Matt Miller - The Archives
Kerry Can Save Obamacare
The Daily Beast, August 14, 2009

Obama's plan isn't winning over the 85 percent of Americans who already have insurance, The Daily Beast's Matt Miller writes. But the big loser of the 2004 campaign has a great idea.

President Obama's health-care woes go beyond sagging poll numbers and conservative protests at town-hall meetings. As the White House has realized, the president's biggest problem is that he can't make a compelling case about the benefits of his plan for the 85 percent of Americans who already have health insurance. Maybe he should talk to John Kerry.

Bear with me a nanosecond and you'll see why an obscure piece of Kerry's otherwise disastrous 2004 campaign might help save the day.

It's not that Obama does nothing for the already insured. The insurance reforms the president stresses—such as the inability to be denied coverage for pre-existing conditions and caps on out-of-pocket spending that will end the scourge of medical bankruptcy—are vital for every family's economic security. But it's not the same as fresh cash in your pocket. Unfortunately, the White House has raised expectations about cost savings that its plan can't meet.

Obama promised repeatedly in the campaign, and says as part of his health care mantra today, that reform will save the average family up to $2,500. But this has always been a bit of a ruse. In reality, Obamacare means "savings" only in the Washington sense of reductions from what would otherwise be even higher future costs. This is a good thing if it happens, but it doesn't change the fact that the average family under Obamacare would still see its outlays for premiums and co-pays go up, not down, in the years ahead. With all respect to White House economists, that's impossible to sell to real people as "savings."

There is only one way to deliver actual premium savings, and interestingly enough it was proposed by Kerry in his 2004 campaign. It's called reinsurance. Kerry's idea, developed by Stuart Altman of Brandeis University and Ken Thorpe of Emory, was to have the federal government pick up the tab for the highest-cost cases in the private insurance system, in exchange for the insurers passing on the savings dollar-for-dollar in the form of premium reductions to everyone else. It's a matter of math: if you socialize the cost of the most expensive illnesses (say, those incurring over $50,000 in medical costs during a given year), you can lower premiums for others.

The problem is that reinsurance at magnitudes meaningful enough to make much difference to premiums gets expensive fast. In rough terms, if the feds picked up the tab for cases running over $50,000, private premiums could be cut 10 percent across the board, at a cost of roughly $80 billion a year. A step like this atop current plans would bring the total cost of health reform to just over one percent of GDP. At a time when Washington is scrambling to find $800 billion to $1 trillion over ten years to expand coverage, a permanent reinsurance initiative seems impractical. Better to use every dollar available to expand coverage to the millions of uninsured, many Democrats say.

But what if you don't view reinsurance as long-term policy? What if instead you viewed it as a near-term political sweetener, something that helped insured Americans feel comfortable with the direction Obama wants the country to take? A two—or three-year economic recovery-related reinsurance initiative could provide direct relief for average families (and the firms that employ and help pay to insure them) at a cost of $100 to $200 billion, depending on how it's crafted. Think of it as a second stimulus. Republicans should appreciate that this would operate like a tax cut to get cash directly to families and businesses. The White House could sell it as a way to bring concrete health savings to hard-pressed families now, as a bridge to the longer-term reforms that help bend the cost curve over time. It might be targeted to deliver its biggest breaks to small business, the group that's most vulnerable to stiff premium hikes-and a group that's on the fence now about broader reform.

This isn't ideal public policy, perhaps, but that's not all the president needs right now. The president needs a better sales pitch. As health legislation heads toward its critical finale, some politically creative reinsurance could be part of the answer.