Again and again, federal policy drives costs upward, and those rising costs are the reason so many people are unable to afford insurance, and a major reason the fiscal prospects of the federal government and the states are so grim.
No state can fix these problems on its own. No state can call a robust national market in individually purchased insurance into being in the face of federal policies that suppress its emergence. No state can do anything to improve Medicare. Nor can any state alter the structure of Medicaid, even though that structure moves states to act in systematically perverse ways.
We should thus not be surprised that Romneycare turned out to be deeply flawed. It was an attempt to work within the boundaries of a health-care system badly deformed by the federal government in ways that no state has much power to fix. Thus Romneycare established an “exchange” or “connector” that was originally designed as a kind of work-around for federal tax policy: The idea was that individuals would be able to pick their own insurance plans, as in an individual market, but their employers would still be nominally footing the bill and thus the plans would qualify for the existing federal tax break. While the individual mandate’s potential to help control costs has long been exaggerated, it was tempting for a state to turn to it since it has very few other options to bring costs down. The whole thing, finally, was designed to increase the state’s intake of federal Medicaid dollars.
Whether all of Romneycare’s architects saw it this way or not, the program may be best understood as an attempt to mitigate, for a single state, the problems created by federal policy. In our view it was a misguided and unsuccessful attempt. Romney himself, unfortunately, continues to defend the basic structure of the Massachusetts law. But whether or not Romneycare was the correct response to the situation the state confronted, the context of federal health-care policy is entirely different. The federal government does not, and national politicians do not, have to take for granted badly broken existing federal policies and work within them. They can instead fix those policies. Indeed, they must fix them.
Romney understood that before Obamacare: In 2008, he proposed reforms that would have addressed some elements of the national problem by bringing market forces to bear on health care, and not by employing the model of Romneycare on a national level. The perversity of Obamacare is that instead of addressing the ways in which federal policies make an efficient and competitive health-care system impossible, it doubles down on those policies and adds a highly convoluted system of further public subsidies and oppressive rules on top of them. In short, Obamacare takes a bad health-care system and makes it much worse, in ways that are likely to exacerbate the grave problems with American health-care financing and to be very difficult to reverse once fully implemented.
Thus Obamacare takes a Medicare system that stifles innovation and prevents competition, and maintains its irrational structure while subjecting it to a rationing board that will undermine access and quality. Romney, on the other hand, has proposed to reform Medicare to allow competition to drive efficiency and cost control while continuing to provide a guaranteed insurance benefit to the elderly.
Obamacare vastly expands Medicaid without reforming its structure — intensifying the incentive for overspending and drawing more middle-class Americans into a segregated, subpar health system. Romney has proposed to reform Medicaid into a block grant to the states, to give states an incentive to improve the program’s quality and lower its costs, and to find ways to integrate the poor into the broader health-insurance system rather than draw the middle class out of it.
Obamacare adds to the economic distortions created by today’s system by leaving the tax treatment almost entirely unchanged but placing a new entitlement program alongside it and subjecting both to an additional onerous layer of regulations. Romney has instead proposed that the tax code treat people who buy insurance themselves just as it treats people who buy it through their employers. Done the right way, this policy would gradually nurture the development of a working individual market while not unduly disrupting the arrangements of the satisfied many.