Romney vs. Obamacare

Published February 6, 2012

National Review

At some point in this year’s presidential campaign, perhaps on a debate stage, President Obama is likely to repeat his claim that the Massachusetts health-care law signed by Gov. Mitt Romney in 2006 was the inspiration for the federal health-care plan that he himself signed in 2010. Obama knows that his signature legislative accomplishment remains unpopular. But he also knows that policy experts of various political stripes have claimed that Obamacare is essentially Romneycare taken national. If Romney is the Republican presidential nominee, as he seems likely to be, Obama will try to block him from taking advantage of his vulnerability.

Romney will be able to answer Obama effectively only if he has already vigorously made the case against Obamacare by then: both so that he has the argument clear in his mind, and so that Republican politicians, reporters, and voters are at least passingly familiar with it.

Romney may be tempted to preemptively disarm himself by keeping quiet about Obamacare, or by merely saying, perfunctorily and when asked, that he favors its repeal but not making the case against it. But silence, or a muted critique of Obamacare, would be a mistake for several reasons. It would undermine the ability of a President Romney to govern successfully on health care. It would leave a key Obama weakness unexploited: The averages of polls at show not only that Obamacare is unpopular but that it has been getting more so over the last 18 months. Obamacare is also the most powerful symbol of the administration’s most controversial characteristic: its drive to expand the federal government. A critique of Obama’s record that ignores his health-care plan would have a hole at its center. No other domestic-policy issue in the 2012 campaign exceeds this one in importance. (And this will continue to be the case unless the Supreme Court voids the entire law.)

Governor Romney has at times attempted to argue that the chief problem with the federal law is that it imposes a sweeping one-size-fits-all model for the health-care system on the entire nation and prevents the type of state-by-state experimentation that could yield solutions that are better, and better fitted to local circumstances. This critique of Obamacare, though it contains a lot of truth, is both substantively and politically inadequate. The political inadequacy comes into relief when one looks at Obamacare’s least popular feature, its requirement that all Americans buy insurance policies that meet the federal government’s approval. Romney can rightly say that this requirement, when imposed at the federal level, raises constitutional issues that a state requirement does not. But much of the opposition to the mandate rests on hostility to being ordered around unnecessarily by any level of government, and Romney, alas, cannot align himself with that sentiment.

If Romney really is disarmed in taking on some particular aspects of Obamacare, however, he does have available to him good arguments against the legislation as a whole. The substantive inadequacy of Romney’s federalist critique of Obamacare actually points to these arguments.

The truth is that most of the dysfunctions in our health-care system are the result of gravely flawed federal policies, and so long as those policies remain in place, no amount of experimentation by state governments can create a transparent, efficient, or patient-centered system. Federal policy strongly encourages third-party provision of health insurance, and penalizes its purchase by individuals, in two ways: It subsidizes employer-provided coverage through the tax code; and it grants states the authority to establish regulatory fiefdoms over individually purchased insurance, thus preventing the emergence of a national market. Thanks to these policies, individuals rarely own their insurance policies and rarely even know their true cost; nor do they often know the costs of medical services, or have much incentive to choose lower-cost options. Thus, costs spiral out of control.

The arbitrary price schedule of Medicare distorts the entire medical marketplace even more severely, because the program is such an immense purchaser. By promoting fee-for-service as the dominant model of medicine—instead of making it compete with other models—it also rewards doctors and hospitals for increasing the number of treatments they provide rather than their effectiveness. This growth in volume drives costs upward throughout American medicine. Medicaid, finally, distorts state budget decisions by having the federal government pick up half the tab. Any state that implements cost-cutting reforms will give up federal dollars and thus pocket only half the savings. No state politician will want to pay the full political price for cost-cutting reforms while getting only half the fiscal benefit: So once more, costs go up.

Again and again, federal policy drives costs upward, and those rising costs are the reason so many people are unable to afford insurance, and a major reason the fiscal prospects of the federal government and the states are so grim.

No state can fix these problems on its own. No state can call a robust national market in individually purchased insurance into being in the face of federal policies that suppress its emergence. No state can do anything to improve Medicare. Nor can any state alter the structure of Medicaid, even though that structure moves states to act in systematically perverse ways.

We should thus not be surprised that Romneycare turned out to be deeply flawed. It was an attempt to work within the boundaries of a health-care system badly deformed by the federal government in ways that no state has much power to fix. Thus Romneycare established an “exchange” or “connector” that was originally designed as a kind of work-around for federal tax policy: The idea was that individuals would be able to pick their own insurance plans, as in an individual market, but their employers would still be nominally footing the bill and thus the plans would qualify for the existing federal tax break. While the individual mandate’s potential to help control costs has long been exaggerated, it was tempting for a state to turn to it since it has very few other options to bring costs down. The whole thing, finally, was designed to increase the state’s intake of federal Medicaid dollars.

Whether all of Romneycare’s architects saw it this way or not, the program may be best understood as an attempt to mitigate, for a single state, the problems created by federal policy. In our view it was a misguided and unsuccessful attempt. Romney himself, unfortunately, continues to defend the basic structure of the Massachusetts law. But whether or not Romneycare was the correct response to the situation the state confronted, the context of federal health-care policy is entirely different. The federal government does not, and national politicians do not, have to take for granted badly broken existing federal policies and work within them. They can instead fix those policies. Indeed, they must fix them.

Romney understood that before Obamacare: In 2008, he proposed reforms that would have addressed some elements of the national problem by bringing market forces to bear on health care, and not by employing the model of Romneycare on a national level. The perversity of Obamacare is that instead of addressing the ways in which federal policies make an efficient and competitive health-care system impossible, it doubles down on those policies and adds a highly convoluted system of further public subsidies and oppressive rules on top of them. In short, Obamacare takes a bad health-care system and makes it much worse, in ways that are likely to exacerbate the grave problems with American health-care financing and to be very difficult to reverse once fully implemented.

Thus Obamacare takes a Medicare system that stifles innovation and prevents competition, and
maintains its irrational structure while subjecting it to a rationing board that will undermine access and quality. Romney, on the other hand, has proposed to reform Medicare to allow competition to drive efficiency and cost control while continuing to provide a guaranteed insurance benefit to the elderly.

Obamacare vastly expands Medicaid without reforming its structure—intensifying the incentive for overspending and drawing more middle-class Americans into a segregated, subpar health system. Romney has proposed to reform Medicaid into a block grant to the states, to give states an incentive to improve the program’s quality and lower its costs, and to find ways to integrate the poor into the broader health-insurance system rather than draw the middle class out of it.

Obamacare adds to the economic distortions created by today’s system by leaving the tax treatment almost entirely unchanged but placing a new entitlement program alongside it and subjecting both to an additional onerous layer of regulations. Romney has instead proposed that the tax code treat people who buy insurance themselves just as it treats people who buy it through their employers. Done the right way, this policy would gradually nurture the development of a working individual market while not unduly disrupting the arrangements of the satisfied many.

Obamacare, in other words, takes each of the three parts of our deeply troubled health-care-financing system and makes every one of them worse, by making them less market-oriented, less efficient, and less innovative. To defend such a destructive idea by insisting that it bears some similarities to some things states have done to try to contend with the effects of the existing system is preposterous.

So what, then, should Governor Romney say, if he is the nominee and President Obama suggests that his health-care plan is modeled on the one the Republican enacted? Something, we suggest, like the following:

“Nice try. Your health-care plan, Mr. President, spends a trillion dollars on yet another uncontrollable federal entitlement program and on a massive expansion of a failing Medicaid system. It has an unconstitutional rationing board cut hundreds of billions from Medicare without being answerable to the public, without giving seniors more options, and without using the money to shore up the program or reduce the deficit. It raises hundreds of billions in taxes on employment, investment, and medical research; and after all of that, it wouldn’t even reduce the growth of health-care costs, which is the heart of the problem. And your defense of all that is that it was based on a state program that doesn’t actually do any of those things?

“All around the country, states have been trying to deal with the problems that bad federal health-care policies have created. The federal government is running Medicare in a way that makes efficiency and innovation much more difficult. Medicaid is causing budget crises in state after state while failing to deliver quality health care. Federal tax policy puts employers rather than patients in charge of insurance. States can try to salvage what they can in this system. But ultimately they need—we all need—to end the federal government’s arbitrary and senseless interference in health care.

“Instead your law increases federal control. It spends money we don’t have, takes choices and access to care away from seniors, raises taxes, and forces middle-class families to give up the coverage they have. Like so much of what your administration has done, it makes the problem worse. That’s why the first step toward a better health-care market—one that’s affordable, innovative, and in keeping with our founding principles of limited government—is to repeal your health-care legislation.

“And that’s going to take a new president.”

Yuval Levin is the Hertog fellow at the Ethics and Public Policy Center and the editor of National Affairs. Ramesh Ponnuru is a senior editor of National Review.

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