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Could Heath Care Reform's Success Bring Failure Again?


Without a doubt, it is good news that the major players in America's health delivery system have come together on a strategy to reduce the cost of health care by 2 trillion dollars over the next 10 years. Millions of American families and businesses have been struggling to keep up with costs for health insurance that have been rising far faster than wages and prices in the rest of the economy. But is this announcement, made first by the White House, further evidence that the medicine, pharmaceutical, and health insurance industries, former opponents of changes to the health care system, are now Obama's allies in bringing about reform -- or is this another effort to undermine reform?

The 1993-94 Clinton health care reform effort was successful in at least one respect. The health care delivery system dramatically slowed the pace of price increases that had fueled demands for reform, until the reform failed. Then, for some reason, health care costs began rising again, fueling the renewed interest in health care reform that is driving this week's news.

The Henry J Kaiser Family Foundation has compiled a great deal of data about US health care and health insurance costs and made them available here. The pattern is pretty clear. The annual rate of change in national health expenditures (NHE) per person was 10.8% in 1988 the year George H.W. Bush won the White House. This was well over the annual rate of change in consumer prices (CPI) of 4.1%. The health spending inflation rate stayed above 10% per year until it dropped to 8% in 1991, the year Harris Wofford won an upset Senate race in Pennsylvania by calling for health care reform.

The rate of inflation in health spending continued to decline each year as Bill Clinton campaigned for and won the White House (1992 = 7.1%), Hillary Clinton prepared her plan (1993 = 6.1%), and Congress debated and killed the plan (1994 = 4.1%). There may, of course, be sound economic reasons, rather than political ones, to explain why the pace of increases in health care costs was more than cut in half during this period.

Throughout this period, much of the discussion coming from the White House centered on ways to extend coverage to more uninsured Americans, but as we discussed here, public opinion polls revealed that the driving force of voter interest in health reform was rising costs, just as it is today. To be fair, the managed care movement was in full swing in the early 1990s and this may account for some of the reduction in the rate of health care spending inflation, but at best this is a partial explanation for why one of the most vexing political challenges of the era, double digit increases in health care costs, would simply solve itself before the government could step in with a new regime.

And it was temporary. As the recent update to the chart shows, rates stayed low through the next presidential election (1996 = 4.1%) and then started creeping back upward, jumping up in George W. Bush's first year (2001 = 7.5%) and reaching a peak of over 4 times the rate of change in consumer prices back up at 8% in 2002.

This time around, the health care reform battle lines are far less clear. Many of the 1993 adversaries have come to the White House for "stakeholder meetings" and announced their support for reform in principle, while reserving the right to differ over specifics. The greatest area of difference has been over the question of whether the plan will include a "government option," a health insurance plan offered by the government that competes with private plans that some opponents see as a gateway to a government takeover of all of health care.

Many veteran Washington watchers are starting to assume that there will be some health care reform this year, but the real question is whether it will include a government option or not. It remains an open question whether the recently-announced concern from hospitals, doctors, drug makers, and insurance companies about the rates they charge represents, on the one hand, a new spirit of coming together to solve national problems, or on the other hand, the smartest way to undercut public demand for inclusion of the "government option" in the reform proposal.