Stuart Altman Oral History

I have lots of questions for you, but what I’m primarily interested in in this first go-around of interviews is the early period, the early 1970s, and the efforts to try to enact national health insurance. We’re looking at it both from the administration standpoint—How did you interact with people on the Hill? So tell me when you first met Ted Kennedy.

Well, it might make some sense for me to give you just a little background about myself to give this some context.

It’s hard to believe, but I was a very apolitical person in a lot of ways. I was trained at a very conservative economics department at UCLA [University of California, Los Angeles] and had gotten my Ph.D. and had wound up, for a variety of reasons, in the Pentagon, under [Robert] McNamara, to try to create an all-volunteer Army, only to find that we got caught in the middle of Vietnam. During that period of time, I worked for someone by the name of Bill Gorham, who was then Deputy Assistant Secretary [of Defense] at the Pentagon, and there were a bunch of other people.

Anyway, then over at HEW [Health, Education, and Welfare], under the [Lyndon] Johnson administration, they created this Office of Planning and Evaluation, which ultimately was a [Joseph] Califano-created idea, around the government. All my friends from the Pentagon went over to HEW, because Bill Gorham became the first Assistant Secretary [of HEW]. Then when [Richard] Nixon became President, or even a little before that, Gorham had moved over to become the president of the Urban Institute, and most of these people, my friends, left.

They had actually tried to coax me to go into HEW, but I had gone into academics and was a professor at Brown, to see what it was like, although I did a lot of work for them. I had done a little work in healthcare, because they—I’m an expert on women. That’s my role in life, to be an expert on women in the labor force. I had written my dissertation on unemployed married women, and I wrote a book on nurses, and that’s what got me into healthcare. But I didn’t have a background in healthcare, and that’s going to turn out to be important in this story.

All my friends left, and then Nixon becomes President. There were two sides, maybe many sides, to Nixon. But there was this group of liberal Republicans that had come out of California, and one of them was a fellow by the name of [Robert] Finch, who became the Secretary of HEW, and he brought with him two other people: the Under Secretary, [John G.] Veneman, and Lew [Lewis H.] Butler, who was the Assistant Secretary for Planning and Evaluation. And then Nixon actually tried, or that team tried, to get the president of Mass General, a fellow by the name of Dr. [John] Knowles, in as the Assistant Secretary for Health. Knowles was a very controversial person, and the AMA [American Medical Association] fought him very big, and ultimately there was no Assistant Secretary for Health.

This is now 1970, and healthcare is becoming a very important issue. We had passed Medicare and Medicaid in 1965, and the feeling was, Medicare first, and now national health insurance. There was a very strong push for a nationalized health insurance system for everybody, and it was spearheaded by Walter Reuther, who was the head of the AFL-CIO [American Federation of Labor and Congress of Industrial Organizations], and Senator Kennedy. It was called the Committee of 100 or something like that, and you may have dealt with this group. I’m trying to remember this from—

The Committee for National Health Insurance.

That’s right.

Also called the Committee of 100.

The Committee of 100, and it had a lot of wind in its sails and was putting a lot of pressure to do something. So we come into the 1970s, and here is this—

And the other thing to know: not only did you have that committee, but every organization that had anything to do with healthcare had developed their own plan. The AMA, which had fought Medicare tooth and nail and lost, decided it was not going to be left behind in its plan. The American Hospitals had their plan. The American Insurance Association had their plan. Everybody had a plan, and so the Nixon administration was being pushed pretty hard to develop its plan.

Now, we go back to two things. So you have no Assistant Secretary for Health. You have Lew Butler, the Assistant Secretary for Planning and Evaluation, who is a very smart guy, but he’s a lawyer, has no background in healthcare. He doesn’t have a deputy for health. He has with him a very small staff of health people, led by some pretty liberal holdovers from the Democratic administration, and he is trying to design a plan. And then there were a few little pockets of healthcare knowledge. The White House doesn’t have any expertise either, and it’s not nearly as intellectually powerful as it is now. At OMB [Office of Management and Budget], there is a fellow who becomes quite famous, by the name of Paul O’Neill, who is a young staffer, hadn’t risen to power the way he later does, and he is trying to help them. Out of all that, they develop something called the Family Health Insurance Plan, to go along with their welfare-reform plan of Family Assistance Program; FHIP and FAP it was called, and it was a pretty minimal attempt.

OK, with that, what happens is Lew Butler, the Assistant Secretary, is desperately trying to find a deputy for healthcare. All my friends have left, except one, who says to this fellow, “I know the perfect person to become your deputy, I think. He knows all about healthcare. And he has got quite a good sense of humor, and you have a good sense of humor, and you’ll get along fine.” So I had come down to the Urban Institute to finish my book and still was not really very much involved in politics at all, and he calls me up and he asks me to meet with him. So I meet with him and we get along, and then the question is, can I pass political muster to become his deputy? And then he resigns before it happens and nothing happens.

Then Elliot Richardson becomes Secretary, and Elliot Richardson brings in a very smart guy whom he had met, by the name of Larry Lynn, who is going to be his Assistant Secretary for Planning and Evaluation. Larry is a pretty tough-nosed economist, very smart. He had been part of the tough, analytical side of the McNamara White House, but he then had worked with Richardson when Richardson was at the State Department and Lynn was in the national security area or something like that. Anyway, Larry had left and had been at Stanford, came back. This is sort of irrelevant, I guess.

Anyway, as things would have it, I managed to squeak through the political muster, because Richardson promised Lynn that if he took the job, he would be able to bring in the best that he could and there would be no political litmus test.

So I become the Deputy Assistant Secretary, with very little knowledge of healthcare, to say the least. There were not a lot of people in this town doing healthcare. It’s not like it is now. You could count them on one hand, not in the thousands. And there’s no Assistant Secretary for Health. By that time, they had picked somebody to become Assistant Secretary, and they’re beginning to gear up, but they’re not a real force. The first two things I have to deal with are, first of all, I had never met Senator Kennedy, but he was considered by conservatives as the great evil force representing this push to have it nationalized. And of course I’m being indoctrinated into the Republican talk that, “We need to have private insurance, and we can’t have government” and so on and so forth. So having not met him—and of course I don’t know him—I’m trying to develop all the arguments against their plan. And I start getting involved in everything because our office is responsible for being the funnel point for all healthcare.

This was also the era when we were expanding the number of doctors. We doubled the supply, between 1966 and 1976. We’re developing health-planning legislation around the country, what became known as the Health Resources Development Act of ’73. We’re trying to control costs. There’s a lot going on. It turned out to have been a very—and some would say the most—fertile period in health legislation, aside from maybe the passage of Medicare and Medicaid. For better or worse, my little office is in the middle of everything.

I get a call—and I don’t remember who it was or what happened—that Senator Kennedy is going to be going to Europe and he is going to be talking about healthcare, and he had heard about me, and would I be willing to meet him? Here I am, this young 32-year-old, working for an administration that is not, to say the least, sympathetic. But I am intrigued, and a combination of naïveté and maybe a little chutzpah, I said sure. I came out here to Virginia, and I met with Senator Kennedy at his home to talk about a whole bunch of healthcare issues, and I was impressed as anything that he was knowledgeable; he was not dogmatic; he was not ideological; he was trying to understand the issues.

It was refreshing—and of course the whole Kennedy—I had originally come to Washington because of his brother. I’m far from a Republican, but as I said, I was apolitical more than anything else, and I was analytical. So my first exposure to him was in his house. I had violated probably every rule. But it had a lasting impression on me in terms of my respect for him, his knowledge, his openness, and the kinds of penetrating questions he asked. I guess, to a small extent, it must have had some impact on him, vis-à-vis me, because we developed, on a periodic or episodic basis, an ongoing relationship that still lasts today. But we were on opposite sides of the issue when it came to national health insurance.

Just to give you a little history, FHIP doesn’t make it, and in fact nothing happens in 1971, 1972, and it slowly passes away, but there’s still a lot of pressure for doing something. By the way, it’s hard for you to imagine, or hard for anybody to imagine, but the Nixon administration was prepared to do things that are so unorthodox, vis-à-vis the Republicans. For example—

Today’s Republicans.

Yes. They imposed wage-and-price controls in 1971, and I became the head of the analytical unit. So while I had a job at HEW, I also was the deputy head of the Cost of Living Council. I was kidding you, but I was commuting from Reston, and I would get into town at 7:30 in the morning, and I would split my life between worrying about national health insurance on one side and worrying about controlling costs on the other side. And I became the chief regulator for this country.

So it was this administration that imposed wage-and-price controls and kept it on healthcare through 1974 and only stopped when the Congress—a Democratically controlled Congress—took the power away from the President because they said he was using it more to control wages than he was prices. Be that as it may. Also this administration was willing to talk about planning units, regulating with certificate-of-need rules. If you look back over, this was a very pragmatic administration that was really concerned about how much we were spending on healthcare.

To put it into some context, when I took over the Economic Stabilization Program, we were spending $75 billion on healthcare, 7.5 percent of our gross domestic product. Now we’re at $2.2 trillion, and we’re at 16-plus percent of our gross national product. It was tying them up in knots about how much money the country was spending on healthcare.

We then have the election in ’72. Elliot Richardson leaves HEW and goes over to the Defense Department, and Caspar Weinberger, who had been head of OMB, moves from OMB to become Secretary of HEW. Caspar Weinberger’s reputation had preceded him. He was called “Cap the Knife.” He was viewed as a budget cutter and a guy who just wanted to cut, but he was not like that at HEW. He comes in and practically the first thing he said is, “We need to think fundamentally and—” they didn’t use the expression “out of the box” —and develop a comprehensive national health insurance plan. “We need to have coverage for every American.” And he directs my office to develop options, all of them, from having an all-government system to having the government not involved at all. To his credit, he really seriously goes through an exercise in trying to find out what could work best.

We were his arm to do it, and therefore the arm of the administration. He says, “The FHIP is not enough. It’s not comprehensive. We are not going to be viewed as the short end of the stick this time.” And out of that exercise, we created something called CHIP, the Comprehensive Health Insurance Plan, and it becomes Weinberger’s plan. The next job he had was to convince the President and the other members of the administration that CHIP should be the administration’s plan.

This was no little plan. CHIP would cover every American; it would expand employer-based insurance; it would mandate that every employer had to provide it; it would have government continue Medicare and expand Medicaid. And in many respects, people say, “We only wish we had CHIP today.” It was not a nickel-and-dime plan. I was at a President’s Cabinet meeting when most of the Cabinet members opposed this plan. Weinberger did good preplanning and had talked to the President. The President comes in and basically dismisses all the criticism and says, “I’m going to give a State of the Union message in January, and this is what I want.” It must be early ’74.

Yes.

“I want that health insurance bill on my desk. And Cap is in charge,” which indirectly meant me. “I’m sure you’re all going to work on it.” He picks himself up and walks out of the room. Within a period of time around Christmas and the early part of January, we put together the final touches of CHIP. And we send it up to the Congress. At that time Wilbur Mills is the chairman of the Ways and Means Committee—all-powerful Wilbur Mills.

Pre–Fanne Foxe.

Pre–Fanne Foxe, right. Fanne Foxe becomes important a little later. So he said, “I don’t know why you’re pushing it, but if you’re pushing it, OK, I’ll go along. We’ll try to make it happen.” I remember having a meeting with his staff, Bill Fullerton, and he said, “Well, let’s see what we can do about this plan.” Then in the spring of ’74, Senator Kennedy links up with Wilbur Mills, and they put out a—

That’s ’74. You do have your dates right.

They come up with the Kennedy-Mills bill. They said, “Well, if the President proposes with this amount of money,” something like that, “we’re going to buy into it. We’ll make it a little more liberal in the sense that it has a little less deductibles and coinsurance, and it’s a little fairer to low-income people,” and stuff like that. But in concept and in design, it was the same as CHIP. And people go, “Oh, my God, this is real.”

You now have two of the most powerful Congressional leaders, two Democrats, supporting this, and the President, and people begin to really take notice. Now, you are getting a lot of sniping from certain circles, like the Senate Finance Committee and Senator [Russell] Long, who believed it would be catastrophic. There were a number of other forces, but for the most part, there’s a lot of momentum behind this type of plan. We begin behind-the-scenes talks with Senator Kennedy’s staff about what this plan could look like.

Now, you’re probably getting from a lot of other people, there were a lot of criticisms of Senator Kennedy by the liberal arm of the Democratic Party. We began to hear about these criticisms, because the labor unions are not happy; there are still deductibles and coinsurance; and it’s not a true government-financed system; and so on and so forth. My impression was that at the end of the day, Senator Kennedy was somebody who wanted to get something done, that he was not going to let pure ideology stand in the way of legislation that could get passed, and he had made the call that this was an opportunity to make it happen. I think it’s that summer of ’73.

We developed this working coalition, working group, of Senator Kennedy’s staff, Congressman Mills, and the administration—Stan Jones representing Senator Kennedy, and Bill Fullerton representing Wilbur Mills, and myself, and another young fellow from HEW, Frank Samuel.

You had Ted [Theodore] Cooper there.

And Ted Cooper, thank you. The three of us begin these meetings in St. Mark’s Church, up on the Hill, in between the House and the Senate, to talk about what it is that we could possibly put together that would be enough of a compromise to get the three forces to agree. During that period of time, I think it was the National Governors Association, or some group like that, had a meeting in Albuquerque, New Mexico, and Stan Jones and I were on the program. During that visit, there are these mountains outside of Albuquerque, and there’s this—I don’t know if he talked to you about this—There is this cable car.

Sandia Mountain.

And we go up on this cable car, and we have it all worked out. I don’t know how high we were. Maybe it was the lack of oxygen, but we worked it out completely, where we had developed this compromise, and it was all going to work. We came back and talked to the others, and everyone said it looked like a good idea.

We went back to our respective bosses, and of course neither of them would buy it. It was too conservative for Senator Kennedy to accept at that point, and it was too liberal for the administration, because Weinberger was under a lot of pressure from others in the administration not to go any further. But we were close. And then in that saga, Wilbur Mills said, “All right, we’re going to hold hearings, and since we already had hearings before, we’re going to go right into executive session, and we’re going to pass national health insurance.” This is the summer of ’74.

So we begin to hold hearings, and I’ll never forget it. It’s end of July, beginning of August. I remember because I was supposed to go out to Sun Valley with my family, and all of a sudden this thing is really going to go. And it’s also the era when Watergate is really hitting, and the President is just about to resign, and [Gerald] Ford becomes President. Wilbur Mills demands that we find out whether Ford will back the Nixon plan. He’s on an airplane, and they actually ask him, and he says, “Yes, I’d back it,” and stuff like that. We go into executive session—

I’m trying to think of whether this is actually the summer of ’74, because if the negotiations were that close to the resignation—

It was right on the executive—

Then it had to have been the summer of ’74. So the bills have to have been out there for a year, and then the negotiations didn’t take place until the summer of ’74.

That’s exactly right. That’s what I’m thinking.

Yes, I think so.

Anyway, the summer of ’74 we had those discussions in the executive sessions of the Ways and Means Committee, and it’s right around the resignation period. In early August, the committee takes a vote, and it is 16 to 15 in support of this compromise legislation. It is opposed by a substantial number of the Republicans but not all of them. A number of the more moderate ones supported the President. Most of the Democrats, although there was a significant number of very liberal Democrats that didn’t want a system like this; they wanted an all-government financing system. I’ll never forget it: Wilbur Mills turns to the committee and says, “I do not bring up to the floor of the House of Representatives a 16-to-15 vote. We need to be in recess for the impeachment. We need to be in recess—” of course the timing is a little unclear— “and then when we return in the fall, we will take this up again.” And that’s when Fanne Foxe comes into the picture.

Oh.

And we never, ever reconvened.

She was a part of this?

Absolutely.

He couldn’t have chosen a worse time.

Absolutely, and then all the stories about him and everything, about his scotch, all had come out. These people I knew who worked with him had no idea, none. They were totally in the dark. So I have told this story a hundred times, that if it wasn’t for Fanne Foxe, we might have had national health insurance in 1974. So the whole thing just fell apart and disappeared.

Did you have Kennedy with you at that point, because labor had—

—was really giving him a hard time, and he was backing away, but it was unclear. The administration’s bill was being pushed by Senator [Robert] Packwood. He was not pushing the bill. I mean, it was unclear how this thing was going to play out in the Senate, and as I said, we were getting all these negative vibes from Long and his people on the Senate Finance Committee that they didn’t like it.

Was Packwood on Finance at that point?

Yes.

So he had already gone on Finance. So you weren’t able to get—OK, it makes sense that Packwood would have carried the water.

Yes, and I remember meeting with him. So that’s a little long, but I hope this—

No, because you answered three-quarters of my questions about the chronology of it. Let’s back up. Why did everybody feel that this was the time for national health insurance? We’ve never had another time where it seemed like the forces were aligning. Was it genuine, or was it rhetorical?

It was a combination of issues. I do think you had the momentum of the ’60s that was still playing out, although it had been dissipated, and that the momentum was carrying forward this legislation. I think there was a genuine fear on the part of organized medicine, the physicians, the hospitals, and the insurance industry, that the momentum was strong enough to carry over from what they had learned on Medicare. They had been beaten badly on Medicare, and they were not about to be beaten again by anything that had government in total control. You had an administration that, as I said, had a pragmatic side to it and was not totally ideological, that recognized that they needed to have a serious alternative that—Again, the momentum and Senator Kennedy and his initial committee, the Committee for National Health Insurance, was very powerful.

You had the cost problem that had built up substantially. Because remember what happens: once you pass Medicare and Medicaid, and the cost growth went—I think we went from, like, 6 percent of GNP [gross national product] to 7.5 percent of GNP. So while the numbers are much smaller than they are today, the rate of growth was every bit as large, and it almost doesn’t matter. If you’re going to drown, you can drown in eight feet of water or in twenty feet of water. So right now we’re in twenty feet of water, and then we were in eight feet of water, and the feeling was we were going to drown. We didn’t, but the feeling was that we had to slow this thing down.

So I don’t know, I think it was a combination. Some people say the only reason Nixon did it was to defuse the issue around Watergate. I don’t know. Some people couldn’t believe it. The more conservative elements in the Republican administration can justify his actions that way.

Was Weinberger a true believer, a pragmatic believer?

I had a lot of respect for him. He surely worked hard at it. He didn’t give me any impressions that this was just for show. I didn’t have a big history, and that’s why I made the point. It’s like starting out with a clean mind. But he sure acted like he was serious.

What was the role of labor in the movement for national health insurance?

Well, they were a strong force behind the Committee for National Health Insurance and really were a major force for it and wanted to see a Medicare-type plan or more. I know a lot more about the history now; of course I didn’t know it then. Americans have always had a significant minority, but it’s a strong force among the liberal elements of this country, who believe that we should have a government-supported national health insurance system, and labor was in the front.

Why did they back away?

They didn’t back away. They just were not willing to compromise. Out of this, I developed Altman’s Law. I’ll be glad to give you a copy of my testimony [See Appendix]. Altman’s Law basically says—I’m paraphrasing it—that the overwhelming percentage of American people support covering all Americans, and that every organization in the health area has their version of the plan that they prefer, but often their second-best alternative is the status quo. In other words, if it’s not my way, it’s the highway. And I think labor was of that mind.

To the extent that I talked to them later, the feeling was that Nixon would be gone, that in ’76 the Democrats would take control of the Congress, and they were not about to compromise. “Our guy is going to be in the White House, and then we’ll be able to get what we want.” They were strongly in support of it, but they were not willing to go along with Kennedy’s compromise or anybody else’s compromise.

How far was that compromise from what they wanted?

Well, it included the continuation of private insurance.

And that’s what they didn’t want.

That’s right. At the key, it included, primarily, a private-insurance system.

What’s your sense about them? Did you ever get the sense about labor that they didn’t want to give up their bargaining chip in their negotiations with big business?

That’s a good point. But that would have supported the continuation of the private-insurance market. Labor is split. Clearly if you go to a national health insurance system run by the government, and you do away with it, there is no bargaining chip. So you could say now there are significant components within labor that really like the employer-based system, because they wanted it, but I think there was a mix. There was no one labor position. The old CIO, the more industrial, the more “liberal elements,” wanted a government-run system. And there were others who were willing to accept the private. So I don’t think there was one labor voice.

What pressure did that put on Kennedy?

A lot. I wasn’t there, but I had the feeling, in talking to the people there, that he was under constant pressure not to compromise.

Did you sense Kennedy was backing away when you ultimately got a bill that Mills was able to take to the committee, which wasn’t the Kennedy-Mills bill?

I don’t know. It’s a fair question. Because the issue moved to the House, and all our efforts were directed in that direction, that the Senate side and where Kennedy was became less of an issue. But there was that feeling that he was—I knew he was under a lot of pressure, and I probably had better relationships with his staff and him than most people in the administration. The rest of them didn’t even know—

I don’t think there were any face-to-face—Maybe there were that I didn’t know about, say, between Senator Kennedy and Secretary Weinberger, other than in an official—I don’t think they ever met on it. I don’t think there were any discussions between Senator Kennedy and President Nixon. Maybe there were, but I don’t know about it. So if there were any discussions, it was more likely the discussions that we were having among the senior staff. Maybe there were. There may have been some discussions that Weinberger had said that he mentioned to Kennedy, but I don’t think it was serious. I don’t think it was anything like, “Let’s make this work.”

From the administration’s standpoint, what were the things that you felt you had to have in the bill for the administration to be able to live with it?

As I said, I think that our argument, and the administration’s argument, was that we didn’t want the federal government running the entire system. We wanted it as much private as possible.

Which you got in the Kennedy-Mills bill.

Yes. Well, the Kennedy-Mills bill, as I said, adopted CHIP with some minor revisions. It was CHIP. And if you look at the way CHIP was set up, and then you look at Kennedy-Mills, they’re almost the same.

Well, if you have Kennedy-Mills and CHIP in ’74, Nixon faltering, weakened, Watergate continuing to escalate drastically, why did it not get through? Why was it not taken to committee at that point? Was there a moment that got lost in ’73 or ’74, or were you really not at the point where there was a compromise between Kennedy-Mills and the administration that could have been voted on, that could have been enacted in ’74?

That’s a good question, and I don’t—There were a lot of things going on in ’73 and ’74. The HMO [Health Maintenance Organization] Act was passed in ’73. We were moving forward on this health-planning stuff. There was a lot going on in healthcare. There was continued jostling, but it was at that point that we may have gotten some reduced pressure, maybe, on both sides. And then it was Mills actually, I think, who resurrected it. I don’t know the answer to that question.

What slowed it up? I was so busy in ’73, because the Economic Stabilization Program was in high gear, or we were fending it off, and we had been developing a cost-control plan. As I said, the HMO Act was passed in ’73. Kennedy was very involved in that. The HMO Act is another interesting relationship.

I want to talk about that one too.

So we’ll finish this. I just think it slowed down. It was Mills, in the spring of ’74, who says, “I want to move this thing forward, but since we already had hearings back in ’72, we can skip them, and let’s go right to executive session.” It was Mills, as much as anything, who brought it to the fore in the late spring, summer of ’74.

Let’s talk HMOs.

OK. Parallel to this discussion, but very much in the discussion, the administration, even before my time, is trying to develop a mechanism for dealing with the healthcare issue. As I said, the healthcare issue today was on parallel tracks, covering everybody and controlling costs. They are parallel, as opposed to interconnected, and the administration gets very much under the intellectual spell of Paul Ellwood. Paul Ellwood, who comes into town with his big Texas boots and hat, and he’s arguing that what we need is more competition, and we need competition among health plans. And the guy—

Alain Enthoven?

Yes, but Alain’s not part of it yet.

He’s not part of it yet, OK.

I’m thinking about my boss, Lew Butler, the Assistant Secretary at HEW, is captivated by him. So they write this white paper. And this is, as I said, before I came. This is back in ’70, ’71. By the way, the President is periodically having special health messages. You can go back and over the years that Nixon was President, he would deliver at least one a year. Healthcare was a very big issue. The administration puts out a white paper about how they’re going to cover everybody and they’re going to control healthcare costs. The centerpiece of the healthcare is the need for this new form—and it’s not called HMOs, initially. The old model, the Kaiser model, was prepaid group practice, and then Ellwood came up with this term, “health maintenance organization,” later.

And I should say that the administration finally appointed an Assistant Secretary of Health, a very competent physician, Dr. [Roger] Egeberg. A very nice man from San Diego, but he was more interested in international health, and he was busy running to Russia and stuff like that, and he was not at all involved in healthcare legislation. He soon left the position.

And they brought in Dr. Monty [Merlin] DuVal, and DuVal brought in a fellow by the name of [Scott] Fleming, who was from the Kaiser Health Insurance Group in California. Fleming was a total devotee, obviously, of prepaid group practice.

Right.

He had a particular model of what an HMO should look like, but the administration wanted much more flexibility. Senator Kennedy, on the other hand, buys into a model of HMOs that look a lot closer to the Kaiser model. He also wanted to use the HMO legislation to expand coverage for all and to expand the benefits covered. Kennedy tries to use the HMO Act as a way to require that all organizations that get funding take anybody and provide comprehensive benefits. And if there were any criticisms of the Kennedy proposal, he almost destroyed the HMOs, and he was smart enough, I think, to realize it. He asked them to do things and to cover services that nobody else would cover. And in fact it almost killed them.

What kinds of things and services?

Well, alcoholism, drug services, open enrollment, that they had to take everybody. We have to go back.

The HMO concept, which the administration bought into, was that every organization, every employer, had to make available the option of an HMO coverage. To make these new organizations survive, there were two things that they needed: On the one hand, they needed access to all employees. What existed before, if an employer provided health insurance through Blue Cross, they said, “Fine, that’s all I do. I don’t care.” And the HMOs said, “Well, no, we need to compete against Blue Cross, because we’re offering both insurance and delivery. We’re not just offering delivery. We need the insurance side.” And so they could never get a leg up, because the employer would say, “Look, I don’t care about all this stuff. I offer Blue Cross, and everyone can get what they want, and that’s it.” And they go no. So the law had to open up the market to this new form of healthcare delivery. The first part of the law was that every employer had to offer HMO coverage if there was a plan in the area and if an employee wanted it.

The second thing, it was a chicken and an egg. To start an HMO, you need a lot of money because you need to have a delivery system out there; you need to have the hospitals; you need to have the doctors; you need to have all the different specialties; but you can’t have the doctors and the specialties until you have the patients or the insureds. It was like, which comes first? So the government began to make available, and we began to make available even before the HMO Act, these planning grants. And the government, us, HEW, was using an experimental authority to give these—We didn’t have the HMO legislation. This is 1971, ’72. And out of that came all these plans. like the Harvard Health Plan, that got these planning grants from the government, and loans to get going.

Anyway, the administration had, at one level, a more expansive definition. It didn’t have to look like Kaiser. It could have what are called IPAs, these Independent Practice Associations, where you have physicians in their own offices, and they partially link it, and you buy certain services from the hospitals in the area—as opposed to the Kaiser model, where the hospital was owned by the HMO and the doctors were all employed by the HMO. So on the one hand, the administration’s plan was much more open, a thousand flowers to bloom, and on the other hand, it also didn’t require the HMOs to provide all these extra services. It didn’t have to do anything other than what anybody else did. It was more market—or whatever the market is in your area—you can do what you want.

But the Kennedy model was much more expansive. To get access to this money, the HMO had to do all kinds of things. And as I said, it almost destroyed the whole industry. And we kept coming back to the Congress, asking for modifications, in ’74, ’75, ’76, and it continued after I left, in ’76. They began to modify the HMO Act because the HMOs couldn’t survive with all the extra benefits it had to provide.

So when the legislation gets enacted—

In ’73.

—in ’73, there was a substitute amendment that was made by Kennedy and [Jacob] Javits to include Individual Practice Associations. That was not in Kennedy’s original model, because he wanted the Kaiser model, felt that it was the way to contain costs.

He probably was right.

OK. So at that point, my understanding is that that was an amendment urged by the AMA.

Yes, and the administration.

Because this certainly protected their interests.

Exactly.

What you’re saying is that this also was what the administration wanted, and that there was a more fundamental division. It was not just between the AMA and those on the Hill who wanted HMOs; it was also the administration who felt that they needed to have this more expansive model with the IPA. but with restrictions on the benefits provided.

One piece of this puzzle is that when the administration came out in support of HMOs and made the HMOs the centerpiece of their health proposal, the AMA was apoplectic, and the AMA began to bring a lot of pressure. So you might as well hear the other side of the story. They began to bring a lot of pressure on the administration to do away with HMOs. I’ll never forget this, because I’m this young kid. We go to a meeting with the AMA, and it’s these big, long tables, and arrayed on one side are all the AMA people, and arrayed on our side are those of us in the department. The AMA, under no uncertain terms, wanted this thing dead. They wanted it gone. And the administration would not back away from the HMO concept.

Of course the other side of it, the administration wanted competition, and they believed in the need to control costs, but they did buy in to this idea of letting different types of organizations, which included independent physicians, become HMOs. So yes, the administration was supportive of the AMA ideas about flexibility, but the AMA really wanted HMOs not to exist. They didn’t like the HMO Act, but the administration’s plan was a better form of it than the Kennedy plan. They were not supportive of this legislation at all.

But the IPA is ultimately—If you look at the history of what has happened with HMOs, the IPAs basically gave the doctors what they wanted.

Not really. It gave them some of what they wanted. You still had to live within a set of rules. You still had to decide that a proportion of your practice was going to be devoted to these organizations, which would have a lot of influence on your life. So if you are a true believer in a completely independent physician who’s out in the fee-for-service system, who is not beholden to anybody, the IPA is not a preferred option. It is only a preferred option if the alternative is the Kaiser model. Do you see what I’m saying?

Yes.

So yes, they didn’t get what they wanted. They got less of what they didn’t want.

What effect has it had on the development of HMOs?

The good is that HMOs never would have developed as extensively. The Kaiser model is a very expensive model, and even Kaiser, when it tried to develop outside of its home bases—which were in California, Washington, and Oregon—it went to a modified form of the IPA model. It didn’t build its own hospitals. It didn’t hire all its own physicians. “Here, come to Washington, D.C.” Kaiser is not Kaiser of California.

No.

So the Kaiser model, the integrated delivery system, is a very interesting approach, and it has some advantages—It has some disadvantages too, big time—but the feeling is that you could not have a national system with the integrated delivery system. So the administration’s IPA model was not to placate the AMA. At least I don’t remember it that way. I remember it as the way to get this model out there and to have flexibility. The feeling was that the central organization could control it. It was not, “Gee, how do we give the doctors what they want?”

Let’s talk for a minute about the planning issues. Kennedy had a lot of interest in planning as a means of controlling the cost. You’re saying the Nixon interest—

Was also to control costs.

—was also to control costs and that it would require planning.

Yes.

Where was the administration on this?

Strongly supported it, and the Health Planning and Resources Development Act, which was the ultimate planning act, was an administration plan put forth by us, written in my office. Actually I had a lot to do with implementing it. Again, it was bipartisan. The feeling is that the market isn’t working. I mean, I’ll never forget sitting there with Weinberger and his deputy, [Frank] Carlucci, talking about the fact that you just can’t use the market approach. How ironic that we’re talking about markets working now, when then we said these markets do not exist—and they don’t work now, either. Now, it was true, though later on the HMO or the markets did work somewhat. They’re not working right now, but they did work in the ’90s. So the market people did have a point. Then the feeling was that we needed to have these planning units out there. So the administration backed planning.

How did it differ from where Kennedy was on planning? Did you see that as something you were working with Kennedy on?

The answer was that we were working together. There was a fellow who was on my staff, who was very close to the Kennedy people, working on it. But there were some big differences in approach. The administration wanted it to go through the Governors and have it local. The Kennedy people were much more nationally oriented and having this as a federal system. The administration was much more into states’ rights, much more into state power, much more into individual. The legislation that passed did require the system to work. It went through the Governors; the Governors created the state A agencies and the local B agencies, and even though the federal government set up the areas, the Governor had a veto on the plan in each state. In other words, the ideology of the Republicans was states. The ideology of Kennedy and his people was federal. But in concept, there was a lot of similarity. That’s fair.

And what effect did all of these measures have on controlling costs?

Well, they did. If you look at the growth rate of—Remember, you had the Economic Stabilization Program in ’71 to ’73, which was wage-and-price controls. You have health planning. HMOs really don’t take off at all. They’re a nonforce until the ’90s, so they’re not part of this period. But it’s basically planning and regulation. And if you look at it, there is a flattening of the growth curve.

However, the negatives play out as well. First, we do away with the wage-and-price controls. Then the planners got overwhelmed, overwhelmed by the forces—the consultants and the lawsuits. So now many analysts view health planning as a failure. At the end of the day, the delivery system overwhelmed the planning system.

Why did national health insurance—Why was the moment of opportunity lost?

That’s what I said. The forces for finding a true compromise were not there. I think your comment before is the right one. There was a lot of defensiveness. And so the AMA had a plan, but it was perfectly willing to do nothing. The AHA [American Hospital Association] had a plan, but it was perfectly willing to do nothing. The Health Insurance Association had a plan, but it was perfectly willing—and the people who truly wanted something, anything, and were willing to compromise—and by the way, the liberals too; labor was as bad, in my view, as the AMA. And their view was, “Why should we compromise now? We’ll get it in ’76.” So they wouldn’t compromise, and so no one was prepared to compromise. You cannot have—In my view, you cannot have national health insurance without a lot of compromise and with nobody winning completely. We just don’t have that kind of solid majority that favors any one proposal.

That’s true of almost any legislation.

Yes, but this one, the status quo is very comfortable.

Easier to do it now or then?

I think it was easier to do then.

Can it be done now?

You know, when I say, somebody asked God, “Will America ever have national health insurance?” He says, “Absolutely, just not in my lifetime.” [laughter]

I have one quick last question, and then I’ll take you back to the Hill. War on Cancer. How did this feed into this whole debate? Was Kennedy there?

I don’t exactly know. It was waged just as I was coming into the department, and if I didn’t know anything about the other parts, I surely didn’t know anything about this. All I do remember is a few things. One is, it was totally opposed by the NIH [National Institutes of Health]. They were furious because they believe science should be allowed to grow at its own pace and that what you definitely don’t want is a national cancer institute. You don’t want a disease by disease. They have opposed them all along. And then there was—What’s her name?—the woman that—

Mary Lasker.

Mary Lasker, who worked with Kennedy and others. Not only was it a Congressional, but it did have advocates within the administration who overrode the objections of NIH. It happened in about ’71, I want to say.

Yes.

I came into the department in ’71. So it was just going on as I was learning where the men’s room was.

It certainly spawned a lot of different things. Well, this has been very useful.

You pushed a lot of historical buttons.