About the Author

James C. Capretta

James C. Capretta

New Atlantis Contributing Editor James C. Capretta is an expert on health care and entitlement policy, with years of experience in both the executive and legislative branches of government. E-mail: jcapretta@aei.org.


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James C. Capretta’s Latest New Atlantis Articles

 Health Care with a Conscience” (Fall 2008) 

 Health Care 2008: A Political Primer” (Spring 2008) 

 The Clipboard of the Future” (Winter 2008)

 

 More on James C. Capretta

Text Patterns - by Alan JacobsFuturisms - Critiquing the project to reengineer humanity

Friday, January 15, 2010

The President Caves In to Union Pressure — Shamelessly 

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

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

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

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

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

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

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

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

Wednesday, January 13, 2010

Doubling Down on the ‘Double Count’ 

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

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

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

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

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

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

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

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

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

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

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

Thursday, January 7, 2010

An Entitlement Certain to Grow In Spite Of ‘Firewalls’ 

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

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

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

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

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

You can read the whole thing here.

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

Monday, January 4, 2010

Not As Advertised 

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

But is it so?

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

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

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

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

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

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

Monday, December 28, 2009

Why the Senate Bill Makes No Sense 

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

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

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

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

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

The entire article is available here.

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

Monday, December 28, 2009

The Heart of the Cost Problem 

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

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

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

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

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

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

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

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

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

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

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

Saturday, December 19, 2009

Ben Nelson caves on taxpayer funding of abortion 

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

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

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

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

Saturday, December 19, 2009

Reid 2.0: It’s Still a Budget Buster 

The Obama White House and its congressional allies have tried all year to push their various bills through to passage by truncating the time between introduction and a decisive vote to the bare minimum. They figure the only way to get something passed is to minimize public review and scrutiny of whatever their latest idea is to engineer American health care from Washington, D.C.

To date, that tactic hasn’t worked out so well. In July, House Democrats tried to unveil a bill on the 14th for a planned vote on the 31st. A firestorm erupted, however, pushing back the vote into November. In the Senate, meanwhile, a series of self-imposed deadlines have been missed as Democratic pronouncements of inevitability have bumped up against the reality of steadfast and growing public opposition.

Nonetheless, Senate Majority Leader Harry Reid is running the same play again today, and very possibly with different results. He unveiled the latest version of his reform legislation this morning, filled to the brim with outrageous payoffs to buy the votes of holdout Senators. Virtually no one else has seen the bill before today, much less had a chance to give it the scrutiny it deserves. And certainly the public has not had a chance to weigh in. No matter. Senator Reid has simultaneously set in motion the procedures necessary to force a vote on his new health-care plan in a matter of hours, not weeks.

And yet, despite the unprecedented effort to short-circuit public review and input, it is likely that this latest version of the Reid plan will be just as unpopular as the previous one, and for many of the same basic reasons.

According to the Congressional Budget Office (CBO), the amended Reid plan would reduce the federal budget deficit by $132 billion over the period 2010 to 2019, but that is a mirage.

For starters, as CBO notes, the bill presumes that Medicare fees for physician services will get cut by more than 20 percent in 2011, and then stay at the reduced level indefinitely. There is strong bipartisan opposition to such cuts. Fixing that problem alone will cost more than $200 billion over a decade, pushing the Reid plan from the black and into a deep red.

Then there are the numerous budget gimmicks and implausible spending reductions. The plan’s taxes and spending cuts kick in right away, while the entitlement expansion doesn’t start in earnest until 2014, and even then the real spending doesn’t begin until 2015. According to CBO, from 2010 to 2014, the bill would cut the federal budget deficit by $124 billion. From that point on, it’s essentially deficit neutral — but that’s only because of unrealistic assumptions about tax and Medicare savings provisions. By 2019, the entitlement expansions to cover more people with insurance will cost nearly $200 billion per year, and grow every year thereafter at a rate of 8 percent. CBO says that, on paper, the tax increases and Medicare cuts will more than keep up, but, in reality, they won’t. The so-called tax on high cost insurance plans applies to policies with premiums exceeding certain thresholds (for instance, $23,000 for family coverage). But those thresholds would be indexed at rates that are less than health-care inflation — forever. And so, over time, more and more plans, and their enrollees, would bump up against it until virtually the entire U.S. population is enrolled in insurance that is considered “high cost.”

Similarly, the Medicare cuts assume that hospitals, nursing homes, home health agencies and others can survive with a permanent annual cut in their payment rates for presumed productivity gains. Medicare’s chief actuary has already signaled that this reduction could push one in five hospitals into insolvency, thus forcing them out of the Medicare program.

What’s more, the benefit promises are sure to expand well beyond what CBO has assumed. There are 127 million people living in households with incomes between 100 and 400 percent of the federal poverty line, but CBO assumes that only 18 million of them will get the new subsidized insurance under the Reid plan by 2015 because of rules that make most workers ineligible for assistance. But, if enacted, employers would find ways to push more workers into subsidized arrangements, and Congress would loosen the rules to make more people eligible. Costs would grow much faster than CBO currently projects. In addition, the Reid plan continues to include a new entitlement program for long-term care that every actuary who has looked at it says is a financial disaster waiting to happen. If passed, it would only be a matter of time before another federal bailout would be necessary.

It is now plain as day that the Reid plan has evolved into nothing more than a massive entitlement expansion, which subsidizes more people into an unreformed system with soaring costs. Several Senate Democrats claim to be strong fiscal conservatives. Their votes on the Reid legislation will provide conclusive evidence whether that’s true or not.

posted by James C. Capretta | 6:42 pm
Tags: Senate bill, Harry Reid, CBO, Medicare cuts
File As: Health Care

Friday, December 18, 2009

For Nelson, It Shouldn’t Be a Close Call 

Nebraska Senator Ben Nelson announced yesterday in an interview with a home-state radio station that new language regarding abortion coverage in subsidized insurance plans was not acceptable to him, dealing yet another blow to Senate Majority Leader Harry Reid’s mad-dash rush to pass a bill before Christmas.

Of course, it’s crucial that Senator Nelson stick to his guns on abortion. He has always been a self-described pro-life Democrat, and attracted votes accordingly in his election campaigns. So far, he shows every indication of sticking to his guns and insisting on language that is at least as stringent as that offered by Representative Bart Stupak and passed in the House last month. This is no time to go wobbly, or to listen to those who are transparently trying to divide the Senator from his pro-life supporters. If abortion language offered by Senator Reid doesn’t meet the test of the Catholic bishops — and it doesn’t — Senator Nelson owes it to those pro-life voters who have stood with him over many years to stand with them at this critical time.

But, just as importantly, Senator Nelson made it clear in the same radio interview that his concerns with the Reid bill go well beyond protecting taxpayers from financing elective abortions — as they should. Senator Nelson considers himself to be a fiscal conservative too. The Reid bill provides a ready opportunity to prove that he actually is.

Even before a new health-care entitlement program is stood up, the nation’s budgetary outlook is very grim, and has been made more so by the policies of the Obama administration. CBO projects that the Obama 2010 budget plan will drive federal debt up from $5.8 trillion at the end of 2008 to more than $17 trillion by 2019. And it will only get worse from there. Federal spending on Social Security, Medicare, and Medicaid is expected to increase from 11.1% of GDP this year to 17.1% in 2030, a jump in spending of 6% of GDP in just two decades. To put that in perspective, that’s like adding another Social Security program to the federal budget without any new revenue to pay for it.

The Obama administration and its allies in the Senate keep arguing that the Reid bill will begin to fix the entitlement problem. It won’t. It will make the nation’s entitlement problem much worse.

If passed, here’s what’s certain. Medicaid will be expanded to at least another 15 million people. This is the same Medicaid program that is entirely unreformed in the Reid bill and has been growing, on a per capita basis, nearly 2 percentage points faster than per capita GDP growth for three decades. In addition, Senator Reid’s proposal would create a new health entitlement by subsidizing the premiums for households with incomes between 100 and 400 percent of the federal poverty line. In all, CBO says these “coverage expansion” provisions (including tax credits for small businesses) will cost nearly $200 billion by 2019, and that cost will grow 8 percent annually every year thereafter.

And that’s a lowball estimate. The new insurance premium subsidy program is available only to households getting their insurance through the new “exchanges,” not employees who have no choice but to take the plan offered at work. But, as Gene Steuerle of the Urban Institute and I have pointed out elsewhere (see here and here), this kind of two-tiered system of subsidies creates large disparities in the treatment of households with identical financial resources. As matters stand, CBO says only 18 million people would get the premium subsidies in 2015, even though, in 2008, there were already 127 million people under the age of 65 living in households that would be eligible for subsidization. If enacted, it would only be a matter of time before tens of millions of additional people ended up in the subsidy program.

And what does the Reid bill do to slow the pace of rising costs? The President’s Council of Economic Advisers touts the slowdown in Medicare and Medicaid costs, as scored by CBO. But these spending reductions don’t come from more efficient health-care delivery. The savings are from arbitrary, across-the-board payment-rate cuts for hospitals, nursing homes, home health agencies, and others. These cuts do nothing to improve the efficiency of medical practice. Indeed, in the past, they have led to cost-shifting, and Congress has shown no stomach to sustain such cuts in the face of warnings of reduced access to care, such as was provided by the Medicare program’s chief actuary last week.

The administration also believes the new Medicare commission will work wonders. But, as the Concord Coalition has noted, the commission’s mandate is incredibly limited. It can’t propose any changes to hospital or physician reimbursement arrangements. It can’t restructure the Medicare entitlement. And its targets after 2019 wouldn’t save anything. That means, for a few years, the commission might get to cut home health and other ancillary service payment rates. That’s it. Medicare won’t look any different as a result. Never has so much been made about so little. Moreover, the commission itself represents an incredible admission of failure. At the beginning of the year, the Obama administration was promising to come forward with new whiz-bang ideas to painlessly root out inefficient health care without harming quality. They never did. Now they are saying a new independent commission will do it for them. Don’t hold your breath.

Senator Nelson is clearly uncomfortable with the bill as written. Any fiscal conservative would be. It’s not a close call. As the senator said yesterday, the country would be far better off with a more scaled-back bill. He’s right about that. And it’s in his power to deliver just such a bill. Pushing the discussions into 2010 would not end the health-care debate. It would only make it more likely the Senate voted in the end for something the public — and Nebraskans — would find acceptable.

posted by James C. Capretta | 5:28 pm
Tags: Ben Nelson, Medicare, abortion, Harry Reid, Senate bill
File As: Health Care

Tuesday, December 15, 2009

The Irony of Mandatory Payments to Profit-Hungry, Private Insurance Companies 

Senator Joe Lieberman announced today that he is ready to support “health-care reform” now that both a new, government-run insurance option and the ill-fated Medicare “buy in” idea have been stripped from the legislation.

It’s not really surprising that Senator Reid and the White House, desperate to pass anything called “health care reform,” would succumb to Senator Lieberman’s demands to get his vote.

Still, though long in coming, the jettisoning of all flavors of the so-called “public option” — to appease Senator Lieberman, of all people! — must be an awfully bitter pill for the left to swallow. After all, what is the Reid plan now that those provisions are out? In essence, it’s a requirement that all Americans pay health insurance premiums to secure qualified coverage. And if there is no government-run option, the public will have no choice but to pay their premiums to private insurers. Yes, that’s right. The Democratic party is on the verge of enacting a requirement, enforced with federal tax penalties, which would effectively require hard-working Americans to hand over even more of their wages to profit-hungry, private insurance companies.

Yes, the Reid legislation may still include the half-baked idea to offer national, not-for-profit insurance plans out of the Office of Personnel Management. But no such plans currently exist in the marketplace, and it’s hard to see how they could get up and running and stay viable without crossing into the no-fly zone of a government-run option that would push Senator Lieberman out of the yes column. The not-for-profit concept is therefore either non-viable window dressing to make liberals feel better, or a foot in the door that will draw opposition when its details are revealed.

Of course, even without a new government-run insurance plan, the Reid bill is a policy monstrosity. It’s filled to the brim with mandates, fines, and new federal controls which will erode the quality of American medicine and lead to government-driven rationing of care. It’s a governmental takeover by regulation and bureaucracy, not program enrollment.

Still, it’s easy to see why liberal Democrats are screaming over the Lieberman apostasy. There’s really no industry they despise more than private health insurers. And now they are being told they have no choice but to vote for a bill that would hand over to those greedy insurers a captured marketplace of guaranteed insurance purchasers. Ironic indeed.

posted by James C. Capretta | 3:46 pm
Tags: Joe Lieberman, Harry Reid, mandates, Office of Personnel Management
File As: Health Care

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