Thursday, March 4, 2010

The President's Against Real Health Care Reform

Unnoticed at the summit was a diatribe in which President Obama showed he has no patience for any kind of health-care reform that most Republicans, most economists and many non-ultra left Democrats believe in—namely the kind that corrects the incentives that inflate costs.

Back in 1992 there were an epic series of Senate Finance hearings. They represented a remarkable meeting of minds across a broad swath of health-care wonks and economists (not interest groups) that the original sin was the exclusion of employer-provided health insurance from taxable income—imposed carelessly by the IRS in 1943 so defense contractors could compete for workers without transgressing Roosevelt-era wage and price controls.

Everybody knows this turned "insurance" into something else. Call it prepaid health care, as Milton Friedman did. Call it a giant tax Laundromat for the nation's private health spending.

It became a massive subsidy to third-party payment, an incentive to channel every ache and pain through an "insurance" bureaucracy. It became an incentive for the most economically competent Americans—the secure, high-earning employees of corporate America—to overspend on health care, treating it as a free good.

What a surprise that the medical-industrial complex reorganized itself in light of this central driver. Nobody was looking for price tags so price tags disappeared, as did any competition on price, and any clarity on price versus value.  Simple.

To Mr. Obama, however, such insurance is insurance—the way it's supposed to be, and anybody who doesn't agree must be smoking something.

Self-evidently idiotic, he indicated at the summit, is the idea that health insurance might go back to being "the equivalent of Acme Insurance that I had for my car. . . . It's basically not health insurance. It's house insurance. . . .

"I'm buying that to protect me from some catastrophic situation; otherwise, I'm just paying out of pocket. I don't go to the doctor. I don't get preventive care. There are a whole bunch of things I just do without. But if I get hit by a truck, maybe I don't go bankrupt."

We won't unpack the assumptions in this rant: That the affluent, educated beneficiaries of this tax loophole aren't capable of spending wisely on their own health care.

Mr. Obama hereby chucks over the side virtually all creative thinking about our health-care predicament, not to mention the single worthwhile policy innovation of the past two decades, the health savings account. In an unwisdom that he will probably come to understand only in his later years, Mr. Obama wastes the umpteen months his predecessor spent stumping the country for HSAs as a way to give consumers some financial "skin in the game." It was a theme voters could grasp because it made sense, unlike the Rube Goldbergism of Mr. Obama's health-care plan.

This week even Warren Buffett called the Obama plan "2,000 pages of . . . nonsense," adding, "The problem is incentives."

Here, Mr. Obama squanders the opportunity his presidency represented. For it's entirely possible to visualize incorporating this insight about the proper role of insurance with a system of guaranteed coverage and individual mandates à la ObamaCare, and indeed back when Mr. Obama was believed to be smart, we would have guessed this was the direction in which he would head.

Like any real reformer, he would have challenged both parties down to their ideological socks. Republicans would have had to swallow a universal mandate in return for an across-the-board tax cut to compensate workers for loss of the health insurance loophole.

Mr. Obama says he's content to be a single-term president. The soonest, then, we can hope for real progress on health care is three years.

His failure calls for some historical perspective. An enduring mystery is why Jimmy Carter insists on preaching about foreign policy when his real achievements were in the realm of domestic deregulation. OK, the ideas were hatching away in the back of the Nixon administration, brought forward by Ford and continued into Reagan's first term with the defeat of inflation and passage of the 1986 tax reform.

But altogether it was a period of the greatest domestic policy innovation, based on a profound bipartisan learning about the defects of what went before, namely 90 years of the "Progressive" regulatory urge.

Mr. Obama is turning out to be Jimmy Carter on foreign policy, but he's no Jimmy Carter on domestic economic policy.

In fact, he's turning out to be exactly what you fear getting when you elect a glossy unknown: a gift to the world (in his own eyes) with no real grit.

It's going to be a long three years.......

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