ACA Design: Rethinking Selznick
KeywordsHealth Care Reform Transactional Leadership Health Care Industry Health Care Market Tennessee Valley Authority
The Affordable Care Act – also known as Obamacare – was signed into law on March 10, 2010 and fundamentally changed health care in the United States through expansion of health insurance and reforms of the health care delivery system. Cooptation is a term created by Phillip Selznick that refers to a leadership process designed to manage opposition to organization change processes.
Introduction: The Informal Cooptation Dilemma
In his January 23, 2016 weekly address, President Obama notes that since implementation of the Affordable Care Act (ACA) in March 2010 (a) nearly 18 million Americans have gained coverage, (b) more than 90% of Americans are now covered by private insurance, and (c) health care inflation is at its lowest levels in 50 years. These are impressive numbers for such a controversial public policy and begs the question of exactly why has the ACA been successful. The Sufi Islamic parable of blind men attempting to describe an elephant provides an excellent analogy on how various social science disciplines attempt to understand the ACA.
Legal scholars identify the two US Supreme Court decisions upholding the individual mandate and tax credits as the causal variables for ACA success (see e.g., Mandel and Whaley 2015) while political economists focus on the relationship between politics and the creation of efficient health care markets (Shareef 1984). Public policy analysts utilizing Bozeman’s (2002: 134–138) market efficiency/public failure framework (Shareef 2008) seek to determine if efficient ACA markets create public value or trigger public failure (Shareef 2014). Yet, it is Selznick’s sociology of public policy (see e.g., Hill 1973: 240–245) that provides the most holistic sensemaking framework of the ACA. Indeed, President Obama’s informal cooptation power-sharing arrangement with the health care companies is the antecedent to all legal, political economy and public policy analysis of the ACA.
Ever since sociologist Phillip Selznick’s classic 1949 (219–238) study of leadership and the Tennessee Valley Authority (TVA), the concept of cooptation has been an administrative and cultural pejorative. Selznick (1948) discusses two types of cooptation. Formal cooptation occurs (a) when the leader brings in elements, (b) these new elements lend legitimacy to the change effort, and (c) what is shared is responsibility for power but not power itself.
Conversely, informal cooptation occurs when the threat is not gaining legitimacy for social change but where outside groups – because of the resources they command – demand a substantive decision-making role. Informal cooptation represents a unique phenomenon since formal power is divorced from social power and the legitimacy of formal authority is threatened. Unlike in formal cooptation processes, the leaders of these social organizations are fundamentally interested in the substance of power rather than its forms (Selznick 1948). Furthermore, because these leaders can divide loyalties and manipulate constituents, their demand for power-sharing requires accommodation by the change agent.
A contemporary variant of Selznick’s informal cooptation form of leadership visioning is transactional leadership and manifests when the leader motivates stakeholders by appealing to self-interest via the exchange of benefits (Yukl 2013: 321). What distinguishes Selznick’s informal cooptation leadership concept from transactional leadership is that the exchange between the change agent and stakeholders is always the same – a power-sharing accommodation. If structured properly in cases like the ACA, these power-sharing arrangements lead to win/win situations.
The 1990s Clinton health care reform initiative featured a hybrid financing system that allowed some states to either utilize a single-payer or private insurance plan to finance health care delivery (Kingdon 1995: 217–221). Yet, the health care insurance industry did not want any type of single-payer plan and sought to maintain a monopoly over financing in a reformed system. Consequently, they used their social power to turn public sentiment against the Clinton reform effort – especially in television commercials like the famous Harry and Louise Health Care Ads – by labeling the plan socialized medicine.
Additionally, President Clinton utilized formal cooptation of big business to give legitimacy to his health care reform change effort. In the Clinton health care initiative, big business shared in the responsibility of garnering public support for health reform and encouraging lawmakers to pass the legislation (Kingdon 1995: 218). However, the health care insurance industry – not big business – was the social power that threatened (and eventually destroyed) the Clinton initiative because their demands for power-sharing were not met.
President Obama – learning from the failed Clinton Administration’s health care reform endeavor – used informal cooptation processes to bring the health insurance industry into decision-making processes concerning the design of the ACA. In early and secret negotiations, the President negotiated an agreement that required the health insurance companies to provide universal coverage in exchange for the individual mandate. This powerful industry was receptive to the profit-making idea of the individual mandate ensuring 30-million new paying customers (most with guaranteed subsidizes) in exchange for popular up-front provisions including (a) universal coverage, (b) the Age 26 rule (i.e., children can stay on their parents group health policies until age 26), (c) the 80/20 rule (i.e., insurance companies must pay at least 80% of collected premiums on claims or a rebate check is sent to the policyholder), (d) removal of the $1,000,000 cap on health care policies, and (e) ending the odious practice of rescissions.
The President and large health care providers had completely different social and economic strategic objectives in agreeing to this power-sharing arrangement. The American health care industry is a classic profit-maximizing, Friedman-model enterprise that is primarily concerned with economic objectives, and compassion plays no role in decision-making (Tsui 2013). That is, their corporate strategy is guided by Milton Friedman’s notion that corporations fulfill their social responsibility solely by maximizing profits, and any activities that distract from shareholder wealth creation is socially irresponsible (Tsui 2013).
However, the President’s strategic and institutional visioning for the ACA was twofold: to provide universal coverage and preserve the market-based health insurance industry. Based on his observations at the TVA, Selznick (1957: 119) makes a distinction between organization and institution depending on the commitment to core organizing and unifying values. While organizations are rational tools of economic efficiency – and can be replaced by more efficient organizations (Hatch 2012) – it is the leader’s responsibility to protect the “institution’s distinctive values, competence, and role” (Selznick 1957: 119). The idea of universal health care coverage has been the core value of health care reform legislation since the beginning of the twentieth Century (Kingdon 1995: 217), and President Obama never compromised on this value in his informal cooptation of the health insurance industry. Consequently, Obama’s leadership commitment to universal coverage access fits Selznick’s (1957: 90) “institutional embodiment of purpose.” Importantly, the key leadership activity that allowed the President to maintain this institutional purpose was the informal cooptation of the health care industry.
Selznick (1948) suggests that institutional leaders (in this case President Obama) cannot openly acknowledge the sharing of decision-making with powerful social forces; otherwise, the legitimacy of formal power will be eroded. Thus, the necessity for secret negotiations between the President/Senate Finance Committee and the health care industry. Moreover, the President’s choices were initially constrained as he engaged in the informal cooptation of industry representatives. For instance, he favored the public option – a government run health agency to compete with private health companies – but the health insurance companies demanded Senator Max Baucus veto that idea in the Senate Finance Committee (Drier 2009).
Selznick (1948) also found that cooptation directly impacts leadership choices: “The character of the co-opted elements will necessarily shape (inhibit or broaden) the modes of action available to the leadership which has won adaption and security at the price of commitment.” Most often, cooptation inhibits leadership activity. For those like Klein (2009), the informal cooptation of the health care insurance industry by the Obama Administration narrowed the President’s choices as the public option was eliminated from health care reform.
Yet, the individual mandate provision demanded by the health industry also constrained their choices and, interestingly, actually expanded those of the President. By negotiating the early implementation of popular elements of the ACA like the Age 26 and 80/20 rules, ending rescissions, etc. in 2010 – with the more controversial individual mandate and monetary fine for not purchasing health insurance coming 4 years later – President Obama was able to avoid Thurow’s (1980: 15) lethal zero-sum economic game where decision-makers incur costs first with benefits only coming later. These upfront costs often cause politicians to lose elections and are normally avoided (Thurow 1980: 15).
Thaler and Sunstein (2008: 165–168) found this zero-sum equation plagued President Bush’s implementation of Medicare Part D in 2006. Because of informational overload concerning enrollment of the elderly in the new prescription program, initial switching costs were extremely high for Medicare beneficiaries with the benefits of dramatically lowered prescription costs coming 2 years later. Consequently, the Medicare Part D prescription plan was extremely unpopular with seniors in its early years (Thaler and Sunstein, 2008: 162–165).
On the other hand, President Obama’s negotiations with the health care industry led to the immediate implementation of the aforementioned popular (and essentially costless to consumers) provisions of the ACA and were the catalyst for a benefits now/costs later equation that features an extremely efficient type of choice architecture (Thaler and Sunstein, 2008: 73).
Selznick ‘s (1948) research suggests the inhibiting or broadening of choices for formal leadership in informal cooptation processes generally flowing in one direction; that is, leaders tend to cede power to powerful outside interests. Yet, informal cooptation in the evolution of the ACA offers an interesting paradox. As the President conceded on the public option in favor of the industry’s individual mandate demand, he extracted numerous popular health care provisions that – now implemented as public policy and deemed socially legitimate – are unlikely to ever be taken from consumers in the health care market since popular public policy benefits are rarely later eliminated (see Dye 1978: 33).
The use of informal cooptation/power-sharing arrangements is certainly an emerging trend in public-private partnerships. For example, successful public/private partnerships like the USPS/UPS “Blue and Brown Make Green” business alliance – a unique partnership between these two companies to provide better service, reduce greenhouse emissions, and enhance operating efficiencies – features all of the hallmarks of an informal cooptation power-sharing arrangement negotiated between USPS Postmaster General Patrick Donahoe and UPS CEO Scott Davis. Moreover, this joint venture fits in the category of a business enterprise where both social and economic outcomes are co-equal strategic objectives (Tsui 2013) and trigger public value (Shareef 2010).
Hence, the institutional dilemma of utilizing leadership informal cooptation/power-sharing in joint ventures does not concern the efficacy or ethics of this lead change variable but rather the negative social construction of the concept of cooptation.
Resolving the Informal Cooptation Dilemma
Decades of research have validated the point that agencies and their management must develop support in their setting, and that doing so can mean sacrificing the primary agenda of policy, particularly if it involves social change, in the interests of survival. This theme is the primary contribution of Selznick, particularly in his classic study TVA and the Grass Roots (1949), a book in which the notion of cooptation was defined and illustrated with exactitude through the TVA’s struggle for institutionalization in a turbulent setting. Leadership of the TVA in effect ceded their agricultural policy goals to powerful local interests in exchange for political support that was then used to push TVA’s electrical power agenda.”
“What then explains the perpetuity of non-rational organizations like the TVA? Selznick offered the concept of institutionalization as his answer, claiming that institutions make themselves appear indispensable by asserting their value to society, something the TVA did in the U.S. by linking itself to the idea of grassroots democracy, in spite of fact that its behavior diverged significantly from the expectations set by this claim to legitimacy.”
Yet, Selznick (1957: 90) also provides the antidote to institutionalization – the leader not being co-opted by outside interests while maintaining the “institutional embodiment of purpose.” As mentioned earlier, President Obama never compromised on the institutional value of universal health coverage and therefore was never co-opted by the health insurance industry. Consequently, if leaders maintain core institutional values in negotiating power-sharing arrangements in informal cooptation processes, the leadership process is very anti-deterministic.
Terry (1999), in his discussion of neo-managerialism and democratic governance, finds that even when linguistic reinterpretations of existing management concepts occur, the reconstituted construct still inherits the underlying assumptions and meanings of the old concept. Shareef (2010) also reports that the socially constructed embedded meanings of management language rarely change despite linguistic reinterpretations or reconstituted paradigms. Thus, it is unlikely that the informal cooptation leadership concept will shed the negative connotations (in either academia or the broader society) of determinism and institutionalization despite empirical evidence to the contrary.
Miller’s (2006) research on confirmation bias in management journal publishing finds that reviewers reject manuscripts when they are unfamiliar with new concepts or novel interpretations of old concepts. Given this type of institutional bias, researchers studying public policy innovations that utilize Selznick’s informal change processes may be best served by simply subsuming the informal cooptation concept under Kanter’s (1989) PALs (pooling, allying, and linking) construct where organizations seek opportunities for growth by allying through joint ventures with other organizations. For instance, the informal cooptation of the health care industry by the President is congruent with what Kanter (1989; p. 186) calls Stakeholder Alliances or “… complimentary coalitions among a number of stakeholders in a business process who are involved in different stages of the value-creation chain.” The joint USPS/UPS public-private partnership – triggered by Selznick’s informal cooptation process – fits with Kanter’s socially acceptable PALs construct.
Social scientists attempt to study the ACA from the viewpoint of their various disciplines. This approach provides a segmented analysis of health care reform. However, viewing this successful reform through the lens of Selznick’s informal cooptation process provides a more holistic understanding of how leadership visioning and power-sharing with former adversaries can create desirable social and economic outcomes for all stakeholders. Simply put, the informal cooptation process that is the catalyst for this leadership visioning appeals to varied stakeholder self-interests and requires the exchange of a single currency – power-sharing by the change agent in the design of the stakeholder alliance.
Neither formal or informal cooptation are inherently deterministic or lead to institutionalization. The leader avoids these dysfunctions by maintaining the institution’s strategic objectives/core values during negotiations in the design of the power-sharing framework. In other words, the leader initiating informal cooptation must avoid being co-opted by outside stakeholders.
In an era where the success of public policy is evaluated on whether Public Value is created and public-private partnerships are the norm, the ACA is a model for producing both market efficiency and valued social outcomes. The linchpin for this success is Selznick’s informal cooptation process. Regardless of whether the name transactional leadership or PALs attaches to informal cooptation processes, it appears the time has come for public policy scholars to seriously reassess Selznick’s leadership concepts of (a) informal cooptation and (b) the institutional embodiment of purpose for their efficacy in creating Public Value in joint partnership ventures.
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