Why Health Care Challenges Conservatives

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While I don’t find Ramesh Ponnuru's overall case for a conservative middle-class agenda convincing, he does highlight one middle-class problem that both parties have given short shrift. He has correctly argued that health-care inflation is not just a source of fiscal woes, but also has deprived middle-class families of real wage increases as more of their compensation has gotten eaten up by health benefits.

The big challenge for conservatives is to take Ponnuru’s point and come up with an agenda that does better than liberals at controlling health-care costs, so families can spend more money on other things. The problem -- and a key reason I think the pro-middle class conservative project is doomed -- is that conservatives’ approach to health care makes this impossible.

One problem has to do with coalitions. Several key conservative interest groups are hostile to health-care cost control. Doctors lose out when medical costs are held down. And unlike working people, whose wages are depressed by the rising cost of employer-provided health benefits, retired seniors really do get to shift most of the rising cost of their health care to taxpayers.

But the bigger problem is an ideological block. Conservatives love markets too much to admit that the health-care market can’t be made to work very well. Doctors face an array of legal and economic incentives to overtreat. Patients lack good information on both prices and effectiveness. They’re also intimidated by highly educated providers whose advice they reject at their peril. Records are a mess, leading to repeat testing treatment decisions made in the absence of valuable information.

Not all of these problems with the market can be fixed through better policy. Economic incentives for overtreatment don’t just come from subsidies. They come in part from the fact that an individual’s health-care costs are unpredictable, requiring insurance, and that health risks are much harder to underwrite than, say, driving risks. In other cases, problems in the market come from policies that nobody wants to change; few people want to completely eliminate government backstops that finance care for people who cannot afford it, even though these subsidies distort the market.

Because the health-care market cannot be made to work things out on its own; approaches to health-care cost control have to be holistic. You have to figure out how the market can be improved so it leads to better consumption outcomes, where valuable market forces are being inhibited, and when top-down regulation is the best solution to address a market that is malfunctioning. Yet when conservatives talk about health-care cost control, their first and only instinct is to shout “markets markets markets.” The result is that conservative approaches to cost control are never really going to be any good.

It’s a symptom of a broader problem: On the topic of regulation, conservatives are stuck in the 1970s. At that time, the federal government was imposing lots of dumb regulations of markets that really should have been left to work without interference: trying to control inflation through wage and price controls, setting airline fares and shipping rates, telling banks how much interest they could pay on savings accounts.

Then conservatives won those fights. The conservative arguments for returning the private economy to the control of unfettered markets were so convincing that they often got made into law by Democrats; it was Senator Ted Kennedy and President Jimmy Carter who deregulated the airlines. But conservatives have treated an observation that is true of most markets (“markets work”) as a law that governs all of them, and what made them right in the 1970s leads them astray today.

Now, the big remaining fights over federal interference in economic sectors relate to health care, education and energy. And in each of these cases, “just let the market work” is the wrong answer. The federal government is making huge mistakes in each area today, but a smart agenda for each has to involve making the government interventions smarter.

And I just don’t think conservatives are capable of admitting that. Even Tevi Troy, Scott Gottlieb and Paul Howard, three health scholars who have finally broken the taboo and told conservatives they must start thinking about how to reform the Obamacare model rather than repealing it, fall into the anti-regulatory trap. They still call for wholesale repeal of Obamacare’s cost-control measures, saying that they are “an alphabet soup of new boards, agencies, and commissions that must be constrained, and in time shuttered.”

What does that leave for reform? Broadly, the Troy-Gottlieb-Howard paper calls for shrinking the size of the insurance subsidy for middle-income Americans by tying it to a more stripped-down benefits package. This is “cost control,” but not mostly through reductions in the cost of care; it would control public costs by shifting more of the responsibility for paying for health care onto private, middle-class citizens.

This approach is appealing to conservatives, since it cuts both regulations and spending. But it does not fulfill Ponnuru’s goal of increasing the purchasing power of the middle class. So long as conservatives will only entertain a “markets markets markets” approach to health-care cost control, that’s inevitable.

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