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The Ghosts of ClintonCare

This article appeared in the Outlook section of today's Washington Post. But I figure you guys might feel more comfortable reading, and commenting on it, here. I'll also be doing a Post chat at 11am tomorrow on the piece. You can submit questions for that here.

clintoncare.jpgBarack Obama's strategy to pass health-care reform seems based on a simple principle: Whatever Bill Clinton did, do the opposite.

Where Clinton and his team crafted their health-care reform plan in the executive branch, Obama has left the details of his effort almost entirely to Congress. Where Clinton pursued an ambitious reconstruction of the entire sector, Obama has sought to preserve existing insurance arrangements and win the support of industry players. Where Clinton spent a year developing his bill before even getting to Congress, Obama lashed his efforts to a tight (and apparently unrealizable) timetable. Even the atmospherics offer contrasts: Clinton's big push for reform came in a soaring 1993 speech before a joint session of Congress, in which he offered painstaking details of his plans; Obama made his argument to the nation at a news conference last week, addressing concerns more than specifying proposals.

Obama's reluctance to follow Clinton's example is understandable: Few legislative failures have been as catastrophic as Clinton's on health-care reform. Yet the ghosts of the early 1990s still hover over today's debates.

Much as opponents derided the Clinton effort as Clintoncare or Hillarycare, some now speak of Obamacare, and Sen. Jim DeMint (R-S.C.) recently chortled in a conference call that a defeat on health care would be Obama's "Waterloo." The president, for his part, told PBS's Jim Lehrer last week that some Republicans are engaging in a 1994 redux. "They explicitly went after the Clintons, said: 'We're not going to get this done.' . . . It was a pure political play, a show of strength by the Republicans that helped them regain the House," Obama said. "I think there are folks who think that we should try to dust off that old playbook."

Yet there are aspects of Clinton's approach that could, and should, inform Obama's effort -- and not just as examples of what not to do. Clinton's attempt to remake health care may be remembered now as a moment of colossal hubris and epic political misjudgment, but his project was bedeviled by a greater sin: prescience. Clinton got the politics of reform wrong, but in important ways, he got the policy right. He just got it right too soon.

By the time Clinton and his team took office, the insurance market was changing. American consumers had traditionally relied on the most straightforward of insurance products: indemnity insurance. You went to the doctor or hospital of your choice, and that doctor or hospital sent your insurer the bill. Hopefully, your insurer paid it. That was that. The plans weren't confined to networks tangled in deductibles and co-pays. But they weren't holding down costs, either, and the system was becoming unaffordable. Managed care, a new system that was rapidly emerging, envisioned a more central role for insurers. After all, they were paying for your treatment, so why shouldn't they get some say in how it was conducted?

The managed-care revolution of the mid-90s was, by the early years of that decade, clearly inevitable; the financing and delivery of health care could not remain separate forever. But this was a dangerous change. Insurers make money by denying claims. Money they spend on health care is money they lose (they even have a name for it: the "medical-loss ratio"). Private insurance is a bit like a fire department that turns a profit by letting buildings burn down.

So Clinton sought to cage managed care inside managed competition, which would regulate the behavior of insurers and force them to compete for patients. This would give consumers more power against their insurance companies, drive the bad actors from the market and generally protect against the excesses of managed care. Clinton's plan also included a handful of other safeguards, like out-of-pocket caps and an independent appeals process, designed to protect consumers from deficient insurance.

"Clinton attempted to grapple with that change that was coming," recalls Sara Rosenbaum, director of George Washington University's School of Public Health and Health Services and one of the lead drafters of Clinton's bill, "but to also make sure that there would be a higher power than just the market."

But if Clinton's team of enlightened wonks could glimpse managed care over the horizon, the public wasn't as farsighted. Bill and Hillary weren't seen as meeting and taming the managed-care revolution. The act of writing legislation that included managed care made it seem as if they were proposing it. And there was no political margin in that. Managed care, after all, means less choice. It means provider networks and insurance bureaucrats and complexity. It would have been a hard sell under any circumstances, but the Clinton administration's chaotic political operation and continual drip of scandals made the job virtually impossible. The plan died a painful and public death in Congress and contributed to the GOP's huge gains in the 1994 elections.

But then a funny thing happened: Managed care came anyway. By last year, only 7 percent of American workers were in "traditional" indemnity health plans, while the rest of us -- or at least those of us fortunate enough to have insurance -- were swimming in the alphabet soup of HMOs and PPOs and HDHPs. We're all in networks now. We don't get our choice of doctor. There's no appeals process. No out-of-pocket caps. Nothing to stop insurers from rejecting our coverage applications based on preexisting conditions. And if we don't like our insurer? Tough.

"We got managed care," says Chris Jennings, who was one of Clinton's top health-care staffers. "But we didn't get the things that would protect us from managed care. We got the Wild West version of it."

In the modern health-care system, there is no higher power than the insurance market. And the insurers who populate that market have grown all the stronger. The Justice Department judges an industry "highly concentrated" if a single company controls more than 42 percent of the market. By that definition, 94 percent of statewide insurance markets are highly concentrated. A recent study by the advocacy organization Health Care for America Now showed that in Indiana, WellPoint controls 60 percent of the insurance market; in Iowa, Wellmark accounts for 71 percent; and in Alabama, Blue Cross/Blue Shield holds 83 percent. In the past 13 years, there have been more than 400 corporate mergers involving health insurers.

Economics textbooks tell us that concentrated markets reduce the competitive behavior that benefits consumers and lead to outsize profits for the dominant firms. Predictably, health-care premiums shot up more than 90 percent between 2000 and 2007, while the profits of the 10 largest insurers increased 428 percent over the same period. Clinton had promised us managed care within managed competition. Instead, the insurers took control of our care and managed to effectively end competition. Neat trick.

This has not gone totally unnoticed in the political system. In September 2007, a young senator lamented that the number of insurers had fallen by 20 percent since 2000. The senator? Barack Obama.

All of this has led to an interesting reversal in this year's health-care debate. In 1994, people feared that Clinton would restrict their choices. In 2009, people want Obama to bring their choices back. On June 2, Obama sent Sens. Ted Kennedy and Max Baucus, key players on reform, a letter laying out his "core belief" on a health overhaul: "that Americans should have better choices for health insurance." He's tapping into something. A Washington Post-ABC News poll last month showed that 62 percent of Americans support the choice of a public insurance option. It's one of the most popular aspects of health-care reform. But if the public option would drive private insurers out of business and reduce consumer choice, the numbers flip, with 58 percent opposing it.

What people support, in other words, is not public or private insurance, but choice in insurance. That, along with protection from escalating costs, is the inviolable principle of health-care reform.

The irony is that some of the health reform proposals on the table this year are a bit of back to the future. The health insurance exchanges that Obama envisions -- regulated markets that the government would set up where insurers would compete for business -- are the successors to the managed competition that Clinton sought. The regulations on insurer behavior and the out-of-pocket caps are direct descendants of the Clinton bill.

There are important ways, however, in which the bills currently working their way through Congress do not go as far as Clinton's plan did 15 years ago. In attempting to ensure that Americans can keep the coverage they like, they do not always ensure that people can leave insurers they do not like. The insurance exchanges, in particular, are limited to the self-employed, the uninsured and small businesses. Someone who works for a larger employer would not have any more choice under these proposals. Indeed, the problem with trying to make sure that everyone can keep what they have is that you can't change very much. This makes it hard for advocates to explain exactly how health-care reform will improve conditions for the insured, at least in the short term.

Many in the White House say this is not a bug in the proposed system; it's a deliberate feature. The lesson of Clintoncare was that even if the American people want reform, they do not necessarily want change. And so Obama's health-care strategy involves a delicate effort to answer the question that doomed Clinton: How do you reform the health-care system without substantially changing it?

But this is not the early 1990s. The indemnity insurance that most Americans enjoyed then is virtually nonexistent today. The mergers and takeovers and consolidations in the insurance market have given people less choice and thus less power. Today, the cost issue is more acute, the president is more popular, the Democrats have more seats in Congress, and the Republicans are more fractured. Obama, in other words, was right to dismiss those who would "dust off that old playbook."

But the ghosts still hover. Republicans are fixated on what worked for them in the last health-care battle, and Democrats are overly concerned with what contributed to their failure. Just as Clinton's plan was weighed down by the impression that it would change too much, history may leave Obama's effort vulnerable to the charge that it is changing too little.

By Ezra Klein  |  July 26, 2009; 3:05 PM ET
Categories:  Health Reform  
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Next: What August Means for Health-Care Reform


Great article. I should note that 42% in one actor is a really rough and not particularly useful way to look at market density. The DOJ actually uses a formula called HHI to get their rough estimate, not even the final analysis. The question is really not one company holding a certain percentage, but one company holding ENOUGH of a share in a highly or moderately-dense market. The target moves as density changes.

Posted by: Fnor | July 26, 2009 5:05 PM | Report abuse

Why isn't anyone mentioning the fact that the Senate is opposing the will of the vast majority of the country? When 72% or more of the country wants something and our representatives say no we no longer have a Democracy.

Posted by: par4 | July 26, 2009 5:35 PM | Report abuse

This may be a stupid question, but whenever one reads about health care, you hear about all the things Democrats have tried, and how/why they failed. Have the Republicans ever even attempted or proposed anything substantial to fix a system everyone knows is broken?

Posted by: nylund | July 26, 2009 5:42 PM | Report abuse

I would comment but I can't seem to stop choking on all the Unicorn dust.....

I can't believe the Post publishes this smut. You don't even research your facts. You don't even have an elementery education of economics or business ,especially the Insurance industry, and you just keep pining for this delusional vision of Statist purity.

Posted by: fallsmeadjc | July 26, 2009 5:50 PM | Report abuse

Interesting well placed article. You are really avoiding the topic of rationing. Yet high up as an advisor sits the heartless and repugnant Ezekiel Emanuel, a man on record (quotes all over the internet from meetings at the Hastings Institute) as advocating nothing less than eugenics, the deprivation of care to the mentally disabled, to the extremely old, to the most vulnerable members of society. If republicans knew what they were doing they would make this dreadful individual the "face" of healthcare reform.

Posted by: truck1 | July 26, 2009 7:19 PM | Report abuse

( still the weekend!
keep enjoying your brandywine tomato and basil sandwiches!)

Posted by: jkaren | July 26, 2009 8:28 PM | Report abuse

"Private insurance is a bit like a fire department that turns a profit by letting buildings burn down."

That is a sickening lie, Mr. Klein. One could say, "Government insurance is a bit like a fire department that stays within budget by letting buildings burn down." There simply isn't enough money to put out all of the fires.

Posted by: staticvars | July 26, 2009 10:04 PM | Report abuse

I disagree with you on one important point. Of course, if you ask people if they want a public option even if it will drive private insurance out of business, they won't like it, because it always seems unfair to drive somebody out of business. But if you use the magic word "Medicare," you get quite a different result. Here is a question from a Washington Post - ABC poll in 10/2003 (It hasn't been asked since. I wonder why): "Which would you prefer: the current health insurance system in the United States, in which most people get their health insurance from private employers, but some people have no insurance, OR, a universal health insurance program, in which everyone is covered under a program like Medicare that's run by the government and financed by taxpayers?"

62% favored Medicare for All; 33% were opposed. That's pretty decisive. And this is with the facts suppressed. Other questions in the poll show that the 62% supporting the universal program mostly believe it will cost more when it will cost less. They believe they won't be able to pick their doctor when Medicare allows much more freedom than most private plans. They believe there will be long waiting times when this is a myth. And still they support a universal plan like Medicare for All by 2 to 1.

I think the 2003 question is more relevant than the question in the recent poll.

PS I think it's is amusing that the conservatives here seem to feel that if you state anything strongly enough, it must be true.

Posted by: lensch | July 26, 2009 10:24 PM | Report abuse

Why would anyone look to Ezra Klein for guidance on health care? He graduated from college in 2005. He majored in political science (hint Ezra, not an actual science).

And now he is an expert on this stuff? Only an "expert" like Ezra can explain how taking the profit motive out of a business will get us better quality and more affordable products. Or how cutting medicare by 10% while the number of people covered by medicare jumps by 30% is anything but bad for old people.

This chick's ideas are more well-thought-out than Ezra's.

Posted by: RezkoLot | July 26, 2009 10:28 PM | Report abuse

"Only an "expert" like Ezra can explain how taking the profit motive out of a business will get us better quality and more affordable products."

There are plenty of experts who agree with Ezra on this. Go to which is full of such experts who are on the staff of the countries greatest medical schools, public health schools, and well-known physicians such as the former editor of the New England J. of Medicine.

I am not such an expert, but here is a simple explanation:

The goal of a well run corporation is to make money for shareholders. In the case of health insurance companies this is in conflict with providing good efficient health care to the country.

The for profit insurers have learned that the way to get a high stock price is to have a low Medical Loss Ratio which is the percentage of inflow (premiums) paid out in medical benefit to patients. Notice that they consider medical benefits as "losses."

They do this in two ways. They make the numerator smaller by making it difficult for doctors and patients to collect. They make the denominator larger by obscene executive compensation, high profits, billions spent processing complicated forms they require of physicians and patients, and still more billions spent on fighting with doctors and patients over coverage and payments. See the SEC fillings for the Medical Loss Ratios and a recent Commonwealth Fund Study for the difficulty patients and physicians have with coverage and payments.

In colonial Philadelphia there were competitive fire insurance companies each of which had their own fire departments. It doesn't take much thought to see what a disaster this was. Competition works fine in some case, but not in other. Health insurance is one where it simply does not work. We have had 50 years to see that.

Posted by: lensch | July 27, 2009 7:58 AM | Report abuse

Congratulations Ezra on getting a healthcare article in the dead-tree version of the Post.

As to Ezra's credentials, look, young reporters report on difficult subjects all the time--without doing the work that Ezra has on healthcare. Unlike most pundits Ezra has been studying the issue for years--reading the reports, interviewing major players, and doing the research. If you had followed his work at his previous blogs or writings in the American Prospect you'd see that. Also, unlike other pundits Ezra is careful about pontificating on subjects he doesn't consider his speciality.

Posted by: Castorp1 | July 27, 2009 9:35 AM | Report abuse

Fnor, if there's a firm in an industry with 42% share, the industry's HHI will be no less than 1764 (42 x 42), and for DOJ that's near the upper bound for a moderately concentrated industry, and anything over 1800 or so is regarded as indicating a highly concentrated industry. So what Ezra said is consistent with DOJ industry concentration hurdles (note that presence of a firm with a 43% market share leads to an HHI of no less than 1849), although oddly stated (maybe it's one of those "plain English" innovations "for the layman" -- truthy but not the whole story)

Posted by: bdballard | July 27, 2009 10:12 AM | Report abuse

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