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Obamacare Isn’t Forever

This is not the second coming of Medicare.

Apr 1, 2013, Vol. 18, No. 28 • By JAY COST
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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.

Senator Mitch McConnell (R-Ky) stands next to a printed stack  of Obamacare’s

Senator Mitch McConnell (R-Ky) stands next to a printed stack of Obamacare’s 20,000 pages of rules and regulations.


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 Obamacareconsiderably 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.

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