We Should Move Away from Employer-Based Insurance, But NOT Towards Single Payer

The left continues to seek ways to politically capitalize on the coronavirus crisis. Multiple proposals in the past several weeks would replace a potential decline in employer-provided health insurance with government-run care.

One analysis released earlier this month found the coronavirus pandemic could cause anywhere from 12 to 35 million Americans to lose their employer-provided coverage, as individuals lose jobs due to virus-related shutdowns. Of course, these coverage losses could remain temporary in some cases, as firms reopen and rehire furloughed workers.

But these lefties do have a point: The United States should move away from employer-provided health coverage. It just shouldn’t rely upon a government-run model to do so.

Biden: Let’s Expand an Insolvent Program

Days after his last remaining rival, Vermont Sen. Bernie Sanders, dropped out of the race for the Democratic presidential nomination, former vice president and presumptive nominee Joe Biden endorsed a plan to expand Medicare. Biden’s statement didn’t include details. Instead, he “directed [his] team to come up with a plan to lower the Medicare eligibility age to 60.”

One big problem with Biden’s proposed expansion: Medicare already faces an insolvency date of 2026, a date the current economic turmoil will almost certainly accelerate. He claimed that “any new federal cost associated with this option would be financed out of general revenues to protect the Medicare trust fund.” But Biden didn’t explain why he would choose to expand a program rapidly approaching insolvency as it is.

Another problem for Biden seems more political. As this space has previously noted, in 2017 and 2018, the former vice president and his wife received more than $13 million in book and speech revenue as profits from a corporation rather than wage income. By doing so, they avoided paying nearly $400,000 in payroll taxes that fund—you guessed it!—Medicare.

It doesn’t take a rocket scientist to ask the obvious question: If Biden loves Medicare so much that he wants to expand it, why didn’t he pay his Medicare taxes?

Medicare Extra

Other liberals have proposals that would expand the government’s role in health care still further. Examining the impact of coronavirus on coverage, and analyzing a movement away from employer-provided care, Ezra Klein endorsed the Medicare Extra plan as superior to Biden’s original health-care proposal for a so-called “public option.” Towards the end of his analysis, Klein makes crystal clear why he supports this approach:

[Medicare Extra] creates a system that, while not single-payer, is far more integrated than anything we have now: A public system with private options, rather than a private system with fractured public options.

Medicare Extra, originally developed by the Center for American Progress and introduced in legislative form as the Medicare for America Act by Rep. Rosa DeLauro (D-Conn.), goes beyond the Biden plan. Both would likely lead to a single-payer system, but Medicare Extra would do so much more quickly.

Biden’s original health care plan would create a government-run “option,” similar to Medicare, into which anyone could enroll. Individuals could use Obamacare subsidies (which Biden’s proposal would increase) to enroll in the government-run plan.

Notably, Biden’s proposal eliminates Obamacare’s subsidy “firewall,” in which anyone with an offer of “affordable” employer coverage does not qualify for subsidized exchange coverage. Removing this “firewall” will encourage a migration towards the exchanges, and the government-run plan.

By contrast, Medicare Extra would go three steps further in consolidating government-run care. First, it would combine existing government programs like Medicare and Medicaid into the new “Medicare Extra” rubric. Second, the legislation would automatically enroll people into Medicare Extra at birth, giving the government-run program an in-built bias, and a clear path towards building a coverage monopoly.

Third, Medicare Extra would not just allow individuals with an offer of employer-sponsored coverage to enroll in the Medicare Extra program, it would require the employer to “cash out” the dollar value of his contribution, and give those funds to the employee to fund that worker’s Medicare Extra plan.

The combination of this “cash out” requirement (not included in Biden’s proposal) and the other regulations on employer coverage included in Medicare Extra would result in a totally government-run system within a few short years. After all, if businesses have to pay the same amount to fund their employees’ coverage whether they maintain an employer plan or not, what incentive do they have to stay in the health insurance game?

Let Individuals Maintain Their Own Coverage

Both Biden’s proposals and Medicare Extra would consolidate additional power and authority within the government system—liberals’ ultimate objective. By contrast, the Trump administration has worked to give Americans access to options other than employer-provided insurance that individuals control, not the government.

Regulations finalized by the administration last year could in time revolutionize health insurance coverage. The rules allow for employers to provide tax-free contributions to employees through Health Reimbursement Arrangements, which workers can use to buy the health insurance plans they prefer. Best of all, employees will own these health plans, not the business, so they can take their coverage with them when they change jobs or retire.

It will of course take time for this transition to take root, as businesses learn more about Health Reimbursement Arrangements and workers obtain private insurance plans that they can buy, hold, and keep. But if allowed to flourish, this reform could remove Americans’ reliance on employers to provide health coverage, while preventing a further expansion of government meddling in our health-care system—both worthy objectives indeed.

This post was originally published at The Federalist.

Three Ways Pete Buttigieg Is No Moderate

In recent weeks, former South Bend Mayor Pete Buttigieg has enjoyed a boomlet in polls for the Democratic presidential nomination, helped in no small part by fawning press coverage. Politico and others have examined the candidate and his supposedly “moderate” message.

Rhetoric aside, however, the substance of Buttigieg’s policy plans seem anything but moderate. On multiple issues, Pete has embraced positions far to the left of anything Hillary Clinton dared endorse in her campaign four years ago, and which seem “moderate” only in comparison to the socialist delusions of candidates like Sen. Bernie Sanders (I-Vt.).

1. Big Tax Increases on the Middle Class

As I first noted last month, Buttigieg has supported at least one, and quite possibly several, tax increases on the middle class. His retirement security plan included one explicit tax increase on working families, endorsing legislation that would raise payroll taxes as part of a new regime of paid family leave.

The retirement white paper, released just before Thanksgiving, implicitly endorsed a second tax increase on the middle class as well. The plan proposed a new entitlement program, Long-Term Care for America, designed to replace the CLASS Act included in Obamacare, but which Congress repealed prior to its implementation due to solvency concerns. Buttigieg’s paper didn’t say how it would pay for the new spending created by the program, but other studies cited by the campaign did: They proposed another increase in the payroll tax, which would also fall on middle-class families.

I wrote about Buttigieg’s tax plans in the Wall Street Journal last month. Yet following that article, no one from the Buttigieg campaign bothered to refute, smack down, or otherwise correct my assertion that their candidate wants to tax middle-class families.

The deafening silence from the Buttigieg campaign regarding my op-ed suggests the candidate does indeed want to raise taxes on the middle class—he just hopes that no one will notice that fact. It seems like an ironic bit of silence, given that Buttigieg attacked Sen. Elizabeth Warren (D-MA) for being “extremely evasive” on the issue of middle-class tax increases last fall.

2. ‘Insurance, Whether You Want It or Not’

Buttigieg likes to advertise his health care plan as “Medicare for All Who Want It,” but as several stories over the holiday revealed, it comes with an intrusive twist. While his plan says that “individuals could opt out of public coverage,” they could do so only “if they choose to enroll in another insurance plan.”

In other words, Buttigieg would compel people to buy insurance—whether they want to or not, enforcing this revived individual mandate through the tax code. On April 15, individuals who didn’t enroll in health insurance the previous year would get a bill for coverage, which could total $5,000 or more, whether they wanted that coverage or not, and whether they knew they had that coverage or not.

It’s far from clear that this new “mandate on steroids” would pass constitutional muster. In 2012, the Supreme Court under Chief Justice Roberts blessed Obamacare’s mandate as a tax in part because “for most Americans the amount due will be far less than the price of insurance…It may often be a reasonable financial decision to make the payment rather than purchase insurance.”

Roberts justified Obamacare’s mandate as a tax because it gave the public a genuine choice: Buy insurance, or pay the IRS a tax. Buttigieg’s plan would give the public a Hobson’s choice: Buy insurance, or have insurance bought for you. It represents a significant increase in federal powers—one courts could (and should) strike down.

3. ‘Glide Path’ to Socialized Medicine

Notwithstanding his use of a strengthened individual mandate, Buttigieg ultimately wants to end up with a single-payer system of socialized medicine. He has made no bones about his objective, claiming that his health-care plan would provide a “glide path” to socialism.

As with most of the 2020 Democratic candidates who haven’t endorsed single payer explicitly, Buttigieg’s plan contains several characteristics designed to promote the growth of government-run health care. For instance, he would automatically enroll millions of individuals into the government-run health plan. (He claims Americans could opt out of the government plan, but if he wants the system to end in single payer, how easy would he make it for them to do so?) And he has proposed capping the amount that both private and public insurers can pay physicians and hospitals for health treatments, another way to funnel Americans into the government-run system.

Buttigieg’s plan would create the architecture to create a government-run system of socialized medicine. He just would build that edifice slightly more slowly than Sanders would. It represents but one of the big-government dreams of a candidate who, despite soothing rhetoric, has little in the way of policies to justify the term “moderate.”

This post was originally published at The Federalist.

Pete Buttigieg’s Health Care Sabotage Strategy

After the most recent Democratic presidential debate, when South Bend, Indiana Mayor Pete Buttigieg criticized Massachusetts Sen. Elizabeth Warren for evasiveness on her single-payer health plan, Warren’s staff circulated a Buttigieg tweet from February 2018. The tweet indicates Buttigieg’s support for single-payer 20 months ago, which makes him a hypocrite for criticizing her now, according to the Warren camp.

In response, Buttigieg claimed, “Only in the last few months did it become the case that [single-payer] was defined by politicians to mean ending private insurance, and I’ve never believed that that’s the right pathway.” Apparently, Buttigieg never read Sen. Bernie Sanders’ bill — which Sanders, a Vermont independent, introduced in September 2017 — Section 107(a) of which makes private insurance “unlawful.”

Buttigieg’s evasion follows a consistent pattern among Democrats running for president, a two-step in which candidates try to avoid angering both Americans who want to keep their current coverage and the socialist left, who view single-payer’s enactment as a shibboleth. In January, Sen. Kamala Harris, D-Calif., told the American people, “Let’s move on” from private insurance, but she later put out a health plan that she says retains a role for private coverage. Warren herself said as recently as March that she had embraced approaches other than single-payer to achieving the goal of universal coverage.

More importantly, however, Buttigieg wants to enact single-payer — and has said as much. He just wants to be stealthier than Warren and Sanders in taking away Americans’ private insurance.

‘Glide Path’: An Expressway Toward Government-Run Care

Consider a spokesman’s response to the Warren camp re-upping Buttigieg’s 2018 tweet:

Asked about the tweet, a Buttigieg aide … argued he had not changed his position, saying he supports [single-payer] as an end goal but that he wants to get there on a ‘glide path’ by allowing people to have a choice and opt into the government plan.

Indeed, the health care plan on Buttigieg’s website makes the exact same point: “If private insurers are not able to offer something dramatically better, this [government-run] plan will create a natural glide path to” single-payer.

The details of his health care proposal reveal Buttigieg’s “glide path” as an expressway to government-run care, time and time again favoring the government-run plan over private insurance. Consider the following references to the government-run plan in the health care proposal:

  • “Individuals with lower incomes in states that have refused to expand Medicaid will be automatically enrolled in the [government-run plan].”
  • “Individuals who forgo coverage through their employer because it’s too expensive will be able to enroll in the [government-run plan] and receive access to income-based subsidies that help guarantee affordability.”
  • “Anyone eligible for free coverage in Medicaid or the [government-run plan] will be automatically enrolled.” The plan goes on to admit that “individuals could opt out of public coverage if they choose to enroll in another insurance plan,” but the government-run plan would serve as the default “option.”
  • “Individuals with no coverage will be retroactively enrolled in the [government-run plan].”

By automatically enrolling people in the government-run plan — not private insurance, not the best insurance, not the most affordable insurance, but in the government-run insurance plan — Buttigieg wants to make that “option” the only “choice for Americans.”

In 2009, independent actuaries at the Lewin Group concluded that a government-run plan paying doctors and hospitals at Medicare rates, and open to individuals with employer plans — a policy Buttigieg endorsed in his campaign outline — would siphon 119.1 million Americans away from their private coverage, and onto the government-run plan:

Buttigieg calls his plan “Medicare for All Who Want It.” But given the biases in his plan in favor of government-run coverage, another description sounds more apt: “Medicare: Whether You Want It or Not.”

Opportunistic Flip-Flops

Buttigieg sees political value in hitting Warren from the right on health care. But recall that Barack Obama did the same thing in the 2008 presidential primaries, decrying Hillary Clinton’s proposal to require all Americans to purchase health coverage:

Obama used those attacks to wrest the nomination from Clinton, and ultimately capture the presidency. Once he did, he flip-flopped on the coverage requirement, embracing the individual mandate he had previously attacked during the election campaign.

Buttigieg wants to force all Americans into government-run care. He has said as much repeatedly. His attacks on Warren represent an attempt to sound moderate and draw necessary political distinctions ahead of the Democratic primaries.

While he may moderate his tone to get elected, don’t think for a second he would moderate his policies or do anything other than sabotage private health coverage once in office. We’ve seen this show before — but whether we will see it again remains in the hands of the American people.

This post was originally published at The Federalist.

A Status Update on Repeal

With Congress heading towards its first recess at week’s end, it’s time to summarize where things stand on one of Republicans’ top objectives—repealing Obamacare—and might be headed next. While those who want further details should read the entire article, the lengthy analysis below makes three main points:

  1. Congress faces far too many logistical obstacles—the mechanics of drafting bill text, procedural challenges in the Senate, budgetary scoring concerns, and political and policy disagreements—to pass a comprehensive “repeal-and-replace” bill by late March, or indeed any time before summer;
  2. Congressional leaders and President Trump face numerous pressures—both to enact other key items on their agenda, and from conservatives anxious to repeal Obamacare immediately, if not sooner—that will prevent them from spending the entire spring and summer focused primarily on Obamacare; therefore
  3. Congressional leaders will need to pare back their aspirations for a comprehensive “repeal-and-replace” bill, slim down the legislation to include repeal and any pieces of “replace” that can pass easily and swiftly with broad Republican support, and work to enact other elements of their “replace” agenda in subsequent legislation.

What Has Happened In the Last Month

Before the New Year, congressional leaders had endorsed a strategy of repealing Obamacare via special budget reconciliation procedures, using legislation that passed Congress (but President Obama vetoed) in late 2015 and early 2016 as a model. Subsequent efforts would focus on crafting an alternative to the law, whose entitlements would sunset in two or three years, to allow adequate time for a transition.

Due to Trump’s intervention and angst amongst some Republicans toward moving forward with a repeal-first approach, congressional leaders pivoted. Various press reports in the last week suggest House committees are drafting a robust “replace” package that will accompany repeal legislation. This “repeal-and-replace” bill will use the special reconciliation procedures that allow budget-related provisions to pass with a 51-vote majority (instead of the usual 60 votes needed to break a filibuster) in the Senate, with non-budgetary provisions being considered in subsequent pieces of legislation.

The press reports and strategic leaks from House offices attempt to show progress towards a quick markup—a March 1 markup date was floated in one article—and enactment before Congress next recesses, in late March. But these optimistic stories cannot hide two fundamental truths: 1) Enacting comprehensive “replace” legislation along with repeal will take far longer than anyone in Congress has yet admitted; and 2) Leadership does not have the time—due both to other must-pass legislation, and political pressure from the Right to pass repeal quickly—necessary to fashion a comprehensive “repeal-and-replace” bill.

He may not realize it at present, but in going down the simultaneous “repeal-and-replace” pathway, President Trump made a yuuuuge bet: holding the rest of legislative agenda captive to the rapid enactment of such legislation. Once it becomes more obvious that “repeal-and-replace” will not happen on its current timetable—and that other key elements of the Republican agenda are in jeopardy as a result—it seems likely that Speaker Ryan, President Trump, or both will scale back the “replace” elements of the “repeal-and-replace” bill, to allow it to pass more quickly and easily.

Adding Layers of Complexity

But every element added to a piece of legislation makes it that much more complex. Republicans have an easy template to use for repealing Obamacare: the reconciliation bill that already passed Congress. That bill has been drafted, passed procedural muster in the Senate, and received both a favorable budgetary score and enough votes for enactment.

Conversely, crafting “replace” policies will require more time, conversations with legislative counsel (the office in Congress that actually drafts legislation), discussions about policy options for implementation, and so forth.

House Republicans did engage in some of these conversations when compiling their Better Way agenda last spring. But that plan ultimately did not get translated into legislative language, and the plan itself left important details out (in some cases deliberately).

It seems plausible that House Republicans could fairly easily incorporate some elements of their “replace” agenda—for instance, HSA incentives or funding for high-risk pools—into a repeal reconciliation bill. There are several “off-the-shelf” (i.e., previously drafted) versions of these policy options, and the budgetary effects of these changes are relatively straight-forward (i.e., few interactions with other policy elements).

But on tax credits and Medicaid reform, House Republicans face another major logistical obstacle: Analysis by the Congressional Budget Office (CBO). Longtime observers and congressional historians may recall that CBO was where Hillarycare went to die back in 1994. While Republicans are not necessarily doomed to face a similar fate two decades later, the idea that budget analysts will give “repeal-and-replace” a clean bill of fiscal health within a fortnight—or even a month—defies both credulity and history.

Running the CBO Gauntlet

As someone who worked on Capitol Hill during the Obamacare debate eight years ago, I remember the effect when CBO released one of its first scores of Democrats’ legislation. As the New York Times reported on June 17, 2009, in a piece entitled “Senate Faces Major Setback on Health Care Bill”: “The Senate Finance Committee is delaying its first public drafting session on major health care legislation until after the July Fourth recess, a lengthy setback but one that even Democrats say is critically needed to let them work on reducing the costs of the bill…. The drafting session had been scheduled for Tuesday. But new cost estimates by the Congressional Budget Office on health care proposals came in much more expensive than expected, emboldening critics and alarming Democrats.”

Given the role CBO played in delivering Hillarycare a mortal blow in the 1990s, and the more than nine-month gap between the initial (horrible) CBO scores of Obamacare and that law’s enactment, House leadership’s implication that its “repeal-and-replace” legislation can move straight to passage by receiving a clean bill of health from CBO on the first go-round seems highly unrealistic.

Just like any player moving up from the minor leagues will need time to adjust to big-league pitching, so too will any legislation with as many moving parts as a comprehensive “repeal-and-replace” bill require several, and possibly significant, adjustments and tweaks to receive a CBO score Republicans find acceptable.

While House Republicans’ Better Way plan included a much less complicated and convoluted formula for providing insurance subsidies than Obamacare, they may face other difficulties in achieving a favorable CBO score, particularly regarding to the number of Americans covered under their refundable tax credit regime. These include the following.

No Mandate:  While conservatives view the lack of a requirement to purchase insurance as a feature of any Obamacare alternative, CBO has a long history of viewing a mandate’s absence as a bug—and will score legislation accordingly. In analyzing health reform issues in a December 2008 volume, CBO published an elasticity curve showing take-up of health insurance based on various levels of federal subsidies. The curve claimed that, even with a 100 percent subsidy—the federal government giving away health insurance for “free”—only about 80 percent of individuals will actually obtain coverage. In CBO’s mind, unless the government forces individuals to buy insurance, a significant percentage will not do so.

President Obama didn’t want to include a mandate in Obamacare, not least because he campaigned against it. But CBO essentially forced Democrats to include one to receive a favorable score on the number of Americans covered. If Republicans care about matching the number of individuals insured by Obamacare (some view it as more of a priority than others), the lack of a mandate will cost them on coverage numbers. Alternative mandate-like policies such as auto-enrollment may mitigate that gap, but CBO may not view them as favorably—and they come with their own detractors.

Age-Rated Subsidies: Obamacare uses income as a major factor in calculating its insurance subsidy amounts, which creates two problems. First, because subsidies decline as individuals’ income rises, Obamacare effectively discourages work. CBO has previously calculated that, largely because of these work disincentives, the law will reduce the labor supply by the equivalent of 2.5 million full-time jobs.

Second, the process of reconciling projected income to actual earnings creates administrative complexity. It poses large paperwork burdens on the Internal Revenue Service and taxpayers alike, and requires some individuals to forfeit their refunds and pay back subsidies at tax time.

House Republicans have proposed a simpler system of insurance subsidies, based solely upon age. However, because the subsidies are solely linked to age, low-income individuals receive the same subsidy as millionaires. While much more transparent and fair, this system also does not target resources to those who would need them most. To borrow an analogy, it spreads the peanut butter (i.e., insurance subsidies) more evenly, but also more thinly, over the proverbial piece of bread (i.e., Americans seeking insurance). Given CBO’s beliefs about the likelihood of individuals purchasing insurance outlined above, this change could also cost Republicans significantly in the coverage department.

Medicaid Reform: Republicans have consistently argued that providing states with additional flexibility to manage their Medicaid programs in exchange for a defined federal contribution will allow them to reduce program spending in beneficial ways. Rhode Island’s innovative global compact waiver provides an excellent example of providing better care within an overall budget on expenditures.

However, CBO analysts have publicly taken a different view. In analyzing per capita spending caps for Medicaid—the policy option House Republicans are reportedly incorporating into their alternative—last December, CBO wrote that “States would take a variety of actions to reduce a portion of the additional costs that they would face [from the caps], including restricting enrollment. For people who lose Medicaid coverage, CBO and the staff of the Joint Committee on Taxation estimate that roughly three-quarters would become uninsured.”

CBO has therefore made rather clear that it will score reforms to Medicaid as increasing the number of uninsured.

Speaker Ryan may have pushed for the comprehensive “repeal-and-replace” strategy in part to appease Republican members of Congress who want to see their alternative to Obamacare provide as many Americans with insurance as current law. But it seems highly improbable that CBO will score any Republican tax credit proposal as covering as many Americans as Obamacare. It is also not outside the realm of possibility for CBO to score an alternative as covering fewer Americans than the pre-Obamacare status quo.

The first two CBO scoring issues nixed any attempt by House Republicans to include tax credits as part of their alternative to Obamacare in 2009, when I worked in House leadership. Sources tell me unfavorable scores also nixed House Republicans’ attempt to include a refundable tax credit when the party was crafting responses to a potential Supreme Court ruling striking down the law’s subsidies in 2015. It therefore ranges from likely to certain that an initial CBO score of a comprehensive “repeal-and-replace” bill will go over about as well as it did for Republicans in 2009 and 2015—with generally poor coverage figures compared to Obamacare.

In theory, Republicans could work to surmount some of these obstacles and achieve more robust coverage figures. But such efforts would require time to sort through policy options—time that Republicans don’t currently have—and money to fund insurance subsidies, even though Republicans don’t have an obvious source of funding for them.

Pay-For Problems

Over and above the purely technical problems associated with scoring a “repeal-and-replace” bill, other issues present both policy and political concerns. To wit, if Republicans include refundable tax credits in their plan, how exactly will they finance this new spending? The possibilities range from unpalatable to implausible.

  • They could try to keep some of Obamacare’s tax increases to fund their own spending. But key Republican lawmakers and key constituency groups have strongly supported repealing all of Obamacare’s tax hikes. It seems unlikely that a bill that failed to repeal all of the law’s tax increases could gather enough votes for passage.
  • They could include their own revenue-raisers after repealing all of Obamacare’s tax hikes. For instance, House Republicans could limit the value of employer-provided health coverage. But while economists of all political stripes support such efforts as one key way to reduce health costs, members of the business community would likely oppose this measure, judging from recent news stories. Unions and the middle class likely wouldn’t be keen either. Moreover, by using limits on employer-provided health coverage as a new source of revenue rather than reforming the tax treatment of health insurance in a revenue-neutral way, Republicans would repeal Obamacare’s tax increases, but replace them with other tax increases—an unappetizing political slogan for the party to embrace.
  • They could use Medicaid reform to fund the credits, but that causes the potential problems with coverage numbers outlined above, and will likely generate additional squabbling among governors and states over the funding formula, as outlined in greater detail below.
  • They could use the remaining savings after repealing Obamacare’s tax increases and entitlements—which in the 2015/2016 reconciliation bill totaled $317.5 billion—to fund a new insurance subsidy regime. But such a move raises both policy and political problems. While Republicans could re-direct the $317.5 billion in savings during the first ten years to pay for insurance subsidies, the subsidies would likely have to expire after a decade. Creating a permanent new entitlement (the subsidies) funded by temporary savings would result in a point of order in the Senate—one that takes 60 votes, which Republicans do not have, to overcome—because budget reconciliation bills cannot increase the deficit in any year beyond the ten-year budget window. Thus any subsidies funded by the reconciliation bill’s savings would have to sunset by 2026—a far from ideal outcome. On the political side, the savings in last year’s reconciliation bill came from keeping Obamacare’s reductions in Medicare spending. If Republicans turn around and use that money to fund a new subsidy regime, they would be “raiding Medicare to fund a new entitlement”—the exact same charge Republicans used against Democrats to great effect during the debates over Obamacare.

To put it bluntly, while some Republicans may want to include refundable tax credits in their Obamacare alternative, they have no clear way—and certainly no pain-free way—to fund these credits. Even if they do push forward despite the clear obstacles, finding the right blend among the options listed above will require conversations among members and constituency groups, and multiple rounds of CBO scores for various policy options—all of which will take much more time than House leadership currently envisions.

Then There Are the Political Obstacles

Layered on top of the pay-for difficulties lie other political obstacles preventing quick enactment of a comprehensive “repeal-and-replace” package.

Medicaid: With 16 Republican governors ruling states that expanded Medicaid under Obamacare, and 17 Republican governors in states that did not, the fate of Medicaid expansion remains one of the thorniest questions surrounding repeal. Many states that did expand wish to keep their expansion, while states that did not do not want to be disadvantaged by making what they view as the conservative choice to turn down the new spending from Obamacare. Lawmakers have admitted they have yet to craft a solution on this issue. Attaching Medicaid reform to a “repeal-and-replace” measure will only complicate matters further, by giving states another issue (namely, the new funding formula for the per capita spending caps) to fight over.

House-Senate Differences: While House Republicans gear up to pass a comprehensive “repeal-and-replace” package, reports last week also indicated that Senate leadership still intends to consider legislation more closely resembling the 2015/2016 reconciliation bill. If Speaker Ryan continues to craft a “repeal-and-replace” bill while Majority Leader McConnell pushes “repeal-and-delay,” something will have to bring the two leaders to an agreement reconciling their disparate approaches.

Insurers: Those opposed to the “repeal-and-delay” strategy initially advocated by congressional leaders cited the needs of insurers as reason to pass a full “replacement” of Obamacare concurrent with repeal. Insurers will need to start submitting bids for the 2018 plan cycle by spring, and will want some certainty about how next year’s landscape will look before doing so. Hence the call for a full “repeal-and-replace,” to give insurers fast reassurances about the policy landscape going forward.

But if “full replace” will take until summer to pass—as it almost invariably will—then that argument gets turned on its head. In such circumstances, Congress should act swiftly to include some type of high-risk pool funding for those with pre-existing conditions, to prevent the insurer community from ending up with an influx of very sick, very costly enrollees.

Passing a repeal bill with high-risk pool funding may provide insurers with less certainty than a full “repeal-and-replace” measure, but it would yield infinitely more certainty than Congress arguing until September over the details of “full replace,” with the entire legal and regulatory realm in limbo as insurers must prepare for their 2018 plan offerings.

Conservatives: Some conservatives have philosophical objections to refundable tax credits, or indeed to any “replacement” legislation. Sen. Mike Lee this week called including “replacement” provisions on a repeal bill a “horrible idea.” Lee was one of three Republicans (the others being Ted Cruz and Marco Rubio) who in fall 2015 pushed for more robust repeal legislation, issuing a statement demanding that year’s reconciliation measure include the greatest amount of repeal provisions possible consistent with Senate rules. After the conservatives laid down their marker, the Senate ultimately passed, and the House ratified, the reconciliation measure repealing the law’s entitlements and all of Obamacare’s tax increases.

Some within the party have acknowledged the fractious nature of the “replace” discussions. Ramesh Ponnuru has publicly worried that some conservatives agnostic or skeptical on the merits of a “replace” plan would do nothing following repeal, and therefore wants to link repeal with replace, to force conservatives to vote for a vision of “replace.”

Such maneuvering pre-supposes that conservatives will swallow a “replace” plan they dislike to repeal Obamacare, a dicey proposition given conservatives’ success at obtaining a more robust repeal measure in 2015. It also pre-supposes that conservatives will stand idly by while leadership takes the months necessary to create full-scale “replace” legislation.

If the process continues to drag on in the House, it would not surprise me one bit were conservatives to introduce a discharge petition to force a House floor vote on the 2015/2016 reconciliation bill. Conservatives in the House Freedom Caucus and the Republican Study Committee, likely in conjunction with outside conservative groups, would turn the discharge petition into a litmus test for Republican members of Congress: Are you for repeal—and repeal in the form of legislation that virtually all returning Republicans voted for one short year ago—or not?

While a discharge petition needs 218 member signatures before its sponsor can force a floor vote, the mere introduction of a discharge petition would increase the pressure on House leadership to move quickly on repeal. Moreover, it would highlight the fact that neither Speaker Ryan nor President Trump can afford to spend the entire spring and summer slogging through a long legislative process regarding Obamacare.

Now We Come to the Opportunity Costs

Most of this year’s major action items require the Obamacare reconciliation bill to pass. Once and only once that legislation passes can Congress pass a second budget, allowing for a second budget reconciliation measure to move through the Senate. Specific items held in limbo due to the Obamacare debate include the following.

Tax Reform: Republicans want to use the second reconciliation bill to overhaul the tax code. (President Trump may also want to use the tax reform bill to finance his planned infrastructure package.) But because the current budget does not include reconciliation instructions regarding revenues, Congress must pass another budget with specific reconciliation instructions before tax reform can move through the Senate with a simple (51-vote) majority. But before Congress passes another budget, it must first pass the reconciliation bill (i.e., the Obamacare bill) related to this budget.

Debt Limit: The current suspension of the debt limit expires on March 15. While the Treasury can use extraordinary measures to stave off a debt default for several months, Congress will likely have to address the debt limit prior to its August recess. As with tax reform, the debt limit (and spending and entitlement reforms to accompany same) can be enacted with a simple majority in the Senate via budget reconciliation. But, as with tax reform, doing so first requires passing another budget, which requires enacting the Obamacare reconciliation bill.

Appropriations: The current stopgap spending agreement expires on April 28. Congress will need to pass another spending measure by then—quite possibly including a request by the president for additional border security funds—and begin considering spending bills for the new fiscal year that starts September 30. Here again, passage of these legislative provisions would be greatly aided by passage of another budget to set fiscal parameters, but that cannot happen until the Obamacare reconciliation bill is on the statute books.

As other observers have begun noting, many of the major “must-pass” and “want-to-pass” pieces of legislation—tax reform; Trump’s infrastructure package; a debt limit increase; appropriations legislation; funding for border security—remain essentially captive to the Obamacare “repeal-and-replace” process. The scene resembles the airspace over New York during rush hour, with planes circling overhead while one plane (the Obamacare bill) attempts to land. Unfortunately, the longer the planes circle, one or more of them will run out of fuel, effectively crashing major pieces of the Trump/Ryan agenda due to legislative inaction and neglect.

The Available Political Options

With a legislative process for “repeal-and-replace” likely to take months longer than currently advertised, and a series of other competing priorities contingent on it, Speaker Ryan and President Trump face three options.

Punt: Focus on passing the other agenda items first, and come back to Obamacare later;

Plow Ahead: Remain on the current course, knowing that Obamacare will jeopardize much of Trump’s and Ryan’s other agenda items; or

Pivot/Pare Back: Return to something approaching last year’s reconciliation bill, and postpone major “replace” legislation until a future reconciliation measure.

Given the current environment, the third option seems the clear “least bad” outcome. The first would represent a major political setback, effectively admitting defeat on the president’s top agenda item and betraying Republicans’ seven-year-long commitment to repeal that conservatives sharply opposed to Obamacare will never forget, and may never forgive. The second jeopardizes, if not completely sacrifices, most of the party’s legislative agenda, including items the president will want to tout in his re-election bid.

Therefore, it seems likely that Ryan, Trump, or both will eventually move to pare back the current comprehensive “repeal-and-replace” legislation towards something more closely resembling the 2015/2016 repeal reconciliation bill.

The legislation may include elements of “replace,” but only those with a clear fiscal nexus (due to the Senate’s rules regarding reconciliation) and broad support among Republicans. HSA incentives and funding for high-risk pools might qualify. But more robust provisions, such as Medicaid reforms or refundable tax credits, will likely get jettisoned for the time being, to help pass slimmed down legislation yet this spring.

Time’s a Wastin’

To sum up: The likelihood that House Republicans can get a comprehensive “repeal-and-replace” bill—defined as one with either tax credits, Medicaid reform, or both—1) drafted; 2) cleared by the Senate parliamentarian; 3) scored favorably by CBO; and 4) with enough member support to ensure it passes in time for a mark-up on March 1—two weeks from now—is a nice round number: Zero-point-zero percent.

Likewise the chances of enacting a comprehensive “repeal-and-replace” bill by Congress’ Easter recess. It just won’t happen. For a bill signing ceremony for a comprehensive “repeal-and-replace” bill, August recess seems a likelier, albeit still ambitious, target.

Republicans have already blown through two deadlines on “repeal-and-replace”: the January 27 deadline for committees to report reconciliation measures to the House and Senate Budget Committees, and the President’s Day recess, the original tentative deadline for getting repeal legislation to President Trump’s desk. Any further delays will accelerate both conservative angst and the same types of process stories from the media—“Republicans arguing amongst themselves on repealing Obamacare”—that plagued Democrats from the summer of 2009 through the law’s enactment.

Some may find this analysis harsh, or even impertinent. Some may want to take issue with my assumptions—Newt Gingrich would no doubt dispute CBO’s scoring methods, long and loudly. But policy-making involves crafting solutions given the way things are, not the way we wish them to be. And every day that goes by while Congress remains on the current “repeal-and-replace” pathway—which seems increasingly like a strategic box canyon—will only jeopardize the success of other critical policy priorities.

For all his wealth, Trump gets the same amount of one thing as everyone else: Time. For that reason, his administration and Speaker Ryan should re-assess their current strategy on Obamacare—the sooner the better. Time’s a wastin’, and the entire Republican agenda is at stake.

This post was originally published at The Federalist.

Four Ways the Patient Freedom Act Is Worse than Obamacare

Last week, I wrote about how the Patient Freedom Act—introduced by senators Bill Cassidy (R-LA) and Susan Collins (R-ME)—would dramatically expand taxpayer funding of abortions, even when compared to Obamacare.

But that’s not the only way in which their bill (S. 191) exceeds Obamacare’s standards for government intervention. Other details of their legislation reveal why its short title serves as a misnomer.

1. It Has More Spending Than Obamacare

Section 104 of the bill contains a complicated formula to determine state allotments for option two—the default option for states under the PFA. Section 104(b)(2) provides that states that did not expand Medicaid under Obamacare will receive 95 percent of the amount they would have received had they accepted the Medicaid expansion.

In other words, rather than reducing Obamacare’s spending, the Patient Freedom Act could well increase it—by giving new Medicaid funds to states that declined to expand.

Medicaid reform should not disadvantage states that did not expand Medicaid under Obamacare. But the proper solution to that problem does not lie in adding to Obamacare’s nearly $2 trillion in spending over the coming decade. Instead, it lies in freezing enrollment in the Medicaid expansion, unwinding that new spending, and transitioning beneficiaries over time off the rolls and into work.

2. It Repeals Health Savings Accounts (Not Obamacare)

Current law makes HSAs tax-privileged in two ways. First, contributions to an HSA can be made on a pre-tax basis—either via a payroll deduction through an employer, or an above-the-line deduction on one’s annual tax return. Second, HSA distributions are not taxable when used for qualified health expenses under Obamacare.

The Patient Freedom Act would abolish the first tax preference while retaining the second. Individuals must contribute to an HSA using after-tax dollars, but their contributions could grow tax-free, and distributions would be tax-free when used for qualified health expenses, as under current law. Section 201(b) prohibits additional contributions to “traditional” HSAs following enactment of the bill, instead diverting new contributions to the Roth (i.e., after-tax) HSAs created by the measure. While the bill does not require individuals to convert their existing HSAs to the new Roth HSAs, account administrators (e.g., banks, mutual funds, etc.) could require their customers to do so at some point—and individuals could face a hefty tax bill when they do.

Health Savings Accounts are a proven vehicle to help control the growth of health costs. While Obamacare included new restrictions on HSAs, Democrats did not upend the accounts nearly as much as contemplated by the Patient Freedom Act. Significantly reducing the tax preferences for Health Savings Accounts would not lower health care costs. If anything, it would raise them.

3. It Supports Government-Imposed Price Controls

Section 121(a)(2) of the Patient Freedom Act goes further than Obamacare, imposing maximum charges for emergency services: 85 percent of insurers’ usual, customary, and reasonable charges for physician care; 110 percent of Medicare payment rates for inpatient and outpatient hospital care; and acquisition costs plus $250 for drugs and biological pharmaceuticals.

While the issue of “surprise” medical bills does present a policy problem—individuals caught in the middle of stand-offs between providers and insurers regarding payment rates—there are other ways to resolve it short of government price controls. To borrow a medical metaphor, the PFA uses a blunt knife when a sharp scalpel would be more appropriate.

4. It Would Create an Automatic Enrollment Program

Sections 105(c) and 107(c) of the PFA create parameters through which states can automatically enroll their residents in health insurance—complete with restrictions on the type of coverage states can auto-enroll individuals into. While individuals can opt out of insurance should they wish to do so, this mandate-without-a-mandate could prove even more problematic than Obamacare’s requirement that all individuals purchase health coverage.

Nearly four years ago, then-Rep. Bill Cassidy said this about the IRS’ power in enforcing Obamacare:

Obamacare requires thousands of IRS agents to implement the law…They’re going to go through the small businesswoman’s books, to make sure that she actually has the number of employees that she claims, and that she has adequate insurance. That’s a little scary when you see what the IRS has been doing with their political targeting.

Granted, the PFA doesn’t have an employer mandate to enforce, but why is Sen. Cassidy’s “solution” to big government overreach at the federal level allowing states to impose their own intrusive requirements on individuals and businesses…?

Conservatives looking to repeal Obamacare should be disappointed by the ways in which the Patient Freedom Act exceeds Obamacare in several key respects, while liberals will undoubtedly oppose its (insufficient) attempts to devolve or deregulate health care to the states. Its Senate sponsors notwithstanding, the bill appears to lack a natural constituency. Or, to put it another way, if the Patient Freedom Act is the answer, then what exactly is the question?

This post was originally published at The Federalist.

A Fanciful, But Inaccurate, Premium Support Study

The Kaiser Family Foundation released a study today regarding premium support proposals, which Democrats have used to attack Medicare reform.  However, the study is an academic exercise that, by the authors’ own admission, bears little relation to reality.  First and foremost, the study assumes full implementation of premium support in 2010.  This assumption is particularly problematic, given the many changes that have taken place in Medicare Advantage since then:

In other words, by using a 2010 implementation date, the Kaiser study ignores entirely the impact of the biggest changes to both Medicare and Medicare Advantage since the programs were created.  Moreover, the study assumes a “Big Bang” model, whereby all the changes to Medicare would take place at once – even though it admits that most proposals being discussed “would gradually phase-in a premium support system in five to ten years,” allowing changes to be implemented in a way that prevents drastic adjustments.

Three other important things you need to know about the Kaiser study:

  1. The study does not do a good job delineating two separate and distinct phenomena: costs due to disparities between traditional Medicare and Medicare Advantage, and costs due to disparities within traditional Medicare itself.  To use one common example, traditional Medicare’s spending is far greater in metropolitan Miami than in many areas in the upper Midwest (for instance, Wisconsin).  Yet under current law, all enrollees in traditional Medicare pay the same Part B premium nationwide – meaning that right now, seniors in Wisconsin pay higher Part B premiums that subsidize higher levels of spending in Miami.  The premium support proposal modeled by Kaiser would eliminate this disparity – meaning that under the study, premiums in traditional Medicare would rise substantially in Miami, to reflect that area’s much higher spending.  Critics would argue these higher premiums demonstrate the flaws of the premium support model.  But in reality, that’s not an argument against premium support – that’s an argument against the status quo in traditional Medicare, under which high-cost areas have had their spending subsidized by low-cost regions for far too long.
  2. The study does not fully model the ability of plan switching to reduce costs.  The headline figure about the number of individuals who would pay more to maintain their current coverage presumes that beneficiaries would not switch plans at all – not a realistic assumption under most scenarios.  And the study also assumes that low-income individuals would not automatically be assigned to a low-cost plan – current practice in Medicare Part D.  In short, the Kaiser study under-estimates both the impact that beneficiary choices and structural design could be used to facilitate enrollment in lower-cost premium support plans.
  3. At no point does the study even attempt to quantify potential budgetary savings from premium support.  The study goes to great lengths to outline the higher costs, but doesn’t make any estimate about the savings to the federal government from such a reform – or how it would improve Medicare’s long-term solvency.  In other words, the study focuses solely on pain to beneficiaries – without examining the gains to Medicare’s sustainability.

The Obama campaign’s response to the study – claiming that seniors “would have to give up their doctors or pay extra to maintain access to their choices” – is particularly rich.  Mind you, this claim comes from an Administration that will force millions of seniors out of their Medicare Advantage plans – not to save Medicare, but to fund Obamacare instead.  It’s yet another example of why Medicare needs real reform – and why this Administration is both unwilling and unable to deliver on it.

Obamacare’s “Out-of-Control Activism”

Writing in the New Yorker, author Ryan Lizza’s latest article examines what a re-elected Barack Obama might attempt to accomplish in a second term as President.  The piece discusses immigration, fiscal policy, and energy, but also includes an interesting passage on health care, and how the Administration might respond should the Supreme Court strike down Obamacare’s individual mandate, but leave the rest of the law in place:

Obama would face a choice: replace the mandate with a new policy or remove the remaining market reforms.  One option for replacing the mandate is to push the uninsured into the new system by requiring them to sign up for insurance when applying for other government services, such as food stamps or school loans.  But the prospects for this sort of legislation are bleak.  “We looked at this,” a former Obama aide said.  “We thought it was less constitutional than the mandate.  Among the moderate Democrats, the idea that you would pass a bill like this is unimaginable.”

Whether the Supreme Court overturns the law in part or in full, the White House will need to respond publicly.  “The strategy is to just go on the offensive and say, ‘Look at Citizens United, look at the health-care decision, look at Bush v. Gore,” the former aide said.  “We have an out-of-control activist court….That’s Plan A.  Plan B is nothing.”

This passage includes two incredible statements.  First, the Obama Administration has examined the idea of forcing individuals to prove they purchased government-approved health insurance every time they interact with public officials – a step not far removed from a “Show Me Your Papers” requirement on every American citizen.  The fact that the former Administration official quoted in the piece dismissed such a policy largely on grounds of political expediency – moderate Democrats in Congress would never vote to enact these requirements – speaks volumes to how far the Administration may go to compel individuals to obey its commands.

Yet the liberals who would require individuals to purchase government-approved health insurance – and use the full coercive power of the state to enforce such a requirement – are the same individuals who are prepared to criticize conservatives for “out of control activis[m]” if the Supreme Court strikes down some or all of Obamacare.  Imposing an unprecedented mandate to purchase a government-defined product certainly qualifies as activism.  And the Obama Administration’s idea of forcing citizens to comply with a new “Show Me Your Papers” regime to enforce government-defined health insurance is out-of-control by any reasonable definition.  That’s why it’s so critical for the Supreme Court to strike down the individual mandate, and all of Obamacare – not as a measure of judicial activism, but as a way to impose constitutional restraints on an out-of-control Congress and executive.

Premium Support and True Competition in Medicare

The ongoing discussion about entitlement reform has sparked a debate about some of the details of the current Medicare program, and how it might change under various reform proposals.  At the Incidental Economist blog, Boston University professor Austin Frakt wrote a post last week arguing that under premium support, traditional government-run Medicare might actually thrive.  Much of his post was based on the fact that Medicare pays providers much less than private insurers – a difference that will accelerate if provisions of Obamacare are implemented as scheduled – although he did admit that access in traditional Medicare might become constricted if 40 percent of providers become unprofitable from taking Medicare patients, as the program’s actuary has suggested.

Frakt went on to re-state a popular syllogism that falls short:

Why are so many seeming to lack confidence that the program can compete?  After all, look at what’s going on today.  Private plans are at a tremendous advantage and have been for many years.  They receive per beneficiary subsidies way above the average cost of traditional Medicare.  They offer many additional benefits and many plans offer lower premiums and cost sharing relative to traditional Medicare.  Still, traditional Medicare retains 75% of the market.  Competitive bidding would reduce the overpayments to Medicare Advantage plans, reducing the advantage they have in the market today.

The “overpayment” argument misses the point, for several reasons:

  1. Why does Medicare retain 75% of market share?  Because new enrollees in Medicare are enrolled not in the cheapest plan, or the best-rated plan, or the plan with the broadest provider network, or the plan with the best benefits.  Instead, beneficiaries are automatically enrolled in the government-run plan.
  2. Other studies of plan switching strongly suggest that seniors do NOT switch plans on a regular basis.  The Medicare Payment Advisory Commission (MedPAC) found earlier this year that “only about 6 percent of Part D enrollees have switched plans voluntarily each year.”  So once people enroll in a plan, they’re likely to stay in that plan – meaning that because government-run Medicare has a structural monopoly on enrollment, many seniors are not likely even to think about switching to a Medicare Advantage private plan.
  3. Because Medicare beneficiaries must make an affirmative choice to enroll in Medicare Advantage – and because Medicare Advantage plans CANNOT take away government-run Medicare’s structural enrollment monopoly by undercutting the government-run plan on price – they MUST use better benefits to attract seniors.

Former CBO Director Alice Rivlin acknowledged the structural deficiencies in the current program in her testimony before the Deficit Reduction Committee earlier this month:  “If a private healthcare plan currently has lower costs than FFS Medicare in its area, it cannot offer a rebate to enrollees as an incentive to sign up. Instead, it must increase benefits – which in and of itself increases Medicare spending.  Therefore, beneficiaries in areas with high FFS Medicare costs who enroll in private plans receive a host of free supplementary benefits, financed by the government.”  Rivlin again illustrates that Medicare Advantage plans have little incentive to under-bid Medicare on price – they must offer more benefits in order to attract seniors to enrollIn other words, the supposed “overpayments” are actually a symptom of a larger disease – the disease being the structural obstacles in the way of Medicare Advantage plans obtaining larger market share by offering a better deal to beneficiaries than government-run Medicare.

One easy way to solve this problem would be to automatically enroll new beneficiaries in the lowest-cost plan, whether that plan is a private Medicare Advantage plan or government-run Medicare.  Ironically enough, MedPAC – which spent years attacking “overpayments” in Medicare Advantage – has remained strangely silent about the structural bias in favor of government-run Medicare that caused this problem in the first place.  Unfortunately, this deafening silence may mean that neither MedPAC’s ostensibly non-partisan “experts,” nor liberal advocates fixated on a single-payer health care system, have an interest in putting private health plans on equal footing – both financial AND structural – with government-run Medicare.

Another Survey, Same Results: Obamacare’s Costs Could Force Firms to Drop Coverage

Yet another survey has come out in recent days highlighting the problems employers are facing – rising premiums, increased paperwork – thanks to Obamacare, and indicating that a sizable percentage of firms will drop their health plan offerings as a result.  Among the findings from a survey by benefits consultants at Lockton:

  • 80 percent of employers are concerned or very concerned about new administrative burdens; one respondent said the law “created a lot of administrative burdens…confused employees and increased cost substantially;”
  • More than half of employers (56%) believe the law will significantly increase their paperwork burdens;
  • Firms said that each new regulatory notice will cost $1-3 per employee to send to their workers, potentially raising costs by tens of thousands of dollars or more for some firms;
  • Among firms’ perceived four top “benefits” of the law were the ability to drop coverage for their retirees (23%) and drop coverage for their current workers (16%);
  • Nearly one in five (18.8%) firms are considering terminating coverage outright thanks to the law;
  • Nearly half (45%) of firms are more concerned about Obamacare than they were last year, compared to only 14% who are less concerned.

Among the reactions by employers to Obamacare quoted in the survey:

  • “I do not believe that they [Congress] considered the cost of this plan to the employer in the short term.  I think their only consideration was to the employees that do NOT currently have health coverage.  Our rates went up an additional seven to nine percent in 2011 because of health reform.”
  • Forcing these mandates on employers will lead to many employers currently offering coverage to their employees to terminate coverage offerings due to financial hardship.”
  • “It will increase our costs that we have to pass on to our employees with little increase in benefit.  The mandates will add costs that we cannot control.”
  • “The current healthcare reform act will do nothing but add cost and add administrative requirements.”

A paper previously released by Lockton in April also discussed the costs for businesses, and confirmed the financial incentives for employers to drop coverage.  The April report noted that “employers are burdened and frustrated by aspects of the health reform law that add costs to their health plans,” and that “some employers WILL eliminate group health insurance and full-time jobs in 2014 because of the law.”  The analysis found that across all industries, the mandates instituted in the past year will raise employer premiums by an average of 2.5%, and that other mandates taking effect in 2014 – such as auto-enrollment provisions and shorter waiting periods – could raise premiums in some industries by up to 40%.  On the other hand, employers could save an average 44% of their health insurance costs by dropping coverage and placing their employees in government-run Exchanges; some industries could save more than 80% of premium costs by “dumping” their employees.

As a reminder, the Congressional Budget Office previously estimated that only about 9 million individuals would lose their employer-sponsored health coverage under Obamacare.  If in reality one in five employers drops due to the crushing burdens Obamacare places on business, that could more than double the federal spending on insurance subsidies – further exacerbating the 2700-page law’s reputation as a budget-busting entitlement.

Rising Costs — and the Risk of Employers Dropping Coverage

Amidst the news created by the Medicare trustees report at the end of last week, it’s worth pointing out that another report was also issued demonstrating the continued rise in health spending, and the impact it places on both employers and families.  Actuaries at the consulting group Milliman released their annual medical index, and the results were not encouraging.  Their report – which quantifies the total cost (employer and employee, premiums and out-of-pocket expenses) for preferred provider organization (PPO) plans – showed a $1,319 increase in the total cost of health care for a family of four compared to 2010.  That’s a 7.3% rise in health expenses for families and employers in just one year.  Remember that candidate Obama promised repeatedly his bill would CUT costs by $2500 for the average American family, and that those reductions would occur within Obama’s first term.  The Milliman report once again demonstrates how the President’s promise is NOT being kept.

The impact of rising health spending on employers was further quantified by a paper released by analysts at Lockton, a privately owned HR benefits consulting firm.  The report notes that “employers are burdened and frustrated by aspects of the health reform law that add costs to their health plans,” and that “some employers WILL eliminate group health insurance and full-time jobs in 2014 because of the law.”  The analysis found that across all industries, the mandates instituted in the past year will raise employer premiums by an average of 2.5%, and that other mandates taking effect in 2014 – such as auto-enrollment provisions and shorter waiting periods – could raise premiums in some industries by up to 40%.  On the other hand, employers could save an average 44% of their health insurance costs by dropping coverage and placing their employees in government-run Exchanges; some industries could save more than 80% of premium costs by “dumping” their employees.

Both these reports illustrate the convergence of disturbing trends.  Rising health spending, plus the perverse incentives included in the law, could easily compel employers to place their workers in Exchanges – causing taxpayer-funded insurance subsidies to skyrocket.  At a time when families are struggling to afford health coverage and America is struggling to finance its existing entitlements, neither development should come as welcome news.