James Pethokoukis

Politics and policy from inside Washington

Why ObamaCare is morphing into RomneyCare

Jul 30, 2009 02:20 UTC

Time for a political reality check. Government-run public health insurance that competes with private plans — a Democratic dream since President Truman suggested it in 1945 — may not be dead for now on Capitol Hill, but its vital signs are awfully faint.

[Find out how healthcare taxes would affect you]

Of course, many proponents are hoping to use the congressional August recess to rally the grassroots and the netroots for one final push come September. And maybe that will work.

But it’s more likely that Democratic leaders in Washington will use the break to tell the outside-the-Beltway crowd the cold truth: If they want something that can be legitimately called “healthcare reform” to pass in 2009, they need to quit wasting time, energy and money on the fading dream of a public plan and instead work to get other key elements passed.

[See why Obama's big economic gamble isn't paying off]

And what might those elements be?

Analyst Daniel Clifton of Strategas Research makes an educated guess. He thinks President Obama may get the chance to sign an $800 billion (over 10 years) bill that would contain features such an individual mandate to buy health insurance, subsidies up to 300 percent of the poverty limit to purchase a regulated plan through a health insurance “exchange”, and an expansion of Medicaid.

Obama might even get his commission that would try to determine what Medicare pays doctors and hospitals — now that the Congressional Budget Office has determined it would pretty much be powerless.

As one lobbyist put it: “I would see this as mostly a symbolic victory (for Republicans), as the Dems can get most of what they want without calling it a public option. Frankly. it’s pretty close to the Massachusetts model.”

[See five ways to boost the economy and create jobs]

Ah yes, the Massachusetts model. The state passed sweeping reform in 2006 under Governor Mitt Romney. What would a similar approach mean for America?

Well, there would be a lot fewer uninsured people. Massachusetts has halved the number of people without health insurance, with just 2.6 percent not currently covered.

But the reform has been far less successful bringing down costs. For starters, original cost estimates for Commonwealth Care projected the program would cost $400 million in 2008 and $725 million in 2009. The actual numbers were $628 million in 2008 and $869 billion for this year (with some costs estimates of $1 billion or more).

Moreover, health insurance premium costs continue to rise at a rapid clip of 9.4 percent a year, compared with 7.7 percent for the United States on average. As the Urban Institute found: “Health spending in Massachusetts is higher than the United States on average and is growing at a faster rate. Furthermore, health insurance premiums are growing even faster than health care costs in the state.”

So America might find itself in 2012 with lots more people covered, but in an ever more expensive system. And President Obama might find himself doing what Romney’s Democratic successor, Governor Deval Patrick, is doing: cutting back the subsidies that allow poorer residents to buy insurance.

The state is also considering moving away from fee-for-service medicine, where doctors are incentives to perform lots of pricey procedures rather than focusing on results.

But Obama and Democrats might also make this argument: We expanded coverage and now it’s time to finish the job by getting costs under control. And the only way of doing that is … a public insurance option!

Indeed, the Urban Institute makes the same argument that Team Obama surely would: that the presence of a national plan would force insurers to compete with a plan with strong bargaining power and, as an arm of government, a powerful financial interest in containing costs.

What’s happening in Washington isn’t the end of healthcare reform, it’s merely the end of the beginning.


It’s absolutely fascinating how quickly big pharma and Fox News can whip up a frenzy-fest of people who fight against their own best interests:

How providing cost reducing OPTIONS can be twisted into —> “a government take-over of health care”.

How providing free LIVING WILL CONSULTATIONS, can be twisted into —> “Obama’s death panels”.

How providing PREVENTATIVE CARE INCENTIVE for doctors, can be twisted into “government coming in between you and your health care provider”.


I have one simple request for anyone reading this:
Think for one moment what will occur if the insurance lobby wins and real reform is NOT passed:

Carefully think about this and ask yourself if you are happy with your health insurance cost going up by 200% the rate of inflation year, after year, after year.

Ask yourself if you are happy with millions of jobs being shipped overseas due to high health costs in the U.S.

Ask yourself if you will be happy as the U.S. health system continues to spend a higher portion of its gross domestic product than any other country, but also continues to rank WORST in preventable deaths among industrialized nations. WORST!!!

If this really is a Christian nation, as most would claim, I am seeing fewer and fewer signs of it every day. What ever happened to, ‘Amen, I say to you, whatever you did for one of these least brothers of mine, you did for me.’?

I can’t help but to wonder why those angry mobs at the town hall meetings are not fighting FOR the PUBLIC OPTION rather than against it? Why they are not picketing the insurance industry that is financially incentivized to DENY your coverage (based on pre-existing conditions, etc. etc. etc.). Why medical payments are STOPPED, after a fixed period of time EVEN THOUGH YOU HAVE MADE INSURANCE PAYMENTS LIKE CLOCKWORK YOUR ENTIRE ADULT LIFE.

You want to see a REAL death panel at work? Just look into the current practices of even the most popular health insurance providers.

Get the facts, and then get real folks. If you assist in blowing THIS CHANCE for high quality health care that EVERYONE can afford, then there may never be another opportunity to once-and-for-all get this one right.

http://www.americashealthrankings.org/20 08/index.html
http://www.who.int/whr/2000/media_centre  /press_release/en/index.html
http://www.reuters.com/article/healthNew s/idUSN0765165020080108
Matthew 25:40

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Why the White House may be forced to get tough on China

Jul 29, 2009 14:00 UTC

Might America and China be headed toward a falling out over currency issues as U.S. unemployment worsens? The always superinsightful Andy Busch of BMO Capital Markets makes a helluva point here (bold is mine):

Under the Bush administration, the US Treasury had a clear policy of pressuring the Chinese to change their currency regime that kept the currency stable and generated massive US dollar reserve accumulation. This structure created the massive imbalances between the countries and created worries that situation was inherently unstable and dangerous.

Under the Obama administration, the US Treasury is not pressuring the Chinese and this was apparent during the meetings this week. President Barack Obama opened Monday’s discussions by declaring that the United States sought a new era of “cooperation, not confrontation” with China and that management of the U.S.-China relationship would be a major factor in defining the history of the 21st century according to AP.

This set the tone of the meetings to not upset the delicate fiscal and monetary paradigms that are in place. Treasury Secretary Tim Geithner made no mention of the Chinese currency regime nor of the detrimental effect it continues to have on global imbalances.

The irony is that the Chinese are the ones publicly stating that there are major concerns with the United States and the way the Obama administration and Congress are running their finances. After the Monday talks had ended, Assistant Finance Minister Zhu Guangyao said, “We sincerely hope the U.S. fiscal deficit will be reduced, year after year….The Chinese government is a responsible government and first and foremost our responsibility is the Chinese people, so of course we are concerned about the security of the Chinese assets.”

So while the Chinese are sticking up for their workers, the US appears to be abandoning theirs. I wonder how long US manufacturers and US labor will continue to cooperate and not confront the Obama administration on this issue when unemployment breaches 10%?


…visualize this scene…

(grocery store, spoiled toddler Geithner wailing, writheing noodle legs, exasperated Chinese guardian)

“But I want you to float the Yuan! I won’t monetize the debt….I promise! You have to float the Yuan, you just have to!”

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Obama and the Investor Class: more on the Great Coincidence

Jul 29, 2009 13:50 UTC

Obama agenda falters, stock market rallies. I like to call this the Great Coincidence since, of course, the Investor Class would have no problem during a recession with higher income, investment, corporate, healthcare and energy taxes plus more regulation and intervention into the private sector. But wait! This article from The Hill makes the case that there might be something real to the GC after all (bold is mine):

The Democratic agenda in Washington has gone off the rails just as markets are enjoying their best run of the Obama presidency, and there’s a school of thought on Wall Street that it’s no coincidence. … “In general, I do think it’s positive it’s slowing down in Washington,” Merk said. Brian Gardner, an analyst with Keefe, Bruyette & Woods, explains that when markets cratered in March, investors worried the Obama administration would nationalize the country’s banks, impose punitive rules on credit card issuers and allow judges to lower the principal and interest payments on mortgages … Since then, the bankruptcy bill has fizzled and nationalization talk has died out. President Barack Obama did sign a credit card bill into law, but its provisions were much weaker than the industry feared. … “It’s very much a factor in what’s driving the market over the last couple weeks,” Gardner said of the slowed agenda in Washington. … The rally also creates some opportunities for Obama, as millions of voters start to feel more optimistic about their 401(k)s. Gardner said this should provide some grounds for Obama’s administration to argue it saved the economy from utter collapse.

Me: A rising net worth is something tangible Team Obama can point to even as the jobless rate remains high.


A prime near socialist example of disintegration inside out would be Norway. Flush with oil profits and a huge sovereign account – their unemployed and disabled on the public tab is skyrocketing as their overall GDP plummets.

Stupidity [or acting stupidly] rushes like water to the lowest level.

If the youngest amongst us aren’t willing to contribute, what trajectory do we have?

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The state of the housing market … at this very moment!

Jul 29, 2009 13:36 UTC

A housing bottom is not a boom. My guy Ed Yardeni sums things up nicely (bold is mine):

The unemployment rate was 9.5% in June, the highest since the summer of 1983. Average hourly earnings was up 2.7% y/y during the month, the lowest since September 2005. The CPI tenant rent index was also up 2.7% y/y in June, the lowest since November 2004. This is not a scenario that triggers a V bottom in home prices. But then why does the latest batch of home prices suggest that they’ve stopped falling? Bear markets don’t last forever. In many neighborhoods prices are down 25%-35% from their peaks. Housing affordability has soared. While many young adults may have moved in with mom and dad to save on rent, household formation tends to run over 1 million per year, even during bad times. In other words, there is underlying demand for houses, and they are certainly more affordable.


From where I’m sitting right now, I have access only to experience and anecdotal evidence – that being said, I worked for mortgage brokers during the begging of the end (2006-2007), and currently work in retail banking.

It is understandible that low interest rates on lending coupled with depressed home values would lead to an uptick in home purchases. My big concern is that I suspect a majority of new mortgages from the past few months are backed-up by FHA programs and other federal ‘stimulus’ incentives.

The problem this presents is that a lot of us younger people who are moving into our first homes are unlikely to have plunked down the 20% we should have for a down payment. We are even less likely to have a comfortable 20-30% debt-to-income ratio once our shiny new mortgage payments enter the mix (I’d guess more like 40%-60%).

The result is that a new generation of homeowners who should be coming out of this recession as hard-nosed savers who fear debt like the plague have been goaded into spending more than they should on homes they can’t afford and don’t have much equity in…sound familiar?

The myth of homeownership as a driver of wealth is one of the problems with our current economy. When the government has to offer tax incentives (and now stimulus incentives) to convince people to buy homes, it should say something about the real market for homes. I won’t belabor the point here, but for the average American home ownership is a money pit once you account for taxes, maintenance, insurance, etc. Did anyone here with a mortgage care to look at the discounted present value of your note (as disclosed by law in the documents you signed)? I’d bet good money your home wasn’t worth that much even at the peak of the boom.

Sure, you can make money on arbitrage in housing, as with any other asset. But the bubbles are rare and dangerous. I’d much rather see a slow recovery that *isn’t* driven by consumer debt, than a quick one that repeats more of the mistakes of the past.

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A durable goods green shoot?

Jul 29, 2009 13:28 UTC

This chart of the trend in durable goods orders makes me smile.  Although June orders were down, notes Michael Darda of MKM Partners, “the weakness was concentrated in transportation, communications and defense. Non-defensecapital goods orders excluding aircraft, which is a component of the Conference Board’s Index of Leading Economic Indicators, rose 1.4% m/m after a 4.3% m/m rise in May — the first back-to-back gains in a year.”