of the work force.

Or business opportunities are simply lost.

This is the case of the unhired worker. How can health-care reform solve it?

Employment could be divorced from health benefits. But what to replace it with?

A purely governmental, uniform, single-payer, tax-based system, like Canada's or Britain's? Good luck in a country as big and diverse as the United States. Besides, aren't socialist schemes passe?

A purely laissez-faire system, with each man, woman and child for himself or herself? Great, maybe, for the rich, the young and the healthy; not so good for the unrich, the unyoung, unhealthy and hence uninsurable.

By building on the current employer-based system, the Clinton plan follows something of a middle course. The chief change would be to require of all employers what is now only voluntary: participation in a health-insurance plan for employees.

Unsurprisingly, the proposal draws squawks from employers, generally smaller businesses, that do not now offer health benefits. One of their points is that they wouldn't be able to hire as many people.

The administration plan tries to solve the case of the unhired worker by giving preferential treatment to (presumably job-creating) small businesses. Whereas bigger employers would have a cap of 7.9 percent of payroll in how much they'd have to pay for employee health care, the cap for smaller businesses could be as little as 3.5 percent.

In doing that, however, the plan introduces a new incentive not to hire new workers: a bracket system for determining the cap for individual employers.

Suppose you employ 24 workers with an average yearly wage of $10,000, and you're considering an increase in payroll by 10 percent. You can keep 24 workers and raise average pay to $11,000, or you can add a 25th worker and raise average pay to $10,560.

But while that 25th worker would raise you from the 3.5 percent to the 4.4 percent bracket, the same payroll increase without the new worker keeps you in the lower bracket. Because of the bracket change, the new worker at average salary doesn't cost $10,560; he or she costs $13,810.

Still, size of payroll is generally a more important factor in determining the plan's caps than number of employees. As a result, the new-hire disincentive in the plan pops up only at a few points in the size-of-workforce scale, rather than every time a new worker is hired as (for employers with health benefits) is now the case.

The plan, in other words, isn't perfect - but it looks better than what we have at the moment.