Trying to cure all the program’s ills will only make them worse—and the GOP will get the blame.
By PHIL GRAMM
Feb. 2, 2017 7:23 p.m. ET
So powerful is the political appeal of entitlement programs that modern democracies routinely choose bankruptcy over curtailing them. That’s even true of ObamaCare. Despite surging premiums, lagging enrollment, the growing burden on the economy, and the enduring opposition of most voters, the debate is about replacing rather than simply repealing it.
If the objective were simply to prove why something as important as health insurance should never be turned over to the government, lawmakers would simply pass a health-care freedom amendment allowing people to buy insurance outside ObamaCare, as they were originally promised, and let the program die of its own weight. But since Republicans have promised to protect Americans from the consequences of ObamaCare’s failure, what might have been a valuable learning experience is not a viable option.
ObamaCare subsidized small employers to provide health insurance, funded massive subsidies on the health exchanges, and imposed increasing penalties on the uninsured who did not buy insurance on the exchanges—spending $67 billion to subsidize the purchase of private insurance in 2016 alone. From its adoption in 2010 through 2016, according to data from the Centers for Disease Control, the number of Americans with private health insurance has risen by 14.6 million, or 8.9%.
That’s not as impressive as it sounds. Even though HillaryCare was defeated, the number of Americans with private insurance rose 7.5% between 1992 and 1998, through wage and job growth alone. Applied to the 2016 population, the growth-induced increase in the percentage of Americans who obtained private health insurance during the comparable stages of the Clinton recovery would have been 12.3 million. To put it another way, compared with what a strong recovery would have been expected to produce without new subsidies, ObamaCare added only 2.3 million people to the private insurance rolls at a cost of $29,130 each.
The comparison brings home two important points. First, subsidies are a poor substitute for economic growth, even in providing health insurance. Second, the exorbitant cost of ObamaCare shows how inefficient government subsidies are in helping people meet even basic needs.
But ObamaCare’s problems are not just the result of poor government engineering. They are the result of the financial physics of massive government overpromising. By allowing people to buy subsidized health insurance after being diagnosed with a major illness, ObamaCare encourages them to delay buying insurance until they are sick. Its massive subsidies pay 75% of premiums for families earning the median household income and provide subsidies to families of four earning as much as $97,200. It will add 18.6 million people to Medicaid over the next five years, bringing almost a quarter of the U.S. population under the program.
These entitlement expansions come at a time when Medicare faces insolvency in 11 years and Social Security in 17 years. Further, when interest rates simply return to their historic norms, the cost of servicing the post-Obama national debt will more than double, sending the annual federal deficit permanently over $1 trillion a year if nothing else changes.
Democrats could have continued providing ObamaCare benefits only by doing three things Republicans don’t want to do: First, coerce more relatively young, healthy people into the system to be exploited. Second, suppress the explosion of health insurance premiums by using the powers granted in the Affordable Care Act to ration care—something Mr. Obama delayed out of fear of political blowback before the election. Third, preserve the antigrowth ObamaCare 3.8% dividend and interest tax on investors and small businesses.
The hard truth is that Republicans cannot come close to matching ObamaCare’s extraordinary benefit package and its massive expansion of Medicaid while having any hope of avoiding ObamaCare’s taxes, rationing, coercion and economic stagnation.
The Republicans’ best option is to make good on the Democrats’ broken promise by allowing those Americans who believe ObamaCare is a bad deal for their families to leave the program and buy health insurance in the private market, independent of ObamaCare’s constraints. As younger, healthier families obtain lower premiums by fleeing ObamaCare, those who remain in the program would be forced to pay a larger share of the cost of the benefits they receive.
That would re-create some of the same dynamics that existed when Congress repealed the Medicare Catastrophic Act in 1989, a year after its enactment. The MCA was overwhelmingly repealed with no grief or attempt at resuscitation. It died from the rarest of government diseases: honesty. Because it became law during the Gramm-Rudman era of budgetary discipline, the supplement to Medicare had to be fully paid for. President Reagan further insisted that those who benefited should pay for the program. When the beneficiaries had to pay for what they were getting, they revolted—literally chasing the House Ways and Means Committee chairman, Dan Rostenkowski, down a Chicago street.
As beneficiaries pay an ever increasing share of the cost of the benefits they receive, support for ObamaCare will plummet and Democrats will have a strong incentive to negotiate a replacement. Ultimately, Republicans will probably need to use reconciliation—a procedure requiring only 51 Senate votes—to terminate ObamaCare funding. That would follow the precedent Democrats set when they allowed the Bush tax cuts to expire at the end of 2012 and then negotiated a revision on their own terms in just three days.
ObamaCare could never have survived without forcing many more healthy Americans into the system to subsidize those benefiting from the program—exactly what the single-payer program Bernie Sanders and Hillary Clinton endorsed would have done. In scrapping ObamaCare, Republicans should be careful not to shoulder more than the objectives of finding a cost-efficient way to deal with pre-existing health problems, strengthening Americans’ ability to keep their insurance when they get sick or change jobs, and block-granting Medicaid to the states.
If they try to do more, they will be in danger of only changing the name of ObamaCare. They would then own a program that is detrimental to freedom, fiscal responsibility and economic growth.
Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute.