Obamacare Isn’t Forever

Sen McConnell stands next to a printed stack of Obamacare’s 20,000 pages of rules and regulations

 

This is not the second coming of Medicare.

 By Jay Cost

With the Supreme Court decision upholding President Obama’s health care law last summer and his reelection in November, liberals are triumphant, convinced that Obamacare is here to stay. When pressed on this matter, they point to the political success of Medicare to show how quickly new entitlements become entrenched.

But the politics of Obamacare, and Medicare for that matter, are much more complicated than some would have us believe. In fact, a careful analysis of both demonstrates that there are important differences, which ultimately will make Obamacare considerably more susceptible to reform than Medicare ever was.

To appreciate these differences, it is appropriate to set aside ideological commitments and think of politics in America through the logic James Madison set out in Federalist 10: American politics ultimately comes down to the mobilization and maintenance of political factions within the structures the Constitution has established. This intuition remains true today, and an appreciation of the factional politics of American social welfare policy should help conservative reformers understand how exactly they can fix some of the problems Obamacare has created.

Medicare was a broadly popular program at the time of its enactment. In late 1964 the Gallup poll found that the public overwhelmingly approved of what would become Medicare Part A, a hospital insurance program financed through expanded Social Security taxes. These numbers were basically unchanged from a survey taken in the spring of 1961, despite relentless lobbying by the American Medical Association in the intervening years to move public opinion against such a program. This broad, enduring support for the program is a big reason why roughly half of House Republicans supported the program on final passage. They did not want to be seen on the wrong side of an initiative that had such strong support.

Importantly, it was this support that helped Medicare survive one budget crisis after another. The program was designed primarily with an eye to political durability rather than efficiency or even sustainability. In particular, it imposed no real controls on the amount that medical providers could charge the government, partly out of fear of a boycott by doctors and hospitals. As such, in 1968 and 1969 Medicare was growing at an annual rate of over 40 percent, inducing Senate Finance Committee chairman Russell Long to label it a “runaway program.”

For the next generation, legislators would have to address periodic crises in Medicare, yet none posed an existential threat to the program. The most that can be said is that, starting in the 1990s, conservatives began advocating structural reforms to modernize the program, bringing it more in line with today’s private-sector health insurance. At no point has the idea of repealing Medicare gained traction, nor has the government’s commitment to medical care for the aged ever been seriously challenged, despite the demagogic claims of liberal Democrats.

Why was Medicare so popular? To put it simply, LBJ shoehorned it into the Social Security program, which itself had been a stroke of political genius by Franklin Roosevelt. By using a universal, social insurance model, the programs have created a sense of public ownership and not of welfare. Everybody pays in; everybody benefits.

Medicare, moreover, like Social Security, diffuses costs broadly but concentrates benefits. The average worker paid a small price for Medicare when it was first passed, via a slightly higher payroll tax, but this was not very noticeable given how quickly wages were increasing in the middle 1960s. Meanwhile, the elderly, doctors, and hospitals all reaped windfalls from the program in the early years.

This, naturally, is what sowed the seeds of the chronic financing crises of the program: It is simply too good a deal, from a budgetary standpoint. But from a political standpoint, creating a sense of ownership, spreading the costs, and concentrating the benefits are sure-fire ways to guarantee political survival in our Madisonian system.

Not all programs are so politically successful. It depends on the interplay of factions, especially politicians’ ability to transform diverse groups into defenders or attackers of existing programs. At the other end of the spectrum of success from Medicare is the Catastrophic Health Coverage Act (CHCA) of 1988, which was the product of a peculiar coalition of the Reagan administration and congressional Democrats, who controlled both houses. Like Medicare before it, the bill passed with overwhelming support, garnering majorities of both parties in the House.

But unlike Medicare, it lacked a popular base of support. Under the CHCA, Medicare beneficiaries would fund an expansion in the benefits offered by Medicare Part A to people with long-term hospital or extended care needs. What happened next surprised just about everybody: Medicare beneficiaries rebelled against the higher premiums required for the extended coverage, and political pressure forced a Democratic Congress and Republican president (this time George H.W. Bush) to repeal the program. The problem was that the noticeably increased costs were distributed among all Medicare recipients, but the benefits went only to those who needed subsidized long-term care, far too small a faction to sustain the new benefits.

Medicare and the CHCA met opposite political fates. What about Obamacare? Liberals have convinced themselves that, simply by virtue of its passage and endorsement by the Supreme Court, it will be just like Medicare. But there are important political differences between Obamacare and Medicare, and equally notable similarities with the CHCA.

For starters, Obamacare looks much more like the CHCA in that it imposes costs on discrete factions in society. Most prominent are those who will lose their coverage through their employer and be forced into the new exchanges. It is always politically dangerous for a program to affect a particular constituency in such a negative way. Add to this the growing complaints from the business community about the burdens of the program, along with the wariness of senior citizens whose Medicare will lose $700 billion in funding, and one can discern a political coalition out there ready to coalesce if and when these potential harms are realized. For all of its fiscal irresponsibility from the time of its creation, Medicare never forced people off their existing insurance as Obamacare will, nor was the Medicare payroll tax significant enough to elicit a response from younger workers or businesses.

Still, this is not to say that the politics of Obamacare perfectly match the politics of the CHCA—far from it. In theory, all Medicare recipients were potential beneficiaries of the CHCA. None would have to worry about being bankrupted by a prolonged hospital stay. Yet only a narrow slice of this group would ever realize the benefit, whereas all realized the costs. Not so with Obamacare, which will extend benefits to millions of Americans, even if in a cumbersome and inefficient manner. Once these benefits come online—as they will, thanks to the president’s reelection—Obamacare will have political leverage that CHCA lacked. Our Madisonian system works by providing multiple factions within society a veto over public policy changes, and it is likely that the beneficiaries of Obamacare will be able to prevent full-blown repeal.

Thus, the outlook for Obamacare probably lies somewhere between the extremes of Medicare and the CHCA. The program lacks the political power of Medicare, which in turn means it is probably not immune to substantial reforms. But it has created a client base that is much larger than that of the CHCA, which means it will almost certainly survive.

 

What, then, is the way forward for conservative reformers?

The answer might be found south of the Mason-Dixon line, in Arkansas. As Avik Roy of Forbes has reported, Democratic governor Mike Beebe has worked out a deal with Washington in which the state will expand coverage to the poor, but not through Medicaid. Instead, it will do so via an expansion of the new insurance exchanges. The driver behind this arrangement was the Republican-controlled state legislature, which pushed for a deal with the Obama administration.

Herein lies a path for reform. Even if the expansion of coverage is permanent, Obamacare is creating an infrastructure through which conservatives may be able to realize their reform goal of a freer marketplace that drives down costs and provides consumers with greater flexibility. As Arkansas has shown, the exchanges are a potential mechanism for such outcomes, and the Obama administration’s desire for full implementation has created an opening for renegotiation.

It is not hard to envision future reforms that peel back the onerous regulations of Obamacare, lowering the costs to the government, while keeping the 30 million or so new beneficiaries under the federal umbrella. From a Madisonian perspective, if the central political problem of Obamacare was that it created too many losers alongside its winners, then a successful conservative alternative would be a free-market approach that makes these losers whole again without depriving the winners of their new gains.

This is a real possibility. Indeed, as Avik Roy and Douglas Holtz-Eakin, former director of the Congressional Budget Office, argued recently at Reuters, “The great irony of Obama’s triumph .  .  . is that it can pave the way for Republicans to adopt a comprehensive, market-oriented health care agenda.”

Put simply, the battle over health care is far from over—and the ultimate outcome depends in part on how thoroughly conservative reformers understand the unique coalitional politics of Obamacare.

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