Health-Care Consensus?

Published January 17, 2008

National Review Online

Former Clinton Labor Secretary Robert Reich, writing recently in the Wall Street Journal, is urging the Democratic presidential candidates to stop discussing their differences on health care so voters will stay focused on the consensus emerging among them.

In terms of Democratic political interests, Reich is surely right. Senator Hillary Clinton’s on-going attacks of Senator Barack Obama as a health-care apostate for not embracing mandatory insurance only divert attention from their common commitment to an expansive and universal health-care entitlement. Democrats are much better served by sticking to the message, however deceptive, that they want to provide “affordable health care for all,” and Republicans don’t.

Reich is also right that the Democratic plans have far more in common than not. All of the leading candidates build their health-care plans around the same four basic changes. First, they want to force employers (except for very small businesses) to pay for health insurance — so-called “pay or play.” Second, they want to create new “purchasing pools” for group-rated insurance outside of the employer setting. Third, they would create a new government-run insurance option which anyone could join. Fourth, they would provide subsidies to lower-income enrollees to reduce their premiums in these new insurance arrangements.

How is it that all of the Democrats ended up with essentially the same basic plan? It’s simple: focus groups. In road testing their plans, they all bumped into the same political reality: the only way to keep all of their potential voters happy is with a plan that appears to provide options on both sides of the health-care divide: private and “governmental” at the same time.

And in this balancing act, the private component is crucial. As Clinton found out the hard way in 1994, most Democrats are no different than most Republicans: they support health-care reform in theory, but only if it doesn’t disrupt what they have today, which they generally like. To these voters, the Democrats keep saying, “don’t worry, you can keep what you have.”

But Democrats must appease other constituencies too. First, there are the union members, heavily concentrated in aging manufacturing industries, who believe they are losing jobs in part because other segments of the economy are not paying their “fair share” of health-care costs. For these voters, the Democrats offer “pay or play,” to “level the playing field” across industries and, at least in theory, widen access to employer-sponsored plans for lower wage workers in smaller businesses.

Democrats also must throw a bone to the small in number but noisy advocates for Canadian-style, single-payer health insurance. To these voters, the Democrats do not promise a government takeover outright, for fear of alienating their other supporters. Instead, they offer the creation of an optional, government-run insurance plan available to anyone who wants to enroll in it.

All of this would seem to be clever positioning by the Democrats, and, in fact, it is likely that the candidates are benefiting from the perception that they have finally settled on a realistic formula for breaking the reform impasse.

The only problem is that the Democratic plans won’t work as advertised. If adopted, the combination of policies being pushed by the Democrats would so destabilize existing private insurance arrangements — including employer-sponsored plans — as to make a complete government takeover of insurance just a matter of time.

Why? For starters, the “play or pay” employer mandate would have the opposite of its intended effect. In addition to destroying hundreds of thousands of low wage jobs, the mandate would lead to the rapid decline of employer-sponsored insurance and the migration of millions of workers into either the government-run plan or the plans offered through the new purchasing arrangement.

In California, Governor Arnold Schwarzenegger initially suggested setting an employer “pay or play” mandate at 4 percent of payroll, but current employer contributions are well above that rate (California Democrats have been pushing for a broader mandate). In 2007, the average cost of family coverage exceeded $12,000, with the employer paying, on average, 72 percent of the premium, or about $8,700. That’s more than 18 percent of today’s median income. Only employers with the most highly paid workers would find it cheaper to pay premiums instead of paying the tax under any reasonable scenario. Union members see “pay or play” as a floor on employer contributions to health care, but the mandate should be viewed as a ceiling as well. Once in place, employers would gravitate toward paying the specified tax rate — and no more. Over time, “pay or play” would give all of those employers who have been looking for an excuse to drop their health coverage or cut their contributions a ready excuse to do so.

The Democrats will argue that workers losing employer coverage will still have access to private insurance through their new, government-run purchasing pools. But private insurance offered through such arrangements will be competing for enrollees with the new government-run insurance plan, and the playing field will be anything but level. To keep the costs of premium subsidies down, the government-run plan will inevitably import the kinds of price controls used in Medicare, with the government essentially dictating payment rates instead of negotiating them with doctors and hospitals. Private insurers do not have that kind of power, and so they will be at a large competitive disadvantage. Seeing the writing on the wall, most insurers would likely concede the market to the government-run plan, which would swell in numbers.

Robert Reich is right. There is a growing consensus among Democrats on health care. They all agree that their political success depends on convincing voters that their health-care plans pose no threat to the viability of current, private insurance arrangements. Republicans can take heart in knowing this claim is not true.

— James C. Capretta is a fellow at the Ethics and Public Policy Center and a health policy and research consultant.

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