Obama-hood health care reform becomes law (April 2010)

The Patient Protection and Affordable Care Act

What will it mean for America? The short answer is that the reforms will expand coverage dramatically, but at a heavy cost to the taxpayer. It will also do far too little to rein in the underlying drivers of America’s roaring health inflation. The vast majority of workers enjoy health insurance today through employer-provided schemes. Analysis by RAND, an independent think-tank, suggests that the employer-provided system will benefit from 6M new customers, and that costs for everyone in that system will rise 2% by 2020, in comparison with a scenario of no reform. And that rate of spending was already unsustainable at a time when the baby-boomers are starting to retire in large numbers.

The heart of the new reform is a restructuring of America’s flawed insurance market. Insurers now face tough new regulations forbidding such practices as “dropping” people who get sick, excluding people with “pre-existing conditions”, or putting lifetime caps on coverage. In return, though, the insurance industry will benefit from a big expansion of the country’s private insurance market. Heavily regulated exchanges, or insurance marketplaces, would be set up so that consumers not covered by employer-provided plans today could shop for ones more easily. Insurers would be required to offer plans that meet, yet to be determined, minimum government requirements for health coverage, and to price them transparently. Starting in 2014, all American citizens will be required to purchase an insurance policy or, if eligible, enroll in the Medicaid program.. The working poor, middle class, and 16 million uninsured earning up to $88,000 a year will receive subsidies on a sliding scale so that they can afford to buy coverage. Other costs addressed in the new law provides money for the states to help cover an expected 16 million new Medicaid enrollees. But that underestimates the full cost of this new reform. Elizabeth McGlynn of RAND points out that the huge numbers of newly insured, who now typically skip medical care or simply turn up, in a crisis, in emergency rooms, will soon consume a lot of routine medical services. She thinks this spending will expand the country’s health outlays even more than the direct costs incurred by the federal government.

Fine, but what about costs to the federal government and the overall health system? The Congressional Budget Office (CBO), a non-partisan agency, estimates that the new health reforms will cost the federal government some $940 billion over the next decade. Of that, roughly $400 billion will be spent by 2020 on the subsidies and about $525 billion on increased Medicaid spending. Costs of the plan are intended to be covered by a combination of increased taxes and cuts to the Medicare system. Of that, $525 billion in Medicare cuts and $610 billion in increased taxes derived from a Medicare payroll tax increase of 62% (for individuals making $200,000 or couples over $250,000), an excise tax on higher priced health insurance policies, and a 3.8% Medicare surtax on dividends and investment income (that does not go to Medicare)

The best, and most underappreciated, measure is an excise tax introduced on the most expensive (or “Cadillac”) insurance plans. Most economists like this idea, as it is likely to discourage excessive consumption of health care. Unfortunately, because of political pressure from labor unions and other groups, the Cadillac tax has been diluted, and delayed until 2018. Sceptics wonder if a future Congress will really implement this tax when the time comes. Mr Orszag is right that, if implemented, this provision will represent an important lever of cost control. But it’s a big “if”.

Unknown is the potential of newly created independent payment-advisory board on Medicare spending. Under the new law, this group is to make recommendations to Congress on how to reduce the rate of growth in spending per head in Medicare if that expenditure exceeds a target figure. Sceptics abound. Yes, the approach succeeded when used by the Pentagon to decide which military bases to shut down. But an earlier version of this idea, known as MedPAC, flopped because Congress simply ignored even worthy ideas that proved politically inconvenient. And the new law carves out a ten-year exemption for hospitals…appalling, when one considers that runaway costs and misaligned incentives in hospitals lie at the very heart of the cost problem.. It insulates tough decisions from politics, and it encourages ongoing reform rather than one-shot heroics. Critics say that is a lot of faith to put in a weakened body. Others fear this version of Britain N.I.C.E. committee, that is to be purely advisory, could evolve into a compulsory board (death panel) in the future to control costs unrestrained.

Mind your business

In just two days after the law was signed, three major companies; John Deere, Caterpillar and Valero Energy have stated they expect to take a total hit of $265 million per year to account for smaller tax deduction allowances in the future. With more than 3,500 companies currently getting tax breaks as an incentive to keep providing coverage, others are almost certain to announce similar cost increases in the weeks ahead as they sort out the impact of the change. The health care overhaul will cost U.S. companies billions and make them more likely to drop prescription drug coverage for retirees because of a change in how the government subsidizes those benefits

The health care law signed by President Barack Obama prohibits companies from writing off the subsidies starting in 2011, meaning they will no longer be able to deduct them from their taxable income. The White House defined the health care overhaul tax law change as the closing of a “loophole”. For the government, the tax changes are expected to raise roughly $4.5 billion over the next decade to help pay for the health overhaul. But some of the savings would be negated by more than 2 million retirees that could lose the prescription drug coverage provided by their former employers, leaving them little choice but to enroll in Medicare’s program, according to a study by the Moran Company, a health care consulting firm.

When Congress approved the Medicare prescription drug program in 2003, it included government incentives for employers to provide drug benefits to retirees so the public system wouldn’t be overwhelmed. Employers that provide prescription drug benefits for retirees can receive subsidies covering 28 percent of eligible costs; those subsidies totaled $3.7 billion in 2008. Under the 2003 law, companies could deduct the entire amount they spent on the drug benefits from their taxable income, including the government subsidy, an average of $665 per retiree. Without these tax deductions, American industrial companies that are struggling to compete globally against companies with much lower labor costs are particularly likely to eventually drop retiree coverage.

CBO shoots and scores

Health-reform supporters are relying heavily on a report from the Congressional Budget Office that estimates that the U.S. would observe a net reduction in federal deficits of $143 billion over the next 10 years. Well maybe. But the savings in the bill are highly theoretical, the taxes in the bill will be controversial, and the expansion of subsidies and other benefits are real hard facts. The Washington Post reported Friday: “As much as the 25-page ‘score’ of the legislation was treated as holy writ in Washington , Democrats eagerly flagged its conclusion that the package they aim to pass this weekend would cut the deficit by $138-billion over the coming decade, the reality is considerably messier. Budget experts generally have high praise for the work of CBO analysts, the non-ideological technocrats who crunch the numbers to estimate the fiscal impact of legislation. But their work is often more art than science, and although the forecasts that accompany legislation are always filled with uncertainty, this one contains considerably more than most.”

So how is the bill going to be paid? The CBO’s analysis suggests that the federal deficit will be slashed by well over a trillion dollars over the next two decades by this reform. That suggests this reform effort is fiscally prudent. Not so, howl Republicans. Paul Ryan, a Republican congressman, believes the reforms will prove a “fiscal Frankenstein” because the CBO’s rules on “scoring” bills have forced it to rely on several sleights of hand. You see, the CBO follows “unified budget” accounting, meaning that the CBO analyzes all spending and tax projections associated with a bill, whether or not they’re directly related to the policy issue at hand. For instance, within this health care bill is an amendment that allows the federal government to take over educational loan and grant services, which the CBO estimates will generate additional revenue. Even though the revenues are unrelated to “bending the cost curve,” they’re included in CBO final estimates. So instead of genuinely reducing health care costs, Democrats focused only on passing at best a deficit neutral bill, by whatever means necessary.

It appears that the CBO took a trip to Wonderland with congressional democrats in order to come up with “costs” and “savings” that bear such little resemblance to reality. It’s been known for many months that the true cost of the health care bill has been hidden by budgetary gimmicks. Most of the costs of the bill won’t kick in until 2013, while the bulk of the costs would be picked up in the next six years. CBO makes no apologies for basing their projections on what they acknowledge is based in fantasy. I guess that’s why they’re “non-partisan.” They cooperate in deceiving the American people with both parties. Also, it is bizarre that Democrats would cheer a savings to the government of $138 billion over a decade when the CBO estimated last August that the cumulative deficit over that same period is going to be $7.1 trillion. Not a very big bite of your debt pie, my friends.

Democrats made their best attempt at driving honest reporters like me crazy with its basket of budgetary gimmicks meant to cloud what spending costs and revenues will actually be. Consider the following gimmick. After Obama-hood care is implemented, the CBO expects employers to shift from compensating employees ‘in kind’ with health insurance packages to paying employees higher monetary wages, leading the CBO to believe the government will see a $53 billion bump in payroll tax revenues. Since this increase in revenues indirectly follows from the bill’s passage, the CBO’s accounting rules let it count these revenues as deficit-reducing revenues. But when workers make higher wages, they qualify for greater Social Security benefits when they retire, which are financed in part by payroll taxes.

But the increased revenue can only be spent once. Are increased payroll tax revenues used to decrease our deficit by paying off health related liabilities, or do they pay for increased Social Security benefits for which workers are entitled?

Under current law, firms and workers each pay a 1.45% Medicare tax on all income paid and earned, respectively. However, Democrats plan to increase revenues also by transforming the Medicare tax from a payroll tax into an income tax, by levying a similarly sized tax on unearned investment income for individuals and couples who make $200K and $250K or more a year, respectively. So without explicitly raising income taxes, Democrats will generate $183.6 billion in revenue over ten years, according to Joint Committee on Taxation estimates.

In addition to double-counting revenue and levying unorthodox taxes, Democrats propose tax hikes and spending reductions that we all know will never materialize. The so-called doctors’ fix would see physicians across the country receive less money…No, significantly less money, to take care of the elderly. (Based on the CBO assumptions, docs would look at a scheduled cut of 21% in 2010, then about 2% until 2019.) But as the CBO notes, “the sustainable growth rate mechanism governing Medicare’s payments to physicians has frequently been modified to avoid reductions in those payments, and legislation to do so again is currently under consideration by the Congress.” So although Congress probably won’t let the cuts occur, the CBO must count them anyway. Most everyone knows that this would lead to less doctors accepting Medicare/Medicaid patients. These same intelligent people know that the doctor fix will occur at a later date when few are paying attention, or projecting the long-term cost.

So Congress, historically, has had a hard time reducing physician compensation. In the late fall, for example, while health care was literally being debated in the Senate, the House of Representatives passed a bill reversing the Medicare cuts slated for 2010, with White House support. Congress has shown its unwillingness to touch Medicare. Why would that change any time soon? As CBO Director Douglas Elmendorf notes in his latest letter to Speaker Pelosi when contemplating longer-term forecasts, he pins them on: “A number of policies… that might be difficult to sustain over a long period of time.”

No, Congress in recent years has been particularly ineffective regarding the reigning in of Medicare costs, or any other costs for that matter. Congress reversed planned Medicare cuts in 1999. And 2004. And 2005. And 2006. And 2008. In fact, since 1997, when members of both parties agreed to automatic cuts if spending rose faster than population and economic growth, the program has been cut only once.

Finally, Democrats propose to levy an excise tax –– the “Cadillac” tax –– on high-premium plans beginning in … 2018, or at the back-end of the oft-cited ten-year period. Given that health economists of all political stripes agree that the health insurance shouldn’t be a tax-free fringe benefit, it’s important to note that this tax is fundamental to reducing inefficiently high levels of health insurance consumption. And while it’s possible that American popular opinion may never accommodate this component of sensible health policy, Democrats’ inability to stand up to opposition from labor unions, will severely limit the efficacy of their supposedly historic accomplishment

But under strict instructions from Democratic leaders, and over strong objections from Republicans, the CBO dutifully scored 2010 as the first year of the latest version of Obama-hood health care. If the clock were started in 2011, the first full year that the bill could possibly be in effect, the CBO says that the bill’s ten-year costs would be $1.2 trillion. And the actual number the CBO gives for Obama-hood health care over the decade 2014-2023, the first 10 years the entire plan is enacted, comes to more than $2 trillion over that period, and much more in the decades to come. And history has shown that the farther out the government tries to project health care costs, the more spectacularly inaccurate they become.

* In 1965, the House Ways and Means Committee estimated that the hospital insurance program of Medicare would cost $9 billion by 1990. The actual cost that year was $67 billion.

* Also in 1965, Government actuaries predicted that the cost of a day’s hospital stay by 1985 would be $155, the actual average cost that year was over $600.

* In 1967, the House Ways and Means Committee said the entire Medicare program would cost $12 billion in 1990. The actual cost in 1990 was $98 billion.

* In 1987, Congress projected that Medicaid would make special relief payments to hospitals of less than $1 billion in 1992. Actual cost: $17 billion.

The truth is, health care expense projections are notoriously difficult, if not impossible, to sensibly score. A paper from the minority of the Joint Economic Committee illustrates the point: whether you consider Medicare hospital insurance, Medicaid DSH funding, Massachusetts’ recent health reform, or British NHS costs, all have come in well over the early estimates.

Health care reform is turned out to be a big win for the President, and another huge expense for America. What will it mean for the rest of the world? Most likely: much more U.S. borrowing over the decade ahead, a lower dollar and higher U.S. interest rates. As is, Obama’s plans will raise America’s debt level to 90% of GDP by 2020. If CBO is right, Obama hood health care reform should not alter that big number very much. But what if CBO is wrong? Not nearly as wrong as its predecessors in the 1960s, but say 20% wrong? Well, in that case, by the year 2019, the U.S. will be headed toward a debt-GDP ratio closer to 100% than 90%. The last time the United States got that in debt was in 1945, at the end of the Second World War. But back then, the way out of debt was obvious: As soon as the war ended, wartime spending would drop. But in 2020, the only way forward for the United States will be the way found by Canada in the 1990s, when Canada’s federal debt neared 100%. That way is to allow the currency to depreciate (the Canadian dollar dropped from 85¢ U.S. in 1990 to an ultimate low of 63¢). Currency depreciation triggers an export boom, while suppressing imports. Government raises taxes and cuts services. The country earns more, consumes less and devotes more of national income to debt service.

To compensate for the money they’ll lose from the decline in the U.S. dollar, American lenders will demand an interest-rate premium. So (other things being equal) U.S. dollar-denominated interest rates can be expected to rise over the decade ahead. Higher rates will in turn further suppress domestic consumption. Everything adds up to a tough decade for Americans, their equivalent of Canada’s tough decade in the 1990s.

In Canada, tough economic times translated into political turbulence, as every region of the country became convinced it was being ripped off by the others. Brian Mulroney’s Progressive Conservative party imploded, Quebec held a second referendum on independence, Albertans talked of building “fire walls” against the rest of Confederation, Ontarians elected governments of three different parties in a single decade (something they had not done since the Depression) and the governing Liberals held onto power in Ottawa with under 40% of votes cast. The mood in the recession-wracked United States is already tense enough. What happens, though, when recovery comes, and incomes continue to be squeezed? When Americans return to work, only to discover that they are working to repay the nation’s debts, not to improve their own personal standard of living? Look for a tense decade ahead, made more tense still by the added costs of Barack Obama’s vast new health welfare program.

State of pain

Across the country, state officials are wading through the health care reform bill to understand just how their governments will be affected. Even with much still to be digested, it is clear the law may be as much of a burden to some state budgets as it is a boon to uninsured consumers. It seems the states with the largest uninsured populations, like Texas and California, might be considered by its backers the biggest winners to emerge from the law, because so many additional residents will have access to health insurance. But because those states are being required to significantly expand their Medicaid programs, they are precisely the ones that will face the biggest financial strains, in many cases magnified by existing budget shortfalls.

“The federal government has to account for states’ inability to sustain our current programs, much less expand,” said Kim Belshé, secretary of California’s Health and Human Services Agency.

In contrast, states like Massachusetts and Wisconsin, which already have extensive health care safety nets, do not expect to spend much more money, while still taking in billions in federal grants. In Massachusetts, which already has a form of universal coverage, the federal government will wind up taking over from the state a significantly larger share of the costs of Medicaid coverage for adults without children.

In addition, due to the coming mandate, those who are currently eligible but are not enrolled in Medicaid will emerge and want to join, potentially costing the states several hundred million dollars.

Supporters of the new law have argued that states will benefit from efforts to slow health care inflation and billions of dollars in new federal spending on subsidies for the uninsured and on an array of programs like community health centers. But even with more federal help, the challenge for states like Alabama, Arkansas and Texas that now offer only limited Medicaid coverage will be substantial. In these states, Medicaid has been mostly restricted to low-income families with children, pregnant women, certain people with disabilities and some elderly. The income cutoffs have also been extremely low. Beginning in 2014, however, anyone with an income of up to 133 percent of the federal poverty level, or $29,300 for families of four, will be eligible for coverage under Medicaid. For the first three years, the federal government will pick up the entire cost of these new enrollees, but the state share then gradually increases after that.

Because the circumstances of the states are so varied, the challenges facing them under the legislation diverge considerably. In Louisiana, there is particular concern about what the statute will mean for the future of the state’s charity hospital system, which has a long and storied history of treating the poor in the state. The state-run hospitals are heavily dependent on special federal payments to institutions that treat large numbers of the uninsured. The new health care legislation cuts those payments significantly, though some of that could be offset by in the increase in insured patients.

California’s fiscal woes have been particularly devastating and unrelenting. Besides the anticipated flood of new enrollees to Medicaid, an equally urgent concern there has to do with increases to the reimbursement rate for Medicaid providers, which are currently among the lowest in the country. Under the new health care legislation, states will have to raise the Medicaid rates paid to primary-care doctors to the same level the federal government sets under Medicare. For the first two years, the federal government will pay the difference. After that, it is left up to the states whether to continue paying the higher rates, which could mean an additional $500 million in costs a year for California, officials said. But California officials said they also believe they will have to significantly raise rates for other outpatient Medicaid providers to ensure an adequate supply of providers for all the newly insured. They believe this will cost an additional $2 billion a year.

Supporters of the health care overhaul argue that states will wind up getting a huge economic injection from the billions of dollars in new federal money pouring into Medicaid. States could also save money as hospitals that treat the uninsured become less needy, although many of these institutions are also heavily supported by localities.

Summary

It’s great that insurance companies can no longer denie a policy to those with pre-existing conditions. I’ve got to believe the cost of the policy will still be extreme, but at least you have the option, and because your no longer stuck -w- the policy you have, insurance companies will be forced to compete.

It’s fine that coverage can no longer be dropped due to an illness. It’s a rule or regulation all insurance companies should have had all along. To actually have a plan and having paid for it, just to have it dropped when you need it, is not health insurance at all.

Removal of the lifetime benefit cap is also a rule or regulation that should have been in place long ago. So long as you pay your premium, your coverage, regardless of past costs, should always be guaranteed. Although, I would expect frequent premium increases to costly policy holders.

I, for the life of me, do not understand why children need be allowed to stay on their parents insurance plans till they reach 26. While in school…fine, if disabled or special needs…O.K., what makes their age of any real relevance.

The mandate stating that all future insurance coverage must now cover the cost of preventative care is common sense, but there is no data, to date, that has proven that more preventative is a net overall savings.

The problem with the above corrections to the system is the cost. Anyone who tells you that mandating insurance companies to incur the additional cost of these measures, will somehow bring down the cost of health insurance, does not know their ass from a hole in the ground.

The individual mandate, when you really think about it, does seem like a bit of a ‘government over-reach’, but it is really the only way to keep uninsured people from jacking up our insurance premiums through cost-shifting. If only the government didn’t pay 60 cents on the dollar to health care providers, we could stop that cost-shifting as well. No… instead, we’ll outlaw one thing that cost-shifts our premiums up, and double the other. Mandates were also the only way health insurance companies could afford to do the pre-existing condition, dropping the sick, and lifetime cap mandates without a substantial premium increase. And even then, you can expect some premium increases. Starting in 2014, individual mandate penalty of $95 is imposed on those who do not purchase an insurance policy the government deems acceptable coverage. In 2015, it jumps to $325, and in 2016, it raises again to $695. The employer penalty for not providing insurance is $2000 per employee. Democrats claim they fought against the insurance companies, while at the same time, mandating you patronize them. Hey…, who gets the money anyway? You know…the fines imposed by the I.R.S. if individuals do not buy an insurance policy that meets government minimum guidelines…if businesses fail to offer an adequate insurance plan. Where does that money go? Into the government pot? To hospitals that give care to the uninsured? To insurance companies that pay the resulting cost-shift? Other than being a penalty, what does this fine actually fund. That money should be used to cover the cost issues that non-compliance causes…, right?

Families making up to $88,000/yr, will get subsidies to buy insurance, @ cost of $400B over ten years. Really?…Making that much?…How was this figure determined? Seems like too much help, for to many people. How much cheaper would the plan have been if it was limited to no more than 2.5 or 3 times poverty level?

It has been said that we, as Americans, spend 3 trillion dollars a year on health insurance. Proponents have stated that approx 10% of our 300 million, are not currently covered.. So 90% of us cost 30T over 10 years, and 10% of us cost only $1T. Funny how the newly insured will cost us less than a third as much per person. Even less when you consider that some, who do already have insurance, will receive a premium subsidy. I seriously doubt these cost projections will come true.

16 million of the newly covered will be added to the near bankrupt medicare program, of which the states, after a few years, will be held responsible for a good part of the additional costs. If you think the taxes in this bill are the only costs, wait till state governments develop deeper budget issues. More taxes are coming, but state costs are not on federal lawmakers radar screens, and are not accounted for in the debate.

I will eat my hat if Medicare cuts in excess of $500 Billion actually occur, and eat my shorts if union Cadillac insurance policy taxes ever come to pass. More likely, the taxes imposed and the medicare cuts needed to fund this program will be changed by later legislation that, instead of paying for it, just pushes deficits and debt ever higher.

There are so many factors in this health care reform, that nobody really knows how things are going to shake out. Cost increasing mandates on insurance companies -vs- participation mandates on the individual. Cost cutting medicare programs -vs- increased Medicaid enrollment. Employer participation mandate penalties -vs- employer benefit package adjustments. Tax increases -vs- insurance subsidies. It is kind of like a reshuffle of a deck of cards. The same cards are used, just dealt to different people. It is yet another form of Obama-hood income redistribution. Much like the failed economic recovery act, you can be sure that those who promise success, will claim your situation would be worse, had it not passed. Again, you can’t prove a negative. Could’ve, would’ve, should’ve. Guess we’ll never know. To bottom line the entire mess. Social safety net strengthened, at the detriment of economic freedom and individual liberty. Health care has now been elevated to a basic right of man, and could evolve further, into a black hole of bureaucratic red tape that chokes this country till it’s blue. It’s a bit ironic that the government controls of health in this country (Medicare, Medicaid, Obamacare) may actually cause the death of it.

Below is a list of problems with the current health care reforms

*Outrageous spending at a time when government should be cutting back to head off the future bankruptcy due to the exploding costs of past entitlement programs.

*Tax hikes during a weak economic recovery

*Expansion of government control of the private insurance and health care industries

*Special sweetheart deals traded for votes

*Closed door process

*Absence of the $250 billion doctor fix

*Abortion funding with tax dollars under the sole control of a pro-choice President

*Lack of Torte reforms / Anti-defensive medicine measures

*Lack of interstate insurance pool

*Crooked parliamentary legislative maneuvers

*Partisan backed / bi-partisan opposed

*Likely unintended consequences (yet to be determined)

If coverage is the new law’s strong point, cost control is its weakness. It understates the law’s cost by at least one-third. Premium will still rise, although possibly a little slower. The law does not improve people’s health, but will lead to a substantial overcrowding of the system and rationing of services until it adjusts to the surge.

All this points to the one thing certain about Obama-hood health care: that this is just another episode in the long saga of health reform. Indeed, by adding tens of millions of people to an unreformed and unsustainably expensive health system, this reform makes it all the more urgent to tackle the question of cost.

Still upsetting is their insistence to avoid the obvious health care reforms of greatest cost containment: accessibility to Interstate insurance pools, removing employer based insurance in favor of individual insurance (like car insurance), and the implementation of the essential Torte reforms required to bring an end to defensive medicine practices.

I guess what I’m saying is: We need a free market health care reform bill to address the costs of government programs and insurance premiums!

Some things never change.

-The Conservative

http://www.theconservativerant.com/