Economic Principals has a wicked summer cold. Instead of a half-baked weekly, EP invites readers to skim “The Hidden History of the Health Care Bill,” from its archives, December 27, 2009.
It is only a little different from Ryan Lizza’s thoroughly-reported and timely piece (subscribers only) in this week’s New Yorker – making it an unusually fine specimen of what we try to do here: frame things up a little ahead of the rest.
. The Hidden History of the Health Care Bill
State legislatures are indeed “laboratories of democracy,” as Supreme Court Justice Louis Brandeis famously described them a century ago. But it is presidential candidacies that conduct the marketing campaigns for the social policies that governors and legislators devise.
To understand the extraordinary Republican bitterness attendant on Senate passage of the health care bill, it is necessary to remember that the strategy that at last delivered universal health insurance for the United States was devised in Massachusetts in late 2004 by Mitt Romney, a Republican governor in the early stages of seeking his party’s presidential nomination.
The Democrats, jiu-jitsu fashion, turned the initiative to their own advantage, having owned the issue since the Truman administration. In doing so, they achieved a goal that had eluded them for sixty years. The GOP’s conservative wing is correspondingly enraged. Meanwhile, Congressional Republicans cast only a single vote (in the House) for a plan that their would-be standard-bearer devised. Internal storms now threaten to disable the party for many years to come.
Consider how a bipartisan approach devised by middle-of-the-road technocrats for an entrepreneurial Republican became a winning issue for the Democrats and provoked a crisis in the Republican Party.
Born in 1947, Romney graduated from Harvard Business School in 1975 and made a substantial fortune in the 1980s in the leveraged buy-out business as head of Bain Capital, a private equity firm he founded with several friends. In 1994, he took time off to run an unsuccessful but generally well-regarded race against Mass. Sen. Edward M. (Ted) Kennedy. (Romney’s father, a former auto executive who served three terms as governor of Michigan, had been defeated in his 1968 presidential bid by Richard Nixon.)
Romney then left Bain in 1998 to organize the Winter Olympics in Salt Lake City, Utah, which had been plagued by revenue shortfalls and bribery scandals. (As a Mormon and a graduate of Brigham Young University, he had a special loyalty to the state.) He returned to Massachusetts in 2002 and was promptly elected governor, defeating Democratic candidate Shannon O’Brien.
From the beginning, it was widely expected that, sooner or later, he would use the State House to launch a bid for national office. He named a stellar cabinet, including his former Bain partner Eric Kris, Conservation Law Foundation founder Douglas Foy and Fidelity Management and Research president Robert Pozen, in hopes of broadening his appeal.
In November 2004, on the op-ed page of The Boston Globe, Romney announced My plan for Massachusetts health insurance reform. He was, he wrote, adopting a bipartisan approach. His plan would require no employer mandate or “single-payer” government takeover of the system. Nor would any new taxes be required. But by restraining medical expenses, the measure would lower the cost of health insurance for all. Romney credited Staples entrepreneur Tom Stemberg, whom he had put in business, with convincing him of the urgency of reform. Romney’s aides say that the governor was the driving force.
Two men had worked hard to devise the plan. Timothy R. Murphy, born in 1967, joined Romney after ten years at J.P Morgan Chase in New York; just out of college he had served for three years as a budget analyst for the Massachusetts Senate Committee on Ways and Means. For expert advice, Murphy turned to Jonathan Gruber, born in 1965, a public finance professor at the Massachusetts Institute of Technology (a 1992 Harvard PhD) and an adroit student of health care provision. In 2006, Romney named Murphy Secretary of Health and Human Services.
The two took advantage of a considerable head start, relative to all other states: Massachusetts already put aside as much as $1 billion annually for emergency care of the uninsured. The state had relatively few non-elderly insured – about half the national average of 18 percent. And Romney persuaded the Bush Administration, if Romney could persuade the legislature to adopt his plan, to preserve $400 million in annual Medicare funding that it otherwise had threatened to remove.
Eighteen months later, Romney declared that the problem had been solved. A combination of a series of new no-frills insurance plans and a requirement that even healthy young adults purchase a plan, plus government subsidies for those unable to afford those basic policies, and increased emphasis on Medicaid for those who qualified under current law would accomplish the goal with no new taxes. The Heritage Foundation had devised a mechanism they called a “Connector” (an “exchange” in the health care bill), an organization that would permit citizens to purchase their policies with pretax dollars, whether their employer contributed or not.
“Some of my libertarian friends balk at what looks like an individual mandate,” wrote Romney. “But remember, someone has to pay for the healthcare that must, by law, be provided. Either the individual pays or the taxpayers pay. A free ride on government is not libertarian.”
He didn’t like to call it a plan for “universal coverage,” Romney told Time’s Joe Klein; to him it was a “personal responsibility system;” but the net effect would be the same: all Massachusetts citizens would be covered. By now the governor was a presidential aspirant. “It’s a goal that Democrats and Republicans share, and it has been achieved by a bipartisan effort, through market reforms,” he wrote in, Health Care For Everyone? We’ve Found a Way, a chirpy campaign document in The Wall Street Journal in April 2006. (Gruber described the plan’s logic at greater length in “Incremental Universalism for the United States: The States Move First?” in the Fall 2008 Journal of Economic Perspectives.)
The Romney candidacy in 2008 eventually failed, eclipsed by that of Sen. John McCain. But the healthcare issue had resonated deeply with voters, and former US Sen. John Edwards had picked it up in his race for the Democratic nomination. It is, after all, fairly widely understood that the US system is capricious, wasteful and often second-rate (its overall performance, that is, not its spectacular high end), costing nearly twice as much as various European systems that deliver better results on several dimensions (outcomes, satisfaction, etc.).
When Edwards dropped out of the race, Sen. Hillary Clinton became the plan’s chief proponent, and Barack Obama – who earlier had opposed individual mandates – quietly incorporated it as a plank of his platform after he vanquished her. Jonathan Gruber advised all three. And the bill that the Senate passed last week by a strictly partisan vote of 60-37 was a direct descendent of the approach that Gruber had devised for Romney in Massachusetts in 2004.
Only thus can you understand how reshaping the provision of healthcare wound up at the top of the political agenda at a time when the United States was involved in two foreign wars, troubled by the prospect of global warming, and on the eve of its greatest economic crisis since 1929. To be sure, exploding costs would have forced the issue eventually – especially Medicare costs for aging Baby Boomers. But Bill Clinton had sought to grasp the nettle in 1993 to spectacularly bad effect.
So a contagious Republican proposal which quickly spread to the Democratic primaries proved to be the proximate cause of landmark legislation. Jonathan Chait, of The New Republic, knows as much about the health care bill as any journalist. And the Rest Is Just Noise explains why what has emerged “is not merely ‘better than nothing’ or ‘a good start.’” It is instead, he says, “the greatest social achievement of our time.”
Why? Because, by extending somewhat the principle of federal regulation, it changes the geometry of the medical- industrial complex in fundamental ways. As Chait puts it, the proposed statute “prods the system” in myriad ways. It directs money away from wasteful and ineffective treatment in emergency rooms and towards routine care for the previously uninsured. It launches many experiments, large and small, designed to discover effective ways of doing things – everything from computerizing medical records to penalizing hospitals with high infection rates.
Looming ahead, barely discernible, is what may amount to a second major health care act, one that would establish a Health Care Fed, along the lines of the Federal Reserve Board, with its dozen decentralized reserve banks around the country engaged in constant consultation with commercial lenders – something much more substantial and durable than the independent Medicare Commission that the Senate bill (although not that of the House) authorizes to establish basic benefit schedules. But that is a story for another day, unlikely to come to a boil until Americans have gained some confidence in the new measures.
For now, says Chait, the current bill is not the kind of plan that liberals wish they could design from scratch. “Rather, it is a centrist compromise of the best variety, combining the ideas of the now nearly extinct moderate wing of the Republican Party with the smartest bipartisan technocratic reforms.”
Is there a crisis in the Republican Party? The best evidence of it is the lone Republican congressman from Louisiana who voted for the health bill, Anh (Joseph) Cao. All the others who might have obtained some benefit from the bill refrained for fear of being ostracized by party chieftains and targeted in re-election campaigns by far-right candidates. At the same time, The Wall Street Journal fulminated last week against “the vast expansion of federal control.” There had been a broad consensus that the health care system required serious reform,” the editors wrote. “A popular president might have crafted a durable compromise that blended the best ideas from both parties.” That, of course, is exactly what Romney attempted and Obama accomplished.
Sufficiently clouded by defeat is the editors’ judgment, however, that they no longer seem to recall that they themselves showcased Romney’s “Healthcare for Everyone? We’ve Found a Way” proposal in 2006. But then, why not? Even Romney denied his paternity in the course of his campaign. The Democrats have no reason to remember. Having veered sharply to the right, the Republican leadership has every reason to forget. And so the history of incremental universalism remains hidden.
The right wing of the Republican Party continues to hope the Obama victory is a temporary aberration, a last gasp of twentieth-century liberalism, and that what Karl Rove, former chief adviser to George W. Bush, describes as “a GOP ascendency” soon will resume. This seems unlikely. It helps explain the bitterness and despair among party regulars – what journalist Chait calls The Rise of Republican Nihilism. The GOP may pick up some seats in the midterm elections. Mitt Romney may even become his party’s nominee in 2012. (Plenty will be learned from that campaign!)
Before the Republican Party is again trusted with national leadership, though, it must reassemble itself as a prudent, non-ideological coalition that, while reining in the Democrats’ more optative impulses, can be depended on to preserve the best of whatever gains might have been made. That probably will be the work of many years. There are plenty of sensible moderate Republicans around, for instance in economics departments of colleges and universities, but they have been rendered mute by fundamentalist conservatives. In order for them to regain positions of leadership and responsibility, the GOP may have to first shake itself apart.
Postscript, June 5, 2011 – What has changed in eighteen months? Control of the House of Representatives, for one thing. The Republican came roaring back in November 2010, picking up more than 60 seats, at least partly on the strength of anxiety about the health care plan (Rep. Cao was one of the few Republican incumbents who lost). Romney, who announced his candidacy last week, has tried to position himself as that moderate Republican, but only at the cost of antagonizing much of the party. The “young guns” of the Republican Party– chiefly Congressmen Paul Ryan, of Wisconsin, and Eric Cantor, of Virginia, have broached a plan to replace Medicare in the next generation with partial subsidy of private insurance plans. The next election is seventeen months away