Wouldnt matter if it pointed left.

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Obamacare Didn’t Fail Because It’s Timid

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Kevin Drum of Mother Jones thinks that making Obamacare work could have been a simple task for Democrats. All they needed was two things:

  • About twice as much funding, and 
  • A higher tax penalty for not buying insurance.

More funding would have allowed them to offer higher subsidies to people with incomes above 200 percent of the poverty line, plus lower deductibles, while a mandate equal to the cost of an insurance policy would have left people with little choice other than to buy insurance. Since the people who forgo insurance today tend to be the folks who use little health care, this would have lowered the average cost of insurance for everyone.

Why didn’t they do this? Kevin blames timidity -- “Democrats were fixated on Obamacare costing under $1 trillion” -- and a “hack gap”:

If this were a Republican plan, and it were something they really wanted, they wouldn’t have bothered with funding. They would have just made up a story about medical inflation coming down (which it is) and broader health coverage leading to improved economic growth blah blah blah. Democrats weren’t willing to do that.

Judging from my interactions with readers and my friends and family who don’t happen to spend their days marinating in health-care policy, the view that Obamacare’s problems are due to Democrats not being sufficiently left-wing, or dishonest, is pretty common on the left. That makes it worth refuting, because -- with all due respect to Kevin -- it’s completely wrong.

I agree that higher subsidies and a stronger mandate would have made Obamacare less of a policy train wreck; we probably wouldn’t be so worried about a death spiral if they had passed. On the other hand, it would have made the program much more of a fiscal train wreck. Kevin suggests that they should have just raised taxes on the rich, but for reference, the total repeal of the Bush tax cuts was projected to raise only about two-thirds of the amount needed. And since they were projected to expire, that was not a source of revenue that Democrats could use to fund Obamacare.

Funding this extra entitlement by tapping the rich would have been, to put it mildly, unpopular with an important part of the Democratic base: urban professionals. They would have, in the course of a few years, seen about 10 percent of their gross income, and a considerably larger fraction of their take-home pay, vanish. Nor would they be excited when politicians came back to them for even more money to pay for little incidentals like our growing entitlement gap.

Nor, as Kevin suggests, could Democrats have simply hand-waved the cost away. Bills have to be scored by the Congressional Budget Office. The Congressional Budget Office would not have scored heartfelt paeans to the economic benefits of broader health coverage (and to the extent that they would have, most of those benefits were already in the score the bill got.) If Democrats had tried to pass a bill that cost $2 trillion over 10 years, the Congressional Budget Office would have scored it as such, and that is the cost that the media would have reported. This -- not a tragic surfeit of honesty -- is why Democrats didn’t take the-time-honored approach of telling wild lies about what their plans would cost.

In fact, they prevaricated as much as they could, from “If you like your policy, you can keep it” to gaming the CBO forecasting process with dodgy revenue-generating provisions like the CLASS Act long-term care program, and the requirement for people to issue 1099s to anyone who sold them more than $600 worth of stuff -- things which were pretty obviously never going to actually take effect, but which helped lower the apparent cost of the bill at the time of the law’s passage, due to quirks in the CBO’s forecasting process . If they could have found more such dodgy mechanisms, they would have used them; the limit was the number of things the CBO would score, not the willingness of Democrats to make absurdly false claims about the bill’s costs.

So “lying” was simply not an option. Neither was “doubling the cost and whacking up the mandate.” Democrats were already having trouble getting their $1 trillion bill passed. This was a bill so unpopular that the state of Massachusetts (!) sent a Republican senator to Congress to stop it.

Let’s stop for a moment and ponder that. It’s common to hear Democratic pundits lament that centrist senators like Ben Nelson and Joe Lieberman held the bill hostage, forcing it to be underpowered to the task and leading to the failures of today. But if Massachusetts balked at signing up for this, then the problem wasn’t just with a few squishy moderates. Had Democrats pushed for a $2 trillion bill with a much larger mandate, as Drum wishes, the issue wouldn’t have been a handful of DINO senators -- it would have been the folks from deep-blue states fleeing for cover ahead of a mob of angry constituents.

As it was, thanks to the inconvenient arrival of Republican Scott Brown to replace Ted Kennedy, Democrats were forced to use a parliamentary maneuver called reconciliation to pass major parts of the program. Reconciliation bills cannot increase the deficit outside of the 10-year forecast window, so even if Democrats had been willing to hold hands and commit an even more gruesome form of collective political suicide than the one they chose, they could not have done what Kevin describes.

So there we are: This counterfactual history could not have happened, which is why it didn’t. But it’s particularly worth discussing why the bill was so unpopular. There was a pundit parlor game around the time of passage, and for a few years after, where liberal pundits would look at how individual components of the law polled, and report that Obamacare was secretly popular because its provisions polled well except for two little items -- the funding mechanisms, and the mandate. This is, of course, exactly backwards. Those polls weren’t telling Democrats that people actually liked Obamacare; they were telling Democrats that people hated the taxes and the mandate so much that it outweighed everything they liked about the bill. Had the taxes and the mandate been higher, that hatred would have been more intense.

Of course, this is all water under the bridge, so why rehash it now? Because we are still living with the choices Democrats made -- and the constraints that bound them will bind Republicans even more strongly as they attempt to fix the bloody thing.

Democrats at least got to package the bits people hated with goodies, like prohibiting insurers from looking at pre-existing conditions when selling insurance. For Republicans to fix the system as it stands, they would have to jack up the parts people hate -- not to deliver new benefits, but mostly just to keep the existing system from flaming into a tailspin. Only the price tag would now be much higher, for boring technical reasons I’ll leave in a footnote . The odds of this happening seem … slight.

Yet repeal and replace now seems almost as unlikely, because it means taking something away from voters -- stuff that polls really well, such as, er, prohibiting insurers from looking at pre-existing conditions. Of course, the last option -- doing nothing while the individual market flames into a tailspin -- doesn’t look all that hot, either.

If I were a Republican in congress, option three is probably what I’d choose. I’d announce a blue-ribbon commission designed to study the matter and propose a comprehensive alternative. I’d give it plenty of time to study and make recommendations. Then I’d wait and see if 2017 brings more premium hikes and insurers pulling out of smaller counties -- disasters that could then be blamed on Obama, in much the way that Democrats successfully blamed the financial crisis on Bush, even years after he’d left office.

Is this the courageous thing to do? No. Is it the right policy move? Also no. But that’s the point of today’s history lesson: When it comes to policy, political math trumps both technocratic merit and courage every time.

  1. For those who are curious: the CBO scores the 10-year cost of a bill. The CLASS Act cleverly had a long vesting period in which people paid premiums but got no benefits. Later, the thing degenerated into a sucking chest wound in the federal budget, because its funding was not sustainable. But that occurred outside the CBO budget window, and was therefore invisible in the bill’s score.

    The 1099 provision was even sillier. Even at the time, no one could possibly have thought that Congress was going to enforce a provision requiring ordinary people, who generally do not have accounting departments, to issue a 1099 to any vendor they paid significant amounts of cash. But the CBO is not in the business of saying “That’s absurd, and you’re obviously never intending to actually do this”; for very good reasons, they have to score the bill as it is written, not as they think its likely to look after you’ve had to fix all the silly things you wrote.

  2. Basically: As mentioned above, the CBO scores the 10-year cost of a bill. Obamacare didn’t take effect for nearly four years, which cut the actual 10-year cost -- i.e., 10 years’ worth of program operation -- by quite a lot. A Republican bill along the lines that Kevin outlined, which would only involve changing the amounts required for existing provisions, would presumably go into effect much sooner than that, and therefore have a CBO score closer to its actual cost over a decade of paying out subsidies.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Megan McArdle at mmcardle3@bloomberg.net