Health Care


Never Inevitable, Now Implausible

August 20, 2009

Wednesday, White House spokesman Robert Gibbs denied the premise of a New York Times article, which is that Democrats have all but abandoned hope for Republican votes in the health care fight and are planning a go-it-alone approach come September.

We’ve seen this two-step before. In today’s version, “top Democrats,” presumably including Chief of Staff Rahm Emanuel, who is quoted in the story, suggest Team Obama is ready to pass a bill with just Democratic votes. Earlier this month, it was Sen. Charles Schumer who said Senate Democrats were preparing to pass a health care bill using the so-called “reconciliation” process, which would allow them to do so with a simple majority instead of sixty votes. In both instances, denials quickly followed that the Democrats were abandoning bipartisanship in health care.

What’s really going on here? Is this yet another sign of Democratic disarray on health care? Or is it simply a premeditated bad cop/good cop routine aimed at scaring moderate Republicans into agreeing to something soon, or else? That’s the hypothesis of John Podhoretz in this post, and he’s probably right.

The bottom-line question is this: can Congressional Democrats pass a sweeping and controversial takeover of American health-care on their own? Here’s a clue to the likely answer: if they could, that would have been plan A. Why bother talking with political opponents if you could pass the next New Deal without them?

Nothing is certain of course, but it should be obvious to all concerned that Obamacare is not inevitable, and never was. Most Americans do not want to hand over total control of U.S. health care to the federal government, and that is the central premise of the bills now being written in Congress. Beyond that, the bills are highly controversial for many other important reasons, any one of which is enough to sink the entire effort. The massive, $1 trillion-plus price tag, even as the government is already piling up debt at a record pace. New taxes and mandates on employers which stifle hiring and job growth, which is the number one concern of most voters. The regressive requirements on low wage workers to buy government-approved insurance. The one-size-fits-all regulatory scheme. The prospect of government-driven rationing of care. None of this is popular.

Then there are the “pay fors.” In addition to massive tax hikes, House and Senate leaders are looking at $400 to $500 billion in cuts in Medicare to pay for their ambitious plans. Whatever else might be said about this month’s town halls, it should be obvious by the reactions of large numbers of senior citizens that deep cuts in Medicare to pay for “universal coverage” will generate significant political heat, to put it mildly. Are rank and file Democrats really prepared to carry that political baggage into 2010?

The public is sending unmistakable signals that they want their elected leaders to drop the controversial provisions and pursue consensus and targeted reforms instead. So far, it appears the Obama White House and Congressional Democrats are ignoring what’s being said and are hoping to scare Republicans into helping them pass a government takeover as originally planned. If Republicans simply hold firm in unified opposition, it is much more likely the public will, in the end, get a bill that’s tolerable, or that nothing at all will pass.

posted by James C. Capretta | 2:35 pm
File As: Health Care

The Flawed Bills Under Discussion

August 17, 2009

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.

[permalink]

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

August 6, 2009

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 House Bill: A $10 Trillion Unfunded Liability

August 5, 2009

Amid all the flurry of news in the hectic last days before the House recessed for the August break, something important went largely unnoticed — a development that should be the knockout blow to the kind of sweeping health-care bill the Obama administration is pushing, at least as it has been cobbled together in the House.

In a July 26 letter to the Ranking Republicans on four key committees (Ways and Means, Energy and Commerce, Education and Labor, and Budget), the Director of the Congressional Budget Office (CBO), Doug Elmendorf, made it clearer than he ever had before that the bill, in its original July 14 form, would dramatically widen the already large gap between long-term government revenue and spending. Here’s the key paragraph:

Looking ahead to the decade beyond 2019, CBO tries to evaluate the rate at which the budgetary impact of each of those broad categories would be likely to change over time. The net cost of the coverage provisions would be growing at a rate of more than 8 percent per year in nominal terms between 2017 and 2019; we would anticipate a similar trend in the subsequent decade. The reductions in direct spending would also be larger in the second decade than in the first, and they would represent an increasing share of spending on Medicare over that period; however, they would be much smaller at the end of the 10-year budget window than the cost of the coverage provisions, so they would not be likely to keep pace in dollar terms with the rising cost of the coverage expansion. Revenue from the surcharge on high-income individuals would be growing at about 5 percent per year in nominal terms between 2017 and 2019; that component would continue to grow at a slower rate than the cost of the coverage expansion in the following decade. In sum, relative to current law, the proposal would probably generate substantial increases in federal budget deficits during the decade beyond the current 10-year budget window.

In other words, CBO expects the spending in the bill would grow at a rate of least 8 percent annually into the indefinite future, while the revenue to pay for it will only grow at about 5 per cent per year. Hence the “substantial increases” in federal budget deficits beyond 2019.

Although CBO declined to specify any actual deficit numbers beyond 2019, they can be easily calculated, in rough terms, from the information provided in Elmendorf’s letter.

By 2030, if the spending associated with the coverage provisions rises 8 percent per year after 2019 and the revenue rises by 5 percent, the bill would add more than $200 billion per year to currently projected budget deficits. By 2048, the annual deficit increase would top $1 trillion — and only go up from there.

Of course, the federal government is already in a deep hole due to the projected rapid cost increases in Social Security and Medicare. The trustees for those programs reported earlier this year (see here and here) that Social Security’s seventy-five year unfunded liability stands at $5 trillion, while Medicare’s has reached at an astounding $36 trillion.

It is possible to do a similar “unfunded liability” calculation for the new entitlement spending in the House bill. Assuming a discount rate of 5.7 percent per year, the bill would add more than $10 trillion over seventy-five years in new unfunded government obligations.

Of course, some amendments were adopted to assuage the Blue Dogs in the Energy and Commerce Committee. The fate of those amendments is uncertain at best, however, as Speaker Pelosi has indicated the contents of the yet-to-be-written merged bill from the three committees will be decided later (to attract votes of course). But even if the Blue Dog amendments survive, they would do very little to change the basic direction of the bill’s long-term costs.

CBO recently projected that the federal budget deficit is already on track to reach nearly 15 percent of GDP in 2035, well above the historical average of about 2 to 2.5 percent. The last thing Congress should be doing is making the problem worse with new runaway costs. Indeed, the president himself has said he won’t accept a bill that makes our long-term budget problem worse. How he squares that with full support for the emerging House bill is anybody’s guess.

posted by James C. Capretta | 5:44 pm
Tags: House bill, projected costs, Doug Elmendorf, CBO, spending, deficit, Medicare, social security, Blue Dogs, Nancy Pelosi
File As: Health Care

ObamaCare: Worse Than You Think

July 30, 2009

Tevi Troy and I co-authored a piece for the current edition of National Review on the emerging health care plans in Congress. Although much has already been written about the structural flaws of these plans — their immense costs and excessive reliance on governmental control — their details are just as worrisome. Indeed, the more the public learns about what these plans would actually do if passed, the less they will like them. That article is available here.

Also this week, Yuval Levin and I have a piece in the Weekly Standard. In it, we point out that the costs of the bills now being considered in Congress are much higher than advertised because tens of millions of low- and middle-income Americans would be forced to sign up for costly job-based insurance, with no additional financial support from the government. That will create tremendous pressure on Congress to extend premium subsidies to even more families, which will drive costs well above current projections. Moreover, the Obama administration's main cost-control idea — a new commission for setting Medicare payment policy — is not really a new idea at all. The current system for paying physicians under Medicare was designed by just such an expert panel twenty years ago and it has been a disaster. It was supposed to encourage and reward general practitioners, but it actually drove many new doctors to become specialists instead of primary care physicians. You can read the full article here.

posted by James C. Capretta | 4:50 pm
Tags: Tevi Troy, ObamaCare, Yuval Levin, cost control, Medicare
File As: Health Care

The Baucus Plan’s Regressive Employer Mandate

July 29, 2009

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

The Prognosis for ObamaCare

July 28, 2009

The House bill would add $239 billion to the federal budget deficit over the coming decade, according to Congressional Budget Office (CBO) projections. That’s bad enough, coming as it would on top of the $11 trillion in deficits that are already expected to occur over the period 2009 to 2019 under the Obama budget plan.

But that’s really just the beginning of it.

Yesterday, CBO confirmed that the House bill would do even more fiscal damage in its second ten years. Here’s the crucial paragraph, from a letter sent by CBO director Doug Elmendorf to the four Ranking Republicans on the key House committees:

The net cost of the coverage provisions would be growing at a rate of more than 8 percent per year in nominal terms between 2017 and 2019; we would anticipate a similar trend in the subsequent decade. The reductions in direct spending would also be larger in the second decade than in the first, and they would represent an increasing share of spending on Medicare over that period; however, they would be much smaller at the end of the 10-year budget window than the cost of the coverage provisions, so they would not be likely to keep pace in dollar terms with the rising cost of the coverage expansion. Revenue from the surcharge on high-income individuals would be growing at about 5 percent per year in nominal terms between 2017 and 2019; that component would continue to grow at a slower rate than the cost of the coverage expansion in the following decade. In sum, relative to current law, the proposal would probably generate substantial increases in federal budget deficits during the decade beyond the current 10-year-budget window.

That really should do it. The Blue Dogs are in this fight, in part, because of their stated concerns over growing budget deficits and unaffordable entitlements. The president reiterated again last week that he is determined to sign a bill that slows the pace of rising costs and improves our long-term fiscal outlook.

Well, here’s a bill that would go in exactly the opposite direction from what the authors say is their objective, according to CBO. It would add a third runaway health care entitlement program to the two already on the books (Medicare and Medicaid) with no prospect in sight that spending on any of them will ever come in line with the government’s revenue base. A back-of-the-envelope estimate indicates the House bill would run up a cumulative federal budget deficit of at least $700 billion in its second ten years, and possibly much more. That’s on top of budget deficits that are already unsustainable and that will put the American economy at considerable risk of crippling interest rates or hyper-inflation.

This is not a close call. The Democrats have no choice. For the sake of the country, they have to go back to the drawing board and work with Republicans on something much more sensible.

[To read the NRO symposium on ObamaCare in which this post originally appeared, with Newt Gingrich, David Gratzer, and Amy Menefee, click here.]

posted by James C. Capretta | 12:50 pm
Tags: CBO, deficit, ObamaCare, House Bill, Doug Elmendorf, Blue Dogs, projected costs
File As: Health Care

PJTV Health Care Forum

July 23, 2009 • I was interviewed recently by Jennifer Rubin of Pajamas TV on the state of the health care debate in Congress. That interview is available here.

posted by James C. Capretta | 2:32 pm
Tags: Pajamas TV
File As: Health Care

The House Bill Costs Far More than $1 Trillion

July 23, 2009 • The health care bill under consideration in the House will cost at least $1.5 trillion over a decade, not $1 trillion as advertised, and raise taxes by $800 billion over the same period. Moreover, the bill is likely to cost even more than that because of built-in pressure for further legislative expansion. These are some of the points I make in this new piece, up at Kaiser Health News today.

posted by James C. Capretta | 12:21 pm
Tags: House bill, projected costs
File As: Health Care

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

July 22, 2009

The desperate search continues.

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

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

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

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

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

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

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

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

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

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

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

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

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