Thursday, March 16, 2017

Reforming Obamacare, Part 1

This article, and another that is in the pipeline, are in response to a few questions from blog readers. Thank you!
Obamacare was a terrible idea from day one. Fortunately, President Trump is working hard with the GOP in Congress to build a reform framework. There is even a glimpse of hope that the reforms will eventually lead to a repeal. 

I hear the frustration among you readers on this issue, wondering why they cannot simply repeal the entire Obamacare structure overnight. In theory, Congress could do that. They could in fact shut down every entitlement program they wanted to, and do it literally over night. However, there are two reasons why Congress has never closed an entitlement program in the history of the American welfare state, and it is important to understand those reasons. 

First, there is the prevailing ideology of egalitarianism.
It came to America with the War on Poverty under Lyndon Johnson, and it quickly and mercilessly conquered our political landscape. By means of a myriad of entitlement programs, egalitarianism penetrated the economy and began a transformation of American society that goes much deeper than just some spending programs. Fortunately, the transformation has not yet gone as far as it has in Europe (which is in a perennial economic recession thanks to its welfare state) but so long as egalitarianism continues to define our country, we are destined to follow down the same route

A substantial reform of Obamacare, aimed at reversing the entire entitlement program, would mark the beginning of the end of the egalitarian era in America. More on that in a moment.

The second reason why it is so difficult to reverse entitlement programs is the effect they have on the lives of those who become dependent on them. An entitlement program is a promise from government to the people. It is a promise to some people that government will be the compassionate entity who takes care of the poor, so they the egalitarian voters can feel better about themselves. 

An entitlement program is also a promise to some people of cash or a service that they will receive on a regular basis. Those who receive this promise will change the way they live their lives, based on that promise. Parents who receive the Earned Income Tax Credit, food stamps, Medicaid, housing subsidies and subsidized child care will not go looking for better-paying jobs if it means they have to work longer hours, or take more responsibilities, or commute longer, unless it substantially changes their bottom line. 

This is not a defense of the welfare state. Trust me - I grew up in the world's most authoritarian welfare state and for the life of me I do not want to see America fall into the Swedish abyss - but it is nevertheless important to recognize the harm that the welfare state has done to millions upon millions of Americans. If we do not recognize this, our efforts to roll back the welfare state will very likely do more harm than good. 

Like all other entitlement programs, Obamacare has made a large group of people dependent on government for health insurance that they are not buying with their own money. There is no doubt that some people now are able to access health care that they otherwise would not have gotten. Any reform effort that brings us back toward market-based health insurance cannot leave those who are now dependent on government without reasonable opportunities to provide for themselves at the other end of the reform. 

This is the difficult part. Since the welfare state and its entitlement programs are redistributive by definition, they always make some people pay for benefits that others receive. A simple repeal of the entitlement programs return money to those who pay the taxes while returning the poor to where they were before the reform. While this is fair in theory - it is easily defensible both by libertarian philosophy and some applications of economic theory - it is unrealistic as political practice. Once someone gets something for free he will consider it a grave injustice if he is deprived of what he originally did not have. 

Far too many conservatives and libertarians reach this point, look at the entitlement programs we have and give up. They accept the welfare state as status quo. I don't, and quite frankly, I believe that President Trump and - especially - the conservatives in Congress have at least somewhat of the same attitude: just because a problem is difficult, does not mean we should not try to solve it. 

In order to roll back a welfare state, we need to get four things straight. This applies to Obamacare as well as every other entitlement program, though to a larger or lesser degree depending on what kind of program we are talking about.

1. There has to be a free market available when people are taken off the entitlement program. If we simply turned off Obamacare today, there would not be a fully functional health insurance market there to help those that are now on subsidized insurance. Therefore, the first order of business is to remove the obstacles to a free market. This means repealing all taxes on health insurance plans, removing regulations that drive up costs of insurance plans, and opening the entire country as one big market for health insurance plans. Once that market is in place, we can start rolling back - or even terminate quickly - the subsidies that now give low-income families access to insurance they would not be able to buy otherwise. A fully functional free market will always offer opportunities for everyone to access. Besides, with a fully functional free market, more employers will be able to offer their employees insurance that they cannot afford today - thus solving the problem for millions of low-income families. 

2. We have to stop obsessing about economic redistribution. The taxes that pay for an entitlement program are always paid by someone else than the beneficiary. (This is true even for Social Security.) Since entitlement programs are redistributive in nature, they always take money from those with higher incomes and give to those with lower incomes. The money belongs to those who earned it in the first place, meaning that the roll-back of a welfare state will make a lot of people a lot richer than they are today. But it also means that the rewards will suddenly be much bigger for those who work harder, improve their skills, get an education or learn a trade, and those who are willing to accept promotions and more responsibilities at work. In other words: we have to rebuild the virtues that this country was founded on.

3. Reforms take time. Keep in mind how long it took the egalitarian movement to build their welfare state. They advanced slowly, and gradually, celebrating every victory, no matter how small, purposefully taking every step toward their end goal: the elimination of individual economic differences. A roll-back of the welfare state will require the same patience, persistence and political fortitude. Some entitlement programs can be repealed right away; others require a couple of years; a few take a decade, maybe more. This applies nationally as well as here in Wyoming. The problem with conservatives, and especially libertarians, is that they do not possess the patience needed for long-term reforms - they tend to demand everything right now, or else they go home and pout. That has got to change. 

4. We will not reap the benefits of repealing the welfare state, perhaps not even the major benefits of repealing and replacing Obamacare. We have a gigantic federal budget deficit to deal with; we have a federal debt so big it will take 75 years just to pay it off in an orderly fashion. Whatever benefits we as a country can accrue from free-market reforms will first and foremost have to go toward restoring the fiscal sustainability, responsibility and dignity of our federal government. Getting rid of the welfare state will, again, take up to a decade - if we start now with Obamacare - but once that is done we will be able to address the long-term problem of the federal debt. This means sacrifice on our behalf to give our kids and coming generations a much better life than they otherwise would have had. If this sounds unpalatable, please keep in mind what the alternative is: a country that slowly sinks down into economic stagnation and industrial poverty, where kids grow up to live a life less prosperous than their parents did. We are on the brink of industrial poverty now; we can still turn around and save this country. But we cannot expect us to reap the benefits. Those are for our children and grandchildren to enjoy. 

Reforming Obamacare will be the test of our generation's resolve. It will be the first major try to repeal a big entitlement program. It will show whether or not we as individuals - as a country - are ready to learn what we need to learn about the complexity of entitlement reform; if we are ready to restore American virtues; if we have the patience and are ready for the sacrifice. 

If we possess the right qualities, then we can rebuild America to what she was intended to be. There is no greater gift we can give to coming generations.

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