The Long War

Published April 19, 2010

National Review

In the depressing aftermath of Congress's passage of the Democratic health-care legislation, there has been an understandable temptation among conservatives to think that all their effort over the last year to derail what was coming down the tracks may have been for naught. After all, the bill did pass. The president and his allies got their signing ceremony and their victory lap, as well as a barrage of premature but predictable pronouncements from the national media that we are now witnessing a historic moment of irreversible liberal progress.

And there's no use sugarcoating what has happened. It's a debacle from every possible vantage point. The Democrats have created another massive entitlement program while expanding federal power and reach in a manner not seen since the heyday of Franklin D. Roosevelt. If allowed to stand, the new health-care law will tether America's middle class to the federal government in ways that will fundamentally alter – and not for the better – the relationship between citizens and the state. The result will be worse health care, distorted politics, less medical innovation and economic vitality, and depleted wealth.

Still, conservative opposition was not a waste of time or effort. On a matter of such import, the fight had to be waged, no matter the odds. Moreover, conservatives did win the battle for the hearts and minds of the electorate. Most voters think the Democratic plan will drive costs up and reduce the quality of American medicine. Conservative arguments clearly contributed to the shaping of public opinion, and with public opinion running against them, the administration and its allies were forced to make crucial concessions that may yet prove decisive in what will almost certainly be a very long war over the future of American health care.

For starters, there is no public option in the new law, at least not of the kind that single-payer enthusiasts had advocated. Most Democrats wanted to create an option for working-age Americans built on the Medicare model, which is to say built on government-determined payment rates for services. By employing price controls, a Medicare-like public option would have been able to charge artificially low premiums, thus undercutting private competitors.

Conservatives, however, were successful in portraying the public option as a slippery slope to enrollment of the entire population in a government-run insurance program. And despite the superficial appeal of price caps, most voters were able to see past the rhetoric to the harms federal micromanagement would bring: queues, restrictions on access, and government-enforced rationing of care. This concern was more than enough to turn independent voters solidly against the idea (by 3-to-1 in one summer 2009 poll), which in turn precipitated a rift among Democrats that single-payer advocates were never able to overcome.

Democrats were also forced to give ground on costs, hard as that may be to believe in light of the massive price tag of the final bill. It would have been much worse if not for the spontaneous revolt that occurred at last summer's town-hall meetings. It was at those sessions that citizens gave voice to what was, and is, the widely held view that President Obama is recklessly spending away America's economic future. On the heels of the bailouts and the so-called stimulus plan, the announcement by the Congressional Budget Office (CBO) that an early version of the House health-care reform bill would cost at least $1.2 trillion over a decade was enough to get thousands of Americans out of their homes to demand, in person, that their elected representatives put a halt to the proceedings.

To be sure, the president and his allies never had any intention of actually changing course and trimming their big-government ambitions. But they couldn't entirely ignore what had played out in August without losing momentum for their initiative. So, in an unusual address to a joint session of Congress last September, the president made this commitment: He would ensure that the health-reform legislation would cost “only” $900 billion over a decade.

Predictably, that promise was broken. The final bill costs well over $1 trillion when all spending is counted. But to even stay within shouting distance of it, the Democrats in Congress had to employ all manner of gimmicks and sleight of hand to hide the true cost of their program, including delaying the implementation of its major spending provisions until 2014. That helped them shave some $50 to $100 billion from the CBO's cost projection through 2019.

It also gave Republicans a very substantial opening to exploit. The president is already daring his adversaries to try to take away the “rights” and benefits that he says the new legislation has bestowed on the American people. To which Republicans should reply as often as necessary: What benefits? What rights? Little of real value has come immediately into effect, and most of the plan's provisions won't be implemented for more than three years. In the interim, there will be two federal election cycles, which, given the intensity of the opposition and the partisan manner by which the bill was enacted, are all but certain to become referenda on Obamacare. The self-congratulatory speeches the president has been giving in the aftermath of congressional passage of the bill are not the last words in this struggle, by a long shot. Those are reserved for the voters. They will decide the fate of the Democratic health-care reform plan with the votes they cast this November and again in 2012.

To that end, it is imperative that Republicans make repeal of Obamacare the centerpiece of their effort to pick up a sizeable number of House and Senate seats in this year's elections, and possibly regain control of one or both of the chambers of Congress. Even if the politics were not favorable, the issue is so important, and the stakes so high for the country, that the party of limited government would have no choice but to continue the fight. Happily for Republicans, though, it is evident that an undiluted call for full repeal, coupled with a genuine and aggressive reform plan, is a political winner.

The public remains just as polarized now as it was before passage. A clear plurality still opposes the government-heavy program Congress assembled, and the public is even unhappier about how the Democrats forced their plan upon the country in spite of unambiguous signals that the electorate did not want it. The only response that is fitting for such a brazen act of political arrogance is a sharp rebuke at the ballot box. Republican candidates should give voice to voter outrage by promising to undo – in its entirety, and as swiftly as possible – what should not have passed in the first place.

Of course, so long as President Obama sits in the Oval Office, repeal is almost certainly beyond reach. Even the most optimistic assumptions about Republican gains would leave them well short of the votes necessary to override a veto. But the voters do not expect miracles here. If Republicans regain full or partial control of Congress, they can stand for repeal even as they open up many new fronts in the struggle to ultimately undo Obamacare.

For instance, beginning as early as 2011, well before new coverage is extended to anyone, millions of seniors will see large cuts in their Medicare benefits as deep reductions in Medicare Advantage payment rates force insurers to scale back their coverage or drop current offerings altogether. These cuts are supposed to help pay for the expensive new entitlement that the Democrats have promised. Republicans should channel the inevitable displeasure among seniors into legislation to restore the Medicare funds at the expense of a further delay in the health-care bill's implementation timeline. If successful, they wo
uld likely push the start date back another two years.

Full repeal will almost certainly need to wait until after the 2012 presidential election. In that campaign, the Republican candidate will have the opportunity to offer the country an alternative vision. That vision should include the promise of repeal, the case for which will have been bolstered by the tax increases, premium hikes, and Medicare cuts that will have kicked in by then. But the Republican candidate must couple the call for repeal with a concrete framework for what would be put in its place.

The starting point must be a commitment to build a functioning marketplace in the health sector. That's the only way to simultaneously address the cost and improve the quality of American medicine. Today we endure misallocated resources and expensive and inefficient care principally because of misguided governmental policy. In particular, open-ended subsidization of health insurance – through the tax code, Medicare, and Medicaid – has largely undermined the incentives for productivity improvement or cost-conscious consumption. The result is cost growth that far outpaces the nation's general rise in income.

An effective reform program would begin to address the cost problem by making changes throughout federal health-care law. But the trick is to do so in a way that allows for gradual change and decentralized decision-making. Republicans must not make the same mistake as the Democrats and embark on a one-size-fits-all federal reform plan that creates more disruption than the public can tolerate or absorb.

The basic framework should be a federal partnership with the states. The federal government would take steps to address problems in the Medicare program and the tax treatment of health insurance, as well as provide the base funding needed for state-by-state initiatives. Individuals buying insurance outside of employment would get a tax credit. In Medicare, beneficiaries would be given more choices, including the option of taking their entitlement in the form of catastrophic insurance and a deposit into a Health Savings Account. They would also be asked to make modest co-payments for any services they receive outside the normal network they have selected for their care, even if they have Medigap coverage (which means they now pay nothing at the point of service, regardless of where they get it).

The federal government could offer grants to help fund state reform programs consistent with a move toward a functioning national marketplace. States would have wide discretion to make design decisions based on local needs and political cultures, but to qualify for federal funding, states would have to follow the basic guidelines of a market-based reform plan.

A key change at the state level would be new protections for people with preexisting medical conditions. People who have stayed continuously insured could buy individual insurance without any condition exclusion and with some limits on the size of the premium they could be charged for the health risk they pose. This change would require robust funding and reform of state high-risk pools, which would be a primary aim of the new federal grant program.

In addition, states would facilitate portable insurance for small-business workers, much as the state of Utah has done, and federal tax credits would serve as a primary source of funding for many of today's working uninsured to buy health insurance. States would also be required to open up their insurance markets to out-of-state customers in order to foster more competition and choice, and to implement sensible medical-malpractice reform in order to root out unnecessary costs from “defensive” care. In addition, states could choose to gradually move their non-disabled Medicaid population into the same marketplace through which tax-credit recipients buy their insurance coverage.

This reform approach would involve new federal costs, of course, but they would be a mere fraction of the cost of Obamacare. In comparison with the just-passed legislation, the Republican alternative would be both a spending cut and a tax cut. The costs associated with the tax credit could be covered by placing an upper limit on the size of tax-preferred premiums allowable in job-based plans. This limit would replace the “Cadillac tax” on insurers in Obamacare. The impact of the two methods would be similar, but a premium limit would be more transparent, in that employees would be paying directly for expensive coverage. This system would be more effective in getting consumers to use health-care resources efficiently.

The costs associated with high-risk pools could be covered by redirecting some of the funding that Medicaid now pays to hospitals that see a disproportionate share of low-income and uninsured patients. Devoting these funds instead to the expansion of private insurance coverage should be possible without reducing access to care, since hospitals that lose subsidy payments from Medicaid would gain many insured patients, whose private coverage would pay more generous rates. The tax credits and high-risk-pool funding could be made contingent on securing the offsetting savings, thus ensuring that there would be no increase in the federal budget deficit.

Some Republicans and conservatives may wish to turn the page and move on from health care. Unfortunately, they don't really have that option. Health care is the key issue in all the big and consequential political fights of the day – over the budget, taxes, regulation, and the role and competency of centralized government. If the Right abandons this fight now, all of its other battles will be much harder to win. And there's no political reason to not continue the fight. The public does not want a government-heavy program that will drive costs higher and undermine the quality of American medicine. What it wants is a sensible reform that brings gradual change, treats people fairly, opens promising avenues to cover the uninsured, and poses no risk to the economy. If Republicans deliver such a plan, they can win this war yet. 

Mr. Capretta is a fellow at the Ethics and Public Policy Center and a consultant to private health insurers. He was an associate director at the Office of Management and Budget from 2001 to 2004.

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