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A Bipartisan Health Care Plan
Obama needs to admit his errors and reach out to Republicans.

Paul Howard
January 27, 2010

It's never too late to do what you said you were going to do. This is the chief lesson that President Obama should draw from Massachusetts voters' stunning rebuke to Democrat's bloated and expensive health care legislation. Obama campaigned as a centrist who would draw on the best ideas of both parties, but he has governed by deferring to the liberal wing of his party and locking Republicans out of Democrats' backroom health care deals. As a result, the current bill is justly opposed by the majority of Americans as too expensive, too convoluted and packed with bribes, payoffs and exemptions for too many special interest groups.

As a sign of his (new) good faith, the president should invite the Congressional leadership of the Republican Party to the White House, listen to their concerns and find ways to hash out policy compromises that will result in truly bipartisan health care reform.

During the presidential campaign Obama attacked John McCain's proposal to replace the current tax exclusion for employer-based health insurance with a universal, refundable tax credit for the purchase of at least catastrophic insurance. "For the first time in American history, he wants to tax your health benefits," Obama said, ignoring the fact that the vast majority of Americans would have benefited from McCain's plan and that many economists—on both the left and the right, including one of Obama's own policy advisors (Jason Furman)—have embraced some variation of the same idea.

Obama won the election, but put himself at a disadvantage by axing the single best idea for leveling the playing field between the insured and uninsured and helping to slow down the rapid run up in health care costs. Afraid of being seen as a flip-flopper, the president instead embraced the Senate's idea of taxing high-cost health plans with a 40% excise tax—a second-best ideaѿbut then proceeded to gut it by carving out a $60 billion five-year exemption for public and private unions, which have the most lavish health care plans.

By combining a universal tax credit or tax deduction with a gradual phasing out of the employer tax deduction, the president can both expand coverage of the uninsured and introduce more incentives for every consumer to find cost-effective health care coverage. The revenue gained from ending the tax exclusion (currently valued at over $200 billion annually) can help offset the cost of expanded coverage.

Get serious about medical malpractice reform. Obama has only paid lip service to medical malpractice reform, despite the billions of dollars wasted annually on inflated medical malpractice insurance, and tens of billion lost to defensive medicine—physicians prescribing tests, drugs or even hospital stays out of the fear of being sued.

The president has ruled out damage caps on malpractice awards, but there are plenty of good, bipartisan ideas for addressing runaway litigation—including specialized health courts or providing a "safe harbor" from punitive damages for physicians who agree to practice according to "best standards." Embracing real medical malpractice reform would burnish Obama's bipartisan credentials by showing he was willing to tackle a Democratic donor group that has had—up until now—a stranglehold on his party.

Promote real interstate insurance competition. Democratic legislators have used high-cost states like Massachusetts and New York as models for insurance coverage, loading insurers with taxes and expensive regulations like community rating and guaranteed issue, and mandates for niche services like orthodontics that drive up the cost of insurance. This makes even basic health coverage less affordable and is one of the chief reasons why people go without coverage.

Instead, consumers should be able to buy insurance across state lines, forcing insurance companies to compete and offer a wide range of prices and services to consumers. The feds can help by mandating that insurance companies standardize the descriptions of insurance coverage so consumers can easily tell what the policies cover, and how much they cost, similar to the system now used for Congress' own health coverage through the Federal Employees Health Benefit Plan.

Rein in Medicare spending through increased competition and choice. The data the president likes to cite about the disparity in health care spending across U.S. regions are true but come from research on the Medicare program. Current legislation tries to fix the problem with arbitrary price cuts in Medicare provider and hospital reimbursements, a flawed strategy that hasn't worked because it's impossible for bureaucrats to accurately value the thousands of prices and inputs that go into Medicare services.

Digg ChannelExperts agree that the current fee-for-service model is part of the problem, but we haven't found a good solution yet. One way out of this trap is to stop trying to legislate from the top down, and move to a bottom-up approach, by giving Medicare recipients vouchers (as has been proposed by professor Mark Pauly at the Wharton School) to buy competing private plans, letting insurers compete for seniors' business. This approach has already worked in the Medicare Part D drug program, where seniors choose from a variety of drug plans, and costs are about a third lower than initially estimated.

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