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.