mandate


A “Narrowing” Experience

Is the administration really willing to compromise?

We learned this week that President Barack Obama’s aides are negotiating directly with Republican Senator Olympia Snowe of Maine to strike a deal on a “narrower” health-care bill.

It’s easy to see why the White House would be eager to secure Senator Snowe’s support for something. She signed onto the so-called “stimulus bill” earlier this year, and throughout her career has voted quite frequently with Senate Democrats on social and economic issues. If the White House is able to get her vote — again — they will be able to claim “Republican support” for the health-care effort, even if it is just one Republican with a voting record that is anything but conservative.

But would an Obama-Snowe deal mean something like the bills now moving through Congress will definitely pass?

Far from it.

The political problems with these bills are deep and structural. Democrats very self-consciously set out at the beginning of this year to pass something akin to the next New Deal or Great Society. Their goal is a dramatic and historic signing ceremony at which they take political credit for finally passing so-called “universal coverage.” They weren’t thinking “narrow” in January.

But passing “universal coverage” means a lot of additional political baggage that Democrats are now finding is not so easy to carry. Covering everybody means forcing Americans to buy government-approved insurance, whether they want it or not. And that means an expensive new subsidy program for lower income households, as well as a new tax on employers who don’t provide qualified coverage. The additional federal costs for the new subsidy program and an expansion of Medicaid will be at least $1 trillion over ten years, which means the bills also raise taxes by as much as $500 billion over a decade and impose cuts in Medicare and Medicaid of a similar magnitude. All of this is highly unpopular, as town hall meetings around the country over the last month have demonstrated. Moreover, many Americans rightly sense that the bills being written by the majority in Congress would amount to a federal takeover of U.S. health care, which they fear and adamantly oppose.

It should be clear based on what has taken place around the country this summer that the Obama administration and Democrats in Congress massively overreached on health care and now find themselves in a position where they can’t pass the bills they have been working on since the beginning of the year.

Leaks of pursuing a “narrower” bill are an indication that the administration finally understands this. So far, the only detail about what “narrow” might mean is the possible inclusion of the so-called Snowe “trigger.” Senator Snowe has suggested that the bill should not, at the outset, include a new government-run insurance option. However, if cost escalation does not slow and insurance coverage does not increase as expected, then in perhaps five years a new “government option” might be stood up. That kind of “deal” would find no support among Republicans other than Snowe, but it might placate some House liberals who are now threatening to jump ship if the bill were to drop the possibility of a “public option” altogether.

But even if the administration solves their “public option” problem, the bills as currently constructed still can’t pass unless they really do become much, much narrower. Is the president ready to drop the individual mandate and the Democratic goal of “universal coverage”? If he were to do so, many possibilities would open up. If not, the bill will still include massive new entitlement spending and taxes, deep cuts in Medicare, onerous requirements on employers, and far too much federal control. Which also means it will be near impossible to pass.

posted by James C. Capretta | 10:27 am
Tags: trigger, Snowe, mandate
File As: Health Care

The Flawed Bills Under Discussion

I was recently interviewed by Paul Howard, Director of the Center for Medical Progress at the Manhattan Institute (and coauthor of this recent New Atlantis article), on the flaws in the health-care bills now pending in Congress. During the discussion, I note that some of the most unpopular aspects of the bills as currently drafted have yet to get the public attention they deserve. For instance, the bills are highly regressive, requiring millions of low wage workers to take up insurance offered by their employers with no additional financial assistance from the government. That "mandate" will be viewed as a tax when properly understood by voters.

Click Play below to hear the interview.

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posted by James C. Capretta | 5:28 pm
Tags: interview, Paul Howard, mandate
File As: Health Care

The Baucus Employer Mandate and the Democrats’ Strategy

The Washington Post has another piece in today’s paper — there seems to be about one per week — on the ever-so-close “bipartisan plan” being negotiated by Senate Finance Committee Chairman Max Baucus and five of his committee colleagues.

Among other things, the Post provides a side-by-side analysis comparing the Finance Committee “plan” — though no one has really seen it yet — to the bills approved by the House Energy and Commerce Committee as well as the one approved by the Senate Health, Education, Labor, and Pensions Committee. According to the Post, the emerging Baucus proposal will not include an employer mandate. Rather, it will impose a “free-rider” penalty on employers whose workers end up getting subsidized coverage through the so-called “exchanges.”

As I have written previously, this is a distinction without a difference. The Baucus plan would require employers to provide some level of coverage acceptable to the federal government or pay a tax to partially cover the costs of premiums for workers with incomes below 300 percent of the poverty line. Any way you look at it, that’s a “pay or play” employer mandate.

The reason for the semantic game is politics, of course. Senator Baucus is desperate to get the sign-off of the three Republican negotiators in the gang of six — Senators Grassley, Enzi, and Snowe — and they don’t want to be accused of supporting a job-killing “employer mandate” with unemployment heading toward 10 percent nationally. And so the “free-rider” penalty is peddled as a non-mandate “responsibility” provision.

The only real difference between what Senator Baucus is trying to do and the emerging House bill is that the Baucus mandate wouldn’t apply to workers with incomes exceeding 300 percent of the poverty line. They wouldn’t be eligible for the subsidy program, and so employers wouldn’t face a penalty for not offering them qualified coverage.

Normally, liberals do not worry too much about the job-killing impact of employer mandates and taxes, but the Baucus plan’s differential treatment of workers by income is so transparently regressive that the Center on Budget and Policy Priorities (CBPP), a liberal-leaning think tank, and the Leadership Conference on Civil Rights have begun sounding the alarm that it would discourage the hiring of low-wage workers and minorities. As reported in National Journal’s CongressDailyAM (subscription required), Wade Henderson, the Leadership Conference president, said the Baucus plan “creates a powerful incentive for employers to fire or not to hire the very people healthcare reform is supposed to help.”

So will these groups oppose the Baucus plan and force the committee to go back to the drawing board? Apparently not. CBPP President Bob Greenstein said in the same CongressDaily story that he expects the Finance Committee to approve the Baucus mandate but hopes it will be changed down the road. In other words, he doesn’t want to slow down the Baucus process but is confident that House Democrats will never go along with the Baucus approach if they aren’t forced into it.

Which raises another question: What exactly are Senators Grassley, Enzi, and Snowe negotiating, anyway?

It is beyond obvious that what the Obama administration and most Democrats desperately want from the “gang of six” is “to keep the process moving.” They don’t view the product of the Baucus negotiations as the final word by a long shot. They just want to get it over with. In fact, Greenstein’s comment that the Baucus mandate can be fixed later is indicative of the prevailing sentiment among Democrats. If they can just get past the Finance Committee, they surmise, political momentum will build, and a final bill will become all but inevitable. At that point, the only question will be about “what” not “if,” and Democrats would control all of the details in a conference between the House and Senate.

In recent days, Senate Democrats have suggested that if the Baucus negotiations don’t make progress soon, they just might try to pass health-care on an entirely partisan basis in the Senate, using the so-called “reconciliation” procedure. That would allow them to pass a bill with a simple majority instead of sixty votes. They might be able to do so. After all, there are sixty Democrats in the Senate. But, then again, such a bill would carry a lot of political baggage. More than $1 trillion in new spending over the coming decade and growing obligations in the years following, new costly requirements on low-wage workers to buy insurance without any additional financial support, new taxes on the middle class, deep cuts in Medicare benefits, job-killing mandates in a recession, and, of course, a government-run option that would displace private coverage for tens of millions of happily insured Americans.

Indeed, the threat by Democrats to move a bill under reconciliation seems really to be just that — a threat intended to force Senators Grassley, Enzi, and Snowe to agree to something, anything, to keep the process moving. Which is why Senate Republicans should ignore it entirely. If Democrats really thought they could pass a government-takeover of American health care over the unified objections of Republicans, they probably would have tried to do so already. The public is already uneasy about what is being considered in Washington. The last thing they want to see is a partisan bill passed with limited debate in a highly charged environment.

No, it remains the case that it will be exceedingly difficult for the Democrats to try to pass a bill without any Republican support, especially in the Senate. Which means, for Republicans, the trick is to stick together. If they do, they will wield much power over whatever happens.

posted by James C. Capretta | 5:22 pm
Tags: Max Baucus, mandate, reconciliation
File As: Health Care

The Baucus Plan’s Regressive Employer Mandate

Let’s give the bipartisan “group of six” senators — Finance Committee Chairman Max Baucus and five of his committee colleagues — their due. More than any others, they are responsible for the likely derailment of the House’s massive health care overreach.

Rank-and-file House Democrats — and not just the Blue Dogs — are loathe to vote for a $1.5 trillion spending increase, $800 billion in tax increases, costly mandates on businesses and individuals, and an increase in the federal budget deficit of $239 billion over the first decade (and much more in the years following) if Senate Democrats are going to go in an entirely different direction. Especially not after the “cap and tax” vote, which is going to haunt House Democrats all the way until November 2010. House Speaker Nancy Pelosi as much as admitted that many in her caucus are not going to stick their necks out again when she said Monday night, “We’re waiting to see what the Senate will do.”

While putting up a major roadblock to further proceedings in the House is certainly a praiseworthy accomplishment, that’s about the only good thing that’s likely to come out of what is being worked on by the bipartisan group behind closed doors in the Senate, at least as understood from press accounts of the emerging “Baucus plan.”

On the surface, there is a sense that Sen. Baucus and his colleagues are pursuing a more sensible approach, sensitive to economic concerns and more aggressive on “bending the cost-curve.” But that’s really a false impression. At its core, the Baucus plan contains the same elements that make the House bill flawed and the first step toward a full governmental takeover of American health care.

It all starts with the Democratic insistence on “universal coverage.” With that as the non-negotiable goal, the Baucus plan goes down the very same road as the House bill, with costly and regressive employer and individual mandates which essentially force tens of millions of people to sign up with a plan offered at the workplace, whether they want to or not.

Today’s news coverage is filled with stories indicating that the group of six has apparently agreed not to impose a mandate on employers, opting instead to impose a “free rider tax” on firms whose workers end up getting subsidized coverage in the so-called “exchanges.”

But this is a distinction without a difference. Businesses not offering insurance today would still be forced to pay a hefty fine for all of their workers who got newly subsidized insurance through the so-called “exchanges.” That’s the exact same concept behind the House’s “pay or play” employer mandate. Employers either get their workers into job-based plans — or else. How is that not a mandate? Yes, there may be more flexibility for firms regarding what they actually have to provide in the Baucus plan. And because workers above 300 percent of the poverty line won’t be eligible for subsidization, their employers may not have to pay a fine for not offering insurance to them. But the reality is that just about every firm has some low wage workers on their payroll, which means the vast majority of employers will have to organize and pay for insurance for all of their employees to avoid getting fined for those who might end up in the federal subsidy program.

Of course, what has not been mentioned enough is how regressive this all is. Employers don’t “pay for” health insurance. In competitive labor markets, they reduce what they pay out in cash by the premiums they must pay for health insurance. In other words, it’s always the workers who pay for a job-based health plan. In both the House bill and the Baucus plan, tens of millions of low- and middle-income workers will be forced to sign up for employer-organized insurance, with no additional help from the government. That will mean large pay cuts as uninsured families are forced to pay expensive premiums they don’t today. That’s the way the authors of these bills are able to say they are “covering everybody” for “only” $1 trillion. Indeed, the health care bills under consideration in Congress — including the Baucus plan — would cost much, much more if the Democratic sponsors of them weren’t so willing to make the very workers they say they represent pay massive and regressive hidden taxes.

posted by James C. Capretta | 10:37 am
Tags: Max Baucus, Blue Dogs, mandate, deficit, cap and tax, Nancy Pelosi, House bill, universal coverage, mandate, free rider tax, pay or play
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

Senate Democrats Opt for Regressive Mandates

President Obama and his congressional allies greeted the Congressional Budget Office’s latest estimates of the Kennedy-Dodd legislation with great enthusiasm. The cost had come down, we were told, even as more people would get covered.

But, as others have already noted, there was an awful lot of spin in the media coverage of what CBO actually said. For starters, it’s clear the Kennedy-Dodd bill, even as amended, would still cost a fortune. CBO’s new estimate shows a ten-year cost of about $600 billion for the bill, but that estimate excludes the cost of covering Americans with incomes below 150 percent of the poverty line under Medicaid, which is not yet part of the Kennedy-Dodd draft but is central to the overall Democratic reform framework. That addition alone would add at least $500 billion to $600 billion to the tab, and perhaps much more, putting the total cost of Kennedy-Dodd, even as revised, at well over $1 trillion for the decade.

Still, CBO did say Kennedy-Dodd 2.0 would cost less than the original version. In mid-June, CBO projected that the health-insurance subsidies provided in the original bill would cost $1.279 trillion over a decade. But, in the new version of the legislation, those subsidies would cost $723 billion over ten years — or $556 billion less.

So how does the new, apparently leaner Kennedy-Dodd bill cut the subsidy costs?

Part of the answer is a scaling-back from an outlandishly expansive starting point. The original version of Kennedy-Dodd contemplated subsidizing households with incomes all the way up to 500 percent of the poverty line. Even House Democrats found that to be too much. So Kennedy-Dodd 2.0 now sets the income limit at 400 percent of poverty.

But, beyond the lower income threshold, Senate Democrats, including Finance Committee Chairman Max Baucus, have also discovered the budgetary virtues of heavy-handed government decrees. If you want to expand insurance coverage, you can simply make people sign up for a plan — whether they want to or not. And to keep costs down for the government, you subsidize only those who get insurance outside of the workplace — and then write rules that make it nearly impossible for anyone to fall into that category. Presto! Government-run health-care paid for with the hidden taxes of government mandates.

According to the Census Bureau, there are about 102 million Americans under age 65 living in households with incomes between 150 and 400 percent of the poverty line — the presumed target population for subsidized insurance in the Kennedy-Dodd bill. But CBO said only about 20 million people in 2014 would get the subsidies under the revised version of the legislation. That’s because the authors sought to create a so-called “firewall” to prevent most workers from getting insurance outside the workplace if their employer offered a plan. And, of course, the bill would also impose severe, per-worker penalties on any employer that didn’t offer approved coverage. Only workers who would have to pay more than 12.5 percent of their income for a job-based plan could opt to get their insurance through the subsidized insurance arrangements, which CBO apparently assumes will be a relatively small number of people.

What’s ironic is that mandating enrollment in job-based insurance is about the most regressive way possible to expand coverage. Despite the perceptions, employment-based health insurance is financed by workers, not firms. The premiums for coverage implicitly reduce the cash compensation workers take home. In most companies, workers pay the same implicit premium for health insurance regardless of their age or health status or salary. That means the cost of enrolling in job-based coverage falls more heavily on low-wage workers than higher-salaried employees, which is why such a large percentage of the uninsured are in households that have access to a plan but choose not to enroll.

Democrats used to be sympathetic to the financial strain these workers are under. But that was before CBO said their sympathy would be expensive. So now the emerging plan is to make tens of millions of Americans pay more than they do today for government-approved insurance organized by their employer. That’s really their only choice. If they don’t take it, they will face a large financial penalty. Great deal, huh?

Congressional Democrats are between a rock and a hard place. They desperately want to pass a bill they can label “universal coverage,” but they have no coherent plan for making health-care provision more efficient and less costly. Thus, expanding coverage with new federal subsidies for a large segment of the population in the current cost environment is prohibitively expensive. Presented with these facts, the lead Democratic Senators could have chosen to write a more sensible reform plan focused first on building a functioning marketplace in which cost-conscious consumers would drive out unnecessary costs. But, instead, they have decided to plow ahead with their “universal coverage” plan, only now they want to impose the high cost of it on struggling workers. Their only hope is that the bill will pass before the public discovers what they are up to.

posted by James C. Capretta | 5:13 pm
Tags: ObamaCare, CBO, HELP, Medicaid, projected costs, Max Baucus, mandate, universal coverage
File As: Health Care

The Baucus Plan’s Penalties on Work

Late last week, Senator Max Baucus, chairman of the Senate Finance Committee, tried to jump-start the push for a sweeping health care bill by letting it be known that he has made progress toward a “bipartisan” deal in his committee on a health care plan.

Of course, no one knows for sure what’s in the Baucus plan except for a handful of people. There have been two Congressional Budget Office (CBO) tables provided to the committee indicating how much alternative versions of plan would cost over the coming decade, but neither estimate been released to the public by the committee. The insistence on complete secrecy just days before a planned markup of the bill would seem to contradict pronouncements of total confidence in its popularity and inevitability.

Still, despite the secrecy, some of the details are now clear enough to make some analytical judgments — thanks, in part, to a post by Ezra Klein of some slides which apparently reflect where the emerging plan now stands. And it is clear from the details provided in those slides that the draft Baucus plan would impose severe financial penalties on the earned income of low-wage workers.

The centerpiece of the Baucus plan is a new entitlement to health insurance premium subsidies. The very lowest income households (perhaps below 133 percent of the federal poverty line, or about $29,300 for a family of four in 2009) would get full subsidization of their premiums, likely worth about $12,000 per year. That subsidy would then get phased down as household income rises. In the original Baucus plan, the cut-off point was 400 percent of poverty, or $88,200 per year. But CBO said that plan would cost $1.6 trillion over a decade, a figure that stunned and appalled Democrats. Senator Baucus and his staff subsequently vowed to cut back the total governmental cost of the plan to under $1 trillion over ten years — without abandoning their goal of “universal coverage.” How to do that? Continue to make people buy the insurance — the so-called “individual mandate” — but give them less by way of subsidization when they do so. The new Baucus plan would cut subsidies off at 300 percent of poverty, or $66,150 for a family of four.

But phasing out subsidization of expensive health insurance plans in this manner imposes very high implicit tax rates. If the total premium for an average health insurance plan for a family costs $12,000 per year, under the updated Baucus plan a worker would lose $.33 in health premium subsidization for every $1 earned in the phase-out range. That implicit 33 percent tax rate would be come on top of existing federal payroll and income taxes, as well as the implicit taxes associated with phasing-out the earned income tax credit, food stamps, and housing vouchers. Quite literally, if the Baucus plan were to pass, it would not pay for millions of lower income Americans to take higher paying jobs because much of the wage gain would be lost to the government.

The problem would be compounded by Senator Baucus’s elaborate “pay or play” scheme. Several options are presented in the slide deck, but it’s clear that the most likely scenario is a penalty on employers if they don’t provide government-approved insurance for lower wage workers and their families who would be eligible for premium subsidization if they weren’t enrolled in a job-based plan. This is a transparent effort to push more costs onto employers in order to keep the overall federal costs of the Baucus plan to “just” $1 trillion.

But what will employers do if faced with such a requirement? For starters, they will avoid hiring low wage workers, as the “pay or play” mandate wouldn’t apply to workers with higher incomes. Is that what the Democrats really intend? Moreover, to avoid paying the penalty, firms would re-organize themselves so that they contract with other firms for low-wage labor instead of hiring the workers directly themselves.

After the success of welfare reform in 1996, you’d think Congress would have learned that the last thing they want to do is to penalize work among low-wage households. It’s completely counterproductive to make such households ever more dependent on government assistance. But that’s exactly what the emerging Baucus plan would do.

posted by James C. Capretta | 10:57 am
Tags: Max Baucus, CBO, entitlement, universal coverage, projected costs, mandate, pay or play
File As: Health Care