The Carter Failure

On December 12, 1974 Jimmy Carter announced his candidacy for the 1976 presidential nomination. He made this announcement in front of a gathering of the National Press Club. Carter’s speech contained within it a promise to reform health care:

The quality of health care in this Nation depends largely on economic status. It is often unavailable or costs too much. There is little commonality of effort between private and public health agencies or between physicians and other trained medical personnel. I expect the next Congress to pass a national health insurance law. But present government interest seems to be in merely shifting the costs of existing services to the federal taxpayer or to the employers. There is little interest in preventing the cripplers and killers of our people and providing improved health care for those who still need it most.Is a practical and comprehensive national health program beyond the capacity of our American government? I think not.

This speech was welcome news to Democrats pushing for Health Care Reform. It was well understood by this time that the Watergate Conspiracy and its inevitable backlash against the Republican Party would most likely result in a Democratic Congress and a Democratic President in the upcoming election. Carter's inclusion of health care reform in his domestic policy platform garnered support from many groups pushing for reform. The UAW had openly been pushing for health care reform for many years by this time. Religious, charity, and consumer groups were pushing for reform as well. Congress had shown an interest in passing legislation to address the runaway costs and the general public was feeling the pinch as well.

As I noted in my last post, Kennedy had been pressured not to accept a compromise bill with Nixon because many groups supporting a national health care insurance plan would be achievable with gains that Democrats would make in Congress, especially with a Democratic administration likely coming into office in the 1976 elections. Carter himself believed that such a program was needed, although it was soon to become apparent that he had few concrete ideas of how to implement such a plan. Medicare and Medicaid had been passed in the mid sixties. This had taken care of the immediate medical needs of the elderly and disabled. It did nothing to address the exploding costs that all other Americans were facing as technology advances in surgery and diagnostics along with the growth of organized large corporate health care providers drove costs ever higher. As health care costs steadily ate into the national GDP almost everyone understood that something had to give. However, what had to give was a very sticky problem.

The AMA and large health care providers were diligently protecting record profits as were the large healthcare insurance companies. The last thing either of these groups wanted to see was a system that would cut into these profits. As Carter came into office he immediately found himself dealing with runaway inflation and a stagnant economy. Between the necessity of holding down government expenditures and his administrative approach to formulating a new policy, health care reform became bogged down in power struggles within his administration. Carter delegated responsibility for coming up with a comprehensive plan to appointed committees which were largely composed of people with little experience in health care or reform policies. Carter himself spent a large amount of time and focus in consideration of numerous possible plans but never really decided on any one type of plan. Instead, he tried to combine the best options of a single pay system with compulsory insurance and selective benefit programs. To make matters worse, he found that differing groups within his own administration disagreed violently on priorities as the Office of Management and Budget believed such reforms would have little effect on quality of care but would drastically exacerbate inflation, unemployment, and investment policies.

Carter took office as inflation problems came to a head. During Nixon's term inflation had been a growing concern. Nixon tried to attack inflation with price controls and wage freezes. The reals cause of the inflation Nixon struggle so mightily with was largely a creation of his own. Nixon served as Vice-President under Eisenhower who was a notorious free market supporter. Eisenhower and his administration did little to try to control economic policy and as a result the economy was an up and down cycle. The economy under his administration grew at just a 2.5 % GDP rate over Eisenhower's eight years in the White House. This low growth was largely the result of three large recessions which drove down what was a much higher growth rate overall. The last of these three recessions occurred in April of 1960 and lasted through February of 1961. Eisenhower's policy of riding out recessions without actively combatting them caused Nixon to run against Kennedy in 1960 during an economic downturn. Nixon blamed his defeat in this election on this downturn in his book Six Crises. Nixon was more pro-active in trying to control the economy when he was elected eight years later but had no control over Eisenhower's policy in the 1960 election even though he was running on his experience as Vice President. Nixon's defeat in this election soured him forever on hands off economic policy.

When he was elected in 1968 he became much more pro-active in trying to control economic policy as he understood the relationship between economic prosperity and re-election. The actual cause of the recession of 1959-1960 recession was a tightening of credit policy by the Federal Reserve Chairman at the time, William McChesney Martin, who had been appointed by Truman. Martin believed that it was the primary responsibility of the Federal Reserve to protect against inflation. When he saw such signs in 1959 he tightened credit policies by raising the prime interest rate which drove the country into recession. This is much the same policy that the Federal Reserve had followed since its inception. As one of the earliest leaders of the Federal Reserve had explained, "It's our job to take away the punchbowl when the party gets going." Accordingly, the Fed had historically raised interest rates when inflation began and lowered them to stimulate the economy when things slowed down.

When Martin's term was up in 1970, Nixon appointed Arthur Burns as head of the Federal Reserve in his place. Burns was a well respected economist and academic leader who had served on Eisenhower's economic policy council. Nixon, in conflict with tradition, believed that he should have influence over who he appointed to such a position and early on wrung an agreement to ensure easy credit for the time period surrounding his upcoming re-election campaign in 1972. As the election approached and plain signs of runaway inflation persisted, Burns began to resist Nixon's efforts to maintain easy credit policies. Negative press against Burns and other Federal Reserve Governors were planted in the newspapers along with threats of legislation to reduce the policy control of the Federal Reserve itself. Burns succumbed to the pressure and agreed to keep the credit policy loose, which only served to increase inflation.

After the election, the 1973 oil crisis caused further upward pressure and Nixon's price control policies failed completely as inflation was above 12% by 1973. By this time, Burns felt powerless to fight inflation without support from within the Treasury office and Congress as he understood the high unemployment would be the inevitable result of such a policy. This was the economic situation that Carter came into in 1976, largely unaware that a large recession was imminent. Today, Burns is largely regarded as one of the worst Chairmen ever to sit in that office. Historians don't agree as to whether Burns was unaware of the fallacy of doing nothing to control inflation or if he was simply too susceptible to political pressure to properly do his job. The simple fact that the Watergate burglars were found carrying $6300 of sequential numbered $100 bills probably further degraded his reputation as did his stonewalling of Congressional investigations into the matter. He then issued a directive to all Fed offices prohibiting any discussion of the subject.

Carter, noticeably reticent to influence the Federal Reserve, seemed incapable of either fighting inflation or stimulating the economy. In truth, it is virtually impossible to do both at the same time as it is necessary to raise interests rates to fight inflation which is directly opposite of stimulating the economy with easy credit. In 1979 Carter appointed Paul Volcker as Chairman of the Federal Reserve. Volcker immediately set about tightening credit even further until it reached as high as 20% in 1981. While Volcker is widely credited with ending the inflation that had plagued the economy since 1970, it is without question that his decisive policies further degraded economic prosperity during Carter's re-election campaign in 1980.

Early in his presidency, Carter charged the Department of Health, Education, and Welfare in charge of final policy formation for health care reform. The first action of HEW was to create four contrasting health insurance models, which served to further polarize supporters of reform. Carter's own administration argued so much internally over which plan to take that the head of HEW, Joseph Califano, advised Carter not to take a firm stand on any policy having to do with health care reform. As the economy worsened and deficits from oil prices and the Viet Nam war era drove debt levels higher, consensus for action weakened further. As the AMA and AHA, representing non-profit hospitals, mobilized against reform they were joined by for profit hospital groups and insurance companies. Political action committees were formed and large amounts of money form the Federation of American Hospitals began to find their way into the pockets of congress. Profits for these companies shot up some 40-50% per year in the late seventies as costs skyrocketed and they had no intention of allowing Carter or anyone else to kill the goose that was laying golden eggs.

In 1977, Kennedy still pushing for National Health Care Insurance, spoke at a UAW convention. He suggested the Carter was defaulting on his promise to reform health care and urged Carter to take action. Carter, in return, promised to have a bill ready by the end of 1978. Both Carter and Califano were surprised to learn how unprepared the HEW was to implement such a plan and time dragged on. Kennedy, growing impatient, submitted his own plan again in the press. When a plan was finally submitted to Kennedy it contained a phasing in process based upon an unspecified time schedule based upon inflation and fiscal policy to be determined by Carter and his administration.

Kennedy then came forward with his Health Care For All Americans Act, which would effectively guarantee universal coverage for all Americans. Carter responded with his own plan which he had named Healthcare. Carter's plan did not guarantee universal coverage and contained a large role for private insurance firms along the same lines as Nixon's earlier plan which Kennedy had turned down. Kennedy and Carter conducted negotiations to combine the plans in an acceptable alternate form and finally came to agreement on a compromise bill that was closer to Kennedy's bill with some concessions to the private insurance sector. By this time the 1980 election was approaching and the bill died a quick death in a Congress concerned with a stagnant economy and deficit issues.

Other plans were proposed with lesser universal support but the truth of the matter was that Congress was growing more concerned with other issues. The Iran hostage crisis further damaged Carter and disagreements with Kennedy over health care and many other issues led to him running against Carter in the 1980 Democratic primaries, further weakening the Democratic party prior to this election. There was a growing concern with a perpetually weak economy and what was seen as failing foreign policy. The inability of proponents of health care reform to work together combined with the financial opposition of those profiting most highly from the current system eventually spelled the doom of reform policy during Carter's administration.

The growth of Conservative movement efforts to limit government and increase corporate power in national politics found the perfect combination of unorganized opposition and a weak economy reinforced by Volcker's determination to throttle inflation to allow Conservatives to step into power. The election of Reagan and imposition of his policies ended the window of opportunity for reforming healthcare in this country for many years while at the same time increasing the wealth and power of those most opposed to any change that might cut into their growing profit margins.

Healthcare Reform Attempts During the Nixon Years

The passage of Medicare in 1965, while a momentous step for healthcare for the elderly, did little to address the issue of spiraling health care costs and its effects on the nation as a whole. Millions of Americans were feeling the squeeze of higher prices and no health insurance. Charts show that US health care expenditures have outgrown all other expenditures as a percentage of GDP since 1960. In the decade from 1960 through 1970 they grew some 2.5%. While this may not sound like much it is worth realizing that I am talking about the percentage of all the economic growth in the whole country that health care devours. In that decade the GDP doubled from 526 billion in 1960 to 1038 billion in 1970. This means that health care costs grew by more than 10 billion dollars in one decade. This was the beginning of the dominance of Insurance providers in the system. Previously, health care costs for most Americans, while expensive and growing had not been prohibitive. The 1960’s saw the beginning of the runaway costs that continue to swamp our economic system. By 1980 the growth rate as a percentage of GDP was another 2%. It has only climbed since. The 90’s saw a 5% increase. The next 20 years saw an even greater increase. The end result is that health care spending in this country has went from 5% of GDP in 1960 to a little over 20% presently and it is still climbing. We are now spending some 2.8 trillion a year on health care in this country which far outstrips what any other country in the world spends.

Politicians in the 60’s saw the groundswell in costs and how it was eating into economic growth. They viewed this with considerable concern as in our system economic growth is the metric we use to judge the health of the country. Anything that threatens this growth necessarily threatens the politicians’ main goal of getting re-elected. It got their attention in a big way. The cost to the average citizen soon came to be so high that it was impossible to survive financially without health care insurance. This essentially created a three party system wherein the end user (patient) had little connection with cost. The health care provider set costs and the insurance company paid the cost while the end user had no input into either.

A good analogy would be to take your car to a mechanic for a tune up; only in this case you don’t pay the cost of the tune up as you have a warranty you purchased from someone else. The people who sold you the warranty have a goal of maximizing the number of warranties they sell so the higher the mechanic’s cost is, the more warranties they sell because they depend on these high prices you can’t afford to pay in order to sell you a warranty. It is easy to see the higher costs greatly benefit two out of the three parties in this system; the mechanic and the seller of warranties. You don’t really pay much attention to the cost because your cost ends with the purchase of the warranty. The bad news is that every time costs go up the cost of a warranty goes up as well. This is a gradual increase that you don’t immediately feel; at least until you have to purchase another warranty. You might complain about it at that time but you know you have to purchase it as the cost of doing without it is even higher this time around. Without the warranty in the middle of your dealings with the mechanic you would simply take your car somewhere else when his costs get out of line with the competition.

In the health care industry this is not possible. Try going to your doctor and asking for an estimate before the next procedure you need. Not only is there no competition, if you have insurance you have no say so at all about what things cost. This is exactly the reason when you go into the doctor’s office for a head cold they weigh you, check your blood pressure, and collect urine samples. They have a shopping list from the insurance company that tells them exactly what they can charge for and they hit every item on the list. If you don’t believe this, try explaining that you don’t want to be weighed or have your blood pressure checked. They won’t mind, unless you also explain that you want a copy of the bill they are sending to the insurance company.

In a nutshell, it was the advent of this system that led to spiraling health care costs. We don’t have an insurance problem in this country; we have a health care cost problem. Without recognizing this we have no hope of solving the problem. Every step towards more private insurance is a step toward higher costs. The two groups who have caused this problem are the health care providers and the insurance companies. Asking them how to solve the problem is a lot like asking a fox to guard your chickens.

For much of Lyndon Johnson’s term he was pre-occupied with Viet Nam. He declared a War on Poverty but quickly found himself in so much hot water over the war in Southeast Asia that he had little time for anything else. The civil rights movement focused health care concerns on the disparity between white and black health care opportunities but little was actually done to address these issues during his term. When Nixon came into office he too was forced to deal with Viet Nam for much of his first term but he began to take up the banner of health care reform in 1971 as the election approached.

Nixon, for all his other faults, was actually quite interested in doing something about health care in the US for several reasons. He was alarmed at the growing cost to economic growth and was of course interested in furthering his re-election chances. However, there as a deeper interest for Nixon, a personal one. Nixon came from a relatively poor family originally. He lost a younger brother to Tuberculosis early on. A little later, he lost an older brother to the same disease. Nixon always believed that one or both of his brothers could have been saved if they could have afforded better care. As it was the family suffered greater economic hardship as a result of the treatments they did seek for the two boys and Nixon never forgot this. One of his first acts as a newly elected Congressman in 1947 was a proposal to institute a national health care program. He often pointed to the expense of what was eventually a cure for tuberculosis as proof that we needed a public-private partnership to advance medical science effectively.

Another player in the efforts to reform health care at the time was Edward Kennedy. Kennedy had his own reasons for his interest in health care issues. As a passenger in a private airplane crash in 1964 he has suffered extensive injuries that were to bother him for the rest of his life. During his recovery he began to understand the devastating costs of such accidents on ordinary citizens as he was to remark that he had no idea how other people could afford the care he received. In early 1973 his son, Edward, was diagnosed with a rare form of cancer that caused him to have his leg amputated. His son Patrick suffered severe asthma symptoms for much of his life. Kennedy gravitated toward health care issues early in his career and stuck to this interest for the rest of his political career. In 1968 he joined the new Committee for National Health Insurance which was founded by UAW president Walter Reuther. By August of 1970 he had introduced the first of many national health care insurance plans in Congress. He was to serve for a decade after 1971 as the chairman of the Subcommittee on Health and Scientific Research in the Senate.

Kennedy was known to have stronger political ambitions but an incident a Chappaquiddick in July of 1969 where a young girl died when Kennedy’s car careened into a creek after a night of partying probably ruined his chances of ever getting elected outside of Massachusetts. Kennedy had not reported the wreck until the next morning, fully aware that the girl had not escaped the car. He later suggested that he was in shock after the accident and had no explanation for his failure to report the accident or seek immediate help for the girl involved. An inquest later revealed that she survived the crash and died from lack of oxygen. A forensics expert suggested that she had lived for several hours breathing from a small air pocket in the submerged vehicle. Kennedy was pressured to run in 1972 opposing Nixon but he declined no doubt in large part over fear of more exposure to this incident.

In early 1971 Kennedy held public hearings around the country that exposed the support of the public for reform. More and more people were feeling the squeeze of higher costs and less access to health care. In an effort to control inflation Nixon had implemented wage and price freezes this same year but everyone recognized that the expiration of these freezes would cause more pressure. The specific price controls for health care centered around limits on increases in physician and hospital charges but insurance premiums continued to climb.

Kennedy’s first reform proposal in 1971 called for a National Health Insurance that was to be a single payer plan financed by payroll tax deductions, a true national health care system that would for all intents and purposes eliminate the need for private insurance companies. For all intents and purposes it closely matched Nixon’s original proposal from his early days in Congress. However, things had changed since then and Nixon had two problems with Kennedy’s plan. The first problem was that it went against the interests of many of his most financially able supporters. The second problem was that he didn’t trust Kennedy and suspected that Kennedy would try to leverage his proposal into a run against Nixon in his upcoming re-election campaign. Kennedy was being pressured to do this very thing from some within the Democratic Party but he finally decided not to run.

In a recorded conversation in the White House in February of 1971 Nixon can be heard discussing the issue with John Ehrlichman, his domestic policy advisor. Ehrlichman proposed a Nixon plan that would rely heavily on Health Maintenance Organizations as a key component. They hoped this would kill several birds with one stone. It would be a tool to control costs by providing for more competitive pricing. It would facilitate a coverage option for those without insurance. It would be private sector based and profit driven, thereby soothing loud complaints from rich donors from the insurance industry. Best of all, it would be an alternative to Kennedy’s plan and one that Nixon felt he could gain support for in Congress.

Nixon took his plan to leaders in Congress. Realizing such a plan had to go through Wilbur Mills and his Ways and Means Committee; Nixon approached him and Russell Long of the Senate. Mills agreed to help push the bill but soon was approached by Kennedy. Kennedy, realizing the potential for universal coverage worked with Mills to produce a middle ground between his original proposal and that put forth by Nixon. The resulting bill contained employer mandates and personal cost-sharing with employees while utilizing private insurers as intermediaries. However, it also required employees to participate and was to be financed by a payroll tax. Insurance providers were fearful of the growing support for National Health Insurance and calculated that Nixon’s plan was the lesser of two evils. The AMA while steadily cranking up the “red scare” tactics against Kennedy’s plan as a socialist/communist plot campaigned less stringently against Nixon’s plan. Nixon’s reputation as a strong anti-communist made it harder to assail him on the issue and he was a Republican after all. They well recognized attacking Nixon would likely lead to a Democrat in the White House and like the Insurance providers were very afraid of a National Plan what might limit their control of prices or make them operate in a true free market.

The Mills-Kennedy compromise was rejected by Senate leader Long. Republicans found themselves in the middle of a choice between doing nothing and risking voter anger or appeasing the Chamber of Commerce and Insurance Company executives who financed much of their party. In 1973 Congress passed a stop gap measure in an attempt to head off the crisis. The Health Maintenance Organization Act required companies with over 25 employees who already offered health care insurance to off federally certified HMO options as well. It was thought that these plans would help hold down costs for the insured but it did nothing for those without insurance. In the final analysis the act did little to control costs because neither patients who were limited in their choice of doctors nor physicians who had prices dictated to them liked the plan. HMO’s actually eventually led to higher usage as the patients had less service based costs for doctor visits and insurance companies wound up spending more money in administering the plans than what traditional health care cost.

After Nixon’s election in 1972 Kennedy tried to work directly with Nixon to implement a major reform of the system. Nixon was less fearful of Kennedy as an opponent and both men wanted to implement a policy that would allow all Americans better access to health care. Nixon was soon pre-occupied with other problems however, and his desire to address health care issues became secondary. As inflation returned Nixon again activated price and wage freezes. This time, the freezes were much more unpopular with the public as well as business interests who were frustrated with a stagnant economy. On top of these issues Watergate began to take up more of his time and attention as the trail led closer to his advisors and eventually the Oval Office as well.

Kennedy’s secret negotiations with Nixon to implement a national plan soon fell victim to Kennedy’s ambition and Nixon’s resignation. As Nixon’s popularity waned Kennedy began to receive pressure from Labor groups not to compromise. They believed that Nixon’s impending downfall would almost surely usher in a Democratic candidate in the next election who would be more amenable to a National Health Care plan that would not contain compromise measures with Insurance providers. Kennedy hesitated until Nixon resigned only to find Ford to be more intransigent to the plan. Still, many supporters of National Health care were certain that they would have a better position after the 1976 election as Carter had already come out in favor of the plan publicly.

1974 was probably as close as we have ever been to having a National Health Care plan that provides equal access to healthcare for all Americans. There was every reason to believe that the incoming president would support such a plan and both the AMA and Insurance providers had their backs against the wall as Republicans lost office after office in the wake of the Watergate scandal.

In October of 1974, Wilbur Mills who had long privately supported health care reform while publicly working to find politically palatable incremental steps toward this goal managed to ruin his own reputation. US Park Police in Washington stopped his car for driving with the lights off. Mills was intoxicated and visibly scratched up from a confrontation with the passenger in the car. The passengers, upon seeing the police approach the car, leaped out and jumped into the nearby Tidal Basin in a drunken attempt to escape. Annabelle Battistella was her name but she was better known by her stage name, Fanne Foxe. Fanne was a stripper from Argentina who had quite a following in the area. The police escorted her to St. Elizabeth’s Mental Hospital and Mills went home. He was re-elected a month later despite the growing scandal but managed to ruin what was left of his reputation by appearing onstage in a drunken state at a burlesque house in Boston where Fanne was performing a month later. To remove all doubt about his physical drunkenness he then called an impromptu press conference in her dressing room afterwards. Shortly after this incident Mills stepped down as chairman of the Ways and Means Committee, joined Alcoholics Anonymous and checked into a treatment facility.