Five Ways Obamacare Could Bust the Budget

Last week this space examined all the things that must occur for Obamacare to follow through on its claim of (relatively meager) deficit reduction.  But in recent days there have been multiple developments that each provide ways under which the law’s costs could rise significantly, resulting in an increase in the federal budget deficit:

More Medicaid Enrollees:  A study in Health Affairs released last week found that the number of Medicaid enrollees under Obamacare could vary widely, from as few as 8.5 million to as many as 22.4 million – the latter number well above the official CBO estimate of 16 million.  Likewise, the study found that spending on the Medicaid expansion could range from $34 billion to $98 billion – another wide range of uncertainty.  Of particular note in the Health Affairs piece is the passage highlighting that CBO has not “released complete details on its methods, including some of the key parameters in the models” – such as their assumptions about what percentage of newly eligible individuals will enroll in Medicaid – “which makes it difficult to gauge their accuracy and precision.”

Higher Costs:  A recent report released in California noted that a Mercer study “estimated that the cost of [Obamacare insurance] subsidies might be roughly 30% higher than has been projected” by CBO.  This Mercer study found that the cost of a silver plan will range from between $441 and $486 per month ($5,292 to $5,832 per year) in 2014, CBO projected that an individual silver premium will cost only $5,200 in 2016 – two years later than the year examined in the Mercer studyIf in fact premiums are 30% higher than CBO estimates, that could significantly raise the more than $100 billion annually the federal government will be spending on insurance subsidies by 2017.

Sicker People Obtain Coverage:  The Institute of Medicine’s recent report on the essential health benefits cited two separate studies indicating that purchasers in the exchange are likely to be “relatively older, less educated, lower income” and “in worse health,” with a high percentage of individuals eligible for subsidies suffering from chronic conditions.  However, the CBO’s analysis of premiums assumed that “an influx of new enrollees into the non-group [insurance] market would yield an average premium per person in that market that is 7 percent to 10 percent lower.”  If the other two studies are right when it comes to Exchanges attracting sicker-than-average individuals, meaning CBO is wrong that Exchange populations will be healthier-than-average, that would also significantly increase the more than $100 billion annually the federal government will be spending on insurance subsidies by 2017.

An Ineffective Mandate:  Another insurance industry expert last week claimed that the law’s constitutionally dubious individual mandate would also prove ineffective, because the penalty for not obtaining coverage is low compared to the cost of insurance: “Would you ever feed the meter if feeding the meter costs more than the [parking] ticket?”  In many respects, these comments only reflect prior experience; data from multiple insurance companies in the only state with an individual insurance mandate show that many people are paying the tax associated with the mandate while healthy, only to obtain coverage and run up high health costs once becoming sick.  If large percentages of the population circumvent or undermine the mandate, insurance premiums will rise inexorably, placing more upward pressure for spending on Obamacare’s insurance subsidies.

Employers Dropping:  Last but certainly not least, this month saw the nation’s largest employer decide to drop coverage for many of its part-time workers.  If other firms follow suit for their part-time employees, and/or decide to pay a $2,000 penalty for their full-time employees rather than subsidizing a $15,000 policy, the cost of Obamacare’s insurance subsidies could skyrocket.

These are only some of the ways in which the law could prove to be a budget-buster.  And given this month’s CLASS Act debacle, during which $86 billion in supposed savings evaporated in an instant, who are Democrats to claim that any – or all – of these adverse effects will not occur in the coming years…?

Pelosi Advises Employers to “Emancipate” Themselves from Coverage

In an interview with CNBC’s Maria Bartiromo on Friday afternoon, former Speaker Nancy Pelosi was asked about the ominous headlines surrounding Obamacare – the law’s many waivers to union plans, the recent CLASS Act debacle, and the survey from McKinsey (among MANY others) indicating employers will drop insurance coverage.  Pelosi responded by saying those headlines reflect only one side of the story, and that “on the other side, the way we see it is an innovative prevention-oriented way for businesses to be emancipated from health care costs because they have a way out or whatever works for them.”  (Exchange is at about 7:00 of the video).

Last February, then-Speaker Pelosi promised that the law “will create 4 million jobs – 400,000 jobs almost immediately.”  Apparently the former Speaker believes businesses should create these jobs by “emancipating” nearly 170 million workers and their families from their existing employer-based coverage.  While that would reduce business’ health care expenses, it would NOT “emancipate” the federal budget, raising spending on Obamacare insurance subsidies, and thus the deficit, by trillions.

In that context, it’s particularly ironic that Speaker Pelosi’s interview with CNBC was focused on deficit reduction and the supercommittee recommendations – because her suggestion would not only “emancipate” individuals from the coverage they have and like now, it would also shackle the federal budget will trillions of dollars of obligations for decades to come.

Medicare Has an Obamacare Problem

The Washington Post this weekend published a story adopting talking points from the Bipartisan Policy Center nearly verbatim, to state that Medicare has a spending problem on pharmaceuticals.  The piece alleges that Medicare Part D spending on prescription drugs will rise much faster than Part A spending on hospital care or Part B spending on physician payments over the next ten years – “facts” which the BPC uses to argue for an expansion of Medicaid price controls to Medicare Part D.

However, this “analysis” cleverly ignores, and in several cases outright distorts, the effects of Obamacare on spending for all three parts of Medicare – because as it turns out, the 2700-page law didn’t help control Medicare spending, and actually made the Part D problem worse:

Medicare Physician Spending (Part B):  The BPC chart presumes that a scheduled 30 percent reduction in physician payments for 2012, and further reductions in future years, will take effect – which everyone knows will not happen.  Obamacare did not create this problem, but the law did put into place $500 billion in payment reductions that “will not enhance the ability of the government to pay for future Medicare benefits” – in other words, it missed an opportunity to solve it.

According to the Congressional Budget Office, leaving physician payment levels flat – giving doctors no payment increase at all for the next decade – would raise Medicare Part B spending by over 12% in 2021 when compared to the current Medicare baseline.  Providing physicians an update linked to medical inflation would raise Medicare Part B spending by nearly 17% in 2021 when compared to the current Medicare baseline – evaporating most of the supposed difference between Part B and Part D spending levels.

Medicare Hospital Spending (Part A):  Here, the unrealistically low levels of spending cited in the BPC chart WERE created by Obamacare.  The Medicare actuary has previously stated that these payment reductions could cause 15 percent of all Part A providers to become unprofitable by 2019 – and 40 percent by 2050.  Both the Medicare actuary and CBO agree that these payment reductions are unrealistically low, and will eventually have to be overridden.

Medicare Drug Spending (Part D):  In this case, Obamacare increased Part D spending, by filling in the “doughnut hole” in the prescription drug benefit for brand-name and generic drugs alike.  And in what should be a shock to no economist, if you subsidize something, people will buy more of itObamacare provides a new subsidy for brand-name drugs, which will have the effect of discouraging seniors from buying lower-cost generics instead.  The Congressional Budget Office noted that Obamacare will increase both federal spending and beneficiary premiums in Part D, because seniors will increase their prescription drug spending.

The Post quotes a BPC analyst as saying that Obamacare “did a fair amount to curb Part A and Part B costs over the next decade, but very little on Part D.”  As explained above, this is a highly misleading statement, in two respects.  First, Obamacare only “curbed costs” to the extent that it created new and unrealistic price controls that will eventually have to be overridden.  Second, and most importantly, Obamacare did NOT do “very little” to control Part D spending – it actually contributed to the problem, by encouraging seniors to buy more costly brand-name drugs.

It’s fundamentally misleading, but sadly typical, for liberals to have government manufacture a problem – in this case, raising federal spending by incentivizing people to buy more expensive pharmaceuticals – and then call for government to step in and “fix” the problem government itself created.  In other words, the real issue is not Medicare’s so-called “drug problem” – it’s the left’s hypocrisy problem.

Obamacare Hits the States

Several reports in the past week or so have illustrated the impact that the recession – along with Obamacare – are having on state Medicaid budgets nationwide.  To wit:

  1. A front-page article in Monday’s USA Today outlined how “a growing number of states are sharply limiting hospital stays under Medicaid to as few as 10 days a year to control” rising state spending on the program.  A related article noted a major reason for these developments: Obamacare “requires states to maintain Medicaid eligibility and enrollment standards until 2014,” when the coverage expansions under the law take effect.  So the only option states have is to reduce benefit levels or reimbursement amounts.
  2. The Los Angeles Times reported this morning about California’s newly approved 10% reimbursement reduction to many physicians and other Medicaid providers, which the state and federal government both admitted could have a significant impact on beneficiary access.  As noted above, California and other states have been forced to use the crude method of reimbursement adjustments to balance their budgets, because Washington will not grant states flexibility to make other changes in their Medicaid programs.
  3. The liberal Kaiser Family Foundation released its annual survey of state Medicaid programs yesterday.  The report again confirms that states are struggling through tough budget times, made more difficult by Obamacare’s strictures on Medicaid programs.  The report also notes that states are struggling with significant uncertainty surrounding the law itself:

States were asked to identify the biggest challenges for Medicaid in implementing health reform.  Most states identified multiple health care reform implementation challenges.  The most commonly listed challenges included: the fiscal impact of health care reform implementation, the tight implementation timelines, lack of clear federal guidance, limited staff and administrative resources to accomplish all of the required health care reform planning and implementation tasks such as streamlining eligibility processes, building an exchange and integrating Medicaid eligibility and enrollment processes with the exchange, as well as various systems and IT issues, and provider access issues.

In other words, Washington is harming states – both because it’s imposing new mandates on their Medicaid programs, and because it’s not providing clear and timely guidance on those mandates.

  1. An article in Health Affairs published this week provided new estimates of the cost of Obamacare’s Medicaid expansion under a variety of different scenarios.  The Harvard researchers found that the law’s Medicaid expansion could cost as much as $98 billion per year by 2019 – a significant portion of which will be borne by the states.

It’s worth recalling that at a time when states face budget deficits totaling a collective $175 billion, Obamacare is imposing new unfunded mandates of at least $118 billion.  All the developments above reinforce the belief that states cannot afford the Medicaid programs they have now – so why is Obamacare foisting yet more unfunded mandates on the back of broken state Medicaid systems?

“Thanks, Obamacare???” Law’s Popularity at an All-Time Low

In the same week in which activists launched a new “Thanks Obamacare” campaign, this month’s Kaiser Family Foundation health tracking poll explains one reason for the liberal PR re-launch – the 2,700 page law is even less popular than ever.  Among the results from the poll’s summary and toplines:

  • Overall favorability of the law stands at 34%, an all-time low;
  • The percentage of very favorable support stands at 12%, an all-time low;
  • The percentage of respondents who think they personally will be better off due to the law stands at a mere 18%, an all-time low;
  • The percentage of respondents who think the country as a whole will be better off due to the law stands at 28%, an all-time low;
  • Approval of the law among Democrats dropped by 13% in the last month to only 52%, an all-time low.

In other words, eighteen months after Senator Schumer and others claimed that “Now that the bill is enacted, it’s going to become more and more popular,” Obamacare suffered its worst month of polling ever.  It’s one more sign that the only bipartisan element of Obamacare has been the opposition to it.

Obamacare Costing Jobs for Hundreds — And Coverage for Thousands

The Des Moines Register reports that last week, Iowa-based insurer American Enterprise Group announced “it will exit the individual major medical insurance market, making it the 13th company to pull out of some portion of Iowa’s health insurance business since June 2010” – mere months after Obamacare passed.  As a result, the 35,000 individuals receiving coverage from American Enterprise’s individual insurance policies will now lose their current coverage.  For these individuals, the promise that “you will not have to change plans….nothing will change under the Obama plan – except that you will pay less” has once again proven hollow.

Just as important, the Register story highlighted the fact that American Enterprise’s exit from the individual market “means 110 employees will lose their jobs over the next three years – 40 in Des Moines and 70 in Omaha.”  It’s the most recent indication that yet another Obamacare promise – that the law “will create 4 million jobs – 400,000 jobs almost immediately” – has also fallen short.

Spreading the Wealth — But NOT to Families…

The Government Reform Committee released a report this morning in conjunction with their hearing on the distortionary incentives included in Obamacare.  The report also discusses a letter the Committee received from Congress’ non-partisan Joint Committee on Taxation analyzing the impact of Obamacare’s insurance subsidies.  The Joint Tax Committee concluded that under Obamacare, more than 7 million tax filers will have their entire income tax liability eliminated.  This development comes at a time when more than half of all households did not pay income taxes in 2009 – meaning Obamacare will only exacerbate trends that see a dwindling percentage of Americans funding the federal government through income tax payments.

The Joint Tax Committee also found that only 2 million of the 14 million filing units receiving Obamacare insurance subsidies will be joint filers, even though joint filers comprise about 40% of all tax returns.  That disparity is due to the marriage penalty included in Obamacare – the law bases subsidy amounts on the federal poverty level (FPL), but the FPL for two people is less than double that of a single person.  As a result, two individuals filing separately will have a lower income as a percentage of FPL than a married couple, making them more likely to obtain insurance subsidies (or to obtain a richer insurance subsidy).

President Obama has already talked about his desire to spread the wealth around – and on that count, Obamacare certainly succeeds, by ensuring millions more Americans will be excused from paying income taxes.  But there’s apparently a catch involved the President hasn’t advertised – thanks to Obamacare’s perverse incentives, much of the wealth may be spread from married couples who don’t qualify for subsidies into the hands of single people, or cohabiting couples, who do.

Liberals’ Latest Deficit Proposal: Reducing Access to Treatments

Earlier this week the Center for American Progress released a series of proposals it alleges could save Medicare “$100 billion or more in a decade.”  Among the ideas is a proposal to reduce access to costly treatments: “Medicare should not pay extra for technologies that are more expensive but no more effective than other available technologies.  If a treatment has a less costly alternative that produces the same clinical outcomes, Medicare should reimburse only the price of the less costly alternative.”  While such a proposal to grant Medicare “least costly alternative” authority – so named because Medicare would only pay an amount equal to the cheapest treatment option – may sound reasonable, a Congressional Budget Office document from 2008 highlighted potential drawbacks:

An argument against the option is that differences do exist between products in terms of how they are derived and produced….Those differences may warrant a clinical judgment on the part of physicians to prescribe one product rather than another.  The LCA policy could therefore impose a financial penalty on physicians who used a more costly alternative on the basis of their clinical judgment and expertise.

In other words, under the CAP proposal, each individual patient may respond differently to a particular treatment, but Medicare would impose a one-size-fits-all reimbursement policy that only pays an amount equal to the cheapest drug.  This proposal would likely have its biggest negative impacts on discrete sub-groups – potentially including racial and ethnic populations – that may respond differently to a particular drug or therapy than the majority of the population, but would have to pay more to find a treatment that worked for them.

It’s also worth noting that one of the co-authors of the CAP proposal is former Obama Administration official Zeke Emanuel.  Emanuel, of course, offered the infamous chart for prioritizing scarce medical resources in a journal article in which Emanuel admitted that his system “discriminates against older people….[However,] age, like income, is a ‘non-medical criterion’ inappropriate for allocation of medical resources.”

Given all this, some may find it a bit ironic that liberals are protesting proposed reductions in Medicare benefits as part of deficit reduction talks, because that’s exactly what CAP is proposing – a major reduction in Medicare beneficiaries’ access to treatments, based solely on cost, that could hurt vulnerable sub-groups hardest.

Another Way Obamacare Fails to Deliver

The Centers for Medicare and Medicaid Services announced today that Medicare Part B premiums would rise by $3.50 per month in 2012.  The Administration is trying to bill this announcement as evidence that Obamacare is working – but the reality is just the opposite.  First, candidate Obama promised to CUT premiums by an average of $2,500 per familyso ANY premium increase by definition means the law has failed to achieve its promised savings.

Part B premiums will rise by less than projected, however, which the Administration is claiming is due to Obamacare’s “investment” in prevention (read: jungle gyms).  That however is NOT what the non-partisan Medicare actuary concluded was responsible for the overall slowdown in the growth of health costs; here’s the first paragraph of the actuary’s most recent summary of national health expenditure projections:

In 2010, NHE is projected to have reached $2.6 trillion and grown 3.9 percent, down from 4.0 percent in 2009.  Estimated spending growth in 2010 was slow due to continuing declines in employment and private health insurance coverage associated with the recent recession.

In other words, spending growth was slower – and the Medicare premium hike lower – than projected NOT because Obamacare worked, but because the Obama “stimulus” didn’t.  That’s not exactly a success story the Administration should be trumpeting today.

What We Learned About the CLASS Act Today

This morning the Energy and Commerce Committee held a hearing regarding the demise of the CLASS Act Ponzi scheme.  Here’s just some of what we learned about the program, and the regulatory and actuarial debacle the Administration announced earlier this month:

Robust Debate on Scoring:  Assistant Secretary Glied attempted to defend the Administration’s decision to disregard the warnings of the many independent experts regarding CLASS’ solvency by saying that there is always a “robust debate” about modeling and scoring issues related to any piece of legislation.  If that’s the case, and there’s always a significant margin of error when it comes to fiscal scorekeeping, then why are Democrats so absolutely certain that the rest of the law will reduce the deficit…?

Administration Misinformation:  Assistant Secretary Greenlee announced that HHS has in fact closed the CLASS Act office, and ceased all CLASS-related implementation activities.  This admission comes one month after a White House official called a report that the CLASS office was closing “flat-out false” and a “false rumor.”

Wasteful Government Spending:  Assistant Secretary Greenlee testified that HHS spent $5 million in taxpayer dollars in 2010 and 2011 attempting to implement what even Democrats called a “Ponzi scheme of the first order.”  This is a more than 100% increase in spending over the last three months; in August, HHS said in a letter to Senators Thune and Shelby that HHS had spent only $2.2 million on CLASS.

Timing is Everything:  Assistant Secretary Greenlee admitted that CLASS actuary Bob Yee’s report was received on September 20 – and two days later, Yee announced in a now-famous e-mail that he would be leaving the Department.  The timing raises obvious questions about whether Yee was forced out due to his report, along with why the CLASS actuary left the Department at a time when all other CLASS employees were merely re-assigned.

Sebelius Asleep at the Switch?  Assistant Secretary Glied declined repeated requests to admit that Secretary Sebelius was ever informed about the inadequacies of her own Department’s modeling of CLASS.  If that’s the case, why did HHS officials publicly claim in October 2009 that HHS was “entirely persuaded that…financial solvency over the 75-year period can be maintained?”  Just as important, how can Secretary Sebelius implement a 2,700 page law if she was so detached from fundamental questions about whether or not an $86 billion program was actually solvent?

Hiding Internal Dissent:  Assistant Secretary Glied declined repeated requests to admit that the concerns of HHS staff about CLASS’ solvency were relayed to the public or to Congress prior to PPACA’s enactment.  In other words, no one told Congress prior to the bill’s passage that the career employees trying to implement CLASS thought the program was a “recipe for disaster.”

More Mandates Ahead?  In one exchange, Assistant Secretary Glied and former Chairman Waxman agreed that the reason several proposals to “fix” CLASS would have imposed pre-existing condition exclusions was because all Americans would not be covered – in other words, individuals could opt-out of CLASS.  The implicit “solution” to that problem would be another unprecedented – and constitutionally dubious – mandate requiring all Americans to participate in the program, a step which former Obama Administration Cabinet official Peter Orszag has endorsed.  Of course, Glied herself has written that a mandate would be largely “symbolic,” meaning that any impact of a mandate to participate in CLASS – or to buy health insurance – would be largely ineffective.

The hearing as a whole did not answer the fundamental questions about what the Administration knew, and when, regarding this massive debacle – particularly given that experts have been predicting the program’s failure for years.  Moreover, the frequent bureaucratic bungling regarding the CLASS Act outlined this morning raises broader questions about how HHS can effectively and efficiently implement the sprawling $2.6 trillion health care law.