Can the GOP Clean Up the ObamaCare Mess?

Republicans should seize the moment and nudge the country toward a more rational health care system.

Scott Brown's stunning victory might have thrown Democrats' grand health care designs into disarray, but the cold, hard reality remains that Republicans are still the minority party. Hence, they will be tempted to go along with some version of ObamaCare-lite—subsidies for poor, uninsured folks and regulations on rich, evil insurance companies—and call it a day. That, however, would be a huge missed opportunity.

If Republicans play their cards right and avoid Democrats' blunderbuss ways, they could seize the moment to begin nudging the country toward a more rational health care system.

Democrats are still looking for ways to pass their grand, senatorial version of ObamaCare, complete with a mandate forcing everyone to buy coverage on the threat of fines or jail. But this is a last-minute act of desperation that is unlikely to prevail. If we learned anything from the twin debacles of ObamaCare and HillaryCare, it's that even under one-party rule, efforts to reconstitute one-sixth of the economy in a 2,000-plus-page swoop are doomed to fail. Despite President Obama's pledge to build on what we've got, he backed into a top-down, (un)intelligent-design approach to reform—as opposed to an incremental, evolutionary one.

But drastic reforms, regardless of which side of the aisle they stem from, inevitably fail because they mobilize every constituency with a stake in the status quo against them. Indeed, radical free market makeovers are likely to fare no better than radical socialistic ones, given that powerful constituencies—AMA-style doctors' cartels, AARP-type patient groups and insurance oligopolies—will do everything in their power to keep their existing privileges.

What Republicans need to do to move the cause of sensible, free market reforms forward is not engage in a head-on collision with these groups but implement reforms to either bypass them or enlist them over time. Much like the school choice movement is doing through education vouchers and tax credits, they should build a political strategy around two simple ideas: One, don't force patients out of the current system; limit yourself to fighting efforts to bring new patients in. And, two, look for ways to expand coverage options beyond what the current system offers.

A good starting point would be examining the compromises Republicans should not make. To do this, we need not look further than the Medicare Prescription Drug, Improvement and Modernization Act–a.k.a. the prescription drug bill–that they passed in 2003 under George "I-Chucked-Aside-My-Free-Market-Principles" Bush. Republicans thought they had struck a clever political compromise by adding a prescription drug benefit to Medicare—the government insurance scheme for the elderly that is on track to bankrupt the country—in exchange for lifting the cap on Health Care Savings Accounts.

These accounts allow employers to put up to $6,000 of tax-free money into an employee's account every year. The employee uses part of the money to purchase high-deductible, catastrophic coverage for his family and the balance to cover co-pays, deductibles and other out-of-pocket medical expenses. All leftover funds roll over into the next year, allowing employees to build a nice nest egg over time.

But now seven years later ObamaCare is trying to expand prescription coverage even more to close the infamous "doughnut gap" that puts seniors on the hook for drug expenses between $2,500 to $3,800. This is an exceedingly popular idea with seniors, even though the 10-year price tag of the program has already increased from $400 billion to $1.2 trillion. And what about the Health Savings Accounts? They're not part of the current health care discussions, and attempts to incorporate them have been met with shrill condemnation. Case in point: Angry progressives recently boycotted Whole Foods after CEO John Mackey opposed government entitlement programs noting that market-based solutions such as are these accounts helped him cut his employees' health care costs without sacrificing employee satisfaction.

In other words, the prescription drug compromise allowed Democrats to further consolidate the senior constituency on the side of more generous government handouts. However, Health Savings Accounts didn't add new voices on the market side. Why? Because these accounts were made available mostly to workers in companies who already had some form of coverage–not to uninsured individuals who most needed them.

If Republicans want to avoid repeating this mistake, they will have to first and foremost push back against Democratic plans to turn Medicaid—the joint federal-state health insurance for the poor—into a middle-class entitlement by expanding eligibility in the name of covering the uninsured. Instead, they should not only make Health Savings Accounts available to uninsured individuals but also amend the tax code to give individuals the same breaks that corporations have enjoyed since World War II.

What's more, in order to enlist seniors on the side of markets, Republicans ought to fight President Obama's attempts to scrap Medicare Advantage—the only private option that seniors currently have. In fact, they should insist on expanding it.

Under Medicare Advantage, seniors effectively get a fixed sum to buy coverage from HMOs or managed care companies instead of having Uncle Sam pay doctors and hospitals on an a la carte basis. The advantage is that these plans typically cover many benefits—dental, vision–that traditional Medicare doesn't. Some of them even limit seniors' out-of-pocket costs—co-pays, deductibles, premiums—that traditional Medicare won't.

However, the program's appeal is limited because it allows only managed care companies to participate, and these companies severely restrict patient choice of doctors and hospitals. Republicans should fight to lift these restrictions, letting seniors take their money anywhere they want—not just to government-approved, managed care companies.

ObamaCare opponents have been so busy fighting off terrible Democratic offerings—such as the individual mandate, public option and Medicare buy-in—that subsidies and other insidious measures to advance Big Government health care have commanded little attention. But with Democrats on the defensive following the Massachusetts massacre, Republicans are in a far better position to nix these travesties as well.

One last thing: Over the long run the only way to tame health care costs in the U.S. is to wrest control of medical dollars from third-party insurers such as employers and government–and hand it to individuals. Only when individuals become paying customers and shop around for their own coverage will they stop acting like Imelda Marcos in a shoe store: Buy all you want, price no object. However, the standard rap against doing so by extending health care tax breaks to everyone is that this would be too costly for Uncle Sam and put the budget in an even bigger hole. But to the extent that the massive price tag of ObamaCare has inured the public to big deficit numbers, such measures, which will be not nearly as expensive, will be a far easier sell now.

So, Dear Republicans, carpe diem—and do health care reform right this time. ObamaCare has aligned the stars for you.

Shikha Dalmia is a senior analyst at Reason Foundation and a biweekly columnist at Forbes, where this column first appeared.