The Knot of Neoliberalism: Obama, the Democratic Congress, and the Great Health Care Reform of 2009

by Michael Blim


Now begins the end game of the health care reform legislation. The President has spoken, and Senator Baucus has finally made his play. The results could not be more disappointing.

These latest contributions to the health debate leave millions of people uncovered, and everyone else save people on Medicare and Medicaid and patients of the Veterans Administration health system still contracting insurance for care and cost with the same insurers that helped create the health care morass we have now. For our pains, those of us now insured or who will be insured under pending legislation, receive the guarantee that our coverage cannot be cancelled because of illness, pre-existing condition, or job loss. While important guarantees, they do nothing to answer how we will pay for rising premiums or combat the war for payment or reimbursement raged by providers and insurers even on people now adequately insured.

But the bottom line is that these latest proposals are neither universal nor fair: They do not guarantee every person equal access to medical care s/he needs. The proposals invite the creation of a plethora of complicated rules and regulations that will render difficult or impossible redress by ordinary citizens.

Some have reminded us of the old adage that law-making is a little like sausage-making. The result may be good, but you wouldn’t want to see how it’s done. In this instance, the probable result is as ugly as the process.

Try this analogy instead: our health system is like the Gordian knot. Only cutting it asunder will work. The Democratic Congress and President Obama have been trying carefully to untie it. This is a mission that can never succeed.

Our health system is fundamentally corrupted by the desire for profit on the part of providers, insurers, and purveyors of the products used in treatment. It is dominated by cost shifting, collusion, and price fixing. Big pharmaceutical firms and medical equipment suppliers effectively bribe health professionals and hospitals. Hospitals have more price lists than a bazaar rug salesman. If you have one insurer, there is one price. If you have another, there is another price. If you are uninsured, you win the lottery and pay the most of all. This all occurs even as they accept lower Medicare and Medicaid reimbursements for the same services and supplies. The “real” price of goods and services in the sector rests on chance and opportunity, decided neither by the market nor sound cost accounting. It is economically and morally indefensible, an indictment only made worse when one considers how many millions are excluded from care.

I have expressed in many 3QD columns my preference for universal coverage under a single-payer plan. I won’t review the arguments for it here. Suffice it to say that advocates more effective than I can be found simply by googling “single-payer plan.”

Today, instead, I want to focus on the underlying logic that the Democrats and the President are using in their construction of their plans. Their fundamental assumption is that the market is the best manager of health care if the state can provide just the right kinds of incentives to get it to work effectively. The job of legislation is to figure out in advance what incentives are necessary and to whom they should be given.

Health care is a tricky environment. It is huge, encompassing 16% of the gross domestic product. It is hard to put a price tag on health, or on the virtues of preserving or enhancing health for individuals and for society as a whole. Actors in this massive and hard to quantify sector operate on different motives. The insurers driven by the profit motive want to pay for as little in reimbursements as possible, especially given that both consumer demand and the cost of services keep rising. The care industry wants to sell more care, amortize their autarkical investments, and increase their profits. Consumers want to be as well as they can be, and thus want to buy more care and be covered or reimbursed by insurers for it.

Finally the federal government and the states want cost control and strive to pay less for the same or more care than their clients have received in the past. The federal government, already covering 43% of the nation’s health bill, keeps trying to lower reimbursement rates for health services provided to the elderly and the poor. The states try to do the same by changing Medicaid eligibility requirements and reimbursement rates for services rendered to the poor and disabled. This discourages providers from offering care to the elderly, the poor, and disabled, and encourages providers to shift the actual cost of care to these groups onto its other clients and insurers.

If the market doesn’t “discover” so-called “real” prices, the various governments don’t either, for they rely on their authority and market share rather than reason is setting prices.

So every party has its reasons. The Democrats and the White House have responded with elephantine proposals that pay back the lobbies and try to patch over the conflicts inherent among providers, insurers, and consumers. It’s an old story. If you avoid doing the obvious, if risky thing, namely pick up the rest of medical care that the federal government is not paying for and rationalize the system, then you are stuck trying to reverse engineer it.

American liberals in the Roosevelt tradition offered guarantees. The new Democrats including the President offer “incentives.” This is where the “neo” in neo-liberal comes in. The key is resetting the market by rewarding actors for doing what the law wants them to do. Though the authors of the various proposals hope the job can be done via positive reinforcement, they are prepared to penalize non-compliance. So, take the subsidy and buy insurance – or else pay a penalty at tax time. Given that people without health coverage typically can’t afford something they want, subsidies work, if the evidence of near-universal enrollment in Massachusetts under similar legal circumstances is any indication of what might happen nationally. So shirking enrollment isn’t likely, as long as people are taxpayers or negative tax recipients.

Thus incentives can work on individuals. What incentives have the other parties? Providing fewer care services with no increase in reimbursement rates means not only less demand for services but also less income for providers. No incentive there for providers, even if the formerly uninsured release “pent-up demand” for services. Insurers will pick up some income from subsidized clients, but will have no incentive for providing the comprehensive coverage most consumers want or indeed must have given the high cost of care. Baucus for one will penalize firms for offering “gold standard” insurance by taxing their profits in relation to the proportion of high-end policies they write. This will create a disincentive for millions of persons with insurance who find themselves paying through the nose for insurance now, either by their choice, probably prudent given the environment, or the choice of their employer.

Aside from the loonies painting moustaches on pictures of the President, opposition to health care reform seems to be coming from significant numbers of the insured who fear there will be no cost savings, and via incentives of the type offered by the Senator, reduced benefits as well. Seniors too are anxious that reform will come at the expense of Medicare benefits. After the Bush regime along with the Democrats trashed their trust with an absurdly ineffective as well as bankrupting prescription drug program, who can blame them?

A fierce game of musical chairs now underway. When the music stops, who will be caught with the costs? No matter how surgical the “incentives” interventions are, no matter how many problems are laid off via bets on the capacity of the market’s invisible hand to solve them, there are at base contradictions of vital interest to every party that will cost the other dearly.

A cynical eye would see all the machinations in evidence as distractions that cover the fact that neoliberal politics of the Democratic variety is proving not up to the job of reforming health care on a universal and equitable basis. Each time another little fix is added, the average citizen may be getting a glance of the bigger fix at hand.

What incentives other than guarantees against cancellation, portable coverage, and somewhat improved choice are offered to majority of Americans already covered by health insurance of some sort or another? Will their costs go down? Will their coverage improve? Will their rights as consumers and patients be preserved?

Imagine if Franklin Roosevelt offered Social Security as a form of subsidized pension for the poor? My guess is that it would not have survived the onslaught of the last 30 years of reactionary politics.

Roosevelt knew this. He made a terrible concession to Southern racists by excluding farm, dietary, and domestic workers from Social Security coverage. Their lives and by extension those of their children were made miserable as a result. His resort to a payroll rather than an income tax meant that workers paid as much proportionately as did the rich – more before the taxable income limit for taxation was raised to include more of the income of the rich. Only wage earners could earn pensions, and the majority of women were thus disfranchised. Payouts were modest and disbursed without regard to actual need of workers when compared with the rich.

But Roosevelt insisted on making coverage compulsory for all those not excluded by law. Even though it was a pay-as-you-go scheme, Roosevelt was convinced that no one could destroy Social Security if it were called “social insurance.”

Lyndon Johnson built on the rock that Roosevelt had provided, placing Medicare inside Social Security. Medical care for the old thus became universal and compulsory. He probably didn’t know then that the burden of Medicare would likely someday prove too heavy for Social Security to support. If he did, though, he surely had figured out that Medicare’s life chances were improved by his maneuver. He was right, though reactionaries have had more luck in battering its defenses as a bedrock for senior well being than they have at privatizing Social Security.

No market will guarantee universal coverage and quality medical care equitably and with regard to every person’s well being, just as the “demand” for senior social security or medical care for the elderly and the poor has never made a market. In the economist’s polite phrase, these were “market failures” that only government could fix. Roosevelt knew it, as did Johnson.

The neoliberals calling the shots in the Democratic Party, including one former law professor from the University of Chicago, these days known as the home of the “nudge,” don’t know it or if they do, do not have the courage and practical political sense to see that absent the sword and cutting the knot, the threads of bad policies put together only bind tighter.