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Lesson for Reform

Politics is at the heart of every health care policy debate.

By Stephen Davidson ’61

health_care_reform.jpgPRESIDENT BARACK OBAMA'S SUCCESSFUL EFFORT to enact a health care reform bill was widely seen as a triumph of policy, and it is hard to overstate the historic nature of the achievement. But any assessment of the legislation that emerged from the yearlong effort is best made through a political lens. The story of health care reform in the United States—and, indeed, almost any major policy issue—is fundamentally a story of our politics.

When examining public issues, policy analysts—and I include myself in this professional category—generally acknowledge that politics play a role, but most tend to spend little time on it. In the recent health care reform episode, most of their articles, blogs, and op-eds discussed substance. Even the media, which usually is more interested in the horses than the race, often focused on the substantive issues: Who should be covered? What should they be covered for? What can be done to keep down costs? How should the program be paid for? And when should the various provisions become effective?

Although it’s hard to complain when the media actually discuss substance, the implicit assumption is that a senator’s or representative’s views on such questions will determine his or her vote on the legislation. The reality, however, is far more complicated. In fact, since we’ve been at this for such a long time, as a nation, you’d think we would have learned that lesson by now.

AS A GRADUATE STUDENT AT THE UNIVERSITY of Chicago in the early 1970s, I filled out my schedule one term with a course on the American health care system taught by Odin Anderson, a sociologist with an impressive shock of white hair and a twinkle in his eye. I enjoyed both the subject and the man so much that I signed up for his seminar on the public sector’s role in the U.S. health care system the next quarter. A veteran of the War on Poverty, I had gone to Chicago to study community organization and public policy, but my encounter with Odin began a 35-year career studying the health care system.

The early 1970s was, like today, a period of much activity in health care reform. A key impetus was that Medicare and Medicaid, enacted only a few years earlier in 1965, were costing more than had been predicted. Two leading political actors of that period, President Richard Nixon and Senator Edward Kennedy, tried to work out a compromise plan to achieve the twin goals of keeping down spending on health care and reducing the number of uninsured. Sound familiar?

Other presidents before and since also wrestled the health-care-reform bear—Truman, Kennedy, and Clinton, among others—but until this year, only Lyndon Johnson had succeeded in even getting a vote on the floor of either house of Congress. Nixon and Kennedy failed to agree, partly because Watergate intervened, and the problems that concerned them only got worse in the years that followed. (Before he died last year, Kennedy said letting this opportunity escape was one of the great disappointments of his public life.)

In each case, it was ultimately a failure of politics—not policy—that blocked reform. But I wasn’t fully aware of how much this was the case when I began work on my book Still Broken: Understanding the U.S. Health Care System. Like most books on public policy issues, this one starts with a description of problems in the current system—very high and growing expenditures, large and growing numbers of uninsured and underinsured, the unreliable quality of care, and a deteriorating delivery system—and makes the case that they are so important and persistent that they need to be solved. Then, on the assumption that understanding them is key to finding solutions, the book explores the causes of these problems. Its conclusion is that the interconnected dysfunctional incentives that affect everyone who has anything to do with the health care system are responsible for the fix we are in. Here’s how it works:

Facing inexorable increases in the cost of health benefits, employers reduce or drop the coverage they offer employees or cut their contributions to premiums—even though it’s clear that a healthy, stable work force is good for the long-term health of the company. Other employers simply don’t offer health insurance in the first place. Similarly, individual employees and families avoid using needed services because out-of-pocket costs are too high, even though easy access to primary care services can help keep minor illnesses from developing into serious events.

Insurers face higher expenditures from rising provider charges and higher utilization rates. They cope by rejecting applicants with pre-existing conditions and other risk factors or by refusing to renew policies of people who are sick. They shift costs to subscribers through higher out-of-pocket charges, imposing pre-authorization requirements, and raising premiums. They also reduce what they pay providers.

To offset reduced utilization rates and lower fees, doctors and other providers increase the provision of services that offer marginal or unproven benefit. Even governments, which are supposed to provide a safety net for people in need, have been making it more difficult for them to access services by raising eligibility criteria, lowering payment rates (even as provider costs rise), and imposing pre-authorization requirements.

The bottom line: Each actor in the system makes decisions that appear rational to them—at least from a short-term perspective—but all of their actions taken together inevitably result in higher expenditures for the system and poorer health for the public.

My analysis suggests that to accomplish the goals of reform, six key elements should be part of any plan:

• Everyone must be insured.

• Individuals and employers must pay to a federal agency a premium or tax at progressive rates earmarked for health care.

• The amount that individuals and employers pay into the federally managed health insurance fund must be independent of health status.

• Payments from the health insurance fund to health insurers and health plans must be risk-adjusted, giving insurers no financial reason to reject anyone who applies.

• All health insurers and health care plans must be required to enroll anyone who wants to do so.

• Patient cost sharing at the point of service must be limited.

Some of these ideas resemble elements of the recently passed plan, but because of political compromises, the final legislation hardly fills this or other prescriptions for reform.

IN THE NON-IDEOLOGICAL TRADITION OF American pragmatism, we like to think that our key intellectual exercise is to define a set of problems, consider an array of possible solutions, and choose the one that seems to do best the job of solving the problems. If that were the way things had worked in health care reform, almost none of the serious students of the system would have chosen the path that the Obama administration took: relying on competing private insurers to accomplish the goals of covering everyone, keeping costs down, and improving quality of care.

That’s because a critical instrumental goal for private insurers—who want to maximize revenues and profits—is to keep premiums down so that people will buy their policies. But to keep premiums low, insurers have just two levers to work with: availability and quality. They can limit who buys their coverage by excluding high-cost people or those with pre-existing conditions. And they can adjust the terms of coverage by excluding certain types of care and/or by increasing out-of-pocket costs, which discourages people who need services from using them. In practice, insurers did all these things—and then raised their rates, to boot.

Insurers’ use of these two levers have done much to cause the problems that need to be solved. They have been especially important in creating the 25 million underinsured Americans—people who value insurance enough to buy it but then cannot use the services they need because of the high out-of-pocket costs. Because these two strategies, limiting the availability and quality of coverage, conflict with the central goals of any health care system, this is not a promising approach to reform.

It’s true that the new law does prohibit or greatly constrain insurers’ ability to continue using these levers. They will be prohibited from denying coverage to people with pre-existing conditions or other risk factors; they will not be able to cancel policies of people who use services; they will be required to renew policies for people who are ill; and they will not be able to charge higher rates to people with higher risk factors—with the lamentable exception of age. The only mechanism left to insurers is to increase out-of-pocket costs for patients when they actually use services. (In the least generous of four permissible benefits packages, insurers need to cover only 60 percent of enrollee medical costs.) This will help them protect their profits, and the negative effect on consumers will presumably be mitigated by federal subsidies that help individuals pay for premiums as well as co-pays.

WITH SO MANY HEALTH CARE EXPERTS IN the Obama administration, why choose an approach whose very design makes solving all the targeted problems an impossibility? The answer: They figured it was the plan that gave them the best shot at actually passing legislation. And the way things turned out, who can argue they were wrong?

The importance of their calculation is underlined by the fact that, even with all of the politically inspired compromises in the bill, they almost didn’t pull it off. Progressives threatened not to support it because they thought it didn’t come close enough to really solving the problems. Fiscal conservatives complained about the cost (even though the Congressional Budget Office concluded it would pay for itself over 10 years) and provided exaggerated estimates of the growth of the federal government. Republican leaders were determined to deny passage of any bill no matter what it contained—solely in the hope of scoring political points for this year’s midterm elections. And because they could not articulate “no, no, no” as the reason for their opposition, they resurrected discredited slogans about the government “takeover” of health care and “socialized medicine.” And even invented a new one—“death panels.”

NONETHELESS, THE ADMINISTRATION SUCCEEDED. Acknowledging that the new law isn’t anyone’s first choice, the questions now are: Was it worth the effort? Does it make enough progress toward the ultimate goals to make it worthy of public support? In my view, the answer is a clear “yes” because:

• Thirty-two million previously uninsured Americans will be able to get affordable, comprehensive insurance.

• With insurance, more Americans will have the capacity to develop ongoing relationships with primary-care physicians instead of showing up in an emergency room when they can no longer avoid needed care.

• As a nation, we now have a better shot at keeping per capita health care spending rates under control.

• The law will prohibit the worst practices of private insurers—denying coverage to people with pre-existing conditions; cancelling coverage of people who get sick and need care; or failing to renew coverage for people who, because of illness, actually had to use their health insurance benefits.

Since the law contains these and other benefits, it’s hard to understand the public anger in the wake of its passage. Some are concentrating on where it falls short, not seeing it as progress on the road toward an ultimate goal. Others are unhappy that the price of progress includes an apparent bonanza for private insurers, who will gain millions of new subscribers. Many are simply misinformed about its actual provisions—not surprisingly, since the bill is long and complicated and because its political opponents deliberately misrepresented some of its provisions. Still others were so turned off by the “sausage- making aspect” of the legislative process that they assume the result to be as corrupt as the process.

The Obama administration and Congressional Democrats were able to succeed, in part, because they learned well the lessons of previous failed reform efforts. Still, it was touch-and-go until the very end. One reason was that even with large majorities in both houses of Congress, the bill needed 60 votes—not a simple majority—in the Senate. When Scott Brown succeeded the late Ted Kennedy in a special senatorial election in Massachusetts, taking away the 60th Democratic vote, the normal process of crafting a single compromise bill from separate House and Senate bills became impossible. Republicans accused Democrats of “ramming through” health care reform against the will of the people by resorting to the “reconciliation” process, which allows the Senate to enact legislation with a simple majority if it meets certain conditions. After more than a year of debate, that claim is silly on its face. Yet, by repeating it without challenge, commentators invested it with credibility.

Why did a law that clearly benefits large numbers of Americans, makes considerable progress toward accomplishing important public goals, and pays for itself generate such hyperbolic rhetoric—and even opposition from some in the president’s own party?

The Obama administration learned a lot from previous reform episodes, but it missed one critical lesson: It failed to mobilize public opinion as a counterweight to the power of the special interest groups who believe they have the most to lose from a new law. In addition to the arguments that these groups make about substantive policy matters, they make financial contributions to organizations important to the members of Congress. In a political process that has become a perpetual campaign and requires huge sums of money to be competitive, such contributions can be very persuasive.

There are also political reasons. In the 1993–1994 reform effort, Republican Congressmen were advised—in writing—not to vote for any bill put forth by President Clinton or Democratic members of Congress, no matter what concessions they contained. The only goal was to win the next election—which they did. Sensing another “Contract with America” moment (this time with revolutionary tea-party undertones), Republicans followed the same strategy in 2010.

If this is the nature of the game—and it seems to be the same game today—progressives can compete successfully only by mobilizing the public. Votes at the polls still trump cash contributions to political campaigns. The president, as the only official elected nationally, has a unique advantage: the opportunity to communicate a single, coherent message that sets forth his proposals in a compelling manner. Although President Obama tried to do this in the last days of the health care reform process, a consistent message through the entire debate might have sealed the deal sooner, perhaps with legislation closer to the ideal than the bill he signed on March 23. Yet, although more work needs to be done, the new law represents substantial progress in a critical sector of American life.

contrib_davidson_stephen.jpgStephen Davidson ’61 is professor of health policy and management at the Boston University School of Management. He directed BU's graduate program in health administration studies from 1985 to 1990. He has also taught at the University of Chicago and Northwestern University. His latest book, Still Broken: Understanding the U.S. Health Care System, was published in April by Stanford University Press.

contrib_gaadt_suzanne_1.jpgThis is Suzanne Gaadt’s final issue as art director of the Bulletin. An award-winning visual communications expert and principal of Gaadt Perspectives llc, she has designed projects for Swarthmore for more than 10 years. As art director, she guided the magazine’s "green" make-over in 2008. Currently she's developing a series of children's books about “Discovering Women.”

4 Responses to “Lesson for Reform”

  1. Jeff — Here is the link to the new Huffington Post piece:

    Thanks for the suggestion.


  2. In the above article Stephen Davidson writes that under the health care bill (HR3590), insurers "will not be able to cancel policies of people who use services; they will be required to renew policies for people who are ill." I've been confused by this for a while. Isn't this already illegal?

    Title 45 of the Code of Federal Regulations (45 CFR § 148.122) is about "guaranteed renewability of individual health insurance coverage." Sections (a) and (b) appear to cover what the new legislation addresses. Here's the URL:

    If you go to the following URL and type in Title 45, CFR 148, section 122, you'll see that this regulation was updated in 1997.

    For more on this issue, where I first learned about the regulation, see here:

    (I'd include the original url, but it has an apostrophe in it, so it pastes very oddly)

  3. Here are the URLs that Brian Schwartz submitted with his comment:

    Title 45 of the Code of Federal Regulations (45 CFR § 148.122) is about "guaranteed renewability of individual health insurance coverage." Here's the URL:

    If you go to the following URL and type in Title 45, CFR 148, section 122, you'll see that this regulation was updated in 1997.

    For more on this issue, where I first learned about the regulation, see here:

  4. A concise and clear review of the subject, arguments about which will continue with more misleading statements made by the misinformed and those who have an interest in preserving the worst parts of our present health care system.