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Obamacare's Antidote

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Friday, June 5, 2009

It is a political fact that all the divisive debates and massive expenditures of the early days of the Obama presidency -- from stimulus spending to bank bailouts to the nationalization of auto companies -- have been distractions from an aside within a sideshow. After hundreds of billions of dollars in new spending, Barack Obama hasn't yet gotten around to his top legislative priority: health-care reform.

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An economic emergency makes this understandable; it also makes health reform more difficult. With an appetizer this expensive, what will the main course cost?

Given Washington's imbalance of political power, Obamacare -- requiring employers to provide insurance or pay a fine, creating a government-operated insurance option, and subsidizing the purchase of insurance for the poor -- is widely thought to be inevitable. Actually, it faces accumulating obstacles. The absence of Tom Daschle and the illness of Ted Kennedy have left a void of compelling leadership on the issue. Concerns are growing about the new public insurance option, which could undercut and crowd out private plans, gradually creating a universal Medicare. And the administration has yet to detail a realistic way to fund additional health entitlements that will cost about $150 billion a year. Obamacare should be regarded as inevitable only when someone, anyone, knows how it will be paid for.

Republicans in Congress, however, also face an intrusive, potentially humiliating health-care test. Whatever their success in challenging or blocking the Obama plan, being the "party of no" on this issue would communicate indifference to public concerns and intellectual bankruptcy.

Fortunately for Republicans, health care is an issue on which conservative policy wonks have been creatively at work for a decade. Most Republican reforms involve shifting away from employer-based health insurance -- replacing the massive tax breaks for companies with subsidies to individuals and families to purchase coverage on their own. Employer-based coverage, in this view, has eaten up salary increases, hidden the rising costs of health care and made workers afraid to change jobs in an economy where flexibility is essential.

Unfortunately for Republicans, their reforms are easy to caricature as radical and risky -- just as the Obama campaign did against John McCain in the 2008 election. Joe Biden pounded the taxation of employer-based health benefits as "the largest increase on middle-class taxpayers in American history" -- ignoring that the money would be returned to taxpayers in the form of individual subsidies to buy insurance. The attack was dishonest -- and effective.

But Republicans suddenly have an advantage in this argument. Senate Finance Committee Chairman Max Baucus -- a supporter of partially funding health reform by limiting the tax breaks for employer-based coverage -- raised the issue with Obama this week at the White House. After the meeting, Baucus reported that Obama is open: "It's on the table. It's an option." This would be a large and cynical about-face by Obama. It would also bolster a key element of the Republican health-reform agenda.

The other large issue in health reform is controlling costs. On this issue, Republicans also have a tough political sell. They generally try to cut costs by encouraging "competition" -- which really means that medical consumers should bear more of their own health expenses, creating an incentive to look around for better prices. It is hardly a snappy campaign slogan: "Pay more out of pocket and shop around for medical bargains."

But here again the Obama administration has made the Republican task easier. Obama's grand cost-control announcement -- joined by health industry leaders -- of a 1.5 percentage point reduction in health inflation each year was a shoddy, half-baked, deceptive mess. The (unsubstantiated) saving was really 1.5 percentage points after 10 years, leaving administration officials to backpedal and supposed allies to fume.

The administration, it turns out, has no serious plan to control health-care costs. Government health programs of the type Obama seeks to create are not good at cost control (as Medicare has proved) -- unless they aggressively ration expensive care to the seriously ill and elderly (as more muscular European models have done). In the choice between competition and rationing, the Republican argument for competition looks less hopeless.

The political fight on health care remains lopsided in Obama's favor, but the policy argument is growing more balanced. On the Republican side, Americans will see scary changes and more individual costs; on the Democratic side, government control and possible rationing, at a price we can't afford. As the debate becomes more complex, the outcome becomes less certain.

michaelgerson@cfr.org




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