Harry Reid


Debating Cost-Control

In my latest column for Kaiser Health News, I examine competing claims about the health care legislation now in Congress:

In recent days, a growing chorus of voices has expressed alarm that the health care legislation emerging in Congress does not come close to “bending the cost-curve” as President Obama has promised it would. David Broder and Robert Samuelson in the Washington Post, David Leonhardt in the New York Times and Harvard Medical School Dean Jeffrey Flier on the editorial page of the Wall Street Journal have all, to varying degrees, said the health care plans being developed by Congressional Democrats would vastly expand governmental health care commitments without fundamentally altering the arrangements that today push costs rapidly upward every year.

Now, top officials in the Obama administration are pushing back hard with their own “narrative” on the cost-containment potential of the health care bills in Congress. Specifically, White House Budget Director Peter Orszag and Director of the Office for Health Reform Nancy-Ann DeParle contend in a series of recent interviews that the health care plan introduced by Senate Majority Leader Harry Reid is more than sufficient to meet the “bend the curve” test. Their views have been echoed by MIT Economist Jonathan Gruber, who has been arguing that the Reid bill contains every conceivable idea to slow the pace of rising costs. And Ronald Brownstein of The Atlantic has hailed Senator Reid’s legislation as a “milestone” in the health reform journey because of its superior cost-control provisions.

To get a sense of who’s right here, some perspective is necessary. Both the House-passed bill and Senator Reid’s proposal would put in place the most costly entitlement expansion in more than four decades. They would add millions of households to the Medicaid program and promise all Americans between about 100 and 400 percent of the federal poverty line — some 127 million people under the age of 65 in 2008 — that their health insurance premiums will not exceed a certain percentage of their incomes. They would also extend subsidies to small businesses offering insurance coverage. The Congressional Budget Office expects the combined federal cost of these new commitments to reach about $200 billion by 2019 and to increase eight percent annually every year thereafter.

You can read the whole thing here.

posted by James C. Capretta | 12:07 pm
Tags: Jeffrey Flier, Robert Samuelson, David Leonardt, David Broder, Peter Orszag, Nancy-Ann DeParle, Harry Reid, Nancy Pelosi, Ronald Brownstein
File As: Health Care

A $4.9 Trillion Spending Increase

“Bracket Creep” and the Return of Tax-and-Spend

The health-care plan unveiled yesterday by Senate Majority Leader Harry Reid has some in the mainstream media gushing because, on paper at least, the Congressional Budget Office (CBO) says it will reduce the federal budget deficit by about $130 billion over ten years, and more in the second decade.

But the supposed fiscal prudence of the Reid plan is a complete mirage, for a number of reasons.

For starters, the Reid plan assumes that Medicare physician fees will get cut by about 20 percent beginning in 2011 and then remain very restrained indefinitely. Virtually no one in Congress believes that will happen, nor do they want it to. Indeed, just a couple of weeks ago, Senator Reid himself tried to overturn the planned cuts in physician fees, at a cost of nearly $250 billion over a decade. It does not matter to taxpayers if Senate Democrats try to pass their health-care agenda in one or two bills. The total cost will be the same. With the so-called “doc fix” included in the tally, the Reid plan would increase the federal budget deficit by about $100 billion over ten years, not reduce it.

Then there are the tax increases. CBO gives Senator Reid credit for cutting the budget deficit in a second decade, but that’s not because the plan would do anything to slow the pace of rising health-care costs. It wouldn’t do much of anything in that regard. What it would do is impose massive tax increases, in part by resorting to the same kind of discredited “bracket creep” so despised by the public in the 1970s. At that time, the thresholds separating the various income-tax brackets were not indexed for inflation, which meant that every year many people paid taxes at a higher rate simply because inflation had boosted their wages. Of course, many in Congress liked it that way because it meant a tax increase without the nuisance of a politically unpopular vote. Senator Reid and his Democratic colleagues are trying to pull off the same trick now. They are proposing two tax increases which would hit America’s middle class increasingly hard over time because the dollar thresholds used to assess the tax are not indexed to full inflation. The first, the 40 percent excise tax on high-cost insurance plans, would apply initially only to family policies exceeding $23,500 in annual premiums and individual plans with premiums exceeding $8,500. Those thresholds would increase by general inflation plus one percentage point each year, but that would be still below the rate of expected medical inflation. Consequently, more and more middle class families would find themselves bumping into the premium thresholds as time passed.

Similarly, Senator Reid wants to raise the Medicare payroll tax, now 2.9 percent, on workers with incomes exceeding $200,000 per year, to 3.4 percent. But, again, that income threshold would not be indexed for inflation, which means many millions of families would be paying it in ten years who wouldn’t be paying it initially.

The end result would be a massive overall tax increase. In the first ten years, CBO says it would total nearly $500 billion, which is bad enough. But in the second decade, the tax increase would balloon to about $1.7 trillion in large part because of the hidden tax hikes associated with bracket creep. Over twenty years, Senate Democrats are thus planning to raise taxes on the American people by about $2.2 trillion.

Even so, this massive tax hike still would not fully cover all of the spending in the Reid plan. According to CBO, the cost of the so-called “coverage provisions” would be about $850 billion over a decade, but that’s only because they wouldn’t kick in until 2014. CBO expects the annual cost of these provisions to grow about 8 percent every year. In the second ten years, the cost would therefore soar to $3.1 trillion.

Senator Reid’s bill also includes numerous other spending provisions which the press dutifully excludes from the reported total. These are mainly relatively small demonstration programs or tweaks to existing programs buried in Medicare and Medicaid. But because there are so many of them, their cost adds up. Overall, CBO expects these non-coverage spending items to total about $90 billion over the period 2010 to 2019, which pushes the total cost of the Reid plan to $940 billion over ten years — above the $900 billion limit the president said he would impose. Throw in the “doc fix,” and Senate Democrats are planning to spend nearly $1.2 trillion on their health-care agenda.

Finally, there are the Medicare cuts. Despite all of the talk of “delivery system reform,” the Senate Democratic plan would not transform American medicine to make it more efficient. No, they would simply cut payment rates for providers of services. On paper, the cuts are massive. CBO says they would total nearly $450 billion in Medicare over the first ten years, but then grow to about $1.9 trillion in the next decade. Just like physician fees, virtually no one believes Congress will sustain arbitrary payment rate cuts of this magnitude. And without them, the Reid plan is a clear budget buster.

So, here’s the bottom line. On paper, the Reid plan plus the “doc fix” would increase total federal spending by about $4.9 trillion over twenty years. Senate Democrats would resort to bracket creep and other tax hikes to raise $2.2 trillion over the same period. The balance would be made up with spending reductions, mainly in Medicare, that no one believes can be sustained, and in any event do not constitute “health reform.” In other words, it’s a tax-and-spend bill of the highest order. And only the spending is certain to happen.

posted by James C. Capretta | 5:53 pm
Tags: Harry Reid, Medicare, tax and spend, bracket creep, CBO
File As: Health Care

Who Would Pay the Kerry-Baucus-Obama Tax on Insurance?

The desperate search continues.

Shortly after the July 4th congressional recess, Senate Majority Leader Harry Reid effectively killed the idea of placing a cap on the amount of employer-paid premiums that can be paid on behalf of a worker and still remain tax free. Unions have always been vehemently opposed to any limitation on the tax-preferred status of job-based plans, and imposition of a dollar cap on tax free employer-paid premiums would also have violated President Obama’s already shaky promise (see the House-passed “cap and tax” bill) to not raise taxes on households with incomes below $250,000 per year.

Senator Reid’s firm opposition sent Finance Committee Chairman Max Baucus back to the drawing board. He had been counting on the $320 billion raised over a decade from the “tax cap” idea to partially pay for his reform plan. He has now spent the better part of two weeks rummaging around for ideas that can plug the $300 billion hole in a politically safe way that also unites all Democrats on the committee and a Republican or two. Let’s just say it’s not likely to be a very long list.

Congressional Budget Office (CBO) Director Doug Elmendorf complicated matters further with his assessment of the bills under consideration in the House and the Senate Health, Education, Labor, and Pensions (HELP) Committee. Elmendorf told the Senate Budget Committee last week that these bills don’t go nearly far enough to change the financial incentives which are driving up costs. He also noted that an important way to emphasize cost control would be to put into the bills a limitation on the tax-preferred status of expensive job-based plans — exactly the idea which Senator Reid had rejected only days before. Indeed, it is not a coincidence that the one reform with the most potential to instill some much-needed financial discipline into the health sector without overbearing governmental regulation is also the one change senior congressional Democrats most vigorously oppose.

Which brings us to the idea du jour. In private negotiating sessions taking place in the Finance Committee, Senator John Kerry has apparently floated an alternative taxation idea. Why not tax the insurance companies which are selling expensive policies instead of taxing the job-based benefits of workers?

Sounds great, right? A tax on for-profit health insurers. Really, what’s not to like?

As is often the case in Washington, this is not a new idea either. It was proposed by Senator Bill Bradley during the debate on the Clinton health care plan in 1994 for the very same reasons it is being considered today. It has superficial political appeal — for a day or two. No one likes insurers anyway. Perhaps unions and the broader public can go along with a tax that seemingly hits distant and despised companies and not them. And maybe the CBO Director will look as favorably on this kind of tax in terms of potential cost-control as he does the traditional “tax cap” idea.

But, of course, the reason why a tax on insurance might actually have a beneficial impact on the pace of rising health care costs is that insurers will never pay it.

For starters, such a tax couldn’t be structured to apply only to insurance companies. Many employers, especially large ones, self-insure rather than purchase insurance for their workers directly from other companies. To raise any significant revenue at all, and to treat all health insurance equally, the Kerry-Baucus-Obama insurance tax would have to apply to self-insuring employers too. That fact, by itself, is likely to reduce its political appeal in coming days.

Furthermore, no insurer or employer will pay a new tax on insurance and simply reduce their profits by a like amount. If the federal government imposes such a tax, insurers and employers who would otherwise have to pay it will make adjustments to their plans and products to bring costs down and avoid the tax. That’s the point, anyway, even according to the proponents. But that means higher deductibles for the plan’s enrollees. More cost-sharing when patients see their physicians or fill prescriptions. More restrictive networks of preferred providers. There’s no way around the fact that it’s the plan’s enrollees who will pay more, not the insurers or the employers.

Of course, in a competitive labor market, if employers cut their health costs, they can pay their workers more in cash wages, and that’s what CBO is very likely to assume would occur with the Kerry-Baucus-Obama tax. That means a substitution of taxable wages for tax-free fringe benefits. Federal tax collections will indeed go up, but it's workers who will be paying more, even as they get less expansive health insurance. Indeed, there is no way around the fact that any effort to get Americans into less expensive insurance will increase costs for the middle class, and that’s exactly what would happen with this proposal too.

But that won’t stop Senate Democrats from trying to have it both ways. They want CBO to give them credit for adopting incentives for large-scale enrollment in less expensive health insurance, even as they also proclaim that no middle class family will pay more taxes or more for health care either. That contention — that they have somehow found the health-care free lunch — won't stand up to even modest scrutiny. Indeed, that’s why the Bradley tax didn’t break the logjam in 1994. No one was fooled. And they won't be this time either.

posted by James C. Capretta | 5:22 pm
Tags: Harry Reid, cap and tax, Max Baucus, CBO, Doug Elmendorf, HELP, insurance tax, ClintonCare, tax cap
File As: Health Care

Let the Unraveling Begin

The Obama administration has been desperately trying to create a sense of momentum around its health-care push, which is why it is touting the latest “deal” with hospital associations so heavily.

But there are clear signs that Congressional Democrats and the Obama White House have steered the health-care effort into seriously choppy political waters.

Consider:

  1. Yesterday, Senate Democratic leaders all but rejected Senate Finance Committee Chairman Max Baucus’s months-long effort to impose a limit on the tax preference for employer-paid premiums as a way to pay for his reform plan. Media reports indicate he was hoping to generate $340 billion from such a tax to pay for his plan, but that looks highly unlikely now. House leaders were never much interested in the idea, given the adamant opposition of organized labor, and won’t include it in their bill. Revising the tax treatment of job-based insurance was the one potential “reform” with some potential for bipartisan appeal, as it could, under the right circumstances, encourage more cost-conscious consumption of health care. Senator Baucus had been planning to take up consideration of his bill — with the tax on benefits in it — in his committee next week. Where is he going to find a politically palatable $300 billion in a matter of days, let alone one that can also appeal to committee Republicans?
     
  2. Party activists pushed Congressional Democrats over the July 4th recess to write a bill reflecting long-standing party goals — which means government-run insurance and near-total government control. This push has made the chances for bipartisan compromise — already remote — even less likely. In response to the pressure, Senate Majority Leader Harry Reid told Senator Baucus that he is not authorized to cut any deals with Senator Charles Grassley, the ranking Republican on the Finance Committee, which would bind the rest of the Democratic caucus. Senate Democrats have now committed themselves to including a muscular, government-run insurance option in the bill — which is, rightfully, a deal-breaker for the vast majority of Republicans. Indeed, at this point, it is hard to see why Senator Grassley or any other Republican senator would continue to negotiate with Senator Baucus or Senator Reid at all, as it is beyond obvious that Congressional Democrats are only interested in Grassley’s views until they can get a bill off the Senate floor — and even then, they are not interested in true bipartisanship but only enough to get two or three Republican votes.
     
  3. Congressional Budget Office (CBO) Director Doug Elmendorf explained in a letter to Sen. Judd Gregg that adding Medicaid coverage for persons with incomes below 150 percent of the poverty line to the Kennedy-Dodd legislation under consideration in the Senate Health, Education, Labor, and Pensions Committee (HELP) would increase the cost of that bill by around $500 billion. That would put the total cost of the bill at about $1.1 trillion, but it is likely to go even higher because states will balk at picking up their part of the tab for the new Medicaid coverage. Thus, when all of the details are finally in the bill, the Kennedy-Dodd plan is likely to cost close to $1.5 trillion over a decade. But even with this massive expenditure, Elmendorf predicted there would still be 15 to 20 million uninsured Americans.
     
  4. In testimony before the HELP Committee today, Elmendorf said this about the Kennedy-Dodd proposal: “This bill will add substantially to the long-term spending burden for health care on the federal government.” Recall that President Obama pledged to oppose any bill that does not — eventually — “bend the cost-curve” and reduces the government’s long-term cost burden.
     
  5. Rumors are circulating that House leaders are apparently considering a trifecta of popular “pay fors”: $500 to $600 billion in Medicare cuts, a new surtax for households making more than $250,000 per year, and $350 billion in funding from the so-called “pay or pay” employer mandate — while unemployment heads toward 10 percent. All of these proposals are going to generate substantial controversy and opposition, to put it mildly. The surtax would come on top of the Obama administration’s plan to let the Bush tax cuts expire for upper-income households, which would increase the top rate from 35 to 39.6 percent. A new, three-percentage point surtax, for instance, would push the top income tax rate to 42.6 percent — a rate not seen in more than two decades.
     
  6. Oh, and those momentum-generating “deals” with PhRMA and the hospital associations — turns out they aren’t deals after all. House Energy and Commerce Committee Chairman Henry Waxman said today that neither he nor the White House is bound by them, and a White House official agreed. Moreover, it remains unclear how much federal savings they will generate anyway, as they have not yet been assessed by CBO. So what do the deals signify exactly?

The Obama White House and its congressional allies have built expectations among their core supporters that this is the year to pass a government takeover of American health care. With expectations set so high, most elected Democrats have concluded they have no choice but to set out on a forced march to try to do exactly that — despite unified Republican opposition. But a partisan bill means that Democrats own all of the messy and unattractive details too. The debate is no longer about vague concepts of “coverage” and “cost-control” but who pays and who is forced out of their job-based plans. The more people learn about these details, the less they will like them —which is why the Democratic committee chairmen are working desperately to shorten the time between a full public airing and a vote. They’re hoping there won’t be enough time for public opposition to put a halt to the proceedings.

posted by James C. Capretta | 5:40 pm
Tags: ObamaCare, House bill, Max Baucus, Harry Reid, Charles Grassley, CBO, Doug Elmendorf, HELP, cost-curve, mandate, pay or play, Henry Waxman
File As: Health Care

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