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

UK Doctors: Fewer Hours Mean Fewer Errors

BBC News is running a medical care story today that has implications for U.S. medical care. Residents who are put on a shorter 48 hour/week limit, in accordance with European Union regulations, made 33 percent fewer medical errors than those on a schedule of up to 56 hours a week. The sample size of National Health Service doctors was small but the results were significant. Thanks to Dr. Elisabeth Paice for the link - .

The relevance of the study for the United States is that U.S. hospital residents are expected to work up to 80 hours a week during their training. The New York-based Commonwealth Fund has shown that patient-reported medical errors are the highest in the United States in a study comparing it with five other countries -- Australia, Canada, Germany, New Zealand and the UK. Of the six countries, the UK had the fewest patient-reported medical errors.

The new study is reported in the Quarterly Journal of Medicine - http://qjmed.oxfordjournals.org/cgi/content/abstract/hcp004v1?ct. The sample size was 19 junior doctors in residence.

[N]ine studied while working an intervention schedule of <48 h per week and 10 studied while working traditional weeks of <56 h scheduled hours in medical wards. Work hours and sleep duration were recorded daily. Rate of medical errors (per 1000 patient-days), identified using an established active surveillance methodology, were compared for the Intervention and Traditional wards. Two senior physicians blinded to rota independently rated all suspected errors.

The results showed significantly lower error rates for the doctors on the new rota with fewer hours:

Average scheduled work hours were significantly lower on the intervention schedule [43.2 (SD 7.7) (range 26.0–60.0) vs. 52.4 (11.2) (30.0–77.0) h/week; P < 0.001], and there was a non-significant trend for increased total sleep time per day [7.26 (0.36) vs. 6.75 (0.40) h; P = 0.095]. During a total of 4782 patient-days involving 481 admissions, 32.7% fewer total medical errors occurred during the intervention than during the traditional rota (27.6 vs. 41.0 per 1000 patient-days, P = 0.006), including 82.6% fewer intercepted potential adverse events (1.2 vs. 6.9 per 1000 patient-days, P = 0.002) and 31.4% fewer non-intercepted potential adverse events (16.6 vs. 24.2 per 1000 patient-days, P = 0.067). Doctors reported worse educational opportunities on the intervention rota.

NYC and NY State Fiscal Problems

A Reuters story on Tuesday by Joan Gralla reports that New York City fears return to 1970s. The fear then was that the City couldn't get out from under its heavy load of short-term debt. In fact the City recovered as soon as the economy came back.

The more serious problem today is NY State's fiscal stress. Back in the 1970s NY State was not in such trouble, and it was able to bail the City out in conjunction with support from Sen. Richard Lugar (R-IN) to provide federal guarantees to the pension funds to buy the City's bonds (his help in getting these guarantees has never been properly acknowledged by the City).

Gov. David Paterson is now raising many taxes and cutting aid to local governments. The problems this creates for NYC are tacked on top of the City's own loss of tax revenue and rising requirements from the NYC employee pension funds for money to make up for their losses when an 8 percent annual return has been built into their actuarial assumptions. In addition, the volume of new tax abatements to spur development has contractually reduced the City's ability to raise taxes on some new developments. Gralla says:

While many U.S. cities worry that their economies are deteriorating to the level of the 1930s Great Depression, New York City fears reliving a more recent decade that features strongly in city lore.

But the better comparison is with 1989-1992. Gov. Paterson’s array of tax increases is reminiscent of the 22 forms of NYC tax increases during these recession years. The large number of increases, and the nuisance nature of some of them, were the subject of many news stories at the time.

A major advantage that NYC has over the state today is that property tax revenues are more stable than other taxes during an economic decline because NYC's assessed values are averaged over five years. NYC's property tax revenues continue to rise for a couple of years into a recession even though market values of property are falling. Property owners may sell and move away, but the property continues to be paid by the new owner.

All the taxes can be avoided by moving completely out of NYC. Charles Tiebout introduced the concept of “foot voting” or “voting with feet”. IU would argue that it's more serious when businesses leave town than when individuals arbitrage among residential options based on differences in property taxes.

The two explanations I have heard most widely regarding the exodus of businesses in 1989-1992 are (1) high crime rates and (2) higher taxes on incomes and businesses. It would have been better, in retrospect, to have increased NYC property tax rates more during those years to avoid increasing other taxes and to beef up spending on the police earlier than the City did. NY State doesn't have a property tax to rely on, although I am advised by a former employee of the Assembly Ways and Means Committee that NY State used to have a statewide property tax and there would be no constitutional problem with reintroducing it.

MED BIZ | BBC Opens Up Panorama Show

Victory. Today I received this message from BBC Panorama:

Dear John,

Thank you for your email. Due to high demand, we have now made the programme available to view around the world. Please use the link below to watch "Panorama: What now, Mr President?" in full:

http://news.bbc.co.uk/panorama/hi/front_page/newsid_7854000/7854496.stm

Best wishes,

Lila

Lila Allen
BBC Panorama

Thanks to anyone who reads this who contacted BBC Panorama about opening it up.

Good Move by Schumer - Improve Mass Transit Benefits

It's pleasing to see some early dividends from the election of President Barack Obama and a Senate and House with Democratic majorities. Senator Chuck Schumer announced yesterday that he has proposed doubling the benefits to commuters by mass transit. At the end of this post I have the URL for a site where one can express support of the bill.

Sem Schumer's concern is with the growth of New York City area commuters and with present and future MTA fare hikes:

[The] mass transit tax break has been included in the Senate version of the Economic Recovery package. The mass transit tax break would double the federal mass transit benefit for people who ride buses, Metro-North or other forms of mass transit to work, potentially saving them hundreds of dollars per year in transportation costs, increasing energy conservation, and reducing traffic, congestion and smog.

Sen. Schumer is essentially equalizing the benefit to be obtained for mass transit riders and those who drive to work.

Under current law, employers are able to offer employees a monthly tax-free transit benefit of only $120 to cover mass transit commuting costs, but they are able to offer up to $230 to help cover parking costs for people to drive to work.

The $230 benefit would be indexed to inflation.

The transit and parking benefits were initiated by the late Senator Daniel Patrick Moynihan. Employers to offer employees up to $120 per month in transit benefits, which are tax free. A corresponding benefit of up to $230 tax-free is provided for parking costs. In the New York metro area, the benefit saves commuters more than $150 million a year. Employers have saved more than $35 million since the benefit went into effect in the New York area. Sen. Schumer says that 15,000 companies in New York offer the transit benefit, covering about 650,000 employees.

Here is the site where individuals can post their support of the bill: http://schumer.senate.gov/new_website/contact.cfm.

MED BIZ | BBC Panorama on U.S.

My sister Brigid Marlin lives in the UK and a few days ago was watching a BBC program on health care in the United States. She sent me an email reporting that it was a shocking portrayal of the high cost and low coverage of U.S. medical care:

They were discussing the problems that Obama faces in meeting his promise to provide health care for poor Americans. The program showed an English medical team that set out to provide medical services to poor people overseas. They ended up spending 60 percent of their time helping poor Americans, as they are the most needy! We were shown people getting up at 4 am and driving for hundreds of miles to be early in a huge queue for a doctor's help.

The program was produced by BBC's Panorama, the world's oldest television documentary program, begun in 1953.

The Panorama team managed to get inside a briefing that a large US insurance company was giving its staff, awarding them huge bonuses for finding loopholes in the clients' policies, so they didn't have to pay up! They boasted that one employee had saved the company $7 million by giving them the basis for refusing to pay out because of a tiny flaw in the way they had filled out the form. This story was contrasted with the company's television ads, where a kindly fatherly figure assures clients that they will be safe and looked after.

The BBC describes the program as follows:

Barack Obama takes over as U.S. President with a promise to dramatically change America and make it a fairer place. He is inheriting the worst economic crisis in almost a century, and a country so unequal that 23,000 people die every year because they cannot afford basic healthcare. To close the gap between rich and poor Obama will have to take on the might of the corporate world, which wields enormous influence in Washington. Can he change the world's most powerful country, and should he?

My sister's message to me goes on:

The drug companies are just as bad, Panorama shows. They have bumped up their prices so that Americans pay twice as much for their medicines as the same companies charge to other countries. It seems that the drug companies are uncontrollable because they wine and dine the senators so no votes are cast against their policies. The program showed the drug companies supporting senators with money for electioneering and their favourite charities. They are determined not to allow a comprehensive health care system in America!

Well, I did a little research to see whether I can give you a link to the program. It was broadcast on BBC One, 8:30 pm, January 19. It's a half-hour show produced by Jeremy Vine. My sister is not the only fan of the show. It is posted as a "pick" by blogger “Up Your Ego: Love Your Inner Geek”. The blogger is trying to emulate the "brilliant" Watchification, Telegraph iPlayer Pick of the Day and the Radio Times Downloads index, and says:

My pick is the Panorama special on the USA health care system. I really enjoyed Michael Moore’s Sicko but it was a little (ok a lot) one sided. A great piece of entertainment and a good piece of journalism when preaching to the choir BUT lacking slightly in balance. The BBC tries to look at both sides of the story. Watch it HERE.

Unfortunately, when I tried it, I got a message that the link won't work in the United States. So the best we can do is try to get a PBS station to bring it over.

The program's e-mail address is: panorama@bbc.co.uk. I have written an email asking to be advised if the health care show has been or will be aired in the United States. You could do the same.