President Obama on Health Care: Promises Made, Promises Kept?

Speaking to House Republicans today in Baltimore, President Obama admitted that he had not adhered to his campaign promises to bring transparency to health care negotiations: “There were…a series of meetings taking place all over the Capitol trying to figure out how to get the thing together, that was a messy process.  And I take responsibility for not having structured it in a way where it was all taking place in one place that could be filmed.”  Of course, just last night Politico reported that the President remains in “close consultation” with Democrats in Congress as they attempt to find a way “to get the whole thing [back] together” after Scott Brown’s election victory.  So the President publicly accepted responsibility, both to Diane Sawyer earlier this week and Republicans today, for a lack of transparency in the health care process – but have the “close consultation[s]” the President’s been having in recent days to find the votes necessary to resurrect his government takeover of health care been transparent to the American people?

The President also noted in his comments today that “We said from the start that – that it was going to be important for us to be consistent in saying to people if you can have your – if you want to keep the health insurance you’ve got, you can keep it; that you’re not going to have anybody getting in between you and your doctor in your decision-making.  And I think that some of the provisions that got snuck in there might have violated that pledge.”

The President’s quote raises interesting questions about which provisions that “snuck in” to the bills violated his campaign pledges.  Is it the cuts to Medicare Advantage that would reduce that popular program’s enrollment by as many as 6 million seniors?  Is it the new and onerous regulatory standards for individual and employer health coverage that could cause millions more Americans to lose their current plan?  Is it the plan – strongly endorsed by the Administration –to allow a board of unelected bureaucrats to re-write health care regulations?  Or is it all of the above policies that will break the President’s campaign promises?

Grassley-Enzi Letter to Jonathan Gruber on Transparency

As the Obama Administration admits that it needs to “open…things up more” with regard to transparency in the health care debate, Senators Grassley and Enzi sent a letter to Jonathan Gruber yesterday.  You may recall that earlier this month, various media outlets discovered that Dr. Gruber had previously failed to disclose the nearly $400,000 in contracts he had obtained from HHS.  Also of note, Dr. Gruber also currently serves on CBO’s Panel of Health Advisers, and was quoted in an October 19 Washington Post article as “praising the CBO…for making the best of ‘an unbelievably hard job’” in scoring health reform proposals.  The fact that a paid (but undisclosed) Administration consultant was publicly quoted supporting CBO’s scoring models at a time Congress was considering health care legislation raises further questions about non-transparency and conflicts-of-interest – which the letter goes into in further detail.

CBO and Democrats’ Fuzzy Health Care Math

As you may have seen, CBO released their updated January 2010 budgetary baseline, which can be found here.  Of particular note for health analysts is Appendix A, in which CBO revised its estimate for the total cost of the “stimulus” upward by $75 billion – from an estimated $787 billion (exclusive of interest costs) at the time of its February enactment to $862 billion today.  That’s a nearly 10% increase in estimated federal spending in just eleven short months, based on a few changes in economic assumptions.  The updates serve as a reminder that the long-term costs of the Democrats’ permanent new entitlements – currently estimated at a “mere” $2.5 trillion, based on the cost of the Senate health care bill when fully implemented – could be just as under-stated as Democrats’ claims of “deficit neutrality” are over-stated.

It’s also worth noting that Table D-1 (page 134) of the document confirms that for the first time last year, the Medicare Part A Trust Fund ran a $9 billion deficit, forcing the Treasury to begin the process of liquidating the bonds in the Trust Fund to meet Medicare’s funding obligations.  Both CBO and the Medicare actuaries have confirmed that the various Medicare savings proposals in the Democrat bills “cannot be simultaneously used to finance other federal outlays [i.e. new coverage expansions] and to extend the [Medicare] trust fund.”  Thus sustaining both Medicare and Democrats’ proposed new entitlements will involve massive new government borrowing – at a time when the CBO report confirms that China is about to become the largest holder of Treasury bonds, exceeding the government debt held by all American individuals combined.  Many may wonder: How is borrowing more money from China to finance new entitlements “reform?”

Obama vs. Obama on Transparency

In an interview with ABC’s Diane Sawyer yesterday, President Obama accepted some “responsibility” for the secretive process that led to back-room deals with labor unions, pharmaceutical companies, hospitals, and Sen. Ben Nelson (D-NE) in an attempt to buy support for Democrats’ government takeover of health care.  He noted that the “health care debate as it unfolded legitimately raised concerns…that we [i.e. the American people] just don’t know what’s going on.”  (A full transcript of the interview can be found here.)

But in response to the very next question, the President claimed that “I didn’t make a bunch of deals,” blaming the entire secretive process on Congress.  That statement might come as news to Billy Tauzin, CEO of the pharmaceutical industry’s trade organization, who told the New York Times back in August that “the Administration had approached him to negotiate…‘We were assured, “We need somebody to come in first.  If you come in first, you will have a rock-solid deal.”’”  How can the President square his belief that he “didn’t make a bunch of deals” with lobbyists who have been publicly bragging about their “rock-solid deals” with the Administration?

Even more to the point, the President has said “we have to move forward in a way that recaptures that sense of opening things up more.”  Given that statement, and the multiple news reports over the past several days indicating that Democrats are attempting to negotiate more “compromises” to jam their government takeover of health care back through the House, when can the public expect to see THOSE negotiations televised on C-SPAN?

Haiti Bill Hotline

Sens. Baucus and Grassley have placed legislation on the hotline that would provide a temporary increase in the spending cap for the Repatriation program, which reimburses States who provide assistance to American citizens returning to the US due to war or similar crises. The current law caps payments at $1 million annually; the bill would increase that cap to $25 million for fiscal year 2010 only, due to an influx of several thousand American citizens who have returned to the US from Haiti since that country’s earthquake. A similar, temporary increase in the Repatriation program spending cap (P.L. 109-250) was passed in 2006 in response to political unrest in Lebanon.

Additionally, the bill would provide an additional $60 million in funding for the Qualifying Individual (QI) program, which allows States to fund the Medicare Part B premiums of near-poor seniors not eligible for Medicaid. Several States have reported potential shortfalls in their QI programs this year, and the additional funding is intended to resolve those potential deficits. (The legislation does NOT extend the QI program, which is scheduled to expire at the end of this calendar year.) Both the Haiti funding and the additional QI funds would be financed through transfers from the Medicaid Improvement Fund.

The Senate is expected to consider the legislation by UC later today, and the House is expected to follow suit later in the week. If you have any questions, please let us know.

Reid Amendment (#3305) on Statutory PAYGO

Wanted to forward along this summary/analysis by my colleague Jon Lieber of the Reid PAYGO amendment (#3305) to the debt limit bill (H.J.Res. 45).  You will note below that the Reid amendment includes a five year PAYGO exemption (i.e. 2010-2014) for a “doc fix” to the Sustainable Growth Rate (SGR) mechanism.  However, the language on pages 25-26 also assumes that the five-year “fix” will NOT be taken into account for purposes of calculating the SGR targets in 2015 and beyond.  This “cliff” resembles provisions that have been included in SGR legislation over the past several years, resulting in a 21% cut in Medicare reimbursements effective March 1 of this year absent Congressional action.  According to the latest estimates from CBO, such provisions would result in cuts to Medicare physician payments of approximately 30% in 2015, with additional reductions likely thereafter.

 

Senator Reid filed cloture on this amendment this afternoon, along with the Reid substitute (#3299) and the underlying bill, H.J. Res. 45.

The amendment would establish a new statutory pay-as-you-go (PAYGO) regime that applies to changes to mandatory spending or revenues.  This legislation is similar to the PAYGO process that was in place from 1990 to 2002 (with important differences) and legislation that was proposed by the Administration last year, which passed the House as H.R. 2920 by a vote of 265-166 with 24 Republicans supporting it.

Summary

Under the Reid PAYGO process, the Office of Management and Budget (OMB) would be required to maintain a running tally and publish at the end of each session of Congress a “PAYGO scorecard” that reports the average annual cost of mandatory spending or tax legislation passed that session over a five year and ten year period.  If that scorecard showed higher deficits over either the average of the five year or ten year period, the Administration would be required to submit a sequester order to Congress that reduces the budgetary resources of direct spending programs by enough to offset that deficit.  This sequester would come from a reduction by a uniform percentage across non-exempt direct spending programs, determined by the Administration.  This sequester could be overruled by an up-or-down vote in the Senate and House if Congress chose to take up the sequester package, although no automatic process for Congressional consideration is provided for in the bill.

Exemptions from the PAYGO scorecard are provided for the following policies, allowing this legislation to become law without offsets:

A 5-year extension of Medicare’s Sustainable Growth Rate (the “doc fix”) with a cliff thereafter;

A 2-year extension of 2009 estate and gift tax law;

A 2-year extension of the patch for the Alternative Minimum Tax (AMT) in place in 2009; and

Permanent extension of 2001 and 2003 tax relief for single taxpayers earning less than $200,000 and married couples earning less than $250,000, including the lower rates, the larger child tax credit, lower rates on capital gains and dividends, marriage penalty relief, and education tax benefits, among other things.

Taking the scores for these policies in the President’s mid-Session Review as a rough guide, these exemptions would total more than $2 trillion, all of which would eventually be added to the deficit.

Exemptions from sequestration:

The Balanced Budget and Emergency Deficit Control Act (BBEDCA) of 1985 as amended by the Budget Enforcement Act (BEA) of 1990 contained dozens of exemptions, and these are continued in this legislation.  In addition, new exemptions are provided for new mandatory spending programs including SCHIP, Part D low income subsidies, and new refundable tax credits.  Other exempt programs include Social Security benefits, railroad retirement benefits, Veterans programs, low-income assistance programs, and net interest; a full list can be found in Section 11 of the text, specifically starting on page 43, and starting in Section 255 of the BBEDCANone of these programs could be touched by a sequestration order from the Administration.

Additional exemptions are provided for economic recovery programs, including the GSE preferred stock purchase agreements, the Office of Financial Stability, SIGTARP, and 7 new transportation programs that are subject to obligation limitations in appropriations bills; in all, over 100 mandatory programs are exempted from sequester.

Other provisions of note:

Emergency legislation would not count towards the PAYGO scorecard, and the emergency designation would be subject to a 60 vote point of order to waive such designation.

Net savings generated from the Community Living Assistance Services and Supports (CLASS) Act, should it be passed into law, would not count as savings for purposes of the PAYGO scorecard.  The CLASS Act raises government revenue through premium payments within the budget window but starts paying out benefits outside the budget window and was used as a pay-for in the stalled Reid health care bill.

The Congressional Budget Office is designated as the primary estimator of the effect of legislation for PAYGO purposes, to maintain the primacy of CBO and Congress’s role in the budget process.

Considerations

Proponents of statutory PAYGO argue that it is a useful budget enforcement tool that contributed to surpluses in the 1990s.

Opponents of statutory PAYGO argue that it exempts too many spending programs, is biased against tax relief, and that Congress repeatedly voted to overrule sequestrations throughout the 1990s, making it an ineffective tool for budget enforcement.

This PAYGO scorecard would only apply to legislation creating new mandatory spending or tax relief and would do nothing to control two major sources of projected deficit spending – discretionary spending growth and the already enacted growth of existing entitlements including Social Security and Medicare.  Such lopsided treatment builds in a bias against future tax relief, all of which, unlike spending increases, would have to be fully paid for.  The lack of the discretionary spending caps contained in the BEA greatly weakens this PAYGO legislation as an effort to curb out-of-control spending growth and deficits.

Although exemptions are provided for current policies that are generally supported by Republicans, the exemptions do not allow for full extensions of current law:

The exemptions for the AMT and the estate tax only last for two years, building in a tax increase when those exemptions expire at the end of 2011;

The exemption for estate tax provides for a 45 percent rate and $3.5 million exemption for two years and therefore does not go as far as the estate tax policy supported by a bipartisan majority of Senators during the debate over the FY10 budget resolution; and

The exemption for the ’01 and ’03 tax relief does not include the lower tax rates for small business owners who earn over $200/$250k, meaning that a pro-growth tax bill that included this provisions would require offsets under this process.

The averaging mechanism in this bill is a departure from the statutory PAYGO under the Budget Enforcement Act of 1990, which required sequestrations if the PAYGO scorecard showed deficits out of balance in any one year of the budget window; this averaging could favor legislation that had a large up-front cost but was paid for with future tax increases or spending cuts.  Since there is no guarantee that such a tax increase or spending cut would ever actually be enacted into law, this allows for a major budget gimmick that could undermine the entire PAYGO exercise.

It is unclear if statutory PAYGO would be more effective than the existing PAYGO rules of the House and Senate.  The Congressional Budget Office wrote in July that the exemptions for current law in the House bill (which was similar to the Reid amendment), if used in place of existing Congressional rules or a more stringent system, “could lead to larger future deficits.”

Because of the large number of sequestration exemptions provided, CBO also wrote that “any feasible sequestration would not generate enough reductions in spending to offset the costs of major new spending or revenue initiatives.”

The American People’s Message: Start Over on Health Care

In case you hadn’t seen, Gallup is out with a new survey today analyzing the health care debate in the wake of Sen.-elect Brown’s victory on Tuesday evening.  A clear majority (55%) believe Congress should “suspend work on the current health care bill” being worked on and consider more bipartisan solutions.  By contrast, only 39% want Congress to continue working to pass the existing legislation.  A definitive 56-37% majority of independents – a demographic group critical to the Brown victory – support starting over, as do more than one quarter (26%) of Democrats.

Likewise, only 32% believe passage of health care reform should be Congress’ “top priority;” a strong majority believe that Congress should address other problems first (46%) or do not view health care as a major legislative priority (16%).  With unemployment remaining at 10%, and more than 2.7 million jobs lost just since President Obama signed the $787 billion “stimulus” bill, many may view bringing jobs back into the economy as a larger priority than passing tax increases to fund massive entitlement expansions.

In Massachusetts and across the nation, the American people have spoken, calling on Democrats to abandon their government takeover of health care.  The question remains: Will Democrats heed the people’s call?

Doc Fix Update

As a follow up to the e-mail of last week regarding the status of the Medicare “doc fix,” you may have seen a letter the AMA and AARP sent to Leader Reid and Speaker Pelosi today calling for permanent repeal of the Sustainable Growth Rate (SGR) formula.  To that end, Sen. Reid has placed the House-passed SGR bill (H.R. 3961) on the Senate calendar.  These efforts come in advance of the expiration of the two-month SGR “patch” included in last year’s Defense appropriations bill (P.L. 111-118); the patch expires February 28, triggering cuts of over 21 percent in Medicare physician payment levels absent further action.

As background, the House-passed bill would eliminate any potential future “cuts” by permanently replacing the SGR formula with two separate formulae for physician spending – primary care and preventive services would grow at a rate totaling GDP growth plus 2 percent, and all other services would grow at a rate totaling GDP growth plus 1 percent. (By comparison, the Stabenow bill (S. 1776) the Senate considered in October would freeze the SGR for ten years, at which point the SGR’s payment cuts would return.)  This new spending would NOT be offset; CBO has estimated the cost of H.R. 3961 at nearly $210 billion, and further estimates the bill would raise seniors’ Medicare Part B premiums by nearly $50 billion over ten years.  H.R. 3961 also includes House-passed PAYGO language (H.R. 2920), that was added during the engrossment process on the House floor.

The Legislative Bulletin from the House Republican Conference summarizing the legislation, and offering potential concerns with this new deficit spending, can be found here.  We will have more information as it becomes available.

Did Democrats’ Backroom Deals Help Cost Them a Senate Seat?

In the wake of Scott Brown’s historic election victory last night, even some Democrats are admitting as much.  Former special counsel to President Clinton Lanny Davis, writing in this morning’s Wall Street Journal, notes that “We Democrats had to explain to Massachusetts voters and other Americans why non-Nebraskans and nonunion members have to pay more taxes, while Nebraskans and union members get to pay less.  Those two deals seem to have alienated most people across the political spectrum.  That’s not easy.”

The voters of Massachusetts agreed.  Interviewed by the New York Times in North Andover, 73-year-old Marlene Connolly said she voted Republican for the first time in her life, because “’I’m just devastated by what Obama’s doing.  I don’t think he cares enough about anything other than his own personal agenda or this foolish health care bill.’”  The Times correspondent noted that “most upsetting to her was the proposed deal made for unions recently on the excise [aka “Cadillac”] tax.  ‘My daughter and her husband work for companies that are not unionized and they would get slammed’” so that union members could get special favors.

In a leaked memo yesterday, one of Martha Coakley’s advisors noted that her polling lead “dropped significantly after the Senate passed health care reform,” because “polling showed significant concerns with the actions of Senator [Ben] Nelson to hold out for a better deal.  Senator Nelson’s actions specifically hurt Coakley…”  And the polling surge that brought Scott Brown to the lead – and eventual victory – in the Senate race occurred over the weekend, just a few days after the backroom deal was announced with union bosses to modify the “Cadillac tax” solely for their members.

Massachusetts has the highest health insurance premiums in the country – just under $14,000 for a family, and nearly $1,500 more than the national average – meaning a disproportionate share of Massachusetts residents would likely be hit by the tax, except for the select few in a politically favored union constituency.  The evidence therefore suggests that Massachusetts voters thought this latest backroom deal with labor bosses was, like the rest of Democrats’ government takeover of health care, a raw deal for them.

Democrats’ Latest Backroom Deal: Give Unions Cash to Pass a Health Care Clunker

Press reports indicate that Democrats, once again acting behind closed doors, have struck their latest “sweetheart deal” needed to pass a government takeover of health care. Among other proposed changes, Democrats would exempt union members from the new “Cadillac” tax on certain insurance policies under Senate Majority Leader Reid’s bill (H.R. 3590)—as a way to “blunt [unions’] protest against the health reform plan.”[i] If enacted, the proposals being considered would impose substantial new taxes on Americans across the income spectrum—so a politically favored constituency can receive special benefits:

  • As Democrats themselves have admitted, this backroom deal would impose higher taxes on middle-class families who are non-union members—all so labor bosses would receive a temporary reprieve on new taxes for their members. Many may oppose this strategy of giving special favors to politically powerful Democrat constituencies—an attempt to divide and conquer the American people in order to enact a government takeover of health care.[ii]
  • This latest union “deal” follows on the heels of other kickbacks included in the bills to protect unions—a retiree reinsurance trust fund, and a special provision modifying the Reid bill’s employer mandate to target the construction industry, inserted at the behest of union leaders.
  • Press reports indicate the approximately $60 billion in changes to the “Cadillac tax” will be paid for by a further unprecedented expansion of the Medicare payroll tax to include non-wage income like dividends and capital gains.
  • The higher taxes on capital formation needed to fund this sweetheart arrangement could force firms to lower wages, delay hiring, or even lay people off.[iii] As a result, union members may keep their current plan for a while longer, but lose their job—all thanks to Democrats’ latest backroom deal.
  • Proponents of the tax increase on insurance companies have publicly admitted that the “Cadillac tax” would raise taxes on middle class families. Thus the underlying “Cadillac tax” proposal would break two of then-Senator Obama’s central campaign promises: not to tax individuals’ health benefits, and not to raise taxes on individuals with incomes under $250,000[iv]—all of whom would be required to purchase health insurance under the Democrat plans.
  • The inflation measure for the “Cadillac tax” threshold would remain linked to the Consumer Price Index plus one percentage point, as in the underlying Reid bill, meaning that the tax would hit most Americans—including union members—over time.

Press reports also suggest that the “Cadillac tax” would be modified in several other ways:

  • Union members—as well as all state and local employees—would be exempt from the tax for its first five years, until 2018;
  • The threshold level for the tax would be raised from $8,500 for an individual policy and $23,000 for a family policy in 2013 to $8,900 and $24,000, respectively;
  • The cost of supplemental dental and vision coverage would be excluded from the tax threshold amounts beginning in 2015;
  • Thresholds may be increased further—by a formula that has not been publicly disclosed—to take into account age and gender, a provision that would benefit union plans with high percentages of older workers; and
  • The thresholds may also be increased further if health costs rise faster than expected—a provision which some may view as a tacit admission of the criticism of Tom Daschle and others that the bill’s cost containment provisions would be of “minimal value.”[v]

However, the gist of the latest kickback remains the same: Americans at large suffer so a politically connected constituency may benefit. Thus many may oppose Democrats’ latest secret deal as indicative of the larger problems with their government takeover of health care—lack of transparency, backroom deals, higher taxes, and crushing new burdens on the middle class.

 

[i] Politico, “White House Scores Key Labor Deal,” January 15, 2010, http://dyn.politico.com/printstory.cfm?uuid=2F7D2C55-18FE-70B2-A8E1A3057E02406E.

[ii] CongressDaily AM, “Unions Tentatively See a Deal Regarding Excise Tax,” January 15, 2010, http://www.nationaljournal.com/congressdaily/hca_20100113_9874.php

[iii] See for example the Heritage Foundation, “Economic Effects of Increasing the Tax Rates on Capital Gains and Dividends,” April 2008, and the Treasury Department, “A Dynamic Analysis of Permanent Extension of the President’s Tax Relief,” July 2006.

[iv] Barack Obama, campaign speech, Dover, N.H., September 12, 2008, http://www.youtube.com/watch?v=Q8erePM8V5U

[v] “Daschle Handicaps the Final Health Bill,” New York Times, Prescriptions blog, January 13, 2010, http://prescriptions.blogs.nytimes.com/2010/01/13/daschle-handicaps-the-final-health-bill/?scp=2&sq=daschle&st=cse