The American Spectator

Special Report

There's an absolutely fabulous article on the cover of last week's Weekly Standard, written by, of all people, an associated editor of the Atlantic Monthly. I didn't know we had people from Atlantic on our side!

I'll summarize. Ross Douthat and collaborator Reihan Salam ("a writer in New York") argue that Republicans are now the "Party of Sam's Club," meaning loyal patrons of Wal-Mart. The GOP has won the masses. We've pried all those blue-collar families away from the Democrats because the former New Deal loyalists have become alienated by the social liberalism and elitism of Howard Dean's Democratic Party.

The trouble is there's now a huge gap between Republican leaders and their constituents. The party apparatus is dominated by "enterprisers" -- ambitious go-getters (mostly male) who are confident of their abilities and ready to cut themselves free of "big government." This has some emotional appeal to working families but it doesn't jibe with their checkbooks. Most low-to-middle-income people simply aren't secure enough to say, "To hell with social programs. I can handle this stuff myself."

Consequently, you get things like Social Security reform, where Bush is asking people to give up a secure -- if bankrupt -- federal program in exchange for the responsibility of saving for their own retirement. It appeals to core Republicans but doesn't resonate with the people who voted them into office.

Douthat and Salam take note of Mickey Kaus's critique that Bill Clinton should have tackled welfare reform before health care. Welfare reform was more straightforward and -- in retrospect -- had a better chance of succeeding. Instead, Clinton tried to pawn off the diabolically complex "HillaryCare" and accomplished nothing except cementing his reputation as a big-government liberal and losing the Congress in the process.

Learning this lesson, Bush should tackle health care instead of Social Security. First, the subject is far more immediate to most people's needs. Nobody feels threatened by Social Security's remote insolvency while everybody agrees there's a health care crisis today. Second, the chances of success are much greater. There are more obvious market distortions in health care than in retirement savings. Third, healthcare reform can fold very nicely into efforts to improve the tax code.

I've been writing about this subject for years, although hardly anybody ever pays any attention. The whole issue is too complicated. I'm taking another stab at it in the forthcoming issue of the American Enterprise, which is doing a whole spread on health care. But here, briefly, are my suggestions.

THE KEY TO THE WHOLE health insurance mess lies in one word -- an acronym, really -- ERISA. ERISA is the Employee Retirement Income Security Act of 1974. It's too complicated to go into now (read the Enterprise article), but basically ERISA has created a two-tier health insurance system in the U.S. by allowing large corporations and other major organizations to opt out of the market and form their own plans.

Ordinary health insurance has been eviscerated by state legislatures. Each state is its own little insurance fiefdom (see McCarran-Ferguson Act, 1945) and state legislators constantly screw things up by responding to every petty lobbying group and "mandating" their type of coverage. You can't buy basic health insurance anymore. You have to enlist the services of chiropractors, psychologists, occupational therapists, holistic diviners, and every other kind of snake charmer whose professional association has given a testimonial dinner for the chairman of the legislature. Consequently, insurance is unaffordable to most people.

Major corporations have figured out how to get around this through ERISA. They set up "self insurance" pools and use ERISA to bypass state legislatures. Because ERISA is a federal law, it trumps state law. Insurance companies liked dealing with major employers because they bring in large pools of healthy workers. Of course "self insurance" was supposed to mean a corporation didn't buy coverage from the major insurance companies, but everybody has gotten around this through "stop-loss" insurance and other devices. (I know this is complicated -- that's why nobody ever pays attention.)

Given all this leeway -- plus the loophole that makes health benefits tax-free -- the corporations themselves have gone overboard, providing all kinds of gold-plated coverage. That's why General Motors is going bankrupt. But the removal of all these major-company employees (now more than half the population) from the national health insurance pool also makes it virtually impossible for anyone not in an employee plan to buy coverage. Insurance is pooling risks. The bigger the pool, the more manageable the risks and the cheaper the premiums. Right now there basically is no private health insurance market. Everybody either gets coverage through an ERISA plan or goes without. That's why 16 percent of the country remains uninsured.

Insurance really only works well when it is somehow mandated. There's no homeowners' insurance crisis or auto insurance crisis (well maybe just a little). That's because nearly all homeowners and drivers are required to carry it. You can't get a mortgage without insurance. In most states, you can't own a car without it, either.

With health insurance, however, people hang back. Young couples don't buy coverage until they decide to have a baby. People don't start looking for it until they get sick. That's not how insurance works. It's all the people who are well who are paying for those who are sick. Insurance companies used to compensate by "rating" customers, but then the legislatures stuck their noses into that and mandated "community ratings" and other forms of "non-discrimination." Now people pay the same rates whether they're old or young, sick or well. So young and healthy people go without it.

SO HERE'S WHAT WE DO. Congress should mandate health coverage. Everybody has to buy a no-frills $500 policy -- high deductibles and high co-payments but protection against catastrophic accident or illness. However, half the cost -- $250 -- comes as a tax credit, which essentially
means the government pays for it. The insurance companies will come up with a decent policy. Because this is a federal program, the state legislatures can't intervene.

After that, employers can add whatever additional coverage they want but without the tax exemption! That way we can accomplish one of the most noteworthy goals of tax reform -- eliminating the exemption for health benefits -- without reducing anybody's well-being. People without employee coverage can start Medical Savings Accounts -- which already have a requirement for buying basic coverage but without the tax credit.

All this would give us "national health insurance" without having the government take over the medical profession or the insurance industry. It might even substitute for Medicaid -- which state legislators would trade in a heartbeat for the thrill of writing insurance policies. Best of all, it would give a firm financial footing to those "Sam's Club" members who are the backbone of the new Republican majority.

topics:
Trade, Health Care, Social Security, Medicaid, Books, Law