The Obamacare Opportunity

Published May 5, 2014

The Weekly Standard

Obamacare’s defenders are doing their best to sustain a triumphant mood these days. In the wake of the late-March surge in exchange enrollment, many proponents of the law have insisted it can no longer be rolled back. As the president put it in his April 1 Mission Accomplished speech announcing the enrollment figures, “The Affordable Care Act is here to stay.”

But just as conservative assertions that the law would collapse of its own weight were premature, so too are today’s liberal proclamations that the debate is over.

Clear-eyed opponents of Obamacare have long understood that once the Supreme Court upheld the law’s individual mandate and President Obama secured reelection in 2012, it was going to be extremely difficult to unwind Obamacare before 2017. The replacement of Obamacare is going to require a sustained political effort.

But its defense is going to require a grueling effort from the left as well, and the president’s insistence that the willingness of 2 percent of the population to enroll in public exchanges means the debate about Obamacare’s viability is over suggests he understands how challenging that effort will be. The enrollment figures mean Obamacare has survived the self-inflicted wounds it suffered from the government’s disastrous website design and implementation failures, but it hardly speaks to the law’s more profound structural problems—which have always been the actual subjects of the debate the president wants to foreclose.

The past six months have taught us that the federal government can’t even design a website properly, and that the kinds of private-sector experts called in to rescue the exchanges from their near-death experience are capable of impressive feats of resuscitation and redesign. Both of those lessons have something to tell us about where American health care should be going, and it’s not what the law’s champions would like to hear.

More important, these early months of implementation have made Obamacare’s flaws clearer to the electorate. The president said the middle class would share in the benefits of his reform plan, with lower costs and more secure coverage. Instead, millions of middle-class families have lost the insurance plans they liked and are now paying higher premiums for coverage they consider inferior. Large and small employers are making adjustments in their plans in response to Obamacare’s taxes and regulatory requirements and are passing the higher costs on to workers in the form of greater cost-sharing and reduced access to care.

It is far from clear that the 8 million or so enrollees in Obamacare’s exchange plans are happy to be there. Some were forced into these exchanges because their plans were canceled, and many others signed up for coverage despite the fact that they find their options unattractive. The truth is that Obamacare is pushing Americans into accepting its bureaucratic constraints through taxes and regulations, including the tax on remaining uninsured.

We should not be surprised that this kind of pressure can push people into signing up. But we should also not be surprised that it offends many Americans who resent being shoved into a government-restricted marketplace. And it seems likely that many more families will find themselves facing displacement, uncertainty, and unattractive options as many small businesses lose their pre-Obamacare coverage this fall and are forced to either spend more or end their employee coverage.

The lawless machinations used to temporarily delay the effects of some of these blows may soften the political pain for Democrats a little for now, and the transformation of Obamacare’s “risk corridor” provision into a slush fund for payoffs to insurers to keep them cooperative may put off some of the trouble too, but both can only do so much. Voters see what’s happening and consistently register their displeasure in opinion polls.

The awakening among voters to Obamacare’s unpleasant realities has created a historic opportunity for the law’s opponents. Citizens are experiencing firsthand the effects of the growth of the liberal welfare state, and most don’t like what they see. This puts them in a frame of mind to consider viable, practical alternatives. Conservatives must not miss this once-in-a-generation opportunity to present the public with a genuine alternative on health care—and thus also with a vision for reforming government more generally.

Recent polls demonstrate just how receptive the public would be to such a message, and just how much Republicans need one. In one mid-March poll by McLaughlin and Associates, for instance, only 32 percent of respondents said they wanted Obamacare to remain on the books. But when asked whether they would simply like to see it repealed or to see it repealed and replaced with a conservative alternative that aims to lower health costs and help people get coverage, only 16 percent chose repeal alone, while 44 percent (including 60 percent of Republican respondents, 43 percent of independents, and 31 percent of Democrats) chose repeal followed by a conservative alternative.

The good news is that a plan capable of galvanizing a strong center-right coalition has come into much clearer focus in recent months. The principles that need to drive reform are widely accepted among the law’s opponents: promotion of a genuine, functioning marketplace for health insurance and health services; avoidance of undue disruption of pre-Obamacare insurance arrangements; a flexible and decentralized regulatory structure that encourages innovation in service delivery; state autonomy and flexibility; access for all Americans to affordable insurance that protects them from catastrophic medical expenses; and secure insurance for those with preexisting medical conditions. Simply put, to bring costs under control and thereby make coverage more widely available, the system needs a much greater market orientation, not more government control.

Several plans introduced in recent months by opponents of Obamacare—inside and outside of Congress—adhere to these principles in different ways. But the plans with the greatest potential (in terms of both policy and politics) are those sponsored by Republican senators Richard Burr, Tom Coburn, and Orrin Hatch and the separate plan drafted by the 2017 Project, a nonprofit advocacy organization dedicated to promoting a conservative reform agenda.

These plans stand out because they embrace a realistic and practical approach to replacing Obamacare. Most important, they provide access to secure health coverage to all Americans without disrupting the employer-based health insurance system. They do this by embracing a tax credit for insurance for any household that does not have access to an employer-financed health plan. This is a matter of simple fairness. The tax subsidy for employer-paid insurance is very generous, but no such subsidy exists for persons buying insurance on their own. A credit would make available to low- and moderate-wage households who must buy coverage on their own a tax benefit comparable to the one for employer plans.

There are 160 million people in employer-based coverage in the United States, and the vast majority are happy with that coverage. No replacement plan will be viable if it looks likely to disrupt these people’s arrangements unnecessarily. The Republican senators’ plan, as well as the one proposed by the 2017 Project, would leave them in place but with a high upper limit on the tax preference, which would both encourage economizing among the most expensive employer plans and help to fund the tax credit for those outside the employer system.

Such an approach would avoid the two pitfalls that have proven most problematic for conservative health-reform proposals in the past. It would demonstrate that market-based health reform can both help the uninsured get covered and avoid massive disruptions in people’s existing arrangements without heavy-handed mandates, taxes, and regulations. And it would do so by giving the government less control of American health care, rather than more, and so moving our system well to the right of where it was before Obamacare.

Some conservatives resist this approach, believing the tax credits too closely resemble an entitlement expansion or that such reform is insufficiently bold because it would leave in place the tax benefit that ties insurance to employment. But both concerns are off the mark.

A tax credit would not create a new federal subsidy for coverage but rather make an existing one more fair and effective: It would extend to everyone else the benefit that today’s tax laws make available only to families with employer-based coverage. It is not possible to make that benefit available to lower-wage households (and therefore to help make them consumers of health coverage) without such an approach—these households do not pay enough taxes to benefit materially from an alternative tax break, such as a deduction.

And a bolder step, like entirely replacing the tax exclusion for employer-based coverage with a credit, would risk stiff resistance from millions of American families and from their employers. In the 2008 presidential contest, Senator John McCain proposed such a complete replacement of the tax preference for employer-paid premiums and faced just such a backlash.

If conservatives embrace the general approach of guarding the employer system from serious shocks and making tax credits available to those outside of it they have an opportunity to highlight the costs and failures of Obamacare while beating that law on every measure that counts with voters. Independent estimates show that this kind of plan could increase enrollment in insurance just as much as Obamacare, with far less expense and without the burdensome regulations, high taxes, and badly misdirected Medicare cuts of Obamacare.

If, on the other hand, conservatives remain divided on how to proceed and do not coalesce to some degree around a viable and practical plan, it will be very difficult to make headway in rolling back Obamacare. The public is unhappy with Obamacare, but if Republican alternatives appear unserious, offer no clear path to reliable insurance for those who have struggled to secure coverage, or seem to promise uncertainty and dislocation for millions of insured families, then displacing Obamacare will become far more difficult.

Conservatives must not let that happen. At stake is not only the future of American health care but the larger struggle to define the relationship between American society and its government.

Conservatives have long argued that today’s welfare state is not only fiscally unsustainable but also profoundly dangerous to some crucial prerequisites for a thriving society, including a commitment to work, family formation, personal liberty, economic growth, and innovation. Obamacare doubles down on this approach, and therefore exacerbates all of the negative consequences of today’s entitlement system. The Congressional Budget Office estimates it will reduce full-time employment by 2.5 million workers. Its heavy reliance on federal regulation and control will strangle innovation in a sector of the economy that badly needs it and risks depressing the quality of American health care. And its expense, which can only remain hidden behind crude budget gimmicks for so long, will inevitably create pressure for massive tax hikes.

In its fundamentally centralizing, consolidating, managerial approach to the role of government, Obamacare embodies the liberal welfare state. By proposing a dynamic, decentralizing, consumer-driven, problem-solving approach to America’s health-financing dilemma in its place, conservatives have a chance to offer the public an alternative governing vision with implications for many other contested policy arenas. It is an opportunity to offer proof that a dynamic economy can be backed with a reliable safety net if we draw upon America’s proud tradition of constitutionalism and democratic-capitalism.

James C. Capretta is a Senior Fellow and Yuval Levin is the Hertog Fellow at the Ethics and Public Policy Center.


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