Matt Miller clarifies healthcare reform

Matt Miller, a former Clinton budget official, provides rare clarity on the broad outlines of emerging U.S. healthcare reform and concludes:

Of course, just because Obama is on a path to give America the Romney health plan with McCain-style financing does not mean the Republicans will embrace it, if it seems politically more attractive to scream “socialist”. But the rest of us do not have to listen to them. Mr Obama can fairly claim to have championed a bipartisan health policy, even with few Republican votes.

Within that broader irony Miller captures a narrower one: Massachusetts healthcare reform, repudiated by the slogan-spewing former governor who signed it into law, is working:

The central mechanism through which Mr Obama seeks to extend coverage and restrain costs is via new “exchanges”, insurance clearing-houses, modelled on the plan Mr Romney enacted in Massachusetts. The idea is to let individuals access group coverage from private insurers, with subsidies for low earners.

The approach is so sensible that Ted Kennedy urged Massachusetts Democrats to support then-Governor Romney in passing it in 2006. The results have been impressive. The ranks of the uninsured have been slashed; just 2.7 per cent of residents now lack coverage, the lowest of any state – against 15 per cent nationally. Costs, which overran as the programme was brought in more quickly than planned, are now on budget.

The exchange, according to Miller - not the public plan, which he's assuming Democrats will sacrifice -- is the core of reform:

A federal version of this exchange (or federal sponsorship of state versions) would for the first time give non-elderly, non-poor Americans whose employers don’t offer coverage, or offer it at premiums they can’t afford, access to group insurance rates. It’s difficult to overstate the breakthrough this would represent. The inability of millions of Americans to access group coverage outside the employment setting is one of the most damning features of US healthcare. It means individuals with pre-existing health conditions are often uninsurable, which in turn explains why medical bills are, shamefully, a leading cause of bankruptcy. It locks budding entrepreneurs into jobs they loathe because their families need the coverage. Structuring these exchanges so health plans have incentives to compete on value is exactly the role government should play.

Miller also offers a broad perspective on cost, and an argument that ending or capping the employer tax exemption for healthcare is the logical way to pay for it:

Start with cost. It’s easy for foes to feign shock at Obamacare’s $1,000bn 10-year price tag, but a trillion dollars ain’t what it used to be. That is just over 0.5 per cent of gross domestic product over the same period, and barely 3 per cent of the roughly $35,000bn total healthcare spending during that time. If Mr Obama’s approach is otherwise sensible, the idea that America can’t afford it is preposterous...

When it comes to financing expanded coverage there’s no way to get there without revisiting the current scheme, under which employees escape taxes on employer-provided health benefits. This subsidy is so massive, at $250bn a year, and regressive – reserving its biggest bounty for those with the most generous plans – that a phalanx of health economists from both political parties recently begged Congress to trim it.

Miller's breezy assumptions that unions will cave on the employer tax exemption, and Obama and the Dems on the public plan, will be challenged by many who are deeply committed on both issues. He also does not address the crucial issue of how the emerging bill will tackle runaway healthcare inflation, which, as Peter Orzag never tires of reminding us, is the central front in the war on future deficits. But his 30,000-foot view does bring into focus the likely outlines of reform, the core issue of expanding coverage, and the absurdity of the current terms of U.S. political debate.