Miller Center

Health Care: Major Shift in Health Care Attempted 20 Years Ago

On July 1, 1988, President Reagan signed into law the Medicare Catastrophic Coverage Act, a landmark law that expanded Medicare to prevent patients and their families from financial ruin over treatment for a major illness. At the law's signing ceremony, Reagan warned that in past changes to Medicare, "costs have exceeded the best congressional budget estimates. Unless we're careful, it's possible that aspects of this legislation will do the same." Reagan's comments were prescient: the Congressional Budget Office revised the cost of the drug benefit from $5.7 billion to $11.8 billion in just one year, and the projected cost of the skilled nursing benefit rose from $2.1 billion to $13.5 billion in fourteen months. As a result, much of the law was repealed a year after its passage.

The Miller Center's Ronald Reagan Oral History Project explored the subject of catastrophic coverage in several of its interviews with leading officials closely involved in the internal discussions on the bill. The selection of excerpts below highlights the recollections of two officials – Dr. Otis Bowen, Secretary of Health and Human Services from 1985 to 1989; and James C. Miller, Director of the Office of Management and Budget from 1985 to 1988.

Dr. Otis Bowen, Secretary of Health and Human Services: There were – I counted them up – 69 different steps that we went through before the President signed the bill. I'm not going to read them all to you, but I've got a chronological order, meetings and things, before it became a bill.

The way it started out was, we developed an Executive Advisory Commission, composed of Tom Burke as a chairman, and then two or three others. Then I devised three separate groups – or task forces. One was to deal with the Medicare problems of those 65 and above, and then one for the 65 and below, and then on the long-term care such as nursing homes. The only one of the three that Congress was interested in was those above 65. They kind of sloughed off the others. Each of these task forces developed their recommendations. The President gave his address on February the 4th, 1986. Then on November the 19th, 1986, that was from February to November, we had our plan completed, because the President asked for the report by the first of December.

So we did three years' work on one, and got the plan to the President, and it wasn't until February the 24th, 1987 – which was about four months after I delivered the plan to the President – that the President announced that he was preparing to send the plan to Congress.

Young: Wasn't there a lot of down-time during that period? He gave you marching orders that you yourself sort of wrote in the State of the Union message, and then there seemed to be a backsliding somewhere. Then it was on again, and then it was down again.

Bowen: The Domestic Policy Commission did that.

Young: Well, was the attempt made to get it off the agenda – how did you get it back on?

Bowen: I guess with dogged persistence.

Young: Did you ask to see the President at any time?

Bowen: No, I wanted to, but I wasn't able to, because the plan had to go before the Domestic Policy Commission, which Meese chaired, and Meese was adamantly opposed to anything like this.

Young: On what grounds?

Bowen: Expanding government, I guess, was the biggest complaint he had. Then, on June the 24th – that was from February to June – the House of Representatives passed the bill, and sent it on to the Senate. Then, in October – from June to October – the Senate passed their version, and then December 9th, the conference committee was appointed to reconcile the differences between the House and the Senate. It wasn't until May the 31st – that's from December to May – that the conference committee reported a reconciled bill for final action. In June, the bill was approved by both Houses and sent to the President, and then June 1988 – which was two-and-a-half years afterwards – it was signed by the President.

Now, it took so long because the Domestic Policy Commission was, again, adamantly opposed, mainly because of Meese and Sprinkle and Miller and [Donald] Hodel. Hodel was the Secretary of Interior, and Sprinkle was the economic advisor to the President. Meese, of course, was the Attorney General at that time. They did everything they could to derail it every step of the way – that's why there are so many time intervals in this.

Young: What was Hodel's role? Why was he in that group?

Bowen: Just his philosophy was all. He wasn't as opposed to it as the others were. I had six meetings, total, with the Domestic Policy Council. Three of those were with the President himself. Meese appointed a separate committee, omitting me from being on it, to find alternatives to what we were trying to do.

At another meeting, Meese invited the big insurance companies that handled Medigap to come into the White House, and brought me in there before them. I was probably the only one in there favoring the plan, and the insurance people said, "Sure, we can do the same thing," but the cost was going to be much, much higher. Remember that the cost in administering Medicare is two percent or two cents on the dollar, and this was going to be way higher. Then at one of the meetings with the President, Sprinkle presented a new plan using vouchers to cover the expenses. Luckily, I had one of these charts and a big pen I could draw with, and I drew a thousand lines across there tracing the cost of where a dollar would go.

Young: You had advance warning of this voucher plan?

Bowen: No, I didn't have any – I take that back, I did have some, but I didn't know he was going to present it.

Young: So you were prepared with your –

Bowen: This is where Don Regan came in handy. He's the one who said, "You've done all this work, we're going to see that the President gets to hear it." So if it had been up to Meese and Sprinkle, I never would have gotten in there. I owe Regan one for that.

So I was presenting my plan to the President, and Sprinkle presented his alternative plan, and then I drew the chart on where the money would go, and the people in the building were kind of chuckling. That ended Sprinkle's attempt to scuttle it. It wasn't until – I gave you the date a while ago – that we had our final meeting with the President, and then he told the Cabinet that day – all the Cabinet members were there – that he would study this and make up his mind in two or three days. About three days later, I got word that he had accepted it. Then, when it went to Congress, and Congress was beginning to debate it, Meese and Sprinkle had their people out in Congress making every effort to slow it up or derail it. But there were enough people in Congress that wanted it that that attempt failed. . . . I had practically no Cabinet support, except [Caspar] Weinberger was a little bit in favor, because he had previously been HHS Secretary. Bill Brock was for it, because he had been a Senator and knew a little bit more about the needs of the people – his grandson had just been through a long ordeal. He was premature, and had some medical problems. Secretary Brock spent thousands of dollars on his grandchild – but President Reagan and Bill Brock and I were the only three who had an elected position, and I think that we knew a little bit more about what the people wanted than the rest of them did. And I think that Reagan was for it, but didn't know how to get it done. He tried it when he was Governor but didn't get very far.

I think he hinted about it in his first term a little bit. And then when he had somebody come in and try to champion it, it gave him an opportunity to jump on the bandwagon for it. Again, whether this is so, I'm not sure, I'm a little suspicious: that was in the heat of the Iran-Contra affair, and I think he wanted something to divert attention away from that, and onto the health situation. . . . I think it took a little courage for the President to do that, knowing that his number one, two, and three boosters were anti.

James C. Miller, Director of the Office of Management and Budget: The first of the two major disagreements I had on specific issues was with his proposal for catastrophic health insurance.

You're going to have a guest later this week who can give you more details. The hypothesis circulating at the time was that when the President asked him to be Secretary of HHS [Health and Human Services], Doc Bowen raised the issue with the President and received a commitment from the President to go forward with legislation. He'd been co-chairman of some group that had come up with a specific proposal for so-called "catastrophic" insurance.

Young: Right.

Miller: I was very much opposed to the proposal that emerged. Finally in exasperation I said to the President, "Mr. President, as bad as this bill is, when you send it up to Capitol Hill and it comes back, it'll be far worse. And you'll have to sign it because it has your name on it." And that's exactly what happened. It was so bad that it became one of the few cases of enacted legislation that was un-enacted shortly thereafter because the response was so bad.