A Fine Mess

Published January 4, 2010

The Weekly Standard

In the Democrats' rush to pass some kind of health care legislation before public opposition overwhelms them, tactics have long since overtaken substance. Their only remaining goal is to pass a bill, any bill. As the endgame has unfolded, all eyes have been fixed on the unseemly process taking place in the halls of Congress: backroom legislating with rushed votes to minimize scrutiny and public review; secret deals with deep-pocket industries; outright and outlandish vote buying using taxpayer funds; procedural maneuvers to shut off debate and prevent meaningful amendments.

The process has been ugly — so ugly that it has distracted both voters and legislators from the product being cobbled together, which if anything is even worse than assumed. A look at the bill itself — at what exactly will be unleashed on the country if this legislation becomes the law of the land — reveals an appalling disaster in the making, for its own sponsors no less than for the rest of the country.

The litany of conservative concerns is familiar by now, and the latest version of the bill contains the full parade of horribles: massive tax increases in bad economic times, new mandates on employers that will depress hiring, fewer options for families buying insurance, new layers of bureaucracy between doctors and patients, upward pressure on premium costs, and a failure to address the causes of exploding health care costs more generally. But this latest iteration of Obamacare is a nightmare not only for conservatives. The fine details don't look much better from the left.

The mix of insurance regulation and subsidies at the center of the various versions of the Democrats' health care bills until this most recent iteration was designed to channel Americans toward a government insurance program of one sort or another. The idea was to end risk-based insurance by making it essentially illegal for insurers to charge people different prices based on their health, age, or preexisting conditions; to force everyone to participate in the system so that the healthy do not wait until they're sick to buy insurance under the new rules; and then to introduce a government-run insurer that, whether through Medicare's negotiating leverage or through various exemptions from market pressures, could undersell private insurers and so offer an attractive “option” to people being pushed out of employer plans into an increasingly expensive individual market.

The goal was to get a large swath of the public insured by the government, and so gradually create a socialized insurance system. Conservatives opposed this scheme because they believe a public insurer would not be able to introduce efficiencies that would lower prices. Liberals supported it because they think a public insurer would be more fair and more effective.

But in order to gain 60 votes in the Senate, the Democrats have now had to give up, for all practical purposes, on any version of that public insurer, while leaving the other components of their scheme in place. The result makes no sense whatsoever — not to conservatives, not to liberals, not to anyone. Rather than reform a system that everyone agrees is a failure, it will subsidize that system and compel participation in it — requiring all Americans to pay ever-growing premiums to private insurance companies, most of which are for-profit, while doing essentially nothing about the underlying causes of those rising costs. The thought that, after all of this, a Democratic Congress is going to force Americans to send their premiums to the despised insurance industry and then subsidize that industry to boot has sent the left into such a state of frenzied recriminations it could sink the whole enterprise yet.

And that is by no means the only problem for the left in this bill. The mad rush to pass something obscures a crucial component of the bill's design that could prove very problematic for Democrats. For all of President Obama's insistence that we must have action now, and all the talk by congressional Democrats about the terrible costs of delay, the key components of the Senate bill would actually not go into effect for four years. Essentially all of the spending provisions and insurance reforms — including the individual mandate to purchase health insurance, the employer mandate to provide it, the state insurance exchanges, the federal subsidies for coverage, and the Medicaid expansion — would only go into operation in 2014.

The reason for this, as for everything in this fine mess of a bill, is purely tactical: In order to get the Congressional Budget Office to score the cost of the bill below $900 billion over its first ten years (which was President Obama's arbitrary goal), the Democrats had to begin the spending provisions in the fifth year of the ten-year window, while tax collection and Medicare cuts would begin sooner. Some taxes and fees, like those on pharmaceutical companies, would start immediately under the bill. Others, like the surtaxes on medical devices and health insurers (which would result in higher premiums for employers and individuals buying coverage) would take effect in the course of 2010. And several major tax hikes, like the tax on particularly generous employer health plans, the increased Medicare payroll tax on high earners, and limits in allowable deductions for health care expenses, would begin in 2013.

This timeline of tax and spending implementation corresponds rather awkwardly to the political calendar confronting the Democrats. The new entitlement, insurance rules, and other elements of the plan will not go into effect until well after the 2010 congressional elections and even the next presidential election, but some serious tax hikes will take place by then.

Meanwhile, again to make for a palatable CBO score, the bill envisions radical cuts in Medicare beginning quite soon. For instance, steep cuts in Medicare Advantage start in 2011, which means millions of seniors will begin hearing the bad news in 2010 as their plans withdraw from the program, cut their benefits, or raise their premiums. In addition, the bill assumes other deep cuts in Medicare provider payment rates, including a massive reduction in physician fees scheduled for 2010. These are extremely unlikely actually to occur, as Congress has for decades proven incapable of sustaining serious cuts in Medicare.

But whether the cuts happen or not, they present a major political problem for Democrats in the short term — by the end of 2011, they will either have enacted massive and unpopular Medicare cuts (the proceeds of which will go to a new entitlement, rather than to fix Medicare itself), or they will have failed to enact them and shown the fiscal underpinnings of their health care agenda to have been a sham. Either way, the pain will come almost three years before benefits that might assuage voter concerns begin to flow.

None of this makes the bill any better for the right or the center. It only means that Obamacare has become an equal opportunity fiasco. The Reid bill, which will very likely be the blueprint for the final legislation before the House and Senate in the new year, is an exceptionally ill-designed and misbegotten mess — substantively, strategically, fiscally, and (for its sponsors) politically. About the only good news to be found in the fine print is that even if it passes it will not go into effect for four long years — leaving genuine reformers time to repeal it and start anew.

James C. Capretta is a fellow at the Ethics and Public Policy Center and a health policy consultant. Yuval Levin, also a fellow at EPPC, is the editor of National Affairs.

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