The System: The Death of Health Care Reform in 1993-1994

Haynes Johnson and David Broder (1997), The System (Boston: Little Brown: 0317111457).

J. Bradford DeLong
delong@econ.berkeley.edu
http://www.j-bradford-delong.net/


I had been avoiding reading The System--Washington reporters Haynes Johnson and David Broder's account of the catastrophic collapse of the Clinton Administration health care reform effort--for a number of years. The worst hours of my life in 1993-1994 were those I spent providing analytical support for health care reform. I watched the catastrophe approach and then saw the crash, the product of a three-fold bankruptcy: moral, intellectual, and political. The moral bankruptcy was on the part of the Republican Party's power structure, which thought (correctly) that placing the government into total gridlock was a road to political success, and cared not at all for making public policy better along any dimension. The intellectual bankruptcy was on the part of President Clinton and the senior White House domestic policy staff, which never solved the puzzle of how to construct and sell a plan to make the American health care system better, and which was totally clueless with respect to how to construct a coalition to support reform. The political bankruptcy was on the part of the Democratic congressional majorities in House and Senate, which ultimately failed to pass even a ghost of a bill to reform America's health care system along any dimension. The combination of these three bankruptcies has left America in 2000 with a health-care system even more wasteful and inefficient and even worse at delivering health care to the poor than we had a decade ago.

Participating in this was a dark experience. And it left me with a profound sense of guilt: a lot of people would lose the chance for better medical care because my side--me, my political allies, and those whom we had chosen to lead us--failed to do our job.

But this past weekend I picked up The System and read it on the planes while on the way back from Yellowstone. I found it a good book: largely accurate, an engaging read, fair (and sometimes more-than-fair) to all the participants. It reminded me of why my political commitments are what they are, and solidified them. I did have three quarrels with the book:

However, let me postpone my quarrels until later. Here and now I want to summarize the story that the book tells.

Johnson and Broder begin the story with the moment at the start of the 1990s when the American political class realizes that middle-class Americans are genuinely worried that if they lose their jobs they will lose their health insurance and their medical care. As Harris Wofford put it in his successful 1992 campaign for the Senate in Pennsylvania: "the Constitution says that if you are charged with a crime, you have a right to a lawyer. Every American, if they're sick, should have the right to a doctor." Johnson and Broder report that the audience "...response was immediate. Loud applause" (pp. 59-60). Thus health-care reform becomes a large political issue in the 1992 election, and to push for health-care reform becomes a major campaign promise of President-to-be Bill Clinton.

(I would have stared the story at another point: with penicillin, or Bismarck's first national health program in late nineteenth-century Germany. Starting with the policy gives you a much better background for understanding. But, as I said, Johnson and Broder are journalists, not policy analysts.)

So after his election, President Clinton set up a policy-planning process to prepare a health-care reform plan for congress to pass. He chose his wife, the First Lady, Hillary Clinton to head up the planning process. He chose his long-time friend Ira Magaziner to be her deputy. He told them to think big.

Magaziner had two major flaws. His first was that his instinct was always to make things more complicated. Faced with a choice between doing 90% of a job with an organization that has 10% of the present complexity and doing 100% of a job with 200% of the present complexity, he would always choose the second. He had no sense that complicated organizations tend to break, to exhibit bizarre and unplanned behaviors, and are hard to explain--but he had never run and had spent little time working in large human organizations, and when he got his chance to do so during health-care reform he rapidly proved to be incompetent at marshalling resources and using his people's time effectively.

His second flaw was that he thought like a management consultant. A management consultant's principal goal is to win a debate in front of his employer, the senior decision maker, the "Principal." You win a debate by making intellectual arguments, controlling the flow of information to the senior decision maker, walling-off potential adversaries from the process, and winning the confidence of the Principal by telling him things that he likes to hear: that he is smart, that his goals can be achieved, that the nay-sayers just don't grasp the issues.

But that's not how you develop a policy. You develop a policy by forming a large coalition all of whom agree that the proposal will make the world a better place, and that it is close to the best that can be attained at the current moment. Then you have a large group of people who are enthusiastic about the proposal: they will go out and make your arguments for you. The compromises and concessions that had to be made within the policy-planning group in order to form the coalition will then perform a very important exeterior purpose: just as they brought people within the process onboard, so they will bring other people outside the process who think in a similar fashion onboard as well.

For a management consultant, it doesn't matter if everyone else in the organization hates your guts as long as the Principal--the CEO--is convinced, for the CEO is the boss and can then make things happen. For a policy planner, winning the confidence of the Principal is almost beside the point: instead, the point is forming a coalition that can then be extended to win a majority of the House of Representatives, the 60 votes in the Senate to end a filibuster, and a Presidential signature.

His judgment was also poor. Remember: this is a guy who, without knowing anything about nuclear physics, testifies before congress that America has no choice but to pour lots of money into research into Cold Fusion. This is a man who thinks at the end of the 1970s--a time of record high energy prices and rapidly-growing competition from new producing nations like Brazil and Korea--that what America really needs to do is to invest in more brand-new integrated steel factories.

Combine Magaziner's flaws with the sense at the start of 1993 that possibilities were unbounded--that, as one (anonymous) senior White House aide put it, no one in the White House "...was thinking about the fact that Bill Clinton got only 43 percent of the votes. He was on top of the world. He was young, he was good-looking, he gave a good speech. The world was full of hope"--and you have the setting for a policy-planning disaster.

And the policy-planning disaster duly took place, for Magaziner set up a process that was the antithesis of the coalition-forming, doubt-resolving, opposition-coopting process needed to construct a viable legislative proposal. As Johnson and Broder put it, Magaziner wanted a non-standard design. He wanted "...outside experts to challenge the conventional views.... to keep the veteran policy-network players [out]... [to keep] the final key decisions... [in the hands of] three people," the President, the First Lady, and Ira Magaziner. That this turned out to be a bad idea did not come as a surprise. At the very start of the Clinton Administration Donna Shalala, HHS Secretary, and Alice Rivlin, Deputy Director of OMB, were especially vocal at stating their belief that the Magaziner process was not "a disciplined policy-development process that would result in a piece of legislation that was fully vetted."

But don't blame Magaziner. Blame the guy who chose him--Bill Clinton. And blame Bill Clinton's inability to accept bad news and his eagerness to trust those who would tell him what he wanted to hear. As Senator Jay Rockefeller tells the story, his former aide Judy Feder "...flew to Little Rock.... She was worried.... Economists among the working group argued strongly that their work must not be tainted by the kinds of 'rosy scenarios' that had marred other administrations' cost projections.... [T]he cost estimates Feder had been asked to prepare... came in... 'very high'.... Feder confided to Rockefeller that she didn't think they were going to like them.... 'Be honest,' Rockefeller counseled her.... But, [Rockefeller] later reflected, 'Of course, I was wrong She got crushed. They were furious at her. Clinton personally was furious at her...'" (pp. 109-110).

So Judy Feder did not get the job of the First Lady's deputy on health-care reform (a job she would have performed with distinction). Ira Magaziner did. And he began constructing a plan that he believed would produce (a) universal health coverage with (b) a generous and extensive benefit package that would (c) cost the federal government less than it was currently spending on health care because (d) "managed competition" among health care providers would immediately and substantially reduce the cost of medical care.

The economists assigned to health care reform planning were all--every one--upset and disturbed. The cost savings from increased competition seemed to be generated not by estimates of what could reasonably accomplished without compromising the quality of care, but by whatever was required to keep health care reform from costing the federal government money. And to make sure that health care reform did not cost the federal government money, price controls would be imposed on the amount that insurance companies could charge for health-insurance policies.

But what if "managed competition" (which had never been tried) did not produce immediate and massive improvements in efficiency? Then health insurance companies and HMOs would find themselves under enormous pressure to save money and avoid bankruptcy by reducing the quality of care. Extremely tight controls on premiums seemed to produce the possibility of an unnecessary health-care disaster. Moreover, they greatly lessened the potential political attractivenss of the plan: few centrist Democrats and no Republicans in congress wanted to sign on for such a large expansion of government regulation.

Ira Magaziner responded to these criticisms not like a policy planner building a consensus but like a management consultant. Instead of bringing the Clinton Administration's economic (and social!) policy analysts and cabinet secretaries on board, he posed his and their positions to the President as sharp alternatives. And in early September 1993 the Peresident ruled in favor of Magaziner--and against Rubin, Bentsen, Shalala, Panetta, Rivlin, Tyson, and company, who had argued that the "so-called premium caps would be viewed, correctly, as proxies for price controls--and congress despised price controls... that the alliances were too regulatory... the overall plan too bureaucratic... that Magaziner had stacked the deck against them in the briefing papers...." Joining the policy analysts in opposition to Magaziner were the White House media affairs people: as Johnson and Broder say: "'The plan itself is disastrously complex', Bob Boorstin said, days after it was presented to Congress.... 'Somewhere, somebody... should have come in and said, "We cannot send this fucker up to the Hill." George or Mandy or Stan or myself or somebody should have gone to Ira and Hillary and said, "This isn't a working document."'"

The reaction once the Magaziner plan was made public should not have been unexpected. Conservatives feared that the requirement that all firms pay for their employees' health insurance would cost jobs, and nearly everyone feared that the extremely tight price controls would compromise the quality of care. Magaziner's belief that it was sufficient to roll over the economic and social policy planners and win the confidence of the President meant that the plan when issued had no effective defenses against those outside the Administration who had similar concerns.

More important, the Democratic members of Congress and their staffs felt betrayed. The way that David Abernathy, staff director of the Ways and Means Health Subcommittee, put it was as follows: "I have been doing this all my life and I just marveled at the chutzpah of the administration coming out with these numbers. It begs the straight-face test to think that you're going to cover thirty-eight-and-a-half million new people and not spend any more.... They just went out and told the American people, 'Don't worry. This will be very easy'" (p. 172). As a result, the congress had been "boxed in" because "that son-of-a-bitch Magaziner" had made "... their plan look cheap" and "screwed us." If the congress adopted more realistic estimates of likely savings, then it would have been the Democrats in congress--not the President--who had proposed raising taxes to pay for health-care reform. If the congress scaled back the benefit package to avoid tax increases than that would have been their responsibility too.

And the sense of betrayal was heightened among centrist Democrats as the Clinton Administration adopted a strategy of attempting to stampede rather than coopt the moderates. The worst example was the triple offensive--by the First Lady, House Committee Chair John Dingell, and the AFL-CIO--against Tennessee congressman Jim Cooper, sponsor with Senator John Breaux of an alternative centrist reform bill. As Johnson and Broder tell the story:

At a union-sponsored rally in Chattanooga, a copy of the "phony" Cooper-Grandy bill was ceremoniously burned. Unless Cooper changed his tune, threatened Jim Neely, the President of the Tennessee AFL-CIO, labor would either 'sit out' the Senate election or possibly endorse Republican candidate Fred Thompson. The most damaging blow fell at a civil rights meeting in Memphis. AFSCME... distributed a flyer that claimed "Cooper's plan would punish African-Americans more than others" and is "an injustice to our community." Cooper, the flyer said, has joined forces with the "health care profiteers" to offer "a fatal dose of phony reform"' Ellen Globocar, AFSCME's political director, justified the tactics: "Cooper probably did more damage to Bill Clinton's program than anybody.... We would get calls from the DNC [asking]... 'Why are we beating up on him?" And we'd say, "Maybe it's because he's trying to kill the President's health care proposal'."

Yet aggressive attacks on centrist Democrats--key swing votes--were coupled by total passivity on the part of a White House that seemed unwilling or unable to make the case for health care reform. They way Jay Rockefeller put it as early as December 1993: "I'm furious right now at the White House for several reasons. There is still no organization on health care. There's nothing out there.... The White House was simply not fighting back. There wasn't any effective political operation to win the battle..."

Later on President Clinton would claim that the failure of the White House to get the pro-reform message out was his own fault. "I had cut back the staff of the White House as I said I would," the President told Johnson and Broder. "We didn't have the resources to do it, and we should have..." This claim on the part of President Clinton is doubly mendacious. First, the core White House staff was not cut back: the cutbacks in the "White House staff" had come in the Office of National Drug Control Policy (and these cutbacks may have been a good idea: as far as I know, all the ONDCP does is to try to make sure the President takes credit for whatever good happens with respect to drug abuse and make sure the President avoids blame for whatever bad happens; it doesn't teach people about dangers, treat addicts, conduct research into pharmacology and neurophysiology, or intercept smugglers). But the core White House staff was untouched.

Second, the main resources of the Administration had been and remained outside the White House: the principal policy planners and policy advocates who could fix flaws in proposals, marshall arguments that policies were good for America, and communicate with the public remained where they had always been in the agencies and in the Democratic policy community. They had, after all, worked very hard for President Clinton and won him other significant victories. But on health care they were unused.

I paged through Newsweek for 1994. I found one story by Jane Bryant Quinn that focused on how quickly and unexpectedly a family could lose its health insurance--and how health care reform would fix this. I found no other stories that spent any significant amount of space on the potential benefits for the country of health care reform. Instead, I found Godfather's Pizza CEO Herman Cain talking about how he would have to fire people if the Clinton proposal passed. (I did not find it mentioned that the Clinton proposal would have given Godfather's Pizza a 70% price break on the cost of employer-sponsored health insurance), and the National Federation of Independent Businesses predicting a million lost jobs from the Clinto plan.

On deficit reduction, on GATT and NAFTA, on crime control, and on other--successful--Clinton Administration initiatives, the elite print and video media were force-fed studies, numbers, and stories of the extraordinary potential benefits of Clinton Administration policies. I know: as a not-so-senior administration official I was sent out to force-feed them. But memos, studies, and supporting documents making arguments for health-care reform that were sent up the food chain to the White House Health Care War Room vanished, as if thrown down a well. And the flow of phone calls from journalists asking for background information and of invitations to come and talk to audiences about the benefits of reform never started.

I don't know whether it was managerial ineptness or paranoia that kept the Magaziner-led health care effort from drawing on the rest of the government to make the substantive case for policy reform in 1994. Maybe the work we did on the case for reform was never used because Magaziner and company drowned in paper. Maybe the work was thought counterproductive--too hostile to Herman Cain, say, by accusing him of being a cheapskate unwilling to spend even a cent to get health insurance for his employees (but if so, then why the treatment of Jim Cooper?). Maybe paranoia set in, and the economic analysts' quarrels with the Magaziner Plan were viewed as opposition to all reform. But whatever the source of the failure to make the substantive case, health care reform quickly entered its death spiral: Republicans decided to block any reform, no matter how minor; congressional Democrats could not assemble a majority on their own; and President Clinton had promised in his State of the Union address to veto any bill that did not provide for universal coverage. Combine these with a plan with severe substantive weaknesses and next to no attempt to make the substantive arguments for reform, and the end was sure.

Johnson and Broder tell this part of the story--the congressional politics, the feints and false starts, the collapse--very well. It is their home turf, after all. And I ended the book thinking that they had told the story very well.

But the quarrels with the book that I promised to return to at the end? Let me briefly set them out:

First, because Johnson and Broder are journalists whose principal sources are politicians and "media affairs people" and not policy analysts, they don't understand the substance of health care policy. They don't understand the dilemmas confronting any serious attempt to fix America's badly-broken health-care system. More serious, they are not aware of their lack of understanding: they seem to have made little or no attempt to correct it. Thus they can couple quotes from Ira Magaziner's "strategy memos" on how Republican cooperation was essential and fail to note that Magaziner's cost-containment mechanisms had already and automatically ruled out Republican votes. They can call CEA Chair Laura Tyson "one of the administration's tougher guardians of the free marketplace," not knowing that Tyson is a strong believer in a major role for the government in the economy--that she is not a mindless knee-jerk believer that markets must be "free", but is instead for competent and well-planned government action to structure markets so that private incentives are aligned with social consequences. Thus they miss the fact that the debate within the administration was not between traditional Democrats and free-marketeers, but between an Ira Magaziner who somehow knew--how he knew this when no one else did we could never figure out--that costs could be stringently controlled by fiat without affecting quality of care, and the rest who feared that Magaziner's enthusiasm for managed competition was as well-founded as his enthusiasm for Cold Fusion.

Second, Johnson and Broder take the failure of health-care reform as a "metaphor" for the failure of the American political "System." But it wasn't a metaphor for anything. It was a policy debate. Its catastrophic end was the result of a unique combination of malevolence, bad luck, and incompetence. But their story will not support broad conclusions. Had they taken a look at some other Clinton Administration policy initiatives--deficit reduction say, or what I believe to be the almost completely destructive "reform" of welfare--they would have reached very different conclusions about the ability of the "System" to get things done and to reform how America works. Gridlock is not inevitable. The currently-favored interests do not always have to triumph.

Third, Johnson and Broder give the last word (in the paperback edition, at least) to someone who does not deserve to have it. They give Ira Magaziner, the man whom the Democratic congressional staff called "Hillary's Rasputin," the last word. Magaziner defends "the President's judgment" that massive immediate cost savings were feasible. But those of us who were there remember that one of Magaziner's standard--and most mendacious--moves was to claim that his judgments were the President's, and he was merely echoing them as the President's most loyal servant. Magaziner claims that the President was correct, failing once again to recognize that the task was not to win a debate but to construct a reform-passing coalition. To those of us who were there Magaziner's Parthian shot is a painful reminder of just how screwed-up the process was; but to those who were not there it gives him a bit of credibility and a platform he does not deserve.


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