The Senate's Scary Health Care Deal

Harry Reid may have gotten a health-care deal, but he’s not doing his party—or the country—any favors. Tunku Varadarajan on the scary Medicare buy-in, and other goblins lurking within.

12.09.09 5:36 PM ET

Harry Reid, a small-state senator with all the allure of a small-town accountant, may offer unlikely echoes of the French monarchs of old; but one is still tempted to say this, after yesterday's Senate deal on health care: The public option is dead! Long live the public option!

First, the politics, starting with Sen. Reid's boneheaded remarks on Republican objectors: "Instead of joining us on the right side of history, all the Republicans can come up with is, 'slow down, stop everything, let’s start over.' If you think you've heard these excuses before, you're right. When this country belatedly recognized the wrongs of slavery, there were those who dug their heels in and said, 'slow down, it's too early, things aren't bad enough.'" As James Taranto of The Wall Street Journal has pointed out, Sen. Reid's rhetoric is not merely unseemly, it's balderdash: Just do the Senate math, and you'll see that the Republicans can't block anything.

It's clear that Sen. Reid's management skills were needed more pressingly in his own Democratic-plus-some camp. The Democrats are a more ideologically diverse party by far than the Republicans; and Sen. Reid always has to worry about winning over Olympia Snowe because he's constantly in fear of losing Ben Nelson and that interminably pesky Joe Lieberman. (That said, Bill Frist didn't let Lincoln Chafee run him the way Reid is run by his dissidents. But that's another story.)

How does he compare with Nancy Pelosi? The latter may, seemingly, have more control over the cats she herds. But really, what has she produced on health care from a progressive point of view? A bill with Stupak language in it? A bill with a "public option" that's not run by the public and not open to everyone in the public? Is she any more in control of her Blue Dogs than Reid is of his "conservative" Dems? (A piquant question: Why did Obama, riding a wave of popularity when this whole thing started, outsource the legislation to two members of Congress who have never been regarded highly by the general public? But that's another story, too.)

If you read the lefty bloggers, Pelosi—more purely ideological than Reid-the-fixer (who was for a public option before he was "against" it)—has better branding with those ungovernable types. But I don't think that progressives are going to be very happy with the result of health-care reform. That might be OK: Progressives are never happy. What the Democrats need are happy middle-class voters and I don't see how they get that either. The day after health-care reform passes, the average person who gets insurance through work will wake up with the same insurance company and the same premiums deducted from his checks. Rules about rescissions and coverage limits will have changed, but most people will never face either problem. Pre-existing-condition rules will have changed, but again, because these people have insurance already, nothing will change for them. A year after healt- care reform, premiums will still go up, just as they have every year—which will lead anyone who still cares at that point to wonder what, exactly, the Democrats did for them.

Eric Alterman: A Jaw-Dropping Political Deal

Matt Miller: Liberals, Rejoice!
As for the actual deal struck last night—to expand Medicare coverage to Americans aged 55 to 64—here are some deeply apprehensive thoughts: Medicare is not a bad thing, per se, but it is inefficient, costly, and fraud-ridden. If fully costed, no one would prefer a Medicare policy to a private plan. If subsidized, everyone would, and employers will tilt to make sure their employees subscribe to it. If so, this incremental Medicare approach would raise government-sponsored health insurance from about 60 percent (Medicare, Medicaid, veterans, and government employees) to 70 percent or more. So Republicans, libertarians, and others, beware: Much more than the camel's nose in now under the tent. (In truth, the camel—ever a provocative beast—has pushed into the tent rump-first.)

Opponents of the public plan ought to consider this to be worse. Once you add the expansion of Medicaid to the expanded scope of Medicare—with Medicaid eligibility thrown open to everyone below at least 150 percent (and maybe 200 percent) of the poverty level—you are emphatically on a flight path to Canada. Broader subsidies, in fact, apply up to four times the level of poverty, which is $96,000 for a family of four in 2016 and supposedly only flow to those without job-based coverage. That sets up a two-tier system where people with employer-sponsored insurance benefit from one subsidy via the tax exclusion and see lower wages, while people outside ESI would see 70 percent or 80 percent of their insurance costs paid for by taxpayers nationwide, far above the benefit from the exclusion.

Once you add the expansion of Medicaid to the expanded scope of Medicare—with Medicaid eligibility thrown open to everyone below at least 150 percent (and maybe 200 percent) of the poverty level —you are emphatically on a flight path to Canada.

As was argued forcefully in a recent Wall Street Journal editorial, that two-tier system is unsustainable because two identical families would be treated completely differently on the basis of where they work, which will inevitably lead to this "firewall" breaking down and everyone getting the new subsidies. As long as this system survives into the final version of Obamacare, progressives will whine but will, ultimately, attain national health service nirvana.

The truth, of course, is that the public option—now said to be dead—was but one of many problems with President Obama’s health-care plan. As Shikha Dalmia of the Reason Foundation has observed in a recent column, another notable political (and philosophical) problem is the Individual Mandate, under which Americans could be forced by law to buy health insurance. So long as that mandate remains, the costs of insurance will skyrocket, making a formal public option only a matter of time.

And Harry Reid knows that.

The public option is dead! Long live the public option!

Tunku Varadarajan is a national affairs correspondent and writer at large for The Daily Beast. He is also a research fellow at Stanford’s Hoover Institution and a professor at NYU’s Stern Business School. (Follow him on Twitter here.)