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.


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

Wednesday, July 8, 2009

Let the Unraveling Begin 

The Obama administration has been desperately trying to create a sense of momentum around its health-care push, which is why it is touting the latest “deal” with hospital associations so heavily.

But there are clear signs that Congressional Democrats and the Obama White House have steered the health-care effort into seriously choppy political waters.


  1. Yesterday, Senate Democratic leaders all but rejected Senate Finance Committee Chairman Max Baucus’s months-long effort to impose a limit on the tax preference for employer-paid premiums as a way to pay for his reform plan. Media reports indicate he was hoping to generate $340 billion from such a tax to pay for his plan, but that looks highly unlikely now. House leaders were never much interested in the idea, given the adamant opposition of organized labor, and won’t include it in their bill. Revising the tax treatment of job-based insurance was the one potential “reform” with some potential for bipartisan appeal, as it could, under the right circumstances, encourage more cost-conscious consumption of health care. Senator Baucus had been planning to take up consideration of his bill — with the tax on benefits in it — in his committee next week. Where is he going to find a politically palatable $300 billion in a matter of days, let alone one that can also appeal to committee Republicans?
  2. Party activists pushed Congressional Democrats over the July 4th recess to write a bill reflecting long-standing party goals — which means government-run insurance and near-total government control. This push has made the chances for bipartisan compromise — already remote — even less likely. In response to the pressure, Senate Majority Leader Harry Reid told Senator Baucus that he is not authorized to cut any deals with Senator Charles Grassley, the ranking Republican on the Finance Committee, which would bind the rest of the Democratic caucus. Senate Democrats have now committed themselves to including a muscular, government-run insurance option in the bill — which is, rightfully, a deal-breaker for the vast majority of Republicans. Indeed, at this point, it is hard to see why Senator Grassley or any other Republican senator would continue to negotiate with Senator Baucus or Senator Reid at all, as it is beyond obvious that Congressional Democrats are only interested in Grassley’s views until they can get a bill off the Senate floor — and even then, they are not interested in true bipartisanship but only enough to get two or three Republican votes.
  3. Congressional Budget Office (CBO) Director Doug Elmendorf explained in a letter to Sen. Judd Gregg that adding Medicaid coverage for persons with incomes below 150 percent of the poverty line to the Kennedy-Dodd legislation under consideration in the Senate Health, Education, Labor, and Pensions Committee (HELP) would increase the cost of that bill by around $500 billion. That would put the total cost of the bill at about $1.1 trillion, but it is likely to go even higher because states will balk at picking up their part of the tab for the new Medicaid coverage. Thus, when all of the details are finally in the bill, the Kennedy-Dodd plan is likely to cost close to $1.5 trillion over a decade. But even with this massive expenditure, Elmendorf predicted there would still be 15 to 20 million uninsured Americans.
  4. In testimony before the HELP Committee today, Elmendorf said this about the Kennedy-Dodd proposal: “This bill will add substantially to the long-term spending burden for health care on the federal government.” Recall that President Obama pledged to oppose any bill that does not — eventually — “bend the cost-curve” and reduces the government’s long-term cost burden.
  5. Rumors are circulating that House leaders are apparently considering a trifecta of popular “pay fors”: $500 to $600 billion in Medicare cuts, a new surtax for households making more than $250,000 per year, and $350 billion in funding from the so-called “pay or pay” employer mandate — while unemployment heads toward 10 percent. All of these proposals are going to generate substantial controversy and opposition, to put it mildly. The surtax would come on top of the Obama administration’s plan to let the Bush tax cuts expire for upper-income households, which would increase the top rate from 35 to 39.6 percent. A new, three-percentage point surtax, for instance, would push the top income tax rate to 42.6 percent — a rate not seen in more than two decades.
  6. Oh, and those momentum-generating “deals” with PhRMA and the hospital associations — turns out they aren’t deals after all. House Energy and Commerce Committee Chairman Henry Waxman said today that neither he nor the White House is bound by them, and a White House official agreed. Moreover, it remains unclear how much federal savings they will generate anyway, as they have not yet been assessed by CBO. So what do the deals signify exactly?

The Obama White House and its congressional allies have built expectations among their core supporters that this is the year to pass a government takeover of American health care. With expectations set so high, most elected Democrats have concluded they have no choice but to set out on a forced march to try to do exactly that — despite unified Republican opposition. But a partisan bill means that Democrats own all of the messy and unattractive details too. The debate is no longer about vague concepts of “coverage” and “cost-control” but who pays and who is forced out of their job-based plans. The more people learn about these details, the less they will like them —which is why the Democratic committee chairmen are working desperately to shorten the time between a full public airing and a vote. They’re hoping there won’t be enough time for public opposition to put a halt to the proceedings.

posted by James C. Capretta | 5:40 pm
Tags: ObamaCare, House bill, Max Baucus, Harry Reid, Charles Grassley, CBO, Doug Elmendorf, HELP, cost-curve, mandate, pay or play, Henry Waxman
File As: Health Care

Tuesday, July 7, 2009

Senate Democrats Opt for Regressive Mandates 

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

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

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

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

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

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

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

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

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

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

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

Wednesday, July 1, 2009

Rushing Headlong Toward a Crisis 

President Obama has made passage of an expensive new entitlement to health insurance his top legislative priority this year even as it has become abundantly clear that his fiscal policy is driving the country headlong toward a crisis.

In June, the Congressional Budget Office (CBO) took another, more complete look at President Obama’s budget plan and found the following: a $2.7 trillion spending increase over ten years, not counting the full costs of a health-care plan; annual deficits exceeding $600 billion every year — and rising as the years pass; a cumulative ten-year budget deficit of $9.1 trillion; and $17 trillion in government debt at the end of 2019.

And that might be the rosy scenario.

For starters, there are the budgetary risks associated with Obamacare. It’s all but certain to have additional deficit spending in its early years, which is why the president wants to change the traditional budget rules and require a deficit-neutral bill only over a full decade. That means all of the “financing” can be back-loaded, and later pushed back again. Sort of the “glad to pay you Tuesday for a hamburger today” version of budget discipline. Moreover, CBO has already estimated that the cost of the new health-insurance entitlement program in the Kennedy-Dodd legislation would rise very rapidly — 6.7 percent per year — when fully implemented. So even if the bill is “financed” over ten years, over the longer run, it will add to the massive unfunded liabilities associated with Medicare and Medicaid.

Then there’s the interest rate assumptions used to make the ten-year projections. Many forecasters, including CBO, use rather benign assumptions of where real interest rates are headed because the economy is expected to remain soft for some time. But what if the flood of government debt leads some important lenders to demand higher returns?

Yesterday, CBO provided some illuminating projections of what would happen under just such scenarios. For instance, if interest rates on government debt in the coming decade roughly tracked the experience of the 1980’s, the Obama budget plan would run entirely off the rails in very short order. By 2014, the annual deficit would exceed $1.1 trillion, and it would cross $2 trillion in 2019. Over ten years, the higher interest rates alone would force the government to borrow an additional $5 trillion, with the nation’s debt topping $22 trillion at the end of the decade — or more than 100 percent of GDP.

But even if interest rates followed a path closer to what the latest Blue Chip forecasts indicate, the nation’s debt will still rise more rapidly than CBO’s base assumption would indicate. Instead of $17.1 trillion of debt at the end of 2019, it would be $18.3 trillion. And the deficit in 2019 alone would exceed $1.3 trillion.

The Obama administration is pursuing a reverse of the “starve-the-beast” strategy. Pile on spending and new programs in the current recession, and then, after the fact, push for the mother of all tax increases as the only way to defuse the ticking time bomb of runaway government debt. Fortunately, the public is beginning to stir. They have seen spend-and-tax before, and it’s not what they thought they were voting for in November.

posted by James C. Capretta | 10:08 pm
Tags: ObamaCare, CBO, deficit, HELP, projected costs
File As: Health Care

Tuesday, June 30, 2009

The Baucus Plan’s Penalties on Work 

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

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

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

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

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

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

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

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

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

Friday, June 26, 2009

Making It Up as They Go 

President Obama and his chief of staff have said that the only non-negotiable principle in the health care debate is success, by which they seem to mean passage by Congress of something. From their perspective, that’s a smart place to be. With such large Democratic majorities in both the House and the Senate, just about anything that passes will tilt heavily toward Democratic priorities, which is to say toward heavy governmental control.

The problem of course is that most Democrats don’t want a “down payment” or “progress” toward their goals. They want the whole thing: a full government takeover, and so-called universal coverage. They see this year as perhaps a once in a generation moment to get what they want, and they aren’t about to settle for something less until its clear they can’t get it.

Which is why Democrats have dug in for a fight even as it has become increasingly apparent that passing a government takeover of American health care on a partisan basis will be exceedingly difficult. Senate Majority Leader Harry Reid has been downplaying the importance of “bipartisanship” in health care, and suggesting that perhaps he only needs, or wants, a handful of Republicans to support the bill Democrats are trying to write in the Senate. Meanwhile, Senator Chuck Schumer has let it be known that he is not willing to abandon the concept of a muscular, government-run insurance plan just to get Republicans on board.

But it is hard to overstate the difficulties Democrats will face if they try to pass the kind of bill they are talking about on an entirely, or even mainly, partisan basis. It is chock full of controversy. The price tag (at least $1 trillion in new spending). The largest tax increase in decades, which would hit the middle-class too. The movement of tens of millions of people out of job-based coverage and into government-run insurance. Deep, arbitrary, and cost-shifting cuts in Medicare’s reimbursement rates. Job-killing mandates on employers. And, most especially, the prospect of government intrusion into medical practice and the rationing of care. These are all highly unpopular steps with most voters, and the Democratic strategy is predicated on somehow getting all of them passed in one bill.

So what’s the Democratic game plan to overcome all the obvious political obstacles? Hard to know for sure, but it looks mainly like a “make it up as you go” approach. Cut a deal with Pharma today. Extract some Medicare savings from hospitals tomorrow. Float a “co-op” as a fig leaf for government-run insurance to entice some Republicans. Keep working the deals and hope it adds up at some point to a bill. Above all, of course, “keep moving forward” to hold everyone at the so-called table.

It might work. But it might not too. The primary problem for Democrats is not stakeholders. It’s the general public. They were told “reform” would leave them alone if they liked their coverage — and their premiums would go down too by $2500 per year. But the bills the Democrats in Congress are now writing will increase costs for people with insurance and shift tens of millions of them out of the employer plans they generally like. That’s not the deal they are expecting to be offered, and they aren’t likely to agree to it anytime soon.

posted by James C. Capretta | 9:32 am
File As: Health Care

Wednesday, June 24, 2009

The President Tries to Change His Health Care Tune 

At his press conference today, President Obama scrambled to “clarify” his promise to Americans on health care. It won’t work.

For months now, going all the way back to the early days of the 2008 campaign, President Obama has been promising Americans that, if they like the insurance plan they have, they will get to keep it. He didn’t just mention this once or twice. It was a staple of his pitch, repeated over and over again.

Of course, he made the promise for sound political reasons. His strategists are listening carefully to what their focus groups have to say, and they are hearing the same message Americans have been delivering on health care for years. Yes, many voters wouldn’t mind seeing health-care reform pass in Congress because they perceive problems of cost and coverage that they would like to see fixed. But they don’t want to trade in their good job-based insurance for an untested, government-heavy program.

The problem for President Obama is that he and his allies want to pass an untested, government-heavy program — but without saying so.

Every bill now being drafted in Congress would establish a “pay or play”-type choice for employers: Employers must either offer government-approved coverage to workers (“play”) or pay a tax to the government instead to partially cover the costs of their premiums for insurance secured through a new “exchange” system. For years, Democrats have argued that this construct would ensure that reform “builds upon” the employer-based insurance system. But, in fact, the Democratic approach to reform would have exactly the opposite effect. Employers would get burdened with new costs and insurance requirements, even as the government used price controls to offer a government-run insurance option with artificially low premiums and provided new subsidies for coverage only for workers getting insurance through the “exchange.” That’s a recipe for dismantling job-based insurance. The Lewin Group has estimated that, assuming certain plausible specifications, some 119 million people would end up leaving job-based coverage for a government-run plan as employers opted to “pay” rather than “play.”

Faced with incontrovertible evidence that he and his allies have no intention or ability to fulfill their commitment to Americans regarding their current coverage, President Obama decided today at his press conference to try to redefine the promise. What he meant, he now says, is that the government wouldn’t force people out of their health-care plan. If tens of millions of people get pushed out of their current coverage, it would be because firms chose to drop their insurance plans — never mind the fact that they would do so based on the financial incentives the government put in place.

The president’s “clarification” seems highly unlikely to be the final word on this. For starters, it doesn’t matter much to the voting public who pulls the trigger. They don’t want today’s stable, job-based coverage turned upside by “reform.” When they hear that tens of millions of people will get moved out of employer plans and into the “government option,” they will wonder if they themselves will have to switch insurance — and most don’t want to. The president’s comments today aren’t likely to put their fears to rest.

Then there’s the issue of the president’s credibility. The straightforward commitment that “you can keep what you have” was stated over and over again. In fact, it helped the president get elected in the first place. If his clarification today was what he meant all along, why didn’t he just so say sooner? That question seems likely to cross a few people’s minds.

posted by James C. Capretta | 1:05 pm
File As: Health Care

Monday, June 22, 2009

The Baucus Plan Is Obamacare Too 

It is a foregone conclusion that the bill now getting marked up in the Senate Health, Education, Labor, and Pensions Committee (HELP) is not going anywhere. Even the president and his advisers are distancing themselves from it. It costs a fortune — $1 trillion over ten years, according to a Congressional Budget Office (CBO) estimate of an incomplete draft version of the bill — and still only covers a third of the uninsured. Throwing in Medicaid for everyone below 150 percent of the poverty line — as the authors say they intend to do — would reduce the number of remaining uninsured further but at a whopping expense. When all is said and done, the HELP bill almost certainly costs closer to $2 trillion over ten years than $1 trillion. There is no way the congressional Democrats can assemble, on a largely partisan basis, a package of spending reductions or tax increases of that magnitude that their rank-and-file members will support.

But what about the bill the Senate Finance Committee is trying to put together? There, the committee chairman, Senator Max Baucus from Montana, is desperate to strike a deal with the so-called “coalition of the willing” — four Republicans on the committee who have been willing to talk with Baucus on what might be possible in a bipartisan bill. Senator Baucus apparently realizes that there is significant value in the label “bipartisan compromise.”

Here, it is important to remember that Senator Baucus’s strategic objective is to get a bipartisan bill, yes, but only if Democrats can claim the product provides “universal coverage.” That’s what motivates him in this debate — and most Democrats for that matter.

But he has a cost problem too. CBO informed him that an earlier draft of his plan would increase federal spending by $1.6 trillion over ten years, which apparently sent shock waves through the Democratic ranks this week.

In response, Senator Baucus has pledged to produce a bill that only costs $1 trillion over ten years, even as he remains committed to “universal coverage.”

Senator Baucus’s effort to produce a new, “scaled-back” plan is apparently reflected in options covered in a slide deck used at a recent committee meeting — and obtained and posted by Ezra Klein of the Washington Post.

Based on what’s contained in these slides, it is hard to see how the re-tooled Baucus plan would have appeal to any Republicans.

For starters, it’s still a massive tax-and-spend bill. At a minimum, it’s going to cost $1 trillion over ten years to stand up a new health-care entitlement for tens of millions of households. To pay for it, Senator Baucus wants to impose a hugely unpopular tax on the middle-class and cut Medicare’s payment rates to hospital and other suppliers of medical services. The more the public learns of this plan, the less they will like it.

Then there’s the Democratic push to include a government-run insurance option in the reform plan. Senator Baucus knows this is an issue which could drive Republicans out of the negotiating room. And so he is looking for a way to pass a “government option” without calling it that. Enter Senator Kent Conrad. He has suggested a so-called non-profit insurance “co-op” as a substitute for an overt Medicare-like plan (Keith Hennessey, as usual, is all over it with a dead-on critique here). All that one really needs to know about the Conrad co-op is what’s stated in the Finance Committee’s slides: The “advisory boards” of the co-ops would report to the HHS Secretary, who would make the “final decision about approvals of business plans and distribution of funds.” Enough said.

Finally, there are the onerous mandates. How does Senator Baucus plan to fit a $2 trillion scheme into a $1 trillion sack? Make someone else pay, of course. The Baucus plan would impose costly new mandates on both individuals and employers to purchase insurance. Several options are presented in the slides, but the thrust is clear: Employers will be forced to offer and pay for government-approved insurance or pay a new tax, and individuals would pay a fine too if they failed to enroll in an approved product.

Senator Baucus is starting from the same flawed premise as the president and his Democratic counterparts at the other relevant committees. They are bound and determined to pass “universal coverage” without any coherent plan to slow the pace of rising costs. That’s a recipe for onerous mandates, costly new entitlement spending, high taxes, counter-productive regulation, and ultimately government-imposed cost-controls and rationing. In short, all of the bills, including Senator Baucus’s, plant the seeds for a full government takeover of American health care.

What’s needed is sensible, gradual reforms of today’s tax law and entitlement programs to build a functioning marketplace with cost-conscious consumers and effective government oversight. But Congress won’t be able to consider such an approach unless and until it’s clear to all involved that Obamacare, of whatever variety, cannot pass.

posted by James C. Capretta | 12:34 pm
File As: Health Care

Wednesday, June 17, 2009

When the Government Runs Health Insurance 

President Obama’s announcement on Saturday that he was proposing an additional $313 billion in Medicare and Medicaid cuts over ten years — on top of the $309 billion in his 2010 budget — is noteworthy for a couple of reasons, despite the meager coverage it has gotten in most newspapers.

For starters, there’s the sheer hypocrisy of it all (see this and this). Recall that then-Senator Obama based his final push for the presidency in October 2008 largely on a coordinated attack on the health-care plan put forward by his Republican opponent, Sen. John McCain. Senator Obama told Americans that the McCain plan would be bad for the country because it would tax employer-paid health benefits “for the first time in history” and impose damaging Medicare cuts to partially pay for the costs of the tax credits McCain was offering.

Well, guess what?

President Obama is now all in for massive Medicare cuts, and he’s changed his tune on taxing health benefits too.

The Obama plan to cut Medicare’s reimbursement rates should be exhibit A in the case against ObamaCare. This is what governments do when they run health-insurance plans. They promise targeted “reforms” to root out waste and inefficiency, but what they actually deliver is indiscriminate, across-the-board price controls that do nothing to change the underlying cost structure of health-care. These cuts won’t “bend the cost-curve”; they will simply further widen the gap between public and private payment rates, thus shifting more of the costs to private premium payers.

President Obama and his aides have talked incessantly about how they want to even out regional disparities in spending that don’t produce better health outcomes. The emphasis should be on quality, not quantity. But their actual proposals make no such distinctions. The highest quality, lowest cost hospitals will get cut just as much as the highest cost, lowest quality hospitals. There’s no purchasing of “value.” It’s reimbursement cuts for everyone, no matter how well or badly they treat patients.

None of this should be surprising, though. The idea that the government could hire a bunch of analysts to run the U.S. health-care system from Washington with precise and painless efficiency was always a fiction. The only reliable and lasting way to drive greater efficiency in health-care is with cost-conscious consumers in a reformed marketplace. Absent that, the government will always resort to arbitrary cost-cutting to meet budget targets, with no distinction made between high-value and low-value care. And with price cuts come waiting lists and queues. Call it ObamaCare.

posted by James C. Capretta | 11:02 am
File As: Health Care

Tuesday, June 16, 2009

CBO and the Kennedy-Dodd Bill 

The more that is learned about the emerging Democratic reform plans, the less likely they are to pass.

Last evening, the Congressional Budget Office (CBO) released its first cost-estimate for one of the emerging Democratic bills — the Kennedy-Dodd bill that the Senate HELP Committee is planning to take up this week.

As Yuval Levin has already noted, CBO finds that the bill, in its incomplete draft form, would cost a lot — more than $1 trillion — and cover a relatively small portion of the uninsured (about one-third).

CBO director Doug Elmendorf notes in his cover letter that the bill they scored did not include the planned expansion of Medicaid to all persons with incomes below 150 percent of the poverty line. That provision would decrease the uninsured rate, but also add hundreds of billions more to the total budgetary cost.

The CBO cost estimate also makes it clear that the president’s repeated statement that Americans will get to keep the health insurance they have today is simply not true. CBO projects that some 15 million people would get pushed out of their job-based plans and into the so-called “gateways” run by the states. That number will go much higher when the bill includes the promised “government option.”

CBO assumed that the bill would have a somewhat effective “individual mandate,” which penalizes people when they don’t sign up for coverage. They expect the government would collect about $2 billion over ten years from those who don’t buy government-approved health insurance.

posted by James C. Capretta | 8:17 am
File As: Health Care

Thursday, June 11, 2009

Obamacare is Getting Less Inevitable by the Day 

The administration and Democrats in Congress have been trying to cultivate the impression in the media that passage of an Obama-style, sweeping health-care reform bill is all but inevitable — the only questions are about details and when.

But Obamacare was never inevitable, and it is getting less so by the day.

The reason is simple: There is no coherent and credible plan to pay for it. Most observers expect the legislation will cost somewhere between $1.0 trillion and $1.5 trillion over ten years.

This week we got a glimpse into the challenge the Democrats are now facing. The staff director of Joint Tax Committee sent the letter linked below to Finance Committee Chairman Max Baucus outlining a few potential ways to raise taxes in the health-care bill. For weeks, Senator Baucus has been letting everyone know that he believes an important “pay-for” is capping the amount of premiums an employer can pay for a worker on a tax-free basis. JCT’s letter to Senator Baucus specified two options for doing so that are noteworthy. The first would set a cap at the actuarial value of the standard Blue Cross/Blue Shield option offered to federal employees. JCT estimates that this option would increase federal revenue by $418.5 billion over ten years. The second option would set the cap at the same level as the first but apply it only to households with higher incomes ($100,000 for single filers and $200,000 for couples). This option would only raise $161.9 billion over ten years — which means the cap which would apply regardless of income would increase taxes on middle and lower income families by $260 billion over ten years.

The Democrats are thus faced with an impossible choice. They can either impose a large new tax on the middle-class — thus breaking the president’s campaign pledge to only target the rich and angering their union allies. Or they can apply the cap just to upper income households — and fall far short of the revenue necessary to pay for their expensive new entitlement.

The administration may be hoping they can avoid endorsing any cap on employer-paid premiums by upping the ante in Medicare cuts. But that will be no picnic either. The president’s budget called for about $300 billion in Medicare savings over ten years. Now they are talking about perhaps $500 to $600 billion. But cuts of that magnitude will generate intense opposition from doctors, hospitals, nursing homes, insurers, and others — and rightfully so. Arbitrary price cutting drives willing suppliers out of the marketplace, which is what causes waiting lists and rationing.

Reality is starting to sink in. It’s one thing to promise massive new subsidies for insurance. It is quite another to put together a realistic plan to pay for the program, especially on a partisan basis. There is simply no politically easy or safe way to raise $1.5 trillion for a government takeover of American health care. Rank-and-file Democrats are starting to find that out.

posted by James C. Capretta | 10:22 pm
File As: Health Care

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