How Single Payer Would Make Outbreaks Like Coronavirus Worse

The past several weeks have seen two trends with important implications for health policy: Vermont Sen. Bernie Sanders’s burst of momentum following strong political showings in both Iowa and New Hampshire has drawn greater attention to his proposal for single-payer health care, as China struggles to control a coronavirus outbreak that first emerged at the end of last year.

The two events are linked by more than just time. The coronavirus outbreak provides a compelling argument against Sanders’s so-called “Medicare for All” program, which would upend the health-care system’s ability to respond to infectious disease outbreaks.

In an Outbreak, Could You Obtain Care?

For starters, supporters of Sanders’s plan have admitted that under single payer, not all patients seeking care will obtain it. In 2018, People’s Policy Project President Matt Bruenig claimed that while demand for care might rise under single payer, “aggregate health service utilization is ultimately dependent on the capacity to provide services, meaning utilization could hit a hard limit.”

By eliminating virtually all patient payments for their own care, single payer would increase demand for care—demand Bruenig concedes the system likely could not meet, even under normal circumstances. Consider that an outbreak centered more than 6,000 miles from the Pacific coast has already led to a run on respiratory face masks in the United States. During a widespread outbreak on our shores, an influx of both sick and worried-but-well patients could swamp hospitals already facing higher demand for “free” care.

Bureaucrats’ Questionable Spending Priorities

While Sanders’s legislation attempts to provide emergency surge capacity for the health-care system, experience suggests federal officials may not spend this money wisely. Section 601 of the House and Senate single-payer bills include provisions for a “reserve fund” designed to “respond to the costs of treating an epidemic, pandemic, natural disaster, or other such health emergency.” However, neither of the bills include a specific amount for that fund, leaving all decisions for the national health care budget in the hands of the Department of Health and Human Services.

And federal officials demonstrated a questionable sense of policy priorities in the years leading up to the 2014 Ebola outbreak. Of the nearly $3 billion from Obamacare’s Prevention and Public Health Fund given to the Centers for Disease Control in the years 2010-2014, only about 6 percent went towards building epidemiology and laboratory capacity. Instead, CDC spent $517.3 million funding grants focused on objectives like “improving neighborhood grocery stores” and “promoting better sidewalks and street lighting.”

Socialized Medicine Brought to Its Knees By…the Flu?

Including a system of global budgets as part of a transition to single payer would leave hospitals with little financial flexibility to cope with a sudden surge of patients. Sanders’s Senate version of single-payer legislation does not include such a payment mechanism, but the House single-payer bill does. Sen. Elizabeth Warren and other liberal think-tanks believe the concept, which provides hospitals lump-sum payments to cover the facilities’ entire operating budget, can help reduce health-care costs.

But in its May 2019 report on single payer, the Congressional Budget Office noted that consistently slow growth of global budget payments in Britain’s National Health Service has “created severe financial strains on the health care system.” And how: Rising hospital bed occupancy rates have created longer wait times in emergency rooms, with patients stuck on gurneys for hours. In one example of its annual “winter crisis,” two years ago the NHS postponed 55,000 surgeries due to capacity constraints, with one ER physician apologizing for “Third World conditions of the department due to overcrowding.”

A British health system barely able to cope with a predictable occurrence like a winter flu outbreak seems guaranteed to crumble in the face of a major pandemic. Voters lured by the siren song of socialism should bear that in mind as they ponder news of the coronavirus and Sanders’ “Medicare for All.”

This post was originally published at The Federalist.

No, Nancy Pelosi, Republicans Aren’t “Cutting” Medicare — But They Should

In a many-layered case of irony, House Minority Leader Nancy Pelosi (D-CA) attacked Republicans on Wednesday for doing something they didn’t do—but she did. In a letter to her Democratic colleagues, Pelosi wrote the tax reform bill “will lead to devastating cuts to Medicare and Medicaid.”

First things first: A slowdown in a program’s projected growth rate does not constitute a “cut.” That fact applies just as much to Republican spending proposals as Democratic ones. You don’t have to take my word for it: Multiple fact check articles discussing Obamacare’s reductions in Medicare spending pointed out that under Democrats’ law, “Medicare spending will increase each year but at a lower rate.”

Pelosi’s 2011 phraseology hit the nail on the head, because Democrats did “take” money out of Medicare to fund Obamacare’s new entitlements. While on paper the spending reductions extended the life of the Medicare trust fund, the Congressional Budget Office concluded that Obamacare did not “enhance the ability of the government to pay for future Medicare benefits.”

While the Democrat record on Medicare leaves much to be desired, so too does the Republican one. Whereas Democrats reduced Medicare spending, then diverted those savings to fund another new and costly entitlement, Republicans just last month turned around and increased Medicare spending.

In the February budget “deal,” Republicans repealed the Independent Payment Advisory Board (IPAB). While Obamacare created this unelected, unaccountable board of bureaucrats to make binding rulings regarding Medicare, it did so for a worthwhile purpose: To cap Medicare spending. As I noted last fall, Republicans could have kept the caps in place, while repealing the board. They chose not to do so. As a result, the budget “deal” raised entitlement spending rather than lowering it.

As it stands now, the “devastating cuts to Medicare and Medicaid” that Pelosi claimed to warn her colleagues about on Wednesday seem inevitable—not because Republicans will soon pass legislation slowing the growth of entitlements, but instead because they refuse to do so. Because some Republicans remain under the misapprehension that Medicare “is underfunded,” and because liberals love running “Mediscare” campaigns designed to frighten seniors into voting Democratic, Republicans seem poised to do exactly nothing on entitlement reform for the foreseeable future.

At least, until the debt crisis arrives—which it will, and sooner than many think. With the imminent return of trillion-dollar deficits, and the federal government already $21 trillion in debt, China and other nations may not take kindly to the bipartisan profligacy perpetrated by Democrats and Republicans alike.

As I noted two years ago, if not for the double-counting fiscal gimmicks included in Obamacare, the Medicare Hospital Insurance Trust Fund would already have been exhausted, putting the program’s solvency quite literally on borrowed time.

Last month, in typically understated fashion, Pelosi tweeted about how Republicans were “plotting to destroy your Medicare, Medicaid, and Social Security.” That claim implies a level of intent—that Republicans actually have a plan to reform entitlement spending—that quite clearly does not exist.

Instead, Republicans and Democrats will continue to destroy Medicare, Medicaid, and Social Security in the same way they have over the past several decades. Both parties will ignore the problem and do nothing until it’s too late. It’s the most insidious type of “bipartisanship,” but in Washington, also the most common.

This post was originally published at The Federalist.

“The Game of Obamacare”

A liberal advocacy group in Colorado called Thanks Obamacare today released a website called “The Game of Obamacare.”  The game takes players through a series of life events, and at various points they can choose to go “With Obamacare” or “Without Obamacare.”  Those who choose Obamacare gain points on their “happiness meter,” whereas those who go without Obamacare lose points on their “happiness meter.”  (And just for the record, no, I’m not making this up – you CAN’T make this stuff up.)

Below however are some scenes that more accurately portray Obamacare, which you won’t find in the online version of the game:

  • You can’t afford health insurance, but the government has forced you to buy it anyway.  Go directly to the IRS*, do not pass Go, do not collect $200.  In fact, pay the government (at least) $695.
  • You want to get an Obamacare waiver to be allowed to keep your existing health plan.  But the Administration only looks favorably on waiver requests coming from union plans.  Lose your turn – and your health coverage.
  • You’re a high-priced Washington lobbyist who’s just made a “rock-solid deal” behind closed doors with Democrats.  Sure, your backroom deal will raise premiums for seniors, but it will guarantee Pharma companies a huge windfall.  Bank error in your favor – collect $11.6 million.
  • You’re a struggling middle-class family looking forward to Obamacare lowering premiums by $2,500 per family.  But because Obamacare will actually RAISE individual insurance premiums, you owe the banker $2,100.  Pay up.
  • You’re a media executive who wants to televise the negotiations surrounding Obamacare.  But the Administration is insistent on negotiating behind closed doors.  Wait your turn until a new Administration actually keeps its promises on transparency.
  • You followed Speaker Pelosi’s advice and quit your job to go “be creative,” knowing taxpayers will fund your health coverage.  Collect $500 from every player to finance your health care – and your music career.
  • You’re an employee at a Chinese sovereign debt fund.  You’ll be bankrolling all of Obamacare’s new spending, which America will eventually need to pay back.  On your next turn, collect $2.6 trillion from your fellow players – that is, if they don’t go bankrupt before you can do so.

Unfortunately, however, Obamacare is NOT a game.  For the many families and businesses harmed by the law’s many tax increases, mandates, and regulations, the law will prove all too real.  And no amount of marketing, no matter how clever, gimmicky, or far-fetched, can ignore that fact.

 

* We would of course be inaccurate to say “Go Directly to Jail,” because we all know that the mandate is “absolutely” not a tax increase.

Question and Answer: Health Care and Student Loan Takeover

The Senate Republican Policy Committee has compiled background on many popularly asked questions about Democrats’ government takeover of health care and student loans in reconciliation (H.R. 4872) and the health care bill (H.R. 3590) that was recently signed into law.

Is this bill a net tax cut for the American people?

  • This bill authorizes the U.S. Treasury to cut $460 billion in checks that go straight to insurance companies to cover health insurance subsidies for less than 10 percent of the population.
  • According to the non-partisan Joint Committee on Taxation (JCT), 73 percent of the subsidy will be paid on behalf of taxpayers with no tax liability – this cannot be a tax cut since you can’t cut taxes for people who do not pay them.
  • The 90 percent of Americans who do not receive a subsidy in the exchange will receive nothing except the status quo of rising premiums and tax increases.

Does the law adhere to then-Senator Obama’s campaign promise not to raise taxes on individuals with incomes under $250,000—“Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes?”

  • The law imposes a tax on all individuals who do not obtain health coverage through their employer or do not purchase government approved insurance offered through a government-run exchange.
  • The bills do not include an exemption for individuals with incomes under $200,000, raising taxes on 73 million Americans earning less than $200,000 and breaking a central tenet of President Obama’s campaign.

Would the legislation reduce the growth of health costs—President Obama’s stated goal for health reform?

  • An analysis by actuaries in the Obama Administration’s Centers for Medicare and Medicaid Services found the Senate bill would raise overall national health care spending over the coming decade.
  • The health reform law and companion reconciliation bill would raise the federal budgetary commitment to health care by a combined $390 billion in the next ten years, according to the Congressional Budget Office.
  • In a letter to Senator Evan Bayh, the independent Congressional Budget Office (CBO) found that premiums would continue to go up over $1,000 a year for most Americans, and would only go down for those receiving a government subsidy.

Do the student loan provisions add one trillion to the national debt over 10 years?

Does the bill raid student aid for college in order to pay for health care?

  • Approximately $9 billion in education savings will be diverted from students to help pay for the cost of the Obama Administration’s health care proposal.

Does the bill make the U.S. Department of Education one of the nation’s largest banks?

  • With Direct Loans estimated to loan out $100 billion every year (or $1 trillion over 10 years) from the federal coffers, the outstanding balance of loans at the U.S. Department of Education will now be on par with banks such as Goldman Sachs and Morgan Stanley.

Does the bill adhere to President Obama’s promise that health care legislation be deficit-neutral?

  • According to the CBO score, health reform is deficit neutral only if the federal government cuts payments to Medicare physicians by more than 21 percent in 2010, which it will not.
  • CBO found that including a so-called “doc fix,” which Democrats will surely do this year, will cause health reform to increase deficits by $59 billion.
  • The bill appears deficit neutral because of a series of budget gimmicks, which include delaying spending until the end of the budget window, the CLASS Act, which Senator Conrad called “a Ponzi scheme of the first order,” raiding $29 billion in Social Security revenue to pay for a new entitlement, and double counting $529 billion in Medicare cuts and up to $210 billion in new Medicare taxes as both improving Medicare’s solvency and paying for this massive entitlement expansion.

Do the bills adhere to Democrats’ promise that “If you like the plan you have, you can keep it?”

  • CBO found that under the law, as many as 10 million individuals would lose their current coverage.
  • In addition, the law’s massive cuts to Medicare Advantage would result in millions of seniors losing access to the critical extra benefits which these plans provide.

Will the law destroy jobs?

  • The health bill includes over $500 billion in tax increases, including $210 billion in new investment taxes and a Medicare payroll tax, and $52 billion from a new tax on employers who fail to provide government-approved health insurance.
  • CBO has said that the costs of the employer mandate will be passed to workers, who will see lower wages, fewer full-time jobs, and more outsourcing.
  • The law also includes a “fair share” mandate which the Center for Budget and Policy Priorities previously noted would discourage employers from hiring married individuals or parents raising children.
  • The government takeover of the student loan market could result in the loss of 35,000 private sector jobs, replacing them with more government bureaucrats or contractors and dramatically increasing the size of the federal government.

Will the law adversely affect some of those most impacted by the recession?

  • CBO has confirmed that the mandates in the legislation “could reduce the hiring of low-wage workers,” and could also lead to wage stagnation as wage compensation is diverted to comply with new federal taxes and mandates.
  • Harvard Professor Kate Baicker has published an analysis demonstrating that minority workers would be twice as likely to lose their jobs as their white counterparts.
  • At a time when nearly one in six African-Americans and more than one in four teens are unemployed, these harmful tax increases will hurt exactly the low-wage and minority workers that health reform is intended to help.

Will the law fund abortion coverage using taxpayer dollars?

  • Provisions in the law permit funds to flow to private plans that cover elective abortion, and create new national health plans administered by the Office of Personnel Management (OPM) that would cover elective abortions. Such provisions violate the long-standing policy of the insurance coverage offered to Members of Congress—which provides a choice of private plans, none of which may cover elective abortions.

Does the law provide immediate coverage for children with pre-existing conditions?

  • An Associated Press fact-check analysis concluded that “insurance companies still would be able to refuse new coverage to children because of a pre-existing medical problem.”

CBO and Democrats’ Fuzzy Health Care Math

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

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

Democrats’ Fiscal Responsibility Sham

Democrats Spend Nearly $2 Trillion in First Ten Years Alone, Far Exceeding the President’s Promise

 

“I will not sign [health care legislation] if it adds one dime to the deficit—now or in the future.  Period….The plan I’m proposing will cost around $900 billion over ten years.”

— President Obama, address to Joint Session of Congress

 

While the Democrat majority may attempt to assert that their health “reform” bill costs under $900 billion and will reduce the federal deficit, such statements are based solely upon a “shell game” that attempts to hide the true budgetary effects of the majority’s trillions in federal government spending:

  • This week, the House is expected to consider a “jobs bill” (H.R. 2847) that would among other things extend for six months an increase in Medicaid matching rates to States and subsidies to unemployed workers electing COBRA continuation health coverage from their former employers. While Members may support extending benefits for unemployed workers, these six month extensions would collectively spend $35.8 billion—the cost of which is not offset, thus increasing federal deficits.
  • Given that Section 1749 of the Pelosi health care bill (H.R. 3962) already included two additional quarters of an extended Medicaid bailout, and given that the current Medicaid bailout enacted in the “stimulus” does not expire until December 2010, many may view these provisions as a patently transparent attempt to reduce the size of Democrats’ government takeover of health care by siphoning portions of it into other legislation—while simultaneously breaking President Obama’s promise that such legislation will not increase the deficit.
  • If Democrats hope to extend provisions like the COBRA subsidies and Medicaid bailout piecemeal through 2013 or 2014—when the major provisions of their “reform” bills will finally take effect—such efforts would cost much more than the $35.8 billion total in the “jobs bill.” The Congressional Budget Office previously estimated that extending the COBRA subsidies and Medicaid bailouts to 2013 would cost an additional $111 billion over and above the spending included in the “stimulus” itself. However, the majority has made no attempt to offset the costs of such a federal spending binge.
  • The extension of the “stimulus” provisions follows the impact of the “stimulus” itself, which included more than $150 billion in new mandatory spending on federal health care programs—while adding more than $1 trillion in spending and new interest on to the federal budget deficit.
  • Although President Obama claimed his health “reform” plan would cost $900 billion, Speaker Pelosi’s bill (H.R. 3962) cost far more than that—not counting the impact of all the “separate” health spending in other bills. The CBO score revealed total costs of the coverage expansion total $1.055 trillion; total federal spending under the bill approaches $1.3 trillion.
  • Democrats further claimed the Pelosi bill was “deficit-neutral” by including in a separate bill (H.R. 3961) reforms to the Sustainable Growth Rate (SGR) mechanism for Medicare physician payments—the total cost of which stands at $285 billion over ten years, according to CBO. While Members may support reform of the SGR mechanism, Democrats attempted to hide the apparent cost of health “reform” by introducing separate legislation to repeal the SGR mechanism without paying for this more than $200 billion increase in federal spending.
  • Adding in the $150 billion already spent on health care in the “stimulus,” the $111 billion cost of extending “stimulus” provisions, the more than $200 billion cost of Democrats’ stand-alone SGR legislation, and the nearly $1.3 trillion cost of the Pelosi bill itself, the health “reform” agenda propounded by Speaker Pelosi totals more than $1.7 trillion—nearly double President Obama’s targeted figure. Just as important, this big-spending legislation would further break the President’s promise by increasing the deficit to the tune of hundreds of billions of dollars—as Democrats are making no attempt to offset the costs of nearly half a trillion dollars in increased federal spending.

Democrats’ spending binge has not gone unnoticed by America’s largest federal creditor. Treasury Secretary Geithner’s claims of the United States’ fiscal rectitude were publicly mocked by an audience during his visit to China earlier this year, and the New York Times recently ran a front-page article noting significant Chinese skepticism about Democrats’ health “reform” agenda, as “Chinese officials expect that they will help finance whatever Congress and the White House settle on.” At a time of record deficits, when will Democrats stop playing shell games to mask the full cost of their government takeover of health care and start restoring fiscal discipline to Washington?

Will $210 Billion in New Deficit Spending Kill American Jobs?

“It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”

— President Barack Obama, interview quoted by Reuters, November 18, 2009

 

While some may attempt to assert that Speaker Pelosi’s government takeover of health care is fiscally responsible, even President Obama has finally recognized that its provisions could put the health of the American economy at risk:

  • This week the House is expected to consider legislation providing for permanent increases in the Medicare Sustainable Growth Rate (SGR) mechanism for physician reimbursement. Because the Democrat bill is not paid for, CBO scores H.R. 3961 as increasing the deficit by at least $210 billion.
  • In the longer term, an independent analysis of official data conducted by former Medicare public trustee Tom Saving found that a permanent reversal of these current-law reductions, if not paid for by appropriate offsets in spending, could increase Medicare’s unfunded obligations by up to $1.9 trillion over a 75-year period.
  • Despite offering a “responsible” budget that would more than double the national debt to over $24 trillion, President Obama has finally recognized that further increasing federal deficits—as H.R. 3961 would do—could erode economic confidence, resulting in unemployment levels even higher than the current rate of 10.2 percent, a 26-year high.
  • America’s largest foreign creditor has already expressed strong concern about runaway federal spending and deficits. Treasury Secretary Geithner’s claims of the United States’ fiscal rectitude were publicly mocked by an audience during his visit to China earlier this year, and the New York Times ran a front-page article this Sunday noting significant Chinese skepticism about Democrats’ government takeover of health care, as “Chinese officials expect that they will help finance whatever Congress and the White House settle on.” Many may wonder the extent to which passing an unpaid-for “doc fix” adding up to $1.9 trillion in long-term obligations to the federal fisc will further undermine international confidence in the dollar—jeopardizing the American economy and jobs.
  • Many may also note that passage of stand-alone SGR legislation is intended to ease the passage of Democrats’ government takeover of health care—which itself contains job-killing tax increases that could choke any nascent economic recovery. According to a model developed by President Obama’s chief economic advisor, the tax increases in the Pelosi health care bill (H.R. 3962) would demolish or destroy up to 5 million jobs.

While many Members may support SGR reform that is fully paid for, many may also oppose any attempt to increase the deficit by hundreds of billions of dollars in a way that could jeopardize millions of American jobs as part of Democrats’ unpopular government takeover of health care.

Weekly Newsletter: August 24, 2009

Deficit Time Bomb Set to “Explode” Tomorrow

Tomorrow, both the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) will release their updated deficit projections for both the current fiscal year and the upcoming decade. Press reports released late Friday night indicate that the OMB deficit projections will increase by $2 trillion over ten years when compared to the President’s projections of only six months ago—to a deficit of more than $9 trillion this decade alone. While no such estimates have leaked out of CBO ahead of that non-partisan office’s release of its budget numbers, unemployment has already exceeded CBO’s March projections, as have estimates for long-term Treasury interest rates—suggesting that federal revenues may drop more than expected, even as the federal government’s cost of borrowing continues to grow.

Given these impending reports, many Members may be concerned by Democrat attempts to enact health “reform” that will expand federal entitlement obligations while seemingly ignoring the United States’ capacity to carry its existing fiscal obligations, let alone the impact of any future programs created. Particularly after Treasury Secretary Geithner’s claims of the United States’ fiscal rectitude were publicly mocked by an audience during his recent visit to China, Members may believe that Democrats would be wise to provide much more clarity—and spending restraint—before embarking on a new and costly government takeover of health care.

The Face of Government Rationing

From Oregon comes a story that may represent the face of health care across America under Democrats’ “brave new world.” Barbara Wagner, a patient in the state’s Oregon Health Plan, had a request for a chemotherapy drug denied, only to have the same denial letter inform her that the plan would pay for “physician aid in dying.” While the drug denied by the plan—one which would allow Barbara to treat her cancer and live—costs $4,000 per month, the approved drug—which would cause her to die—costs but $100. When contacted by a local news station about the health plan’s priorities, the chairman of a board that sets priorities for the government plan claimed that, “If we invest thousands and thousands of dollars in one person’s days or weeks, we are taking away those dollars from someone.”

Many Members may be saddened, but not surprised, by the government-run Oregon Health Plan’s misplaced priorities. The plan has a history of rationing access to care, creating a list of priorities and refusing to pay for certain treatments and procedures ranked low on the priority scale. In fact, Oregon’s most recent list of “bureaucrat-approved” treatments gives abortion higher priority than ectopic pregnancies or infections stemming from a miscarriage.

Given these skewed priorities in one state—where a bureaucracy will pay for life-destroying treatments, but not life-sustaining ones—many Members may believe that Democrats’ government takeover of health care could replicate the Oregon model across the United States. In the legislation, a board of bureaucrats will be empowered to require individuals to purchase certain coverage—giving unelected officials significant power over all Americans’ health care. Coupled with its lack of prohibitions on government programs using cost-effectiveness tests to deny access to treatments, the legislation’s high and unsustainable costs could well lead to rationing by federal bureaucrats on the same terms as the Oregon model—where, by denying access to life-saving treatments, government ensures that a life-and-death choice for patients isn’t really a choice at all.

Subprime Health Reform

“[Rising federal debt] leaves us very vulnerable to a global rise in interest rates that might be substantially beyond our control….It’s a little like what happened to the subprime borrowers—people are just assuming the funding will always be there.”

—Harvard Professor Kenneth Rogoff, quoted in New York Times on rising interest rates, June 3, 2009

 

A recent blog post by Office of Management and Budget Director Peter Orszag attempted to define the White House’s more than $1 trillion health reform initiative as fiscally responsible because “at worst, we [will] have a deficit-neutral plan that will not worsen our fiscal situation.” However, a history of government-run health programs illustrates a fundamental flaw in Orszag’s premise—new health entitlements have frequently exceeded cost estimates by very wide margins:

  • At the time of its enactment in 1965, actuaries for the House Ways and Means Committee projected that in 1990, Medicare Part A would spend $9.1 billion on hospital services and related administration. In reality, spending in 1990 totaled nearly $67 billion—more than seven times the original estimates.
  • Prior to its enactment, the Medicare Part B program for physician services was projected to be funded through a $3 monthly premium, supplemented by “federal appropriations of about $500 million a year from general tax revenues.” In 2008, Medicare Part B relied upon $146.8 billion in federal general revenues—an increase of nearly 4300 percent in inflation-adjusted spending.
  • In the first ten years following its enactment in 1997, the State Children’s Health Insurance Program relied upon two separate federal bailouts totaling nearly $1 billion to subsidize “shortfall states” which overspent their federal allotment.
  • The Massachusetts health plan—a model for Democrat reform proposals—has experienced significant budgetary pressures in the three short years since its enactment. Massachusetts’ overall costs for health programs have risen 42 percent since 2006, and the cost of the Commonwealth Care program—which subsidizes health insurance for “low-income” families—exceeded projections by more than 50 percent in Fiscal Year 2008.
  • President Obama’s own campaign plan said that enacting health reform “will cost between $50-65 billion a year when fully phased in,” and that savings from the health system itself would fully fund coverage expansions; any up-front spending would be “more than covered by allowing the Bush tax cuts to expire for people making more than $250,000 per year.” However, most estimates suggest the true cost may be more than twice the campaign’s estimates—and a report by the Senate Finance Committee indicates that Democrats are exploring new taxes on alcohol, soda, and college students to fund this entitlement spending.
  • One of the few government health programs to come in under projected estimates has been the Medicare Part D prescription drug program; actuaries at the Centers for Medicare and Medicaid Services recently noted the plan’s costs are 40 percent below estimates at the time of the bill’s passage in 2003. The Part D benefit relies entirely upon competition among private plans to drive down costs—unlike most Democrat proposals, which rely on government-run health plans that have a history of exceeding projected costs, not controlling them.

 

“Over time, lenders began pushing low-income buyers into homes they could not possibly afford…offering low, teaser interest rates that explode after the initial grace period.”

—Barack Obama, Financial Times op-ed on subprime lending, August 29, 2007

Given the history of exploding spending in government entitlement programs, the $1 trillion price tag currently being discussed for health reform represents the tip of the spending iceberg. Members may view the currently proposed spending levels as a $1 trillion “teaser” that could also “explode after the initial grace period” in the same manner as President Obama criticized subprime loans. And just as many home borrowers in recent years believed the value of their homes would never decline, Democrats have not considered that the cost of health reform could significantly exceed projected estimates.

The cost of exceeding projections was brought home by a recent Congressional Budget Office letter analyzing the potential impact of an increase in interest rates over the ten-year budget window. Specifically, the letter found that using the most recent “blue chip” economic forecast of long-term interest rate projections would increase total deficit spending by $1.2 trillion over ten years when compared to the March CBO estimate of the President’s budget. If interest rates returned to their average levels during the 1980s, the United States could face an additional $5.6 trillion in red ink—even before the effects of increased spending on health care entitlements is taken into account.

Some Members may therefore question the priorities and actions of the Democrat majority with respect to its proposed massive expansion of government-run health care:

  • Why are Democrats so scornful of subprime lenders who allegedly placed Americans into loans that “exploded” after several years so unwilling to confront the possibility that health reform could have the exact same effect on the federal budget?
  • What will happen if the new entitlements proposed end up costing significantly more than the $1 trillion projected? Will health reform legislation contain “triggers” requiring Congress and the federal government to scale back entitlement programs in the face of escalating costs, or will federal spending—and the debt passed on to future generations—continue to rise without limit?
  • What are the economic and national security implications of relying on countries like China to finance the proposed new government-run health system?

After Treasury Secretary Geithner’s claims of the United States’ fiscal rectitude were publicly mocked by an audience during his recent visit to China, Democrats would be wise to provide much more clarity—and spending restraint—before embarking on a new and costly initiative to expand government-run health insurance to as many as 114 million Americans.

Weekly Newsletter: July 6, 2009

Health “Reform” Savings to Date: -$7.6 Billion

During Congress’ Independence Day recess, the Administration released proposed rules for physician reimbursement levels in 2010 that would eliminate the cost of physician-administered drugs from the Sustainable Growth Rate (SGR) mechanism used to calculate physician payment levels. According to the Congressional Budget Office, the rule, if implemented, would increase Medicare physician spending by $87.6 billion. Because the Administration did not propose offsetting savings for this new spending, one-quarter of the cost of the proposed change—nearly $22 billion—will be paid directly by seniors in the form of higher Part B premiums, with the remaining cost being absorbed by federal taxpayers.

The Administration’s proposal comes on the heels of a White House announcement that the pharmaceutical industry has committed to find $80 billion in savings to finance the cost of health reform. While details on the industry proposal remain unclear, press reports indicate that much of the proposed $80 billion in savings will not qualify under federal budgetary rules as reducing taxpayer outlays. As a result, the two proposals announced by the Administration will cost federal taxpayers at least $7.6 billion—and if the drug industry proposals do not materialize, significantly more than that amount.

Some Members may be concerned by the Administration’s apparent pattern of combining concrete steps to increase federal health care spending with vague and nebulous promises about future savings. Members may also note that the Medicare savings proposals submitted by the White House could easily finance the cost of repealing the SGR mechanism entirely—thus ensuring seniors’ continued access to physician services—if the Administration were not singularly focused on diverting spending reductions from Medicare to finance expansions of government-run health care to younger populations.

Senate Democrats Make It Harder to Hire the Poor

As they attempt to recover from a month which saw their initial plans for health reform legislation scrapped due to unacceptably high budget scores, Democrats on the Senate Finance Committee have discovered a potential “solution” that may be worse than the problem it attempts to remedy. In order to encourage firms to continue to offer health coverage to their workers, the Finance Committee’s revised proposal would require employers that do not offer coverage to pay for half of the cost of any Medicaid beneficiaries employed by the firm, as well as the full cost of any “low-income” subsidies for individuals with income up to three times the federal poverty level ($66,150 for a family of four).

Outside groups from the Heritage Foundation to the liberal Center for Budget and Policy Priorities have criticized the Finance Committee proposal, which could in practice lead to hiring discrimination against low-wage workers. For instance, a single mother would prove much less attractive to an employer from a financial perspective than a college-age student from a wealthy family—the former would cost the firm additional money in “fair share” contributions, while the latter would not.

More broadly, some Members may be concerned by the panoply of proposals that would raise taxes on businesses that cannot afford to provide coverage to their workers. At a time when unemployment stands at 26-year highs—and with job losses still rising—Members may believe that Democrat proposals to impose new job-related taxes on businesses comprise one sure way to delay economic recovery still further.

The Debt Time Bomb

Also during the recess, the Congressional Budget Office sounded yet another cautionary note about the fiscal impact of current government-run health programs—let alone any additional entitlements the Administration wants to create. Last Tuesday, CBO released a letter analyzing the potential impact of an increase in interest rates over the ten-year budget window. Specifically, the letter found that using the most recent “blue chip” economic forecast of long-term interest rate projections would increase total deficit spending by $1.2 trillion over ten years when compared to the March CBO estimate of the President’s budget. If interest rates returned to their average levels during the 1980s, the United States could face an additional $5.6 trillion in red ink—even before the effects of increased spending on health care entitlements are taken into account.

Many Members may be concerned by the implications of the CBO report, which suggests that Democrats have embarked upon health “reform” that will expand federal entitlement obligations while significantly overestimating the United States’ capacity to carry its existing fiscal obligations, let alone the impact of any future programs created. Particularly after Treasury Secretary Geithner’s claims of the United States’ fiscal rectitude were publicly mocked by an audience during his recent visit to China, Members may believe that Democrats would be wise to provide much more clarity—and spending restraint—before embarking on a new and costly initiative to expand government-run health insurance to as many as 120 million Americans.