The Perfect Prescription

Still smarting from defeat, a leading activist ruefully explained why once-promising plans to expand health coverage had failed. Health legislation, he said, affected "powerful group interests" and was easy fodder for scare-tactic attacks. "All these fears, some justified, some exaggerated, and some altogether fanciful," he said, "produced such a confusion of group conflicts that only a clear recognition of the need... might have overcome it, and that clear recognition was lacking."

All this would be an incisive assessment of the demise of the Clinton health plan in 1994-if, that is, it hadn't been offered in 1930, and if its author, the social reformer Isaac Max Rubinow, hadn't in fact been talking about the failure of the first campaign for expanded insurance in the late 1910s.

Americans have been fighting over health care for a long time. Yet the struggle has always ended as it did in the 1910s-with the failure to achieve universal coverage.

Now that the problem of the uninsured is back on the political agenda, should we expect more of the same?

In recent weeks, each of the major Democratic candidates has outlined, or promised, a proposal for covering many of the uninsured. Even President Bush has presented his own more modest initiative. These proposals range widely in philosophy, structure, and cost. But one feature they share is their caution-the most tangible legacy of the ill-fated Clinton reform effort. As a result, none is likely to be as politically vulnerable as the Clinton plan was. Unfortunately, none is likely, either, to fulfill the health-reform hat trick of making a large dent in the number of uninsured while restraining costs and gaining enough support to become law.

And if the stripped-down ambitions of these plans suggest that reformers have learned some of the right lessons from past defeats, the plans' sometimes self-defeating details suggest they may have learned some of the wrong lessons, too.

To understand the proposals, it's first necessary to understand why universal coverage is so elusive. As presidential hopeful Howard Dean has asked, "The British, the French, the Germans, the Italians, the Irish, the Israelis, the Canadians, the Japanese... all have universal health insurance of some kind. America doesn't. Why is that?"

Actually, there are plenty of possible answers. Americans prize liberty and fear government. US political institutions empower well-organized minorities, such as doctors. Labor unions and the political left are comparatively weak. But perhaps the failure to achieve universal coverage is best explained by the failure to achieve universal coverage. In the absence of inclusive public insurance, private employment-based plans have become the first line of defense for most Americans--and one they are understandably reluctant to give up.

As often noted, the spread of private health coverage was spurred by World War II-era wage and price controls that capped pay increases but allowed for the expansion of benefits. But it is often forgotten that there were also massive lobbying campaigns against public insurance, and that politicians showered immense tax benefits and favorable regulations on the private sector in order to forestall a government solution. When President Truman's national health plan was in the crosshairs in the late 1940s, the architect of the American Medical Association's public relations blitz declared: "If we can get 10 million more people insured in the next year and 10 million more in the next year, the threat of socialized medicine in this country will be over."

The prediction was prescient but incomplete. Truman's proposal died, but reformers immediately responded by targeting government benefits at groups left out of the workplace system-the poor, the disabled, the elderly. Medicare and Medicaid, enacted in 1965, created the last major pieces of America's crazy-quilt of coverage.

Today, this jury-rigged system is almost perfectly structured to stymie constructive action. Begin with a simple fact: Most Americans are insured. While an inexcusable 15 percent lack coverage (and perhaps twice as many were uninsured at least once in the past two years), most have real, if often inadequate, coverage most of the time.

This helps explain why the biggest insurance issues of recent years--for example, the Patients' Bill of Rights--have concerned the insured, not the uninsured. It also explains why every one of the leading presidential contenders is vowing to build on the current system of employment-based insurance. Only one longshot candidate, congressman Dennis Kucinich, has bucked the trend with a proposal to expand Medicare to all Americans.

Yet even when building on the existing patchwork system, tackling the problem of the uninsured generally entails a Hobson's choice: Either create programs with big price tags that deliver most of their benefits to those who already have insurance, or create narrowly targeted programs that isolate recipients politically while still leaving many without protection.

The first, more ambitious approach has only one major exponent in the presidential race, congressman Richard Gephardt, but his plan is undeniably bold. It would give employers tax credits that would offset up to 60 percent of the cost of insurance; in turn, employers would be required to provide coverage. Lower-income workers would get bigger tax credits.

Gephardt's plan has many virtues. It would cover as many as 30 million currently uninsured Americans while providing financial help to millions who already have employment-based coverage. And by providing a tax benefit to all Americans (via their employers) and even greater subsidies to poorer workers, it would make the tax treatment of health insurance--which currently favors well-paid workers with generous benefits--much more equitable.

All this, however, comes at a hefty price: $214 billion a year. Gephardt says he would finance the plan by repealing the Bush tax cut of 2001. Yet he has also charged that the tax cut is a budget-buster. Because Gephardt's plan lacks tough cost controls, moreover, it risks giving a blank check to the medical industry, with taxpayers footing the bill.

In contrast, most of the other Democratic candidates have taken the second tack, offering plans that are essentially souped-up versions of the status quo. Howard Dean's proposal, building on the plan he pushed in Vermont, would expand Medicaid and the State Children's Health Insurance Program (S-CHIP) to more lower-income families. Senator John Kerry has a similar blueprint; Senator Bob Graham suggests he will develop one.

This approach also has virtues. In the past decade, Medicaid and S-CHIP have expanded even as employers have dropped insurance. (In the current economic downturn, however, some of these gains are in jeopardy.) Targeting coverage at those who lack it, rather than subsidizing insurance for all Americans, also saves money. Dean and Kerry say their plans would cost half what Gephardt's does, while achieving similar increases in coverage.

Yet targeted coverage has its own problems. The first is that a good number of lower-income workers--roughly half of those with incomes between 100 and 200 percent of the poverty level--have coverage already. Expanding public programs to these workers could encourage employers to drop coverage. Even more worrisome, a program enrolling only poorer families would lack the political clout that more broad-based programs enjoy.

Is there a third way? Not one that will please all sides. But it's surprising that Democrats have not revived the single truly original idea that emerged out of the Clinton-era debate: "play-or-pay."

This idea holds that employers (including self-employed people) must either provide coverage ("play") or "pay" a payroll tax to fund public coverage. It got a bad rap during the last debate, when critics savaged it as a tax hike. But, designed well, it has a number of advantages. (Full disclosure: I have authored a "play-or-pay" proposal that expands Medicare to cover 98 percent of Americans at a cost of $85-90 billion a year. A more detailed summary is available at http://pantheon.yale.edu/TIjhacker. For example, if the payroll tax rate were fairly low--say, 5 percent--employers could buy insurance for their workers (and their dependents) at a bargain-basement price. And if workers whose employers paid the tax were enrolled in a popular existing program like Medicare, then the plan wouldn't look like a frightening new idea. Nor would the public plan be marginalized: According to estimates of the proposal's first-year effects, roughly 40 percent of Americans would be enrolled.

Finally, once in place, "play-or-pay" could be taken in different directions. If the private sector kept costs down, providing private benefits would be more attractive than paying the tax, so the public program would shrink. If Medicare was able to use its purchasing power to restrain prices, thus allowing the payroll tax to remain low, then more employers would sign up, and the system might end up looking more like a universal benefit, such as Social Security.

Whatever the best route forward, President Bush certainly doesn't offer it. Bush has embraced the favored conservative idea of creating tax credits that would pay for either workplace coverage or the purchase of individual policies. In its most elaborate form, this approach could destroy the employment-based system by allowing healthy people to opt out and buy insurance individually, increasing costs for those left behind and leading more and more employers to drop coverage.

But Bush's incentives are paltry: credits of up to $1,000 for individuals and $3,000 for families that are available only to those with fairly low incomes. The president's own advisers predict the plan will cover only 6 million of the currently uninsured. When you click on the link on the White House web page that promises more about the plan, you get the message: "The file you have attempted to access cannot be found." But all this could change. Back when another Bush had just defeated Iraq, an ailing economy helped push health care to the top of the agenda. The first President Bush quickly presented a plan that makes his son's look downright pitiful--a mix of tax credits and Medicaid expansions that, according to his own administration's estimates, would have covered 30 million Americans at a cost of $50 billion in today's dollars.

George W. Bush may soon be pressed to come up with a comprehensive plan of his own. But based on past experience, Americans shouldn't count on universal health insurance arriving any time soon.