A fantasy-based case for Obamacare

It's not surprising that The New York Times snapped up an opinion piece entitled "The Conservative Case for Obamacare," by my American Enterprise Institute colleague J. D. Kleinke. Finally, a truth-teller!

But what is surprising is the obvious superficiality of Kleinke's arguments. He either doesn't understand Obamacare and the conservative case against it, or has willfully distorted his descriptions of both to serve his case.

Kleinke's central thesis is that, contrary to the overheated rhetoric of the right, Obamacare is actually a conservative, market-friendly reform plan, built on two fundamentally conservative ideas — the state-based exchanges and the individual mandate — that will allow consumer choice and market forces to finally work in the health sector. Thus, conservative opposition to Obamacare isn't about genuine differences over policies. It's entirely political. Conservatives are against Obamacare because President Obama is for it! In Kleinke's view, it's that simple.

This argument didn't originate with Kleinke. He's parroting points that the president and his supporters make — not very credibly, since they also relentlessly attack Governor Mitt Romney and Representative Paul Ryan for proposing market-based entitlement reforms.

The fundamental struggle in American health care is over how to allocate resources. Or, put differently, who should be in charge of allocating scarce health-care resources? The government, or consumers in a functioning marketplace?

Most liberals believe the answer should be the federal government, both because they believe the marketplace won't work to control costs and because they suspect the marketplace would result in an inequitable distribution of health services. Conservatives disagree. They believe that a functioning marketplace would be far more effective than the government in controlling costs, via productivity improvements and more medical innovation, which would also lead to higher patient satisfaction. And they believe a market-driven system can be both efficient and equitable.

Every intervention in health-care policy is judged by liberals and conservatives alike through this lens of "the government or the market."

So, the question is, which is it with Obamacare? Does the 2010 law move us closer to an effectively functioning marketplace, as Kleinke claims? Or is it a significant and possibly irreversible step toward establishing federal-government control over the health-care system, as most conservatives contend?

One clue can be found in the views of those who were and are Obamacare's strongest supporters, such as Peter Orszag, the president's first director of the Office of Management and Budget. Orszag, along with just about every other left-leaning economist and health-policy analyst, has been spending much of his time lately attacking the notion that market-based reforms could work to control Medicare costs. In his view, the only solution is for the federal government to impose cost-control schemes. Of course, in the Medicare program, the government already has the power to impose such controls, which is why Orszag and others are so adamantly opposed to converting Medicare to a system built on true consumer choice.

Are these the views of someone who wants to see "conservative economic principles" reign supreme, as Kleinke asserts will occur under Obamacare? Of course not.

The next clue can be found in what Kleinke implicitly suggests is a bastion of market-based health care: Massachusetts. Over the past year, the state, at the behest of the governor, has moved to impose the next phase of "reform." Under the new law, all health-care spending in Massachusetts is being tracked with the clear intention of keeping it in line with state-determined targets in future years. As usual, political maneuvering has left early-stage enforcement a less-than-conclusive indicator. But there should be no doubt about the ultimate destination of this effort: Massachusetts is rushing headlong toward the liberal ideal — a global budget for health care enforced by the state through regulated prices at every level. This is not the kind of health system conservatives have in mind, to say the least.

And it was all set in motion by the supposedly conservative ideas Kleinke says are the foundation of Obamacare. Most important, the imposition of the individual mandate is what greased the way politically for what will become a state-controlled structure, which is the antithesis of a market-based health-care system. When the government requires citizens to participate in insurance plans, it is quite natural for the citizens to turn around and demand that the price of compliance be "affordable." And that is of course what is happening in Massachusetts. When the government requires enrollment in insurance, the government becomes the central focus of the cost-control discussion. That's not a conservative outcome, and it's exactly the one Obamacare proponents want.

The very same dynamic is playing out nationally. Now that the law is on the books, its supporters are moving on to step two, which is imposition of what amounts to full federal control over health spending nationwide. And, quite conveniently, the state-based exchanges that are supposed to be the saviors of the marketplace will become the means by which the federal government will exert its regulatory control.

The other great struggle in U.S. economic policy is over the future of the entitlement state, which Kleinke ignores entirely. Even before Obamacare, the federal budget was buckling under the weight of massive increases in entitlement spending. In 1972, the federal government spent 4.4 percent of GDP on Social Security, Medicare, and Medicaid. By 2011, spending on the "big three" had risen to 10.3 percent of GDP. The increase alone, 6 percent of GDP, is larger than the entire budget of the Defense Department. There is no greater threat to the long-term strength of the American economy than uncontrolled entitlement spending.

Instead of reforming these entitlements while trying to broaden insurance coverage, Obamacare leaves the current behemoth in place and then piles massive new commitments on top of it. According to the Congressional Budget Office, the law will entitle at least 30 million people to expensive new health-insurance subsidies, and that number could easily rise by 20 million or more if employers dump their workers at moderately higher rates than the CBO assumes. The new spending for these commitments will grow at a rate of about 8 percent per year from 2016 through 2022, pushing the new entitlement's cost at the end of the ten-year projection period to $250 billion a year. Over the long run, this new spending commitment will add trillions to the government's unfunded liabilities.

The law's proponents argue that these commitments are fully paid for with spending cuts and taxes. This is false. A primary source of funding is the reimbursement cuts in the Medicare program that are so plainly unrealistic that the chief actuary has said repeatedly they can't be relied upon to finance the bill. And the tax hikes in Obamacare are reason enough for conservative opposition: Totaling $800 billion over a decade, these taxes will lessen growth by reducing investment and the labor supply, and will reintroduce "bracket creep," a way to push tax collection higher and higher with each passing year. The CBO estimates that Obamacare will push up federal tax collection by more than 1 percent of GDP by 2035, largely because the taxes will apply to more and more middle-class Americans.

There's plenty else to dislike in the law, of course: There's IPAB, which hands over authority for Medicare price-setting to 15 unaccountable bureaucrats; the large increase in effective marginal tax rates for those in the law's new subsidy structure, which will discourage work; the strong disincentives for employers to employ more than 50 people . . . and on and on.

But Kleinke never mentions any of that. Instead, at the end of his piece he rolls out the bizarre contention that the real reason for conservative opposition to the law (beyond general animosity toward the president) is the GOP's relentless war on women:

Social conservatives' hostility to the health care act is a natural corollary to their broader agenda of controlling women's bodies.

It's hard to know what to say about such a comical caricature. But perhaps Kleinke did us a service by including it, because it's clear indicator of how seriously we should take the rest of his argument.

James C. Capretta is a visiting fellow at the American Enterprise Institute and a fellow at the Ethics and Public Policy Center.

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