March 14, 2008

March 14, 2008 | Commentary on Health Care

Special-Interest Sympathy

Lobbyists, we hear this presidential season, embody all that's wrong with Washington.

"For seven long years," Hillary Clinton tells us, "we've had a government of, by and for the corporate special interests. They have been heard first, they have been heard loudest, and they have drowned out everyone else."

Adds Barack Obama: "The problem we face in America today is not the lack of good ideas. It's that Washington has become a place where good ideas go to die because lobbyists crush them with their money and their influence."

And the entire rationale for John McCain's campaign is that he, more than anyone, stands up to lobbyists and follows his own unyielding inner moral compass, regardless of the political consequences.

Small wonder that journalists have been scrutinizing the candidate's staff members and supporters for connections to special interests.

A better approach would be to look at each candidate's policy proposals through the prism of lobbying. Specifically, how would a candidate's vision on a pressing national issue, if enacted, affect the level of special-interest pleading on Capitol Hill and in the long bureaucratic byways in the executive-branch agencies?

The current political environment highlights one of the unclaimed virtues for the small-government agenda: The less a government does, the fewer reasons there are for individuals, businesses, universities, and state and local governments to petition their government for special favors. When government is small, congressional barons don't hold the fate of entire industries in their well-greased palms. Federal bureaucrats don't wield unbridled regulatory power to break CEOs. Big decisions are made by private actors in private settings, and obey the will of the marketplace.

Big and intrusive governments set an entirely different set of forces in motion. The endless array of subsidies it dispenses and the regulatory schemes it fosters give birth to rent seeking. Rent seekers form associations to protect their interests. They create political action committees and hire lobbyists. They write checks to the powerful committee chairmen. They become the very Washington insiders the presidential candidates ritualistically denounce.

Take health care. Bruce Vladeck, a former administrator of the gargantuan Medicare ($460 billion) and Medicaid ($360 billion) programs, once characterized the special-interest lobbying that these programs have spawned as the "Medicare-Industrial Complex." Under these regulatory dinosaurs, lawmakers actually decide which medical procedures, devices, and providers Medicare will cover, and how much it will pay for them.


"You might look at Congress as the board of directors of the largest health insurer in the world," says Stuart Guterman, a Medicare expert at the Commonwealth Fund.

Medicare has become the largest single source of income for hospitals, physicians, and medical equipment suppliers, among others. Its relentless lobbying of Congress transformed Medicare "from [a program] that provides a legal entitlement to beneficiaries to one that provides a de facto political entitlement to providers." And a wasteful one at that: "There are plenty of $400 toilet seats in the Medicare program," Vladeck acknowledges, "because providers are major sources of employment, political activity, and campaign contributions in every congressional district in the nation."

Indeed, in 2007 the pharmaceutical industry spent $165.7 million lobbying Congress on Medicare and other health issues. Add $69.8 million spent by hospitals and nursing homes, $47.2 million by health professionals such as physicians and nurses, and another $39.2 million by the HMOs, and you get a sense of how big the Health Industrial Complex is.

Vladeck implored lawmakers to identify "some mechanism . . . to de-link Medicare policy from the political process." How would the leading presidential candidates do that?

Sen. Obama requires employers to offer plans with "meaningful" coverage, or face penalties. For the uninsured, he proposes a program that would sell only "approved" plans. By "approved," he means plans that adhere to a rigid set of coverage mandates, including: who could buy coverage (essentially everyone); how much a plan could charge (only "fair and stable" premiums, and no "unjustified" premium hikes); and how much a plan would have to pay in benefits (a "reasonable share" of premium income). Clinton, too, imposes strict limits on premiums, but she also requires plans to cover preventive services, chronic disease management, mental health services, and your next root canal. And, of course, because she mandates coverage for all, if you don't like it, the IRS will garnish your wages.

Not much de-linking of health care policy and the political process here. Because virtually every element of these plans places decision-making authority in the hands of lawmakers or bureaucrats, we can expect an explosion in the level of Washington-based lobbying on health issues of all kinds. The wages of every health provider and the revenues accruing to every hospital or other health facility in America will depend on how well they work the Washington system. That means more lobbyists - lots of them.

McCain, in sharp contrast, shifts the action to individuals through a dramatic reshuffling of the tax code. Individuals, rather than employers, would own the tax benefit (a refundable tax credit of $2,500 for individuals, $5,000 for families). Thanks to McCain's embrace of Rep. John Shadegg's (R-Ariz.) health federalism initiative, they would get to choose their own plan from any plan offered in the 50 states, provided it meets state standards. Residents in states that require plans to comply with dozens of expensive health mandates could opt for more affordable plans offered in states with less burdensome regulatory environments. Washington would get out of the business of regulating health coverage, and states would actually compete for your patronage.

The inevitable competition among states for your business would constrain the tendency of lawmakers to succumb to special-interest pleading. Under the McCain approach, if lawmakers succumb, customers would simply flee to more affordable plans in less regulated states.

The model for McCain's transformative proposal, ironically, is the Federal Employee Health Benefits Plan (FEHBP), where millions of federal employees choose from among dozens of competing health plans in the lightest regulatory health environment on the planet. And, guess what? Premiums are affordable, customers are happy, and the FEHBP is the least lobbied federal health program in America.

So, which of these plans do you suppose Washington's lobbyists secretly favor?

Michael Franc is Vice President of Government Relations for The Heritage Foundation.

About the Author

Michael Franc Distinguished Fellow
Government Studies

First appeared in National Review Online