Ronald Reagan's lasting healthcare legacy: How '80s deficit spending and conservative ideologies reshaped the healthcare debate

In Obama's first term, Democrats managed to enact Obamacare without expanding Medicare. History explains why

Published July 26, 2015 7:29PM (EDT)

  (AP/Ira Schwarz)
(AP/Ira Schwarz)

Reprinted from "Medicare and Medicaid at 50: American’s Entitlement Programs in the Age of Affordable Care"

Deficits and Defense

The election of Ronald Reagan to the presidency in 1980 furthered the ascendance of conservatism in national politics. The Reagan administration sought to cut taxes, privatize the welfare state, and constrain federal expenditures on domestic programs, all while increasing military spending. Even as the number of uninsured Americans climbed significantly, the administration had no interest in proposals for universal health insurance. It looked at Medicare, as many in Congress did, primarily as a budgetary problem and a potential source of fiscal savings. Nor was the primary concern with system-wide medical spending. That broader focus gave way to a narrower emphasis on how to contain federal spending on Medicare and Medicaid in the context of rising budget deficits. Meanwhile, conservatives promoted pro-competitive healthcare policies that relied on market incentives, consumer choice, and competition between private plans to restrain spending on medical care.

These developments produced two consequences for Medicare. First, driven by budget deficit politics, the 1980s saw the adoption of major new cost containment policies for Medicare payments to doctors and hospitals. Those policies had bipartisan support from Republican presidents (first Reagan and later George H. W. Bush) and Democratic Congresses seeking budgetary savings. Second, the posture of Medicare advocates—both inside and outside Congress—became understandably defensive. Their goal was to protect Medicare against excessive cuts and efforts to privatize Medicare insurance. In 1988, the Reagan administration and Congress did agree on bipartisan legislation that produced the largest expansion in Medicare benefits since the program’s enactment (though the Medicare Catastrophic Coverage Act was repealed in 1989). Yet at no time during the 1980s did proposals to expand Medicare substantially to new populations—let alone to create national health insurance—have any chance of becoming law.

Missing in Action

Universal health insurance returned to the agenda in the early 1990s. Rising health insurance premiums, felt acutely by businesses and their workers, a deep recession that underscored the vulnerabilities of relying on employer-sponsored health insurance, and the surprise emergence of health care as a pivotal issue in Harris Wofford’s unexpected victory in a 1991 US Senate special election in Pennsylvania helped bring the issue back to the forefront of American politics. Proposals for overhauling medical care again proliferated in Congress. Health care became a prominent issue in the 1992 elections, and when Bill Clinton defeated George H. W. Bush, giving Democrats their first victory in a presidential contest since 1976, health reform’s moment appeared, once again, to have arrived.

Clinton had promised during the campaign to prioritize health reform and, in 1993, his administration developed an ambitious plan for universal health coverage. The plan, which bore the same name as Kennedy’s Health Security Act two decades before, illustrated both the changing politics of health care and the shifting of Democratic Party positions. It relied on an employer mandate and private insurance to achieve universal coverage. Moreover, the Clinton plan reflected a version of managed competition, with choice of health plan and competition as its central features (though it also contained robust health spending caps). Neoliberal ideas were now central to the Democratic Party’s conceptions of health reform; those ideas did not feature Medicare.

In Congress, a significant—albeit minority—faction of Democrats did back single-payer national health insurance. Some Democrats and liberal policy analysts returned to the idea of using Medicare as a platform for expanding coverage. Congressman Pete Stark, for example, proposed a Medicare Part C to cover the uninsured. But the Clinton administration itself did not embrace such ideas, and Medicare’s primary role in the Clinton plan was to serve as a piggy bank to help fund the costs of expanded coverage for the uninsured. A major funding source for Clinton’s proposal came from projected cuts in the rate of growth in Medicare payments to medical providers.

Following the 1994 demise of the Clinton plan, the national political agenda turned away from universal health insurance. After winning majority control of both houses of Congress for the first time in 40 years, in 1995 Republicans proposed substantial overhauls to Medicare and Medicaid. Medicare advocates returned to a defensive stance, with the Clinton administration and congressional Democrats resisting GOP proposals to impose a cap on program spending and to expand the role of private insurers within the program. After Clinton vetoed GOP legislation, however, the politics of deficit reduction brought Medicare reform back onto the table, and a bipartisan agreement in 1997 reduced the rate of growth in provider payments while adopting policies to promote private insurer participation in Medicare (or so it was thought at the time; the 1997 law actually had the opposite impact). Medicare politics had again become budget politics.

The Clinton administration and Congress did pursue incremental measures to regulate the health insurance market and expand coverage, including enacting the State Children’s Health Insurance Program (SCHIP) in 1996. SCHIP built on similar expansions through Medicaid to low-income children as well as to pregnant women during the mid-to late 1980s. Medicaid, with its joint state-federal structure, means-tested benefits limited to low-income Americans, and general revenue financing—rather than Medicare—emerged as the primary programmatic platform to cover the uninsured. Tellingly, while the Medicaid model gained traction, a 1998 Clinton administration proposal to permit Americans aged 55 to 64 to buy into Medicare went nowhere.

Reform Rises Again

In a familiar pattern, the election of a Republican president in 2000, George W. Bush, consigned universal health insurance to the realm of aspiration. The Bush administration’s “compassionate conservatism” did not include a place for expanding health insurance coverage.

The administration did support a significant expansion of Medicare benefits to cover the costs of outpatient prescription drugs. Yet the new benefit, enacted in 2003 as part of the Medicare Modernization Act, was to be provided exclusively through private insurance plans, marking a major development in Medicare policy. It represented a programmatic marriage of sorts between the Democratic Party’s commitment to universalism and the Republican Party’s belief, shared by some Democrats, in the virtues of private insurance and competition—the new prescription drug benefit would be available to all program enrollees, with coverage offered by competing private insurers. The Bush administration and Congress pursued additional policies to ramp up private plan enrollment in Medicare, which the 1997 Balanced Budget Amendments had tried but failed to do. This time those policies worked, helping to boost the percentage of Medicare enrollees in such plans to 24 percent by 2010.

In 1994, Congressman Pete Stark had envisioned a Medicare Part C that would cover the uninsured. Instead, Medicare Part C became a bastion of private insurance within Medicare. Medicare’s structure has changed and has become a hybrid of private and public insurance, so that even expanding Medicare to all Americans means something different today than it did half a century ago.

Barack Obama’s election in 2008 opened another window for health reform. This time, Medicare played a more prominent role than in earlier reform debates, with liberal policy analysts, politicians, and advocates calling for the uninsured to be given access to a “public option” that would be modeled on Medicare and, depending on the proposal, connected to the original program in terms of cost control measures and other policies. The public option became a rallying cry and central aspiration of many Democrats who wanted the uninsured to have alternatives to private insurance and hoped to challenge the virtual monopoly that insurers had in some states’ individual insurance markets.

Democrats included a version of the public option in the health reform bill that passed the House in 2009. But the proposal could not win sufficient support in the Senate, and it was eventually dropped from the legislation that became the 2010 Affordable Care Act (ACA; popularly known as “Obamacare”). Nor did a backup plan to make Medicare available to uninsured Americans aged 55 to 64 make the cut.

Instead, the ACA’s health reform model resembled what was previously advanced by the Nixon and Clinton administrations, with a reliance on private plans, consumer choice, means-tested subsidies, and employer financing. (Obamacare, notably, did call for a substantial expansion of Medicaid eligibility.) Medicare cost controls also served as a source of projected savings to help fund the ACA’s insurance expansion and as a platform to test a range of new initiatives to reform the delivery of medical care and to control its spending. Additionally, the ACA expanded Medicare’s limited prescription drug coverage and enhanced other Medicare benefits.

Democrats, then, had passed the first major overhaul of American health insurance since 1965. Obamacare, however, rested less on the Medicare for All strategy and the concept of social insurance than it did on conservative and neoliberal conceptions of the appropriate shape for healthcare reform. The Obama administration’s aim was to patch the existing patchwork of American health insurance, relying on subsidized private insurance and Medicaid expansion to cover the uninsured. “Near” universal insurance had finally arrived in the United States, but when it did, Medicare had been marginalized, playing no role in the ACA’s expansion of health insurance.

Lessons and Legacies

How did we get to the point where Democrats enacted a major expansion of health coverage without relying on Medicare? Why did the original strategy of incremental expansion of Medicare into universal insurance fail? And what consequences has that failure had for American health policy?

Decisions made at Medicare’s start made its subsequent expansion difficult. The permissive payment policies adopted to assure Medicare’s smooth implementation helped fuel substantial increases in program spending in its early years. Medicare’s reputation as a fiscal problem became a political impediment to program expansion and shifted the agenda to cost containment. This impediment helps to explain both why Medicare did not expand more broadly to new population categories and why Congress rarely expanded program benefits, despite serious limits in its coverage, in the half-century after Medicare’s enactment. Put another way, in an effort to secure Medicare’s smooth takeoff in 1966, program administrators pursued policies that unintentionally ended up reducing Medicare’s political capital, thereby making further population expansions much more difficult. That reputation, in fact, outlived the reality. Since the 1980s, Medicare reforms have succeeded in slowing program spending growth, but Medicare in still seen in some quarters as “unaffordable” and “uncontrollable.”

Yet the failure of Medicare for All is certainly not solely—and arguably not even mostly—attributable to decisions made by Medicare’s architects. The changing features of American politics and major shifts in socioeconomic conditions had a crucial impact on Medicare’s trajectory. The end of Democratic Party dominance over national politics, the ascendance of conservatism, economic stagflation and strain, conflicts over the Vietnam War, Watergate, urban unrest, the rise of pro-market ideology, and welfare state retrenchment—all of these radically altered Medicare’s environment. These external developments beyond Medicare’s programmatic boundaries would have been impossible to anticipate in 1965, but they made universal coverage via incremental expansion of Medicare a much harder task. Indeed, it is not just Medicare for All that failed, but all efforts at comprehensive health reform from 1966 to 2009.

But building on Medicare was not impossible, and the role of contingency looms large. What if, for example, Robert Kennedy had not been assassinated and instead had won the 1968 presidential elections? It is quite possible that under a second Kennedy administration, the United States could have adopted national health insurance. Additionally, if Hubert Humphrey had defeated Richard Nixon in 1968, that victory might well have empowered Democrats to embrace Medicare expansion. A persistent move forward with Kiddycare could have substantially altered Medicare’s course.

It is also worth wondering what would have happened if, after the failure of health reform in the mid-1970s, Democrats had returned to the Medicare strategy. Had Democrats coalesced around a strategy for Medicare expansion in the late 1970s and during the 1980s, and stuck to it despite short-term setbacks (as Medicare’s architects did in the late 1950s and early 1960s), then perhaps the Clinton administration’s Health Security plan would have looked quite different. Of course, fissures in the Democratic Party and the political and socioeconomic transformations noted above would have made such agreement extraordinarily difficult. Still, strategic choices (and what arguably seem like errors in retrospect) help to explain why Medicare did not occupy a more prominent place in reform models from the 1970s onward.

The failure of Medicare to expand as its designers anticipated has had important consequences for health reform. Kiddycare’s demise meant that Medicaid, rather than Medicare, became the primary platform to extend insurance coverage to children and other demographic categories of the uninsured. That legacy was embodied in the Affordable Care Act, which showed that Democrats could pass a health reform law that contained a substantial expansion of Medicaid eligibility, but could not enact legislation that called for even a modest expansion of Medicare or the creation of a Medicare-like federal insurance plan for the uninsured.

Meanwhile, as more Democrats turned away, first from incremental Medicare expansion and then from national health insurance and social insurance, they came to embrace reform models that relied on private insurance and that celebrated consumer choice and competition. Over time, prevailing conceptions of health reform became narrower in their coverage aspirations and more conservative in character—dynamics readily visible in Obamacare, with all of its limitations and complex administration. The troubled rollout of Obamacare’s health insurance marketplaces in 2013 underscored the costs of moving away from Medicare’s administratively simpler social insurance model.

The irony is acute. Nearly half a century after Medicare’s enactment, a Democratic president and Democratic majorities in Congress took additional steps toward universal health insurance, but those steps did not include Medicare. Nothing could better illustrate just how different Medicare’s trajectory has been from the path its architects imagined in 1965.

Reprinted from "Medicare and Medicaid at 50: American’s Entitlement Programs in the Age of Affordable Care" edited by Alan B. Cohen, David C. Colby, Keith A. Wailoo, and Julian E. Zelizer with permission from Oxford University Press, Inc.  Copyright © 2015 by Oxford University Press.

By Jonathan Oberlander

By Theodore R. Marmor

MORE FROM Theodore R. Marmor

Related Topics ------------------------------------------

Bill Clinton Books Health Care Medicaid Medicare Obamacare Ronald Reagan Single Payer