Friday, February 5, 2010

The President’s Budget and Health Care Reform 

I have a new column up at Kaiser Health News this week. An excerpt:

It is now readily apparent that piling up debt at the rates implied by the president’s budget would all but invite an economic crisis. At some point, the flood of Treasury debt instruments worldwide would lead lenders to demand higher rates of return for their loans, or perhaps to runaway inflation — or more probably both. The result could be quite devastating to private-sector business investment, productivity and job growth, making it all the more difficult to get out from under the debt spiral that would ensue....

It’s not that the president and his advisors don’t recognize the problem. They speak frequently about the dangers of business as usual. The problem is that the president’s stated solution will never work.

What the administration would like to do is to have Congress pass the health care bill and then follow it up with a bipartisan deficit-cutting plan, put together by a special commission assigned with assembling a medium and long-term solution to the nation’s budgetary woes.

The first problem with this sequencing is its unrealistic political calculus.... The other problem is the planned timing of the debt commission’s recommendations and congressional action. The president would like the commission to issue its plan after the November congressional elections, and have a lame-duck Congress vote on it between early November and the start of new Congress next January. So the most far-reaching tax hikes and spending cuts in a generation would be recommended by an unelected commission and passed by an exiting Congress, all in a matter of days and weeks, even as newly elected members are set to take their seats. To say the odds are long is quite an understatement.

The whole thing is available here.

posted by James C. Capretta | 3:26 pm
Tags: budget, Obamacare, deficit commission, debt
File As: Health Care

Friday, January 29, 2010

‘Reconciliation’ Talk Reveals Democratic Desperation 

House Speaker Nancy Pelosi and many of her allies outside of Congress have spent the past week trying to convince rank and file Democrats and others that Obamacare need not be dead if only the party had the will to pursue what might be called the “reconciliation solution.” Indeed, the Center on Budget and Policy Priorities recently circulated a short white paper aimed at bucking up Democrats on the reconciliation option. The authors argue that using the budget reconciliation process — which effectively means legislation can pass in the Senate with a simple majority instead of sixty votes — to approve a massive health-care bill is entirely consistent with prior practice.

And, it is true that the budget reconciliation process has been used to pass significant pieces of budgetary legislation in prior years, including welfare reform, tax cuts, and scores of important changes in the Medicare and Medicaid programs.

But there’s a big difference between what’s been done in past and what Democrats are trying to convince themselves to do this time around. Those reconciliation bills made amendments to current law. What the Democrats are now contemplating is something entirely different and totally bizarre: they want to try to pass a reconciliation bill which amends another bill which has not yet been approved by Congress.

Here’s the scenario they have laid out: The Senate has passed a bill, which is now sitting on the House side awaiting action. As the Speaker has implicitly admitted, in the wake of Scott Brown’s election to the United States Senate, Democrats have run for the hills on health care. There aren’t nearly enough votes in her caucus today to pass the Senate bill as it stands, and there’s a real question about whether they could even pass the bill they already adopted last November.

But the Speaker says today’s impasse need not be the last word on Obamacare. According to this way of thinking, it might be possible to pass the Senate bill a little later this year if the Senate would just agree to first pass a bill providing a series of amendments to the previously-passed Senate health-care plan. Those amendments would be considered under the special rules governing budget reconciliation measures, which means no filibuster. There would be only twenty hours of debate, and then it would come to a vote on final passage. If Senate Democrats could hold just 50 of their 59 Senators (the vice president can break 50-50 ties), they could pass it, or so the theory goes. Once the Senate cleared such a measure, House Democrats would then supposedly feel comfortable going ahead and voting to approve the Senate-passed health-care bill because another bill would be following right behind it to make politically crucial amendments. The president and the Democrats would then get their “historic” signing ceremony after all, only there would be two bills to sign instead of one (more pens for everyone!).

That the White House and congressional Democrats are even thinking and talking this way is an indication of how far they have fallen. They are clearly desperate, so desperate in fact that they are willing to float any kind of half-baked and far-fetched scenario in the press if it has even a remote chance of breathing life into the rapidly expiring corpse of Obamacare.

But this reconciliation gambit is so full of holes and such a perversion of the process that it’s hard to imagine anyone taking it seriously. For starters, the baseline for assessing such a reconciliation bill would be current law, which would not include the Senate health-care plan still sitting in the House chamber. You can’t pretend something is already in law if it isn’t. And so, when the Congressional Budget Office assessed such a bill, they would have to assign costs based on what it would do relative to today’s tax and entitlement structure, not some fictitious baseline that assumes passage of the Senate bill.

Moreover, any provision in a reconciliation bill that does not change tax receipts or budgetary spending can be stricken from it with just 41 votes in the Senate under the so-called “Byrd Rule.” The rule was adopted by the Senate more than two decades ago to limit the kinds of provisions that could ride on a budget reconciliation measure to those that actually make non-trivial changes to the federal budget. But if a reconciliation bill includes numerous amendments to another bill which is not even law yet, the whole bill or large portions of it could be irrelevant budgetarily, and therefore “Byrd”-able. For instance, the Senate-passed health-care bill includes the so-called “Cadillac insurance tax,” which raises about $150 billion in revenue over ten years. House Democrats want to exempt union-sponsored insurance plans from the tax through 2017. But if such an exemption were included in a Senate reconciliation bill, it would not change federal revenues because the underlying tax it is amending would not yet be in the law.

Clever lawyers and budget experts are almost certainly working overtime to see if they can find a way around what would seem to be fundamental obstacles to such a scenario. But even if they could, the idea that the Congress could employ such a distorted process to ram through a government takeover of American health care, in the wake of what happened in Massachusetts, is itself far-fetched. Rank-and-file Democrats have lost their stomach for this fight. They don’t want to push legislation they know their constituents have rejected, and implausible war-gaming by their leadership isn’t going to convince them to change their minds.

posted by James C. Capretta | 6:17 pm
Tags: reconciliation, Cadillac tax, Senate
File As: Health Care

Wednesday, January 27, 2010

Entitlements, the Budget, and the State of the Union 

In a new post over on NRO's Corner tonight, I comment on the health care and budgetary aspects of President Obama's State of the Union address:

On health care, he offered nothing new. He is sticking with the plan the public has quite plainly rejected. According to a recent CNN poll, a full 70 percent of Americans want Congress either to start over entirely or to drop the subject altogether. That’s because they recognize that the plan the president has been pushing so aggressively for the better part of a year would be a disaster, for the quality of American medicine and for the nation’s budget outlook. The president claims the bill would cut the deficit, but that’s based on completely implausible assumptions. The bill would stand up another runaway entitlement program, paid for with offsets that will never hold up over time and cost-control ideas that are weak and largely meaningless.

Yesterday, I had another post on the Corner, remarking on the administration's proposed budget "freeze." An excerpt:

In reality, the Obama freeze is a purposeful diversion and sideshow. The nation is rushing headlong toward a fiscal crisis because of runaway government spending, and the Obama administration has no serious plan to head it off. Between 1789 and 2008, the federal government ran up $5.8 trillion in debt. In just the first three years of the Obama administration, CBO expects the debt to increase by nearly another $4 trillion. In 2010, CBO projects total federal spending will exceed $3.5 trillion, more than $500 billion over what was spent in 2008. Further, in 2012 and beyond, with realistic assumptions regarding extension of the Bush tax cuts, relief from the Alternative Minimum Tax, funding for the wars in Iraq and Afghanistan, and restoration of planned cuts in Medicare physician fees, the government is headed toward $1 trillion budget deficits every year for as far as the eye can see. 

This massive run-up in debt is set to occur just as the baby boomers head into their retirement years, pushing up costs in Social Security, Medicare, and Medicaid. Between 2010 and 2030, the population that is age 65 and older will rise from about 41 million to 71 million. CBO expects spending on the big three entitlement programs to rise from 9.8 percent of GDP in 2010 to 14.4 percent in 2030 — an increase of about 4.6 percent of GDP in 20 years. That’s like adding another Social Security program to the federal budget with no plan to pay for it.

So far, the president’s primary response to this looming budget and entitlement crisis is to propose to pile another runaway health-care entitlement program on top of the unaffordable ones already on the books. According to CBO, the federal cost of the health-care commitments in both the House- and Senate-passed health-care bills would reach $200 billion in 2019 and would increase about 8 percent every year thereafter. Meanwhile, the offsets to pay for this new spending are completely unrealistic, and the so-called “bend the curve” provisions are far too weak to make a difference.

posted by James C. Capretta | 11:35 pm
Tags: budget, entitlements, President Obama
File As: Health Care

Sunday, January 24, 2010

After Obamacare 

With my colleague Yuval Levin, I have cowritten a piece in the latest Weekly Standard examining the political landscape for health care reform in the wake of the election of Scott Brown to the United States Senate. After discussing how the Democrats’ ambitious plans have screeched to a halt, we suggest some ideas for health reform that conservatives should take up:

First, they should seek to address the problem of insuring Americans with preexisting conditions through state-based high-risk pools, not cumbersome insurance regulations that try to outlaw basic economics. Risk pools, backed with federal money but nowhere near the scale of Obamacare’s costs, would give those with preexisting conditions more options in the individual market and make a significant dent in the number of uninsured, but without overturning our health care system.

Second, they should propose to help doctors and patients limit some of the burden of rising costs with medical malpractice reform. Sensible caps on punitive damages would not only save money but also help address shortages of medical providers in key specialties, and allow more Americans to afford and access care.

Third, they should argue that the states be given the lead role in developing more detailed reforms of how and where people get their insurance—to cover more people and slow the rise of costs. The overall goal should be to build well-functioning marketplaces in which insurers and providers compete to deliver the best value to cost-conscious consumers. The federal government should remove bureaucratic obstacles to state experimentation on this front, and offer support where possible, but not design one mammoth new program. The regulation of both the practice of medicine and of insurance is done in the states, and their improvement should be too....

Meanwhile, for the longer term, conservatives should make a case for changes in the tax law that level the playing field between employer-provided and individually purchased health insurance, with a gradual transformation of the tax exclusion for employer-based coverage into a credit available to all. A consumer-controlled tax credit would also enhance the benefits of risk-pools, tort reform, and state-based reform efforts.

And they should press the case for real Medicare reform, not to use the program as a pot of cash, as the Democrats tried to do over the past year, but to put it on a sound footing by empowering enrollees rather than bureaucrats to make decisions....

These ideas would not yield a sudden transformation of American health care, but a gradual improvement in the areas that matter most—cost-control, greater access for the uninsured, and greater fairness for those with preexisting conditions—while sustaining the quality and innovation that characterize American health care.

The piece is available in its entirety here.

posted by James C. Capretta | 9:28 pm
Tags: Obamacare, Yuval Levin, tort reform, risk pools, Medicare
File As: Health Care

Friday, January 22, 2010

Health Care and the Deficit 

The House Budget Committee held a hearing yesterday on "Perspectives on Long-Term Deficits." I was invited to testify. Here is how I concluded my written testimony:

The nation’s long-term budget outlook is bleak in large part because our healthcare entitlement commitments far exceed the revenues available to pay for them. By 2019, the House and Senate-passed health-care bills would add at least another $200 billion per year to those commitments, and unleash pressures for even more spending down the road. Meanwhile, the offsets used to pay this spending would be much less likely to occur, and the cost control provisions are not nearly robust enough to make a difference.

Congress would be well-advised to take a step back and rethink this entire approach. Instead of passing an expensive health-care bill that uses $1 trillion in offsets to pay for more spending, it would be better to craft a sensible, consensus long-term budget plan which has as one of its core elements an affordable, bipartisan health-care program, one that truly does the job on costs and expands coverage as well.

Here's a video of the hearing (my testimony begins at 33:22):

[Video permalink]

posted by James C. Capretta | 5:27 pm
Tags: deficit, debt, entitlements, Obamacare
File As: Health Care

Thursday, January 21, 2010

Is There a Republican Plan for Health Care? 

The New York Times invited several conservative and libertarian analysts to comment on the Republican approach to health care. Here's my contribution:

House Republicans have already offered an alternative to what the Democratic majority was pushing in 2009. They, and their counterparts in the Senate, would suffer no political consequences if they chose not to go any further than what’s already been proposed. Republicans didn’t drive the legislative process into the political ditch; the Democrats did, and voters know it.

Moreover, the public has been unnerved by what’s taken place over the last year. The administration and Congress were using every lever at their disposal to try to pass a sweeping reform program that was plainly at odds with what the public wanted. Quite understandably, they do not trust that the political process is capable of producing a sensible, consensus-driven reform program that can garner broad bipartisan support. Consequently, for the time being, they would rather see the whole subject go away and move on to other more pressing topics.

But it does seem unlikely that the Democratic majority will be able to walk away from the effort that easily. It is quite possible that Congressional leaders will reach out to Republicans to try and forge a compromise around a more targeted measure. If that call does come, Republican leaders should insist on three things.

First, states must be given the lead role in reform, not the federal government. And they should have the flexibility to implement programs without having to jump over bureaucratic hurdles put up by federal agencies. Second, state-based high-risk pools, not cumbersome insurance regulation, should be enlarged and reformed to help those with pre-existing conditions get affordable private insurance. And third, to begin to control costs, there must be meaningful medical malpractice reform nationwide.

Anything much beyond these ideas will begin to weigh down the effort, and lead to its collapse as well.

The entire mini-symposium, which includes a contribution from Keith Hennessey, is on the NYT website here.

posted by James C. Capretta | 8:18 pm
Tags: Republicans, Democrats
File As: Health Care

Wednesday, January 20, 2010

What the Health-Care Debate is Really All About 

I had a piece on health care over on the online magazine Public Discourse yesterday (ably edited by Ryan Anderson, a sometime New Atlantis contributor). An excerpt from what I wrote:

All of this political fighting can be disconcerting to average citizens. Why, on an issue that is plainly so important, can’t our nation’s elected leaders check their politics at the door and work out an agreement that elicits broad-based support instead of war-room like campaigns to prevail over their opponents?

The answer is that the disagreement over what must be done to improve American health-care is profound and largely irreconcilable. This isn’t your usual, run-of-the-mill political fight. The two sides hold diametrically opposed views that simply do not easily allow for compromise. Moreover, the outcome of the battle will be highly consequential, not just for our system of financing and delivering health-care, but also for our economy and democratic processes. In short, the stakes are very, very high, and both sides know it.

Many people suppose that the heart of the disagreement is over whether or not to expand coverage to more people. It is, of course, a primary objective of the Democratic sponsors of the current initiative to ensure that every American, or nearly so, is enrolled in some kind of health insurance plan on a continuous basis.

But Republicans are not opposed to expanding coverage to the uninsured. In 2008, presidential candidate John McCain proposed a plan which would have provided to every American household a tax credit which could only be used to purchase a health insurance policy. It was, in a very real sense, a “universal coverage” plan in that it sought to ensure that every American would have the financial wherewithal, provided by the federal government, to acquire some level of health insurance protection. The issue, then, is not over expanding coverage to all.

No, the real sticking point between the two sides is over how to allocate resources in the health-care sector. Both sides agree that the status quo is unsustainable, largely because costs are rising much more rapidly than wages or governmental revenues. The crucial question is what to do about the problem. Put differently, the question health-care reform advocates must answer is this: what process will be put in place to bring about continual improvement in the productivity and quality of patient care? That might strike some as more of a technical question than one of fundamental importance. But, in reality, it’s just another way of saying that resources are scarce and must be allocated in some fashion. The only way to slow rising costs without lowering the quality of care provided is to improve the efficiency of the interactions between doctors and hospitals and those they care for. The question before policymakers is what reforms are most likely to lead to better care at less cost.

The entire article can be found here.

posted by James C. Capretta | 5:07 pm
Tags: Public Discourse, Ryan T. Anderson, John McCain, left vs. right
File As: Health Care

Tuesday, January 19, 2010

What If . . . 

Speculation is rampant on what will happen if State Senator Scott Brown pulls off an improbable upset and wins the special election for the U.S. Senate seat today in Massachusetts.

Of course, that’s still a big if. Most votes have yet to be cast in this race, and low-turnout special elections are notoriously difficult to predict. 

What we do know for sure is that the more ballots that are cast for Brown, the less likely it is that any of the current versions of Obamacare will pass. So those who are in position to help Massachusetts fire another shot heard even in faraway places should take nothing for granted.

Still, it is interesting to see so many stories popping up, such as this one in yesterday’s New York Times, in which Democratic operatives are openly speculating on what they will do on health-care if Brown were to win. That’s probably an indication of where most Democratic insiders now think this race is headed.

And what exactly would be their Plan B? Apparently, some Democrats believe the best course to follow would be to take the Senate-passed bill and jam it through the House without amendment.

That would be some trick. House liberals have spent the last month trashing the Senate bill. They hate the so-called high-cost insurance tax, the mandate which gives Americans no choice but to send their premiums to profit-driven private insurance plans, and scores of other provisions as well. Moreover, their main patrons — labor unions — despise the Senate bill for the same reasons.

Those advocating this fall-back plan think it is possible that objections to the Senate bill could be overcome if House members were promised that a second health-care bill would be passed later in 2010 with corrections to the first. Presumably, the second bill would include the recently struck White House–union “deal” which would exempt union workers from the high-cost insurance tax through 2017, as well as other provisions now under negotiation in talks between House and Senate Democratic leaders. House Democrats would also be promised that this second bill would be passed using so-called budget reconciliation procedures, which means it would need only majority support in the Senate, not 60 votes.

House members who oppose the Senate bill but went along with this particular version of Plan B would have to be awfully gullible. There’s no guarantee at all that a budget-reconciliation bill devoted to health-care would sail through either chamber, especially given the public’s utter disdain for the process that produced the first one. Plus, any item that reduced tax revenue or increased spending would need an offset, which is sure to stir up opponents and controversy. In short, this second bill would almost certainly be as red-hot politically as the first, and as time-consuming as well. Do House Democrats really want their 2010 legislative agenda dominated again by health care? That’s almost certainly what would happen if they agreed to pass the Senate bill with these conditions attached.

More fundamentally, the whole idea of a quick pivot to a Plan B is absurd. If Brown were to win, it would send shock waves through Democratic ranks unlike anything we have seen in recent years. Democratic infighting would intensify. Many more closed-door meetings would be held as members vented and fought over what to do. It would takes weeks, not days, for this process to play out. There would be no health-care bill before the president is forced to deliver a state of the union address.

In the end, the White House and Senate Democrats might be able to convince enough House members to go along with some version of Plan B to get the bill passed and the debate behind them. But they would not get there easily or quickly.

Of course, if Brown were to win today, it need not be a permanent setback for the president or congressional Democrats. They could do the smart thing and take the voters’ message to heart. Start over, shelve the ideological ambition, and work with Republicans on a sensible and targeted plan. That would leave them with a fighting chance to get through November 2010 with heavy losses instead of total annihilation.

posted by James C. Capretta | 11:41 am
Tags: Massachusetts, Scott Brown, Obamacare
File As: Health Care

Friday, January 15, 2010

The President Caves In to Union Pressure — Shamelessly 

As a candidate, Barack Obama promised an audacious presidency. If nothing else, he’s delivering on that.

For a year now, the president has argued that the health-care bill he is pushing will “bend the cost-curve.” Of course, his own Chief Actuary of the Medicare program — the man charged with actually running the numbers for the administration — has said repeatedly that there’s no curve-bending going on in the bills being written in Congress. His estimates show both the House and Senate-passed versions of Obamacare would increase overall health-care costs, not decrease them (see here and here). And that’s assuming all of the implausible assumptions written into the bills actually pan out, which they won’t.

But no matter. The president and his team have continued to press the argument nonetheless, citing in particular provisions in the Senate-passed bill that they believe will do the trick.

Among the most cited “game changers” is the so-called “high-cost insurance tax” — which was the subject of yesterday’s day-long, backroom deal-making in the White House. As passed by the Senate, the new 40 percent excise tax would apply to any insurance plan, including those sponsored by employers, with premiums exceeding $23,000 for family coverage and $8,500 for policies sold to individuals. The idea is to force insurers and employers to develop and sell policies that stay under the premium threshold, almost certainly by pushing more cost-sharing requirements (deductibles and co-payments) onto the plans’ enrollees. In the Senate bill, the high-cost plan excise tax would become effective in 2013 — conveniently after another presidential election.

It was always a stretch to say this provision — which would have applied to a very few plans for most of this decade — was robust enough to offset the massive cost pressures unleashed by expanding health entitlement promises to tens of millions of people. But if there were any optimistic holdouts still hoping cost discipline would eventually emerge from this unbecoming legislative process, they almost certainly have given up all hope today. Because yesterday, the president showed he is not only shameless but utterly weak as well. In the face of withering pressure from liberals in the House and labor unions, the president essentially caved by gutting one of his signature “bend the curve” ideas in the name of political expediency. In the deal struck between the White House and labor unions, employer-sponsored health insurance plans that are collectively bargained will be exempted from the tax until 2018 — well past the time when the president will have exited the White House. The deal also raised the thresholds to $24,000 for family coverage and $8,900 for individuals and exempted dental and vision plans beginning in 2015.

It’s takes a special kind of audacity to go behind closed doors and strike a deal using the taxpayers’ money to pay off political supporters at the expense of everyone else (no wonder they don’t want C-SPAN to record it for history!). But caving into to the unions is likely to unravel the entire high-cost tax idea before all is said and done. The administration will argue that the deal still leaves in place 60 percent of the Senate-passed bill. But that assumes no further backpedaling — which seems highly unlikely given the track record. What could possibly justify applying to this tax only to non-union workers? What will companies with a non-union workforce think about the federal government providing special favors to their unionized competitors? News of this deal is already producing a backlash, just like the Cornhusker Kickback did. And that backlash is only going to become more intense as the negotiators look to raise taxes on others to make up for the payoff they have promised only to their union patrons. In the end, pressure will build to exempt even more people from the tax. And, when that occurs, on what basis will the president be able to resist?

For a year now, the president has said he is willing to make the tough decisions to slow the pace of rising health-care costs. But he showed yesterday that he has absolutely no capacity to do so. This health-care bill is a runaway entitlement program, piled on top of an unreformed health-care system. It’s never been anything more than that. And it’s getting worse by the hour.

posted by James C. Capretta | 4:55 pm
Tags: unions, labor, Obamacare, cost curve, actuary, C-SPAN
File As: Health Care

Wednesday, January 13, 2010

Doubling Down on the ‘Double Count’ 

Just after the new year, the Obama administration and its congressional allies tried to convince the press that passage of a health-care bill should be relatively easy and quick, because the House- and Senate-passed versions have so much in common.

Oh, really? You wouldn’t know it by listening to House liberals this week.

They are up in arms over talk that they will have no choice but to swallow hard and accept something very close to the Senate-passed bill. Their list of grievances with the handiwork of the upper chamber is rather long. For starters, they still haven’t gotten over the fact that Senate Democrats endorsed an “individual mandate” with no government-run option for people to choose. If that position prevails, House Democrats are facing the prospect of voting for legislation that would force Americans to buy coverage from the despised private insurance industry. It’s going to take many Democrats some time to work through the grief associated with that reality before they reach acceptance.

Then there is the president’s endorsement of the so-called “Cadillac tax” in the Senate bill. That’s the 40 percent excise tax that would apply to insurance plans with premiums exceeding $23,000 for family coverage. It turns out that the most expensive health-insurance plans in the United States are often provided to unionized workers. So, with this one idea, the president can kill two campaign promises with one flip-flop. He would be “taxing health benefits for the first time in history” — something he condemned John McCain for endorsing in 2008 — and he would impose hefty new taxes on the middle class. Even House Speaker Nancy Pelosi seems taken aback by this presidential display of audacity.

But House liberals have other complaints too. They also don’t like the independent Medicare commission that could make an end run around Congress to impose cuts in the program without further action in the House or Senate. Or the Senate’s employer mandate that penalizes firms only if their low-wage workers end up with subsidized coverage, thus discouraging the hiring of the very people who most need a job. Or the modest nod toward federalism in the Senate bill’s delegation of exchange administration to the states. It’s going to take time to work through these issues, all of which have the potential to disrupt the fragile coalitions assembled in the House and Senate to pass the original bills.

Indeed, for many of these items, it’s not clear that a simple “split the difference” formula will work to keep enough Democrats on board for final passage. Which is why entirely new ideas are now being floated — ideas that weren’t even considered during the year-long debate of 2009.

The latest is the proposal to impose Medicare payroll taxes on non-wage income, such as investment returns. This has been mentioned as a way to ease up on the Cadillac tax without resorting to the income-tax surtax in the House-passed bill. Of course, this is terrible policy for a whole host of reasons. It would penalize private-sector investing — putting up one more stumbling block to robust growth and job creation. And it would break the historic link between wage income and social insurance that has been a central pillar of Social Security and Medicare from the beginning.

But what’s most stunning about this latest idea is that it completely disregards the warning the Congressional Budget Office (CBO) issued regarding the Medicare provisions just before Christmas. In that better-late-than-never analysis, CBO made the point that Medicare spending and revenue provisions can’t be counted twice. They can be used either to improve the capacity of the government to pay future Medicare benefits, or to finance a new entitlement program. But the same money can’t be counted twice.

But with this latest idea, the Democrats have made it clear that they don’t care what CBO or anybody else says at this point, they plan to keep counting the money twice. If this new Medicare payroll tax on investment income were to pass, Congressional Democrats would double-count the revenue just as they are double-counting the Medicare spending cuts — saying they help improve Medicare solvency even as they also pay for the runaway entitlement spending in Obamacare.

It’s been clear for some time that the White House will say and do anything to get a bill, which is why the process of producing this legislation has been become so ugly and distasteful to the public. Unfortunately, it’s only going to get worse in coming days as desperate Democrats pull out all the stops to pass a government takeover of American health care.

posted by James C. Capretta | 8:40 pm
Tags: double count, Cadillac tax, CBO
File As: Health Care

Thursday, January 7, 2010

An Entitlement Certain to Grow In Spite Of ‘Firewalls’ 

From a new piece I have over at Kaiser Health News:

But even if all of the offsets work out as planned, which is not likely, the House and Senate bills would still create substantial budgetary risks because of the pressures for entitlement expansion they would unleash.

Both bills assume the new entitlement spending can be held down with the so-called “firewall” provisions. These are the rules that essentially preclude individuals from gaining access to premium subsidies available in the exchanges. If an employer offers "qualified" insurance coverage to a worker, the employee really has no choice but to take it if he wants to avoid paying the penalty for going uninsured. But these rules would create large disparities in the federal subsidies made available to workers inside and outside the exchanges.

Gene Steuerle of the Urban Institute has calculated that, under the Senate bill, a family of four with an income of $60,000 with employer-sponsored health care would get $4,500 less in federal support outside of the exchange than a similar family inside the exchange would get in 2016. And there would be many tens of millions more families outside the exchange than in it, according to CBO. Today, there are about 127 million Americans under the age of 65 with incomes between 100 and 400 percent of the federal poverty line, but CBO expects only about 18 million people will be getting exchange subsidies in 2016.

If enacted as currently written, it’s entirely predictable what would happen next. Pressure would build to treat all Americans fairly, regardless of where they get their insurance. One way or another, the subsidies provided to those in the exchanges would be made more widely available, driving the costs of reform well above the $900 billion limit the administration has set for the initiative.

You can read the whole thing here.

posted by James C. Capretta | 10:55 am
Tags: entitlements, firewall, spending
File As: Health Care

Monday, January 4, 2010

Not As Advertised 

Now that health care bills have passed in both the House and the Senate, Democrats just can’t seem to stop themselves from rhetorical excess. Just before Christmas, as the bill sponsored by Majority Leader Harry Reid was clearing its final hurdles in the Senate, Democrats took to the chamber floor and cable television shows to trumpet the “historic” nature of the legislation they were about to vote on — legislation that would, at long last, move toward their long-sought goals of “universality” and a government-guaranteed right to health care.

But is it so?

Yes, both the House and Senate would provide essentially free health insurance, through the Medicaid program, to many millions of low-income people. But, even so, enrollment in Medicaid is a far cry from getting good care when it’s needed. For starters, about 40 percent of the nation’s physicians don’t see Medicaid patients because the payment rates are too low, which also means certain hospitals have very low rates of Medicaid admissions. The truth is that current Medicaid enrollees already have trouble getting access to high-quality care when they need it because the network of providers willing and able to see them is constrained and over-burdened. The House and Senate bills would add 15 million or more people to this program’s rolls without any guarantee whatsoever that there will be doctors and hospitals that can see them.

Ironically, the very Democrats who most frequently tout “universality” as the goal are also the ones who ensure it will never actually come about by insisting that America’s lower-income families enroll in government-run insurance — with no other options.

Beyond the Medicaid expansion, Obamacare is really an obligation, not a right. Every citizen would be required to sign up with a government-approved health-insurance plan or pay a tax penalty for going without coverage. According to the Lewin Group, households with at least one uninsured member and an income between $50,000 and $75,000 per year would see their costs rise for health care by $2,133 under the Senate bill. “A new tax on the uninsured” isn’t exactly a catchy slogan for Obamacare — but that’s essentially what it is. There would be a lavish new entitlement program to offset some of the premium for some households, but the vast majority of working Americans would get no additional help. They would just get the unfunded mandate, and that’s it.

Meanwhile, despite all of the talk of painlessly slowing the pace of rising costs with more efficient care, the Democrats’ bills would cut costs mainly by imposing arbitrary rate reductions in the Medicare program — pushing it more and more toward the Medicaid model. In fact, at the end of December, the Mayo Clinic announced that it would no longer see Medicare patients at one of its clinics in Arizona because the program’s payment rates are simply too low to cover its costs. A small glimpse into our Obamacare future.

In the coming days and weeks, we will hear a great deal more about how close the nation is to making history. Readily available health care for all, without limit — that’s what the overheated rhetoric will imply. But the public figured out months ago that the reality under Obamacare would be very different. There would be higher costs, higher taxes, and more regulation. Worst of all, clumsy governmental “cost-control” efforts would put the quality of American medicine at risk for everyone. Which is why public sentiment has hardened in opposition, and why the debate is not over yet.

posted by James C. Capretta | 7:51 pm
Tags: Obamacare, Medicaid, Medicare, Harry Reid
File As: Health Care

Monday, December 28, 2009

Why the Senate Bill Makes No Sense 

In the new Weekly Standard, my colleague Yuval Levin and I discuss the bill that has emerged from the Senate. An excerpt:

The [Democrats' original] goal was to get a large swath of the public insured by the government, and so gradually create a socialized insurance system. Conservatives opposed this scheme because they believe a public insurer would not be able to introduce efficiencies that would lower prices. Liberals supported it because they think a public insurer would be more fair and more effective.

But in order to gain 60 votes in the Senate, the Democrats have now had to give up, for all practical purposes, on any version of that public insurer, while leaving the other components of their scheme in place. The result makes no sense whatsoever — not to conservatives, not to liberals, not to anyone. Rather than reform a system that everyone agrees is a failure, it will subsidize that system and compel participation in it — requiring all Americans to pay ever-growing premiums to private insurance companies, most of which are for-profit, while doing essentially nothing about the underlying causes of those rising costs. The thought that, after all of this, a Democratic Congress is going to force Americans to send their premiums to the despised insurance industry and then subsidize that industry to boot has sent the left into such a state of frenzied recriminations it could sink the whole enterprise yet.

And that is by no means the only problem for the left in this bill. The mad rush to pass something obscures a crucial component of the bill's design that could prove very problematic for Democrats. For all of President Obama's insistence that we must have action now, and all the talk by congressional Democrats about the terrible costs of delay, the key components of the Senate bill would actually not go into effect for four years. Essentially all of the spending provisions and insurance reforms — including the individual mandate to purchase health insurance, the employer mandate to provide it, the state insurance exchanges, the federal subsidies for coverage, and the Medicaid expansion — would only go into operation in 2014....

This timeline of tax and spending implementation corresponds rather awkwardly to the political calendar confronting the Democrats.

The entire article is available here.

posted by James C. Capretta | 8:16 pm
Tags: Yuval Levin, Harry Reid, Senate bill
File As: Health Care

Monday, December 28, 2009

The Heart of the Cost Problem 

Over at the Mirror of Justice website, Robert Hockett posted a thoughtful reply to my previous defense of Charles Krauthammer’s critique of the health-care legislation wending its way through Congress. Here (and cross-posted at Mirror of Justice) I offer a short reaction to some of the points he made.

First, there seems to be some confusion over what exactly is in these congressional health-care bills. Yes, they do contain many provisions related to reworking the nation’s approach to health insurance coverage and regulation. But that is far from all that they would do. The bills are called “health care reform” for a reason. A central argument of their proponents is that rising costs is a problem — a crisis, even — that must be addressed, and the presumption of most Democrats is that the federal government can, and must, help orchestrate a “cost-control” effort. Consequently, both the House and Senate versions of the legislation are filled to the brim with provisions that are aimed at the changing how medicine is practiced in this country. For instance, the bills would penalize primary-care physicians who are outliers in terms of specialist referrals. The bills would also try, through various disincentives, to discourage physicians from practicing in small groups. And the bills would create a new structure for hospital-physician affiliation, called Accountable Care Organizations. The ambition of the sponsors goes well beyond just “health insurance reform.”

Second, the most important question in the health-care debate is this: what process has the best chance to deliver continuous improvement in the productivity and quality of patient care? That’s the only way to slow the pace of rising costs without harming patients. The Obama administration and its allies in Congress believe a governmental process is the answer. That’s why the bills are so unwieldy and complex. If the government is the answer to rising costs, then the government is going to need to get involved in nearly every aspect of resource allocation in the health sector. This is what I mean by “central planning.”

There is an alternative to central planning. Mr. Hockett indicates that he would support converting today’s open-ended tax preference for employer-paid health insurance into refundable tax credits controlled by individuals, as proposed in 2008 by presidential candidate John McCain. The McCain proposal was not just a way to expand insurance coverage, although it would do that. It would also dramatically change the cost equation, creating millions of cost-conscious consumers who are today passive enrollees in job-based plans. The government can and should provide oversight of the health insurance marketplace. But the way to drive more efficiency in health care arrangements is with a functioning marketplace in which doctors and hospitals have strong financial incentives to reorganize how they do business. Getting there would require reform of federal tax laws and the Medicare and Medicaid programs so that beneficiaries have more control over the use of their entitlement resources.

Third, Medicare is not the solution to American health care. Indeed, it is really at the heart of the cost problem. Yes, the program provides valuable insurance coverage to seniors. But the program’s design is also a primary reason for widespread inefficiency in how care is delivered to patients. Medicare’s dominant fee-for-service insurance model encourages provider fragmentation instead of integration, and organizational autonomy instead of cooperation. Medicare’s per-service payment rates are low, but providers earn more by providing more services, and the Medicare program has no effective check on volume.

Even the Obama administration admits that Medicare is more problem than solution. That’s why they argue that changes in the way Medicare buys services can lead to cost reductions system-wide.

But that’s a lot of wishful thinking. Medicare’s administrators have been trying for forty years to move the program away from unmanaged fee-for-service, with no success whatsoever. The reason is politics: Politicians don’t want to pick winners and losers among the hospitals and physician groups in their states and districts, which would be necessary in building a high-quality network. In a budget crunch, they would rather have Medicare pay all licensed providers the same exact rate, even if it is low, than to leave someone out of a government plan. So that’s exactly what is happening in the current health care bills. Despite all of the talk of painless efforts to bend the cost curve, the real “savings” in the Democratic bills come from arbitrary price cutting in the Medicare program. All hospitals and other institutions would see cuts in their reimbursement levels, without regard to any metric of quality. In fact, Medicare’s fee-for-service design would be even more entrenched than it is today.

Fourth, Mr. Hockett argues that any deficiencies found in the current bills should be brought to the attention of the sponsors, not waved around as justification for scrapping the whole enterprise. For starters, the critiques I noted are on the public record, in prominent places. A conference was held at the American Enterprise Institute highlighting the disparate subsidies that would be created by the Senate bill, and opinion pieces have been published in, among other outlets, the Wall Street Journal and Boston Globe highlighting the problem. Is that not prominent enough?

The truth is that the Democratic sponsors don’t want to fix this problem because it would blow a hole in their budget constraint. The bills provide generous subsidies to a relatively small segment of the population who would get their coverage in the exchanges, but nothing to those who would be forced to remain in job-based plans. Providing equitable treatment would drive the cost of the bills much higher, jeopardizing passage. Which is why you won’t find any Democrat mentioning it — or being able to deny that the problem exists.

Our country does need to reform our health care arrangements. But there are far better ways to do so than with the approach now emerging in Congress. A different bill, based on a different reform philosophy, would be more straightforward, less unwieldy, and less subject to influence by interested parties. Oh, and by the way, it would be more effective too.

posted by James C. Capretta | 7:38 pm
Tags: Robert Hockett, central planning, Obamacare, Medicare
File As: Health Care

Saturday, December 19, 2009

Ben Nelson caves on taxpayer funding of abortion 

From a new piece my colleague Yuval Levin and I have over on the Weekly Standard website:

Now that Senator Nelson has announced his intention to vote to end debate on the Reid bill, it's worth looking at whether his actions match his words....

The new Reid language that Senator Nelson now finds acceptable would allow federal subsidies to flow to plans that cover elective abortions in the insurance exchanges. Senate Democrats try to create the impression that only the enrollees' premiums will pay for the abortion coverage. But it's an artificial bookkeeping exercise. Taxpayer funding would support the same insurance policies that pay for abortions. Senator Nelson is touting the fact that states can enact laws which prohibit elective abortions in the exchanges (the so-called "opt out"), but that was already permissible under the previous Reid language. And in any event a state can't protect its taxpayers from financing abortions beyond its borders. Senator Nelson's "compromise" leaves Nebraska's voters entirely vulnerable to paying for California's and New York's abortions.

posted by James C. Capretta | 6:45 pm
Tags: Ben Nelson, Harry Reid, abortion, Yuval Levin
File As: Health Care