Mitch Daniels vs. ObamaCare

Indiana's governor on what's wrong with last year's health care overhaul-and what must be done to fix it.

Mitch Daniels, the Republican Governor of Indiana and former Bush administration budget director, does not like the Patient Protection and Affordable Care Act (PPACA) one bit. Over the course of an hour, he describes last year's health care overhaul legislation as "misguided," and "a terrible mistake." He predicts that it will lead to a "slide into top-down single payer by another name." The only hope, he says, is to start over. "I sincerely hope that we will hit the reset button."

Speaking with a small group of health reporters in Washington last Friday morning, Daniels, who is frequently talked about as a potential 2012 Republican presidential nominee, looked slightly tired, and perhaps a little wary of the too-eager members of the press sitting across from him. But his overall message was clear: The PPACA is a problem—a big one—and it needs to be overturned. In the meantime, both Republicans and Democrats need to come clean with the American public about the what sort of health care the nation can actually achieve and afford.

At present, Daniels is especially concerned about the burden the law places on state governments and state budgets. Daniels crafted the Healthy Indiana Program—a consumer-driven health insurance option for the state's low-income population—under a federal Medicaid waiver. The program, which requires a small contribution from enrollees, has shown a marked decrease in emergency room usage, and an increase in preventive care and generic prescriptions. But Indiana may be forced to shutter the program and adopt the far more expensive Medicaid expansion called for by the PPACA.

Projections show that, thanks to the law's Medicaid expansion, his state could eventually be on the hook to the tune of more than $3 billion starting in 2014. In the meantime, the program is already eating away at state budgets. Medicaid makes up more than a fifth of total state spending, and its growth has recently doubled, reaching the highest enrollment in decades. States, already fiscally strapped, are looking to make cuts, but fear that doing so will jeopardize billions in federal funding.

Earlier this month, Daniels wrote a letter (paired with a Wall Street Journal op-ed) to Obama's Health and Human Services Secretary Kathleen Sebelius asking for flexibility—and warning that if Sebelius did not grant states the choice they requested, then the federal government should make plans to manage much of the state-based implementation themselves, as the states would refuse to comply.

At an hour-long meeting with the small group of reporters last Friday, Daniels said he didn't think the administration would comply with his requests. "I do not have great hope of the administration agreeing," he said. "Washington's not famous for listening to governors." That goes for his own party too. "Republicans weren't any better when it comes to federalism." But, he said wearily, "you have to try."

So far, the response hasn't been promising. Sebelius penned a letter to governors suggesting some best practices they might employ to deal with the new health law's Medicaid burden a few days later. The letter didn't name Daniels, but it's clear his letter and op-ed were the proximate causes. Asked about getting attention from the secretary's response, Daniels all but rolled his eyes. "It looked like a polite drop dead, but I don't know." He dismissed the idea that the suggestions had any substantive value. "They're meaningless," he said. "Not only insufficient. People already copy each other. We don't need HHS's help to do it."

That leaves him with few options. "The feds hold all the cards here," he says. And the fiscal reality of the nuclear-option—dropping out of Medicaid entirely, and thus giving up the federal matching funds associated with the program—is "not very attractive." The state would be left without the burden of Medicaid, but would end up needing to find other ways to cover the same population. "I have not seen it as a viable option for Indiana, as delightful as the prospect may be," he said. But he would "cheer on any state that takes that step."

So what does he believe should be done? Besides jettisoning the PPACA and starting over, Daniels says that it is time both parties recognize that Medicare is "completely unsustainable," and will need to be pared back accordingly. "When infinite demand meets finite supply, you have a problem." And his own party, which repeatedly attacked Democrats for cutting Medicare with last year's health care overhaul, has been unwilling admit this. That's a problem. "I didn't think it was a very proud moment when our party decided to denounce cuts in Medicare spending. It's going to have to happen," he said. "To suggest that Medicare is inviolate, that you can't ever reduce spending—that's not helpful." 

He argues instead that the GOP should get specific with the public about what the country can and cannot afford to do—and push policy accordingly. For starters, he wants to make Medicaid look more like his Healthy Indiana Program. He also favors "rigorous" means testing of all entitlement programs and a shift toward "concentrating resources on people who are the most vulnerable." Too many politicians, he says, have "fanatically held onto the idea that you have to send a pension check to Warren Buffet."

But the biggest change he says he'd make is to delink insurance from employment—a change that has been politically impossible because it would require many individuals to let go of their current health insurance. Letting individuals buy coverage when they're healthy and keep it, even through job changes, would go a long way toward addressing current problems with individuals not being able to get coverage because of pre-existing conditions.

More broadly, he says he's looking for "ways to restore the autonomy of individual Americans." There is a "big body of evidence," he argues, showing that when it comes to medical care, "people behave like the smart consumers they are in every other circumstance."

The problem is politicians haven't done a very good job of explaining this to the American public. Daniels declines to speculate on whether or not he'll run for president next year. But if he does, his aim will be to build support for a tough, specific fiscal agenda bolstered by sustainable, affordable health policy. Without that support, he says, there'd be little point in running: "Winning an election without a consensus is not worth very much."

Peter Suderman is an associate editor at Reason magazine.