Obamacare’s Tax on Success

The Associated Press is out with a story this morning outlining just one of the ways in which Obamacare discourages work.  This article is in many respects a complement to last week’s AP story, which noted that millions of early retirees earning as much as $64,000 per year could receive free taxpayer-funded health insurance.  That’s because Obamacare’s formula for calculating Medicaid eligibility excludes Social Security benefits, so early retirees between the ages of 62 and 65 can earn tens of thousands of dollars in Social Security pensions and not have a dime of that money count as income.

That same definition of income also applies to insurance subsidies in Obamacare’s Exchanges – so early retirees who make most of their money from Social Security benefits would qualify for much richer subsidies than those who are still working, because the former would not qualify as income under the Obamacare rules.  The AP story notes one example in which an individual who continues to work full-time would pay 50 percent more for premiums than an individual working only part-time.

The reactions in the article themselves are illustrative:

  • One consultant noted that the formula means “If you get a job for 40 hours a week, you’re going to pay more for your health insurance than if you don’t get a job.”
  • The report also quoted Administration officials who “said the administration is concerned because the situation could create a perception that some people are getting a worse deal compared with their less-industrious peers.”

The problem is that it’s not a perception that people who work are getting a worse deal – it’s a fact.  And it’s not a new development either:

  • Speaker Pelosi celebrated the law precisely because people “can leave your work” and go “be creative and be a musician or whatever;”
  • The Obama Administration’s Solicitor General defended the controversial individual mandate in court by saying that individuals could avoid the mandate by choosing to be poor: “I guess one could say…someone doesn’t need to earn that much income;”
  • The Congressional Budget Office noted that the law will reduce the labor supply by 800,000 jobs, because “the phaseout of the subsidies as income rises will effectively increase marginal tax rates, which will also discourage work.”

Speaker Pelosi famously said we had to pass the bill to find out what’s in it.  Once again we find another way in which Obamacare discourages work, productivity, and innovation at a time of sluggish growth and record high unemployment.

Two GAO Reports Illustrate Obamacare’s Shortcomings

Over the past 24 hours, the Government Accountability Office released two separate reports illustrating the problems and shortcomings inherent in Obamacare.  The first report highlighted the Internal Revenue Service’s role in implementing the law; a chart on pages 57-62 highlights 47 separate Obamacare provisions the IRS is charged with implementing.  (Remember, under Obamacare, you can’t spell insurance without I-R-S…)  The report also noted that a reliable cost-estimate for all of IRS’ work implementing Obamacare does not exist.  This fact raises several questions:

  • How can the IRS implement the law properly if they don’t know how much it will cost to do so?
  • Why should IRS and other agencies within the Administration have access to a $1 billion implementation “slush fund” without first providing reliable independent estimates of the full cost of implementation?
  • Why did the Treasury Department spend taxpayer funds to send out millions of postcards highlighting the law’s “benefits” ahead of the November 2010 elections without first establishing an implementation budget?
  • Has anyone seen HHS release its own cost of Obamacare implementation?  At least the IRS included a detailed budget justification delineating all the employees (over 1,000) needed to implement the law.  HHS couldn’t even provide that much transparency.

Even as one GAO report raised questions about how IRS is spending taxpayers’ money on implementing Obamacare’s coverage expansions, another report illustrated how “having coverage does not ensure that a beneficiary can access physicians and needed services.”  Specifically, GAO’s survey of physicians (no, not a secret survey) found that children in Medicaid have LESS access to physicians than children covered with private insurance:

  • While nearly four in five (79%) of physicians are accepting ALL new children with private insurance, fewer than half (47%) of physicians are accepting all new children enrolled in Medicaid.
  • In at least one metric, the uninsured had BETTER access than Medicaid patients:  Doctors were MORE likely to be accepting all new uninsured children (55%) than to be accepting all new children enrolled in Medicaid (47%).
  • More than three times as many children with Medicaid (84%) had difficulty receiving access to specialist care when compared to children with private insurance (only 26%).

Taken together, the two GAO studies paint a grim picture – federal bureaucrats are spending significant amounts of money to implement massive coverage expansions, but those coverage expansions do not ensure patients will have access to care.  It’s another example of how the 2,700-page health care law fails to deliver.

Howard Dean Supports Dumping Workers in Obamacare Exchanges

In a debate on the health care law this afternoon, former Vermont Governor Howard Dean expressed support for the idea of employers dropping coverage, calling the recent findings from McKinsey that up to half of all employers could drop coverage “a good thing.”  (Makes you wonder why Democrats are sending McKinsey nasty letters.)  Dean went on:

The biggest thing we can do for small businesses is get them out of the healthcare business….If this bill does that, and all these small businesses dump their people into the exchanges, we will finally have broken the link between the employer and health insurance in this country.

In other words, employers are going to drop coverage in New Hampshire.  And they’re going to drop coverage in South Carolina and Oklahoma.  And they’re going to drop coverage in Arizona and North Dakota and New Mexico.  They’re going to drop coverage in California and Texas and New York.  And they’re going to drop coverage in South Dakota and Oregon and Washington and Michigan.  And the exploding federal subsidies on Obamacare won’t send anyone to the White House – they’ll send our nation to the poor house.

Peter Orszag Admits Obamacare’s Failures, Says Law “Could Become Unsustainable”

Writing in a Foreign Affairs piece published last week, former CBO Director and Obama Administration Office of Management and Budget head Peter Orszag, although generally supportive of the health care law, included some interesting comments about its shortcomings. Among the more interesting tidbits is this paragraph regarding the ability of the law to control premiums and costs:

Barack Obama’s presidential campaign had promised massive cost savings from reform, including $2,500 a year per family. But such savings were never going to be confirmed by the CBO under any scenario. And since the House bill was relatively weak on cost containment anyway but was the first version to receive a public CBO analysis, the contrast between Obama’s campaign promises and the CBO’s forecast proved something of a shock to the public. [Emphasis mine.]

For those of you keeping score at home, the Obama Administration’s progress on achieving its $2,500 promised premium reduction is illustrated graphically below. Of course, Dr. Orszag would say that the law will lower costs, and therefore premiums, over time. But why should we believe Orszag when he says premiums might fall in the future, when Orszag himself admits that the President’s promise of lower premiums over his first term was largely a fantasy?

The article also includes other interesting claims about the law’s shortcomings – including the potential for “unsustainable” new spending:

  • “The biggest substantive shortcoming of the legislation involves tort reform” – or specifically the lack of it: “By failing to move forcefully” on tort reform, “the health reform act missed a major opportunity.”
  • While Orszag doubts that employers will drop health coverage en masse, he envisions a scenario whose fiscal effects would be almost as harmful: “they could start dropping high-risk workers by designing health plans that encourage these employees to purchase insurance on the exchanges. This is a legitimate concern. If employers altered their plans, this could create a spiral effect, in which those employees buying insurance on the exchanges would be disproportionately high-risk patients, raising premiums and defeating the purpose of risk sharing. The cost to the federal government of subsidizing coverage in the exchanges, in turn, could become unsustainable.”
  • “The health legislation, if anything, will exacerbate” current consolidation within the hospital industry “by inducing a new round of mergers among clinics, hospitals, and practices.” Orszag’s article admits the possibility that the programs included in the law could end up quashing rather than enhancing competition – which will only raise cost levels rather than lowering them.

As a reminder, Dr. Orszag will be testifying before the Finance Committee on Thursday morning. It will be interesting to see how he squares his message of deficit reduction with his observations that Obamacare’s perverse incentives could cause the creation of an unsustainable new entitlement.

More on Employers Dropping Coverage

Yet another consulting firm has released a survey regarding employers dropping coverage.  In this case, Towers Watson’s annual survey of retiree health coverage found that nearly three in five employers who offer coverage to retirees under age 65 are assessing new alternatives in light of the law.  Nearly nine in ten (87%) of employers responded that the new insurance options available under the law are influencing their strategy for offering benefits to retirees.  Last week’s Associated Press story about how early retirees making as much as $64,000 can receive “nearly free” health care courtesy of federal taxpayers will only further encourage these firms to drop coverage for their former workers.

Meanwhile, Bloomberg Government ran a story Friday about how “employers may prefer paying fines” to offering coverage.  The article indicated that “business groups are dubious” of economic models claiming firms will not drop coverage, “and say the more negative findings” of McKinsey’s health survey “provide a better indication” of employer responses.  Among the reactions in the piece:

  • The National Retail Federation said it is “not bullish on the future of health care coverage in the private sector;”
  • A representative of the Employee Benefit Research Institute said that “even if companies don’t drop their health plans entirely, ‘a significant number’ are looking at alternative arrangements” – which could involve reorganizing their firms so that low-wage workers receive government subsidies in Exchanges, while keeping employer-provided insurance for high-income workers; and
  • A representative from America’s Health Insurance Plans noted that “almost all employers are taking a look at their health care strategy…many will keep their options open, and if their competition drops, they will too.”

A June Gallup poll found nearly 10 million adults have lost employer-based coverage since President Obama was elected President.  These latest surveys once again confirm that, thanks to Democrats’ unpopular health care law, millions more Americans are about to follow suit.

The Facts about IPAB’s Road to Rationing

Secretary Sebelius has an op-ed in Politico this morning regarding Obamacare’s Independent Payment Advisory Board, a 15 member board that will recommend ways to reduce Medicare spending.  Several specific assertions in the article merit comment and rebuttal:

  • The Secretary notes that the board will be “made up of 15 health experts,” including “economists.”  This admission – coupled with the statutory requirement that a majority of IPAB members NOT be practicing medical providers – effectively means that many of the members of the board will be proverbial bean-counters, focusing on bottom-line ways to contain costs rather than ways to improve care.
  • The Secretary states that “contrary to critics’ contentions, the board’s work will be transparent, independent, and accountable to Congress and the President.”  That’s an interesting assertion, seeing as how Section 3403 of the statute (which established IPAB) includes NO requirement for public comment prior to IPAB issuing its recommendations.  Specifically, 42 USC 1395kkk(i)(1), as created by the law, indicates that IPAB “may hold such hearings…take such testimony, and receive such evidence as the Board considers advisable.”  The statutory language provides about as firm a commitment to transparency as the President’s promise to televise all health care negotiations on C-SPAN.
  • The Secretary notes that IPAB’s “recommendations must improve care and help control costs.”  In other words, if a treatment, method, or process would save or extend a million lives, but cost Medicare a million dollars, the IPAB is prohibited from recommending that particular therapy.  How will this constraint help patients?
  • The Secretary claims that “the claims that the board will ration care are simply false.”  But the Medicare actuary – and others – have noted that the kind of payment reductions contemplated by IPAB amount to de facto rationing by reducing access to care.  The actuary has stated that the payment reductions in the law could “jeopardize[e] access to care for beneficiaries,” and that the IPAB reductions in particular would be “difficult to achieve in practice,” because of the access-related harm to seniors that would result.
  • The Secretary alleges that the health care law “extended the solvency of the Medicare Trust Fund.”  That statement lies in direct contrast to President Obama himself, who in an interview with Fox News last year admitted that “You can’t say that you are saving on Medicare and then spending the money twice” – once to extend Medicare’s solvency, and a second time to fund new entitlements for other Americans.
  • The Secretary alleges that “economists and the Congressional Budget Office believe this approach [i.e., IPAB] will work.”  On the latter point, the Secretary is making a demonstrably false statement.  Just this Wednesday, the CBO’s latest version of the long-term budget outlook EXCLUDED savings from the IPAB in calculating its alternative fiscal scenario, because it believes the IPAB payment reductions will be “difficult to sustain.”

Democrats and the Administration continue to assert that the IPAB approach will help, not harm, patients.  If that’s the case:

  • Why did the statute not require IPAB to take comments from the public before making its recommendations?  Just last month the Administration proposed requiring state Medicaid programs to obtain public comments before reducing provider reimbursement levels.  Why is the Obama Administration imposing public comment requirements on state Medicaid programs, but not imposing a similar requirement on its controversial IPAB?
  • Why is the IPAB exempt from administrative and judicial review?  If no patients will be harmed by IPAB’s recommendations, then why are Medicare beneficiaries prohibited from taking legal action against it?
  • Will Secretary Sebelius commit to following IPAB’s recommendations herself?  Or will Democrats and others who claim they support “experts” making health care choices use their own resources to buy themselves out of a rationing regime if IPAB restricts access to services and treatments they need?

Democrats’ Brickbats Towards McKinsey

The Wall Street Journal has a great editorial this morning about the vilification campaign against consultants at McKinsey – complete with letters asking for the names of its biggest clients (what exactly do Democrats intend to do with that list…?).  McKinsey’s “sin” in this case was daring to speak a politically inconvenient truth – that employers may well drop coverage for their workers in 2014 because of Obamacare’s perverse incentives for them to do so.

Democrats claimed vindication because McKinsey rightly claimed their survey was a study of employers and not an economic analysis.  The Administration’s supposed logic behind that claim?  “An analysis of business attitudes in the real world is less credible than CBO’s macroeconomic models that depend on undisclosed assumptions.  These are the same models that claim the stimulus ‘created or saved’ millions of jobs.”  (Incidentally, if Democrats are interested in transparency – rather than just intimidating people with whom they disagree – why aren’t they asking for CBO to make public the “undisclosed assumptions” in its model?)

But consider this quote: “It appears that the new law will make it beneficial for many employers to drop their health insurance coverage.  In 2014 and beyond, once federal money is available through the insurance Exchanges, switching from employer coverage to the Exchanges may benefit both employers and workers in a wide range of income levels.”  That quote comes not from McKinsey, but from the Tax Policy Center – hardly a conservative, and perhaps not even a moderate, think-tank.  Their analysis from last year confirmed the same findings as former CBO Director Doug Holtz-Eakin – that firms will gladly pay a $2,000 fine to shed health insurance obligations that can exceed $15,000 per year.

Just to emphasize, daring to point out employers will make economically rational decisions in response to perverse incentives from government has prompted a massive vilification campaign from the White House and Congressional Democrats.  At a time of anemic growth and record-high unemployment, it’s a sad commentary indeed on American economic policy.

Federal Health Care Spending Is a $425 TRILLION Problem

The release of CBO’s long-term budget outlook yesterday was accompanied by a supplemental series of spreadsheets that serve as the basis for the graphs in the report.  Among the interesting data points are estimates of total mandatory health care spending – including Medicare, Medicaid, SCHIP, and the insurance subsidies created in the health care law – under the alternative fiscal scenario.  This scenario assumes that Medicare physician payments are not reduced by nearly 30 percent next year under the sustainable growth rate mechanism, and that several savings provisions in the health care law that CBO believes will be “difficult to sustain for a long period” – such as the productivity adjustments for providers and IPAB spending reductions – are not fully implemented. (Unfortunately, CBO does NOT provide separate programmatic assumptions for Medicare and/or Medicaid spending under the alternative fiscal scenario, so it’s impossible to calculate these – or to calculate the long-term spending effects of the health care law in isolation from other provisions.)

The spending levels in the charts are expressed as a percentage of GDP.  However, CBO also includes yearly GDP estimates in calculating its long-range economic assumptions.  So it’s fairly simple to multiply estimated federal health care spending as a percentage of GDP by estimated GDP amounts in dollars and arrive at a dollar-figure estimate of federal health care spending for each year through 2085.

The results are below – and they’re shocking.  Between now and 2085, CBO projects that the federal government will spend $425,959,000,000,000 on health care programs.  That’s $425 TRILLION dollars.  And as CBO points out in its chart, those estimates are in today’s money.

Even in the shorter term, spending on health care entitlements will grow at astounding levels.  Between now and 2035, CBO projects that federal spending on health care will total $41.3 trillion.  By comparison, according to the International Monetary Fund, the combined gross domestic product of the world’s top ten economies in 2010 was $41.4 trillion.  So in other words, over the next generation, the United States will spend on its health care entitlements about as much as all the goods and services that the United States, China, Japan, Germany, France, the United Kingdom, Brazil, Italy, Canada, and India combined produced last year.

If ever any set of statistics could convince you that Washington doesn’t have a taxing problem, it has a spending problem, it’s this one.


Fiscal Year Medicare, Medicaid, CHIP, and Exchange Subsidies Real GDP (Fiscal Year, in Billions of 2011 dollars) Federal Health Spending (Billions of  2011 dollars)
2011 5.6 15,000 840
2012 5.4 15,500 837
2013 5.5 16,000 880
2014 5.8 16,500 957
2015 6.1 17,100 1,043
2016 6.3 17,700 1,115
2017 6.5 18,200 1,183
2018 6.6 18,600 1,228
2019 6.7 19,000 1,273
2020 6.9 19,500 1,346
2021 7.1 19,900 1,413
2022 7.4 20,400 1,510
2023 7.6 20,800 1,581
2024 7.8 21,200 1,654
2025 8.0 21,700 1,736
2026 8.3 22,100 1,834
2027 8.5 22,500 1,913
2028 8.7 23,000 2,001
2029 9.0 23,500 2,115
2030 9.2 24,000 2,208
2031 9.5 24,500 2,328
2032 9.7 25,000 2,425
2033 9.9 25,600 2,534
2034 10.1 26,100 2,636
2035 10.3 26,700 2,750
2036 10.6 27,300 2,894
2037 10.8 27,800 3,002
2038 11.0 28,400 3,124
2039 11.2 29,100 3,259
2040 11.4 29,700 3,386
2041 11.5 30,400 3,496
2042 11.7 31,100 3,639
2043 11.9 31,800 3,784
2044 12.1 32,500 3,933
2045 12.2 33,300 4,063
2046 12.4 34,000 4,216
2047 12.6 34,800 4,385
2048 12.7 35,500 4,509
2049 12.9 36,300 4,683
2050 13.0 37,100 4,823
2051 13.2 37,900 5,003
2052 13.4 38,700 5,186
2053 13.5 39,500 5,333
2054 13.7 40,400 5,535
2055 13.9 41,300 5,741
2056 14.0 42,200 5,908
2057 14.2 43,100 6,120
2058 14.4 44,000 6,336
2059 14.6 44,900 6,555
2060 14.8 45,900 6,793
2061 14.9 46,900 6,988
2062 15.1 48,000 7,248
2063 15.3 49,000 7,497
2064 15.5 50,100 7,766
2065 15.7 51,200 8,038
2066 15.9 52,300 8,316
2067 16.1 53,500 8,614
2068 16.3 54,700 8,916
2069 16.4 55,800 9,151
2070 16.6 57,100 9,479
2071 16.8 58,400 9,811
2072 17.0 59,700 10,149
2073 17.2 61,100 10,509
2074 17.4 62,500 10,875
2075 17.6 63,900 11,246
2076 17.8 65,400 11,641
2077 18.0 66,900 12,042
2078 18.1 68,300 12,362
2079 18.3 69,800 12,773
2080 18.5 71,300 13,191
2081 18.7 72,800 13,614
2082 18.8 74,400 13,987
2083 19.0 75,900 14,421
2084 19.2 77,600 14,899
2085 19.4 79,300 15,384

CBO Director on Obama Deficit Proposal: “We Don’t Estimate Speeches”

In case you weren’t watching a little bit ago, that was the verbal smackdown Congressional Budget Office Director Elmendorf gave to the President’s deficit reduction “plan” in responding to questions from House Budget Committee Chairman Ryan about whether or not CBO was able to estimate the budgetary framework put forward in April.  That characterization was similar to one put forward by the White House itself, which referred Chairman Ryan’s office to a news release for the “details” of the President’s “plan.”

Other than the “Road to Rationing” included in Obamacare, which features a board of unelected bureaucrats empowered to control Medicare spending, the President has yet to put forward a proposal to stop our entitlement crisis.  And despite President Clinton’s warning that Democrats need to have a Medicare plan because “you cannot have health care devour the economy,” Majority Leader Reid has said it would be “foolish” to pass a budget.

When will Democrats stop offering mere plaudits and speeches and start putting forward tangible solutions to America’s fiscal crisis?

CBO’s Long-Term Budget Outlook and Obamacare

The Congressional Budget Office released its annual long-term budgetary outlook today, and it contains some striking statements in regards to the health care law.  Among the key points:

The Law Will Not Lower Costs:  The report notes that in calculating its long-term health spending projections, CBO is “using the same growth rates that would have been applied in the absence of the legislation,” which reflect the fact that CBO “does not have an analytic basis for projecting the effects of the recently enacted legislation on the growth rate of federal health care spending over the very long term.” (Page 36)  These assertions are consistent with Director Elmendorf’s statements last year that “putting the federal budget on a sustainable path would almost certainly require a significant reduction in the growth of federal health spending relative to current law (including [last] year’s health legislation).”

The Law Includes Budgetary Gimmicks:  CBO’s alternative fiscal scenario assumes – just as it did last year – that the health care law’s productivity adjustments, the payment reductions imposed by the IPAB, and the slowdown in the growth of Exchange insurance subsidies would be “difficult to sustain over a long period” (pages 44-45).  In other words, Congress’ non-partisan budgetary scorekeeper believes that the major savings proposals in the health care law cannot—and will not—be sustained in the long-term.

Massive Tax Increases:  Pages 65-67 of the report quantify the large – and growing – effect of the law’s tax increases.  Table 6-2 notes that the tax increases in the health care law will increase revenues by 1.2% of GDP between now and 2035.  Based on the size of the economy in 2011 dollars, that amounts to a $180 billion annual tax increase thanks to the law.  More specifically, CBO estimates that “Cadillac tax” on high-cost health plans “would increase total revenues by more than 0.7 percent of GDP in 2035 and higher percentages thereafter.”  Moreover, CBO notes that a greater share of premiums will be subject to the “Cadillac tax” over time.  This year’s report does not make long-range estimates, but in last year’s report CBO projected the “Cadillac tax” alone would raise 3 percent of GDP in 2080.

Over and above the conclusions regarding the health care law, the report once again illustrates the need for comprehensive entitlement reform.  Under the alternative fiscal scenario, federal health care spending is projected to rise from 5.6% of GDP in 2011 to over 11% – more than one out of every ten dollars in the American economy – by 2035.  Medicare alone is projected to nearly double over the next 25 years, from 3.7% of GDP to almost 7 percent by 2035. (Note that unlike last year, this year’s report does NOT include projections out to 2080; last year’s report indicated that under the alternative fiscal scenario, federal health care spending would reach 18-19% of GDP by 2080, with Medicare alone comprising nearly one in seven dollars in the American economy.)  These trends are clearly unsustainable, and illustrate the need for fundamental reforms to solve America’s entitlement crisis.

Finally, a couple of other interesting tidbits.  First, Table 3-1 on page 42 confirms that from 1975-2007 and 1990-2007, excess cost growth in Medicare has exceeded that of Medicaid and all other health spending (including from private sources), raising doubts about Medicare’s ability to function as a leader in controlling health care costs.  Second, Box 1-1 on page 10 of the document estimates that between now and 2035, 64% of the growth in entitlement spending, and 48% of the growth in health care entitlement spending, will be driven by demographic factors associated with the retirement of the Baby Boomers and general aging of the American population.  The chart illustrates the importance of fundamental reforms to Medicare and Medicaid; even if health care costs were brought under control, entitlement programs face significant structural difficulties, as nearly half of the growth in entitlement spending over the next generation comes from demographics, NOT rising costs.