Dole’s Health Care Gambit
Jude Wanniski
June 30, 1994


Senate Minority Leader Bob Dole has not spent the last 32 years on Capitol Hill without learning something about the legislative chess game. At precisely the right moment, he has unveiled the GOP consensus health-care plan, a masterful stroke that has unified the Republican Party in a way the Democrats and the Clinton Administration thought impossible. And he has done it in a way that has won the huzzahs of his principal competitors in the GOP presidential sweepstakes -- including Sen. Phil Gramm and Jack Kemp. As we have been advising you for several months, the glue that has accomplished this feat of magic is a simple idea -- "a straightforward tax reform that would establish a market-based relationship between consumers and providers of health care services," as Grace-Marie Arnett wrote in "High-Stakes in Health Case Reform," a report Polyconomics commissioned and published on January 5, 1994. Buried as a few lines in the Dole package is this simple idea, which emerged out of combined efforts of the conservative think tanks in Washington and as a result spreads pride of authorship far and wide. It permits individuals as well as businesses to buy health insurance and deduct the premium costs from their incomes, for tax purposes. The idea is so compelling that once it is understood, the liberal Democrats who are hellbent on socializing medicine will realize they have been checkmated. Watch and see: Every Republican running for House and Senate this fall will carry this simple core idea to the voters and it will become law next year.

The press corps, which has been caught flat-footed, does not yet understand what has happened, except that Dole has accomplished something important. The New York Times is furious at "The Health Care Obstructionists," astonished to see Dole and Senator Bob Packwood, the ranking Republican on Senate Finance, in alliance. What happened? The Times offers this bit of sleaze: "Mr. Packwood seems intent on adding 'obstructionist' to his sullied résumé rather than irritate the minority leader, who can protect him during ongoing investigations of sexual harassment. The two will probably behave shabbily, but Senators Boren, Danforth and Durenberger would be foolish to follow them." 

No they won't. Sen. David Boren [D-Okla], Sen. John Danforth [R-Mo], and Sen. Dave Durenberger [R-Minn] are three of the six centrist swing votes who could guarantee, by joining Dole and the other 40 GOP Senators who have signed onto this package, that medicine will not be socialized this year, in whole or in part. The "centrists," or so-called "rump group," offered their plan earlier this week, and almost nobody noticed that it also incorporates the tax reform that is at the core of the Dole package!!! It would not take much for these six senators, who must realize they have also lost to Dole's gambit, not only to join with him, but also to share in the credit for having been first on the block with the core idea.

What makes the core idea so revolutionary? It corrects the problems created 50 years ago, when a WWII ruling enabled businesses to deduct health insurance premiums from income, for tax purposes. This shifted the center of gravity in medicine away from the individual to the enterprise. The Clinton plan, and those of the liberal Democrats, would "correct" the problem by shifting decision-making to the government. The Dole plan corrects by shifting power back to the individual. This is as far from socialized medicine as one can get. The provision does not take away from business the right to deduct; it merely extends that right to individuals. As Sen. Robert Bennett [R-Utah] explained the idea in a brilliant floor speech Monday, in so doing it puts control of health care payments back in the broad marketplace, in the hands of the individual consumer:

The Clinton plan does not do this. The plan that we have received from President Clinton, from his wife, from Ira Magaziner, and the others who have worked with him, does not break the link between employer ownership of health care policies. On the contrary, it cements it and perpetuates it. Market forces will never appear under the Clinton plan, which is why the Clinton plan will never achieve the kind of savings that politically are being advertised.

It was Bennett, a 60-year-old freshman, whom Dole deputized to tackle this problem one Friday afternoon late last summer, in a quiet chat on the Senate floor. Dole already had all the health care expertise he needed in Sheila Burke, his chief of staff. Bennett's expertise, though, is in entrepreneurial capitalism. From a standing start in his early 40s, he founded Franklin Quest, the day-planning business now traded on the NYSE, and made a fortune now in excess of $50 million. Dole asked Bennett to assess the impact of the various plans on emerging and small business, and Bennett asked Ms. Arnett, a Washington based health policy expert who had worked for Sen. Pete Domenici [R-NM], to survey the conservative think tanks -- AEI, Heritage and Cato. Out of this query was born the Consensus Group, which began by agreeing on nothing, but soon found they agreed completely on the tax idea, which they soon realized solves a variety of problems, including portability and pre-existing conditions.

At Polyconomics, for example, the group insurance plan covers more than 20 employes. Individuals cost $3,000 a year, families $7,500. The lowest income clerical worker, a young woman, earns $14,000 a year in wages and gets the added $3,000 in premiums covered at company expense. Under the Dole plan, she would be able to continue in the company plan, or opt out of it, taking the $3,000 as income. She could then decide how much health insurance she wanted, and probably decide to buy catastrophic care, with a high deductible. If this costs $1,000, she could deduct this amount from her taxable income, pay taxes on the other $2,000, and spend it on other needs and wants. 

In reviewing the mechanics with Blue Cross/Blue Shield, Sen. Bennett found immediate agreement that there would be an enormous saving on paperwork now associated with health care insurance. Because almost all Americans are in group plans, they buy the common denominator and all its burdensome paperwork for health care providers and employers. As individuals, they are free to buy exactly what they want, which in a great many cases will involve separating minor costs from catastrophic. That is, people will choose to pay cash for everyday aches, pains, shots and exams, and buy insurance for the extraordinary. If there are a trillion pieces of paper now being filled out annually, it is not unreasonable to imagine this number dropping by half. In the furious market competition that will emerge for all this new individual business, the cost savings will go to the consumer, which is how the market works for all other goods and services. 

Portability is then no problem, because the individual owns his or her own insurance, carrying it from one job to another, or from state to state, paying premiums out of savings or loans during periods of unemployment. Portability solves the problem of pre-existing conditions, as an individual with a heart problem or AIDS can now lose his job and still have the policy. Where the Clinton plan shifts the job of risk-assessment to the government, the Dole plan puts the burden on the insurance industry, which even the President would have to admit is better at pricing health risk than the federal bureaucracy. It also does not take much imagination to see that over time this also accomplishes much of the President's goal of universality. People between jobs would still have their previous policies. The self-employed would be able to get policies and deduct premiums. The destitute would be taken care of with subsidy mechanisms added by Dole, except that the costs of caring for them would be reduced as well, via the market efficiencies. 

The liberals will scream about all this, trying to poke holes in the argument that individuals are better equipped to buy insurance than are their employers, or the government. Dole, I think, sees the political power of an idea that transfers power to people, from business or government as an option. In Washington last week, I asked several GOP congressional leaders to imagine a theater before the lights are lowered. An m.c. asks the audience for a show of hands on whether they think one of the fire exits should remain locked. How many hands will go up? Last weekend, when Jack Kemp explained the idea to a conference of black Americans on the health care issue, as individual ownership of health insurance, he was taken aback by the fervor of the spontaneous applause.

Our phones are ringing today from people who want to know if Dole will go from this position to a "sellout" compromise with Clinton. So long as he holds on to this core idea, Clinton can't compromise, because the liberal Democrats will never, ever let him do it, since it shuts down all their dreams of socialized medicine. And why should Dole let go of an idea that has pulled together the Republican Party, the way the Kemp-Roth tax bill did in 1980? How much better can he do than checkmate?