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(The online version of this article appears in three parts. Click here to go to part one or part two.)

"I Want to Hear About Equity"

I ASKED McCrery and McDermott if business would support the reform they were discussing. If eventually offered to everyone, a sufficiently ample tax subsidy would encourage companies to drop the coverage they now offer and let the government pick up the tab. Over a period of years this might spell the end of employer-based coverage as we know it. Would that be a bad thing? I mentioned that I've never understood why employers didn't want this $300 billion expense off their payrolls anyway.

"Most do, I think," McCrery said.

"You think so?" McDermott asked. He was not so sure.

"Uh-huh," McCrery said. "Most would want to get that off their backs, particularly small employers. Some big companies would too. I've talked to a number of big employers, and many of them are very interested in converting to an individual-based system."

The fear that an HMO patients' "bill of rights" might make employers liable for deaths or injuries in which their health plans were implicated has accelerated this thinking. CEOs wonder why they should be on the hook for misjudgments they can't control and that don't even involve their business. They reason that they would be better off giving each employee a lump sum to buy his or her own policy. Though experts say that a tax-credit approach would encourage such changes, this aspect of it is highly controversial; even most advocates of a shift to an individual-based system think that prudence requires a decade or more for the transition. Indeed, when a Xerox executive recently mentioned the idea, labor unions denounced it. Yet McCrery thinks the shift can and should happen relatively quickly.

"My impression is different from Jim's on this issue," McDermott said, "because I have a feeling that it's almost a religious issue of being unwilling to concede that the government will take care of it. Companies figure that ultimately they will have to pay for it. They worry they'll spend more than they're actually spending now."

"That's a legitimate fear," McCrery said, "but if we construct a package which can allay those fears, I think they'll be fine -- and I think we can. I don't envision putting the burden of financing this on the backs of employers."

"I see the employer community as two distinct groups," McDermott said, "those who provide and those who don't. And the 'those who don'ts' are the really sticky ones to deal with." When he was promoting the single-payer idea, McDermott recalled, it was "a real dilemma to say to them, 'We're going to actually put a plan out there, and you're going to have to ante up X amount in new taxes to fund it.'"

"I don't think we have to do that," McCrery said. He explained that each company could "cash out" its employees -- that is, take the amount it was spending on health benefits and distribute it as wages to workers on an equal per-employee basis. This uniform wage hike would fit with McCrery's community-rating requirement, enabling every employee to take the extra money and buy a similar policy in the private market.

McDermott had a quizzical look. Where would the money come from for people who work for a company that doesn't now offer health insurance?

McCrery smiled at me. "I assumed you were saving this for last, and we're ready to go into the financing?" I nodded. This is where deals in Washington either hold together or fall apart.

"This is where Jim's going to jump off my train," McCrery said.

"I don't know that you should make any assumptions about where I'm going to jump," McDermott said.

"I hope I'm wrong," McCrery said.

"But go ahead," McDermott continued, "and explain to me how you deal with the guy who works for a company -- fifty people in the company -- that doesn't offer him anything."

"Well, bear in mind that right now that employee of that company who's not providing health insurance is not getting anything -- literally, nothing," McCrery said. "If he goes out in the individual market and buys his own policy, he's getting no help from the government, nothing, no subsidy whatsoever. He doesn't even get a deduction for the premiums for his health insurance. So this poor guy is really out of luck. Whereas Jim McDermott's getting subsidized. The taxpayers are subsidizing Jim McDermott's health care -- and mine. There is no equity in that. That is a terrible way to construct a system. So I want to ..."

"I want to hear about equity," McDermott said.

"I want to dismantle the current system in terms of government subsidies and throw it all back in a big old pot, and then create an equitable system. And what I mean by an equitable system is we basically help those people who need help -- low-income people. Jim and I, we make enough money to buy ourselves a decent health-insurance policy. I don't need the government to help me pay for my health insurance -- that's crazy."

So it would be some kind of sliding scale, I asked, with the tax subsidy tapering off as income rises?

"Yes. Wouldn't be a cliff, it'd be a slope."

What McCrery and McDermott were talking about here would mean scrapping and reallocating the current tax subsidy, under which employers can deduct health-care expenses from their taxes but employees don't have to include the value of those benefits in their taxable income. Since the savings from this decades-old tax exclusion grow as one's tax bracket rises, the arrangement amounts to a $125-billion-a-year subsidy offering the most lavish aid to rich executives with gold-plated health plans. Unions love it all the same, because it also underwrites the generous health plans they've negotiated over the years. It's hard to imagine a more popular tax break. Ronald Reagan wanted to revamp it in his original 1985 tax reform, but he lost his nerve. Richard Darman, George Bush's budget director, wanted to revamp it to pay for Bush's 1992 health plan, but the President wouldn't back him. Did McCrery think now might be the time to take this on?

"Absolutely," he said.

I turned to McDermott. All my research suggested that the liberal Democrat had to reject this idea, because the unions would staunchly defend the tax exclusion.

"Well, I'm willing to look at his plan with the specifics on paper," McDermott said. "I can't reject it absolutely out of hand, because the present system is not perfect, is not doing the job. So I am perfectly willing to look at another alternative."

It was hard to be sure at first if McDermott was open-minded or merely wanted to appear that way. But as he continued, he seemed sincere, and his sincerity seemed born of experience. He recalled a plan he had worked on at the state level, under which Washington State would offer a similar subsidy for uninsured people. The plan had been stymied because the legislature couldn't find the new money.

"You didn't recoup any money," McCrery pointed out, trying to suggest how the reallocation they were discussing could solve this. "You didn't have a pot out there to pull from."

"And that's the problem," McDermott said, nodding. At the state level you can experiment only so much, because you can't find new dollars.

"But we don't have to come up with new dollars," McCrery said. "We've got present dollars out there [in the current tax subsidy] that we're spending willy-nilly in a very inequitable fashion, in my view, that we can recoup and redistribute."

"I would not reject his idea," McDermott said, as if he had made a decision. This was a big deal. Later McDermott asked me if his views would be published before his fall campaign.

"That's good to know," McCrery said. "The reason I assumed that he would is that labor unions generally are very much opposed to this idea."

"Because they're fearful," McDermott explained. "They're like business. Business is afraid the taxes are going to go up, and the labor unions are afraid that the benefits are going to go down."

The union politics are simple, McDermott added. Suppose the government said it planned to take away the subsidy that underwrites current health plans. "How are they going to go to their members and say they stood for that?" McDermott asked. "That's where the dilemma is."

"I'm glad to hear Jim describe it that way," McCrery said. "I think if we educate the union members as to the advantages of an individual-based system wherein they are cashed out in the form of wages, they won't be so fearful. They might even like it. The union bosses will not like it, because we are essentially taking away one of the goodies that they can claim to have provided to their members. But the union members themselves, once you explain to them -- 'Look, you're gonna get ten thousand dollars more in wages; now you'll have to pay tax on those wages, and that's the big difference, but then under the market that we foresee, you can go out and buy a pretty darn good health-insurance package for $5,000' -- I think they might say, 'Whoa, maybe there's something to this.'"

I asked if something like this reallocation of today's tax subsidy -- which policy analysts of all stripes tend to favor, but which prompts political pros to roll their eyes -- could actually happen. McDermott said it was the toughest piece of the puzzle. Agreeing on a benefits package was simple by comparison.

"But the financing question," he continued, "is fraught with the human emotional problem of 'I have this now; if I let go of it, why should I trust a politician? Why should I trust Jim McCrery and Jim McDermott that they're gonna give me something as good as what I've got right now?' Creating that uncertainty was a big part of the Harry and Louise ads [in which a homey couple dispensed insurance-industry propaganda in the guise of common sense], and the whole undercutting of the Clinton program. A standard political technique is to create disbelief or uncertainty about something -- and the thing is gone in a minute."

"It's a lot easier to beat something," McCrery added, "than it is to pass something."

"That's absolutely right. And that's why I say, Jim, put the plan on the table and I'll look at it." McDermott conceded that if they were starting from scratch and someone proposed a health subsidy that favored upper-income Americans the way the current tax system does, he and Ted Kennedy would be shouting about its injustice, not turning a blind eye, as they do now. "That's why I can't reject what he's talking about," McDermott said. "Because I know the present system is not fair."

Stop for a moment and look where we are. McDermott, the Democrat who favors a single-payer system, is open to tax credits, can live with private insurers, and won't rule out revising the $125 billion tax exclusion that is beloved of his party's most loyal interest group. McCrery, the conservative Republican, wants universal coverage, ample subsidies for those who need it, community-rated insurance policies, and a shift toward government funding of individuals (through the tax code) and away from the employer-based system that leaves millions insecure or out in the cold. Yes, the devil is in the details. But it's hard to believe that people of good will can't get to the finish line from here if they want to. What would that take?

"It's going to take a bipartisan effort," McDermott said. "And it's going to take patience and a certain putting down of ideology to get to a pragmatic solution here."

"Is it doable, in your view?" I asked.

"I wouldn't be here if I didn't think it was," he said. ("The problem's going to be so big," he added at one point, "that it doesn't make any difference if it's Bush or it's Gore. The issue is going to be there.")

"I'm to the point," McCrery said, "where I am wanting to bring in some Democrats who want to solve the problem, and try to polish a plan and then see who we can sell it to. Just go knock on doors."

"If he initiates it [from the majority], there's a chance," McDermott said. "If it switches and we're in charge, then one of us has to initiate and bring the Republicans in and the trust question becomes critical -- Does he trust me? Will I trust him?"

The gulf here is deep, as I learned. "I don't trust the politicians to make the tax-credit approach fair," Jay Rockefeller, a Democratic senator from West Virginia, told me. Pete Stark said, "When you've got a party that's committed to destroying Medicare, what's there to negotiate with those clowns?" One senior Republican legislator told me that certain Democrats "have a higher calling than keeping their word to a Republican." Senator Bill Frist, a Republican from Tennessee, thinks that some on the other side want the problem to get worse so that they can fix it more nearly on their terms.

"That's the real question," McDermott was saying, "because why should I waste my time going to a meeting at McCrery's office if he's just gonna play the same old goddamn game and jerk me around? I mean, we've got so little time. You're only going to go to a place where you trust the guy. That's crucial to making this happen."

"Yeah," McCrery said, pointing his finger at the couch they sat on. "Would you come to this interview?" They laughed. Then McCrery turned serious. "Would you meet with me for a couple of weeks and just ... talk this around?"

"We wouldn't be having this interview if I didn't trust you," McDermott said. "Yes, I trust him. I mean, you can't underestimate, because this is a people business. It's not just ideas and it's not just numbers -- it's the people have got to be able to work together. And there have been a hell of a lot of things that have separated us."

"Now," McDermott said with a wink, as the session broke up, "we have to go to meetings of our respective caucuses and plan how to beat the crap out of each other."

(The online version of this article appears in three parts. Click here to go to part one or part two.)


Matthew Miller is a nationally syndicated columnist who is based in Los Angeles. He is a senior fellow at the Annenberg Public Policy Center of the University of Pennsylvania.

Copyright © 2000 by The Atlantic Monthly Company. All rights reserved.
The Atlantic Monthly; October 2000; Health Care: A Bolt of Civic Hope - 00.10 (Part Three); Volume 286, No. 4; page 77-87.