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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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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.

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