Guest Post: Obamacare and The Divided Welfare State

By Alex Armstrong*

Reading Jacob Hacker’s The Divided Welfare State: The Battle over Public and Private Social Benefits in the United States, I was struck by how accurately it illustrated the struggle for universal health insurance in America. Even though it was published in 2002, I believe the book offers important insights into the contemporary debate around health care reform, particularly why it took so long to happen and why it ultimately took the form it did.

Hacker begins with a pair of questions that have troubled social justice advocates for the last century. First, he asks: “Why are public social programs in the United States less generous, less complete, and less integrated into national economic policy than those typically found abroad?” And, additionally, “Why is the United States the only affluent capitalist country that does not guarantee universal or near-universal health insurance?”

Hacker critiques the way other scholars have answered this first question. Many of the techniques used to estimate the generosity and completeness of the American social programs are inaccurate, he says, because they ignore the structure of the U.S. welfare regime. Much of American welfare provision is actually conducted by the private sector, with the government encouraging the growth of private pensions and fringe benefits through tax expenditures and subsidies. Thus, simply comparing the percentage of GDP spent on social programs across countries will obscure the unusual American case. When these tax expenditures are considered alongside direct social spending, the U.S. rises to slightly above-average among developed nations.

But this unique structure poses a riddle of its own: why does the United States have a “divided welfare state?” Furthermore, the division isn’t uniform – why do we observe a universal federal program for retirement pensions but no equivalent for health insurance?

The answer is not simply American exceptionalism. “Let us cease to conceive of outcomes as rooted in national identities,” Hacker says. And indeed, this is not a story of rugged individuals without need or desire for government intervention.

Instead, the American state exists in its divided form as a result of the type of institutions which existed at the critical juncture when reforms were possible. According to Paul Pierson (2000), “Political development is punctuated by critical moments or junctures that shape the basic contours of social life.” Hacker’s book details these critical junctures to explain the divergent paths of pension plans and health insurance.

The critical juncture in American politics arrived with President Franklin D. Roosevelt and the New Deal. Social Security – direct government provision of retirement pensions – was possible because the private sector occupied only a “supplementary” role at the time. Before the New Deal, private pensions were rare and often restrictive (they were often, for example, revoked for workers who went on strike). These pensions were used chiefly as career incentives and funded solely by employers: workers had no “moral claim” to collect benefits, and at least one study suggests fewer than 10% of workers ever did. This supplementary role allowed the reformers to build a core role for government in the provision of retirement pensions. And because they had only provided fringe benefits, employers were able to accommodate themselves to the new government program: their private pensions continued to play a supplementary role after the introduction and expansion of Social Security.

In contrast, New Deal reformers were uneasy about any attempt to provide government health insurance. Blue Cross and Blue Shield had been expanding in the years prior to Roosevelt’s inauguration, and had already obtained favorable tax treatment in many states. The private sector was occupying a “core” role in the provision of health care insurance, and would not relinquish its position easily. An industry – complete with interest groups and entrenched institutions – had sprung up around insurance provision, and it left little room for the government to act. Additionally, the power of groups like the American Medical Association helped stymie any momentum for reform, and the critical juncture closed without any serious attempt at a government health insurance program.

In the years that followed the Great Depression, the relative positions of government and the private sector were reinforced through a process of increasing returns. Just as employers grew accustomed to providing fringe benefits above and beyond Social Security, the government learned to work at the edges of a private health insurance industry. Even Medicare, though it signified an expansion of federal authority, helped the private sector by removing high-risk individuals from private insurance pools.

In some ways, then, Obamacare represents the government’s final acceptance of its supplementary role. A true public option – “Medicare for all” – was an unrealistic goal, if Hacker’s analysis is correct. Instead, Obamacare provides government-backed incentives and penalties that bring Americans into the private insurance industry. Far from the government takeover of medicine that its critics claim it to be, President Obama’s signature legislative accomplishment may be the ultimate accommodation to America’s uniquely divided welfare state.

* Editor’s note: Alex Armstrong is a PhD student in Political Science at Yale University and a guest contributor to The Smoke-Filled Room. 

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