Reform across the aisle

Unfortunately, emboldened by their majority, Democrats have moved away from the middle. They overreached because they could. They may close their eyes and leap -- passing an expensive, controversial bill by a party-line vote in the midst of a rough economy and huge budget deficits -- but they would almost certainly regret it in November.

So what could Democrats do to get real policy reform, with a level of bipartisan support that would give them cover? Make a bold move to the middle. For starters:

Retain the exchange structure. Organizing local markets for individuals and small businesses is long overdue and is the core of insurance reform.

Reform the tax subsidies for health care. This actually bends the “cost curve” and is also the source of financing for the uninsured. It means we must strengthen, not weaken, the “Cadillac tax” or tax cap. The Congressional Budget Office (CBO) and credible economists have said so for decades. Every American can have a “basic” plan subsidized through the tax code -- and if you want a plush plan, you can buy it -- but not with additional tax subsidies. This rational policy frees up billions for covering the uninsured. Senators Max Baucus, Kent Conrad and others have pushed this, but the policy has been attacked by unions (which enjoy the plush coverage that encourages overconsumption) and watered down to irrelevancy.

Drop the Medicare increases in the hospital insurance tax. The Senate bill raises the hospital insurance tax (the 1.45 percent withheld from every employee and employer per paycheck) by 0.9 percentage point on every employee making more than $200,000 a year and another 0.9 percentage point on employers. Instead of a broad-based social insurance model for Medicare, it converts Medicare’s trust fund to a source for another graduated income tax. Few businesses or employees know this bad policy is there. When they discover a new 1.8 percentage point income tax increase, they will be very angry.

Reduce the bill’s scope of spending to about $600 billion over 10 years. The Medicaid expansions in the Senate and House bills are little understood and larger than necessary. Tax credits for the uninsured can be reduced in scope and income level to make the program more sustainable as it gets started.

Tie the spending increases to budget targets and triggers. It is critical to allow spending for new subsidies or Medicaid expansions to take place only in years when the CBO projects the deficit to be less than 3 percent of gross domestic product (GDP). If we want health coverage for all Americans, it has to be paid for. The tough choices needed to reduce this massive gap: Cut spending and/or raise taxes. Raise the Medicare retirement age as we did with Social Security. This year’s $1.6 trillion deficit is approaching 11 percent of GDP. That’s unsustainable. We can’t expand health subsidies until we get the deficit under control.

So what would be the result of this moderate policy? President Obama passes the structure for reform: exchanges with a mechanism to fund expanded coverage as the deficit is tamed. Republicans and conservative Democrats get a smaller bill and the fiscal restraints they seek in a troubled economy. The system would go on virtual auto-pilot should the economy improve and deficits shrink.

It would not be enough for many Democrats and would be far more than most Republicans could accept. But a majority of Americans would support a more modest, middle-ground approach. And hewing to the middle would garner some Republican support and generate the mainstream base needed to sustain a radical shift in social policy.

This could even be done without “starting over.” The House could pass the Senate bill and then significantly reduce its scope as described above through a supplemental bill. Surely this approach would get much broader support in the House and Senate than what Democratic leaders are hoping to cram through -- and, far from generating the fireworks that many predict for November, it would create a framework for long-term bipartisan reform.