(FORTUNE Magazine) – SURPRISE, Kina, you're a campaign issue. At least the engaging 4-year-old and her mother pictured here are as fitting representatives as any of the 23 million American workers and their families not covered by health insurance. Governor Michael Dukakis wants business to buy all of them protection. Republicans, including Vice President George Bush, regard that as a typically simplistic and expensive Democratic remedy. Mother's boss, they say, might come up with the money for the new premiums by cutting back the work force and tossing her out of a job. Should uninsured workers be covered? At what price? Who should pay, business or government? And what, if anything, should be done for the 12 million unemployed Americans who have no insurance? The case for forcing business to pick up the workers' check, or a big part of it, is by no means overwhelming, but history gives it some legitimacy. Willy-nilly, health insurance in the U.S. has grown around employer-paid coverage, beginning in World War II when wage and price controls prevented companies from raising salaries; they gave insurance instead. The system was more or less ratified in 1965 by the creation of Medicare for those over 65 and Medicaid for the indigent. Says Sharon Canner, an assistant vice president at the National Association of Manufacturers: ''We arrived at a social contract that if government would take care of the old and the poor, the private sector would take care of the working.'' Otherwise, says Uwe E. Reinhardt, professor of economics at Princeton, the U.S. would now have a < universal health system controlled by government, like other Western nations. Should Americans regret that peculiar evolution? The U.S. health-care system is the world's most expensive. It consumes 11% of GNP and is on a trajectory pointed toward 13% by 1992. Without doubt it is wasteful, which is why frugality ought to govern its extension to the uninsured. But by and large, Americans get more medical service than anyone else and get it faster. Canada supplies health care to all its citizens with only 8.5% of its GNP, but Canadians have to wait in line for what is routine in the U.S., a hip or knee replacement, for example. Britain spends 6% of GNP, too little to prevent the National Health Service from deteriorating in recent years. Few patients past their mid-50s are allowed to begin kidney dialysis. ''To rationalize such a decision the doctor might say of an older patient that he is a bit crumbly,'' says Dr. William B. Schwartz, a Tufts University professor of medicine. That doesn't happen in the U.S., where Medicare pays for dialysis for all who need it, young or old. STILL, the American system is plainly unfair. About 85% of the population is sheltered by private insurance or by one of the two major government programs (see chart below). Left out are many of the unemployed: the 60-year-old widow too young for Medicare as well as the 25-year-old looking for a job. But fully two-thirds of the uninsured, 23 million, are employed or are workers' dependents. Many work part time for major corporations, while about half toil for companies with fewer than 25 employees, concentrated in agriculture, construction, and retailing. ''They're everybody you see behind the counter on your Saturday rounds to the dry cleaners, the hardware store, the barbershop,'' says Katherine Swartz, a senior economist at the Urban Institute. Kina's mother, Wendy Taylor, 19, is typical. For nearly three years she has served chicken at a fast-food franchise in New Orleans for $3.45 an hour, a dime over the minimum wage. The boss provides no health insurance for her or Kina, who suffers from chronic asthma. Wendy's situation illustrates a couple of inequities. Although Wendy has no insurance, she buys insurance for someone else. Of every $100 she earns, the payroll tax nicks her $1.45, and her boss a matching amount, to provide Medicare for today's elderly. In 46 years Wendy, too, will be eligible, assuming that Medicare is still solvent -- if present trends continue, an aging U.S. population would bankrupt the program in a few years. Even more unjust, Wendy would be better off financially if she quit her job. Her take-home pay for 100 hours of work a month is a little over $300. Without a job she would qualify for Aid to Families With Dependent Children, which would entitle her to $138 a month, food stamps, subsidized housing, and Medicaid. The government would pick up the tab for Kina's medicine, sometimes $70 a month. Let's not exaggerate Wendy's plight. If they are desperate, people like the Taylors get treatment, often the best and for free. When Kina has an asthma attack, Wendy rushes her to New Orleans's Charity Hospital, the sort of institution that would be familiar to viewers of the TV show St. Elsewhere -- depressing building, distraught staff, dangerous-looking clientele. But the care can be excellent. During the Republican convention the Secret Service secured a room at Charity for President Reagan, in case he came to harm. What the uninsured generally fail to get is the early treatment that can head off a panicky race to the hospital. The Robert Wood Johnson Foundation has found in its surveys of the uninsured that only 40% of those without coverage seek help when they have such worrisome symptoms as chest pains, rectal bleeding, or frequent loss of consciousness; more than 65% of similar sufferers with insurance go to a doctor. A fifth of women without insurance do not see a doctor in the first three months of pregnancy. Those same women are twice as likely as others to bear fragile, low-weight babies who require intravenous feeding, special monitors, and nurses around the clock that can easily run up a hospital bill of $100,000. A DECADE AGO hospitals could easily tuck the costs of serving the uninsured into the bills they sent Medicare and private insurers, calling such charges general overhead, or whatever. But as medical costs keep soaring, insurance carriers go over their bills far more carefully. Medicare pays hospitals only for services performed on its clients and according to its own tightfisted price list. Many corporations now demand discounts, and hospitals must oblige or lose precious patients -- those who can pay. Some Los Angeles hospitals have closed or reduced service in their emergency rooms, the opening through which bad debts roar in like a raw wind. No wonder the first operation a hospital wants to perform on an incoming patient is the wallet biopsy, an examination of the insurance policy. Private hospitals often reroute the uninsured to public hospitals like Charity. Even Charity, squeezed by a restrictive state budget, may wish it had been baptized under a different name, maybe Let's Make a Deal. Both Democrats and Republicans worry about the uninsured and the hospitals that serve them, but Democrats are about three times as concerned, judging by the parties' different estimates for fixing the problem. Deborah Steelman, director of domestic policy for Vice President Bush, sizes it up at $8 billion a year, roughly the amount of uncompensated care provided by hospitals. Bush believes the private sector should handle the problem primarily on its own, with no mandate from the government to insure workers. His Administration would make it easier for small businesses to form insurance pools, however. In the Senate, Bush's running mate, Dan Quayle, took a more activist position, sponsoring a bill that would start a few experimental projects for about $50 million, much of that in grants to employers to buy partial Medicaid coverage for their workers. Democrats want a much broader program that would not only reimburse hospitals and other providers for the care they give, but also bring the uninsured to the doctor for preventive care. Dukakis promised ''health care for all'' in accepting the presidential nomination. He wants business to pay for much of it. IF BUSH is elected, it is unlikely that any substantial new health insurance program will become law for a while, or so guess lobbyists and legislative aides. Presumably he would veto anything very expensive that comes out of a Democratic Congress. Even if Dukakis wins, there is only an outside chance for passage of health insurance legislation next year. Although Dukakis has tentatively endorsed a health insurance bill shaped by Senator Edward Kennedy, he may want to to put his own imprint on an issue that is clearly important to him. Under his direction, Massachusetts this year became the second state, after Hawaii, to mandate health insurance. The Kennedy bill, which is moving along in the Senate but has a longer way to go in the House, would require all companies to provide employees with what the Senator calls basic health insurance. Others disagree. ''It's not basic, it's a Cadillac plan,'' complains Fred Krebs, a lobbyist for the U.S. Chamber of Commerce. Kennedy's labor committee staff figures the cost at $27 billion a year, but some critics argue it might cost several times that. True, not all of that would be additional money. Some costs would simply be shifted from companies that now provide insurance to those that don't. A handful of major corporations, including Chrysler, applaud the idea of making freeloaders pay up. Like many companies that offer insurance, Chrysler protects not only the worker on the payroll but also his wife, perhaps employed in a local bakery. If she gets sick, her care shows up in the cost of K cars, not croissants. American Airlines approves of the Kennedy bill because by forcing rival Continental to offer an expensive health plan it would narrow the differential in labor costs between the two. But most businesses, large and small, loathe the bill for both philosophical and practical reasons. Earl Hess, who runs a testing laboratory in Lancaster, Pennsylvania, and insures his 270 employees, empathizes with the struggling entrepreneur. ''We want him to be responsible for health care, day care, a whole lot of societal risks for ten other people,'' observes Hess. ''If I have to carry some of the burden to keep the little guy from going under, I'm willing.'' Kennedy's medical plan is not the only new cost he would impose on business. Like other congressional Democrats, he would like to increase the mimimum wage from $3.35 to $4.55 an hour. Kennedy estimates his health bill would come to an additional 50 cents an hour per employee. So the cost of keeping Wendy Taylor on the payroll would rise by half her current salary. JUST HOW MANY workers would be thrown out of jobs is difficult to forecast. Kennedy's staff guesses 100,000 or so from the health plan alone, not a huge number if it were spread across the general population. But low-wage workers, including black teenagers, would bear the brunt. Even companies that now offer generous insurance do not measure up to all of Kennedy's standards. The deductibles he sets are appropriate, $250 for an individual and $500 for a family, high enough to discourage frivolous trips to the doctor. But employers would pay 80% of expenses above the deductibles for both workers and dependents, whereas some companies pay only 50% for dependents. Companies would also have to pay the whole cost of prenatal care for female employees and workers' wives, and three or four checkups for their infants, services that even bountiful IBM does not pick up entirely. Some of the requirements would undermine attempts by corporations to control costs in existing plans, says James A. Klein, deputy director of the Association of Private Pension and Welfare Plans. For example, the stipulation that employers must pay 80% of the costs above the deductible might eliminate a useful device for encouraging employees to get a second opinion before surgery. Now some companies agree to pay 80% only if the employee seeks that additional opinion. If he declines the plan will contribute perhaps 50%. The mental health lobby has been able to graft on to the bill a clause that mandates 45 days of care, if needed, at a rest home or similar institution. Therapy of that kind, costing up to $500 or more a day, would be expensive enough in itself. Standard corporate plans cover only 28 days of live-in treatment for drug addicts and alcoholics. More ominous, such a specific proviso is an invitation to every other medical discipline to lobby for inclusion, just as they have done in state legislatures. Florida and Nevada, for example, insist that insurers selling health policies within their borders pay for acupuncture. Dermatologists persuaded the lawmakers of Minnesota to guarantee coverage for hair transplants. All this runs counter to some encouraging new trends. Auto manufacturers, steelmakers, and others are trying to take back extravagant promises they made earlier to scratch an employee's every itch. Says Carson E. Beadle, managing director of Mercer Meidinger Hansen, an employee benefits consultant: ''Podiatrists ran wild through Detroit, convincing everyone they had foot problems.'' The Dukakis plan for Massachusetts, which is being phased in over five years, will not require companies to promise specific benefits or even to provide insurance at all. It gives them a choice: Companies with six employees or more will either spend $1,680 per employee a year on health insurance, or pay a 12% tax on the first $14,000 of each employee's income. That money will go into a state-managed insurance pool, from which their employees as well as those in firms with fewer than six workers can buy coverage. In addition, all companies with more than six employees, whether they provide insurance or not, will pay $16.80 per employee a year to provide a $45 million fund for the 27,000 or so temporarily unemployed who have no health insurance. The appeal of the Dukakis approach is that the cost to an employer seems , predictable. But it is hard to estimate what the aggregate costs will be. Businesses that pick the tax option would escape another snare they fear in the Kennedy plan, responsibility for former employees. According to existing federal law a company with a health plan must allow an ex-worker to continue his insurance for 18 months. The company may charge him, but no more than 102% of the average cost of covering a current employee. Because sick alumni are more inclined to sign up than well ones, continuing policies are quite expensive for companies with high labor turnover. Still, the $1,680 per employee required by the Dukakis scheme is a lot of money. And whereas Kennedy's plan would protect only the workers and their families, Massachusetts employers must cover those out of work as well. That is relatively cheap to do in that state where unemployment is only 3.2%, but would be a burden elsewhere. ''For the whole country the Dukakis plan is probably too rich,'' says Robert Reischauer, a senior fellow at the Brookings Institution. ''We shouldn't try to swallow the whole enchilada at once.'' What ought to be done? A case can be made for taxing businesses that do not offer insurance, in order to help protect the uninsured in the work force and their families. But the cost per employee should be no more than $1,000, an amount Reischauer and other researchers think could buy bare-bones coverage. Distribution of the money ought to be left up to the states or local governments. The Robert Wood Johnson Foundation is sponsoring a pilot project in Memphis. For $75 to $100 a month per worker, depending on family size, the sick and injured are guaranteed unlimited visits to the doctor, if they put up $5 a trip, and hospital stays free after a $200 deductible. That does not buy medication, however, or pay the keep of those institutionalized for mental illness or for drug or alcohol abuse. Workers have to pay for such care, or buy extra insurance, or go broke and fall back on Medicaid, as many do now. Even $1,000 per worker would be too expensive for many companies, especially on top of a hefty increase in the minimum wage. Any law requiring businesses to provide health insurance, therefore, should include the trade-off of smaller minimum wage raises -- most economists would rather see the minimum wage abolished than increased. Medicaid already covers about half the poor. Under a new revision that helps the working poor, a pregnant woman or an infant up to a year old will soon qualify for medical coverage simply by being a member of a family at or below the poverty level, $9,690 for a family of three. ''One of the best-kept secrets of the Reagan years is that Medicaid has been expanding,'' says Reischauer. BUT MEDICAID plans vary widely, and some 12 million people not connected to the workplace now fall between the cracks. Filling in the cracks will not come quickly or easily, given the pressures of the budget deficit. Medicaid will cost the federal government $31 billion this year and the states another $24 billion. One equitable way to finance a moderate extension of Medicaid, however, might be to tax those covered by the most generous corporate health plans. Benefits up to $2,000 a year, say -- not what an employee is actually reimbursed but his prorated share of the company's health package -- might be tax-free, and benefits above that taxed as income. Critics properly point out that extending medical insurance does nothing to alleviate, and may even aggravate, the urgent problem of controlling the nation's health expenses. True, but it isn't right to cut costs by denying even minimal care to the forgotten.

CHART: NOT AVAILABLE CREDIT: ILLUSTRATION BY JAVIER ROMERO CAPTION: HOW MEDICAL COVERAGE STACKS UP DESCRIPTION: Shows number of people in the United States who have group and private insurance coverage, receive Medicare or Medicaid or who are uninsured.