I have to say the healthcare reform debates were fascinating to watch over the last few months. While I doubt the final outcome is by any means certain I think we can draw a few conclusions from the back-and-forth so far.

If one thing is already clear is that Barack Obama is now looking like yet another mortal. Gone are stratospheric approval ratings. Instead the Administration is about to give up on the "public option" (via NYT) which just a few months ago they pushed as a "must-have" for any reform. The left is furious and Howard Dean even said that no bill is better than a bill without a public plan.

How did it come to this? What can we learn? What is coming next?

First and foremost, in my view both the Administration and the Congressional Democrats severely misjudged the mood of the country. When Democrats racked up landslide victories in 2006 and 2008 elections they assumed they got a mandate to implement their program of increasing government control of the economy, including healthcare. Alas, it is becoming clear that Americans do not want more government and the election outcomes had more to do with public's dissatisfaction with Bush, rather than acceptance of the socialization agenda.

Obama's big mistake was abandonment of bi-partisanship

Let's get real. Most Americans are pretty middle-of-the-road. We believe in liberties and distrust government. While we may accept some government involvement in our lives when absolutely necessary, we treasure the values of independence, self-reliance, individualism and entrepreneurship. Healthcare and government have been intertwined for a long time with mixed results. While many would hold out Medicare and Medicaid as crowning achievements of LBJ's "Great Society", others would point out mis-management, bureaucracy and fiscal unsustainability in these programs. Assumption that "Medicare for All" will fly with everyone proved wrong.

How did the healthcare reform push got off such a bad start?

Instead of building a centrist coalition to develop a reform the majority of Americans could get behind, Obama assumed that the nominal super-majority with 60 Senators gives him a license to push hard for direct government control of healthcare financing, disguised as the "public option". So he outsourced writing the actual bill to Nancy Pelosi and Henry Waxman, whose San Francisco and Los Angeles political bases have little in common with the rest of the country.

The outcome  was H.R. 3200, the bill that managed to achieve the impossible: unite disparate factions of Republicans, conservatives, independents and libertarians in the opposition to the growth of the government. When the 1,000+ page bill was translated from Washington-speak into plain language, the popular revolt was assured. Just take a look at the executive summary of the "little gems from the House bill"and think who would support this kind of healthcare plan.

Faced with citizen's outrage the Washington politicians turned tail

Unlike Pelosi and Waxman, the Blue Dog Democrats in the House and the centrists in the Senate realized very quickly that voting for government control of healthcare will get them thrown out of office when the next election rolls around. While opponents of the H.R. 3200 drew huge and passionate crowds, few supporters have made a convincing argument in public. Once the momentum shifted, Obama's approval ratings collapsed and the fate of the "public option" was sealed.

Now, where are we likely to go from here?

With "public option" dying, the focus is shifting to the idea of replacing it with "co-ops". Unlike a central Federal bureaucracy, the idea of regional plans owned by their members is much less controversial and has a lot more chance of passing. Interestingly enough it is opposed by those both on the left (Howard Dean) and on the right. Michael Cannon of Cato Institute lays out his objections:

It makes no difference whether a new program adopts a “co-operative” model or any other. The government possesses so many tools for subsidizing its own program and increasing costs for private insurers—and has such a long history of subsidizing and protecting favored enterprises—that unfair advantages are inevitable.

While I share Michael's concerns I still believe a "co-op" program could be designed in ways that would prevent such overreach and instead improve healthcare markets and make them more transparent. Whether this will happen or not depends on who and how writes the bill and I am hopeful that we can create affordable coverage without betraying the principles of free market capitalism.

One thing seems certain. The march of the Big Government is being derailed. Americans are still willing to fight for their freedoms.