FORTUNE MAGAZINE Value Driven by Geoff Colvin
Last Updated: June 10, 2008: 11:34 AM EDT
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Making health-care history

The next President will have a fighting chance to defeat the lobbyists and reform a broken system.

By Geoff Colvin, senior editor at large

(Fortune Magazine) -- With the economy clearly the No. 1 issue in the presidential race, it's time to get serious about what any President can and cannot actually do about it. Which campaign promises are worth considering seriously, and which are just poll-driven pandering?

On most economic matters most of the time, Presidents can't do nearly as much as they'd like us to think. Despite all the overheated election-year rhetoric to the contrary, Presidents can't do much to create or destroy jobs - at least not in the short run. Global labor markets are changing right now in historic ways having nothing to do with who's in the White House. For that matter, Presidents can rarely do anything significant to start or end recessions. You can blame George W. Bush for the subprime mortgage mess - giving Presidents credit or blame for the economy is a grand political tradition - but it actually wasn't his fault.

The reality is that Presidents make important, large-scale changes to the economy only in those rare circumstances where history hands them the opportunity. When the top marginal income tax rate was 70%, Ronald Reagan had a historic opportunity to reform the tax structure; everything since has been tinkering. Likewise, Bill Clinton faced a historic opportunity to revolutionize the federal welfare system. His changes are widely regarded as successful, and that issue has since been off the table.

What major economic opportunity will history hand to the next President? The answer is health care. No one can guarantee that significant change will happen, but the forces are aligned to make it possible.

Yes, that's what the Clintons thought in 1993. And although no one remembers it, a federal program to cover catastrophic healthcare expenses was also attempted under Reagan. What's different this time is primarily demographics. The baby-boomers are 15 years older than they were last time around, and they (or we, as I should say) have always made the whole country pay attention to whatever is on their minds. With the generation's oldest members now 62, mortality is finally becoming real. Regina Herzlinger, an insightful health-care expert at the Harvard Business School, believes this is the best reason to expect action at last - that it will be driven by the boomers, whom she has called the "most manipulative, self-seeking, and effective generation this country has ever seen."

Other reasons reinforce the demographic imperative. Employers are steadily dialing back medical coverage for employees and eliminating it for retirees. As U.S. companies increasingly face competition from foreign companies that don't directly cover their workers, that trend will only increase. Yet medical costs continue to rise at rates that far exceed average increases in incomes, putting U.S. consumers in a squeeze that is becoming more painful. In addition, as a nation we seem to have reached what pollster Daniel Yankelovich called "settled public judgment" on the issue of the 47 million uninsured; it is no longer controversial for members of either party to say that it's unacceptable.

The next President will also face the beginnings of the inevitable Medicare crunch (as I have pointed out before). The effects are potentially catastrophic for the federal budget and for the U.S. economy, but addressing the problem will be traumatic for Medicare recipients, for taxpayers, and for politicians. The solution may require painful measures, such as an increase in the Medicare tax and cuts in benefits. But packaging those steps with some kind of broader health-care reform might make eminent sense on Capitol Hill.

Could the historic opportunity for health-care reform be denied? Of course. More than 20,000 business lobbyists ply their trade in Washington, representing companies and industries that would all be affected deeply by significant change. It could certainly be that when the dust settles, the result is phony reform, a law that creates complications and costs money but improves life for no one. Or the result could even be nothing at all. But the best bet is that the new President will try to do something historic on health care. The opportunity is there. The most important economic question for the next President will be how effectively he or she takes advantage of it. To top of page