Lecture 25: Tough Nuts – Education and Health Insurance

Lecture 25: Tough Nuts – Education and Health Insurance


– So today we’re going to talk
about two what I’m calling tough nuts, education and healthcare, but I want to just begin by
taking stock of where we were before we went on the break. – Right now, the human worker does $50,000 worth of work in a factory. That income is taxed. If the robot comes in
to do the same thing, you’d think that we’d tax
the robot at a similar level. (energetic music) What the world wants is
to take this opportunity to make all the goods and
services we have today and free up labor. Let us do a better job of
reaching out to the elderly, having smaller class size,
helping kids with special needs. All of those things where
human empathy and understanding are still very, very unique
and we still deal with an immense shortage of
people to help out there. And so, if you can take the
labor that used to do the thing automation replaces, and both
financially and training-wise and fulfillment-wise,
have that person go off and do these other
things, you’re net ahead. But you can’t just give
up that income tax, because that’s part of
how you’ve been funding that level of human workers. Some of it can come on the
profits that are generated by the labor saving efficiency there. Some of it can come directly
in some type of robot tax. You know, I don’t think
the robot companies are going to be outraged
that there might be a tax. It’s okay. – So, that was a fairly agreeable
version of a tax proposal, which I’ll come back to later. But this is part five of the course, focused on what is to be done,
and the bumper sticker that, with apologies to Immanuel
Kant, was that politics without, policy without politics is empty, but politics without policy is blind. And when we talked about
policy without viable politics, I gave as examples Piketty’s
proposal for global wealth tax with no identified enforcement mechanisms and his more recent proposals
for a European Parliament that would engage in
redistributive politics and have trumping power over the existing European structures,
even though the attempt to create such a parliament
had failed because of popular hostility to it,
and had instead resulted in the Lisbon Treaty. When we talked about politics
without viable policies, politics without viable policies, I gave us the bumper sticker for that, the subprime mortgage crisis,
where extremely politically effective coalitions had been
put together across the aisle and with lobbyists and industry advocates, not to mention the advocates
for housing for the poor, but it produced a train wreck of a policy. We then focused on the
subject of insecurity, arguing that insecurity
is in many respects, more important than
inequality and certainly than global inequalities for people, and made the case that
universal basic income, despite the apparent support for it across various ideological groups,
that doesn’t withstand scrutiny when you see that the
conservative case for it would largely result in the abolition
of what we think of as the welfare state, Social
Security, Medicare and so on, so they would easily be
blocking coalitions for that, and indeed when you look in
Europe at, where they’ve held referendums on this,
such as in Switzerland, there’s not much support for it. We talked some about minimum
wage and the difficulties of that, particularly
the race to the bottom or the race out of the country problem that accompanies minimum wage politics, and instead argued for an
expanded earned income tax credit, which goes back to the
Nixon administration’s notion of a negative income
tax, and could become the basis for a more
effective wage subsidy, and has been greatly
expanded in recent decades under Republican and
Democrat administrations. And there are also state-based
earned income tax credits, which have the advantage
of creating a kind of race to the top incentive
in that they become magnets, states can make themselves
magnets for employment because of the employment subsidy. Economists will still
complain that this distorts labor markets, which it does,
but any policy that attempts to affect employment at some
level is going to affect labor markets, and we argue that this is a better way to do it. We then went on to the idea of universal adjustment assistance
and I worked through the sort of tragic history of trade investment and insurance adjustment assistance, where labor had initially supported
it as a quid pro quo for the 1962 Trade Act
which reduced tariffs, but then it was largely not implemented by the Johnson administration
that came into office in 1963. Nothing was paid out. In fact, over the next decade
and by the time business got around to supporting
it, labor had bailed out, and it had garnered a
lot of opposition because by only supporting people who
lose their jobs from trade, this seemed arbitrary from from
the point of view of people who lost their jobs for other reasons, and indeed when the Reagan
administration effectively killed off the program they
made that same argument, so it was made both on
the left and the right, and we argue, particularly
given the sort of dynamic that Bill Gates is referring
to, they have jobs going in any case increasingly to
technology rather than to trade. There should be a Danish style,
much more universal system of adjustment assistance
that would provide for relocation, for
retraining across a lifetime. And when we think about how might that sort of adjustment assistance
be funded, as Gates, Gates perhaps is a little
naive to think corporations will not abolish it, but in
fact this is in the interest of business because one thing
that economists will say, but it’s not obvious to lay
people, is that public education of any sort is actually
a subsidy to business. It’s a government subsidy
to business by creating trained workers that
businesses can then hire, and so government subsidies
of retraining programs, again, is at the end of the day,
a subsidy to business, and we make the case in
in my forthcoming book with Michael Glass that business leaders should be getting behind proposed, doing what Gates is doing
there, getting behind such proposals, because they
will sort of, if you like, Tocqueville’s self interest
rightly understood, it really is in businesses’
interest to support the creation of a perpetually re-educatable
workforce that’s going to be flexible in ways that
are going to be required by the demands of the 21st century. So, today’s agenda is to talk
about two other challenges: K through 12 education and
universal health insurance, and they’re very vexed
subjects in America, and they’re vexed subjects partly because there are two other
features of the American political order, which make
it very extremely difficult to enact a lot of social
policies and these are worse here or more challenging here
than in many other countries. The first is fiscal federalism. We’ve referred to this
earlier in the course, you might recall, when I talked about the deinstitutionalization
of psychiatric patients in connection with
rising prison populations and with the discovery of antidepressants and anti-psychotropic drugs
to repress things like schizophrenia, when in the 1960s and 70s, this led to many people who had previously lived their whole lives
in psychiatric hospitals to be released, but it
was also a time of great fiscal crisis in many of the states, and so those savings were
put to the bottom line of state budgets and instead
those people wound up in American cities where there was not, there were no resources
for them, and consequently, many of them then wound up
back in the prison system. And so this is the kind
of the dark side of fiscal federalism that we
have a very decentralized federal system, unlike say
the German federal system, where there are very clear demarcations, because the whole federal
system was designed at once, of what’s the risk, so
there are clear demarcations of what is the responsibility
of which level of government, whereas we have a kind
of bottom up federalism that was created
piecemeal, and power is not explicitly delegated to
the federal government, reside with the states,
some things are the province of cities and not the
responsibilities of states, and so it’s very easy for things
to fall through the cracks and we will see as we talk
about education and healthcare that this decentralized
character of American federalism makes it extremely
difficult to enact policies that in other countries would be done as a matter of national policy or what we would call federal policy here. The other is that the
that the American system is much more subject to
what some social scientists refer to as path dependence,
and the idea of path dependence is if, as the name implies,
as you start heading down one path, and maybe you take a left fork, then you’re confronted
with some other forks, but you no longer have the
option of the right fork you would have taken, perhaps
if you’d seen, later on, what were the consequences
of going on the left fork. And so this is the idea
of path dependence, things that are done
earlier shaped the choices of things that are coming later. Now if you have a very
centralized political system, that may not matter very
much, so say in Britain where they have strong parties,
I’ll talk more about that on Thursday, they can do
things like nationalized and denationalized and
renationalized British rail. It’s relatively simple
because most political power resides in the House of Commons,
so they can make decisions that are decisive, and they can revert. If the incentives change
or new information arises, they can make a different policy. Our system is designed to be
extremely difficult to change, and so there are multiple
veto players in the system, as we’ve discussed in earlier
classes with the bicameralism, with the separation of powers,
with the presidentialism, with the federalism, with
the Senate filibuster rules and with the over
representation of small states in the Senate, with the court. All of these veto players
mean that the choices made, once they’re embedded, are
very difficult to change, and we talked about
this in connection also with embedding proximate
goals, that you want to make your approximate goals
difficult to change. And so FDR, in the case of
Social Security, found a way to use the inertia in the system
to protect Social Security. But the inertia is there, and
it means that path dependence is a much bigger deal in the US system than in other systems. And so as we go through these
two examples of K through 12 education and healthcare,
you’re going to see the fiscal federalism and
the inertia that privileges path dependent popping up
again and again and again and making, creating
substantially bigger challenges for these sorts of policies in
the US than we see elsewhere. So I asked you to read the
Dale Russakoff’s “The Prize” about New Jersey educational
reform and let’s just get our minds around that
with a look at this video. – Republican Governor Chris Christie, Democratic Mayor of Newark, Cory Booker and the founder of
Facebook, Mark Zuckerberg, are putting politics
aside to help turn around the failing public schools
in Newark, New Jersey. This is the first time all three
of you really come together to talk about this big idea. So, Mayor Booker, for
those who don’t know, what’s the big news? – Well, we’ve been talking
for quite some time about creating a bold new paradigm for educational excellence in
the country to show the way, to put the people of the city of Newark really in the driver’s
seat and the focal point, and to work to get all the
assets and resources we need to give to them to succeed. – So, Governor Christie,
what are you committing to? What are you committing to? – What I’m committed to
is changing the schools in the city where I was born, I spent the first years of
my life, and Mayor Booker is going to be the point
person, our lead guy in Newark in helping to develop
this entirely new plan of how to reform the
education system in Newark and create a national model. I’m empowering him to do that. I’m in charge of the public schools in the city of Newark as Governor. I’m going to empower Mayor
Booker to develop that plan and to implement it with a
superintendent of schools that we’re going to pick together. – I think that is so fantastic. (audience applauds) I think that is so fantastic. In this age of red states and blue states and everybody being so
partisan about everything, the fact that you all would come together, did that ever enter
into it, the politics of you’re a Republican and he’s a Democrat? – No, it’s about the children. I mean, you go to Newark. (audience applauds) Go to Newark and you watch,
as you saw in the movie, and there’s other movies that
display this about parents and children sitting in a
gymnasium waiting to see if their number gets picked out of a barrel and watching parents sob, and
I met a woman who got her son into one of the best
charter schools in Newark, the Robert Treat Academy,
and her son was now in the third grade at
that point, and I said, what was it like the
night you got him in it? She said when I was waiting
that gym, I knew that whether his number got picked out
was the difference between him going to college or going to jail. – [Oprah] Ah, yeah. – No mother in America
should have to sit there and by chance decide that,
and when I heard that, that’s when I was US Attorney,
when I heard that story, that turns my entire attitude
towards putting this first, and he feels that way too and
now we’ve got another partner with us to make it happen. – If we as a nation keep
pulling left and right, we will never move forward, and. (audience applauds) Yeah. Most of us understand that. Most of us understand that. – So, Mr. Zuckerberg,
what role are you playing in all of this? (room laughs) Are the rumors true? Will there be a check
offered at some point? Yes. – Well yeah, I’ve committed to starting the Startup: Education
Foundation, whose first project will be a $100 million challenge grant. – $100 million. (audience applauds) Yo yo yo yo yo. (audience cheers) (Oprah laughs) So okay, so why education and why Newark? – Why education? Because every child
deserves a good education and right now that’s not happening. (audience applauds) I mean, I’ve had a lot of
opportunities in my life and a lot of that comes from, you know, having gone to really good
schools and I just want to do what I can to make sure that everyone has those same opportunities. – And why Newark, though
because, you know, what’s your relationship with Newark? – Well, Newark is really just because I believe in these guys, right? (audience applauds) Running a company, the main
thing that I have to do is find people who are going
to be really great leaders and invest in them, and
that’s what we’re doing here. We’re setting up a $100
million challenge grant so that Mayor Booker and Governor Christie can have the flexibility
that they need to implement new programs in Newark and
really make a difference and turn Newark into a symbol
of educational excellence for the whole nation. – So, that is not a good
way to make social policy. It was a predictable train wreck and I asked you to read
it for two reasons. One is the brilliant depiction of the extent of the problem in Newark. I mean, it is very, we
we live increasingly in segmented worlds where we call it, we talked about soft apartheid earlier, but it’s difficult to overstate
the devastated neighborhoods in the school system,
which had been taken over by the state some years before. The dropout rates and failure
rates that she describes are just mind blowing. So, it is a very sobering
description of the extent of the problem of public education
in America’s inner cities and I think Newark is certainly, in that respect, quite typical. But I also wanted to have you read it because it is so clearly designed to, if it had been designed to fail, this is how one would have designed it. It wasn’t actually 100
million, it was 200 million, because it was a challenge
grant and other foundations put up additional money. And there were variety of reasons that it was almost destined to fail. One was the top down and mandate quality of the whole effort. It was later revealed huge
amounts of money were wasted on consultants, who paid
themselves to write long reports. There was almost no buy-in from
the parents of the children in the schools concerned, and the neighborhood-based
funding model resists this kind of injection. $200 million sounds like a lot of money. The Newark schools’ budget, of course, is billions and billions, so at most, these could be some kind
of demonstration projects, they’re not going to have a big impact. Very little of the money
went into classrooms. Much of it went into
administrative reform. And the other thing that they did was they brought in a school superintendent, who we’ll hear more
from, who was confronted with the difficulty
that by creating impetus to increase charter
schools, which are schools that are funded with taxpayer
money, but are not subject to the same kinds of regulation,
the issue becomes twofold. One, are the charter schools better? Which generates a lot of controversy, some are some are not, and
on average, it’s not fair that they are, but then secondly, what happens to the children
who are left behind? And this is the ones who do not
go into the charter schools. And so what you get is
essentially an accentuation of differential options due to fewer and fewer possibilities
of upward mobility. The emphasis on charter
schools, Cami Anderson was the, she was, she had the
added disadvantage that the population is
overwhelmingly African American and she was the first
white school superintendent brought in, but she, she
correctly identified this as what she called a lifeboat
theory of public education, that is you take some
children out of the schools, the failing schools and you
send them to the charter schools and it’s a lifeboat for
that child but then you have to think of, if it’s
a good charter school, but then you have to think
about what is the likely effect on the children who remain behind? This is very comparable to
the school voucher movement that gained a lot of traction in the 1990s and has now actually come back,
we’ll see, with Betsy DeVos and the Trump administration,
but so again the notion here was that it’s a Hirschman
story that if you think about America’s school system we, first of all we have private schools, so people who can afford
private schools can leave, and that that means that,
their relatively low exit cost mean that they don’t have
the incentive to stay and exercise voice to improve
the system for the rest. And so, like the charter schools movement, the vouchers movement pressed
by these two academics, John Chubb and Terry Moe, the
idea was that the government should give vouchers to parents, and that they would create competition, first competition within
the public schools, and so the competition, if you like, would would give poor people,
and this was a sort of had a populist flavor to
it, poor people the capacity to move to better schools
and that would put pressure on the worst school to improve themselves or go out of business. And so this was the public
schools’ variant of it, and then increasingly
there was pressure, also, to let these vouchers be used in private and parochial schools, and indeed, that was challenged in the
courts, because if you, a lot of these schools
were Catholic schools, religious schools, but in 2002
by a five to four decision, the court said it was okay. It was Rehnquist, I believe,
writing the majority opinion. It was okay to use taxpayer
money for vouchers, even if they were going
to be spent in religious parochial schools, so that
in effect it’s violating the so-called wall of separation
between church and state, so this was another way to
try and diminish the costs being experienced by people in the system by introducing some kind of
competition and better options for children in the public schools. But as Cami Anderson says
at one point, she says she didn’t come here to rearrange the deck
chairs on the Titanic. And so basically what
happened in Newark was that about 40% of the children
wound up going to these newly improved charter
schools chosen by lotteries, and the remaining 60% of the kids were in even more underfunded schools in the rest of the public system that’s
bred so much of the backlash, and what we have seen in
the wake of the failure of that initiative is quite
a substantial backlash against the school reform movement, both backlash against
charters and against vouchers, both of which, predictably,
are strongly opposed by teachers’ unions and
teachers’ unions turn out to be one of the few relatively
potent union movements left in America. So in Newark in 2014,
Ras Baraka became Mayor after defeating another
pro-charter candidate who went on to become
president of the pro-charter Democrats for Education Reform, and he was reelected
with over 77% of the vote four years later. In New York, this was a central
plank of de Blasio’s victory with 73% of the vote in 2013, a strident anti-charter
campaign ushering in an era of feuding with the various proponents, and he was also reelected
by a huge majority. Rahm Emanuel in Chicago,
longtime former Chief of Staff of Barack Obama, longtime
mayor of Chicago, also has run into massive
backlash in Chicago over the Chicago charter schools. 2016, Hillary Clinton was,
who had also been a longtime advocate of charter schools,
was forced to back away and reverse her long standing support. And, indeed, in January of
this year, there was a huge teacher strike in Los
Angeles, and it was just when the candidates were announcing,
you know, declaring interest in running for President,
and all of the wannabe Democratic candidates quickly
came out in strong support of this strike, a central
pillar of which was to try and stop the expansion of
charter schools in Los Angeles, and Cory Booker, who
you saw in that video, had actually long been an advocate of charter schools, was very quick to announce his support for that strike. So the fight over vouchers
continues in 2018. The Trump administration cut
over three and a half billion out of the Department
of Education’s budget, and also devoted a billion to be spent on private school vouchers and
other school choice programs, so there’s an ongoing political battle, but it’s extremely difficult
to see a path forward for this kind of educational reform, which tends to be piecemeal,
city by city, you know, high visibility initiative by
high visibility initiative, but doesn’t get at the systemic challenges of the decentralized system, the. By the way, efforts to get
reform through the courts of the neighborhood-based funding system have also been rejected
by the Supreme Court, so you can’t go that route either, and it makes K through 12
education a real challenge and you can see that it’s gotten worse. This is the divergence of
educational opportunity over the 40 years, up to 2010. You can see, if you look
at the top income quartile, number of children getting
college degrees has doubled, but if you go to the next
quartile, between 50 and 75%, it’s grown, it’s also doubled,
but to a lower number, but in the bottom two quartiles, there’s basically been no expansion of educational opportunity measured as getting a college degree,
so no upward mobility for the bottom half of the population, despite the increase in upward mobility for people at the top. So, these local efforts largely fail. One counterexample example
to this, by the way, is New Orleans where,
after Hurricane Katrina pretty much wiped out the whole
school system, they put in a system that is almost
exclusively charter schools. And there are, again, contending debates about the merits of these schools. There’s a, I think, a general perception that they’re an improvement, but that is a very unusual situation
where you have your entire school system wiped out
by an exogenous shock and can redesign from scratch, and thereby defy some
of the path dependencies that have been built into the system. Now, so this is the sort of
pragmatic piecemeal solutions at the local level. We should talk a little
bit about what efforts have been made at the
national level where, as in most countries
educational policy is decided, and there have been efforts. Probably the most notable
one in recent decades was the 1965 Elementary
and Secondary Education Act that was put in place by
the Johnson administration, and they were able to do that first of all because of the huge
landslide that they won in the 1964 elections,
and it also gave Johnson his mandate for other
elements of the Great Society and the Civil Rights
and Voting Rights Acts that we have talked about. He also engaged in in very
clever coalition building politics, thinking back to our
lecture on building blocks. So for example, there had long
been opposition from groups, parochial groups, Catholics and so on, for the federal government’s
giving money to local school districts because it wouldn’t
benefit Catholic students, and so he instead devised
a plan where the money would actually go to the
students and not to the schools, and so the argument was
that the federal government was not supporting religious schools. This is before the Supreme
Court decided, as it had in the voucher cases,
that would come later. But then secondly, civil rights advocates and advocates of minority
groups had also opposed giving money to segregated schools, because if you gave money
to segregated schools, it was federal money
to segregated schools, gonna reinforce probably,
or so it was believed, the advantages achieved by children in predominantly white schools. With the Civil Rights Act and
the Voting Rights Act passing, but particularly with the
Civil Rights Act passing, those urban liberal
groups got turned around and now became supporters. So, the Johnson administration was, it was a pretty big policy. It was a billion dollars which
would be eight billion today, rising to 4.2 billion later in the decade, which would be $31 billion
today, and literally a tenfold increase on what
the federal government had been spending a decade earlier, so it was a really
substantial federal program, but it soon came under
Republican attack by 1968. Of course the Nixon
administration had come on and it was very
inefficiently administered. Much of it was spent on
local school administration and not on classrooms,
but also it was basically remedial education, and
they ran into the problem that Russakoff also identifies
in the New Jersey schools, that essentially trying to
tackle underachieving children in the classroom is, it’s too
far downstream from the causes of the problem and so
you have these programs that improve kids’ performance
over the summer, let’s say, but over the school year,
but then, over the summer, they tend to, most of
the benefits dissipate and when they come back
the following year, many of the apparent
advantages have gone away and this had actually been
identified by a sociologist name of Coleman in 1966
that remedial programs don’t really work, and this
is the same message that actually Zuckerberg took away
from the failure in Newark that if you’re really going to address the problems of inner city schools, you have to start with the
homes and the neighborhoods and what people are eating
and where they are sleeping and whether they’re sleeping and the basic capacities
that need to be developed cannot just be developed in classrooms. So, that didn’t go well. The next big federal
effort was in the 2001 reauthorization of the SCA. This was the reauthorization
of the legislation that had been passed in 1965
and this was the so-called No Child Left Behind
program put in place by the George W. Bush administration. I think I got the wrong date on there. It was actually 2002. The idea here was to
identify certain benchmarks that had to be met in order
to get federal funding. It was largely attacked. It was roundly attacked from all sides, partly because it was
seen as much too top down, even though there were
there were concessions like allowing each district
or each state, at any rate, to identify the benchmarks
that had to be met, but then this produced
critiques to the effect that they were manipulating
the benchmarks in order to show the results of
improvement on the one hand, and that other districts,
which were actually achieving absolute gains, but
didn’t meet the benchmarks, weren’t getting the funds. And so it was again
attacked from all sides, strongly resisted by
teachers unions as teaching to the test, not providing
genuine education and manipulation of the test and so on. Finally, what was left
of it was pretty much put out of its misery by the
Obama administration in 2015, where they turned over what
was left of the program to the states. So, it’s very difficult to
see how you put together a national coalition to
address K through 12 education, partly for all the reasons
I’ve already identified, and the one final thing to
say is that the coalition to demand it is not there
because at the very high end, of course, the American
system is extremely good, so people in private schools, people in wealthy neighborhoods
where the public schools are very good have no real incentive in this highly decentralized,
locally funded system. They have no incentive to get behind any kind of comprehensive reform. And, you know, I think I
mentioned to you earlier in the course I used to live
in Guilford, Connecticut, and I watched over a course
of decades as the proportion of people living in the
town with children decreased because of the graying of
that population of that town, it became increasingly difficult
to pass the town budget because there’s a lot of
genteel poverty in those towns, there’s a lot of resentment
of school teachers who have good unions and good jobs, and so people who maybe inherited a house but can’t pay the taxes on
it, they show up and vote down the town budget because
half of it is the schools, and so you have a big
divided dollar problem. In that case, eventually the
Connecticut State Supreme Court ordered the raising of the
mill rate on the grounds that there’s a right to an education, Connecticut state constitutional
right to an education, so they limited the damage in that way, But the combination of
the fiscal federalism and the Hirschmanesque
problem that if you decrease exit costs, which sounds
good to give people other opportunities, you
increase voice costs, and you make it less likely
that the residual system is going to be improved. So, that is the rather depressing story of K through 12 education in America. Let’s talk about health insurance. And here again it’s in many respects, a depressing story that
exhibits infirmities of the education system,
though not as as depressing as the K through 12 education story and actually we have a proposal
that might actually work. So thinking about the
healthcare system, the US system is unusual in two respects
for any advanced democracy. One is that there is
not universal coverage, and the other is that we have
these employer-based systems. Most people get their
insurance through their work. 180 million Americans, at
least, get their insurance through their work. Now you might say well,
why did we get this system? And here’s a good example
of the path dependency issue that I was talking about. In 1942 during World War II, the government instituted wage controls. Employers were not allowed
to give pay raises, but there were also great labor shortages, and so employers were
looking for ways to compete for labor, for workers. And so the following year,
the War Labor Board said, well, benefits would not count as wages, and so what happened was that
employers started giving out health insurance as a way
of increasing the real wage they were paying to workers
without violating the stricture that the wage freeze that was
the case had been put in place for the duration of the war. And so this meant massive
increase by the end of the war in this this employer
provided health insurance, and then of course, once you have it, the people who have it don’t
want to give it up, right? And so this is a very sort of micro but poignant illustration
of how the path dependency for a system can get
going and then accelerate. So we don’t have a universal
system partly for that reason, but there are other reasons as well. One is the employer-based
I’ve already mentioned, but the other is
Medicare, as I said to you a little while ago that
Medicare was a very major achievement in 1965,
single payer healthcare for people over the age of 65. The problem with doing
that is that it creates a potential fissure in
the coalition of people to demand universal health insurance, because the elderly
now have what they need and the employed have what they need, and so those groups of people don’t have much of an incentive to support expansion, particularly if you
think about the elderly, because when we look at
these Democratic plans on offer from the candidate,
you know, Elizabeth Warren initially costed her Medicare
For All at $20 trillion. Most of the independent
evaluations are closer to double that and even
she is now being forced to walk away from that. But if you think of the
available pool of resources for health insurance as
finite, expanding the coverage is going to come at the
probably the cost of coverage for people who already have it. So, this patchwork of partial
provision makes it harder to generate the demand
for a universal system, unlike Britain for example,
which put in a universal system in one fell swoop for everybody in 1947 under the Attlee government. So those are among the obstacles. And then Medicaid is stigmatized
as a poor persons’ program, and so not viewed as a desirable thing for people to want to have. And it’s also caught
up in fiscal federalism because it’s funded with
certain amounts of money that come from the federal
governments to the states, but then they have to raise the
difference in local taxation and so that creates huge amounts
of pressure on the states to limit what Medicaid is
going to cover because, particularly in recent decades as the federal government
has reduced what it provides and has gone to systems of block grants, which again are not sensitive
to changes in the populations that are actually being served. So that’s another set of
obstacles, and it’s in this context that we have to think about
the Obama legislation. And it’s much pilloried
and it’s got many defects to it, but it’s worth pausing
just to note what it did in fact achieve, given the
place we’re starting from. It did increase coverage
for about 20 million people. There are still about 32 million uninsured and 44 million what are
called underinsured, and underinsured people are people who have partial coverage, but the copays or the
conditions that are not covered put extreme fiscal
financial stress on them, and so if you look at this
chart you can see that the number of uninsured
actually came down, not insignificantly as a
result of the Obama law, and it should also be said that Obama was the fifth administration
since the war to have tried to do universal healthcare. So many administrations have tried before, and the only success had
been the partial creation of Medicare in 1965, so it’s not an insubstantial achievement. But the way in which it
was enacted tells you a lot about the pathologies of the
American political system, and that’s what I want to
focus the rest of our time on. So, if you think about
Obama coming into office in January of 2009, and this is one of the top issues on the agenda. After Dodd-Frank, this
is the number one issue, much to the chagrin of environmentalists who wanted environmental stuff
to be the number two issue, but Obama decided universal healthcare, he had campaigned on it,
and he wanted to do it. And so, one issue that was central to
trying to get this done was controlling costs. Now, medical costs are high
for two reasons in America. If you plot the rate of inflation against the rate of medical
inflation in the US, what you find is that the
rate of medical inflation is sometimes three and
often at least two times as the rate of regular
inflation, so medical costs are going up faster than
the rate of inflation. And you might say well, why is that? So one reason is the lack of
universal coverage itself, because what it means is
that people without coverage essentially use emergency room care for their basic medical provisions and that’s about the most
expensive possible way to give people healthcare,
because the overhead involved in running an
emergency room is enormous, and so then hospitals tend
to pass on those costs to everybody else in the
form of higher prices. So that’s a big part of the
reason that medical inflation is so high, and then a
second piece of it is that the cost of drugs to
the federal government is extremely expensive,
because when Medicare Part D was created by the George
W. Bush administration in the early part of the century, this is free prescription
drug benefits for seniors, people on Medicare. They forewent the opportunity
to negotiate drug prices for the federal government
directly with the drug companies. If the federal government’s
going to be this big purchaser, they obviously have a lot of
leverage in price negotiations. But they forewent that
opportunity and you can see in the early years when when
when the Medicare Part D was going through this, as you can see, big increases in
lobbying, as that bill was going through Congress,
to stop the proposal that the Democrats were
pushing at the time, and even many Republicans,
to negotiate drug prices with the pharmaceutical companies. And so, when Obama came in in 2009, everybody who had studied the problem, all the health policy experts
said, you have to deal with the cost question first,
because if you’re going to expand coverage, before you
deal with the cost question, then what’s going to happen is, you know, the sticker shock of this
for the American voter is going to be out of sight,
and you’re going to make the whole program vulnerable. So that would mean taking on Big Pharma, because as you can see,
as the Obama legislation was going through
Congress, that the lobbying also skyrocketed because
they were extremely concerned about this issue. Obama had run on it in the
campaign, and he was determined to address it, so that’s Big Pharma. But then the other
problem they had was that if you create universal coverage,
particularly if you do it by including what was
called a public option, which meant that for
people who couldn’t find private insurance, they would be able to buy medical insurance
from the government. If they included in a public
option the thought there was seen as several advantages to this. One was it would make sure
that everybody would have the possibility of buying insurance, even in communities where,
there was no other insurers. Secondly, it would force
competition into the system and particularly in areas
where there was only one private insurer, they
would now have to compete with the government
with the public option. And thirdly, and perhaps most importantly from this perspective of
thinking about the pathologies of path dependency in the American system, it would be a path to eventually
creating Medicare For All, because more and more
people could gradually move into the public option over time, if it was providing better coverage. And so it would least
create the possibility of expanding the American
system into something more recognizably like what
we see in other countries. But, adding the public
option meant that not only would you have to take on Big Pharma, you would also have to take
on the insurance industries. Big Pharma or drugs, insurance,
a different part of the, of the healthcare industry,
because for all the reasons I’ve just given, they didn’t
want the public option, right, and so the big debate
in the administration, if you read the pop
books on the first years of the Obama administration is, so, how to square this problem,
because if you don’t solve the cost problem and
you expand the coverage, you’re going to get the sticker shock, but if you try to do both of
these, you’ve got to take on two of the most effective
lobbying groups in America, and as the lobbying went
on, it became clear that, or it became believed in the White House, I don’t know if it was clear or not, but it became believed
that they couldn’t fight both of these battles at once. And so, against the advice
of the policy wonks, Obama punted on the drug controls, essentially, gave up on a public option in return for some window
dressing, apparent cost savings that, as we described in our
book, and I won’t go through in detail, were largely chimerical. And so effectively they gave
up and abandoned the idea to negotiate drug prices in
order to get the Big Pharma off the back of the administration
and the thought was, it’s more important at the end of the day to increase coverage than it
is to fight this to battle on two fronts, which we’re
probably going to lose. And so that took Big
Pharma out of the picture and actually they started
to support the bill. But the universal coverage problem was a much more difficult one, and here you can see as
Obama is still pressing to try and get the public option adopted, you can hear him making the case. – An additional step we can
take to keep insurance companies honest is by making a not-for-profit
public option available in the insurance exchange. (room applauds) Let me be clear. (room applauds) Let me be clear: it
would only be an option for those who don’t have insurance. No one would be forced to choose it, and it would not impact those of you who already have insurance. In fact,-based on Congressional
Budget Office estimates, we believe that less than 5%
of Americans would sign up. Despite all this, insurance
companies and their allies don’t like this idea. They argue that these private companies can’t fairly compete with the government, and they’d be right if
taxpayers were subsidizing this public insurance
option, but they won’t be. I’ve insisted that like any
private insurance company, the public insurance
option would have to be self-sufficient, and rely
on the premiums it collects, but by avoiding some of the
overhead that gets eaten up by private companies, by profits, excessive administrative
costs and executive salaries, it could provide a good deal for consumers and would also keep
pressure on private insurers to keep their policies affordable and treat their customers better. It is only one part of my
plan and shouldn’t be used as a handy excuse for the usual Washington ideological battles,
but I will not back down on the basic principle that if Americans can’t find affordable coverage, we will provide you with a choice. (room applauds) – So the reason there
was all that applause from the Democrats in the House
was that the previous month, he had been getting cold
feet about the public option and in fact had made a couple
of speeches saying that the public option was
not essential to the bill and he wasn’t going to fight
to the death to keep it and this had produced big
backlash on the left of the party and so he came out there
and made a strong speech in favor keeping the
public option in the bill, and seemed to be suggesting
that it was non-negotiable. But the insurance industry
had smell blood in the water by then and were going to work to try and get rid of the public option. And again we run into
some of the pathologies of the American system. As you all now know, you
need 60 votes in the Senate to pass a bill, unless
it’s budget reconciliation, when you only need 50 votes, as we talked about in the class on taxes. So you needed 60 votes,
and they had had 59 votes for a long time, and finally
when Al Franken’s recount was resolved and he got his
seat, they were up to 60 votes but the 16th vote was
from Connecticut Senator Joseph Lieberman, and
he had indicated support for the legislation all along. But, Connecticut is one
of the insurance capitals of America, and so you can see here, you can get some sense of how
this was going to play out. – With us now Senator Joe
Lieberman of Connecticut. You just heard the White House
top advisor on such things saying that it is likely that
both the House and Senate will finally come up with
some kind of healthcare bill that has some sort of public option in it. What’s your take? – I hope not. In other words, I’m all
for healthcare reform. We have a system that needs fixing, but we’ve got some more
urgent problems than that, and the first most urgent
is to fix our economy, to get it creating jobs again, and I think that a public
option will actually hurt the economic
recovery and our long term fiscal situation because
it will end up causing the government to raise taxes,
will probably raise premiums, or it will put us further into debt. I want to be able to say yes. There’s so many good things we can do to make health insurance more affordable and to extend it to people
who don’t have it now, but I feel so strongly about the creation of another government health
insurance entitlement, the government going into the
health insurance business. I think it’s such a mistake
that I would use the power I have as a single Senator
to stop a final vote. – But what does that mean that
way that you might wind up with nothing instead of something? – Well, the truth is that
nothing is better than that because I think we ought
to follow, if I may, the doctor’s oath here in Congress as we deal with healthcare
reform: do no harm. – I’m gonna ask you this question because I want to give you a
chance to respond to it. Some of your critics say that
the reason that you are so dead set against the
public option is because there are so many insurance companies headquartered in your
home state in Connecticut and they’ve been some of
your biggest supporters. What have they giving
you this year, $400,000, something like that? Does that have anything
to do with your position on the public option? – No. You know, I wish people
would come out and debate me on the public option instead
of questioning my motives. That’s not the reason,
but I will say this: this recommendation of a public option, a government health insurance company, takes our government down a road that we’ve never gone down before. In other words, we believe
in a market economy. It’s what’s created the
great American middle class, but it doesn’t have a conscience. When it behaves badly, we
regulate companies, we sue them. I’ve been angry at oil companies. I never had the idea that the government should go into the oil business to make oil companies behave better. I think this would be a terrible mistake. – So, as you can see, that
is Lieberman making his case as to why he’s opposed
to the public option. Of course oil markets
are completely unlike health insurance markets
because they’re not subject to the problems of adverse selection that we discussed earlier,
where the people who, if you don’t have a universal system, the people that most need
the insurance are going to be the ones that the company’s
gonna least want to insure, and so it’s not a very
convincing argument. However, it was it was a political winner, and 10 days before the
bill was going to go through the Senate, he was the 60th vote, and he insisted that
unless the public option was taken out of the bill,
he would not vote for it, and so it was taken out of the bill. And so, having made the decision
not to take on Big Pharma over prices because of the
difficulty of fighting two wars at the same time, they didn’t in the end get the universal coverage either. And so you can see the
pathologies of the American system playing themselves out with this. What happened subsequently with Obamacare? Well, it was challenged in the courts and finally made its way
to the Supreme Court, and many people thought that the court was going to strike down the entire bill, particularly because
of some drafting errors in provisions about
the individual mandate. And there were two surprises
in the Supreme Court’s decision written by John Roberts in NFIB. I should say that NFIB is the National Federation
of Independent Businesses, and they tend to represent
to represent small business rather than big business and
they’re very conservative and very opposed to healthcare insurance, and so they brought this case. And so, Roberts, and this was the surprise that gets a lot of press,
said well actually, the individual mandate, which requires you to have insurance, so to
get around the problem of adverse selection, or pay a penalty, that that penalty was a tax. And so it was the taxing power
of the federal government saved Obamacare. But a different feature,
and in another surprise, it’s a great surprise to everybody in the healthcare industry
and people who study this was that there had been another
provision in the Obama bill to try and move it toward
more universal coverage with respect to Medicaid
coverage for poor people, which is that they gave a lot
of funds to expand Medicaid in the states to improve it,
to get away from the niggardly system of block grants that
diminished Medicaid funding over such a long period of
time, and what they did, almost all of the money
for this was coming from the federal government,
so states would not have to raise taxes, but they also conditioned all their Medicaid funding,
all of the federal government’s Medicaid funding, on signing up for this. And of course, many of the
states had conservative Republican legislatures or
governors who didn’t want to expand Medicaid, and so,
they were, they were arguing that this was this was an unfair coercion and the court bought this argument. And so this, in effect, while
it it saved part of Obamacare, it saved the individual
mandate, it made it impossible for the federal government
to force the states, to even condition the
federal aid to the states on their expansion of Medicaid. And so, that greatly reduced the reach and reduced the expansion of coverage that Obamacare would have
provided to poor people. And playing out the
path dependency in 2017, when the Trump administration
comes into office, because the individual
mandate has now been declared to be a tax, they could
repeal it as part of the 2017 tax law, for which
they only needed 50 votes because it was going through as part of the budget reconciliation, so which they duly did. And so the individual mandate was taken out of the
bill and that, of course, is the stop gap against the
unraveling of insurance markets in the face of the
adverse selection problem, and they’ve also damaged it in other ways that are being fought out in the courts by allowing consortiums
of small businesses to clump together to buy
insurance, which would again enable better heeled groups
to bail out of the system and leaving less well heeled groups in it. Again, another version
of the Hirschman problem. So what might be done? So one one argument that we propose in “The Wolf at the Door” is
to think of bottom up Medicare expansion and what what we,
the idea here is the following: that currently, most people
can cover their children up to age 26 on their health insurance. This is through existing regulation. If you said that people in
year one from age 26 to 30, could buy Medicare, this
would be quite cheap, because it’s not young
people who get sick, it’s old people who get sick, right? And so you could move towards
Medicare For All step by step, but if you started with the younger people and then they could keep it
as they as they grew older, it would take, you know,
it would take a generation to achieve that gain. But eventually, but you
would be getting there, and it secondly takes
account one of the problems, one of the things that all
of the Democratic candidates are running into, well certainly the ones on the left of the party,
is that most people, it’s said over and over
again 190 million people have health insurance from their employers and they’re satisfied with it. So, but two things are
happening over time. One is they’re getting
less satisfied with it because the cost to
employers are going up, and so they’re getting less
and less generous plans, or they’re, like, you
know, just as at Yale now, or you can get the health
plan or you can get ETDA and then you can get
a more expensive ETDA. They’re creating tiered systems. But more and more people are
finding that the coverage they’re getting from their
employers isn’t that great. And then secondly, think
about what we’ve talked about over the course of the last few weeks. More and more people are
going to be losing their jobs over and over again over
the course of their careers. So even if they have employer-based healthcare, they’re probably not going
to be able to keep it. And every time they change jobs,
the question is going to be well, what kind of health benefits come? And so many of those
people who might today not think there’s anything wrong
with their health insurance that the government should be fixing might start to have a very
different view over time, given the fiscal pressures on
firms to reduce these costs, and the fact that people are
going to be changing employment and might have to go from
a job that has coverage to a job that hasn’t got coverage, or at least might have no coverage while they’re looking for another job. And so even though
current polling suggests most people are satisfied with
their employer-based policies that number is likely to
change, and if you had a way of voluntarily buying into Medicare, the group for that would grow. And then of course, this
builds the political coalition over time, because you
have more and more people in the coalition who
want to be able to keep what they’re getting, and so
this is the kind of policy that we argue can work its way
through our building blocks of distributed politics
and actually become a credible political,
a viable political path to a serviceable policy. And so, it’s a, as I
say, we didn’t have much of a positive thing to say
about K through 12 education, but this is a kind of path forward which wouldn’t have the
sort of sticker shock that Medicare For All has today, and if you think about it
as a 10 or 15 year project, actually has a chance of
viability as a proposal for which support can be built. Okay, we will talk about
proposals for political reform in the final lecture on Thursday. (serene music)

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