EPITAPH FOR HEALTHCARE REFORM

Where did it all go wrong for repeal-and-replacement of the Affordable Care Act?

Short answer:  pre-existing conditions (PECs).  The PEC solution in the ACA is the one part of the law that most people want to rescue, the one that represents financial protection of people who are unable to obtain healthcare insurance because their health issues make insurance unavailable or prohibitively expensive.  But the Republican Congress was unable to agree on a PEC fix.

Longer answer:  the conservative mantra, a big factor in the Republican wins last November, was that healthcare insurance (and healthcare itself) should be offered and purchased in a free market, where the competitive forces of supply and demand would drive down the prices of insurance and care.  But after the dog chased the car for 7 years and finally caught up with it, the dog had no idea what to do with it.  Republicans seemed stunned to learn that the public cared more about taking care of people with PECs than it did about free-market competition for the pricing of healthcare and insurance..

The problem:  after 85 years of living with ever-increasing governmental regulation and price controls, America no longer remembers how markets work.  The ACA solution fixed prices and had people with PECs paying the same prices for insurance as everyone else, which amounted to a cross-subsidy – people without PECs would pay more than they should, in order to allow people with PECs to pay less.

Conservative Republicans in Congress were put-off by the price-fixing/cross-subsidy apostasies.  Recalling the 1970s oil-price debacle, they knew that price-fixing never yields sustainably-lower prices.  Recalling Economics 101, they regarded cross-subsidies as “re-distribution of income,” a sad relic of communism.  But only Sen. Ted Cruz seemed to consider that there might be a way to avoid price-fixing and automatic re-distributions while still taking care of people with PECs.  The Cruz amendment would have been the gateway to a format that Nobel economist Milton Friedman had discussed decades earlier,  vouchers:  first you free up the markets for healthcare and insurance, which drives down prices, and then you give money (or vouchers) directly to people who cannot afford to pay market prices – whether because they are broke or because their PECs put the cost of insurance beyond their means.

It is clear that Americans want to help those in need.  The stumbling block is not a flaw in our moral character, it is a flaw in our governmental approach.  The Cruz approach was to separate the pricing of healthcare and insurance from the granting of assistance to people with PECs.  To those who might ask whether this would induce everyone to put off buying insurance until he or she developed a condition that required healthcare services, the answer is simple:  put the feds in charge of deciding who is entitled to assistance, when, how much, and for how long, and make sure no one gets any money without first having substantially exhausted his or her financial resources. Gaming the system, as people have been gaming the ACA, would be minimized.

A pair of concise summations of this approach:  “If we’re going to subsidize Americans who can’t afford health insurance, do it directly. Don’t do it through the premiums of others,” said Sen. Jeff Flake (R., Ariz.).  “The obvious compromise, the only good solution, is to do both: free-market pricing of healthcare and insurance in order to drive down prices, coupled with government subsidies for the needy to enable them to buy care and insurance at market prices,” said your humble scribe in an earlier blog post.

So, why was the Cruz model rejected?  Were the Republican resisters just under-informed, or should we be more cynical about their motives?  Did the insurance industry or anyone in the “swamp” really want a free-market solution? Why didn’t the Trump administration endorse and sell the Cruz draft proposal?  Does anyone believe that repealing ACA or letting it die on its own would be anything but a meaningless stunt, possibly an invitation to financial or civic chaos, with no way to sustain American healthcare without massive infusions of new money our government does not have?

 

TRUMP IS TWO STEPS AHEAD OF US ON HEALTHCARE

The GOP’s healthcare gambit is an elaborate parliamentarian ploy, designed for winning rather than going down in high-principled flames in a Senate filibuster. Phase I is a head fake, a means of exploiting the reconciliation rules that allow you to dodge the filibuster so long as your bill meets the revenue-related standards.  Here is the play:  You go into reconciliation with a filibuster-proof Phase I bill, in which you give the left most of the goodies that are all they really care about (the stuff the conservatives refer to derisively as “entitlements”), and you give the right just enough from their wish-list to make them shut up for a little while and go along with the plan. The Rand Paul contingent makes enough noise (all of it innocent and principled) to make it seem that the left is dodging a bullet, has won a great victory, that the whole thing represents a capitulation by Trump, who turns out to be just another whore – one of the left’s own.  Then, after a few months of the left’s luxuriating in the sense that their achievement was real, you drop the hammer.  Phase II, which Trump has lacked the self-discipline to abstain from delicately telegraphing, is when you get to the heart of the reform, which is to remove all the Obamacare crap that effectively precluded a free market in healthcare and insurance – and to remove the ban on interstate offerings of insurance.  For all we know, the Republicans might even throw in tort reform.  The goal is that by the time we get to Phase II, which requires 60 votes in the Senate, the Democrats will have been sufficiently sated and sedated that the Republicans will have a reasonable chance of stealing the requisite 10 Democrat votes.

Not saying it would work, just that it is the only plan that has a chance of working.

FREE TRADE AS AN INDULGENCE

In attempting to reconcile Trumpism with American conservatism, and upon discovering that our new president seems to favor a set of policies that look a lot like those of the party he chose to represent, one inevitably confronts the outlier: trade.  The president seems on board with the Republican mainstream on reducing deficits, lowering tax rates, taking cronyism out of the tax code, reducing government-regulation of the private sector, etc.  But international trade is the great divider:  Trumponomic trade policy appears to represent heresy against the church of Adam Smith.  With his disdain for NAFTA and TPP and his interest in a border-adjusted trade tax, the president gives the impression that he does not appreciate the benefits of free trade.  Why do you suppose that is?

A refresher:  free trade is a sacred Republican cow.  Conservatives think trade wars are the worst thing you can do to an economy short of centrally-planning it.  An irony:  free trade is a key component of globalism, and globalism (open borders and all) is quintessential Obamaism, which is what the president has railed against and the nation voted against. (Note: before jumping to associate nationalism with Nazi or Italian fascism, you should remember that for nearly a century globalism has been associated with Soviet communism and socialism.)   A theory:  the president understands Milton Friedman, he is aware of the Smoot-Hawley debacle, and he gets it that free trade is the rising tide that normally lifts all national boats, but he is not satisfied with the vision of an America that no longer owns the biggest boat.  The president understands the theory of comparative advantage, he knows that displaced steel workers and auto workers might eventually find higher-level/higher-income work instead of wasting their talents on lower-level jobs that could be performed in Asia for lower salaries, and he knows that free trade should enable the average American to continue to buy more and more stuff.  What’s not to like?

The argument here is that the president’s America-First nationalism relates more to culture and patriotism  than to trade, and that the president does not want trade wars, that he generally favors free trade, albeit subject to two major exceptions:  (i) he is not interested in free-trade deals with nations that are dedicated to surpassing us as an industrial and military power through domestic subsidies, theft of intellectual property, dumping, currency manipulation, tariffs, over-regulation of US products and services, and other means of advancing their domestic industries and inhibiting American industries (e.g., China); and (ii) he is not interested in free-trade deals that are too fair, that leave money on the table – either deals with a peer nation that favor that nation, or deals with a weaker nation that fail to exploit that nation’s inferiority. To him, re-doing NAFTA means obtaining concessions from Mexico.

Trump surely understands that it is possible to maintain economic growth despite running trade deficits, that global free trade should increase the world’s aggregate economic growth and prosperity. But he recognizes that economic growth, while enabling Americans to buy more stuff and better healthcare, can still leave us with lots of unemployment and under-employment, as machine continues to replace man – and as America increases its production of replaceable men (and women). It might also leave us with diminished industrial and military power. The imbalance between the employed and the unemployed can be modulated by expanding the levels of direct-welfare (money) and de facto welfare (government jobs), though those actions might be socially unwise.  But the reduction in our industrial and military strength could be a major mistake. The president may well be thinking, what is the point of globalistic free trade if the consequences are an increased level of unemployed or underemployed citizens and a decreased level of national security, in return for our being able to buy more stuff?

Few doubt that the American economy of the future should be built around our world-leadership in information technology, but what if our displaced auto workers and our new college-graduates were not sufficiently educated and trained to enable us to maintain our leadership in IT, either because of the failures of our educational system and our culture or because everything we invent or create is eventually stolen or reverse-engineered by others?  What if one day we woke up and realized that we could not produce a car or an electronic device without outsourcing the production to an unfriendly nation, maybe an uncooperative one?  What if we could not maintain our military superiority because China or Iran or Russia, by legal or illegal means, had become our technological peer?

Free trade might be a good thing in a utopian global-economy, at least for a while, but maybe not so good when we are no longer a benevolent World Number One, no longer able to keep the South China Sea shipping lanes open for the purpose of accommodating that free trade, and there are no other qualified and willing volunteers to take on that responsibility.  America, most of the European Union and NATO, and most of the other alumni of the old British Empire are pretty much all that is left of the “free world,” and we are surrounded by Russia, Turkey, Iran, most of the rest of the Middle East (other than Israel), China, North Korea, etc., most of whom are openly striving to overtake us and perhaps kill us.  Few of these hostile players want to play by Marquess of Queensberry rules, such as free trade, except when they think it suits their purposes.

Joseph Kennedy is reported to have said, “I would be willing to part with half of what I had if I could be sure of keeping, under law and order, the other half.”  In the same spirit, your humble scribe would rather be a prosperous and free American than a super-rich Iranian and would be satisfied, even delighted, to leave some consumer goods on the table in order to have an American government that was willing to engage in a little economic nationalism in order to be able to defend the country against predators determined to dominate us.

JOHN ROBERTS WAS RIGHT

John Roberts was right!  The Chief Justice played the long game in 2012 (NFIB v. Sebelius) in rejecting a challenge to the constitutionality of the Affordable Care Act, and now he is looking good, his decision is starting to seem wise.

Among conservatives, conventional wisdom in 2012 was that Obamacare would be a catastrophe, that it would cause irreparable harm, and that it was the duty of our four-and-a-half “conservative” justices to invalidate the law before it was too late.  The Chief, nominated in 2005 because perceived as the best available conservative-jurist, had been expected, as a member of the Court’s conservative bloc, to vote to sustain the first legal challenge to the constitutionality of the ACA to reach the high court.  He was under enormous pressure to do so, but he shocked virtually everyone – including his conservative colleagues on the Court – by joining the progressive justices in voting to validate the ACA.  Most conservatives, jurists or not, were appalled, and many, in hindsight, indicated they should have swapped John Roberts for a conservative counterpart to Justice Ginsburg – that is, a jurist more interested in partisan outcomes than in disinterested legal-analysis.

A few of us got shouted-down in the process of trying to make the point that the Roberts ruling was not progressive or leftist at all, that it was in fact a quintessential expression of conservatism.  Our point was that the Chief had been loyal to one of the most fundamental principles of the Court’s mission:  do not declare an Act of Congress unconstitutional unless there is no reasonable basis for salvaging it, for finding it constitutional.  The foundation of that interpretive principle is the doctrine of separation-of-powers:  federal laws are to be made only by Congress, not by the President or the courts.

The Chief’s fear, in the view of some of us, was that the NFIB case might eventually become as important, and as unsettling and divisive for the entire country, as Roe V. Wade, the notorious 1973 case in which the Supremes not only bought the constitutional argument that the Fourth Amendment confers a right of privacy, but construed a state-law prohibition of abortion as an infringement of that implied right.  In our view, and possibly the Chief’s, abortion would have been a far-less controversial issue in 2012 had the Supreme Court decided in 1973 to leave abortion policy to the several states, because many states would have gone ahead and legalized abortion on their own initiative, while others would not – an outcome far less-provocative than having the courts take the matter out of the hands of the public.  But because the ’73 Court elected to settle the matter on its own, we were left with a simmering controversy that seems to have intensified rather than abating.

It has been reported that the Chief was troubled by the 2012 case, and that he changed his mind at least once before determining that the individual “mandate” under the ACA (the requirement that everyone obtain healthcare insurance) would pass constitutional muster if its enforcement were treated as a “tax,” even though the Administration had consistently characterized it as a “penalty.”  The Chief’s ultimate reasoning was that the penalizing of one’s going uninsured was the imposition of a tax, and Congress has the authority to impose taxes.  Although that reasoning was not uniformly shared within the progressive bloc of the Court, the Chief’s vote did create a majority in favor of validating the ACA.

During the ensuing uproar, few conservatives took the trouble to consider the possibility that the Chief’s intent was to reinforce the constitutional separation of powers by finding a way to honor the will of Congress and keep the decision out of the hands of the courts.  Moreover, few took the trouble to deduce that he was appalled by the prospect of rendering a controversial opinion that could have a serious impact upon the upcoming elections. Largely ignored was the possibility that the Chief did not want NFIB to become another Roe v. Wade, a lingering source of controversy and anger, and that he did not want the “conservative” bloc to be perceived as being as partisan (in favor of conservative positions) as Justice Ginsburg and her progressive colleagues were (in favor of progressive positions).

Most Republicans and conservatives have remained unaware of such considerations or unimpressed by them.  For many, the Roberts ACA ruling wasted what might have been the only chance for the nation to avoid the single-payer system toward which the ACA was ineluctably headed.  But a few inferred that the Chief might have reasoned that finding the ACA unconstitutional would not permanently stamp-out the push toward socialized medicine, that ironically it might assist the Left by mobilizing them for the 2016 elections, thereby helping to make single-payer healthcare permanent in this country, whereas a Republican victory in 2016 would at least give the Republicans a decent chance of legislatively unwinding ObamaCare before the damage had become irreversible.

The view here is that the Chief played the long game, and now it looks like he will win his bet. The Republicans did sweep in 2016 and are now poised to replace the ACA.  After four years of President Trump, Roe v. Wade might still be the law of the land and the source of continuing anger and controversy, but ObamaCare might have been replaced by a healthcare program so popular that the original ACA would be nothing but an unpleasant memory.  One way or the other, Chief Justice Roberts will have left us with a healthcare system (whether the original ACA or its replacement) that has been adopted by our Congress rather than one crammed-down upon us by our courts, and as a bonus our judicial system will have regained the respect of both the Left and the Right because of Roberts’s insistence upon a judiciary that decides cases on the merits rather than on the basis of the identities or beliefs of the parties.  The power and reputation of the Supreme Court will have been not just upheld, but enhanced, and at that point the Chief would have earned a very private “I told you so” and a sigh of satisfaction.

DID TRUMP REALLY OPPOSE THE REAGAN TAX REFORM ACT?

Reconsidering one’s decision to vote for Donald Trump.  Had just read that Trump was opposed to the 1986 Tax Reform Act, one of the cornerstones of the Reagan economic-revival.  Immediate thought:  If Trump does not understand that tax reform is one of the most important components of conservative economic policy (along with conservative fiscal and monetary policies and intelligent reductions in the regulatory burden on the private sector), then why should he run?  How easily could you distinguish his economic policies from those of the first Native American running for Vice-President?  Especially given Trump’s hostility to free trade, his perceived preference for international protectionism.

So, searched for the source of the alleged Trump/TRA comments.  Turns out it goes back to Trump’s pique over what the TRA did to the real estate industry, which took a bigger hit from that legislation than did any other business-sector.  He lost a lot of money, as did many other real estate people, such those who marketed tax sheltered real-estate investments.  But it was reported in the 7/28/15 online edition of Forbes Magazine, that “Donald Trump did not like the tax reform Ronald Reagan signed into law in 1986. In an op-ed in The Wall Street Journal, he called it ‘one of the worst ideas in recent history.’”

If you read the entire Forbes piece and the entire Trump op-ed, you realize that the Trump op-ed, written in 1999, focused on the aspects of the 1986 Act that affected real estate, not on the many, many other provisions of that act.  Turns out Trump was not opposed to tax reform, he just didn’t like being targeted by the TRA, which he thought was harder on real estate than on other commercial sectors.  When commentators describe Trump as being opposed to the TRA, giving the impression that he opposed tax reform in general, they are being misleading.  He was understandably piqued over his losses but did not indicate a generalized opposition to the essence of the TRA, which was to cut tax rates, cut tax deductions and credits, and simplify the tax code in general.

Trump is in fact fully on-board with the kinds of reforms embodied in the 1986 TRA, as is revealed by his published tax-reform proposal, at https://www.donaldjtrump.com/positions/tax-reform ,and by the comments of Steve Moore, one of Trump’s key economic advisors, in an interview published on June 1, 2016 in Conservative Review – https://www.conservativereview.com/commentary/2016/05/the-man-behind-the-curtain-the-economist-to-the-candidates

It is interesting to note that Moore also suggests that he is doing his best to convert Trump into a free-trader.  In choosing advisors like Steve Moore and Larry Kudlow, Trump is making a pretty solid statement that when it comes to fleshing-out the principles and specifics of his intended policies on economics, including fiscal policy and monetary policy, he will follow a decidedly conservative path.

Must say, the whole experience of tracking this down was enlightening.  With friends like the supposedly conservative Forbes, who needs leftist enemies?