Teles on the battle over health care

by Henry Farrell on July 8, 2009 · 1 comment

in Political Economy

Steve Teles:

The fundamental point to keep in mind is that this health care debate is not the battle of Armageddon, the health care war to end all wars. It is a large fight in a multi-decade long war. So the question isn’t how to get as much as you can now, because you’ll never get another shot. Health care policy—like all politics—is a game with multiple iterations. … you need to evaluate policy change by two criteria—is the change you’re getting now going to be politically sustainable (that is, will you be able to hold whatever territory you’re gaining) and politically generative (will the changes you’re making now make your side comparatively stronger when the game is played again in the future). … the real bottom line in health care is the structure of the exchanges, rather than the amount of subsidy or the presence or absence of a public plan. …
Consider for comparison purposes the politics of airline deregulation in the 1970s (I’m drawing here on Eric Patashnik’s excellent Reforms at Risk). The strongest opponents of deregulation were the weakest airlines … the first thing that happened when you deregulated prices and routes was that the weakest airlines were pushed to the wall, into bankruptcy. Critically, that meant that they were no longer around to fight to undo deregulation—the policy itself shifted the constellation of interests in a way that was supportive of the new status quo. … The stronger (in the sense of being national and mandatory for the largest number of employers) the exchange is, the more pressure you put on the more marginal, bottom-feeding insurers who depend upon creaming the best risks, or charging huge sums to those who can’t get insurance through large group plans. A strong exchange that gives the upper hand to the largest insurers (whose cost structure is also superior to the smaller firms) will almost certainly kill off a large part of the health insurance industry.

This is well worth comparing with the arguments of Jacob Hacker (see here and here). What is interesting from a political science point of view is that these two claims draw on different mechanisms from the historical institutionalist literature. Hacker is drawing on his own and others’ arguments about the mechanisms underlying institutional change, and suggesting that a public plan that is layered on existing institutions is likely to undermine their appeal over time. Teles, in contrast, is developing on older set of arguments about the relationships between institutions and the interest groups that spring up around them (see Skocpol’s Protecting Soldiers and Mothers and for a general discussion, Paul Pierson’s article “When Effect Becomes Cause”). What is interesting about Teles’ argument (and, I presume, Patashnik’s) is that it reverses the usual claim of this literature, that institutions create interest groups that want to protect them, and instead argues that institutions can eliminate actors who would otherwise oppose them. It will be interesting to see which of these mechanisms prevails (if, indeed, either of them does). The health care debate is shaping up, among other things, as a good test of different approaches to institutional change.

{ 1 comment }

pain perdu July 13, 2009 at 1:03 pm

Consider for comparison purposes the politics of airline deregulation in the 1970s . . . The strongest opponents of deregulation were the weakest airlines … the first thing that happened when you deregulated prices and routes was that the weakest airlines were pushed to the wall, into bankruptcy.

It doesn’t necessarily detract from Prof. Teles’ larger point, but this statement is wrong as an empirical matter. The airlines that went to the wall subsequent to deregulation were not necessarily those that were “weakest” in the regulated era, but those that failed to adapt, or were leveraged too aggressively, or both. Indeed, one could argue that TWA and PanAm occupied exceptionally strong positions at the moment of deregulation, as they held onto valuable (and then still regulated) international route authorities.

Contrary to Teles’ assertion, some of the “weak” airlines were advocates of deregulation (e.g. Bob Six at Continental), while some of the most implacable opponents were to be found among the airlines that ultimately ended up on top (Bob Crandall, who went on to run American, ran a scorched earth campaign on Capitol Hill in opposition to deregulation). Perhaps the real lesson here is that business executives tend to instinctively oppose government interventions that alter their accustomed way of doing business, regardless of the long-term potential benefits to themselves or anyone else.

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