The Conflicting Goals of Health Reform

In lieu of a post, I am tempted to just tell people to read Steve Pearlstein’s column in the Washington Post today. Those who read the actual paper may need to dig around a little to find it. For some inexplicable reason, the Post buries its best columnist in what’s left of the dying business section instead of putting him on the op-ed page where he belongs.

There’s much wisdom in Steve’s analysis of why Barack Obama’s health reform plan is on life-support. But I want to focus on one sentence:

“What makes reform such a difficult puzzle is that the fundamental policy goals of universal coverage and cost containment are inconsistent with the political instincts to assure Americans who already have health insurance that they will be able to keep everything they already have, to assure that nobody will get a tax or cost increase and to assure those in the health-care industry that there will be no reduction in their income.”

This gets back to the point I was making yesterday about why tax reform worked in the 1980s and what lessons it may hold for health reform. In the tax debate it was pretty clear from the beginning that both Republicans and Democrats had something they wanted out of the process. The former basically wanted a reduction in the top tax rate and, ideally, a flat rate tax of 20% or so. The latter wanted greater progressivity and elimination of tax loopholes that only benefitted the rich. Both sides wanted simplification.

In principle, both sides could be accommodated by closing loopholes and using the revenue to lower rates. Each side had legislation broadly designed to accomplish this. The Republican bill was sponsored by Congressman Jack Kemp and Senator Bob Kasten. The Democratic bill was sponsored by Senator Bill Bradley and Congressman Dick Gephardt. In many ways, the proposal Ronald Reagan sent to Congress split the difference between the two approaches. His plan would have reduced the top rate to 35%.

It’s not now remembered, but the tax reform bill had very rough going in Congress initially. It barely passed the House and was in danger of dying in the Senate. At this point, Republicans had to figure out what the essence of tax reform was from their point of view and what were they willing to give the Democrats to get on board. (Keep in mind that Republicans controlled the Senate in 1986.)

Republicans decided that if they could get the top rate down to 28% then they would be willing to treat capital gains as ordinary income-a long sought liberal goal. That would involve an increase in the capital gains tax rate from 20%, but with a top rate of 28% Republicans decided they could live with it. This was the critical deal that made tax reform possible.

Getting back to health reform, I think Democrats were not completely clear about what their ultimate goal was at the beginning of the process. Obama talked a lot about bending the curve and reducing health costs during the campaign. Had he proposed legislation that did only that he might well have gotten a bill with bipartisan support. But there would no payoff for liberals in such a bill. They want universal coverage.

This has led to the muddled mess we are in today that Pearlstein identifies. Obama has tried to achieve both universal coverage and reduce costs at the same time and that’s not really possible without a total government takeover of the health system.

At the same time, it is unfortunately the case that Republicans have never had anything they hoped to get out of health reform, so there has never really been any possibility of making a deal with them. It’s hard to think of anything Obama could offer Republicans that would induce them to support any health reform. Their only interest is in maintaining the status quo even if it means defending Medicare, a program most House Republicans actually voted to abolish in April. Republicans also perceive that causing Obama to fail on such a high-profile initiative will demoralize Democrats and energize grassroots Republicans.

At this point, I don’t see how Obama can get anything close to universal coverage except at a cost too high for the Senate to swallow. In my opinion, it would be better to withdraw health reform, rethink the issue, come up with a better plan and have something he can campaign on in 2012. If Obama wins, he can claim a mandate and move a bill in 2013 that has a better chance of success. As Pete pointed out yesterday, Reagan’s big win in 1984 was critical to the success of tax reform.

I don’t expect my advice to be followed. The White House is too invested in winning the health care fight and at the end of the day just wants a bill to sign so that it can declare victory. But it likely will be a hollow one that will leave many important health issues unresolved to fester for another day.

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