- The Washington Times - Thursday, January 4, 2001

When Gov. Tommy Thompson told President-Elect George Bush that he was assigning him the "tough issues" in nominating him for secretary of health and human services, he was not kidding. Health and welfare are at the heart of the liberal love of government paternalism and they will fight change all the way.

Because Social Security reform was such large campaign issue, there will be a tendency to fight it first. It would be wise to recall the Reagan administration experience. The relevant Democratic subcommittee chairman told HHS Secretary Richard S. Schweiker right to his face that he wanted to work together on Social Security reform. Only, he wanted him to go first with a proposal. When he did so, the Democrats declared it stealing money from seniors and walked away. Gov. Bush has a fine proposal on Social Security but he will be wise to proceed slowly, probably with a commission composed of a good number of reasonable Democrats. Daniel Patrick Moynihan might make a good chairman. Mr. Thompson might even want to hand off this job to the Social Security administrator in its early stages.

Health will not be so easy to avoid. If the economy heads South, as appears likely, all of the financial problems of Medicare, Medicaid and the rest will be exacerbated. While Mr. Thompson was a leader in state reform of these issues, he was fortunate to have an exploding economy to absorb the higher funding he used to soften his proposals. His Badger Care and Community Options Care were sound reforms but cost additional funds. Unfortunately, surpluses have a way of disappearing during an economic slowdown. Wisconsin also only had a 6 percent health coverage uninsurance rate, second-lowest in the nation, and only one-third the Lewin Group projected national rate of 19 percent.

Candidate Bush recognized the sensitivity of Medicare during his campaign by offering a drug benefit as one of his leading proposals. While it is comprehensive for seniors below 135 percent of poverty, and provides an immediate $48 billion to states, it covers progressively fewer people as income increases. The temptation to cover all will be overwhelming, with Republicans representing more affluent seniors leading the charge. With huge Medicare deficits scheduled to begin as early as 2010, this will be a kettle of worms challenging the greatest administrator.

In some ways, seniors and the poor are easy problems for the former have health coverage through Medicare and the latter under Medicaid. The 33 million who do not have health coverage will be the most difficult. Yet, as the states and Feds have passed more health bills, the percentage of uninsured has worsened from 11 percent under Ronald Reagan to 16 percent in 1997 to an estimated one-fifth by 2007.The good news is that 76 percent of the uninsured are employed or their dependent. The bad news is that only half of firms with fewer than 500 employees can afford to offer health as an employee benefit, even with the generous federal tax exclusion.

The Bush campaign promised a $2,000 refundable tax credit but only to "hard working, low-income families." Although not specified in their plan, it does state that a family earning $30,000 would receive a $2,000 credit and one earning $50,000 only $667 per year. It would also allow small businesses to join in multistate trade association plans, would lift federal restrictions on innovative approaches, and would encourage medical savings accounts and flexible savings accounts. It is a good plan. With the average federal tax exclusion for a covered family at approximately $3,000, however, GOP members of Congress will not be able to sell $667 to their core constituency of the self-employed and those earning more than $50,000 in small firms. House Majority Leader Richard Armey has a refundable tax credit proposal of $1,000 per adult and $500 per child, to a maximum of $3,000, that would be more politically acceptable.

Whatever the specifics, tax credits put conservatives in charge of the health agenda. For generations, for every health problem, the liberal answer was more government, more "expert" bureaucracy and more rules. With tax credits, conservatives can have one solution too. Sure, it would be better to eliminate the irrational federal tax exclusion targeted to only some Americans but Hillary Clinton proved the difficulty of wholesale reform. Is there a problem for the self employed? Give a tax credit that speeds up the deduction now scheduled for 2007. The uninsured? Pass the Armey bill. Those not working? The Armey bill is refundable to the poor not covered by Medicaid. For a change, the momentum can be toward freedom rather than government meddling. Mr. Thompson said that "solving tough issues is why I got into this business." He should relish the challenge that awaits him.

Donald Devine, former director of the U.S. Office of Personnel Management, is a columnist and a Washington-based policy consultant.

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