About the Author

James C. Capretta

James C. Capretta

New Atlantis Contributing Editor James C. Capretta is an expert on health care and entitlement policy, with years of experience in both the executive and legislative branches of government. E-mail: jcapretta@aei.org.


James C. Capretta’s Latest New Atlantis Articles

 Health Care with a Conscience” (Fall 2008) 

 Health Care 2008: A Political Primer” (Spring 2008) 

 The Clipboard of the Future” (Winter 2008)


 More on James C. Capretta

Text Patterns - by Alan JacobsFuturisms - Critiquing the project to reengineer humanity

Monday, December 20, 2010

A Bipartisan Budget Will Require Bipartisan Health Care 

The November election has certainly shaken things up in Washington, even before most of the newly elected members to the House and Senate arrive in town and take their seats in Congress. That's because all parties havebegun recalibrating their positions in anticipation of the shifting balance of power that is coming in January.

Most notable, of course, is the president's recent deal with congressional Republicans on taxes. Once the voters had spoken, the president pivoted quickly and began direct negotiations with his adversaries on one of the campaign trail's most contested items: What should happen to the Bush-era tax rates scheduled to expire at the end of December. Democrats have spent the better part of the past decade decrying those rates as fiscally irresponsible. And yet the main result of the bipartisan tax deal is that those Bush-era rates on personal income, dividends and capital gains will all be left in place through the duration of the president's current term in office. Who would have expected such an outcome after the 2008 Democratic landslide? Moreover, the deal calls for a temporary reduction in the payroll tax, which is a far more acceptable approach to short-term stimulus for many Republicans than the spending programs adopted in early 2009.

Now all attention is beginning to shift to the nation's daunting short- and long-term budgetary challenges. Here, there is also a whiff of bipartisanship in the air.

The president's fiscal commission, chaired by former Clinton White House chief of staff Erskine Bowles and former Sen. Alan Simpson, R-Wyo., issued its recommendations earlier this month, with the support of 11 of the 18 commissioners. Among the supporters were all of the current Republican senators serving on the panel (Tom Coburn of Oklahoma, Judd Gregg of New Hampshire and Mike Crapo of Idaho). The budget framework they endorsed is based on the approach of the commission's co-chairs and thus commonly known as the Bowles-Simpson plan. It is far more ambitious in scope than was expected just two months ago, when many thought the commission wouldn't produce anything of consequence.

Bowles-Simpson starts with a plan to radically reform the nation's income tax laws by eliminating or scaling back many current tax expenditures while simultaneously instituting two much lower rates. The plan also calls for cutting the corporate income tax rate, capping discretionary spending, and reforming Social Security by raising retirement ages and limiting benefits for higher wage earners.

That's certainly a bold agenda, and it very definitely points in the right direction with its inclusion of some important entitlement and tax reforms.

But on the most important budget issue that the country still faces — rapidly rising health care costs — Bowles-Simpson is a major disappointment. Yes, the plan calls for long-overdue tort reform. But that's not nearly enough to overcome its downside — the plan's implicit embrace of the entirety of the health care law enacted in March. The $1 trillion entitlement expansion; the $700 billion ten-year tax increase; the complete lack of any meaningful Medicare and Medicaid reform; the heavy reliance on arbitrary Medicare payment rate reductions to cut costs on paper; the poorly structured long-term care entitlement program that almost certainly will need its own bailout in future years; and, the ceding of almost all health sector regulatory authority to the Department of Health and Human Services — all of those provisions and more would remain in place under the Bowles-Simpson framework.

Indeed, if anything, Bowles-Simpson would build upon the law by expanding the authority of the Independent Payment Advisory Board, which was established to control Medicare costs with payment rate reductions, to oversee the health spending that occurs in the new state-sponsored insurance exchanges.

The fiscal commission members appointed by House Republican Leader John Boehner – Rep. Paul Ryan, R-Wis., Rep. Dave Camp, R-Mich., and Rep. Jeb Hensarling, R-Texas — all opposed the Bowles-Simpson plan when it came up for a final vote, thus preventing it from advancing to Congress for potential near-term consideration. And, to their credit, the main reason they cited for their opposition was the failure of Bowles-Simpson to change direction on health care from what was enacted in March.

The yearlong debate over health care was contentious and polarizing because the opposing sides have strongly held and difficult to reconcile views of what needs to be done. By and large, the Democrats believe that what is needed is much heavier governmental management of the health sector. By contrast, most Republicans believe that what is needed is a functioning marketplace and consumer control of the allocation of resources.

Ordinarily, difficult legislative initiatives require some degree of support from both major political parties to pass. That's particularly true with deficit reduction efforts. There's very little to gain politically from cutting spending programs or increasing taxes. As the president looks to bring future deficits down in coming years, he is almost certain to try to enlist Republican help in the effort, as bipartisan support would shield Democrats from some of the political risks associated with fiscal consolidation.

But it will be near impossible for the president to succeed in building a strong bipartisan coalition of support for a budget plan if he takes the same approach as Bowles-Simpson and builds a wall around health care. Health care is the largest line item in the federal budget, and it will only become more important in future years. Most Republicans will not agree to any short or long-term budget framework that essentially ignores their point of view on how to address such an important component of the budget equation. Rising federal debt is now widely recognized as a serious threat to the nation's long-term prosperity. It is essential that political leaders come together in a bipartisan fashion to put our government's finances on more stable footing. But that won't be done so long as the nation's approach to health care is supported by only one of the two major political parties. No, a bipartisan budget framework is going to require a bipartisan approach to health care too.

[Cross-posted at Kaiser Health News]

posted by James C. Capretta | 2:35 pm
Tags: federal budget, fiscal commission, Bowles-Simpson plan
File As: Health Care

Friday, December 17, 2010

The Demise of the Omnibus 

They almost got away with it, and they may try again.

Congressional Democratic leaders planned all along to basically do nothing during the months leading up to the November election — and then, in a lame-duck session, unveil a bloated, business-as-usual spending bill and use the press of the Christmas break to force members into passing it before they adjourned. This approach would allow them to keep doing what they always do — perpetuate every federal agency and spending program ever created — without having to reveal their spending intentions prior to facing the voters at the ballot box.

If the Democrats had prevailed in November and held their position in the House and Senate, you can bet that the omnibus spending bill would have sailed through to a presidential signature, and their grand and cynical plan would have paid off.

But they didn’t win the election. They lost in a rout. And not only that, they lost because voters specifically rejected the out-of-control spending and hyper-activism of the last two years.

One might have thought that, having lost, the Obama administration and its allies in Congress would be a little sheepish about sticking to their big-spending game plan. After all, jamming a $1 trillion–plus, 2,000-page, earmark-laden monstrosity through Congress in December would entail relying on the votes of scores of defeated Democrats, who no longer carry the legitimacy that comes with voter approval. But we should have known not to underestimate their, well, audacity: In the wake of Scott Brown’s election last January, they demonstrated a remarkable capacity to ignore the wishes of the electorate.

In this instance, the Democrats wanted one more year of business-as-usual spending before the Republican takeover of the House slowed them down. And so, they moved ahead with their plan, hoping to get the spending bill across the finish line with the support of a few apparently out-to-lunch Senate Republicans.

Thankfully, Senate Republican leader Mitch McConnell had the patience to cajole his wavering Republican colleagues back from the brink and drop their support of this incredibly ill-advised spending binge. And, for the moment, it looks like the solution will be the right one, a short-term continuing resolution that will leave decisions on 2011 funding levels to the 112th Congress. But the lame duck is still in session, with no clear end in sight. And as we have seen, they have no shame. Vigilance is required.

posted by James C. Capretta | 4:09 pm
Tags: federal budget, omnibus bill

Thursday, December 16, 2010

Resetting the ‘Obamacare’ Baseline 

The analyses and cost estimates provided by the Congressional Budget Office have had an enormous effect on the public debate about health care reform over the last two years. But, as Douglas Holtz-Eakin and I point out in an op-ed today in Politico, CBO, a professional and respected institution, in this instance based its analyses on unrealistic assumptions, which can harm the policy debate and the public understanding of the new health care law:

The core promise of the new law is that low- and moderate-income households getting insurance through new state-run “exchanges” will have their premiums capped as a percentage of income.... The population potentially eligible for this new federal entitlement is large. The Census Bureau says there are about 111 million Americans under the age of 65 in households with incomes between 135 percent and 400 percent of the poverty line.

But the Congressional Budget Office forecasts that only 19 million people will be getting the new federal premium subsidies in 2019. That’s because the law stipulates than any person offered qualified insurance coverage by an employer is ineligible for premium assistance offered by the exchanges, and the CBO expects most employers to continue sponsoring insurance plans. This would sharply limit the migration to the heavily subsidized exchanges.

But is that a reasonable assumption?... [A more realistic estimate] is that an additional 35 million workers and their families with incomes below 250 percent of the poverty line — who would clearly be better off in the exchanges as opposed to on job-based coverage — could end up there over time, one way or another.

And when they do, costs will soar. The CBO projects that the premium-assistance program will cost about $450 billion from 2014 to 2019, but that cost would rise to $1.4 trillion if workers and their family members with incomes between 133 percent and 250 percent of the poverty line were to migrate out of their current job-based plans and into the exchanges on Day One. That’s nearly $1 trillion more than the amount advertised by the law’s supporters.

You can read the entire piece here.

posted by James C. Capretta | 12:58 pm
Tags: Obamacare, baseline, CBO, Douglas Holtz-Eakin
File As: Health Care

Monday, December 13, 2010

Now It’s Unstable Legally as Well as Politically 

The decision on the individual mandate handed down today by U.S. District Judge Henry Hudson in the Eastern District of Virginia makes it clear that Obamacare is on extremely shaky legal ground. That’s fitting, because it’s been on shaky political ground for well over a year now. Today’s decision — possibly joined by others in the weeks ahead — is going to strengthen the already strong perception that this law was ill-advised from the get-go and needs to be repealed to make way for a more sensible, consensus-driven program.

Specifically, the judge’s ruling today found that the new law’s requirement that all Americans must purchase government-approved health insurance or face a fine was not a permissible use of lawmaking authority granted to Congress under the Constitution. In other words, Congress doesn’t have unlimited authority to do anything it wants. Its powers are carefully enumerated. And among them is not the power to force Americans to buy something they would otherwise forgo.

Without the individual mandate, the whole Obamacare edifice crumbles. The judge did not rule that the entire law must be invalidated. But if the individual mandate goes, the insurance regulations — and most especially the requirement that insurers must take all comers without regard to their health status — will never work. Patients could simply wait to enroll in health coverage until they needed some kind of expensive treatment or procedure, and thus pocket the premiums they would have paid when they were not in need of much medical attention.

Still, it’s been clear for some time that repeal advocates should never bank on courts bailing the country out of Obamacare. This issue is far too important to leave to such an unpredictable process. Moreover, even if the mandate and related provisions are gutted by the courts, that would still leave many horribly damaging aspects of Obamacare in place, such as the massive entitlement expansions and the heavy reliance on government-imposed price controls.

Today was a good day. But it’s really just a small skirmish in a much wider war. By all means, every legal remedy should be pursued. But Congress has a responsibility to undo this mess as well, regardless of how the court cases turn out.

(I also discussed the decision in a brief interview this afternoon with Megan Hughes of Bloomberg, available here on YouTube.)

posted by James C. Capretta | 4:24 pm
Tags: individual mandate, constitutionality

Thursday, December 9, 2010

Defined Contribution Health Care 

Yesterday, I had the privilege of participating in the inaugural event for the American Enterprise Institute’s new “Beyond ‘Repeal and Replace’” initiative, the purpose of which is to explore policies that could take the place of the recently passed health care law. During the panel discussion, moderated by AEI’s Tom Miller, I provided an overview of the paper I coauthored with Tom called “The Defined Contribution Route to Health Care Choice and Competition.” The defined contribution approach to reform would convert today’s open-ended federal subsidies into fixed levels of support, and thus convert millions of passive insurance enrollees into cost-conscious consumers. A short summary of our paper can be accessed here, and the full paper is available here.

The panel also included Scott Harrington of the University of Pennsylvania, who presented an overview of his paper on “Regime Change for Health Insurance Regulation: Rethinking Rate Review, Medical Loss Ratios, and Informed Competition,” and Steve Parente of the University of Minnesota, who discussed his paper entitled “Harnessing Health Information in Real Time: Back to The Future for a More Practical and Effective Infrastructure.”

Video of the entire AEI event is available below:

posted by James C. Capretta | 10:26 am
Tags: defined contributions, AEI, Thomas P. Miller, Scott Harrington, Steve Parente, repeal and replace, Obamacare

Tuesday, December 7, 2010

Repeal, Replace, Reform 

I will be participating in a discussion at the American Enterprise Institute tomorrow called "Beyond 'Repeal and Replace,'" focusing on suggestions for reforming health care. Details can be found here.

Meanwhile, I participated in another AEI forum (cosponsored by the National Review Institute) a few weeks ago on what the new Congress should be doing about health care. Quite naturally, the conversation centered on what should be done to undo the Obama health care law. I focused my comments on why "repeal and replace" is a necessary condition for just about everything else the new House majority wants to achieve. Kate O'Beirne of National Review Institute moderated the panel, and I was joined in offering comments by Ramesh Ponnuru of National Review and Dr. Scott Gottlieb of AEI. Details and video are available here. The event was also broadcast on C-SPAN, which posted its video here.

posted by James C. Capretta | 5:44 pm
Tags: repeal and reform, Obamacare
File As: Health Care

Monday, December 6, 2010

The Tax Deal 

It’s quite a turn of events. The Democratic party has more or less defined itself over the last decade by opposing the supposed irresponsibility of the Bush-era income-tax rates. Now, President Obama has turned his back on the liberal wing of his party and endorsed those very same rates for the duration of his current term in office.

And not only that, he has endorsed a liberalization of the estate tax compared with the levels that were in effect during the Bush years, and agreed to abandon the signature tax break from the stimulus law in favor of a more sensible payroll-tax holiday. This latter change has the potential to become a very favorable development, as the payroll tax directly hinders job creation and Democrats have recently been more concerned with pushing those rates higher to sustain the expansive welfare state they have created.

More broadly, the president’s agreement to this deal is an implicit admission that voters aren’t buying what the Democrats have been selling on the budget for the past year. The primary argument Democrats pushed throughout 2010 was that the country simply could not afford to “spend” anything more on tax cuts for the wealthy. The president went so far as to say he could find much better uses for the hundreds of billions of dollars that would be “spent” by extending the top Bush tax rate at 35 percent.

But this kind of language only betrayed an attitude toward the private sector that most voters find entirely distasteful. Democrats talk as if private earnings are somehow the property of the federal government and $100 billion not collected in taxes is the same as $100 billion spent on a new government program. Most voters don’t see it that way at all. To them, allowing today’s tax rates to rise next year is a tax hike, not a spending cut. And fiscal conservatism does not consist in piling more taxes on the productive sector of the economy in order to finance an ever growing federal government. What voters want is for the elected officials to concentrate on fitting spending within what’s available from today’s tax rates, not on back-door ways to hike taxes to cover increases in spending.

The emerging deal is not all good news, of course. It is not wise to provide extended unemployment insurance for the duration of 2011. That’s likely to contribute to persistently high unemployment and discourage the adjustments necessary to get more people back to work. And temporary tax cuts are much less effective than permanent ones at spurring productive investments and job creation.

Still, it’s an important victory to keep the Bush-era tax regime in place for another two years. The Democrats had dominant control of the 111th Congress, including a supermajority in the Senate, as well as a president committed to pushing federal tax collection higher to finance a supersized government. And still they couldn’t get it done. Remarkable.

[Cross-posted to The Corner]

posted by James C. Capretta | 8:07 pm
Tags: taxes

Tuesday, November 23, 2010

The Importance of Ryan-Rivlin 

The political ground has been shifting rapidly ever since the American people delivered a vote of no confidence on the current direction of public policy when they went to the polls earlier this month.

Nowhere is that shift more evident than in the recent release of a bipartisan plan to dramatically reform the nation’s health entitlement programs. Sponsored by incoming House Budget Committee Chairman Paul Ryan and former Clinton administration budget director Alice Rivlin, the “Ryan-Rivlin” plan represents a real breakthrough in the long standoff between the parties over how to address the most pressing problem in the federal budget, which is the relentless, long-term rise in costs of Medicare and Medicaid. Ryan and Rivlin both serve on the presidential commission looking at ways to reduce the nation’s short- and long-term budget deficits, and they offered their health-entitlement reform plan to their fellow commission members for consideration.

In Medicare, the Ryan-Rivlin proposal would be transformative. It picks up on a key feature of Rep. Ryan’s “Roadmap” budget plan, which is that new enrollees in Medicare after 2020 would receive their entitlement in the form of a fixed contribution from the federal government rather than today’s defined benefit program structure. These Medicare enrollees would then apply their entitlement against the cost of health insurance. The value of the defined-contribution payment from the government would grow at a rate of GDP per capita plus one percentage point. The plan would also restructure Medicare for current beneficiaries by rationalizing the cost-sharing with a single, higher deductible and more uniform coinsurance across care settings, as well as an out-of-pocket cost limit. Secondary insurance plans would be prohibited from covering the first $500 of the deductible or more than half of the cost-sharing for services.

For Medicaid, Ryan and Rivlin propose moving toward a fixed block grant payment from the federal government to the states. The block grant payments would be indexed to grow with the size of the Medicaid population as well as per capita GDP growth plus one percentage point. The plan does not specify in detail what new flexibility the states would receive to administer the program, but it would presumably be significant new freedom to make changes as needed to run Medicaid according to state priorities.

Beyond Medicare and Medicaid, the plan would also impose limits on noneconomic and punitive damages in medical liability cases as well as repeal the ill-advised long-term care program (called the “CLASS Act”) that was created in the recently passed health care law.

The Congressional Budget Office (CBO) has already issued a preliminary assessment of the budgetary implications of Ryan-Rivlin, and the results are impressive. Over the next decade, Ryan-Rivlin would cut federal deficit spending by $280 billion, and by 2030, federal spending on the major health entitlement programs would be about 1.75 percent of GDP below a reasonable baseline projection.

But the importance of Ryan-Rivlin goes well beyond its details and current CBO cost estimate. The fundamental problem in American health care is that the federal government is providing open-ended financial support for health insurance coverage. Most Americans get their insurance through Medicare, Medicaid, or employer-sponsored insurance. And in each case, the federal government’s support for that coverage increases commensurately with costs. So when costs or premiums rise by an extra dollar, the federal treasury is picking up a sizeable portion of the added expense, thus substantially undermining the incentive for economizing by those enrolled in the coverage or those providing the services.

The solution is an across-the-board move toward more fixed federal financial support for coverage. That’s a central element in the Ryan Roadmap, and has been a theme in just about every market-based reform of health care proposed over the past quarter century. At various times, moving away from open-ended entitlements has gotten the support of some Democrats, most especially when former Senator John Breaux championed “premium support” for Medicare in the late 1990s. But, by and large, most Democrats have resisted these kinds of moves and attempted to control entitlement costs with arbitrary price controls instead.

Ryan-Rivlin is thus an important step because it brings a prominent official from the Clinton administration onto a proposal that would decisively move away from the health entitlement status quo. That’s no small matter.

Ryan-Rivlin is far from ideal. It is largely silent on ObamaCare, which would push the health system in precisely the wrong direction by extending open-ended entitlement promises to millions of new people. Households with incomes below four times the poverty line would see their premiums capped as a percentage of their income, regardless of the expense of their health plan coverage. Moreover, the new law leans heavily on price controls to cut costs, which only distort the marketplace and undermine the quality of American medicine. These damaging aspects of ObamaCare would substantially undermine the benefits that the Ryan-Rivlin approach would produce. The lesson is that there’s no getting around the need to repeal ObamaCare in its entirety. If it remains in place, there will be little that can be done to stop a full government takeover. What’s needed is a full replacement program, with fixes not only for Medicare and Medicaid but also for the tax treatment of health insurance so that workers too become cost-conscious consumers in a reformed marketplace.

Still, Ryan and Rivlin should be applauded for taking this courageous step and putting their health entitlement reform plan on the table for consideration. It is a clear demonstration that the conversation has shifted, and in a much more positive direction. 

posted by James C. Capretta | 5:56 pm
Tags: Paul Ryan, Alice Rivlin, Ryan-Rivlin proposal, Roadmap, debt commission, Medicaid, Medicare
File As: Health Care

Monday, November 22, 2010

The Roadmap Lives 

Last year, Rep. Paul Ryan's "Roadmap" -- his far-reaching plan to restore long-term budget balance through tax and entitlement reform — was the subject of relentless attacks by those favoring a larger government role in American life. New York Times columnist Paul Krugman called Ryan the "Flimflam Man" in a widely cited opinion piece in which he tried to dismiss the Roadmap as not a credible solution to the nation's budget problems. The congressional Democratic leadership followed up with an organized campaign aimed at demonizing the plan as a callous assault on Social Security and Medicare beneficiaries. Their clear intention was to use the Roadmap to damage scores of Republican candidates for House and Senate seats by association.

None of it worked. In fact, not only did the Roadmap survive the 2010 mid-term campaign, the election results — and the dominoes that have fallen since — have made it far safer politically for Roadmap proponents to advance the plan's ideas in the public square.

That the political and policy landscape has started to shift, and rather dramatically, became apparent just a week after the election when the co-chairs of a commission appointed by President Obama, on which Ryan, a Republican from Wisconsin, also serves, offered draft recommendations on how to close the short- and long-term budget deficits. President Obama had appointed former Clinton White House chief of staff Erskine Bowles and former Senator Alan Simpson (R.-Wyoming), to chair the eighteen-member group earlier this year, and he asked them to report back by December 1 — after voters were given a chance to decide the make-up of the 112th Congress.

The draft proposal put forward by Bowles and Simpson caught just about everyone in Washington off guard. It's not a business-as-usual plan. Very few sacred cows were spared. It calls for radical tax reform to lower rates and broaden the base, a reduction in the corporate tax rate, long-term entitlement spending cuts, and elimination of programs that have been around for decades. Among the most controversial items now on the table for consideration by the presidentially appointed commission is the full elimination of mortgage interest and state and local tax deductions, dramatically lower future Social Security benefits for higher-wage workers, and real cuts in pay for federal workers.

On November 17, just a week later, another bipartisan commission looking at the nation's deteriorating budget situation took its turn. This one is headed by former Senator Pete Domenici (R.-New Mexico), and former Clinton budget director Alice Rivlin, and is sponsored by the Bipartisan Policy Center. They and their commission colleagues — many of whom are Democrats — released their own version of a deficit- reduction plan, which received unanimous support from the 19 commission members.

Among other recommendations, the Domenici-Rivlin plan would cap the tax preference for employer-paid health insurance and then phase it out entirely over a number of years. It would also convert the Medicare program for future enrollees into a "premium support" program in which the beneficiaries get a fixed level of financial support from the government for the purchase of insurance. Enrollees selecting options more expensive than the average plan would have to pay the difference out of their own pockets.

Rivlin — who is also serving on the Bowles-Simpson presidential commission — followed up her work with Senator Domenici by announcing her public support for a "Ryan-Rivlin" health entitlement reform program, which the two then proceeded to offer to the presidential commission for its consideration. The Ryan-Rivlin proposal includes many of the same features in the health sector as the Ryan Roadmap. Future Medicare enrollees would receive their entitlement in the form of a fixed level of federal support for health insurance. The eligibility age would be increased gradually to age 67, up from 65 today. And the cost-sharing for current program enrollees would be modified to require most beneficiaries to pay something toward the cost of the services they receive before Medicare and secondary insurance kicked in. Medicaid would be converted into a block grant program to the states, with the states freed up to run the program as they see fit. The new long-term care program created in the health law — called the "CLASS Act" — would be repealed. And noneconomic and punitive damages in medical malpractice cases would be capped.

The Congressional Budget Office, in a preliminary analysis, estimates the Ryan-Rivlin plan would reduce the federal budget deficit by $280 billion over the next decade and 1.75 percent of GDP in 2030 (with reasonable baseline assumptions). That kind of savings is going to be needed to prevent the federal budget from going entirely off the rails in the next two decades.

Still, there's no expectation that any of these proposals are going to sail through Congress anytime soon. Indeed, what's most likely to happen in the short term is absolutely nothing. The Bowles-Simpson commission may not find common ground, at which point Congress is under no obligation to take up draft recommendations from a subset of its membership. Moreover, both the Domenici-Rivlin plan and the Ryan-Rivlin health entitlement program have already set in motion frantic efforts to mount counter-offensives among the protectors of the status quo to prevent these ideas from gaining any political traction.

But what's really important about the last month is not that any reform plan is about to pass. It's that the terms of the budget, entitlement and health care debates have shifted dramatically, and very likely on a permanent basis. The fundamental elements of the Ryan Roadmap are sweeping tax reform; changes in health care which emphasize a marketplace and consumer choice; and modifications to retirement programs that reflect demographic reality. All of these elements can now be found in budget plans endorsed by prominent Democrats, including Democrats the president himself turned to find solutions to the nation’s budget problems. Consequently, it will be much harder in the future for Democrats to demonize these ideas as they have tried to do in the past.

Paul Ryan took the courageous step of going first with a bold plan to fundamentally restructure the tax and entitlement policies that threaten to push the federal budget past the breaking point. Now others, even some from the other side of the aisle, are joining him in sponsoring similar plans. The Roadmap does indeed live on.

[Cross-posted at Kaiser Health News]

posted by James C. Capretta | 5:04 pm
Tags: Paul Ryan, Alice Rivlin, Pete Domenici, Alan Simpson, Erskine Bowles, fiscal commission
File As: Health Care

Friday, November 19, 2010

Pro-Lifers and “Repeal and Replace” 

Federal subsidization of insurance coverage for abortion services was among the most contentious issues in the healthcare debate. Pro-life groups stood firm in their opposition to such funding, to the point of opposing the entire legislative package unless it was fully and definitely removed from the bill. Moreover, they worked tirelessly as the legislation was under consideration to advance language that would have made it absolutely clear that direct federal funding of elective abortions would not be a part of the reformed system.

In the end, those efforts came up short because the pro-lifers’ supposed congressional allies on the Democratic side abandoned them when it mattered most. The result is that the new law does provide taxpayer funding of elective abortions, for the first time in many years.

But passage of the new law did not end the debate, on abortion coverage or health care more generally. As was evident in the 2010 midterm election, a plurality of Americans remains strongly opposed to the bill that passed. Scores of the new law’s most ardent supporters were swept out of office by the voters. Now, a strong movement is building to repeal what was passed and replace it with a reform program more consistent with American values. The push for “repeal and replace” will almost certainly be among the most prominent themes of the new Republican House come January.

However, Richard Stith, a pro-life law professor at Valparaiso University, is urging his fellow pro-lifers to stay off the “repeal and replace” bandwagon. In an article for First Things online, he has suggested that a more promising approach for pro-lifers is amending the new law with clear pro-life language.

His logic goes something like this. In the healthcare marketplace of today (before the new law’s provisions take effect), private insurance, including plans organized by employers, more often than not covers elective abortions. Under the new law, the government will start running a larger share of the insurance marketplace in 2014, and subsidize it explicitly with tax dollars. That means more Americans who are now in today’s private insurance market will get their coverage in the future through a system organized by the government. Because taxpayer money will be involved, pro-lifers sought to extend the prohibition against funding of elective abortions—a prohibition that now applies to other tax-financed health care like Medicaid—to the new government-managed marketplace too. Had they not been defeated in that effort, they would have successfully removed elective abortions from insurance coverage for millions of people who are in plans that pay for such abortions today. So, Stith argues, the solution here is not to revert to the anti-life status quo of today’s private insurance market, but to extend the pro-life protections which apply to taxpayer-funded health care to the entire government-managed marketplace that will emerge in 2014.

Stith has a point. It’s true that many Americans are unknowingly subsidizing elective abortions through their private health insurance premiums today. They often have no choice in the matter, as their employers are making the decisions about what’s covered and what’s not in employment-based plans. Stith’s perspective is certainly a legitimate position for a pro-lifer to take, given where things stand.

But is it the only legitimate position for pro-lifers? The answer is most definitely “no.”

The issue of how a healthcare system addresses abortion provision is of course of paramount concern. Indeed, it is a necessary condition of an acceptable program that it not force Americans to subsidize the elective abortions of others. That is a non-negotiable first principle that pro-lifers have rightly made their top priority.

But for many Americans, including many pro-lifers, that is a necessary but not sufficient criterion for determining the acceptability of a reform program. There’s much, much more to consider. For many pro-lifers, even if the new healthcare law were amended to include the Hyde Amendment (against funding abortion) and Weldon Amendment (conscience protections), the amended law would still be so flawed, because of what it would do to the American economy as well as American health care, that the only remedy is its full repeal and replacement with economically sound reform that is also pro-life. Of course, pro-lifers are under no obligation to share this point of view.It is not a precondition for pro-life sentiments.But neither are pro-lifers under any obligation to accept at face value the supposed benefits of the new law when reason tells them otherwise.

The basic premise of the new healthcare law is that the federal government has the capacity to allocate resources in the health sector to promote equity and efficiency. There is abundant evidence that demonstrates this to be a very dubious assumption. Instead of promoting quality and efficient health care, the government pursues budget cutting with arbitrary, across-the-board payment-rate reductions for those providing medical services. There’s no effort to distinguish based on how well or badly they treat their patients. Everyone gets cut at the same rate, and the predictable result is that willing suppliers of services leave the marketplace. The only way to then reconcile supply and demand is with queues and waiting lists, which are commonplace in Canada and the United Kingdom. Putting the government in the cost-control driver’s seat is a recipe for a long-term decline in the quality of American medicine.

Further, the new law is based on deceptive budgetary and economic assumptions that mask the true costs of what was passed. The official cost projections are alarming enough—$1 trillion in spending over the next decade, financed by $500 billion in Medicare cuts (mainly in the form of lower payments for services) and another $700 billion in tax hikes. But the reality will be far worse than that. The centerpiece of the new law is a very generous new subsidy program for health insurance, available to families with incomes between 133 and 400 percent of the federal poverty line. Census data shows there are 111 million people in that income range, but official estimates assume only 20 million or so will get the new subsidies. The assumption is that many millions of otherwise qualified people will stay in job-based coverage, and thus lose out on thousands of dollars in federal support. That’s never happened before with an entitlement program, and not likely to happen this time. One way or another, the vast majority of those eligible for financial support will end up getting it, and the cost of the new law will soar, by another $1 trillion over ten years according to one estimate.

There are many other important reasons to have deep reservations about the new law. It will discourage hiring by employers, especially among low-wage workers, because employers will get penalized with fines if those workers end up in government-subsidized insurance. It creates new penalties for marriage, by handing out more subsidies to unmarried couples than to married ones with similar incomes. And it hands over to the government vast new power to insert itself into medical decisions.

Proponents of the new law will argue that its main achievement is covering about 30 million people with insurance who do not have it today. The truth is that many of those people who would gain coverage would do so only because they were forced to sign up or else pay a new fine to the federal government. Many of them are younger and far healthier than the average American, which is why they hadn’t signed up previously. The number of very sick Americans who would gain new coverage under the proposal is far, far less than 30 million.

There are much better ways to address the genuine needs of the uninsured than what was passed. The fundamental problem in American health care is insufficient productivity by the health sector. The solution is not top-down micromanagement from Washington, D.C., but a functioning marketplace in which the government provides oversight but consumers and patients direct the allocation of resources. That can be done by converting today’s federal support for insurance into support that the beneficiaries themselves direct and control. Indeed, a crucial reform would be to give all American households a fixed tax credit—about $6,000 per family—that must be used for the purchase of an insurance plan. This would take the place of today’s tax preference for job-based plans and would guarantee insurance coverage to the entire U.S. population. It would do so in a way that then engendered the kind of dynamic response in the marketplace that could transform American medicine for the better. And it could be an absolutely pro-life step by inclusion of a clear prohibition against coverage of elective abortions in any plan purchased by the credit.

No one suggests that all pro-lifers must adhere to this kind of thinking and support “repeal and replace.” But, at the same time, it should not be expected that all pro-lifers will be satisfied with adding a Hyde-like amendment to what has already been passed. Pro-lifers in Congress would certainly support that step. But there’s a genuine debate still underway in this country about the best way to fix American health care, and many pro-lifers believe firmly that a sensible “repeal and replace” program is the most prudent and principled course.

[Cross-posted at The Public Discourse]

posted by James C. Capretta | 4:19 pm
Tags: Obamacare, abortion, Richard Stith
File As: Health Care

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