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Budget blues.

Budget politics has always been an obstacle to adopting national health insurance. The questions of budget politics--the risk or size of deficits and the size of government--have a conservative effect. In any country, very few people would endorse deficits for their own sake. In America, support for larger government on principle, displacing the market, has rarely had close to majority support and has surely been diminishing. Defining social policy expansion as a budget issue is a standard tactic for persons opposed to the policy.

The events of the 1980s have in many ways made budget politics more of an obstacle to sensible health care reform--which I define as reform that insures all Americans, yet keeps this country from opening an even wider lead on the international field in the race to spend on health care.

During the 1960s a portion of elites such as economists, the press, and politicians would at least defend deficits in principle under some circumstances. Misinterpretation of the events of the 1970s, exaggerated arguments by economists who think that hyperbole is required in the political arena, the possibility that the 1980s deficits favored Republican constituencies, the fact that a Republican president was in office for those deficits, and the unprecedented scale of the deficit in full-employment terms during peacetime, combined in the 1980s to commit Democratic politicians, economists, and opinion leaders to at least the rhetoric of deficit-reduction. President Clinton has continued the process.(1)

"Paygo" and Its Impact

These developments affected both political values and structure. Persons who might previously not have worried much about the deficit either feel compelled to say they do, or actually do worry. A great deal of evidence indicates that the chairman of the Senate Finance Committee is sincere; in practice we only need to know that he acts as if he is concerned. Yet even if he were not, Senator Moynihan faces an institutional constraint, created as part of the budget process: the "paygo" points of order.

The Congressional budget process includes a wide range of rules to inhibit legislation that would increase the deficit. The most important says if a proposal to increase entitlement spending or decrease revenues is not accompanied by offsetting spending cuts and/or revenue increases, then it is out of order in both chambers. Program expansions are only allowed if Congress pays as it goes, in the same legislation. The House can waive these rules by majority vote or in a special rule. In the Senate they can only be waived by an extraordinary majority of 60 senators.

Paygo means that if the Congressional Budget Office says a proposal would raise the deficit in any year, senators can obstruct it without paying the political costs of a filibuster. Opponents of reform might have trouble defending a filibuster that kept Congress from even considering legislation to address an enormous national issue. They would have no difficulty justifying a vote to support Congress's own rules against the sin of increasing the deficit. The burden of proof is against a filibuster, but for enforcement of the paygo rule.

That is why CBO's assessment of the costs ("scoring") of the Clinton plan and other plans is so important. There is little chance of finding 60 Senate votes for serious reform. But there might be 60 for considering reform, and 50 (plus Vice President Gore) for passing it. There will not be 60 votes for breaking the rules and increasing the deficit to do reform.

Proposals therefore have to be financed in a way that CBO will approve. That is not all bad news for the left. CBO's analysts do not much believe in the cost-saving claims for managed competition (this has a lot to do with the evidence). They give more but hardly complete credence to the claims for single-payer models (for the same reason). CBO's judgment may have determined the internal administration debates between two factions: those who believed in managed competition mostly, and those who did not believe in it much. The former group could not avoid a premium cap, because everybody knew CBO would not accept much in the way of savings claims without it.

Any proposal faced the same constraint. Many of the sponsors of the Cooper-Grandy bill appear to really want to cover everybody, but they could not promise to do so without a hoot from CBO. Cooper-Grandy therefore had no schedule for universal coverage. Both the Cooper-Grandy and Chafee bills also had no benefits packages, at least in part for a related reason: in order to pass CBO muster, given the cost controls and revenues provided, they would have had to admit covering much less than Clinton or McDermott-Wellstone. The paygo rule has shaped the operating structures and promises of the plans presented.

The rules slightly favor supporters of something closer to the international standard of cost control. They do not really favor reform. The system may well prefer to give up universal coverage rather than adopt those cost controls: it is easier to expand programs first and correct errors in the cost controls later. If you care more about universal coverage than controlling costs, you would do better without procedures in which formal estimates are enforced by requiring supermajorities to ignore them.

Estimates and the Argument for Delay

Of course, the estimates could be wrong. That estimates are always wrong, and in the wrong direction, is close to being conventional wisdom. The classic examples are costs for Medicare as compared to the forecasts at time of enactment and the deficit effects of Reagan's 1981 proposals. Naturally opinion leaders and politicians are skeptical, mainly sincerely, of budget estimates for a large health care reform.

In fact, estimates are not always wrong: estimates of savings from the Medicare cost controls of the 1980s have been fairly accurate. And the Reagan example is deceptive: Senate Republican leaders and Stockman knew they were wrong, yet went ahead anyway. Yet the risk is real, and even people who might be expected to support the goals of reform feel compelled to occasionally remind us that estimates could be too optimistic. Unfortunately, those reminders set a standard that cannot be met. Only life can prove (or disprove) predictions. Emphasizing that estimates might be too optimistic inherently favors the status quo.

More precisely, emphasis on uncertainty favors arguments that reform cannot be done all at once: we must earn the savings first. The Chafee bill thus claimed to have a plan to phase in subsidies for persons of lower incomes as savings were realized from cuts in Medicare and other measures. Alas, it is hard to write a plausible rule for phasing in the increases. Chafee failed. The bill set fixed targets, and if federal spending was no more than those targets, subsidies could be put into effect. The good news was, if general inflation and growth were lower than expected, those targets might be met without the projected specific savings from health care; the bad news was, if they were higher than expected, the targets might be missed even with the savings.

Even if one could devise a sensible way to condition increases on prior savings, it is a bad idea. People who do not have good coverage tend, if they do get care, to depend on more expensive providers (as hospital charity cases, rather than as insured patients in physician offices). Many cost controls work better with universal coverage. If the two were antithetical, the United States would not have both less coverage and higher costs than all other advanced nations. Yet it is possible to reduce costs without increasing access: most evidently, by abolishing insurance! Thus arguments that cost control requires universal coverage will not win over persons who do not care about the latter.

Put bluntly, the political opportunity for universal coverage is based on fear among the currently insured and their employers. The former fear the latter will reduce coverage because of rising costs; the latter fear they will not be able to do so--and on average probably do not want to. If costs are controlled before covering the uninsured, further expansion would depend on those who already have and are paying for coverage agreeing to pay more without gaining much. Don't bet on it. Politically, cost control and coverage expansion happen together or not at all.

Defenders of the status quo claim reform is not necessary because the uninsured receive charity care when urgent. But cost control means lower provider incomes, so both logic and experience (for example with the effects of managed care in California) tell us that charity care would decline in proportion to cost control's success. Thus budget pressures for "cost control first" threaten reform that would hurt the uninsured, whatever its claims.

Getting the Long Run Right

Given the power of budget politics, it should be no surprise that supporters of reform have tried to turn it to their advantage. They have good arguments. Forecasts that the deficit will begin to grow late in this decade are based entirely on projected increases in federal health care programs. But the real right wing can say the solution is to cut those programs, not to create a new one.

Total costs for health care are best controlled in a universal system, and federal spending might best be limited in that context. But whether reform in fact would slow the projected growth of federal debt depends entirely on the legislation: the benefit package, new revenues, and cost controls.

National health insurance systems by no means guarantee lower spending by the government or anyone else. But whether a national guarantee works by regulated insurers (Germany and France), government insurance (Canada), direct provision of care (the United Kingdom, more or less) or a mix (Australia), the system allows nations to choose their expenses. Having a national policy ensures neither cost control nor adequate finance of the costs incurred. But it makes both possible, as our current arrangements evidently have not. That is why countries whose costs rose about as quickly as America's in the 1970s were able to slow the increases dramatically, relative to ours, in the 1980s.

In short, the claim that health care reform can reduce the difference between the growth of federal health spending and of federal revenues is correct but that means it has to be done right. And that returns the argument to support for or opposition to specific measures.

In this context, budget politics is important not because of how it constrains health care reform, but because of what it teaches us about its policy and politics. Some key parallels between budget and health care policy and politics are rarely noted, perhaps due to misunderstandings of the budget dispute.

From the perspective of the current conventional economic wisdom (whatever that is worth), the benefits of deficit reduction and health care reform are very similar. Mainline economists argue the deficit must be reduced in order to increase national savings, and thereby increase investment at the expense of consumption, so the economy will grow more quickly. The economic argument for health care cost control is parallel: resources are being used for consumption, and if corporations (especially) had lower costs, they could invest more. From an economic perspective, the costs of change are also similar: short-term pain from cutting income or jobs held by those who lose in the transition.

Thus health care reform can be seen not only as a means to deficit reduction, but as an alternate means to the same end: a transfer of resources towards uses that are more likely to increase productivity (especially the productivity relevant to international competition).(2) But all the benefits of deficit-reduction are long-term and dubious: in essence, whatever economic growth emerges, down the road, from the amount of more productive investment that occurs. Health care reform actually offers short-term benefits to a large proportion of Americans--done right, to a sizable majority. Even if it did not reduce the deficit itself, health care reform may offer a superior way to achieve the economic ends for which deficit reduction is said to be a means.

Budget hawks have argued for years that the whole country should sacrifice to control the deficit. Yet only packages that clearly target some minority pass, because no one wants to pay their "fair" share.(3) In 1981 the working poor took the hit; businesses and hospitals in 1982, financial firms in 1984, the military in the post-1985 period, and the wealthy in 1990 and 1993. Each time there was at least an overtone of justificatory stigmatization of the victim. More "balanced" packages (like the 1990 summit) failed because both left and right were opposed.

The odds for passing real national health insurance are not good. But if deficit politics teaches anything, it is not just that the majority must feel like winners, but that they are more likely to believe it if they can see who the loser is, and if the loser is easy to justify.

My readers are students of politics. Draw your own conclusions.


1. For the long version of the story, see Joseph White and Aaron Wildavsky, The Deficit and the Public Interest: The Search for Responsible Budgeting in the 1980s (Berkeley: University of California Press, 1991). For a focus on economic theory and the Clinton administration, see James D. Savage, "Deficits and the Economy: The Case of the Clinton Administration and Interest Rates", Public Budgeting & Finance Vol. 14, No. 1 (Special Symposium, spring 1994).

2. By definition, if Ford reduces its labor costs by reducing its health care expenses per worker, its productivity per dollar of labor expense improves, as does the market-ability of its vehicles against foreign competition. This is the general version of the domestic automakers' argument that they are handicapped by their health care expenses.

3. Since the benefits are long-term and dubious and costs short-term and obvious, anyone who pays a fair share thinks that is a bad deal.

About the Author

Joseph White is a research associate at the Brookings Institution in the Governmental Studies Program. He is author of Competing Solutions: American Health Care Proposals and International Experience (Brookings, forthcoming).
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Title Annotation:health care reform and Congressional cost control policies
Author:White, Joseph
Publication:PS: Political Science & Politics
Date:Jun 1, 1994
Previous Article:Questioning the conventional wisdom on public opinion toward health reform.
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