Obama's Sledgehammer Strategy

AP

On Tuesday, President Obama offered Republicans a small bipartisan olive branch. On Wednesday, he hit them with a partisan sledgehammer by vowing Democrats would ram his “new” health care plan (a revised version of the bill the Senate passed on Christmas Eve) through Congress using a budget tactic known as reconciliation that was never designed for passing legislation revamping one-sixth of the U.S. economy.

First, the olive branch. The president said that he’s “exploring” four Republican policy suggestions: undercover investigations of waste, fraud, and abuse in Medicare and Medicaid; expanding funding ($50 million) for state alternatives to medical malpractice litigation; increasing physician reimbursements under Medicaid; and ensuring that Health Savings Accounts and high-deductible health plans are offered under Democrats’ new insurance exchanges.

Now, for the hammer. The president’s “new” plan is basically the same as the earlier Senate bill, only more expensive and with more regulations. There is no firm estimate on how much the president’s plan will cost (there’s no legislative language yet), but we know that he wants to increase subsidies to make it closer to the House bill passed in November. The Congressional Budget Office will score the president’s plan in the coming weeks, but The Washington Post recently suggested it could add $200 billion to the price tag for the $871 billion Senate bill.

Of course, why quibble about a few hundred billion dollars here or there? The Republican staff of the Senate Budget Committee estimated that the senate bill would cost $2.4 trillion fully implemented; even the CBO forecasts the federal government spending $200 billion in 2019 on its coverage provisions (subsidies, tax credits, and Medicaid expansion), with costs going up about 8% every year after that.

At his press conference on Wednesday, the president suggested that partisan politics was behind Republican objections to the Democrats’ overhaul. In truth, the president has only himself to blame for its unpopularity.

After arguing that we spend too much money on health care now, the president proposes to spend trillions more. After declaring current entitlements unaffordable, he wants to create a new one for the middle class. He vilifies insurers for charging too much, and then adds new insurance regulations that will undoubtedly drive up prices.

The problem with Obamacare isn’t that it’s new and untried. It’s that previous incarnations of it have been tried for decades and failed. In 1960, close to half of all health care spending was out-of-pocket. Today, it’s just 12 cents on the dollar. As more spending shifted from families to third-party payers (like Medicare) costs exploded. Government responded with more subsidies, regulations and price controls. The result is the crisis we have today.

At the Blair House summit last week, there was a telling exchange between the president and Republicans. The president defended government’s increasing intervention in health care markets by comparing it to the FDA’s prohibiting of unsafe drugs, or unsafe foods. If you think this is ok, he argued, you must be comfortable similar “baseline” regulation of insurance companies. But the analogy is flawed because Obamacare not only limits the types of insurance products that can be sold, it tells consumers what they have to buy.

The FDA’s regulations are undoubtedly expensive and burdensome – but at least the FDA doesn’t require consumers to only buy certain “safe” foods or drugs, and bar others. Discretion and choice rule the marketplace – not mandates. Or take cars – another highly complex and potentially dangerous product. There are a plethora of different car manufacturers and models to choose from, at a wide range of prices – from sub-compacts to SUVs.

Volvos may be safer than competing Ford or Toyota models – but the federal government doesn’t require everyone to buy a Volvo by arguing that it would drive down health care costs by reducing accidents. If they did, car prices would sky rocket. (This, by the way, is what has already happened in Massachusetts, which has a version of Obamacare in miniature.) Minimum safety regulations, along with fierce market competition on both price and quality spurs competition that lowers prices, improves safety, and offers a wide range of choices to consumers.

These consumer-friendly features – like relatively clear prices -- are sorely lacking in health care because consumers operate in a paternalistic system that instead of empowering them insists on shuffling them to the sidelines.

Over the next few weeks, we'll see if the president's olive-branch-hammer strategy works. With his nod to reconciliation, his renewed energy and focus on this issue, he is making the legislative equivalent of double-or-nothing.

But in terms of significantly addressing the woes of American health care -- think: 12 cent problem -- not much will change whether his gamble proves successful or not.

Paul Howard is director of the Manhattan Institute’s Center for Medical Progress and managing editor of  MedicalProgressToday.