James C. Capretta is a fellow at the Ethics and Public Policy Center and a health policy consultant.
Yuval Levin, also a fellow at EPPC, is the editor of National Affairs.
Even as they engage in heated battles over the budget and try to define a new agenda from their perch in the House of Representatives, conservatives clearly understand that the key to turning things around — to averting a debt crisis and defending the ideal of limited government — is winning the 2012 election. Only with a new president can they halt and reverse the leftward leaps of the past few years and address the increasingly dire consequences of six decades of welfare-state expansion.
It may be less obvious, however, that the key to what that president will need to do, and therefore also to how he will need to run, is health care reform: undoing Obamacare and replacing it with real reforms that can contain costs while providing consumers with high-quality care.
This is so, first of all, for political reasons. Obamacare remains very unpopular with Republican and independent voters — no less so than it was when it passed a year ago — and even Democratic voters are not very happy with it. To a degree that Democrats in Washington seem not quite to have grasped, health care was at the center of the populist uprising that produced a Republican House in last year's elections. Other issues — the oversold "stimulus," the bailouts, the regulatory overreach, the persistent levels of high unemployment — certainly provoked outrage. But President Obama's health care push was the fuel that kept the populist fire going.
This was no coincidence. For substantive reasons, and not only political ones, it is right that health care should be so important to voters alarmed about our fiscal crisis and intent on restoring some limits to government. Even before Obamacare, health care spending was the number one reason for growth in government and the driving force behind the explosion of our debt. In 1975, spending on Medicare and Medicaid was just 1.3 percent of GDP. By 2010, it had risen to 5.5 percent, a 400 percent increase.
Moreover, Medicare and Medicaid are big reasons why health care costs are rising for everyone. Instead of encouraging efficiency, both programs reward excessive cost growth with larger taxpayer subsidies. Medicare has a massive unfunded liability that will leave future generations with punishing tax hikes, paltry benefits, or quite possibly both. Medicaid claims to provide millions with insurance coverage but its reimbursement rates are so low that Medicaid patients can't get care in mainstream physician practices or clinics. The government estimates the programs pay out nearly $70 billion annually in fraudulent claims.
Obamacare doubles down on this failed entitlement approach, adding 15 to 20 million more people to the Medicaid rolls (so that more than 70 million Americans will be Medicaid recipients) and at least 20 million more to a new entitlement for the lower middle class.
Even with very optimistic assumptions, that's at least $200 billion annually in new entitlement obligations on top of the massive amounts already being spent. There's little question that if these obligations are allowed to stand, pressure for large tax increases will not be far behind.
Obamacare attempts to deal, moreover, with the problem of rising costs by centralizing management of the health sector at the federal level. Through Medicare's price controls, and other mechanisms like comparative effectiveness research, the federal government is going to micromanage how doctors and hospitals organize and care for patients.
The result will be even more bloated government expenditures, crushing tax burdens, and middle-class dependency on government-arranged health services.
The design of Obamacare, particularly the fact that its major provisions do not take effect until 2014, means that there is time to avert this disaster. But there is not much time. Once Obama-care's major entitlement expansions go into effect in three years, it will be very difficult to reverse them. And the structure of our existing health care entitlements, combined with the retirement of the baby boomers (which began last year), means that serious reforms of Medicare and Medicaid are needed very soon.
The outlines of such a reform have been clear for some time. What's needed is a functioning marketplace in health care, with cost-conscious consumers seeking and finding more value for their money. To get there, the government must stop subsidizing excess in all of the major health care settings — Medicare, Medicaid, and employer-sponsored plans. Instead, the government should provide fixed levels of financial support toward insurance and care that patients can control. The government would oversee the marketplace, but resources would be allocated based on consumer choices and preferences.
This reform would bring costs under control and head off the impending fiscal crisis. But it's not simply a fiscal reform. It would also transform American health care for the better. Health care and insurance providers would have to become far more efficient and productive to avoid losing market share to competitors, and they would be forced to focus on the needs and desires of patients, not government payers.
For Republicans committed to maintaining a vibrant and free society, there is no choice but to make genuine health care reform the centerpiece of their domestic agenda. If the health care debate is lost, then the fight for limited government is lost as well.
That means that the effort to repeal and replace Obamacare and to fix our health care entitlements must be well underway by 2013. And that, in turn, means that a Republican president must be elected in 2012 having run on a platform of real health care reform. For those who aspire to be that Republican president, the time to develop that platform is now.