Cadillac tax


Deficit-Cutting Mythology

For months, one of the primary talking points pushed by the president and his allies in Congress is that their health-care plan would reduce the federal budget deficit substantially, especially during the second decade of the program’s implementation.

This claim has always rested on completely implausible assumptions, gimmicks, and sleight of hand, all of which has already been well exposed by Congressman Paul Ryan and others.

Still, some myths persist and require repeated debunking.

For instance, Ezra Klein and others say the health-care bill shouldn’t be assessed the $371 billion in ten-year costs associated with the so-called “doc fix” because everyone knows the money is going to be spent anyway. Under current law, Medicare physician fees are being cut 21 percent from last year’s level, which neither party supports. Of course, there are more and less expensive ways to reform the Medicare physician fee schedule; there is some discretion there. But the real point is that the Democrats want to spend the money on physician fees without an offset, on a permanent basis. That is new. That’s not how the Bush administration and Congress approached the problem in the past. In previous years, Congress struggled to find the offsets to pay for year-by-year fixes, and not always successfully. But because they could never agree on acceptable offsets for a longer-term plan, they never attempted to pass one. They weren’t going to simply add all of the costs of higher physician fees to the annual federal budget deficit in perpetuity.

But that’s exactly what the Obama administration and its congressional allies want to do. They are increasing the cost of Medicare (through the doc fix) at the same time that they are cutting Medicare (reducing the payment-rate increases and cutting Medicare Advantage), but since they are just adding the cost of the doc fix to the budget deficit, they can claim all the Medicare cuts as savings scraped together to pay for the massive entitlement expansion included in the health bill. If they succeed with this approach, the effect will be to dramatically increase the nation’s budget deficits and debt. Indeed, the increase in deficit spending from higher Medicare physician fees is more than three times the claimed deficit reduction from the entire health bill over the next decade.

Beyond ten years, Democratic claims of substantial deficit reduction from the health bill have rested entirely on two provisions.

First, there’s the “Cadillac tax.” In the Senate-passed bill, the tax takes effect in 2014, and the threshold used to determine what constitutes “high-cost” would rise annually at a rate well below expected medical inflation. Consequently, as the years passed, more and more Americans would find themselves in plans considered “high-cost.” In time, virtually the entire middle class would get hit by the tax.

But, as we now know, the president and his Democratic allies never really had the stomach to impose this tax themselves. Under union pressure, they have promised to delay it until at least 2018, well beyond the point when the president will have left office. But the White House and congressional leaders still want to claim credit for all of the revenue that would occur beyond 2019 if by some chance a future president and a future Congress are more willing than they are to impose this tax.

The other key provision for claims of long-term deficit cutting is the permanent annual reduction in the payment-rate increase for hospitals and other facilities from the Medicare program. Under current law, hospitals get an increase each year in what they are paid for certain services based on rising input costs. The Democrats are planning to cut the inflation increase every year by half a percentage point. Over time, the compounding effect of an annual cut of this size would be very large. But the chief actuary of the program has warned repeatedly that it is unrealistic. Despite all of the claims of “delivery system reform” and painless weeding out of inefficient care, this arbitrary cut is business-as-usual. There’s no effort to calibrate payments based on performance or how well patients are treated. Its across-the-board cuts for everybody. And the chief actuary says, if implemented, one in five facilities would be pushed into serious financial distress.

The hypocrisy is stunning. Even as the Democrats want to wave a magic wand and pass a $371 billion “doc fix” to undo a previously-enacted arbitrary cut in payment rates, they now want to impose another one and use the supposed savings to grease the way for the largest entitlement expansion in a generation.

All of this scheming and maneuvering is catching up with them. The Washington Post reports today that CBO now says the latest version of the Democratic plan will no longer cut the deficit as the Democrats have claimed. That’s not surprising. To buy votes, they are upping the subsidies in the exchanges, expanding the Medicare prescription-drug benefit, delaying the Cadillac tax, and buying off countless members with other assorted and unseen deals (where are the C-SPAN cameras when you really need them?). Little wonder that even their phony deficit-reduction claims have now evaporated.

But the game is not over. Even now, they are going back to CBO with another bag full of tricks. They will never actually impose any sort of real budget discipline, of course. That would cost them votes. But no gimmick is too shameless for them; they will do anything if allows them to claim that enactment of another runaway entitlement program will actually improve our long-term budget outlook.

Fortunately, the public is not buying it. The American people see through the smokescreen. They know full well that Congress wants to put in place another unfinanced and expensive entitlement program, even as the federal government is piling up debt at a record pace. Which is why they are telling their elected representatives in every way they can to stop the madness already — and start over.

posted by James C. Capretta | 2:52 pm
Tags: Ezra Klein, Paul Ryan, doc fix, Medicare, Medicare Advantage, payment-rate increases, Cadillac tax, CBO
File As: Health Care

‘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

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