<This article is the second in a projected series of five providing a retrospective on the Barack Obama years. The aim is to publish one a week until Donald Trump's inauguration on January 20th, 2017>
Early in his presidential transition, Barack Obama led a brainstorming session with his policy team about first-term accomplishments. Treasury Secretary-designate Tim Geithner offered a stark reality check: the 44th commander-in-chief's most accomplishment was likely going to be the prevention of a second Great Depression.
“That’s not enough for me,” the president-elect shot back. “I’m not going to be defined by what I prevented.”
That attitude encapsulated Obama’s first two years in office, which featured the most energetic flurry of legislation since Lyndon B. Johnson's Great Society. He wanted to do stuff, not just avoid it; he wanted to be a Ronald Reagan of the left. And he believed, that the financial crisis would be a terrible thing to waste.
Obama began with a stimulus larger than the entire New Deal in real dollars. Widely ridiculed as a wave of pork barrel politics at the time, it is now widely credited by economists with helping to end the Great Recession by providing a short-term economic adrenaline boost: record aid to the vulnerable that directly lifted 13 million Americans out of poverty; aid to states that averted 300,000 teacher layoffs; hard-hat projects that upgraded 42,000 miles of road, 2,700 bridges and 6,000 miles of rail; and roughly $300 billion worth of tax cuts for businesses and families.
Characteristically with little fanfare, the stimulus also poured cash into Obama’s long-term agenda for reshaping the country. It transformed the U.S. clean-energy sector, shunting an astonishing $90 billion into renewables and other long-neglected green priorities, while birthing a new research agency called ARPA-E. The only investment that got much press (a lot of it negative) was a failed $535 million loan to a solar manufacturer called Solyndra, but that same loan program financed nine of the world’s largest solar farms, among other projects. The green stimulus helped quadruple U.S. wind power usage, put the first 400,000 electric vehicles on American roads and began a low-carbon transition that helped the United States lead the push for a bold global climate deal in Paris.
Meanwhile, the Race to the Top competition had an even faster impact on education, inspiring almost every state to embrace at least some of Obama’s preferred K-12 reforms -- removing caps on charter schools, expanding testing, adopting tougher standards like the Common Core -- just to improve their chances for a grant. Though there is now a growing conservative backlash against excessive testing and the Common Core, the Race has changed how education is framed and discussed. The Republicans will have a tough time finding an adequate replacement, though they may cut it entirely in favour of Donald Trump's preferred tax cuts.
In the same vein, a $25 billion incentive program in the stimulus for health information technology has helped drag a pen-and-paper medical system into the digital age, with adoption soaring from about 10 percent of hospitals and 20 percent of doctors in 2008 to about 80 percent of hospitals and 80 percent of doctors today. E-prescriptions are ubiquitous, and digitization is already reducing fatal errors and unnecessary tests caused by sloppy handwriting and inaccessible files. There have been problems getting electronic systems to talk to each other, sparking a backlash of sorts from irritated doctors, but the administration is confident online medicine will inevitably produce the efficiencies so common in internet-based banking and dating.
The stimulus also offered an introduction to Obama-ism. Purity was not a priority. He needed three GOP senators to avoid a filibuster, so he caved to their demands, including an $800 billion cap and the removal of a $10 billion initiative to renovate America’s schools. But popularity was not a priority either. He constantly browbeat his policy advisers to tell him what would work and leave the politics to him. He expected his wonks and hacks to stick to their respective knitting.
But Obama’s guiding political assumption—that data-driven, evidence-based policy, at least in its center-left form, would inevitably turn out to be good politics—ended up being seriously flawed. A stark example from the stimulus was Making Work Pay, an $800 tax cut for most workers. His economists wanted to dribble out the cash to recipients a few dollars a week in their paychecks, because studies showed they would be less likely to spend the windfall if they realized they were getting it. His political advisers argued that it would be insanity to conceal middle-class tax cuts rather than send Americans fat envelopes with Obama’s name on them. But Obama sided with his policy team, and later surveys showed that less than 10 percent of the public had any clue he had cut their taxes.
The stimulus, the Tammany Hall types joked, was Crafted by Economists, Implemented by Wonks, Beloved by None. And it was not Obama’s only crisis response where policy results outstripped its political reputation. His much-maligned auto bailout rescued General Motors and Chrysler from bankruptcy and helped revive the industrial Midwest. Tim Geithner’s widely mocked stress tests for big banks stabilized a financial system that was still on the edge of collapse despite Bush’s Wall Street bailouts. One recent study concluded that without the government’s suite of emergency measures, GDP losses would have tripled and unemployment would have soared to 16 percent.
Yet those very emergency measures fuelled the anti-government Tea Party on the right, while convincing many on the left that Obama cared more about Wall Street than Main Street. Those beliefs did not seem to change much even after Obama went on to push comprehensive Wall Street reforms through Congress, while helping to craft aggressive new international financial rules known as Basel III. It’s hard to explain how a barrage of inside-baseball reforms like enhanced capital and liquidity requirements, “living wills,” “orderly resolution authority,” “SIFI surcharges” and a new oversight body known as “FSOC” have reduced the risk of future bailouts, but the bottom line is that financial behemoths no longer enjoy much of a “too-big-to-fail subsidy.” They used to borrow at much lower rates than small banks because lenders correctly assumed the government would rescue them in a panic. Not anymore. And Obama’s new consumer bureau may be the most influential new regulatory agency since the EPA, already collecting more than $10 billion in fines from financial players that used to enjoy relative impunity.
Nevertheless, Republicans have savaged Obama’s financial policies as a command-and-control assault on free enterprise that will inevitably lead to more bailouts. Many liberals have dismissed them as a craven sellout because they didn’t break up the mega-banks. And if Obama was disappointed by the public’s lack of appreciation for his role in ending the financial crisis and reducing the risk of another one, well, the public hasn’t been too enthusiastic about the signature achievement that bears his name, either.
Obamacare has unleashed America’s biggest expansion of health care access since the creation of Medicare and Medicaid. It has already extended medical coverage to some 18 million uninsured Americans. It also closed loopholes that insurers used to deny coverage to insured Americans when they got sick. And it eliminated co-payments for quit-smoking programs, birth control pills, certain cancer screenings and other preventive care. As Obama has suggested, it’s what he was talking about when he talked about change.
But behind the headlines about access, Obamacare had another set of even more transformative goals for the system. For years, U.S. health inflation had far outpaced general inflation, inflicting crushing burdens on patients and companies while gravely threatening the federal government’s budgetary future. America’s long-term fiscal problems were almost entirely health care problems, and Obama was determined to “bend the cost curve” of Medicare and Medicaid spending projections that were sloping upward at a scary angle.
He faced two obstacles, the first political. “Controlling costs” sounded like a euphemism for rationing care, and GOP opponents made Obamacare sound like a plot to pull the plug on granny, portraying an independent board that could recommend cost-effective tweaks to Medicare as a bureaucratic “death panel.” And many Democrats preferred the giveaway provisions expanding access—one Obama aide called them “candy for the left”—to the spinach-like takeaways that threatened to reduce income for doctors, hospitals and other influential lobbies.
The other obstacle to cost control was that no one was sure how to do it. There were dozens of ideas floating around, like reduced Medicare reimbursements to providers, increased competition that could drive down prices, and incentives to promote home visits and generic drugs. The holy grail was finding alternatives to the longstanding fee-for-service system that rewards providers for providing more care instead of better care, like “bundled payments” to a single provider to cover entire medical episodes, or “accountable care organizations” that would receive fixed payments to coordinate care for specific patients. But no one knew whether any of those approaches would work, because none of them had much of a track record.
Obama insisted on including almost all of them. Less than one-fourth of the bill was devoted to access. The rest was stuffed with almost every cost-control idea in circulation, from new competitive bidding rules for wheelchairs to a government Innovation Center to test new payment models to a “Cadillac tax” on pricey employer-sponsored plans. In essence the administration threw in a selection of everything except the proverbial kitchen sink, offering not just a choice, but many choices.
And so far, the cost curve is bending even faster than White House officials had dreamed. Health care is still getting more expensive, but since 2010, the growth rate has slowed so drastically that the Congressional Budget Office has slashed its projection for government health spending in 2020 by $175 billion. That’s enough to fund the Navy for a year, or the EPA for two decades. It remains to see how Donald Trump will regard this windfall, but by chucking a whole bunch of stuff against the wall to see what sticks, Obama may have created a higher degree of bureaucracy than necessary in order to maintain all these options, but left alone, these changes could by themselves have a fundamental impact on the nation's fiscal trajectory.
Some of the see-what-sticks cost experiments also seem to be improving care. One recent report found that infections and other “hospital-acquired conditions” have declined 17 percent since 2010, when Obamacare created financial incentives for hospitals to avoid them. That reduction saved an estimated 87,000 lives and $20 billion. A similar effort to incentivize better management of discharged patients has coincided with a decline in hospital readmission rates that’s keeping 150,000 more Medicare patients at home every day, according to the administration’s Office of Health Reform.
Under Obamacare, about one-fifth of Medicare patients have already shifted into alternatives to fee-for-service, and the goal is to get half the system paying for value rather than volume by 2018. Maryland’s hospitals are now paid through “global budgets” that include outpatient care, so they no longer have incentives to admit patients just to keep their beds full. A recent New England Journal of Medicine article found the state’s hospital costs increased at less than half the expected rate in the program’s first year, saving Medicare $116 million. There are signs that Obama’s convoluted jumble of changes may be starting to rationalize an irrational system. Patrick Conway, the director of the new innovation center, told me about a new Independence at Home experiment that coordinates nurse and doctor visits for frail and disabled patients—and saved Medicare $3,000 per beneficiary in its first year. One elderly diabetic who had 19 hospitalizations the previous year had only one after enrolling in the program.
Obamacare remains largely unloved, even though periodic Republican efforts to repeal it are unpopular, too. GOP critics have hammered away at Obama’s false promise that all Americans who liked their plans would be able to keep them, at an Obamacare adviser who suggested voters were stupid, at the fiasco with its website, at the unpopular “individual mandate,” at problems with exchanges and co-ops and other new planks of reform. Patients have complained about high deductibles and heightened uncertainty; many providers are unhappy about reduced reimbursements; a frenzy of mergers is reshaping the entire industry. The recent bipartisan budget deal suspended the Cadillac tax, as well as Obamacare’s tax on medical devices—setbacks for cost control. Meanwhile, much of the left is still upset that Obama didn’t push for the “public option,” a government-run insurer that could have helped cut costs by competing with the private sector but that didn’t have 60 votes in the Senate.
The result of all this dissatisfaction with Obamacare, as well as the Obama recovery and Obama’s financial reforms, was a Republican landslide in the 2010 midterms, returning the House to GOP control. In a divided government, the president no longer had the power to advance his agenda through legislation—and his opposition had no interest in helping him.
But he was still president.