The U.S. Supreme Court's current consideration of federal health-care legislation has triggered thoughts not only about health care but other policy areas where reconsiderations might be in order. How should things work?
First, health-care and other so-called entitlements programs.
President Franklin Roosevelt's Social Security legislation, passed in 1935, was the landmark measure that gave the federal government a universal, safety-net function for the first time. The country was deep in depression and FDR wanted, most of all, to provide a safety net for needy citizens. But the tradition had been for families, churches, charities, and localities to fill this role. He feared that a federal program benefiting needy citizens only could not gain majority support in the country or Congress. So Social Security was designed to be "universal" — that is, benefiting every citizen, regardless of income.
Roosevelt was right. A universal Social Security program passed the Congress and has benefited every retiree since. It has been financed by payroll taxes, withheld up to a worker's capped income level. Many retirees have thought that they had individual Social Security accounts to which they contributed over a working lifetime and from which they would derive benefits after their retirement. (You can get an earnings statement from the Social Security Administration showing your contributions year-by-year. But your total contributions will never equal your eventual benefits. The eventual benefits will be small, if you die soon after retirement, or ample, if you are long lived). Social Security is an income-transfer program. Its benefits are received by eligible senior citizens. It is financed by younger working citizens.
Depression-era workers were big Social Security winners. They contributed for only a few years, but got benefits over the rest of their lives. I can recall former Council of Economic Advisors Chair Walter Heller telling me, during his retirement, that he had received many times his total contributions to the system. My own Depression-born generation had a low birthrate and, thus, we were no great burden to the big wage-earning boomer generation behind us.
Our benefits begin to exceed our lifetime contributions about 10 years into retirement. But demographics, in the end, rule. The high-birth-rate boomers are now entering retirement but there are not enough working-age Americans to finance their benefits at current levels.
How to address this problem? You could change Social Security from a universal program, benefitng everyone, to a needs-based program, as FDR originally considered. But public opinion would not accept that. The other options are straightforward: Reduce benefits slightly; raise the eligibility age slightly; adjust the annual cost-of-living adjustments slightly downward; increase the amount of salary income subject to Fed/FICA withholding. A mixed package, including some or all of the above, would fix the problem immediately. But, as we have seen, neither successive presidents nor a congressional majority have had the guts to do it. It will happen, however, when and if enough retired boomers and others become sufficiently alarmed to force their elected leaders to act.
President Lyndon Johnson designed the 1965 Medicare program on the model established 30 years earlier by his hero FDR. He made it universal, with premiums to be paid by all during their working lives and benefits to be received by all over 65. A supplementary prescription drug benefit was added during the George W. Bush presidency, supported in particular by Democratic Sen. Ted Kennedy, paid for partially by premiums deducted from retirees' monthly Social Security payments. Johnson added in 1965 a Medicaid program designed wholly to benefit low-income Americans. It is administered and partly financed by the states, which offer differing benefit levels.
Medicare is in more difficult financial condition than Social Security. A combination of the same fixes would have to be applied to achieve long-term stability.
Over the years leaders of both political parties, of many interest groups, and in many non-profit and academic institutions strove for a federal health-care program which would provide benefits to all Americans, of all ages. In the 1950s and early 1960s, many of those who had backed Medicare proposed a universal, "single-payer" federal program, which would be similar to those in the United Kingdom, Canada, and many other countries. There would be a government-run program that would, in effect, put everyone into a Medicare-like system. The labor movement supported the concept. It appeared in several Democratic national platforms. But such a program could not be enacted, even when Democrats held the White House and congressional majorities. There were financing problems. Medicare-level payments to health-care providers (i.e., doctors, hospitals, laboratories, etc.) were not covering the cost of the services rendered. Non-Medicare patients and insurance companies were paying higher fees to subsidize Medicare and Medicaid patients. If everyone shifted to a government-run program, therapies and procedures eligible for coverage either would have to be reduced or taxes would have to be raised sharply.
Some, including myself, proposed during the 1970s and 1980s that a start be made with public catastrophic coverage for all. The fear of calamitous accident or illness was strong among all citizens. Yet, it was true, more than half of all medical expenses were incurred by about 10 percent of the population. Why not create a public catastrophic, or major medical, program with a reasonable deductible to be borne by the patient? People would be secure from calamity. The hit to the federal budget would be comparatively small. But this concept, too, ran aground.
There were conceptual problems in trying to establish a federal system. Most Americans were conditioned to a doctor-patient relationship in which the two, together, would determine which therapies and procedures were appropriate. They did not want federal bureaucrats making decisions in their place. Nor did they want insurance bureacrats doing so. But at least you could argue with your insurance company.
The British, Canadian and other experiences, moreover, were that low-cost therapies for common ailments were routinely OKd by government administrators whereas high-cost therapies for rare, complex ailments sometimes were disallowed entirely. (My late wife, for example, died after a five-year battle with a blood cancer that would not have been eligible for treatment in the UK system. We found that, as a result, all the British specialists in her disease had moved to the United States). Proponents of a single-payer system often pooh-pooh these concerns. But they cannot be brushed away. Seattle-area physicians and hospitals can tell you of instances where better-income British Columbia patients come here for treatment because they cannot get it in their home province unless it involves lower-cost and possibly less effective treatment options.
So a mixed system evolved here, with senior citizens and the poor getting health coverage through Medicare and Medicaid; others being covered through private insurance (often employer-supplied); and still others, especially the young, opting to take their chances of going without coverage.
In 1994, then-first lady Hillary Clinton led a task force that developed a national health-care plan, which was complex and hard to understand. It would have been administered in large part through state-level bodies, which skeptics believed would be subject to political corruption. Little prior consultation was undertaken with congressional leaders of either political party. House Democratic leaders advised the Clinton White House to withdraw the legislation and any effort toward systemic reform was set aside — until President Barack Obama's 2009 effort.
The Obama proposal was not as complex as the original Clinton proposal. It did not involve a federal single-payer system or even a catastrophic-coverage starter system. It focused, instead, on what eventually came to be called only "health-insurance reform." President Obama was new to the White House and had only short prior U.S. Senate service. Rather than developing his health proposal internally, as prior presidents had done, he left its design largely to House Democratic chairs who had dealt in the past with health-care issues. He also diverged from the strategies employed by Presidents Roosevelt, Johnson, and GW Bush —and in the Congress by Sen. Ted Kennedy — in which they sought bipartisan and broad private-sector support for their health proposals.
Instead, Obama relied on Democratic majorities in the House and Senate and fended off Republican efforts to include in the legislation such provisions as broad liability reform and authority for insurers to sell their health-insurance products across state lines. After a full-court press, in particular, on moderate Democratic House members, the legislation narrowly passed. At the time of its passage, surveys showed public opposition to be 60-65 percent.
Now, two years later, a public majority remains opposed and nearly two-thirds of citizens say they regard the legislation as "unconstitutional." Voters backlashed against moderate House Democrats who had voted for the legislation. Democrats lost 63 House seats in 2010 and their majority in that chamber. The House in 2011 convened highly polarized between conservative Republicans and liberal Democrats. The previous center was missing.
Obama's other chancy tactic in 2009 was to attempt the legislation at a time when the country simultaneously was undergoing financial and economic crises. (Roosevelt, after taking office in 1933, waited a full two years before pressing his Social Security legislation). White House staff reportedly argued against taking on the health-care issue until economic stability was restored. Obama, however (reportedly at the strong urging of his wife Michele) insisted that the effort go forward.
Let's set aside, though, the tactics and timing associated with the legislation. What about its content, now under court review?
My own view, from the beginning, was that the so-called "individual mandate," which is the centerpiece of the legislation, was a sine qua non for its viability if a general or catastrophic plan were not to be attempted. As many have pointed out, it originally was proposed by Republicans seeking a mixed public-private approach to health-care reform. It was employed in the Romneycare plan enacted in Massachusetts. The underlying concept was based on the auto-insurance model. That is, that everyone outside Medicare or Medicaid should be required by law to have health-care insurance. If they did not have it, they would be compelled to buy it from a public-established entity — that way, people could not irresponsibly leave others to pay for their care if and when they had an illness or accident. (There is a difference, of course, between the auto-insurance and health-insurance public-option models; not everyone owns or drives a car).
Opponents are now arguing that the Commerce Clause of the Constitution prohibits the federal government from compelling private citizens to buy a certain product. Court observers are now speculating that, since the entire legislation hinges so greatly on the individual mandate's inclusion, the justices may strike down the entire law in June when they reach a decision.
A betting person would wager that the court will knock down some or all of the legislation by a 5-4 vote. But maybe not.
If that does happen, we'll be back to "go" one more time in trying to design any new reform package. Any such effort would no doubt be set back for a time, as after the 1994 failure of the Clinton initiative. My own recommendation, in that case, would be to do a retry toward a national catastrophic plan. But that will be only one idea among many.
What other reconsiderations are in order?
Tax policy, of course, comes immediately to mind. Why should federal and state governments extend subsidies, deductions, and other breaks to certain economic activities but not to others?
Home ownership, for instance, was seen as a virtue and social stabilizer when home-mortgage payments were established as deductible under the Internal Revenue code. But there were unforeseen consequences to this provision: overallocations of capital to the housing sector; assumption of mortgages by people unable to finance them; the creation of such institutions as Fannie Mae and Freddie Mac to subsidize this part of the market; the invention of exotic derivatives which their Wall Street inventors themselves did not understand; a financial collapse partially caused by reckless trading in such derivatives, etc. Then there was the simple fact that many billions were lost to the Treasury annually because of the home-mortgage deduction. Other countries, including Canada, have no deduction and nonetheless have large home-owning populations.
A medical-expense deduction also costs the Treasury billions annually. Rational health-care reform might enable its removal.
Then there are many billions in "tax expenditures" extended to politically favored sectors and companies, ranging from oil and gas and alternative energy companies to defense contractors, auto companies, producers of certain agricultural commodities, and exporters of certain manufactured goods.
Any respectable economist will tell you that overall economic efficiency, growth, and job creation would be served by elimination of all of these tax expenditures. The tax code should not determine economic decision-making. Companies, sectors, and spheres of economic activity should not be chosen for success or failure by government decision. Small business, in particular, gets left out when tax goodies are passed out to the big players with the strongest political clout. Let free competition reign and prosperity ensue.
Both major political parties have pledged to address tax expenditures as they examine their options for long-term public debt reduction. But, thus far, few major leaders have been willing to single out specific candidates for elimination.
There is a natural reluctance to do so but we also should revisit the powers to be reserved, respectively, to the federal government and states in many spheres.
"States rights" were the rallying cry during the civil-rights era for civil-rights opponents who wanted to resist such measures as the Civil Rights and Voting Rights Acts on the basis that the states, and not the federal government, should have jurisdiction in such matters. Presidents, Congresses, and the courts reflexively came to regard states-rights-based arguments as by their nature reactionary and arguments for federal jurisdiction to be enlightened. But that was a half-century and more ago.
States and localities are complaining now that the federal government has overstepped in many policy areas (not having anything to do with minority rights) especially relating to economic issues. It's hard to be sympathetic to these assertions when they are based in state- and local-level desires to void federal environmental or public-lands safeguards. But, in an era of concentration and centralization, we should be willing to hear case-by-case arguments about top-down abuses by government distant from places where people live their daily lives. Political tides change. Laws and regulations adopted in a progressive era can be used for reactionary, coercive purposes in another era.
Both major political parties have, in fact, been running on intellectual empty for several decades. If you follow this year's presidential-campaign debate, for instance, you find it uncannily paralleling that which took place in the 1930s, with one side denouncing the greedy rich, Wall Street, oil companies, and their abuses and the other warning that government and its liberal allies are villains and a threat to freedom.
Maybe the silver lining in the current health-legislation confusion is an opportunity to rethink many of our approaches to governance and public policy.