Sorry, Ramesh Ponnuru. Conservatism Is Doomed.

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By Josh Barro

My colleague Ramesh Ponnuru, responding this month to a piece I wrote in November, says that I am all wrong: It is possible to construct a viable conservative agenda that addresses middle-class concerns. If Ponnuru has laid out conservatives' best agenda for the middle class, they are even more hopeless than I thought.

Ponnuru focuses on two policy ideas: a health-care reform that wouldn't actually help the middle class and a tax policy idea that conservatives wouldn't endorse.

First, on health care, he lays out policy ideas along the lines of those promoted by Senator John McCain when he ran for president in 2008, and by Senator Tom Coburn and Representative Paul Ryan in the Patients' Choice Act. These are converting the tax exclusion for health insurance into a refundable tax credit, reducing federal regulation of insurance by allowing interstate sale of insurance policies, and funding high-risk pools to cover sick people who are difficult to insure.

The biggest problem with this approach is laid out by the liberal group the Center on Budget and Policy Priorities in response to the Patients' Choice Act. It would put "many insured people at a significant risk of losing their coverage or becoming underinsured."

If you put the individual and group insurance markets on the same tax footing, employers would be less inclined to offer health insurance to their employees. So, some people would lose their current coverage. In the context of the right reforms, this would be fine. If the individual insurance market provides access to coverage that is adequate and affordable, it would be great to get away from the employer-based system.

But to make sure that people can afford to buy health coverage in the individual market, you would need to regulate the market so that insurers can't charge unaffordable premiums based on health status and related factors, use a combination of carrots and sticks to get almost everyone to buy coverage so that the insurance market doesn't suffer a death-spiral with healthy people opting out, and subsidize coverage such that it is affordable to almost everyone.

This is roughly the approach taken by President Barack Obama's Afforable Care Act, and conservatives (including Ponnuru) are not interested in taking this path. But without such measures, many people would find a tax credit insufficient and would end up without coverage.

This problem can be partly (but not completely) mitigated by the high-risk pools, which are state government entities that provide subsidized insurance to people with high medical costs. Ponnuru endorses this approach. There are two crucial problems with it. One is inadequacy: Not everyone who can't afford coverage is a hard medical case, and those people get no help from the pools. The other is the high cost: High-risk pools are expensive, and contrary to Ponnuru's claim, "most conservatives" are not interested in funding them at the level needed to make them work.

There are some conservatives who share Ponnuru's enthusiasm for high-risk pool funding. In 2010, Jim Capretta and Tom Miller laid out a conservative health-care-reform alternative in National Affairs that focused on high-risk pools, and they estimated that funding the pools would cost about $200 billion over 10 years, with hopes of covering up to 4 million people.

But Republican elected officials are interested in cutting federal spending on health care; they are not interested in coughing up $200 billion for high-risk pools, which is why such amounts haven't shown up in the House Republican budget or in Mitt Romney's fiscal proposals during the 2012 presidential campaign.

Look, for example, at Coburn and Ryan's question-and-answer for the Patients' Choice Act, which criticizes the McCain approach to health-care reform for being too expensive and trumpets the fact that it doesn't fund high-risk pools as a feature:

Our plan today differs from Senator McCain’s campaign proposals in several key ways. First, Senator McCain’s plan was expensive, costing the taxpayers hundreds of billions of dollars over a projected budget window. At a time when one out of three federal dollars already goes to health care costs and our economy is in recession, we do not need to spend a dime more of taxpayer money on health care. Our bill is revenue neutral and budget neutral. Second, Senator McCain’s plan relied on federal subsidies of high risk pools to get all Americans covered. While our plan allows states to utilize high risk pools or a reinsurance tool, we believe the more innovative concept in our bill is a risk readjustment mechanism for insurers and states to develop creative solutions for patients and consumers in their states.

In other words: Sorry, Ramesh, we're not going to spend money on high-risk pools; we'll let states do that if they feel like it. The problem with that is it's the policy status quo. High-risk pools already exist, and they generally don't work well because few states fund them adequately.

If most conservatives favored funding high-risk pools, they could have done so when they ran the government from 2001 through 2007. Instead, they reluctantly came up with money to finance an expansion of the Medicare benefit to cover prescription drugs, because the elderly are an important Republican constituency and the uninsured, sick non-elderly are not.

Even if you somehow convinced Republicans that funding high-risk pools was a conservative priority, you would still have the issue of everybody else: Most of the uninsured are not medical hard cases. They simply have low to moderate incomes and no employer-provided insurance, and can't easily afford to pay premiums. Obamacare addresses these problems with sliding-scale subsidies: If you're poor, you can go on expanded Medicaid at almost no cost to you; if you have a moderate income, the more you make, the more you pay in premiums.

Ponnuru, like many conservatives, supports a less efficient approach: a flat subsidy, regardless of need. This is a better idea than the policy status quo, which is a tax preference that actually becomes worth more the higher your income gets. But even with a lump-sum tax credit, some people with low incomes won't be able to afford coverage, and people with high incomes will get a larger subsidy than they need.

The Congressional Budget Office hasn't scored the Patients' Choice Act or similar approaches to health-care reform, but because of the inefficient targeting of subsidies, what they will probably find is that such an approach gets health coverage to fewer people per dollar spent than Obamacare does.

This is why conservative ideas for health reform don't get off the launchpad. They cost a lot of money, which conservatives don't want to spend, and they get fewer results per dollar of spending than liberal ideas do. That is, the ideas are bad.

A conservative health-care-reform plan, whatever its merits, comes too late. Ponnuru touts a conservative vision as "Millions of Americans who lack access to employer-based insurance would have it, competition for cost-conscious consumers would restrain premium growth, and people could take their insurance from job to job. With insurance more affordable, accessible, and portable, fewer people would find themselves without insurance when they got sick -- and thus unable to get it because of a preexisting condition."

If that pitch sounds familiar, it's because, with the exception of cost control through competition, Obamacare will already achieve these goals -- and Obamacare has its own cost-control strategies. (The idea of cost control through competition is also far from a sure thing in health-care markets.) Why should middle-class Americans who either have health insurance or are about to get it through Obamacare be eager to junk that plan for an untested alternative that might actually make it harder to get insurance?

Ponnuru's second big idea for conservatives is to embrace a much bigger child tax credit. Republican elected officials might go for this idea; they like cutting taxes, and as Ponnuru notes, they have expanded the child credit in the past.

But where will they get the money? Budgets are already tight, and House Republicans have just promised to balance the budget by 2023, meaning they will have to come up with an extra point of gross domestic product or so in gap-closing measures, compared with past Republican budgets. A bigger child credit would expand the deficit.

Ponnuru hints at how Republicans could make the credit work, saying they "will have to rethink an approach to taxes that has been frozen in 1981 for too long. Across-the-board cuts in income-tax rates worked politically at that time, but for many years now, middle-class families have been paying more in payroll taxes than in income taxes."

Certainly, Republicans could make room in their budget for a bigger child credit by accepting higher marginal tax rates. Would they? Ryan's mantra in his interview with Ezra Klein last week was "Rates matter." I see no sign that conservatives are interested in redirecting their tax policy energies toward helping families with children rather than cutting rates.

Finally, Ponnuru basically urges Republicans to keep doing what they're doing on energy policy and to come up with an approach to making higher education more efficient. I agree that higher ed is an untapped area for policy innovation, but this idea will need more meat on its bones before it can become a way to sell conservatism to the middle class.

Ponnuru is one of the smartest thinkers on the right today, and among the most focused on middle-class economic concerns and least enamored of supply-side dogma. That his effort to show a way forward for conservatives with the middle class is so underwhelming shows just how doomed the conservative project is.

Update: Ramesh Ponnuru has responded here.

(Josh Barro is lead writer for the Ticker. E-mail him and follow him on Twitter.)

-0- Jan/30/2013 17:28 GMT