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Health Reform's Plan B

Obama Could Still Salvage a Partial Victory

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Wednesday, September 2, 2009

The incompetence of President Obama's health-care reform effort is undeniable, and unexpected.

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A supremely competent candidate and campaign usually indicate a talent for governing and communications. But on central issues such as the public option and financing methods, the Obama team has been wavering and contradictory. The president's summer recess legislative deadline was hasty and unserious. (As Mississippi Republican Gov. Haley Barbour points out, Obama spent more time picking out the White House dog than he permitted for comprehensive health-care reform.) Obama allowed the House to lead with a bill that is ruinously expensive, financed by a massive accounting trick and dismissed by a number of Senate Democrats. And talk of imposing "go-it-alone" partisan legislation now seems desperate.

But all this amateurism actually leaves a false impression. Despite Obama's best efforts, some type of health reform seems likely. Democrats have a political interest in the passage of less-frightening, more-incremental reforms; a failure to do so would prove them incapable of governing. It is difficult to imagine that congressional Democrats will humiliate a promising new president on his main policy initiative. And it remains possible that more limited reforms could emerge from the Senate, where Democrats on the Finance Committee actually inhabit fiscal reality. A serious Senate plan, with even limited Republican support, could quickly transform the health debate.

So what are the alternatives?

First, there is the one-step-back approach. Obama could drop controversial plans to introduce new players in the health insurance market -- either the public option or insurance cooperatives -- while retaining the core elements of his current plan: health insurance reform, an individual insurance mandate and government subsidies to individuals to purchase insurance. These elements cannot be separated. Insurance reform alone (preventing insurance companies from denying coverage to people with preexisting conditions or charging higher rates based on medical condition) would permit people to buy insurance when they get sick and give them no reason to buy it when they are healthy, making the whole system unsustainable. So everyone must be forced to pay into the insurance market through a federal requirement. And this mandate is unrealistic unless people with lower incomes are enabled to buy coverage with a subsidy.

If the main objection to health reform is ideological -- concern about the federal government undermining private health insurance -- the one-step-back approach might blunt opposition. But if the main public concern is spending -- which it is -- this option doesn't solve the problem. By inflexible mathematics, universal insurance coverage is expensive. Even squeezing the subsidies makes only a marginal difference in the overall cost.

Second, Obama could abandon universal coverage and concentrate on health-care access for the poor and working class. A serious expansion of Medicaid -- already included in House and Senate health proposals -- is separable from other reforms and scalable to whatever level Congress deems affordable. And because this option expands an existing federal health-care role instead of creating one, it is less scary.

The primary objection comes from governors. Medicaid is a shared cost between the federal government and the states. Adding several million people to Medicaid involves a future cost to state governments. Even if the federal government foots the entire bill for a few years, states eventually would be forced to pay their share. Congress would need to offer state governments a sweet deal.

Third, Obama could maintain his commitment to universality but dramatically reduce the ambition of coverage. It is catastrophic health costs -- often coming after yearly or lifetime caps in an insurance plan are reached -- that force individuals into bankruptcy. Obama could propose a plan that funds health costs for patients once their bills exceed a certain level.

A combination of options two and three would be politically potent. Obama would be saying: We can't get everything we want in this fiscal environment, but we will cover more of the poor while making sure no one in America is bankrupted by catastrophic health costs. We will offer something for those in the greatest need -- and something for everyone at their moment of greatest need.

Neither of these proposals solves the overall problem of health cost inflation -- but neither do any of the other approaches under consideration. Obama would merely be expanding the reach of a broken system. But such a modest proposal might restart a productive health debate, signal the return of presidential pragmatism and show Democrats a path to partial victory.


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