The Public Option Goes Over

The big fight over ObamaCare is far from finished.

So it looks as if the public option has been sent to the death panel—so to speak. Over the weekend President Obama and other White House officials throttled back their demands for a new health-care entitlement program that looked like Medicare for the middle class. Liberals are in a furor and more than a few conservatives are popping champagne corks. But dumping one of the most radical and destructive features of ObamaCare is best viewed as a tactical political retreat, not a surrender.

The Administration had to toss something overboard, considering the rising swell of voter opposition and the fact that many Democrats are getting queasy in the current health-care squall, especially in the Senate. Jettisoning the public option is supposed to quiet the public's main worry about government control of medical decision-making—not to mention neutralizing the insurance industry's main objection. The issue now is whether Mr. Obama's fall-back is merely to pass the public option on the installment plan.

View Full Image

Associated Press

U.S. Doesn't Need the Ultra-Liberal Public Option

U.S. Doesn't Need the Ultra-Liberal Public Option

By Larry Kudlow

Why do we need President Obama's big-bang health-care reform at all? What's the real agenda here? If it's really to cover the truly uninsured, a much cheaper, targeted, small-ball approach would do the trick. But on the other hand, maybe the real goal is a larger, ultra-liberal plan aimed at a government takeover of the U.S. health system.

In a recent column, Larry Elder points to an ABC News/USA Today/Kaiser Family Foundation survey that shows 89 percent of Americans are satisfied with their health care. That means up to 250 million people could be happy with their plans. So why is it that we need Obama's big-bang health-care overhaul in the first place?

In a new Pew Research Center poll, only 41 percent of those surveyed believe the U.S. health-care system needs to be completely rebuilt. In early 1993, when Mr. and Mrs. Clinton started on health-care reform, 55 percent said the system needs a complete overhaul. So something has changed.

In a new CBS/New York Times poll, 38 percent say the economy is the most important problem facing the country, 19 percent say jobs, and only 7 percent say health care. In an NBC/Wall Street Journal poll on the same question, 24 percent say the budget deficit is today's most worrisome problem while only 11 percent say health care.

There's more. According to the U.S. Census Bureau we don't have 47 million folks who are truly uninsured. When you take college kids plus those earning $75,000 or more who choose not to sign up for a health-care plan, roughly 20 million people are removed from the list of uninsured. After that you can remove the 10 million who are not U.S. citizens and the 11 million who are eligible for SCHIP and Medicaid but for some reason have not signed up for those programs.

So that leaves only 10 million to 15 million people among the long-term uninsured.

Yes, they need help. And yes, they should get it. But not with mandatory universal coverage, or new government-backed insurance plans, or massive tax increases. And certainly not with the Canadian-European-style nationalization that has always been the true goal of the Obama administration and congressional Democrats.

Instead, we can give the truly uninsured vouchers or debit cards that will allow for choice and coverage, and even health savings accounts for retirement wealth. According to expert Betsy McCaughey, rather than several trillion dollars and socialized medicine, this voucher approach would cost only $25 billion a year -- with no socialized medicine.

Columnist Peter Robinson, writing for Forbes.com, relates an interview with the late free-market Nobelist Milton Friedman about the inefficiencies of health care. Friedman stated simply and clearly that the cost problems in our system can be traced to the fact that most payments for medical care are made not by the patients who receive the care, but by third parties -- typically employers or government.

"Nobody spends somebody else's money as wisely as he spends his own," said Friedman. He also fingered the tax code, which allows for an exemption from the income tax only if health care is employer-provided. This is a free-lunch syndrome, one that removes incentives for competition and cost-control because we're all playing with somebody else's money. And in the case of Medicare and Medicaid, caregivers have become employees of insurance companies and the government.

A new government-backed insurance system will intensify this free-lunch syndrome. It also will surely lead to a government takeover of what's left of our private-enterprise system.

But the Democratic agenda has never really been just about the uninsured, has it? And according to the Congressional Budget Office, with a price tag of $1.6 trillion in new spending, it certainly hasn't been about real cost-cutting or budget restraint. Nor has it been even remotely about true market choice and competition. Nor has it been about tort/trial-lawyer reform, which itself would be a major cost cap.

And let's not forget a spate of new tax-hike proposals that would sink economic recovery: employer benefit taxes, higher payroll taxes, taxes on soft drinks and alcohol, a VAT tax, or another income-tax hike for successful earners. And remember, existing health-care entitlements are estimated to be roughly $80 trillion in the hole over the decades to come. Wouldn't it make sense to solve these bankrupt entitlements before we layer on new ones?

So there is a strong suspicion that the Democratic agenda has always been a class-warfare, anti-business attack on private-sector doctors, hospitals, insurance firms, and drug companies. In the name of cost cutting, what's really going on is a major knockdown of profits. Liberals have always railed against the "excess profits" of insurance firms, drug companies, and physicians.

Knocking down profits and telling people what to do because government planners know best, right? Wrong. Absolutely wrong.

Lawrence Kudlow is host of CNBC's The Kudlow Report and co-host of The Call. He is also a former Reagan economic advisor and a syndicated columnist. Visit his blog, Kudlow's Money Politics.

Making Failure an Option

As some banks leave the TARP, what to do about Citigroup?

The Hotel Geithner -- a.k.a. the Troubled Asset Relief Program or TARP -- is poised to set up its checkout desk this week. Big banks that have successfully raised capital from private sources, including J.P. Morgan and Goldman Sachs, may be among the first to get their walking papers.

But amid the debate over whether it's too soon or too late to let the country's biggest banks repay their TARP money, the question the Obama Administration should be asking is how to prevent return trips to the bailout trough for banks that were deemed too big to fail only eight short months ago.

Those banks that have been able to access the capital markets without government guarantees deserve the chance to get out from under the TARP. But only if they can really walk away from all the government guarantees that they have benefited from since last fall (deposit insurance excepted). That includes the FDIC's debt-guarantee program for commercial paper, but it should also mean the implicit guarantee that comes with being a member of the too-big-to-fail club.

Unless we can put the kibosh on that unofficial designation for the biggest banks, their obligations ultimately remain potential taxpayer liabilities (see: Fannie Mae, nationalization of). Let them check out for sure, but make sure that they don't come back, or we'll be left with a financial system full of government-sponsored banks with an implicit guarantee should they run into trouble.

The question is how to do that. It's not enough to say the banks that pay back the TARP are on their own -- "and this time, we really, really mean it." The markets won't believe it, and over time these banks will have a lower cost of funds because lenders will assume, a la Fannie, that they will be rescued. One possible answer is a new mechanism for regulators to resolve -- that is, seize, then sell or recapitalize -- the biggest banks. But while we're waiting, one way to minimize the too-big-to-fail assumption is by showing that at least one big institution can fail. Last fall, at the height of the panic, regulators deemed this too dangerous. But this need not be an eternal truth.

It happens that we have a test-case at hand in Citigroup. Regulators remain at odds over how much trouble Citi is in. But this spring's stress tests revealed Citi to have a $63 billion hole in its balance sheet, which the feds papered over by giving the bank credit for converting its government-owned preferred into common shares, a move that will put no new money into the bank. Citi has also been slow to raise private capital since the stress-test results were revealed, even as the capital markets have opened up to its competitors. More broadly, Citi has proven itself unmanageable by having already failed three times since the 1980s, requiring government bailouts in one form or another during the sovereign debt crisis in the '80s, the 1990s real-estate bust and again, twice, during the panic of 2008. Its turnaround plan has also been less than impressively executed.

The FDIC has been agitating for changes to Citi's top management, but we think there's a case for going further. We're told that regulators differ on whether they have the authority to roll up a financial supermarket such as Citigroup, but former regulators with impeccable credentials argue that they do. And given everything that the Fed and Treasury have done over the past year and a half, now seems a strange time to argue that they lack the legal authority to act to resolve a bank that has $300 billion in insured deposits, some $63 billion in FDIC-guaranteed debt, and another $300 billion or so in taxpayer guarantees of its toxic assets.

Resolving Citi -- by either forcing it into a strategic partnership, if anyone will have it, or selling off its assets and breaking it up -- wouldn't be cheap, but it would have a number of benefits. It would remove the leading candidate for zombie-bankdom from the financial system. It would also, finally, put an end to the slow bleeding of taxpayer money into the bank.

That's a big undertaking, but Citi has already received $45 billion in direct capital injections along with tens of billions more in debt and other guarantees. The $63 billion in loan guarantees alone could have been avoided if regulators had moved on Citi earlier. And with the FDIC's debt-guarantee program slated to sunset at the end of this month, regulators may be forced to act anyway if the markets conclude that the bank can't be counted on to pay its creditors.

Nobody wants a return to the depths of the mid-September panic in the credit markets. But a resolution of Citi, together with the exit from TARP of the stronger institutions, need not freeze the markets. In fact, it would signal that regulators are starting to cull the weakest institutions in earnest, which could be good for confidence in the overall system. It would also signal to those buying their way out of the Hotel Geithner that there is no rewards program for repeat guests.