The Death of Medicare Reform

The greatest threat to the nation’s long-term prosperity is rapidly escalating entitlement costs. The Congressional Budget Office (CBO) projects that between 2010 and 2030, federal spending on Social Security, Medicare, and Medicaid will increase from 9.8 percent to 14.4 percent of GDP. It will only get worse from there.

Now, unfortunately, the Obama White House and its allies in Congress are pushing for changes in the health-care bills that would make really fixing the entitlement problem nearly impossible.

At the heart of the rise in entitlement costs is the Medicare program. For months, the president and his aides suggested that they could neutralize Medicare’s rapid cost growth with targeted interventions in the health sector that would make care delivery more efficient. The cost curve could be bent, we were told, with painless investments in information technology, comparative effectiveness research, and prevention and wellness efforts.

This line of argument was quickly discredited by CBO. The core problem, CBO noted, is financial incentives. Providers of medical care increase their income when they deliver more services, and beneficiaries are largely insulated from the additional costs of higher use, since those costs are paid by a third party. No amount of federal spending on health IT is going to change that.

And so the Obama administration went back to the drawing board and returned in July with another idea: the IMAC. That’s the proposed independent commission that would have the power to make sweeping changes in the Medicare program. In the original White House version, the IMAC’s recommendations would have gone into effect automatically unless Congress could muster a two-thirds majority to stop them. The commission was to have broad authority to rewrite the Medicare program from top to bottom.

I noted at the time that this was an especially audacious proposal, representing as it did a massive, unprecedented power grab by the White House. Under the Obama IMAC, the president would pick all the commissioners, and the process gave him the power to reject the commission’s annual recommendations if he wanted to — but if he accepted them, they would be nearly impossible to block in Congress.

Now Senator Max Baucus (D.-Mont.) has taken the IMAC idea and made a few very revealing changes (see page 156 of the chairman’s mark). For starters, the commission would have many more members — 15, as opposed to 5 in the original IMAC — and the expectation is that they would look very much like the members of the existing Medicare Payment Advisory Commission, or Medpac, which means there will very likely be representation from insurers, physicians, hospitals, and other segments of the health sector, in addition to some academic experts.

In addition, the commission’s mandate would be very different in the Baucus version. It would be required to come forward with recommendations to hit specific spending-reduction targets each year, beginning in 2015, but the kinds of changes it could recommend would be very limited. As stated in the Baucus mark, the commission could not make recommendations that would change the structure of the Medicare entitlement. Amendments that altered “cost-sharing, benefits, or eligibility” would be off-limits.

What does that leave? Price controls, of course. Inevitably, the Baucus commission would feel the same political pressures Congress does today, which means it would resort to the same kinds of arbitrary, across-the-board price cuts that are routinely adopted whenever budgetary targets must be hit. Just look at the health-care bill Senator Baucus is pushing through his committee this week. It is filled with cuts in payment rates for hospitals, insurers, and others, as well as new industry-specific taxes. These kinds of cuts and fees make no distinctions based on quality or value; all providers are treated exactly the same, no matter how well or badly they treat their patients.

If the Baucus commission is adopted, we can expect more of the same in perpetuity as the commission is charged with hitting future budgetary targets. Worst of all, with the commission making annual provider-payment recommendations, Congress will have a ready excuse for never taking up what’s really needed to fix the entitlement problem: a fundamental reform that brings the same kind of competitive structure used in the drug benefit to the rest of the program. And that’s a disaster that would last for generations.

posted by James C. Capretta | 9:43 am
File As: Health Care

Let the Unraveling Continue

In July, House Democratic leaders were insistent that they had the votes to pass a bill with a new, aggressively managed government-run insurance option for the under-65 population, total federal costs approaching $1.5 trillion over a decade, and a new surtax on upper income taxpayers to pay for about one-third of it.

Where is that bill now?

It never came up for a vote, and there’s no plan to bring it up in coming days, even though Congress has now been back for two weeks from its summer recess. What’s the holdup? Well, it turns out the President of the United States — who was telling House members in July that it was critical to pass their bill before the August recess — doesn’t really like the House version after all. In his speech to Congress just after Labor Day, President Obama spelled out several key objectives for a bill that the current House version does not come close to meeting. The president said he wanted a bill that costs no more than $900 billion over a decade (the House bill’s price tag is at least $1 trillion, but it’s really far higher than that when properly assessed); doesn’t increase the deficit by “one dime” over ten years, or ever (the House bill would increase the government’s unfunded liabilities by about $10 trillion over seventy-five years); and is financed with Medicare and Medicaid cuts and a new tax on higher-cost insurance plans (the House bill imposes new taxes on higher income households, which the president essentially killed by never mentioning). He also all but said that dropping the government-run insurance option would be fine with him — letting even more air out of that particular, sinking balloon.

So much for the inevitability of the House plan.

But what about the Baucus plan, released last week?

Again, the White House and Senate Democratic leaders are hoping its introduction and the scheduling of a markup in the Senate Finance Committee will create a sense of irresistible political momentum that will feed on itself. “Closer than we’ve ever been before.” “Doing nothing is not an option.” “Now is the time for action, not debate.” Etc. Etc.

But the Baucus plan suffers from the same problem that derailed the House bill: the more the public hears and learns about it, the less they like it.

In particular, there are three key provisions in the Baucus plan that are on very shaky ground politically, so much so that it’s hard to see how they survive intact.

First, there’s the so-called “individual mandate.” This is the key provision of Obamacare. It turns out that the grand plan to finally bring civilized, “universal coverage” to America amounts to nothing more than a hefty, regressive tax on low and moderate wage working Americans. They must either buy government-approved health insurance — the cost of which is driven up by excessive government regulation — or they must pay a $3,800 per household tax to the IRS. Sunday, President Obama tried to argue that this kind of overt government coercion doesn’t amount to a tax. Good luck with that argument.

Second, there are the cuts in Medicare Advantage (MA) payment rates, which Democrats have targeted for nearly three years now. President Obama keeps trying to sell these cuts as nothing more than reductions in profits for insurance companies, but senior citizens know better. Today, about 20 percent of the Medicare population is in MA plans (the private insurance option in Medicare), and most of them get coverage that goes well beyond what’s offered by traditional Medicare. If $120 billion is taken out of MA payment rates, as suggested by Senator Baucus, there will be large cuts in benefits for many millions of seniors and many will also be forced out of their current MA plans. So much for the promise that Americans can “keep the insurance they have today.” In the coming weeks, the Medicare population is likely to turn even more decisively against Obamacare as they hear and learn more about these cuts.

Third, there’s the new tax on high-cost insurance plans. Here especially, the president has no one to blame but himself for the fix Democrats are in. Many conservatives actually favor reforming the tax treatment of health insurance to foster cost-conscious consumption in a competitive marketplace. But President Obama won the election last November in part because he attacked his Republican opponent, Senator John McCain, for endorsing a proposal to convert the job-based tax preference into individual tax credits. In scores of ads, the Obama-Biden campaign warned that the McCain plan would tax workplace health benefits “for the first time in history.” Now, the president and Senator Baucus want to do exactly that — without admitting that’s what they are doing. It won’t work, though, as this story in the New York Times demonstrates, because it is obvious to all that the Baucus tax on insurers and employers will get passed on to workers and individual insurance enrollees, including many middle income households and union members.

The White House and their allies in Congress could avoid the political fallout associated with these highly controversial provisions if they worked with Republicans on a sensible, measured, bipartisan bill that covered more people with voluntary enrollment in a reformed marketplace, not heavy-handed government coercion. But Democrats are bound and determined to try and pass something akin to the Great Society, despite clear signals from the public that they aren’t interested in any such thing. Much hangs in the balance.

posted by James C. Capretta | 10:20 am
File As: Health Care

Who’s Really Paying for Obamacare?

The health-care debate is finally turning to the core issue: who is really paying for Obamacare?

Here’s a hint: it’s not the rich.

The House bill and the proposal unveiled this week by Senate Finance Committee Chairman Max Baucus are built on three key provisions: a requirement that individuals secure “qualified coverage” or pay a hefty tax to the federal government (the so-called “individual mandate”); a requirement on most employers to offer “qualified coverage” to their full-time workers; and a “firewall” that requires most working Americans to sign up with insurance offered on the job without any additional governmental assistance.

In recent days, there have been a number of stories reporting on Democrats who are fretting that the subsidies for insurance under consideration in the Finance Committee are too meager (see this story in today’s Wall Street Journal and this column by Ruth Marcus in the Washington Post). These pieces focus on the provision in the Baucus plan that would limit the total premium a low-income household must pay — if they get their insurance through the “exchanges” — to a fixed percentage of their income. So, for instance, a family at 200 percent of the federal poverty line — $44,100 for a family of four in 2009 — would be required to sign up with insurance costing about $13,375 (the average cost for employer-sponsored family coverage in 2009). Under the Baucus plan, the family’s premium would be capped at about 8 percent of their income, or $3,538. The rest of the cost — nearly $10,000 — would be paid by the federal government (with perhaps a $400 per worker offset from some firms). House and Senate liberals are complaining that these caps on premiums in the exchanges should be lower — and thus the governmental subsidies higher. Of course, liberalizing those subsidies in the Baucus plan would push the price tag higher too, probably well above the president’s stated commitment to keep it to no more than $900 billion over ten years.

But there’s an even bigger issue here which is not yet getting the attention it deserves. Yes, the individual mandate would be a heavy burden for those low-income households getting their insurance through the exchanges. But it will be much, much worse for the far greater number of working Americans who will have no choice but to sign up with their job-based plans. The whole point of the so-called “firewall” is to prevent these workers from accessing the additional federal assistance for premiums that are only available for coverage offered in the exchanges. That’s how Senator Baucus and other Democrats jam their $2 trillion schemes into $900 billion sacks. Full-time workers have to have insurance, and they really have no choice but to take what’s offered at work. Period. The Baucus plan says these workers will get a ceiling on their premiums too — set at 13 percent of their income. But where would the rest come from? Not from the federal government. Employers would be paying these premiums on behalf of their workers, but, in competitive labor markets, employer-paid premiums also get paid by workers in the form of lower cash wages, as the Congressional Budget Office (CBO) has confirmed.

So, for low-wage, full-time workers who are offered qualified coverage on the job, the hidden and implicit taxes of Obamacare are truly stunning. A worker with an annual income at 200 percent of the federal poverty line — again, $44,100 if the worker is married with two children — could be required to sign up with insurance costing $13,375 per year. The employee portion of the premium would be notionally capped at 13 percent of annual income, or $5,720. The employer would pay the other $7,655 — but the employer portion too would come out of the worker’s take-home pay (possibly after some period of adjustment). Employer-paid premiums are tax-subsidized, but this existing federal tax subsidy is worth much less for low-wage workers than their higher-salaried colleagues and it’s certainly worth much less than the subsidies being proposed for insurance secured through the exchanges. At 200 percent of the federal poverty line, the foregone tax liability on an average employer-sponsored plan is likely to be about $4,000 (including payroll taxes). The other $9,000-plus in health insurance premiums — regardless of how it is split between worker and firm — would be shouldered by the worker himself. At $44,100, a $9,000 health insurance premium amounts to 20 percent of income.

The president and his allies in Congress are trying to convince Americans that they have found a painless way to achieve “universal coverage” that will involve no sacrifice from anyone. But the truth is that the Democratic plans all depend on coercion and hidden and regressive taxes. Low- and moderate-wage workers are the ones who will pay the bulk of the costs. Indeed, last week, the Lewin Group found that the House bill would increase costs for households with at least one uninsured member by $1,400 per year, on average. The same is almost certainly true of the Baucus plan. “Taxing the uninsured” is not likely to be a winning slogan for Obamacare. But it’s an accurate description.

posted by James C. Capretta | 12:37 pm
File As: Health Care

Are Democrats Going to Tax Health Benefits and “Cap” Medicare?

Let’s start with some good news: the House health care bill is, for all intents and purposes, dead, and the president is the one who killed it.

In a key passage in his health care speech last week, President Obama committed himself to opposing any bill that would add “one dime” to the federal budget deficit over the next decade — or ever. As David Brooks pointed out in his Friday column, that presidential line in the sand should be the final nail in the coffin for the House bill because it would so plainly violate the president’s “deficit-neutral” commitment. And not by a little bit. The Congressional Budget Office (CBO) said in July that the House bill would set in motion a new entitlement program with costs growing at about 8 percent per year, while the revenue raised to pay for it would only grow at about 5 percent per year. In the medium and long term, after everything is phased in, the House legislation would therefore add increasing amounts of deficit spending to an already disastrous long-term budget outlook. Last week, the Lewin Group confirmed CBO’s finding and said the House bill, as reported out of the Energy and Commerce Committee, would add $1 trillion to the federal budget deficit from 2020 to 2029.

Of course, it was only a few weeks ago that the president was trying to strong-arm the House bill through the lower chamber. And a couple of months ago the president talked of “bending the cost curve,” not deficit neutrality. Still, given the unambiguous nature of the Obama pledge and where and when it was made, it’s hard to see how House leaders could resurrect the budget-busting bill they were working on in July.

Now for the bad news: The death of the House bill does not mean the death of Obamacare, unfortunately. The president and his allies are simply moving on to plan B (or perhaps it is C or D).

This latest version of Obamacare is likely to include two key provisions that Democrats hope will get them over the CBO hurdle. Depending on the specifications, it is certainly conceivable that provisions could be written to generate savings from within the “health system” that keep pace with the massive entitlement Democrats want to create.

The first provision the president endorsed was a new tax on health benefits. He didn’t put it that way in his speech, of course. He said he was for imposing a tax on high-cost insurance plans. But there really is no such thing as a tax on high-cost insurance plans. Senator Max Baucus has included such a tax in his draft proposal, but the financial burden would fall entirely on insurance enrollees, not insurance companies. Insurers, and employers who sponsor expensive insurance plans, would respond to such a tax by making adjustments in coverage, such as imposing higher deductibles, to ensure the cost of their plans fall below whatever threshold is set (now $21,000 for family coverage in the Baucus draft). And so its consumers and patients who would pay more if this particular Obama tax were to get enacted — including many in middle-class households and some who are union workers. Moreover, such a tax would amount to a tax on health benefits “for the first time in history” — which is the same criticism President Obama launched against the McCain plan in the final stages of the 2008 campaign.

The second provision the president endorsed in his speech was an “automatic trigger” to cut health spending if the savings he envisions from other changes don’t materialize. The president provided no specifics on how this mechanism would work, but a piece in the New York Times last week speculated that additional cuts in Medicare’s hospital and physician payment rates would kick in if health spending targets were missed.

We’ve seen this kind of “reform” before in Medicare. Physician fees are capped today, and Congress regularly overrides the automatic cuts which are supposed to occur to keep spending in line. There’s no evidence to suggest Congress will act differently in the future than it has in the past.

Moreover, Democrats have made a living attacking Republicans for harboring secret plans to undermine Medicare. Are they really ready now to endorse a plan that amounts to a permanent “cap” on Medicare spending? Apparently, some administration allies are trying to convince House and Senate members to do just that to get around their CBO problem. They argue that the trigger will never be pulled because other “reforms” in the bill will work so well that governmental health care savings will more than offset the expanded entitlement programs.

But that’s a very dubious assumption. The bills as they now stand have very little in them that will change the basic financial incentives for most health care providers, which is why CBO and most everyone else sees no reason to believe cost escalation will slow in any meaningful way. So if the Democrats impose a cap on Medicare spending, hospitals and physicians should assume the trigger will be pulled, forcing them into a never-ending struggle to get fully paid for what it costs to take care of Medicare patients.

It’s pretty clear at this point that President Obama will do just about anything to get a health care bill to his desk this year. It remains to be seen if he is so persuasive that he can convince his fellow Democrats that they are better off endorsing taxation of health benefits and a cap on Medicare than compromising with Republicans. Smart Democrats will be more than a little skeptical of that argument.

posted by James C. Capretta | 11:46 am
File As: Health Care

Health Reform Then and Now

Last Friday, I participated in a panel discussion at the American Enterprise Institute (AEI) entitled, “Health Reform Then and Now: What Do We Need to Know?” The session focused on the differences in analytical information available in 1994, when President Bill Clinton proposed a health-care reform plan, compared to this year. In 1994, the Congressional Budget Office (CBO) released a detailed analysis (available here) of the Clinton plan very early in the year, which gave Congress plenty of time to understand its implications and make judgments. This year, House leaders unveiled their plan and CBO’s analysis of it in mid-July with the intention of voting on it by July 31st. During the discussion, I focused my comments on three assertions made by President Barack Obama about the plan being worked on in Congress that are highly questionable based on the verifiable facts: that it won’t not add “one dime” to the federal budget deficit; that it will lower costs for households, businesses, and governments; and that most of the cost of new coverage will be paid for by eliminating “waste” in Medicare and Medicaid. C-SPAN carried the event live; the full (2 hour plus!) video is available here. More information on the event and biographical information for all of the speakers can be found here, at AEI’s website.

posted by James C. Capretta | 11:58 am
File As: Health Care

Presidential Assertions vs. Facts

During his speech on Wednesday, the president made three crucial but unsubstantiated assertions. He said the plan he will sign won’t add “one dime” to the federal budget deficit, now or at any time in the future. He said this plan would lower costs for families, businesses, and government. And he said he would pay for most of the cost of the plan by eliminating waste and inefficiency in Medicare and Medicaid.

Again, these were assertions, with no facts or detailed legislative specifications to back them up. Indeed, the president made these assertions despite the fact that all available evidence indicates that the plans being worked on in Congress don’t come close to meeting these stated objectives.

First, regarding the budget deficit, we received confirmation on Wednesday from the Lewin Group that the House bill — as amended in the Energy and Commerce Committee — would increase the federal budget deficit by ever increasing amounts after 2019. The Lewin analysis — produced for the Peter G. Peterson Foundation, and available here — indicates the House bill would add over $1 trillion to the annual deficits between 2020 and 2029, including $188 billion in 2029 alone. So, the House bill would make our already bleak long-term budget outlook much, much worse — not better.

This should surprise no one. The Congressional Budget Office (CBO) said weeks ago that the House bill would set in motion a new entitlement program that would grow indefinitely at about 8 percent per year — just like Medicare and Medicaid have for four decades — while the “offsets” to pay for it would only grow at about 5 percent per year. That’s the makings for another very large unfunded liability on the federal books. In an earlier post, I suggested that the House bill would create a $10 trillion unfunded liability over seventy-five years.

Lewin also produced detailed estimates of what the House bill would do to household spending on health care. President Obama and other Democrats like to say they are providing “universal coverage.” But who is really paying for this coverage? It turns out it’s the uninsured workers themselves who would shoulder the financial burden in the Democratic plans. According to Lewin, households with at least one uninsured member would see a jump in their health-care expenses of $1,400 per year, on average. For uninsured households with incomes between $40,000 and $50,000 per year, the jump in annual health-care costs would average $1,700.

This, too, should not be surprising. The bills under consideration really only reduce the ranks of the uninsured by force. To keep federal costs “down,” the bills prohibit workers who are offered coverage on the job from getting new subsidies for insurance through the so-called “exchanges.” But these workers are required to have some coverage to avoid paying the individual mandate “penalty.” Consequently, they really have no choice but to sign up with their job-based plans. And that will mean paying for this insurance through lower take-home pay, whether they can afford it or not. Thus, the individual mandate — the basis upon which Democrats can claim to “cover everybody” — is really just a hidden and regressive tax on lower and moderate wage workers.

Finally, the president again said he could pay for “his plan” with painless reforms which will eliminate waste and inefficiency in Medicare. Where are these painless reforms? The president’s budget, the House bill, and Senator Baucus’s outline are filled with the same kinds of arbitrary, across-the-board provider payment reductions that have been used countless times in the past to hit budgetary goals. These are not “reforms” that will change the basic dynamics of how health care is delivered to patients. There is no effort to make distinctions based on quality or value. All hospitals will get smaller payment increases, no matter how well or how badly they treat their patients. Moreover, all the “fees” that are imposed on insurers, drug companies, and device manufacturers will simply get passed on to patients and consumers in the form of higher prices.

On Wednesday, the president described a health care plan that doesn’t exist. There is no proposal in Congress or offered by the president which would lower costs for households, businesses, and the government, and the president doesn’t have a magic solution which will “bend the cost curve” with painless efficiency gains.

What is clear is that the bills under consideration in Congress would impose massive new hidden costs on low and moderate wage households — the very people the president and his allies say they want to help. And that’s a fact, not an assertion.

posted by James C. Capretta | 5:49 pm
File As: Health Care

The President Has No Plan to Fix Health Care

President Barack Obama says he wants to be the last president who has to deal with health care. But it is abundantly clear from his speech tonight that he has no plan to fix the problems in health care as they exist today, much less to settle the issue for good.

The primary problem in health care is rapid cost escalation. The president has promised for months now that he would have a plan to “bend the cost-curve.” Indeed, even tonight, he spoke of the plans being worked on in Congress as if they would address the problem of rising costs and improve our long-term budget outlook.

It’s as if the president and his team haven’t read anything that the Congressional Budget Office (CBO) has said about the health care bills under consideration. The truth is that these bills would add an additional runaway health care entitlement to the ones already on the federal books. CBO has said that the House bill would set in motion new spending that would grow at about 8 percent rate per year, while the revenue to pay for it would increase only about 5 percent per year. You don’t have to be a financial genius to sse a problem here.

Today, the Lewin Group confirmed again how fiscally irresponsible the House bill is. According to Lewin’s estimates, the bill passed out of the House Energy and Commerce Committee would increase the federal budget deficit by $1 trillion between now and 2029, and permanently increase the nation’s total health care bill. Moreover, they estimate that the uninsured would face an average of $1,400 in increased costs from the House bill per year. Others with insurance would see a small decrease in costs, but that assumes no increase in taxes to pay for the government’s mounting bills.

The country does need to enact sensible health care reforms. But the plan the president is pushing would exacerbate the fundamental problem, not address it. And that’s why the public has turned against it.

posted by James C. Capretta | 10:10 pm
File As: Health Care

Apparently, August Never Happened

During August, in scores of meetings which were held in all parts of the country and attended by thousands, concerned citizens sent unmistakable signals to their elected political leaders that if Congress is going to produce anything on health care this year — and many openly stated they hope nothing at all will pass — they want it to be a more targeted, less expensive, and less controversial product, and one based on bipartisan consensus and not ideological ambition. Polls show most Americans are strongly opposed to a full governmental takeover of U.S. health care, and they rightly sense that is exactly what would happen if the bills currently under consideration were to pass.

And so how are Democrats responding to this spontaneous display of widespread public disapproval of their planned agenda? Not with a sensible course correction, it seems. No, by all appearances, it’s still full steam ahead.

Monday, President Obama delivered a campaign-style speech to his union supporters which made news mainly because the president went off of his prepared remarks to deliver a false attack on his political opponents. The president said those who are against his government-heavy plan have offered no alternatives, which is flatly not true. Months ago, Senators Coburn and Burr and Congressmen Ryan and Nunes offered the Patients’ Choice Act, which would build a true consumer-driven marketplace for insurance and medical services.

Today, Senate Finance Committee Chairman Max Baucus distributed a summary of his long-awaited plan to selected members of his committee, and it looks to be the same plan that was under discussion in June and July, with only the most modest of tweaks. It is built on the same flawed foundation as the House bills, starting with a so-called “individual mandate” that would penalize any American who didn’t sign up for government-approved insurance. Employers would also pay a tax if any of their lower-wage workers ended up on government-subsidized plans, which would create a strong disincentive for hiring such workers in the first place. The federal government would vastly expand health care entitlement spending by enrolling millions of people in Medicaid and standing up a new entitlement for persons with incomes between 133 and 300 percent of the poverty line. The new spending in the Baucus plan is said to be near $900 billion over a decade, but no official estimates are available.

To “pay for” the additional federal costs, Senator Baucus wants to impose a vast array of new taxes, on health insurers, drug companies, device manufacturers, and clinical labs, all of which will be passed on to patients, of course. In addition, Senator Baucus wants to impose payment rate reductions in Medicare and Medicaid, which will save between $400 and $500 billion over ten years. Among the cuts would be a deep reduction in Medicare Advantage payment rates, which would force millions of seniors out of their current coverage and back into the traditional Medicare program and expensive Medigap plans.

The Baucus plan is flawed from the get-go because it starts from the same misguided premise as its counterparts in the House. It seeks to achieve “universal coverage” but without building a functioning marketplace to slow the pace of rising costs. And so, if it were to pass, costs would escalate just as rapidly in the future as they have in the past, and it would only be a matter of time before the current administration or its successor proposed new and draconian “cost control” measures to hold down governmental health care spending. At that point, federal central planners would resort to the same kinds of price setting devices that have been tried for years in others settings, including Medicare. And the predictable result would be a large reduction in the willing suppliers of medical services, which would mean queues and lower quality care all around.

posted by James C. Capretta | 11:16 am
File As: Health Care

Lack of Tort Reform Is Not the Main Problem with Obamacare

With Obamacare’s prospects sinking by the day, there’s no shortage of opinions about what the Obama administration should do to resuscitate it.

Former Senator Bob Dole has a piece in the Washington Post suggesting that the administration is running into trouble on health care because the president ceded too much control over the drafting of the legislation to Congress. But, truth be told, the specific ideas the president has offered up to date — the massive tax hikes and arbitrary across-the-board Medicare cuts in his 2010 budget, and a power grab for unilateral control over Medicare — do not build confidence that a plan drafted by administration officials would be at all attractive to Republicans.

Former New Jersey Senator and Democratic presidential candidate Bill Bradley has a different take on how to get Republicans on board in his piece yesterday in the New York Times.

Bradley was one of the main architects of the 1986 tax reform law, which President Reagan signed into law. That legislation dropped the top individual income tax rate to 28 percent by broadening the base of income subject to taxation. It was more or less revenue-neutral — not a tax increase or a tax cut. And it attracted large numbers of votes from both sides of the political aisle.

Bradley believes that the 1986 experience provides valuable lessons for this year’s health care debate. He says the reason tax reform enjoyed strong support from both Republicans and Democrats is that both parties got something they long desired in return for giving up a sacred cow. Republicans got lower rates but had to give up protecting energy and other business sectors. Democrats got more equity with the rich paying a higher percentage of the total tax take, but they had to give up explicitly higher tax rates to get there.

Why not strike a similar grand, bipartisan compromise on health care, Bradley says? Of course, there’s a certain appeal to his argument. No complex and sweeping legislation ever gets broad support from both parties unless there is something important in it for both sides. But what Bradley suggests as the makings for such a deal in health care is completely implausible. Democrats, he argues, should get “universal coverage” in return for giving Republicans tort reform, including serious reform of the nation’s medical malpractice laws.

Don’t get me wrong. Strong reform of medical malpractice laws is long overdue and could eliminate the serious distortions which now occur as hospitals and physicians reduce the risk of getting caught in the lottery-like system of jury awards.

But should Republicans sign onto something even remotely resembling the bills now being considered in Congress if tort reform were thrown into the mix? No way. The bills written by the Democratic majority are so fundamentally flawed from beginning to end that they can’t be fixed. They would cause tremendous economic harm with massive new unfunded liabilities, taxes, and job-killing mandates on employers. Moreover, they would cede vast power to the federal government over virtually every aspect of our health care system. The result would be a long and likely irreversible deterioration in the quality of U.S. health care, with less innovation and more government-driven rationing of care. No amount of tort reform would be worth agreeing to that.

The Obama administration isn’t running into trouble on health care primarily because of poor legislative tactics. In fact, for the most part, they played it brilliantly — from their perspective — for the first six months of the year, hiding the ball as long as possible and resorting to vague pronouncements of broader coverage and cost-control. Their hope was that momentum would build and allow them to shorten the time between bill introduction and final passage. Unfortunately for them, many Americans actually wanted to know what these bills would do to their health care, and as they learned more in the last two months, they turned against the administration’s plan in large numbers. That won’t change even if President Obama offers medical malpractice reform as a small concession to conservatives.

posted by James C. Capretta | 11:40 am
File As: Health Care

The Obama Agenda and Fiscal Reality

Yesterday, both the Obama administration and the Congressional Budget Office (CBO) released new, ten-year projections of the federal receipts, spending, deficits, and debt. The administration’s Mid-Session Review (available here) provides an updated forecast of what executive branch scorekeepers think will happen if the Obama budget plan is adopted in full. CBO’s forecast looks at federal revenue and spending over the coming decade assuming no changes from current law. Both documents, despite their different premises, point toward a fast-approaching fiscal crisis.

According to CBO, the federal budget deficit will approach $1.6 trillion in 2009 and $1.4 trillion in 2010. That’s $3 trillion in new borrowing in just two years. The country accumulated $5.8 trillion of government debt from 1789 to 2008.

According to the Administration’s own numbers, the Obama budget plan would push the debt burden to more than $17 trillion by the end of 2019. Total spending in the Obama budget would reach $5.3 trillion in 2019, or $2.4 trillion more than was spent in 2008 — almost doubling the size of government in a decade. And that doesn’t even include the health-care plan, which the administration assumes will be “budget neutral.” Piling up debt at this kind of rate is not sustainable, to put it mildly. Sooner or later, and probably sooner, something will give. More than likely, a time will come when the U.S. government will no longer be able to borrow money at preferential rates. Interest rates will go up, growth will slow, and unemployment will rise. At that point, there will be no choice but to embark on a painful period of austerity and pronounced fiscal contraction.

The Obama team made a strategic decision at the beginning of this year to focus first on passing a governmental takeover of health care and climate change legislation. Any effort to close the widening budget deficit was put off until 2010, at the earliest. The thinking was that the health care and climate change bills would be so controversial that they could only pass in the president’s first months in office, and they are what the Democratic left most wants to see enacted during the Obama era. Moreover, the health care plan, in the administration’s view, would lay the predicate for future deficit reduction because it would hand over to the federal government new levers to pull to keep costs down in the future. Or so they thought.

Things certainly look very different today than they did in January. The Obama administration has no credible plan to slow the pace of rising health care costs, and never really did. The health care plans emerging in Congress would add a new runaway entitlement program on top of the ones already on the books and substantially worsen both the near-term and long-term budget outlook. Beyond health care, the administration has not offered anything resembling a credible government reform or deficit-cutting plan. Recent suggestions by Treasury Secretary Timothy Geithner and National Economic Council Director Larry Summers that a large tax increase may be needed were quickly shot down by the White House.

So what’s the game plan? The federal government is rushing headlong toward a fiscal crisis that could seriously harm the U.S economy. The president has spent much of his political capital this year promising that health care reform would be tantamount to entitlement and budget reform because it would “bend the cost-curve.” Now that that contention has been thoroughly discredited, it appears the administration has no coherent plan B to get our fiscal house in order. Moreover, even if they did have such a plan, it’s not at all clear that the current Congress could or would pass the highly controversial tax increases and defense cuts that this very conventional Democratic president would almost certainly be pushing.

The first priority of a new president should be to make sure his administration has the capacity to govern. That means cultivating a reliable political coalition that can keep the trains from running off of the rails. President Obama has put at risk his ability to get the hard but necessary things done by pursuing an ultra-liberal agenda that will exacerbate the budgetary problems he should have been most concerned about during his first year. As a result, his entire agenda is now seriously at risk as fiscal reality pushes the federal government toward a massive course correction.

posted by James C. Capretta | 11:05 am
File As: Health Care

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