President Obama gave up yesterday on health-care votes in Congress before the August recess, as his approval rating on the issue sinks below 50% and Democrats get the jimmy legs. The numbers will only get worse if he insists on bull-rushing a government takeover on a partisan vote in the fall. For the sake of the country, not to mention the Obama Presidency, we’d like to suggest a better path to reform that could get Republican votes.

The irony is that pretty much everyone in Washington agrees that the system needs improvement—and the double irony is that the basis for a major reform that combines ideas from both parties already exists. Yet Mr. Obama has delegated health care to left-wing committee chairmen in Congress, much as he did on cap and tax and the stimulus. While a less rushed, less divisive compromise would anger the left, it would also guarantee that a bill passes and would be far more durable.


So what might a compromise look like? For all the political fuss, the primary Democratic goal of covering the uninsured is not some insurmountable problem. About 25% or so are probably already eligible for public programs like Medicaid but haven’t enrolled. Another quarter fall in the top half of the income distribution and are either between jobs or could afford to buy coverage on their own. Those facing genuine hardships number far fewer than the 47 million figure tossed about, and the easiest way to help this group is to provide some kind of credit to those who buy private insurance outside the workplace.

Associated Press

The tax code already allows those who are insured through their employers to exclude the value of those plans from income, and if the government is going to subsidize health insurance, this bias for one particular type of coverage is irrational. The House Republican health plan extends a refundable and “advanceable” tax credit, which is basically an upfront cash payment. A plan released under the unlikely auspices of Tom Daschle and Bob Dole would do much the same thing.

Both Daschle-Dole and the House GOP would create state or regional marketplaces where individuals could shop for coverage and where insurers would compete to offer plans with the mix of benefits that consumers find most valuable. Above-baseline spending would ideally be paid out of pocket or from a health savings account. The Medicare prescription drug program has kept costs well below budget using such market-based mechanisms, though in this case individuals would buy insurance with tax-advantaged dollars, instead of picking from a menu of entitlement options.

Senate Finance Democrats and Mr. Obama also endorse the exchange concept, but with more public-utility-like regulation, rigid mandates and a government-run plan that would subsidize coverage and pay doctors and hospitals submarket rates. These are bad ideas in their own right, but none of them will change the incentives to purchase higher-value medicine. Our current blend of low-deductible, low-copayment insurance (really pre-paid health care) and “free” public programs means that no one has any stake in controlling costs. Even limited cost-sharing has a large effect, as White House deputy economic director Jason Furman used to argue before he joined Team Obama.

Tax credits are pricey, but they could easily be made deficit-neutral by capping the employer-sponsored exclusion. Literally every serious health economist or expert in the country recommends doing so. The majority Democrats could steal a good Republican idea, much like President Clinton did with welfare reform in 1996. A cap on the open-ended exclusion would also change incentives, given that today the more people spend on health, the more subsidies they receive. And it would avoid disrupting the current system, though people could gradually take advantage of the insurance exchanges if they chose.

The Administration also backs numerous measures to reduce waste and pare back medical spending, such as health information technology, research on medical outcomes and more prevention. These items are by definition speculative, but all of them could be tried without adding millions of new people to the government rolls. If they don’t pan out, taxpayers are no worse off. Besides, U.S. health care is hardly the feral marketplace of liberal caricature; federal and other public spending already accounts for some 46%. If the Administration really has come up with “game changers” that the private sector hasn’t, Medicare is already a large enough laboratory.

We should add that this kind of compromise is far from our policy ideal. We prefer Wisconsin Republican Paul Ryan’s plan to capitate Medicare payments and John McCain’s campaign plan (not to mention Senator Ron Wyden’s Democratic voice in the wilderness) to replace the current tax exclusion with more individual control over the purchase of medical services. But we’ll gladly settle for second best if we can avoid the terrible harm that the current House and Senate bills would do to the country.


Mr. Obama is backing himself into a corner by insisting on the false political dilemma of either doing nothing or putting U.S. health care into government hock. This leaves him trying to pick off one or two Republicans to give a facade of bipartisanship and then ramming government control into law; or else failing to pass anything and damaging his Presidency.

This political leap of bad faith is already scaring moderates in Mr. Obama’s own party, as well as voters concerned about the tax increases and medical rationing that it will require. There is a middle way to success, Mr. President, but it means pursuing policies that are true to your campaign rhetoric about bipartisanship rather than to the liberal dream of government-run health care.