Health Package Could Hurt State’s Economy, Studies Say : But Benefits Would Reportedly Outweigh Mild Recession

Implementation of a health reform program based on President Clinton’s proposals could have a significant effect on the California economy, possibly producing a mild recession and nearly 80,000 lost jobs, according to studies released Thursday.

The studies, commissioned by Blue Cross of California, found that, in a worst-case scenario, a Clinton-style plan could increase unemployment in California by 0.5%.

That scenario is based on the probability that employers who face higher health care expenses under a Clinton-like plan would reduce wages, production and hiring to mitigate some of the extra costs, said Larry Lewin, chairman and chief executive of Lewin-VHI Inc., a Fairfax, Va.-based health care consulting firm that prepared one of the studies.

But the positive benefits of health reform--such as providing medical coverage to 6.2 million uninsured Californians--would outweigh the negative ones, Lewin said. “I think (health reform) basically would be good for California. . . . Some businesses that don’t now provide health coverage for employees, like restaurants, will have to pay more. But, on balance, providing a reformed health care system for the country is a definite plus.”

The studies by Lewin-VHI and RAND, a Santa Monica think tank, are the first to take a detailed look at the economic consequences of health reform. The reports were built around key concepts of the Clinton Administration’s health reform legislation, such as universal coverage, a standard benefits package and regional insurance purchasing cooperatives. But the reports’ authors cautioned that the studies were undertaken before details of Clinton’s final plan were known.

Still, the finding that a Clinton-like reform plan could harm the already-struggling economy of the nation’s most populous state isn’t likely to help the Administration sell its program to Congress. Clinton’s plan has been attacked by a broad array of special interests, and several alternative reform bills are attracting supporters in Congress.

State Insurance Commissioner John Garamendi, a leading proponent of health reform, criticized the Blue Cross studies as being based on “very old data.” He noted that the health legislation the Clinton Administration presented to Congress in late October was revised to soften some of the negative consequences cited in the studies.

Moreover, Garamendi said, the studies’ findings about potential job loss in California do not include comparisons of the economic consequences of allowing health care costs to continue their current rapid rise.

Leonard D. Schaeffer, chairman and chief executive of Blue Cross of California, which insures 5.7 million Californians, said the studies sought to “go beyond rhetoric and present a quantitative analysis of how California will fare under national reform.”

The Health Insurance Assn. of America has launched a highly publicized attack of the President’s reform plan in television ads. Blue Cross/Blue Shield, however, is not a member of the insurance group.

A White House spokeswoman said she had not seen the report but noted that other private studies have concluded that Clinton’s plan would have a positive effect on the nation’s employment.

The economic fallout in California would depend on how much of the extra health care costs employers decided to pass on to workers, Lewin said. The worst-case scenario assumes that employers would shift no more than 50% of added costs to employees in the first two years after reform, he said.

According to the studies, the employers facing the biggest increase in medical costs are those that currently do not offer health insurance to their employees. They would face $4.6 billion in increased spending under health reform, the studies found.

For employers who currently offer insurance, a Clinton-like reform plan would “be a wash,” Lewin said. Forty-seven percent of employers that now offer insurance would cut health spending per employee by $100 or more, while 48% would face increased spending of $100 or more.