Stop ObamaCare
The Democrats' plan would displace tens of millions of happily insured Americans and exacerbate the worst elements of the current system.
by James C. Capretta & Yuval Levin
05/18/2009, Volume 014, Issue 33

President Obama and the Democratic leaders of Congress have made it clear that health care reform is their top legislative priority this year. The administration laid down some general markers in its budget, and the president has enunciated principles in several speeches. Key committees in both houses of Congress are now beginning the work of drafting a bill.

The program's basic shape seems likely to follow the outlines of Obama's campaign proposal. Employers would be required to provide health coverage or pay a fine, proceeds from which would support the creation of a new government-run insurance option. There would be a national insurance exchange through which those without access to employer-provided coverage could enroll in the public plan or one of a range of private plans that agree to certain conditions (including covering all comers, regardless of health status). And those below a certain income threshold (likely around 300 percent of the poverty line) would receive subsidies to purchase such coverage.

This is clearly intended to be transitory, rather than a final program. It would create incentives for employers to drop their health coverage plan (by making it cheaper to pay the fine than offer coverage) and would enable the new public insurance plan to undersell private insurers by imposing price controls similar to those employed in Medicare. A large number of workers finding themselves without their old employer-based coverage would "opt" for the public plan, creating, in effect, a massive new public health insurance program. Call it single payer by degrees.

The approach has been carefully designed to avoid the failings of the last major Democratic attempt at health care reform, the Clinton administration's effort in 1993 and 1994. By providing only an outline and leaving the detailed work to Congress, the administration avoids having the complexity of the plan hung around its neck before legislators even take it up. By creating the impression of choice and competition, they avoid some of the opposition of private insurers--who will play along if they think they will have a chance at participating in the new marketplace. And, by providing something of an out for employers with the fine, Democrats hope also to avoid the opposition of business groups.

But the Obama plan, whatever its tactical cleverness, will suffer from the key drawbacks of all government-financed and managed health insurance. It would make the government the gatekeeper--the controller of prices and the provider of coverage. Health care decisions would increasingly be made in Washington and subject to political pressures that take into account neither patient needs nor economic realities. The cost of the program would be such that the effort to pay for it would become the central concern of American politics--rendering essentially untenable any effort to roll back government spending or reform federal tax law. As we see around the world, health care is the key to public enmeshment in ballooning welfare states, and passage of ObamaCare would deal a heavy blow to the conservative enterprise in American politics.

The combination of a plan that obscures the flaws that killed HillaryCare and the daunting Democratic majority in both houses of Congress has left many Republicans fatalistic. GOP leaders in Congress seem to be looking for ways to compromise at the edges or to live with what emerges. They take the successful enactment of some version of ObamaCare almost for granted. And yet Obama's plan is enormously vulnerable. Its sheer size and ambition argue against any notion that it will easily pass, and certain features suggest specific weaknesses that ought to draw the attention of conservative opponents.

First, the public insurance option, which is a central feature of the plan, seriously threatens the fragile alliance between Democrats and health insurance providers. Insurers worry that the public option is designed to price them out of business. If it is not subject to the same state and federal regulatory limits that constrain their practices and if it can strong-arm providers with artificial price controls--which would only shift costs to private insurers and patients as they now do in Medicare--the playing field will be uneven. The public plan has so far been the most prominent vulnerability of the Democrats' proposal, with Senate moderates like Olympia Snowe, Ben Nelson, and Arlen Specter expressing concerns about it. But it is crucial to the logic of the Democrats' approach and will be difficult for Obama and congressional leaders to give up.

Second, the Obama plan would involve a profound displacement of currently insured Americans, who for the most part are happy with their coverage and will not appreciate being dumped into a program that could end up resembling Medicaid. A recent study by the Lewin Group estimates that almost 120 million Americans could be forced from employer-based coverage into government-run insurance by the kind of two-step strategy the Democrats envision. Americans with stable job-based insurance do not know this is what Democrats have in store for them, and they will not be happy about it. Last year the Kaiser Family Foundation found that well over 80 percent of insured Americans rated their health insurance as excellent or good. The standing inertia of the happily insured has been the greatest obstacle to any reform of American health care--be it liberal or conservative. It was crucial to stopping the Clinton plan 16 years ago, when the level of satisfaction with existing arrangements was significantly lower than today.

And then there's the plan's immense price tag. The basic aim of the Obama plan is to add another health care entitlement to the unaffordable ones we already have in Medicare and Medicaid. Most analysts expect the subsidies for expanded coverage to cost at least $150 billion per year. Even if phased in over several years, the ten-year price tag will easily exceed $1 trillion. No Democrat has yet come forward with a credible plan to pay for such an expensive program. Paying for their health care plan, or even credibly pretending to pay for it, will require new taxes and spending cuts on a scale that most Democrats so far seem afraid to discuss in public.

Beyond the direct costs of a new federal entitlement are general questions about rising health care costs. If the government intends to take these costs upon itself, it will have to show how they will cease to balloon in the future or else how they can be paid for. So far, the president and congressional Democrats have relied on vague promises to "bend the cost curve" and on minor tinkering like increased investment in health information technology, additional research into cost-effective products and practices, and more preventive care. Some of this agenda might actually be meritorious, but it is certainly modest. The contention that it would reverse a half-century of costs rising faster than income is ludicrous.

The cost estimates paint a very grim picture of the future of health care and federal budgets under the Democrats' plans, and the greatest vulnerability of ObamaCare is that it will inevitably lead to rationing of health care. This is something the public, rightly, fears above all else. There are really only two ways to keep costs under control: by building a real marketplace in which cost-conscious consumers make choices or by imposing arbitrary limits, determined by the government, on care. As the Democrats have rejected the first option they will quickly have no choice but to adopt the second.

The Obama team hopes that by enacting the expansions of coverage but not the needed cost-controls this year, they can create unalterable facts on the ground without having a real debate about rationing. Then in a year or two, they will come back, as all government health insurance programs do, and insist on stricter controls in the name of protecting the Treasury. It is clear they are already contemplating this next step, with growing talk of federal "effectiveness research" and Obama's recent musings in the New York Times Magazine about whether his own grandmother should have been allowed to have a hip replacement in her final months. Above all else, Republicans must make it clear to the electorate that if Obama prevails with his plan, the government will end up controlling when and where they can obtain care.

One key to highlighting these weaknesses is not simply to talk about them, but to offer a credible alternative that assures those with insurance they will not be forced out and offers an appealing way to control costs--to both consumers and to the government.

The core of such a reform would involve replacing the tax exemption for employer-based health coverage with a new federal tax credit for everyone. This would convert millions of passive insurance enrollees into cost-conscious consumers shopping in an insurance marketplace. But unlike past iterations of this approach, conservatives should propose to pursue it in stages, beginning with small businesses and the uninsured--groups with poor existing options and thus not averse to change.

Such a reform would allow small-business employees to select their insurance in organized, state-facilitated marketplaces in the same way that federal workers can choose their coverage today. Workers would be making the insurance selection, not firms, from a menu of competing offerings. Workers in medium and larger firms would maintain the same coverage they have today--although the switch to tax credits would add a new level of cost-consciousness to the design of existing employer plans--and as the individual insurance marketplace developed around workers in smaller firms, it would help reduce public anxiety about a gradual transition away from employer-based health care.

Such a Republican initiative would demonstrate that we can build on what is best (and well liked) about the current system--high quality care, doctor and patient control--while adding options onto the existing employer-based structure that encourage gradual and sensible moves toward a genuine individual insurance market.

Conservatives can make it clear they support reform. But they must make it even clearer that the Democrats' plan would displace tens of millions of happily insured Americans and exacerbate the worst elements of the current system: gross inefficiency, high costs, and bureaucracy. President Obama and his congressional allies are pursuing a mammoth, complex, hugely expensive, ill-designed reform that is not likely to be popular when understood. Conservatives have a very real chance at stopping it if they highlight its key weaknesses and supply a superior alternative.

James C. Capretta and Yuval Levin are fellows at the Ethics and Public Policy Center. Capretta is also a consultant to private health insurers.