Saturday, January 31, 2009

MED BIZ | How the Clinton Plan Was Killed, 1993 (Updated Nov. 11, 2016)

Ira Magaziner
(This was posted on January 31, 2009 and the content has not been changed since then. It is one of the most frequently read posts on the CityEconomist blog. An update was added in 2011 and the formatting was adjusted on Nov. 11, 2016. During 2009-2011 this blogger was serving as Senior Economist for the Joint Economic Committee of the Congress.)

Yesterday Paul Krugman, whose column in the NY Times is the first one I look for every morning (in print or online), wrote:
Mr. Obama really, really doesn't want to repeat the mistakes of Bill Clinton, whose health care push failed politically partly because he moved too slowly.
It's ironic that the Clinton team should be blamed for moving too slowly, because Ira Magaziner expressed determination to move quickly as a speaker in December 1992 on a panel I attended. (Alice Tepper Marlin was also on the panel.)

Magaziner announced that the group drafting the health care legislation planned to get a bill through during the honeymoon period, "by June" [1993]. He paused, and then stopped, looking up toward the back of the room. Everyone's eyes turned toward a tall, lanky gentleman who rose slowly from his chair and said:
Ira, if you think y'all are going to get a health care bill through by June, y'all need to have your head examined. Y'all will be lucky to get your budget through by June.
Sen. Ernest "Fritz" Hollings (1922-)
Then he sat down. The speaker was Ernest Frederick ("Fritz") Hollings, Democratic Senator from South Carolina from 1966 to 2005, and he was, alas, right in his prediction. No health care bill by June, or ever during the Clinton years. No budget by June.

Krugman's charge of having "moved too slowly" is a way of saying that the bill was too complex, was prepared too secretively or made excessive concessions to the insurance industry. I haven't read, however, an explanation as cogent as the one presented by Ezra Klein in an article in The American Prospect that was posted yesterday on AlterNet.

The article is a primer on the realities of the budget process in Washington today, especially the powerful role of the Congressional Budget Office in coming up with "the Number" for a bill's likely budget impact. The article is "Comprehensive Health Care Reform Is the Key to Our Economic Future," January 30, 2009. It opens:
"The history of health reform," explains Sen. Ron Wyden of Oregon, "is congressmen sending health legislation off to the Congressional Budget Office to die." That's not the history you often hear. Budget analyses do not make for gripping headlines. Editors want heroes and villains, narrative arcs and telling anecdotes. They do not want numbers. They do not want bureaucracies. But numbers, and the bureaucrats who decide them, can be quietly decisive in whether major policy reform lives or dies.

In the coming years, no bureaucrat will be as decisive as Peter Orszag -- the former director of the Congressional Budget Office who is now the head of Barack Obama's Office of Management and Budget -- and few bureaucracies will be as important as the CBO and the OMB. For every major policy and legislative fight, those organizations will decide the Number: the official price tag of a government program. And you can't do anything without the Number.
Go read the rest yourself here.

Update (Baumol's Cost Disease), 2011

The above was written in January 2009. Peter Orszag presented his views on the cost of medical care  in a New York City speech on November 15, 2011 to the New York Association for Business Economics (after leaving OMB, he became Vice Chairman of Global Banking for Citigroup in New York City).

Orszag showed how medical care costs are almost entirely responsible for the worrisome federal budget deficit projections.

CBO Chart Showing How Health Care Costs
Drive the Deficit. 
CBO data from 2007 make clear that as a share of GDP, projected Federal spending on activities other than health care has not been growing much. (See chart at left.)

Projected higher federal spending and deficits come almost entirely from one major spending sector, health care.

Health care took 20 percent of GDP in 2007 but is projected to rise to one-third of GDP in 2082. The growth is all in the top layer of spending, i.e., Medicare and Medicaid.

NYU Professor William Baumol warned 20 years ago that the cost of education and health care have been growing unsustainably because of the "cost disease" of high-labor-input activities such as teaching and medical care. Technological innovation and overseas manufacturing have saved money, but many labor inputs in health care have been harder to reduce.

To bring down the cost of health care, governments have a number of options, including these:
  • Target excessive use or cost of individual health-care procedures. Newspaper stories about excessive Medicare charges for specific procedures help focus public attention on them.
  • Ration "elective" procedures. The British National Health Service has long had a queue for elective (for non-life-threatening illnesses) surgeries or other procedures.
  • Limit demand for health-care services. This means educating the public and doctors about the importance of making healthy life-style choices. 
  • Create incentives for healthier choices. Subsidize healthier choices by the public (consumers of health care services) or impose Pigou taxes on less-healthful choices.
Other MED BIZ posts: BBC Panorama .  Aetna's Opt-Out