Peter Swenson

In retrospect, Bill Clinton probably would like to forget the political embarrassment of his failed national health care plan. But the timing was right for Clinton to pass major reforms between 1992 and 1994 if he had immediately engaged big business as a partner in the process, according to a recent IPR working paper by Peter Swenson (IPR-Political Science) and Scott Greer, political science graduate student.

“Opponents of reform closed a window on an unusual opportunity to establish a universal health care system in the United States. It also closed the window on that model of business-government cooperation in health care,” the authors conclude.

The model first was constructed during the Great Depression with the social welfare reforms of the New Deal. The history lesson the authors draw is that swifter action by the Clinton administration would have passed his plan; instead, employers found private-sector solutions. Previous analyses of the Clinton plan’s failure have not focused on the role of big business’s declining interest, instead looking at partisan, lobbying, and small-business opposition.

The state of the economy explains businesses’ stake in social welfare: “When the economic climate is good, employers have been indifferent at best to social reform,” the authors note. “When the weather turns foul, friendship with reformers can evolve.”

Capitalism, not altruism, motivated some politically important Depression-era businesses to champion social reforms. Hard times tended to harmonize the interests of big employers and social reformers, making them “foul weather friends” of compulsory social insurance. The alternative to legislation forcing new social insurance costs was benefits and pay reductions that could have reduced employee morale and sparked labor uprisings.

At that time, foul weather did not clear and the social insurance reform of the New Deal succeeded. In the 1990s, however, the country rode into an economic boom. The authors speculate that if economic circumstances had not brightened, big business would have continued to push for national health care.

Clinton’s story began before he took office. By the 1990s, health care costs had soared out of control. By 1988, Chrysler was actually spending more per car on health care than on steel. Employers could not see how to reduce benefits without angering workers. Big business began shoring up support for changes in health care benefits. A survey of Fortune 500 executives at the time found that 53% supported the idea that government should force all employers to pay for their workers’ health care. “Not since the New Deal had efforts to forge a major piece of social insurance received as much direct encouragement from big employers,” Greer and Swenson note.

Recognizing this movement, Clinton made health care a central issue of his 1992 presidential campaign, and began crafting a plan once elected. But two factors pushed reforms into the hands of private businessmen instead of legislators: Big employers lowered health cost inflation on their own, and economic recovery from the recession of the early 1990s made further cost control unnecessary. Managed care won.

“Managed care, among other efforts, delivered cost containment for employers and their workers more quickly than the political process,” according to the authors. In the government’s plan, “the Clinton administration and congressional reformers were proposing remedies for a problem that was already solved, at least for the time being.”

Today, after more than five years of managed care, the honeymoon is over. The system brought a one-time drop in health care costs, followed by a period of price stability. Now health cost inflation has outpaced general inflation by a factor of three.

But there’s no going back. The authors’ analysis suggests that the political and economic opportunity for government and business to craft national health care reform has passed and likely will not return.