Learning From the Mistakes of the 1994 Health Care Proposal

Mark Thoma has featured an excellent LA Times commentary by Ezra Klein, “This time, we want health care reform.” Klein highlights the fundamental challenge of any reform proposal – what do you do with the incumbents, the insurers, big Pharma, the big hospitals – and what process do you use to either gain their support or neutralize them?

Thoma is optimistic about the prospects for reform; I am less so. I doubt whether it is politically feasible to undertake the kind of root-and-branch restructuring that is necessary (funny how this country will tolerate plant closings and job losses in the name of free trade, but white collar jobs are another matter entirely). And I don’t see the federal government as capable of jawboning the healthcare industry. In the one other health system I know well, Australia’s, the Therapeutic Goods Administration reads the research on various drugs, picks one or two in each category that it deems most effective (which often isn’t the newest) and uses the fact that it has concentrated its buying power to negotiate for better prices. Can you see Washington telling Pharma that certain drugs aren’t that effective, or bargaining hard on price? This is the land of the military-industrial complex, with a proud tradition of cost plus.

This being America, you could go in the Friedmanite direction, which was advocated in a WSJ commentary a few years ago: have the FDA require only proof of drug safety, not efficacy (that would be determined by “the market”). It would vastly reduce the cost and time required to get drugs to market, which would also spur drug development for diseases that afflicted comparatively small numbers of people. (The only was I could endorse such an idea would be if drug companies were again banned from advertising to consumers).

To Klein:

What a difference a decade makes. It wasn’t so long ago that President Clinton’s proposed [health care] reforms suffered a catastrophic defeat at the hands of moneyed interests and Republican opportunists….

Such traumas leave scars, and for years afterward, Democrats … shied away from fully reengaging the healthcare debate, even as the country’s healthcare system continued its slow deterioration.

But the ghosts of 1994 have been largely exorcised from the Democratic psyche… If Democrats are going to … finally succeed, though, they are going to have to learn the lessons that 1994’s failure can teach…

Everything that could go wrong did; everything that could be handled wrong was. Clinton decided to pursue the passage of NAFTA before healthcare reform, exhausting and angering his liberal allies (such as organized labor) immediately before he would most need their support and strength.

The initiative was placed under the control of Hillary Rodham Clinton and Ira Magaziner, whose primary health policy credentials came from a report on medical spending he’d written for the state of Rhode Island. Neither had the political experience to safely shepherd a reform of this magnitude, and it showed in their procedural missteps, which involved creating more than 30 closed-door task forces with more than 600 members but little to no representation from industry stakeholders such as the insurance industry or healthcare providers.

Worse, the Clinton administration was completely incoherent on how to handle those industry stakeholders and other interested parties, and thus it was unprepared to repel the all-out assault they mounted on the plan….

So, the first question for would-be reformers is how you handle the insurance industry, the pharmaceutical industry, the for-profit-hospital lobby and the businesses that don’t want to begin offering comprehensive healthcare for their employees. And here, there is a choice to be made: Do you run over the industry interests that impede reform …, or do you resign yourself to their involvement and invite them to the table?

In a classic worst-of-both-worlds compromise, Magaziner and Hillary Clinton did not initially include industry representatives in the process, but then constructed a plan whose famed complexity sprang mostly from their attempts to retain a place for these groups. Thus, they expected a certain degree of buy-in from the medical-industrial complex and were blindsided by the ferocious opposition they actually faced. Worse, their proposal didn’t allow them to effectively counter the opposition. …

And at the same time as the Clinton administration was floundering before the attacks … (the insurance industry alone spent $50 million in ads, lobbying and organizing), the structural pressures pushing toward reform began to ease. As healthcare writer Matthew Holt has persuasively argued, President Clinton’s initial mandate came in the context of the 1991-92 recession … that left the middle class feeling particularly insecure…

But amid the lengthy dithering of the Clinton/Magaziner policy process, the recession lifted, the economy improved, the public’s anxieties eased… Moreover, the promise of implementing managed care left the right with an alternative policy to organize around, one that didn’t require government intervention or obvious turbulence.

Today, of course, it’s clear that managed care has failed. After cost growth was effectively arrested in the mid-1990s, patients rebelled against being managed, and insurers decided that passing on the costs … was less trouble than holding them down. Moreover, … anxieties over spending growth and the precariousness of coverage … are now constant companions, even in periods of economic expansion. …

That may be why a recent New York Times/CBS poll found that 90% of Americans said they thought that the healthcare system needed either “fundamental changes” or to be “completely rebuilt.” The last time the poll recorded such desire for reform was in January 1994. Indeed, according to the poll, 62% report themselves willing to pay higher taxes for universal coverage.

Such numbers have appeared before, and efforts at reform have failed before. There are differences this time, though. No change-minded president would be so naive about industry opposition, or slow to propose a plan, or secretive about its creation. The pressures that eased after the 1990-91 recession are now enduring.

The progressive coalition is much more mature and effective …, and it aches to engage … in a debate about how to best run the American healthcare system. Most telling of all, the American people regret passing up the Clinton plan. A 2005 … poll found that 53% of respondents … believe that they’d be better off had the Clinton plan passed, while only 28% believe that they’d be worse off. It may be that ghosts of the Clinton plan’s failure have ceased scaring Democratic politicians and begun haunting voters, leaving them afraid not of change but of its absence.

The reason the Clinton plan is remembered with such fondness isn’t that respondents remember it well enough to have an informed view, but that at this juncture, any system seems better than the one we have.

Mark Thoma’s comments:

Will it happen, or is reform politically impossible? If business comes solidly aboard I think there’s a chance even if the medical industrial complex fights the effort vigorously. In any case, reform will depend upon the ability of the next president to build an effective coalition, a difficult task since serious reform will come at someone’s expense and hence bring strong opposition from some groups.

There are signs that firms are realizing participating in reform is better than potentially having it forced upon them, so it’s partly a matter of the type of reform business is willing to support and whether that will lead to a unified reform effort, or the splintered politics of the past that has blocked substantial change.

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