Is Obama digging his own grave on healthcare?

Does signature equal success? For Democrats, universal healthcare is the Holy Grail. In 1994, Bill Clinton failed to get anything through; this time, Obama is settling for half a loaf rather than none.

Yet for a president who raised soaring expectations, the politics may be deadly. The danger is that his scaled-back reforms disappoint supporters yet still horrify opponents who then elect Republicans to mop up the fiscal mess.

Most Australians would be glad to avoid the gauntlet of US healthcare – where hospitals are privately run and most people are left to scrape together private insurance, subsidized by their employer. Obama grafts three key changes, due to begin in 2014.

The first is a “mandate”, making it compulsory for Americans to buy private insurance or else pay a fine. (Exceptions include the elderly and the very poor who will continue to receive Medicare-style benefits.) Particular targets are the young and healthy, whose patronage is needed to broaden the risk pool and place a check on premiums.

But imposing a mandate is only feasible with the second change – federal government subsidies – to improve insurance affordability for the poor. The subsidies will cover an extra 31 million by 2019, a genuine achievement in a country where, tragically, swathes of people fail to obtain needed medical care due to cost. Yet even so, many will face hefty out-of-pocket expenses and 23 million (including illegal immigrants) will remain uninsured and forced to gatecrash hospitals, costs that ultimately raise premiums for everyone else.

Third, Obama will forbid insurers from denying coverage to patients with pre-existing medical conditions or rescinding coverage when they get sick.  Again, to the extent these regulations make it costlier to insure people, premiums will rise rather than fall.

Obama will claim he has squeezed the best deal possible out of Congress. Yet polls suggest he is opposed by 55 to 60 per cent of Americans, many of whom railed at town hall meetings in August. The reason is simple: progressives look at his reforms and see big business. Conservatives and independent swing voters see big government.

For influential left-wing critics who advocate “kill the bill” – such as Markos Moulitsas, founder of Daily Kos, or cable host Keith Olbermann – Obama’s reforms fail to break the oligopoly power of insurers. In many US states, thanks to antitrust exemptions, one or two players such as Aetna and Blue Cross Blue Shield rule the roost. The left fears that between now and 2014, insurers will collude to game the regulators and keep raising premiums. Rewarding them with 30 million new customers, coerced through the mandate, is an undeserved free-kick.

The bitterest pill, for these critics, is Obama’s failure to demand the so-called “public option” – a government-run insurance scheme to compete with insurers and keep them honest. In reality, the Senate was never going to play ball; but nor was the White House, desperate to keep the big insurance lobby on side instead of bankrolling anti-reform attack ads. Howard Dean, the 2004 Democratic presidential candidate, is blunt: “This is an insurance company’s dream, this bill.”

Conservatives, meanwhile, argue the best way to lower prices is through market competition – giving Americans the power, for example, to buy insurance across interstate boundaries. They also support policies such as giving everyone a healthcare voucher. This would provide an incentive to shop around for the most efficient insurance, encourage fewer procedures and so control system costs.

And costs – both for premium-payers and the government – are the bane of this effort. Officially, Obama’s reforms cut the deficit, projected at $US 7.14 trillion over the next decade. But this is only achieved by deferring outlays until 2014 while recouping revenue immediately by taxing high-end insurance plans and claiming improbable annual efficiencies in the Medicare program for the elderly. To believe that insuring 31 million extra people – however worthy – can cut the deficit, would be the triumph of hope over experience. Last week, a Quinnipiac University poll found that 73 per cent of Americans simply don’t.

So, for Obama, caught between conservatives and progressives, the coming politics is perilous. Healthcare legislation may temporarily boost his flagging approval ratings, yet the 2000-page bill will provide a juicy target for Republican demagoguery in the 2010 midterm elections. In this respect, the 2014 start-date is curious, allowing opponents to claim the worst without time for beneficiaries to see the benefits. The Democratic base, spurned by Obama on the public option, is likely to be far less energized than in 2008.

As for Obama’s own re-election, this will likely hinge on whether unemployment falls and the US averts a double-dip recession. Yet even if the economy recovers, the next goal will be to rein in unsustainable entitlements such as Medicare and Social Security before the baby boomers’ retirement threatens a fiscal apocalypse.

One thing is certain: Obama’s vow in September was wrong. He won’t be the last president to tackle healthcare. Not by a long shot.

Americans may have elected their 44th president to improve healthcare access. For all the inequity and heartbreak this may alleviate, it may yet be the task of the 45th president to swallow hard and control costs.