Commentary

Daniels and Obamacare, Round Two

Indiana governor Mitch Daniels’s policy director, Lawren Mills, Grace-Marie Turner of the Galen Institute, and Bob Goldberg of the Center for Medicine in the Public Interest take exception to my National Review Online article “Mitch Daniels’s Obamacare Problem.” In brief, the trio believes that Daniels’s expansion of government-run health care is a conservative triumph. I can’t believe we’re even having this conversation.

To recap, the Healthy Indiana Plan, which Daniels signed into law in 2007, bears the following similarities to Obamacare:

1. Both expanded Medicaid, which crowds out private insurance — Obama to 138 percent of the federal poverty level, Daniels to 200 percent.

2. Like Obamacare, the Daniels plan raised taxes to pay for part of its expansion of government-run health care. (Daniels’s 126 percent hike in Indiana’s cigarette tax mirrors Obama’s 159 percent hike in the federal cigarette tax.)

Conservatives need to adopt a more discerning attitude than “If it says HSA, it must be good.””

3. Like Obamacare, the Daniels plan pushes part of its cost onto other states. Taxpayers in other states bear two-thirds of the spending burden (through the portion of Medicaid funding that comes through Washington, D.C.), and Daniels has proposed making other states pay even more.

4. Just as Obamacare will cost more than projected, an independent review found that Daniels’s cigarette-tax hike hasn’t kept pace with Indiana’s share of the spending, and further spending overruns may be on the horizon.

5. Both Obamacare and the Daniels plan contain a “slacker mandate.” Obamacare mandates that insurers cover “children” on their parents’ policies up to age 26. Daniels mandated that insurers do so up to age 24. (A similarity I overlooked in my original article.)

Turner says the Daniels plan “could not be more different” from Obamacare. I’ve just listed five ways that it could. And it gets worse:

6. Daniels has accepted Obamacare grants and is implementing an Obamacare “exchange” in Indiana — something he is under no obligation to do, contrary to what Turner claims.

That’s enough to cause problems for the repeal effort were Daniels to be the GOP’s presidential nominee.

Mills, Turner, and Goldberg defend the Daniels plan with an argument that boils down to this: Daniels expanded Medicaid with health savings accounts, and that makes it okay.

In fact, it may seem counterintuitive, but if anything, the fact that Daniels used HSAs makes his Medicaid expansion worse.

I support HSAs because they allow workers to reclaim control over a portion of their health-care dollars, and I support expanding them so workers can control all their health-care dollars. Within the context of Medicaid, however, the advantages of HSAs are actually a problem. Medicaid is welfare. By offering Medicaid enrollees the freedom and opportunity for wealth accumulation that HSAs create, the Daniels plan makes Medicaid more attractive, and thereby lures more people out of private insurance and into dependence on government.

Turner writes, “Cannon calls this a ‘taxpayer-funded health savings account’ and makes it sound like the state is handing out cash. It’s not. He needs to get his facts straight.” Actually, I wrote, “the government hands out coverage plus something a lot like cash.” Which is true: Enrollees can spend their HSA funds on any provider they choose, and whatever they don’t spend rolls over. That makes Indiana’s Medicaid HSAs a lot more attractive than either traditional Medicaid (which few doctors accept) or Medicaid managed-care plans (which limit coverage to a provider network). The only ways these taxpayer-funded HSAs are unlike cash is that enrollees can spend them only on medical care and must forfeit them if they leave the program. The incentive to remain enrolled in Daniels’s Medicaid expansion is therefore greater than in the rest of Medicaid. And if you do leave, there’s a use-it-or-lose it incentive to spend the taxpayers’ money before you go, which runs completely counter to the whole idea of HSAs. “It sounds to me,” Turner writes, “like Governor Daniels got the incentives right.” Really?

All three critiques are rife with errors and omissions. Turner writes that the Daniels plan “operates much more like private insurance” than regular Medicaid does. No, it doesn’t: About 70 percent of Medicaid enrollees receive some or all of their care through privately managed-care plans. Turner calls the Daniels plan “a bridge to private insurance,” but she never addresses the incentives it creates to remain dependent on government. Mills claims the Daniels plan prevents crowd-out of private coverage by “requiring that an individual must be uninsured for six months before he or she is eligible.” Yet health economist Jonathan Gruber, who advised the Clinton administration to implement such waiting periods, later found that “if anything these provisions cause crowd-out to rise, not fall.” Goldberg incorrectly claims, “Indiana does not have a Medicaid program for families up to 200 percent of poverty,” because he (like Turner) confuses the program with the type of coverage it offers. Goldberg says I overstate enrollment growth in Indiana’s Medicaid program; I link to my source, he does not. He illogically analogizes the Daniels plan (which expanded Medicaid enrollment) to the 1996 welfare reforms (which reduced welfare rolls) and to education vouchers (which do not expand eligibility for government subsidies).

If Daniels wanted to demonstrate that HSAs are superior to Medicaid as we know it, he should have put existing enrollees into HSAs, rather than expand Medicaid to make his point. It’s no excuse to say the feds wouldn’t have let him; if that’s true, Daniels should have pushed for more flexibility or eliminated regulations that make health insurance and medical care unaffordable for low-income Hoosiers. Instead, he expanded government.

Conservatives need to adopt a more discerning attitude than “If it says HSA, it must be good.” I hope no one would support a government takeover, such as Obamacare, just because the coverage it mandated was an HSA plan. Nor should anyone support a Medicaid expansion — a step toward a government takeover — because it creates government-subsidized HSAs. Turner thinks my criticisms are “odd” given that the Cato Institute has long been a champion of HSAs. Allow me to turn that around: When the Cato guy tells you someone is corrupting the idea of HSAs, pay attention.

Neither Turner nor Mills nor Goldberg disputes my claim that Daniels is undermining the effort to repeal Obamacare. Instead, Turner defends Daniels’s decision to implement the law because “if no state exchange is in place and the law is not repealed or overturned, then the feds will come in and surely institute an aggressive government-controlled program.” The first false premise here is that the feds will set up an exchange if Daniels doesn’t. “The future is uncertain about a federal exchange,” argues Twila Brase, president of the Citizens’ Council for Health Freedom, who is fighting the creation of an exchange in Minnesota. “Why should we do the feds’ work when they might never achieve the exchange without our help?” The Obama administration is counting on the states to help them entrench the law; Daniels is collaborating. The second false premise is that state-run exchanges would (or could) prevent Obamacare from becoming “an aggressively government-controlled program.” All the rules would be written in Washington; who administers those rules is irrelevant. (In the current issue of National Review, I explain in greater detail why there is no reason whatsoever for states to be creating an Obamacare exchange, and why governors doing so are cementing the law in place.) Daniels orchestrated a letter to HHS Secretary Kathleen Sebelius, in which he and 20 other governors threatened not to create exchanges unless their demands were met. Sebelius told them to drop dead. Has Daniels gone wobbly?

But my jaw dropped when I read this in Turner’s post: “While there are differences about this in the free-market policy community, I am advising governors to set up a minimal exchange …” Differences, indeed. I’m pretty sure I’m not the only one who sees a problem with conservatives praising the expansion of government health-care programs and advising governors to erect Obamacare’s new health-care bureaucracies.

Daniels has an Obamacare problem that could hurt the repeal movement if he doesn’t deal with it. Turner is creating more Obamacare problems. This isn’t the first time conservatives have danced with the devil on health-care questions (see Massachusetts), but with health-care freedom now at its moment of maximum peril, that needs to stop. It will probably, however, take more than just the usual voices of protest to stop it. Tea Party and traditional conservative groups should perhaps spend less time attacking congressional Republicans over relatively minor tactical disagreements, and more time educating the governors, state legislators, and (yes) policy wonks who are actively implementing Obamacare in their own backyards.

Michael F. Cannon is director of health policy studies at the Cato Institute and coauthor of Healthy Competition: What’s Holding Back Health Care and How to Free It.