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November 23, 2008
David Warsh, Proprietor


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Towards a Health-Care Fed

In thinking about the bewildering array of problems facing the new administration, it helps to remember that every twenty-five years or so for the past century and a half, the US government has adapted to a changing world by assuming broad new economic responsibilities.

In the 1860s, Congress passed the Morrill land grant college and Homestead Acts;

 

in the late 1880s and early ’90s, it created the Interstate Commerce Commission and the Sherman Antitrust Acts;

 

in 1913, the Federal Reserve System;

 

in the 1930s, the Securities and Exchange Commission and the Social Security Administration;

 

in the 1960s, Medicare and the impetus to Clean Air and Water Acts (1970-72);

 

and, in the 1980s, Congress authorized and acquiesced to a broad restructuring of public regulation and corporate governance.

Now, in an atmosphere of crisis, an expansion of powers is about to take place again.

 

The current economic emergency will pass. The auto industry will shrink and be shrunk and, slowly, will regain its health. Stability in property markets will be restored. New frameworks for the domestic and international financial systems will be established. America’s current foreign wars will end. Its military will be repaired.

 

But even as it addresses these urgent but essentially cyclical matters, the Obama administration has begun moving on two pressing structural reforms:  it intends to reorganize markets for health insurance to provide universal coverage, and to take some tentative but long-lasting measures to cope with climate change.

 

President-elect Obama’s strategy on the first problem became clear last week when he chose Tom Daschle to lead the push for universal healthcare as Secretary of Health and Human Services.

 

Daschle, a South Dakota Democrat first elected to the House of Representatives in 1978, was a three-term Senator (and Senate Democratic Leader 1995-2005) until he was narrowly defeated for re-election in 2004. He became one of Obama’s earliest presidential backers, and served as co-chairman of his campaign.

 

And last spring, in Critical: What We Can Do About the Health-Care Crisis, Daschle (aided by writers Jeanne Lambrew and Scott Greenberger) described a broad plan by which to proceed.  Forget about trying to spell out the details of universal health care coverage in a single great omnibus Act of Congress.  That was the approach that failed in 1993, brought down by intense pressure from interest groups.

 

Instead, he proposed, create a Federal Health Board (FHB), loosely modeled on the Federal Reserve System, with a mandate to provide a public framework for a largely private health-care delivery system.The Baucus plan, rolled out last week by Sen. Max Baucus, Democrat of Montana and chairman of the Senate Finance Committee, provided some sketchy details of how such a supervised market of private and public insurers could be used to extend benefits to the presently uninsured.

 

With the Federal government already providing health care to roughly 100 million people, through programs such as Medicare, Medicaid, the Veterans Health Program and the Federal Employees Health Benefit Program, such a board could create standards that would serve as models for private insurers as well, especially in devising distinctions between basic and supplementary plans.

 

A health-care Fed couldn’t single-handedly solve problems of choice, access, cost-containment and quality control, wrote Daschle.  What it could do would be to provide an institutional setting in which details could be worked out by experts from all the relevant interest groups, insulated from political pressure and yet at the same time accountable to elected officials.

 

Daschle identified three key aspects of a model that, for nearly a century, has worked successfully for setting monetary policy and that could be expected to serve equally well in the making of medical policy:  its independence, its decentralization by regions, and an extensive set of feedback mechanisms engineered into it.

 

Governors of a Federal Health Board would be appointed by the president to ten-year terms, confirmed by the Senate, chosen on the basis of their stature from the health benefit, insurance, and clinical communities, and served by a large staff of analysts – insurance underwriters, marketing specialists, accountants, economists, nurse-researchers, statisticians, engineers, scientists and policy experts.

 

Regional boards, much like the twelve Reserve Banks of the Federal Reserve System, would help anchor the Board itself to the real world of health care delivery systems, which differ widely around the country.  Boards of community and business representatives would advise these regional boards, insuring a steady flow of appraisal and feedback. And located in a couple dozen cities around the country, FHB buildings would serve as visible symbols of thoughtful community stewardship — just as do the dozen FRB headquarters today.

 

Finally, while Congress would have the ultimate say on the Health Fed’s powers, pains would be taken to foster the atmosphere of calm deliberation that is a hallmark of the bankers’ Fed, as opposed to the pandering to special interests that is all too often at the heart of the process when Congress makes policy.

 

After all, an agency charged with discriminating between hard facts and marketing hype with respect to services, drugs and devices would need all the insulation it could get from special pleaders. The same pressures explain why Congress resorted to an independent Base Closing Commission when it came to deciding which military installations around the country to close. In health care, the choices are recurrent, more intricate and deeply personal.

 

Interestingly enough, the idea of a Health Care Fed was broached first, as far as I know, by Peter Diamond, of the Massachusetts Institute of Technology, in his presidential address to the Econometric Society, in Philadelphia, in the summer of 1991 (and in an oped piece in The New York Times the same day). Diamond, a distinguished theorist better known for his work on taxation and the economics of social insurance, went even further. He proposed that the Fed should divide the entire populations into many large groups, or risk pools, then act to play the role of a corporate benefits office in supervising the various plans that would be offered to consumers.

 

The idea of formulating risk pools of 20,000 to 200,000 persons turned out to pose insuperable problems, having to do with the mechanics of maintaining competition among companies (“Meet ‘Fanny Medic,’ modeled on ‘Fanny Mae,’” said the subhed to “Health Care for Everyone” in the Times). But the concept supervising health insurance policy through a combination of central and regional offices, with a mixture of independence and political accountability has held up surprisingly well.

 

There was a time when the idea that the government should come between a man and his banker stirred no little indignation – at least among bankers. But experience has shown that the architects of the Federal Reserve Board, who, after all, were mainly bankers themselves, knew what they were doing.  If there is a way to preserve a balance between private health insurance and government funding, then probably this is it.

 

The politics of acceptance are enormously complicated. Getting to yes will be a lengthy and often tedious process. But as David Broder writes today in the Washington Post, “[Y]ou can see the possibility of success.” You’ll understand it better in the days ahead if you keep the administration’s ultimate objective – a Federal Health Board – in mind throughout.

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