Normally, I don’t think Zeke Emanuel has much to say that is both true and interesting. But this insider’s view of the making of ObamaCare is fascinating. Apparently there were people inside the White House who wanted to adopt John McCain’s approach to health reform. We ended up with only a timid step in that direction ― mainly so the president could save face after all the demagogic ads he ran attacking McCain during the campaign:

In 1954, the Internal Revenue Service created a tax exclusion for health insurance premiums, which is why health benefits offered through an employer aren’t subject to income or payroll taxes. This makes an additional dollar of health insurance (which isn’t taxed) more valuable than an additional dollar of wages (which is).

Economists — liberal and conservative alike — overwhelmingly denounce the tax exclusion. It drives costs higher while keeping wages down, it is regressive, and it is a major drag on the federal budget — lowering revenue by a whopping $250 billion a year.

During the 2008 presidential campaign, Senator John McCain proposed eliminating the exclusion and replacing it with a $5,000 tax credit to help families buy health insurance. The Obama campaign ran more than $100 million worth of ads pounding McCain, accusing the GOP nominee of “taxing health benefits for the first time ever.”

Once Obama was in office, his advisers split on the issue. The economists wanted to limit the exclusion, but the political team didn’t want to touch it. David Axelrod, the president’s political guru, even showed us a montage of Obama’s campaign commercials to remind the economic team of his stated position. The president himself repeatedly insisted on the principle of fidelity: Campaign promises weren’t to be contravened without a very good policy rationale.

One Friday in July 2009, the president made a surprise appearance at a meeting of key health-care advisers. When the discussion moved from pleasantries to substance, I argued for limiting the tax exclusion. Obama already understood that this would raise revenue to fund the expanded coverage, but that wasn’t reason enough to change his position. So I tried a different argument. If reform was to succeed, it had to control rising health-care costs, which threatened to overwhelm the economy. Limiting the tax exclusion, I argued, was the most powerful lever the president had to control costs on the private side.

Ultimately, Obama authorized a new tax-exclusion policy despite the heartburn he knew it would cause his political base — particularly labor unions. We proposed a tax on high-cost “Cadillac plans,” which will begin in 2018. Reversing a campaign position took a lot of guts, but this was good policy, and the president showed leadership in endorsing it.

[Cross-posted at John Goodman’s Health Policy Blog]

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

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