Health Care


Whereís the Administrationís Cost Estimate?

The latest numbers from the Medicare actuary puncture the health care spin
April 23, 2010

Yesterday, the chief actuary for Medicare released a memorandum providing cost estimates for the final health legislation passed by Congress and signed by the president.

Amazingly, the HHS Secretary tried to suggest that the memo confirms that the legislation will produce the favorable results that the legislation’s backers have touted for months.

That’s nothing but spin. In truth, the memo is another devastating indictment of the bill. It contradicts several key assertions by made by the bill’s proponents, including the president.

For starters, the actuary says that the legislation will increase health care costs, not reduce them — by about $300 billion over a decade. Yes, that’s over a very large base of spending (more than $35 trillion). But the president and his team have talked incessantly of painlessly cutting $700 billion or more of wasteful spending. Nothing in the bill comes close to making that happen. Overall health spending will continue to rise very rapidly after the bill is implemented.

The actuary also says that the financial incentives in the bill will lead many employers to stop offering coverage altogether. That means about 14 million people with job-based insurance today will lose it. Moreover, he estimates that the cuts in Medicare Advantage will reduce enrollment by 7 million people. So much for keeping the Democrats’ other mantra of “keeping the coverage you have today.”

The memo says the Medicare cuts will total nearly $600 billion through 2019, and that they will almost certainly jeopardize access to care for seniors by driving scores of institutions into financial distress.

Employers will pay taxes totaling $87 billion over a decade for not offering qualified coverage, and individuals who don’t sign up with approved insurance will pay another $33 billion in fines over the same period.

The various taxes and fees on insurers and producers of drugs and devices will largely get passed on to consumers, says the memo. In other words, these taxes will hit the middle class hard and drive their premiums up, not down.

The actuary says the new long-term care insurance program created in the bill faces “a significant risk of failure” due to adverse selection — meaning that the program will attract the kind of enrollment that will require higher costs than can be covered by the premiums collected. That, however, did not stop the Democrats from double-counting the program’s $70 billion in premiums as an offset for the massive health entitlement program. So not only did the bill use a budget gimmick to hide the costs of the health expansion, it also set taxpayers up for another bailout when the long-term care program runs aground.

By longstanding practice, the administration uses the health care cost estimates produced by the chief actuary when putting together the president’s annual budget submission in February and an update in mid-summer.

But the estimates that the actuary has produced for the health bill so clearly contradict what the president has said the bill will do that the administration is in an awkward position, to say the least. So awkward in fact that the administration has stamped every memo put out by the actuary during the entire health debate with this disclaimer: “The statements, estimates, and other information provided in this memorandum are those of the Office of the Actuary and do not represent an official position of the Department of Health and Human Services or the Administration.”

Which raises the question: If the actuary isn’t producing the administration’s health care cost projections, who is?

posted by James C. Capretta | 8:00 pm
Tags: chief actuary, costs, adverse selection, spin
File As: Health Care

The Obama Budget Plan: Taxes and Rationing

April 16, 2010

Suddenly, the Obama administration and Democratic congressional leaders seem to want health care news stories to fall off of the front page.

This week, House Energy and Commerce Chairman Henry Waxman abruptly cancelled a high-profile hearing he had called just days earlier to berate corporate CEOs who dared to tell their investors that the health-care bill would raise their costs. It seems to have dawned on Congressman Waxman and his staff that his transparent effort to intimidate anyone who tells the truth about the legislation could actually backfire on him and turn into a PR disaster.

The Democratic contention that the bill actually lowers costs for American business is not supported by any rigorous analysis that would justify use in auditable corporate accounting methods. The Business Roundtable study that many Obamacare advocates like to cite as proof of the bill’s savings provides no such proof at all. The prediction of cost savings in the study from the mostly minor provisions in the legislation aimed at “delivery system reform” are highly speculative at best. Indeed, the study itself notes the potential for much higher costs and cites many cost-cutting provisions that are not in the new health law.

What is certain is that the new health law reduced the value to America’s corporations of federal support for retiree drug-benefit coverage. That means it will cost these companies more to provide such coverage in the future. There’s no disputing that. Indeed, there’s no disputing that the companies had an obligation to acknowledge this cost in their financial statements. One way or another, some Americans will be forced to pay higher costs because of this provision, in the form of reduced prescription-drug benefits for retirees or reduced value for the shareholders of the firms in question.

Perhaps Congressman Waxman realized the tables might actually get turned on him this time. A hearing in which Democratic congressmen lectured private-sector CEOs — CEOs who employ tens of thousands of people — for following the law and telling the truth would only make an out-of-touch Democratic Congress look even more disconnected from reality.

Democrats are also contemplating (though no decisions have been made) shelving consideration of the congressional budget resolution to avoid having to debate levels of taxation, federal spending, deficits, and debt before the midterm election. The budget resolution is the annual blueprint that sets parameters for considering budget-related legislation during the rest of a congressional session.

Their reticence is understandable. President Obama is presiding over the largest expansion of the federal government in a generation, even though the federal government is already rushing headlong toward a debt crisis. The government is expected to run a budget deficit in excess of $1 trillion in 2010, after running a deficit of $1.4 trillion in 2009. And that’s just the beginning of an endless sea of red ink. The Congressional Budget Office expects the Obama administration’s latest budget plan would push the nation’s debt to more than $20 trillion in 2020, up from $5.8 trillion in 2008. No wonder congressional Democrats want to change the subject.

But no one should be fooled into thinking the administration and its allies in Congress will never again revisit the budget and health care. They will — largely because the president will have no choice. He is presiding over a spending and borrowing binge unlike anything ever experienced in the nation’s post-war history. And it can’t go on much longer before it will precipitate an economic crisis of one sort or another.

So the president and his team will come back to the budget, just not before the midterm election. That’s the whole point of standing up the debt commission. To every question about runaway deficits and debt, they have a ready answer to divert the press.

But, as Charles Krauthammer noted recently, there are signs aplenty of what the administration will push for when they do come back to the budget gap, probably just after the midterm election. It’s no accident that the debt commission will make its recommendations known only after the November elections. That way Democratic candidates can run for office by suggesting the commission will solve our budget problems without ever having to specify any tax or spending cut.

When, however, the administration does make a push for closing the budget deficit, its plan will start with the mother of all tax increases, probably a value-added tax (VAT). When the problem is as big as it is today, Democrats will see no use in nickel-and-diming it. With a VAT, they would get a large new revenue stream, not collected directly from voters, and one that they could expand endlessly as they further enlarged the government.

But an Obama-style budget fix almost certainly wouldn’t end there. To get a tax increase, he and his advisors surely realize they will need to look like they are cutting some spending too. And, contrary to some perceptions, liberals are definitely willing to cut some entitlement spending; it’s just that they insist it be done in only one way: with price controls on payments to medical providers.

Look at the recently enacted health bill. It includes large cuts in Medicare’s payments to hospitals, nursing homes, and others. These cuts aren’t calibrated based on quality or efficiency. They are across-the-board cuts hitting every service provider. And the bill also stands up a new independent board that is charged with essentially enforcing a cap on overall Medicare spending beginning in 2015. But the only changes in Medicare the board can recommend to stay within the cap are more reductions in provider-payment rates. The board can’t touch the Medicare benefit, much less propose a Ryan-style move toward more choice and market competition. No, the only option is more and deeper price controls.

So, it is entirely predictable where Democrats will turn when they need show their willingness to cut entitlement spending. They will push to broaden the reach of Medicare’s price controls to parts of the health system currently beyond their reach, including prescription drugs and the federally-subsidized insurance arrangements enacted as part of the new health law. It will be one more step toward their ultimate goal, which is a fully government-run health system, with all that entails — including waiting lists and restricted access to care.

posted by James C. Capretta | 4:14 pm
Tags: Debt Commission, debt, deficit, Henry Waxman
File As: Health Care

Lessons of the Massachusetts Experiment

April 9, 2010

In a new column for Kaiser Health News, I ask what the Massachusetts health reforms of 2007 might warn us about what to expect from the new national reform:

The president himself has said that the national plan contains many of the features of the Massachusetts program, now operating in its third year. He is right. There are striking similarities between the reform plans, which is why what’s happening in Massachusetts today is very instructive....

After three years, no real progress has been made on rising costs. The program remains well over budget, with no end in sight. Further, state residents who now must buy state-sanctioned coverage are bristling at their rising premiums and the inability to find coverage which covers less and thus costs less.

State politicians are responding to the cost crisis the only way they know how: by promising to impose arbitrary caps on premiums and price controls for medical services. The governor and state regulators have disallowed 90 percent of the premium increases insurers — all of whom are not-for-profit — submitted for their enrollees for the upcoming plan year. The state says premium increases above eight percent are too high and unacceptable, though they themselves don’t have a plan to make health care more efficient in Massachusetts. They just want lower premiums. The insurers have responded by refusing to sell any coverage at the rates the state wants to impose.

The way out of this stand-off is predictable: more price controls. To hold premiums down, Massachusetts officials are already laying the groundwork to impose government-set payment rate schedules for services beyond the realm of public insurance.

The risk of cost overruns is even higher at the federal level than in Massachusetts....

You can read the whole thing here.

posted by James C. Capretta | 10:54 am
Tags: Massachusetts, costs, price controls
File As: Health Care

Tax Collecting for Obamaís Welfare State

March 31, 2010

Now that the health-care bill has been signed into law, President Obama wants to “pivot” to other pressing issues. But, truth be told, the biggest issue the country now faces is still, in large part, about health care.

The federal government is running massive budget deficits and is expected to continue to do so indefinitely. The Congressional Budget Office (CBO) projects the Obama budget plan would produce $10 trillion in deficits over the period 2011 to 2020. At the end of the decade, the government’s debt would top $20 trillion, or 90 percent of the nation’s GDP. By comparison, from 1789 to 2008, the country accumulated only $5.8 trillion of public debt.

The economic risks associated with such massive amounts of governmental borrowing are very real and very high. At some point, current lenders to the U.S. government will have their fill of Treasury securities, which will mean the cost of financing expansive government is sure to increase over time. CBO expects the annual cost of servicing the interest on the nation’s debt will reach $0.9 trillion in 2020 under the Obama budget plan, up from about $0.2 trillion this year. But it could very well go much higher than that, as a recent white paper from analysts at the International Monetary Fund (IMF) demonstrates. According to that projection, U.S. debt could top 100 percent of the GDP by 2020 if, as the IMF analysts expect, the large run-up in governmental debt pushes interest rates up faster than either CBO or the administration now forecasts.

Further, this rise in federal borrowing will be occurring just as the baby boomers are entering their retirement years. Between 2010 and 2030, the population age 65 and older is expected to increase from 41 million to 71 million people. As these boomers sign up for Social Security and Medicare, costs for the programs will soar. Now is the time to get our fiscal house in order, before the entitlement tidal wave hits full force.

So what’s the president’s plan for heading off the wrenching debt crisis he has made more probable with his the expensive new spending programs he has forced through Congress? Instead of addressing it himself, the president has handed the problem off to a “bipartisan” commission.

Conveniently, the debt commission — headed by former Clinton White House chief of staff Erskine Bowles and former Republican Senator Alan Simpson — will make its recommendations after the November congressional elections.

The chutzpah here is something to behold. Having passed the largest entitlement expansion in half a century, in the most partisan manner imaginable, the president now wants Republicans to provide political cover to Democrats as they search for ways to finance the welfare state of their dreams.

Moreover, it is clear that Democrats have no intention of actually tackling the core problem in the federal budget, which is rapidly rising entitlement costs, especially for health care. They say their health-care bill has already addressed the problem. In the words of House Speaker Nancy Pelosi, “health reform is entitlement reform.”

In theory, it’s possible that Democrats could have passed a health bill that actually made durable reforms in the health entitlement programs that would have improved the medium and long-term budget outlook. But that’s not what they passed. No, new law makes the health entitlement much worse by adding tens of millions of people to Medicaid and a new insurance-subsidy program offered to persons getting insurance in the so-called “exchanges.” CBO expects the cost of these entitlement expansions to reach $216 billion in 2019. Further, the cost would escalate every year thereafter at a very rapid rate, just as Medicare and Medicaid have for more than four decades.

The Democrats respond by saying they also slowed the cost growth in Medicare. But, for starters, their cuts in Medicare do not cover the full cost of their entitlement expansions. That’s why they also raised taxes — by more than a half trillion dollars over ten years. Under the legislation President Obama just signed, federal health entitlement spending goes up, not down. Moreover, the cuts they do impose in Medicare do not in any way constitute “reform” of the program. For the most part, the big savings comes from paying less to hospitals, clinics, nursing homes, and others for the services they provide. In other words, it’s a price-control system.

These kinds of cuts have been passed by Congress many times before. They have never worked to permanently slow the pace of rising costs because they don’t do anything to make the delivery of health services any more efficient than it is today. Over time, arbitrary price controls imposed by the government always drive out willing suppliers of services and lead to access problems. That’s not entitlement reform. It’s government-enforced rationing of care.

To slow the pace of rising costs without harming the quality of American medicine will require restructuring the tax code and entitlement programs to promote a vibrant marketplace in the health sector, with strong price competition and consumer choice. That’s the vision Congressman Paul Ryan has laid out. And it’s both genuine health reform and entitlement reform too.

If the president and his allies were truly open to revisiting their “historic” health bill and replacing what has passed with a market-based reform program, that would be one thing. But does anyone really believe that’s a serious possibility at this point? The Democrats think they have scored a strategic victory by writing health-care legislation entirely according to their partisan vision. It is inconceivable they would backtrack willingly now.

But partisanship on health care has consequences too. It means bipartisanship on the budget will be all but impossible. The president has succeeded in enlarging the welfare state. Unless he is willing to roll it back now, it will be entirely his responsibility to collect the taxes to pay for it.

posted by James C. Capretta | 9:13 pm
Tags: CBO, entitlements, debt, deficit, debt commission
File As: Health Care

White House Divide-and-Conquer-Stupak-Bloc Strategy

March 20, 2010 • One of the options the Democrats are looking at is an executive order to get their last votes.

But this seems highly unlikely to work in any real and enduring sense to change the underlying policy from what's in the Senate bill regarding funding of abortions.

For starters, the Democrats say the Senate bill already satisfies the test of staying true to Hyde. So what are the odds that they are going to be willing to accept real Stupak-like language overnight? The president's "base" would go crazy, one would think. So that seems like a real stretch.

Moreover, an executive order isn't even as tight as a regulation. It can be rescinded in a day, by a new president, for instance. There's no guarantee at all it would survive over time. Plus it would be up to the executive branch to enforce it, not the courts.

It seems clear that the White House is trying to divide the Stupak group, and provide another fig leaf for some of them. Let's hope it doesn't work. If the Stupak group really wants to prevent funding of elective abortions, the only way to do so is by passing a Hyde-like amendment into law. Anything short of that would almost surely lead, in time, to direct federal funding of abortion-on-demand.

posted by James C. Capretta | 6:01 pm
Tags: Obamacare, Stupak, executive order
File As: Health Care

Discussing Deficits and the Debt

March 19, 2010

Yesterday I sat down with Kathleen Shannon of WLBZ2 in Maine to discuss the health care bill, entitlements more generally, and the deficit and debt.

[Permalink]

posted by James C. Capretta | 4:14 pm
Tags: interview, Obamacare, debt, deficits
File As: Health Care

Obamacare Will Break the Bank, Not Cut the Deficit

March 18, 2010

The White House and its congressional allies are trying to suggest that the latest Congressional Budget Office (CBO) cost estimate proves that their health-care plan is fiscally responsible.

But, in fact, the latest CBO projections confirm — again — that the president’s health plan would pile another unfinanced entitlement program on top of the unaffordable ones already on the federal books.

According to CBO, the new entitlement spending in the plan would cost $216 billion by 2019, and then increase by 8 percent every year thereafter. In other words, the president’s plan would stand up another health entitlement program that will grow much faster than the nation’s economy or revenue base. The changes the Democrats would make to the Senate-passed bill would make the entitlement program even more expensive.

Over a full ten years of implementation, the cost of the new entitlement spending would reach $2.5 trillion, at least, not the $1 trillion advertised by the White House.

The president and his congressional allies have suggested that the offsets they are pushing will more than cover this massive spending increase. But even a modest amount of scrutiny reveals these supposed offsets are nothing more than gimmicks and implausible assumptions.

For starters, as I mentioned yesterday, the plan doesn’t count $371 billion in spending for physician fees under the Medicare program. The president and congressional Democrats want to spend this money, for sure. They just don’t want it counted against the health bill. That’s because they want to reserve all of the Medicare cuts in the bill as offsets for another entitlement instead of using them to pay for the problem that everyone knows needs fixing. The president says he shouldn’t have to pay for the “doc fix.” But why not? Never before did Congress move to add the cost of a permanent fix to the national debt. But that is exactly what the president now wants to do. When the cost of the “doc fix” is properly included in the accounting, all of the claimed deficit reduction from the president’s health plan vanishes.

Then there’s the “Cadillac” tax on high-cost insurance plans. Because of union pressure, the president pushed the tax back to 2018, well past the point when he will have left office. But once in place, the threshold used to determine “high-cost” will rise only with the Consumer Price Index, beginning in 2020. That means a very large segment of the middle class would get hit with the tax as the years passed. The president has shown that he is unwilling to actually collect this tax on his own watch. But he wants us to believe that we can count on a huge revenue jump over the long run because his successors will have more stomach for it than he does.

Similarly, in jury-rigging “long-term deficit reduction,” the latest plan would first increase the premium assistance subsidies paid to low- and moderate-wage families above the levels in the Senate-passed bill, but then index their value to something below the growth in premiums to give the appearance of deficit reduction in the decade after 2019. There’s no “bending of the cost-curve” here. It’s sleight of hand that, if actually implemented, would force millions of low-income families to pay ever-higher premiums every year. The Democrats don’t want to talk about that. They just want to pretend they have been serious with fiscal discipline.

The other gimmicks remain in the plan as well: The double-counting of premiums for long-term care insurance programs as an offset for the health entitlement spending. The assumption that Congress will allow Medicare reimbursement rates to fall so low that one in five hospitals and nursing homes might be forced to stop taking Medicare patients. And the expectation that somehow Congress can hand out generous new subsidies to those getting insurance through the exchanges, even though many tens of millions of others with the same resources would get no additional help for their job-based coverage.

The bottom line here has been clear for months. The bill being pushed by the president would take what’s already a very bleak budget outlook and make it much, much worse.

posted by James C. Capretta | 5:46 pm
Tags: CBO, Obamacare, deficit
File As: Health Care

Deficit-Cutting Mythology

March 17, 2010

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

Voters Arenít NaÔve

March 16, 2010

The New York Times invited me to participate in an online symposium with Robert Reich, Gail Wilensky, and others to debate the odds on whether the Democrats' health care plan will pass into law. Here's an excerpt from my contribution:

Despite the enormous pressure from the White House, the odds remain against passage, Democratic catastrophe and all.

The votes Speaker Pelosi must get would mainly come from moderates and conservative members elected in highly competitive districts. Their constituents are trending solidly toward opposition to the bill, primarily for cost reasons....

The public is not naïve. They know government entitlement programs have a strong tendency to grow rapidly once put in place. What they see coming down the pike is another under-financed program, at a time when the federal government is already running up the nation’s debt at an unprecedented pace because previous commitments are now unaffordable.

Their concern is well placed, and should be enough to force Congress to come back later with a plan that is less risky for the country’s economic future.

You can find my contribution to the NYT symposium online here.

posted by James C. Capretta | 3:53 pm
Tags: Nancy Pelosi, Obamacare, voters
File As: Health Care

The Anti-Jobs Bill

March 15, 2010

My colleague Yuval Levin and I have coauthored a piece in the latest Weekly Standard that examines the consequences of the Democrats' health care plan for the broader economy, and especially for the jobs outlook:

Beyond taxes and spending, Obamacare would also wreak havoc on the labor market. Because employers would get penalized if any of their low- and moderate-wage workers ended up in the new subsidized insurance pool, they would avoid hiring such workers. Democrats claim they want to jam through health care reform so they can turn their attention to jobs, but the bill provides a strong disincentive for businesses to hire those who need jobs the most.

The plan would, moreover, trigger an inefficient and costly re-sorting of American labor. Under the bill, despite the enormous cost of subsidizing coverage in the new government-run “exchanges,” only 18 million people would be getting such subsidized coverage in 2016—even though there are 127 million Americans today with incomes in the targeted range of between one and four times the poverty rate. The vast majority of workers would still be in job-based plans and get no additional help. Gene Steuerle of the Urban Institute estimates that a worker making about $60,000 per year in 2016 would get $4,500 more in federal aid if he were able to get his insurance through an exchange rather than through his employer. That’s a powerful incentive for workers and firms to rearrange their operations to take advantage of the federal money. In time, the American economy would be divided into companies with low-wage workers getting government-subsidized health care and others with higher-wage workers who continue to get employer-based plans. This would make the labor market far less efficient (harming productivity), and it would mean that the subsidies themselves would cost far more than the CBO now estimates.

And for those workers who do end up getting federal subsidies for their insurance, the program is a trap. If they get a pay raise, they will lose some of their insurance subsidy. Indeed, the schedule of subsidy withdrawal is so severe that it will push many low-wage families into effective tax brackets of 60 percent to 80 percent, according to a CATO Institute analysis. Obamacare would thus provide a strong disincentive to work and so undermine the most successful policy initiative in generations: welfare reform.

You can read the entire article online here.

posted by James C. Capretta | 11:52 am
Tags: Obamacare, Yuval Levin, Eugene Steuerle, CBO
File As: Health Care

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