Thursday, January 20, 2011

Obamacare: The End of the Beginning

Cross-posted from National Review Online.

Sixty-eight years ago, after a long-sought victory in Egypt that marked a turning point in World War II, Winston Churchill said, “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

In what will be a long and arduous struggle to bring fiscal stability and true reform to our tottering health-care system, partial Republican control of Congress was a necessary first step. But, now, the hard work begins.

The Republican health-care platform, such as it is, is pretty simple: Repeal Obamacare and replace it with incremental, common-sense, politically popular reforms. The GOP’s “Pledge to America” may therefore have been an appropriate platform for a midterm election. However, the document barely begins to address the profound and difficult issues that any serious government must. Indeed, if the early signals are any indication, the troubling reality is that the Republican health-care agenda for 2011 and 2012 may actually make it harder to repeal Obamacare in 2013, and thereby harder to achieve conservatives’ long-term goal of a humane, efficient, and fiscally sustainable health-care system.

The best way to grasp the enormous difficulties ahead is to work backwards.

Runaway growth in government spending is America’s biggest fiscal problem today. Growth in Medicare and Medicaid spending, in turn, accounts for nearly all the projected future growth in government outlays relative to GDP. If the principal domestic-policy goal of conservatives is to restore the country to a truly limited government that can live within its means, we can achieve that goal only through serious and thoughtful reform of health-care entitlements.

That is to say: For the foreseeable future, health care must become the single dominant focus of conservative domestic policy.

Hence, our first and most important problem is intellectual. Conservatives speak often of repealing and replacing Obamacare. But how many can articulate a conservative vision of what our health-care system should look like? Leading Republican politicians have plenty of detailed opinions on a broad range of subjects. But does anyone know what John Boehner’s vision is for the future of American health care? How about the main contenders for the 2012 Republican presidential nomination? To ask the question is to answer it.


It should be said that, within the diminutive circle of conservative health-policy wonks, there is a fair amount of agreement as to where we should go. But translating that wonkery into plain English isn’t easy.

Among less specialized conservatives, a common refrain is, “I’m not clear on the details, but that Paul Ryan sounds like he knows what he’s talking about.” And Rep. Paul Ryan’s plan is indeed a solid start. But unless other Republican leaders fully immerse themselves in health-care policy, they will be able neither to articulate the core principles of free-market health care, nor to address new issues as they arise, nor to persuade American voters that they should be trusted to enact far-reaching reforms.

The core health-care principles that Republicans should embrace can be summarized in three words: freedom, security, and innovation.

First, the conservative vision must, out of both principle and pragmatism, hold that the best health-care system is one that trusts individuals to make the choices that are best for them and their families. The liberal view of health care is the opposite: that individuals are neither knowledgeable enough nor wise enough to make health-care decisions for themselves; instead, these decisions are best left to unelected government experts.

Second, conservatives must stand firmly behind the principle of a safety net for those who are genuinely down on their luck, and also for the principle that those who pay for insurance and play by the rules will get the care that they’ve earned, without losing out on technicalities. Liberals might agree rhetorically with these principles, but they use them as a pretext for expanding the entitlement state, with destructive effects: extension of government insurance to those who don’t need it, at a cost the country can’t afford, and strangulation of private insurers with onerous regulations that the market can’t sustain.

Third, conservatives must always keep in mind that the entire point of health care is to extend and enhance life. Thus their vision can include, but must be broader than, the hot-button issues of abortion and stem-cell research. A pro-life health-care policy involves accelerating the pace of medical innovation, by reducing the regulatory and financial burdens we place on the pharmaceutical and medical-device industries. That means strengthening the influence of market forces, as opposed to subsidies and price controls, on the development of drugs and devices. It also means streamlining the FDA so that innovative new therapies can reach the market more quickly and cheaply. It means minimizing, and if possible eliminating, the ability of federal bureaucrats to deny life-extending care.

Liberals, on the other hand, tend to look askance at medical innovation. Most progressive health-care economists blame new medical technologies for rising health-care costs: costs that can, in their view, be lowered only by restricting patients’ access to those technologies. In addition, new drugs and medical technologies are developed by private companies, for profit: a concept to which many on the Left are instinctively hostile.

Health-care policy is exceedingly complex, and translating these basic principles of freedom, security, and innovation into actual legislation will not be easy. Doing so must start with three policy goals.

First, Republicans must foster a truly free market for health insurance by eliminating the differing tax treatment of employer-sponsored and individually purchased insurance. Second, Republicans must make dramatic improvements to Medicaid, using Mitch Daniels’s impressive reforms in Indiana as a template. Third, Republicans must move Medicare onto a sustainable path that puts financial control in the hands of seniors themselves rather than central planners.

On all three fronts, Obamacare moves us in exactly the opposite direction. The law will force employers to provide insurance for their employees, instead of allowing them to leave that money in their employees’ paychecks so that they can buy insurance for themselves. The law will dramatically expand Medicaid in ways that will accelerate the pending bankruptcy of several large states, even though Medicaid provides far worse care than people can obtain on their own. And the law will effectively eliminate Medicare Advantage and other programs that helped move Medicare from its traditional single-payer approach into a more market-oriented one.


And so, it remains true that the most critical task for Republicans in the 112th Congress is to lay the groundwork for the ultimate repeal of Obamacare. Given that House Republicans don’t have the power to repeal the law by themselves, what can they do in the meantime? More importantly, what should they do in the meantime? The question has been asked, but it hasn’t been adequately answered.

We must remind ourselves of the electoral realities. For Republicans to succeed in repealing the Patient Protection and Affordable Care Act (PPACA), they will need to control the House, the Senate, and the White House. From a political standpoint, if Republicans are not able to achieve this in 2012, they are unlikely ever to repeal Obamacare.

This means that influential Republican activists must — must — coalesce around the most electable Republican presidential candidate who can articulate conservative health-care principles. This is no time for single-issue small-ball or personal score-settling. A GOP nominee who passes all the litmus tests but can’t win in November would only succeed in making Obamacare permanent. One who can win but isn’t capable of pushing for real health-care reform wouldn’t be much better.

In turn, this means that Republican presidential aspirants must place health-care policy front and center in their campaigns. They must avoid the easy rhetorical flourishes and expend the time and effort to gain fluency in the complexities and trade-offs of health-care policy. A politician who regularly speaks of fiscal responsibility and limited government without building a mandate for actual, specific legislation to achieve them will not move the country in his direction. This is a time for serious government, and there can be no greater test of a politician’s seriousness than his command of health-care policy.

And, of course, in order to repeal Obamacare, Republicans also have to gain control of the Senate. Here, too, we cannot afford any more Delaware Debacles: We need candidates who, whatever their flaws, are electable and who pledge to vote for repeal. A realistic best-case scenario is that Republicans get to between 51 and 55 seats in the upper chamber: a majority, but not a filibuster-proof majority. In the 2010 wave election, they gained six seats, raising their total to 47. Despite the favorable turf in 2012, they are unlikely to win the 13 additional seats needed to reach 60.

Hence, full repeal of Obamacare will require the participation of Democrats. There may be some Democratic senators willing to go along with a repeal effort: Joe Manchin in West Virginia, Ben Nelson in Nebraska, and a few others. But it is very likely that even with those Democrats, there won’t be 60 repeal votes in the Senate. If that is the case, then Republicans will need to turn to the reconciliation process to roll back the law.

As we learned last year, the reconciliation process is different from the normal legislative process. The Senate parliamentarian, using Congressional Budget Office estimates, certifies measures that, either by raising taxes or by cutting spending, will reduce the budget deficit. Only deficit-reducing measures can be passed using reconciliation.

The problem for Republicans is that the CBO estimated that the PPACA would reduce the deficit by $132 billion over the 2010–2019 period. Because of amendments passed in late 2010, it’s likely that the CBO’s estimate of the cost of repeal will be even higher in 2013. Hence, a simple, two-paragraph repeal measure won’t get through reconciliation.

This is where the agenda of the next Congress comes in. In place of comprehensive health-care reform, House Republicans are promising to reverse some of Obamacare’s most unpopular elements: for example, the new 1099 provision, which requires that all businesses issue an IRS form 1099 for any payments to vendors of more than $600 per year. The CBO scores this measure as raising $18 billion for the government over ten years: indeed, that’s why it was included in the PPACA in the first place. If Congress reduces Obamacare spending elsewhere to “pay for” this tax cut, ultimate repeal could become more difficult.

The individual mandate is a more worrisome example. Last June, the CBO projected that repealing the individual mandate would reduce the deficit by $252 billion in the 2011–2020 timeframe. In making that calculation, the CBO is counting on some people under PPACA paying the fine for not purchasing health insurance, thus increasing revenues to the government; however, repeal of the mandate would generate savings by reducing the number of people who rely on Medicaid and exchange subsidies. If the mandate is eliminated, repealing the rest of Obamacare will become $252 billion harder.

Hence, if Republicans in the 112th Congress succeed in eliminating some of these provisions, they will increase the fiscal cost, as scored by the CBO, of repealing the rest of Obamacare in the next Congress. In addition, every unpopular tax increase that is eliminated now will need to be offset by additional tax increases or spending cuts, which will complicate things when the real repeal effort starts in 2013. Republicans, therefore, may be setting a trap for themselves.


Another problem with Obamacare is regulation. The PPACA dramatically expands federal regulatory control over the health-care system, concentrating enormous power within the Department of Health and Human Services. But, because most regulations aren’t germane to the budget, from a parliamentary standpoint, it’s far from clear that Republicans will be able to use the reconciliation process to reverse Obamacare’s substantial regulatory provisions. For example, the PPACA provision requiring health insurers to keep their medical-loss ratios above 80 percent — a technicality that will drive many insurers out of business — isn’t germane to the budget, but it is highly relevant to the future of the private insurance market.

Precisely because these regulations do not affect the fiscal calculus, and therefore will not undermine Republicans’ ability to repeal Obamacare after 2012, it is here that the new House majority can be most constructive.

In other words, Republicans will be well advised to adopt a two-track strategy: using the conventional legislative process to turn back as much of Obamacare’s regulatory architecture as possible, while waiting until 2013 and then using the reconciliation process, to repeal Obamacare’s tax and spending increases.

Hence, in the near term, Republican policy experts and legislative staffers will need to come up with a comprehensive regulatory strategy, one that will entirely replace Obamacare’s regulatory architecture with a sounder one that hews more closely to conservative market principles.

The politics of smart regulatory reform are favorable, too. Remember that many of the negative headlines about Obamacare since the law passed have had to do with new regulations: the fact that McDonald’s almost dropped health coverage for its junior employees; the aforementioned medical-loss-ratio mandates, which will force many insurers to drop out of the market; the lobbyist-driven ban on new hospital construction, which preserves local hospital monopolies; and on and on. Regulatory reform is an important way for the Republican House to earn its credibility on health-care reform, while calling attention to Obamacare’s many flaws.

One other thing to keep in mind: The Prescription Drug User Fee Act — the law that Congress uses to oversee the FDA — is up for reauthorization in 2012. House Republicans should use this opportunity to reform the FDA and demonstrate that they are on the side of patients who want faster access to innovative new medicines.


Finally, House Republicans must begin to build the case for real entitlement reform. Medicare is the most politically sensitive subject, but it is one where Paul Ryan has already done most of the necessary groundwork. Medicaid is an even more urgent issue, as many states are sinking under the weight of reckless commitments made by their governors in flusher times.

It will be difficult for Republicans in the next Congress to achieve much on these issues without leadership from the other side. If President Obama’s deficit commission is any indication, that leadership does not exist. The commission’s report effectively advocated rearranging Medicare’s deck chairs, and it proposed essentially nothing to address the grave problems with Medicaid.

There is one Medicare-related issue that the next Congress will be forced to deal with: the never-ending saga of Medicare’s Sustainable Growth Rate, a.k.a. the “doc fix,” which governs how Medicare reimburses doctors and hospitals for their services. Remember that the doc fix was kept out of Obamacare because it would have added $239 billion over ten years to the law’s price tag. Republicans will be under significant pressure from the American Medical Association and others to continue to pay doctors and hospitals at current rates, instead of the roughly 25 percent lower rates required by the 1997 Balanced Budget Act.

It’s not clear that Republicans should go along. For one thing, the AMA was a strong supporter of Obamacare (albeit over the dissent of many of its members). More importantly, perpetuating the doc fix will cost tens of billions of dollars: money that will have to come out of some other vital priority. Republicans in the 112th Congress will need to consider ways to address the doc fix, and other pressing problems, without jeopardizing their ability to repeal Obamacare in the 113th.

Recent history is not encouraging. In December, with bipartisan support, Congress passed doc-fix legislation that froze reimbursement rates at 2010 levels for 2011, at a cost of $19 billion. The law was “paid for” using gimmickry: an amendment to Obamacare that would require some individuals to pay back insurance subsidies they may receive at some point in the future. Republicans saw this as a victory, as the compromise reduces future Obamacare spending, albeit in a manner that will be difficult to enforce. However, in the medium term, it is a victory for the Democrats, as the measure adds to the difficulty of repealing the entirety of Obamacare using the reconciliation process.


It has been said that we campaign in poetry and govern in prose. But the experience of Ronald Reagan adds a corollary: Only those leaders who have a command of public policy before their candidacies begin can succeed at both campaigning and governing.

The problems we face are grave. If their solutions were simple, they would already have been tried. Our presidential aspirants and congressional luminaries, as well as the people who elect them, must face up to the difficult choices ahead. If they do, we just may succeed in turning Obamacare back, and putting something much better in its place.


  1. Avik, why did you kill my comment?

  2. Hi SteveM, I didn't kill your comment -- must have been a software glitch. Try reposting? Sorry about that.

  3. Avik, I reposted apparently successfully, but it disappeared again when I did a page refresh.

    Hmmm? Are there any posting auto-constraints on word count or something?

  4. Avik, 3rd attempt at posting this. Bang away at it...

    There is a classic response to the demand from people who want something "better, faster, cheaper".

    "Pick two."

    "freedom, security, and innovation" are analogous. Pick two.

    Re: "individuals are neither knowledgeable enough nor wise enough to make health-care decisions for themselves" and "Most progressive health-care economists blame new medical technologies for rising health-care costs: costs that can, in their view, be lowered only by restricting patients’ access to those technologies."

    There was a healthcare article in the Washington Post awhile back. A very experienced family physician self diagnosed the onset of shingles over a weekend. So he went to the local ER for validation. The ER physician concurred with his diagnosis, but suggested a consult with an ophthalmologist because the attack was erupting in his face. Well somehow a neurologist got involved which of course led to a couple of MRIs because the neurologist suggested the possibility of a brain tumor, (negative). So the physician goes home, and over a few days the shingles episode plays out and eventually resolves itself. In the meantime, the physician gets a hospital statement for the services provided, and the charges were $9,000. The author of the article stated that even he, a doctor, was suddenly caught up in an economically irrational treatment paradigm that he could not control. His insurance paid the bill but the total fee astounded him.

    If this experienced physician was unable to make an assessment of reasonable care in real time, how could you expect a sick layman to be wiser? The neurologist was probably a contract physician who saw a billable opportunity. And the hospital made a few grand on the MRI. Given how much the Republican paradigm appeals to individual autonomy, it's not clear to me how any of their solutions would address those kinds of over-treatment occurances.

    Re: the Medicare "Doc fix", doing a cram down on physicians is government regulation but from a different direction. Now the obvious response from physicians would be to cease accepting Medicare patients. And the government solution to that would be to make accepting Medicare patients a condition for maintaining a license to practice. Well why would that kind of onerous government price-fixing intrusion be okay with Medicare, but not okay in other health-care economic decisions?

    Lastly, FDA should be reformed. But the upside to accelerated product registration is probably more limited than most people realize. Because the Big Pharma pipelines are relatively sparse. Moreover, many drugs that have been registered over the past 20 years are of the "me too" variety that are much more expensive than generics yet provide little or no additional clinical value. Accelerating the introduction of another SSRI antidepressant, with well-established efficacy and side effect profiles would just add additional cost and not much else once the Pharma reps convince the docs to prescribe it rather than generic Prozac. But the Republican solution is to not interfere with the doctor-patient relationship even though some benefit/cost decisions make no economic sense.

    Again, a sick person is not a fundamentally rational consumer. Republican stakeholders taking any position should acknowledge that as being true and work for market solutions consistent with that reality.

  5. Hi SteveM, I think it worked this time. Sorry about the problems.

  6. Hi SteveM,

    Thanks for the long and detailed comment.

    If you want my views on the irrational economic paradigm, you will find them here:

    Pharma pipelines are sparse because the FDA has made drug development extremely hard. The two things are linked like Siamese twins. The FDA needs drastic reform.

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