Dr. Obama's Prescription

Published September 1, 2008

National Review Vol. LX, No. 16

Memories of the Clinton health-care disaster should figure prominently in Democratic strategic planning. It was a debacle unlike any other in recent history, one the party will want to avoid repeating at all costs. In a few short months in 1994, the public went from strong support for the concept of “universal coverage” to overwhelming opposition to Bill and Hillary Clinton's plan. This collapse in political support was pivotal to the historic Republican takeover of Congress in the mid-term elections of that year. During his remaining time in office, Bill Clinton enjoyed his share of victories, but they were mainly defensive in nature and essentially protected the large government he had inherited. Gone for good were his ambitious plans to remake the country with an even more activist government.

What lessons have the Democrats, including their presumptive nominee, taken from this painful episode? Not the right ones, it seems — except for the need to cover their tracks. Democrats, Obama included, appear to think their problem in 1994 was poor marketing and opposition from powerful, well-funded special interests, not the substance of the plan. Hillary Clinton, in particular, likes to blame the infamous “Harry and Louise” ads, sponsored by the insurance industry, which depicted a typical couple at the kitchen table fretting over her plan's costs and restrictions. Instead of taking to heart Americans' reservations about how a massive expansion of government involvement would affect the quality of their health care, Obama is holding firm to his party's commitment to full government control — but doing all he can to hide this fact from the public.

That may turn out to be easier said than done. Obama is already on record pledging his allegiance to a single-payer approach, like those now operating in Canada and the United Kingdom. But Obama now says that his apparent 2003 endorsement of a government takeover, captured on a video that was posted on YouTube, was a misunderstanding. What he really meant, he now says, is that if the U.S. were starting from scratch, he would favor a single-payer plan. But since we aren't starting over, he wants to build on the current employer-based system, not replace it.

That would be reassuring to millions of swing voters who want reform but don't want to lose their job-based plans — if it were true. But in health care, the devil really is in the details. And despite Obama's rhetoric and protestations, his plan would destroy employer-based insurance, not preserve it, by pricing it out of business and subsidizing government-run alternatives. That would put the country on a fast track to government-run health care for everyone.

It's not hard to see how this would unfold. The Obama plan is built on four interrelated provisions. First, he would impose on all employers a new “pay or play” mandate. Businesses would be forced to either offer coverage and pay a substantial portion of the premium or else pay a tax to the federal government. Second, he would create a new national insurance exchange, through which uninsured Americans and others who don't have employer-based insurance would get their coverage. The government would dictate what would and would not be covered by the insurance offered through the exchange. Third, he would include among its offerings a new, government-run insurance option. And fourth, he would offer expensive new subsidies to offset the premiums for millions of low- to moderate-income households that get their insurance through the exchange.

The fallout from such a plan is entirely predictable. Under “pay or play,” employers would find it increasingly attractive to drop their company-sponsored plans in favor of paying the tax. The tax, after all, would be based on wages, not health care, and wage growth has lagged far behind health-care cost inflation for more than three decades. Over time, without other reforms, paying the tax would almost certainly be less expensive for most businesses than organizing coverage themselves. And with the government making other options available, employers would finally be able to drop their insurance plans without simply abandoning their workers.

As more and more employers chose to “pay” instead of “play,” millions of workers would be pushed into the national insurance exchange, where they would, in theory, have a choice between private insurance and the new, publicly run option. Obama and other Democrats like to say this structure would foster healthy competition between the public and private sectors. But this would not be real, market-style competition. The government would run the new, public insurance option just as it runs Medicare and Medicaid, with plenty of price controls and cost shifting. Doctors and hospitals would have no choice but to accept the government-dictated fees imposed by a federal bureaucracy. These below-market fees would allow the public option to charge premiums considerably lower than those charged by private insurers. And with these artificially low premiums, the public insurance option would become the de facto plan of choice for millions of workers. A recent analysis of an Obama-like plan projected 40 million new enrollees in the public option in Year One. That would be like doubling the size of Medicare — overnight. 

Once the plan had been set in motion, the momentum toward a full government takeover would be impossible to reverse. Congress would have every incentive to cut doctor and hospital fees further, to control the costs of the new insurance subsidies promised by Obama. It would not be long before private insurers, lacking this ability to control their costs by fiat, abandoned the marketplace entirely.

John McCain has a much better approach to reform, one that would give financial control to individuals and families, not the government. Armed with refundable tax credits, consumers would be able to choose the provider and plan that suit them best. By exercising this choice, they would hold insurers, doctors, and hospitals accountable for the coverage and services they receive, instead of waiting for bureaucrats to do it for them. This kind of functioning marketplace is the only way to improve efficiency and provide better value for the money spent.

To win the health-care debate, Republicans must sing the virtues of McCain's approach, but they must also discredit the Obama plan. The GOP needs to remind voters of what they instinctively understand: Government-run health care leads to reduced access, deterioration in the quality of care, and rationing, even as it burdens the economy and destroys jobs.

It is an iron law that government-run health-care systems eventually resort to price controls to keep costs down, and that such controls reduce the number of willing suppliers. This is not some economist's theory; it is observable all over the world. Some countries manage the problem better than others, but every one that relies heavily on a central government to allocate health-care resources eventually experiences some level of rationing as a consequence of politically driven decisions to limit budgetary exposure. What's more, in an attempt to ensure equity, these countries also restrict or eliminate citizens' ability to purchase health care outside the system, to prevent the wealthy from jumping to the front of every queue.

This is what ObamaCare would mean for U.S. consumers. It would vastly expand costs and government control, even as Medicare and Medicaid already threaten to push the federal budget deficit to dangerous levels. If most of the country is enrolled in publicly sponsored insurance, as the Obama plan implies, fiscal reality will push Congress to adopt ever more draconian cost-control measures. It will only be a matter of time before stories start circulating, as they do in other countries, of months-long waits for treatment, and of care denied to patients who fall outside formal or informal “guidelines”
for providing services.

Making this case will be harder than defeating ClintonCare was in 1994, as Obama's plan is calculatedly short on details. He will never admit that it would lead to rationing of care, and he won't make the same mistake the Clintons did when they issued their 1,300-plus-page legislative proposal. But with persistence, voters can be shown again that there really are only two ways out of the current situation in health care. We can turn over all decision-making to the government and accept the consequences of an unresponsive, bureaucratic system; or we can build a functioning marketplace, with government oversight, that puts consumers in control. Obama and the Democrats have always believed the government is the only answer, and their plan is constructed accordingly. It won't take much to convince voters that this is the Democrats' real goal; what's needed are reminders of what would happen if they succeed in reaching it.

— Mr. Capretta is a fellow at the Ethics and Public Policy Center and a health-policy consultant.

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