Cost estimates – Chris Jacobs' Writing Archive

Warren’s Prescription the Wrong One

In an October analysis the Urban Institute concluded that a single-payer plan, similar to Sen. Warren’s, which eliminates virtually all patient cost-sharing, would raise national health spending by more than 20%, or $719.7 billion a year. In the researchers’ view, the additional demand stimulated by making health care “free” to consumers would overwhelm any potential savings from paying doctors and hospitals government-dictated rates. This higher demand would also raise the cost of single-payer well beyond Sen. Warren’s estimates, meaning middle-class families would face massive tax increases to pay for this spending.

That Prof. Johnson would cite the Urban Institute to argue that Sen. Warren’s plan would lower health-care costs, while ignoring the fact that the institute itself reached the opposite conclusion, speaks to the cherry-picked nature of the proposal, which has drawn derision from liberals and conservatives alike.

This post was originally published at the Wall Street Journal.

The Costs of “Free” Health Care

Libertarian columnist P.J. O’Rourke once famously claimed that “If you think health care is expensive now, wait until you see what it costs when it’s free.” A left-of-center think-tank recently confirmed O’Rourke’s assertion. In analyzing several health care proposals, the Urban Institute demonstrated how eliminating patient cost-sharing from a single-payer system would raise total health care spending by nearly $1 trillion per year.

Those estimates have particular resonance given the recent release of a health care “plan” (such as it is) by Sen. Elizabeth Warren (D-Mass.). Warren’s policy proposals contain myriad gimmicks and rosy scenarios, all designed to hide the obvious fact that one cannot impose a $30 trillion-plus program on the federal government without asking middle-class families to pay—a lot—for its cost.

The Urban Institute estimates show that a single-payer plan maintaining some forms of patient cost-sharing (i.e., deductibles, co-payments, etc.) seems far more feasible—or less unfeasible—than the approach of Warren and Sen. Bernie Sanders (I-VT), who promise unlimited “free” health care for everyone. Mind you, I would still oppose such a plan—for its limits on patient choice, economically damaging tax increases, and likelihood of government rationing—but at least it would have the advantage of being mathematically possible. Not so with Sanders’ and Warren’s current approach.

Option 1: An Obamacare-Like Single-Payer Plan

In the October policy paper, several Urban researchers examined the financial effects of various health coverage proposals, including two hypothetical single-payer systems. The first single-payer system would cover all individuals legally present in the United States. Urban modeled this system to cover all benefits required under Obamacare, and fund 80 percent of Americans’ expected health costs per year, equivalent to a Gold plan on the Obamacare exchanges. Americans would still pay the other 20 percent of health spending out-of-pocket.

This proposed “lite” single-payer system would still require massive tax increases—from $1.4-$1.5 trillion per year. But it would actually reduce total health spending by an estimated $209.5 billion compared to the status quo.

This single-payer system generates calculated savings because Urban assumed the plan would pay doctors current rates under the Medicare program, and pay hospitals 115 percent of current Medicare rates. Because Medicare pays medical providers less than private insurers, moving all patients to these lower rates would reduce doctors’ and hospitals’ pay—which could lead to pay and job cuts for health professionals. But in the Urban researchers’ estimates, it would lower health spending overall.

**Option 2: ‘Free’ Health Care Costs a Lot of Money**

Compare these outcomes to a proposal closely modeled on the single-payer legislation supported by Sanders and Warren. Unlike the first proposal, this “enhanced” single-payer system would cover “all medically necessary care,” with “no premiums or cost-sharing requirements.” It would also enroll all U.S. residents, including an estimated 10.8 million illegally present foreign citizens.

The Urban researchers found that the single-payer plan with no cost-sharing would raise total health spending by $719.7 billion compared to the status quo. Compared to the “single-payer lite” plan, which provides benefits roughly equivalent to Obamacare, eliminating cost-sharing and covering foreign citizens would raise total health spending by $929.2 billion. Moreover, the plan with no cost-sharing requires a tax increase nearly double that of the “single-payer lite” plan—a whopping $2.7-$2.8 trillion per year.

The Urban Institute estimates confirm that making all health care “free,” as Sanders and Warren propose, would cause an enormous increase in the demand for care. This would overwhelm any potential savings from lower payments to doctors and hospitals, meaning the health sector would face a double-whammy, of getting paid less to do more work. These estimates also could underestimate the growth in health spending, because Urban’s researchers did not assume a rise in medical tourism or immigration when calculating the increase in demand for “free” health care.

Socialists’ ‘Solution’: Hold Costs Down by Rationing

Socialist supporters of Sanders’ plan attacked these estimates, claiming that the Urban Institute failed to consider that a single-payer system would ration access to “free” health care. The People’s Policy Project called Urban’s estimates of increased demand “ridiculous,” in part because “there is still a hard limit to just how much health care can be performed because there are only so many doctors and only so many facilities.”

Its position echoes that of the socialist magazine Jacobin, which in response to a single-payer study by the Mercatus Center last year admitted that “aggregate health service utilization is ultimately dependent on the capacity to provide services, meaning utilization could hit a hard limit.”

An increase in health spending of nearly $1 trillion per year, and increased waiting times and rationed access to care: either or both of those scenarios represent the costs of “free” health care, based on the words of leftists themselves. The prospect of either scenario should make Americans reject this socialist approach.

This post was originally published at The Federalist.

Warren Advisor Admits Her Health Plan Raises Middle Class Taxes

That didn’t last long. Five days after Sen. Elizabeth Warren released a health plan (chock full of gimmicks) that she claimed would not raise taxes on the middle class, one of the authors of that plan contradicted her claims.

In an interview with Axios published on Wednesday, but which took place before the plan’s release, Warren advisor and former Centers for Medicare and Medicaid Services Administrator Donald Berwick said the following:

Q: Many people may not know their employers cover 70% or more of their entire premium — money that otherwise would go to their pay. Is this the main problem when talking about reforms?

DB: The basics are not that complicated. Every single dollar — every nickel spent on health care in this country — is coming from workers. There’s no other source. [Emphasis mine.]

Compare that phraseology to what Joe Biden’s campaign spokesperson said on Friday about Warren’s plan and its effects:

For months, Elizabeth Warren has refused to say if her health care plan would raise taxes on the middle class, and now we know why: Because it does….Senator Warren would place a new tax of nearly $9 trillion that will fall on American workers. [Emphasis mine.]

In response to the Biden campaign’s criticism, Warren said last Friday that her health plan’s projections “were authenticated by President Obama’s head of Medicare”—meaning Berwick. Unfortunately for Warren, Berwick, by virtue of his comments in his interview with Axios, also “authenticated” Biden’s attack that her required employer contribution will hit workers, and thus middle-class families.

Warren also tried to defend her plan on Friday by claiming that “the employer contribution is already part of” Obamacare. Obamacare does include an employer contribution requirement, but that requirement:

Is capped at no more than $3,000 per worker, far less than the average employer contribution for workers’ health coverage—$14,561 for family coverage as of 2019— which will form the initial basis of Warren’s required employer contribution;
Does not apply to employers at all if the firm offers “affordable” coverage—an option not available under Warren’s plan, which would make private insurance coverage “unlawful;” and
Will raise an estimated $74 billion in the coming decade, according to the Congressional Budget Office—less than 1 percent of the $8.8 trillion Warren claims her required employer contribution would raise.

While Obamacare and Warrencare both have employer contributions, the similarities pretty much end there. Calling the two equal would equate a log cabin to Buckingham Palace. Sure, they’re both houses, but differ greatly in size. Warren’s “contribution”—which Berwick, her advisor, admits will fall on middle-class workers—stands orders of magnitude greater than anything in Obamacare.

Public Accountability?

In the same Axios interview, Berwick highlighted what he termed a tradeoff “between public accountability and private accountability.” He continued: “By not having a publicly accountable system, we are paying an enormous price in lack of transparency.”

His comments echo prior justification of his infamous “rationing with our eyes open” quote in a 2009 interview. As he explained to The New York Times as he departed CMS in late 2011, “Someone, like your health insurance company, is going to limit what you can get….The government, unlike many private health insurance plans, is working in the daylight. That’s a strength.”

Except that Berwick, as CMS administrator, went to absurd lengths to hide from public scrutiny after his series of remarks. He would gladly meet with health-care lobbyists behind closed doors, but refused to answer questions from reporters, going so far as to duck behind curtains and request security escorts to avoid doing so.

Warren apparently has taken a lesson in opacity from Berwick’s time as CMS administrator. At first, she avoided releasing a specific health care proposal at all, only to follow up by issuing a “plan” containing so many absurd assumptions as to render it irrelevant as a serious blueprint for legislating.

Unfortunately for her, however, Berwick committed the unforgivable sin of speaking an inconvenient truth about the effects of her proposal. Eight years after leaving office as CMS administrator, Berwick, however belated and however unwittingly, delivered some much-needed public accountability for Warren’s health plan.

This post was originally published at The Federalist.

Analyzing the Gimmicks in Warren’s Health Care Plan

Six weeks ago, this publication published “Elizabeth Warren Has a Plan…For Avoiding Your Health Care Questions.” That plan came to fruition last Friday, when Warren released a paper (and two accompanying analyses) claiming that she can fund her single-payer health care program without raising taxes on the middle class.

Both her opponents in the Democratic presidential primary and conservative commentators immediately criticized Warren’s plan for the gimmicks and assumptions used to arrive at her estimate. Her paper claims she can reduce the 10-year cost of single payer—the amount of new federal revenues needed to fund the program, over and above the dollars already spent on health care (e.g., existing federal spending on Medicare, Medicaid, etc.)—from $34 trillion in an October Urban Institute estimate to only $20.5 trillion. On top of this 40 percent reduction in the cost of single payer, Warren claims she can raise the $20.5 trillion without a middle-class tax increase.

How does Warren arrive at her numbers, and how credible are they? The below analyzes every proposal and assumption in her plan: both those generating savings within the health-care system and those creating additional revenue to pay for single payer. All numbers below rely on Warren’s own 10-year estimates; she bases the savings figures on reductions in spending relative to the Urban Institute’s 10-year score.

One gimmick applies to all of Warren’s revenue estimates, and is buried on page 12 of the revenue appendix:

We have used static estimates to score the revenue measures used to fund your [single payer] plan. These estimates thus do not account for the impact of these revenue measures on economic activity.

In other words, if taxing “the rich” and corporations shrinks the economy—which it undoubtedly will—then Warren’s revenue forecast won’t meet projections, and she will have a huge, multi-trillion-dollar hole in her estimates. (Oops.)

Savings Proposal 1: Insurer Administrative Spending

How Much: $1.8 trillion, which comes from assuming the single-payer program will have an administrative cost rate of 2.3 percent—what the authors claim as Medicare’s current administrative costs at present—rather than the 6 percent assumed by the Urban Institute.

What’s the Catch? Claiming that single payer would rely on Medicare’s current administrative costs ignores one fundamental point: Contrary to claims by Warren and Sen. Bernie Sanders (I-Vt.) that their plan would create “Medicare for All,” Sanders’ legislation (which Warren has co-sponsored) would abolish the current Medicare program, and create an entirely new government-run health program—with an entirely new regulatory regime.

Federal bureaucrats would have to translate the 100 pages of Sanders’ bill into (tens of) thousands of pages of regulations and guidelines. This massive undertaking would increase rather than decrease Medicare’s administrative costs for many years to come. One analyst at the Urban Institute warned that the new government program “might not have the resources to do a good job at setting prices for vital services.”

Second, the supposed 2.3 percent rate of administrative costs for the current Medicare program omits major costs excluded from the trustees’ estimate—such as the costs of construction for Medicare’s buildings, or the collection costs that the Internal Revenue Service shifts to the private sector (e.g., employers’ administration of payroll taxes). In 2009, liberal writer Ezra Klein said “a more straightforward estimate” of administrative costs for Medicare “would be in the range of 5 to 6 percent”—the range assumed by the Urban researchers. He continued:

Some activities that are considered ‘administrative’ are useful. Disease management, for instance….Good-faith investigations into waste, fraud, and abuse. Care coordination. Nurses who use e-mail or telephones to remind patients to take their drugs. Administration is not always wasteful.

Particularly given current improper payment rates—8.12 percent for traditional Medicare, and 9.8 percent for Medicaid—keeping administrative costs arbitrarily low would discourage anti-fraud efforts in the new government-run program, representing a poor use of taxpayer funds.

Gimmick Factor (scale of one-to-ten): 10. In 2017, the fact checker for the Washington Post said “single-payer advocates are counting savings that might not materialize”—exactly Warren’s strategy. Furthermore, it appears ridiculous for Warren on the one hand to claim that greater enforcement of tax laws will generate additional revenue to fund single payer (about which more below), but on the other hand to claim that keeping administrative costs low will not encourage massive amounts of fraud in the new government program.

Savings Proposal 2: Prescription Drug Reform

How Much: $1.7 trillion in prescription drug savings, above and beyond the savings assumed by the Urban Institute, by assuming a 70 percent reduction in current Medicare prices for branded drugs, and a 30 percent reduction in current Medicare prices for generic drugs.

What’s the Catch? The plan assumes reductions well beyond the supposed savings in House Speaker Nancy Pelosi’s drug “negotiation” legislation (H.R. 3). It applies “negotiation” to all branded and generic drugs, reduces the target price for “negotiation” from 120 percent of the international average to 110 percent of that average, adds penalties for companies that raise the price of their drugs above the rate of inflation, and allows the federal government to license companies’ patents if they refuse to “negotiate” their prices.

As with the Pelosi bill, these proposals bring two problems. First, both Pelosi and Warren assume their legislation passes legal and constitutional muster, but it quite possibly does not. The Congressional Budget Office (CBO) noted in its preliminary score of Pelosi’s bill that the legislation “could result in litigation” on those grounds. Imposing an excise tax of up to 95 percent—which CBO noted “could cause the drug manufacturer to lose money” on their products—or licensing a company’s patents each raise legal issues regarding unconstitutional takings without proper compensation.

Gimmick Factor: 7. Not for the first (or last) time, Warren presupposes that trifling inconveniences like the U.S. Constitution and the rule of law need not apply to her plan.

Savings Proposal 3: Lower Hospital Payments (Part I)

How Much: $600 billion in savings, above and beyond the savings assumed by the Urban Institute, by paying hospitals 110 percent of current Medicare rates, instead of the 115 percent of Medicare rates assumed by Urban. (Physician payments would total 100 percent of current Medicare rates in both plans.)

What’s the Catch? Warren’s plan contains four main assertions to support these lower payment rates, all of them dubious. First, she claims that enacting single payer would reduce providers’ administrative-related expenses (separate and distinct from insurers’ administrative expenses) by anywhere from 50-75 percent. As noted above, however, the uncertainty associated with creating an entirely new regulatory regime could well increase the administrative burden on doctors and hospitals for many years.

Second, Warren claims that single payer would lead to additional revenues: “Physicians would gain back much of [their] time for additional patient care, increasing their billable hours,” and “for hospitals, this increased access [to services] means increased volume and enhanced revenues.” By making this argument, Warren encourages doctors and hospitals to bill for additional services—even as the rest of her paper claims to want to move the health-care system away from traditional fee-for-service medicine. Moreover, as I argued more than a year ago, her argument essentially means doctors and hospitals will get paid less for doing more work.

Third, the paper claims that increased antitrust scrutiny will improve efficiency under single payer: “hospital competition will be an important feature…to ensure that providers are competing for patients on the basis of care quality and experience.”

However, Section 614(f) of the House single-payer bill (but not the Senate version) explicitly prohibits the new federal program from “utiliz[ing] any quality metrics or standards for the purposes of establishing provider payment methodologies.” If all doctors and hospitals will get paid the same under single payer, such that the federal government cannot pay good doctors and hospitals more money, how exactly can medical providers compete on the basis of quality (or anything else, for that matter)?

Finally, Warren focuses heavily on aggregate effects of provider pay, while ignoring important underlying trends. In fairness, doctors and hospitals who see many Medicaid patients could see their overall payments go up under single payer, because most state Medicaid programs pay providers less than the current Medicare program.

However, providers with a large share of patients with private insurance (which pays far more than the current Medicare program) will likely receive a significant decline in their reimbursements. Calling these providers “inefficient,” as Warren does in her plan, does not take away from the fact that they would have to engage in pay cuts or significant layoffs—an April Journal of the American Medical Association study suggested up to 1.5 million job losses from hospitals alone—to become “efficient” (assuming that is even possible).

Gimmick Factor: 9. This argument revolves around an argument easily rebutted by logic: Doctors and hospitals will not accept less pay to engage in more work.

Savings Proposal 4: Lower Hospital Payments (Part II)

How Much: A total of $2.3 trillion in savings, by paying hospital-owned physician offices at the physician office rate ($500 billion in savings), reforming post-acute care payments ($500 billion), and instituting bundled payments that combine inpatient care with 90 days of post-acute care ($1.2 trillion in savings). Presumably, the difference between the $2.3 trillion total and the $2.2 trillion sum of its component parts reflects rounding, but the paper does not say so outright.

What’s the Catch? For starters, one can raise legitimate questions about the accuracy of Warren’s numbers. More than half of the savings, derived from the bundling of post-acute care, come from a Congressional Budget Office estimate from November 2013—i.e., six years ago. To the extent that the budget scores have changed, doctors and hospitals have already engaged in the kinds of reforms the paper calls for, or the Urban Institute’s modeling (upon which the Warren campaign based their estimates) has already captured these changes, the plan relies on unrealistic and outdated assumptions to generate its supposed savings.

Moreover, the document admits that “we further adjusted the bundled payment extrapolation to reflect the desired policy outcome of reducing this spending”—that is, “an additional reduction [in hospital payment rates] to achieve this spending aim.” Her campaign provided no details as to the specifics of that “further adjust[ment],” or the policy justification for doing so.

More broadly, depending upon whether one uses the current national health expenditure projections, the Urban Institute’s estimates of health spending under single payer, or a mix of the two, this proposal would reduce health spending for hospitals and post-acute care providers by anywhere from 5-10 percent, on top of the payment reductions located elsewhere in the plan. It seems highly unlikely that such reductions would prove economically, let alone politically, sustainable.

Gimmick Factor: 6. In theory, the health-care system could benefit from lower spending associated with these reforms. But in some cases, the changes may have already taken place—and in others, the cuts may dig too deep when combined with other payment reductions in the plan.

Savings Proposal 5: Lower Spending Growth Rates

How Much: A total of $1.1 trillion in savings compared to the Urban Institute estimates, by presuming that the growth in health-care spending will decline, such that it will equal the growth in overall gross domestic product. If costs continue to grow above GDP, the paper cites “several policy levers…to keep [costs] near GDP growth, including global budgets, population-based budgets, and automatic rate reductions.”

What’s the Catch? Most of the above options would presumably result in one-time savings to the health-care system. Payments would drop—and in some cases, drop quite dramatically—but after that drop, would continue to grow. But the paper states Warren’s plan “will certainly work to lower cost growth over time,” and assumes additional savings in future years on that basis.

However, the few specific ideas mentioned to keep the growth of health care costs at or below GDP growth—such as global budgets and automatic rate reductions—have serious drawbacks. Consider what the Congressional Budget Office said in a May report about under-funding in Britain’s single-payer health system:

Since 2010, the global budget in England has grown by about 1 percent annually in real (inflation-adjusted) terms, compared with an average real growth of about 4 percent previously. The relatively slow growth in the global budget since 2010 has created severe financial strains on the health care system. Provider payment rates have been reduced, many providers have incurred financial deficits, and wait times for receiving care have increased.

What does that kind of chronic under-funding mean for patients? In Britain in January 2018, it meant 55,000 operations cancelled, waits of up to 12 hours in emergency rooms, and ER doctors apologizing for “Third World conditions” in their wards due to overcrowding. That is how Britain “saved” money on health care.

Gimmick Factor: 9. The assumption of further spending reductions reflects either an over-optimistic assumption, or an implicit admission that Warren will arbitrarily reduce health care spending to meet set targets. Given that Donald Berwick—of the infamous quote that “the decision is not whether or not we will ration care, the decision is whether we will ration with our eyes open”—co-authored Warren’s plan, the latter may in fact be the case.

Savings Proposal 6: Re-Direct State and Local Spending

How Much: $6.1 trillion, obtained by redirecting existing state and local spending on Medicaid ($3.4 trillion), and on premiums and health costs for state and local government employees ($2.7 trillion), to fund single payer.

What’s the Catch? Here, the catch comes less in the form of a budget gimmick than via political and legal obstacles. States fought the “clawback” payments included in the 2003 Medicare Modernization Act, which reflected a shift in funding prescription drug payments from the states to the federal government. They and local governments would likely object to any attempt to force them to fund single payer.

It is unclear what ability (if any) the federal government would have to force states to make such payments in perpetuity. Beginning with a 1997 decision that struck down elements of the Brady Bill, the Supreme Court has begun to reassert the Tenth Amendment’s prohibition on the federal government issuing orders to independently sovereign states. The 2018 ruling that allowed states to legalize sports gambling continued this anti-commandeering trend.

Similarly, the Supreme Court’s 2012 ruling that made Medicaid expansion optional for the states said Obamacare engaged in “economic dragooning” of the states. Requiring states and local governments to contribute more than $6 trillion to the federal government in the course of a decade seems like a clear example of “economic dragooning,” making it constitutionally questionable at best.

Also of note: While this $6.1 trillion in re-directed spending actually represents a funding option—replacing federal spending with state and local dollars—Warren’s plan tried to characterize it as a source of “cost reduction.” More accurately characterizing this spending as a funding source rather than as cost savings would increase the price tag of her plan from $20.5 trillion to $26.6 trillion over a decade.

Gimmick Factor: 7. If the left had any regard for the Constitution, they would question the viability of these types of proposals. Warren seems little concerned with such mere trifles.

Revenue Proposal 1: Employer Contributions

How Much: $8.8 trillion in contributions from employers, designed to replicate the contributions they currently make towards employees’ health insurance costs.

What’s the Catch? First, economists generally believe that firms will pass the costs of this “contribution” to their workers. Moreover, Warren’s plan would make this contribution mandatory, as opposed to current practice, in which firms can choose whether to offer health benefits to their workers.

Second, Sanders argued over the weekend that his proposal for a 7.5 percent payroll tax would be “more progressive” than Warren’s plan. To the extent that one cares about progressivity in the tax code, Sanders has a point, because a percentage-based payroll tax would impose higher costs for employees with higher incomes.

For instance, a firm employing an individual with a salary of $300,000 would pay $22,500 in payroll taxes—more than most firms pay in contributions to their workers’ coverage—while a firm employing an individual with a salary of only $30,000 would pay one-tenth that amount ($2,250) in taxes. Whether Sanders’ payroll tax would generate enough revenue to fund single payer at a rate of “only” 7.5 percent is a separate question; results from past examples, and from other non-partisan estimates, seem far from promising on that front.

More fundamentally, one line in the document speaks to the problems inherent in this proposal: “Additional rules, including anti-evasion rules, would be developed” (emphasis added). Just some of the language in Warren’s paper describing this mandatory contribution speaks to its complexity, which would impose its own costs on businesses:

To calculate the contribution, employers will determine what they spent on premium contributions for employer-sponsored insurance, other health-related expenses for employees, and health plan administration in each of the last three years, and divide that by the number of employees of the company in each of those years to arrive at their average annual health care cost per employee. (Part-time employees would count in proportion to the number of hours they worked.) A similar calculation would apply to pass-through entities, such as law firms or private equity funds, and health-related expenses now paid by them or their owners or partners, even though such individuals technically are not employees. Self-employed individuals would be required to provide Employer Medicare Contributions if they exceed an income threshold.

Under the first year of [single payer], employers would be obligated to take that per-employee cost, adjust it upwards to account for the overall increase in national health care spending, multiply it by their total number of employees, and contribute 98% of that amount as their Employer Medicare Contribution. Over time, an employer’s health care cost-per-employee would gradually be shifted downwards (or upwards) towards the average health care cost-per employee nationally among firms paying the Employer Medicare Contribution.

The plan implicitly acknowledges the possibilities of gaming this proposal—for instance, by having firms drop their coverage to avoid making contributions. Her paper talks of a “Supplemental Employer Medicare Contribution requirement for large firms with extremely high executive compensation and stock buyback rates”—parameters for each not specified—if the structure outlined above fails to generate the needed $8.8 trillion in revenue.

Gimmick Factor: 8. This “contribution” will not only hit the middle class, it will raise costs for businesses in the process. Some firms may succeed in reducing their contributions, but only by engaging in economically inefficient or complicated behavior.

Revenue Proposal 2: Additional Income Taxes

How Much: $1.4 trillion in revenue coming from employees no longer paying premiums for employer-sponsored insurance on a pre-tax basis, along with the abolition of health-related tax incentives (health savings accounts, itemized deduction for medical expenses, etc.)

What’s the Catch? By no longer having to pay premiums on their employer-sponsored coverage, individuals will save money—at least in theory. But because premiums for employer-sponsored coverage are paid on a pre-tax basis, workers would have to start paying income and payroll taxes on these dollars.

Gimmick Factor: 5. This tax will absolutely hit the middle class, Warren’s claims notwithstanding. Whether one considers this additional revenue a broken promise depends on whether one focuses on the $1 individuals will “save” in premiums, or the 30-40 cents of income and payroll taxes most people will have to pay because that $1 in “savings” now counts as added income.

Revenue Proposal 3: Taxes on Banks

How Much: A total of $900 billion in revenue from a 0.1 percent tax on financial transactions ($800 billion) and a “systemic risk fee” for banks with more than $50 billion in assets ($100 billion).

What’s the Catch? Apart from the fact that such taxes raise costs for retirement funds, and thus every American with a 401(k) or IRA, past experience suggests financial transaction taxes do not raise the amount of revenue promised. Italy, France, and Sweden each raised a fraction of the revenue they originally estimated from a financial transactions tax, in part because the number of trades fell as trading moved elsewhere. In fact, Congress repealed an earlier version of a financial transaction tax in 1965 as poor and ineffective tax policy.

Gimmick Factor: 6. At best these taxes will have little revenue impact, as markets and trading desks adjust their business models. At worst, it will raise costs for savers, including those in the middle class struggling to save for retirement.

Revenue Proposal 4: Taxes on Corporations

How Much: A total of $2.9 trillion in revenue from a repeal of accelerated depreciation ($1.25 trillion) and a country-by-country minimum tax on foreign earnings of 35 percent, the American corporate tax rate Warren wants to return to after repealing the 2017 tax reform legislation ($1.65 trillion).

What’s the Catch? First, as the Committee for a Responsible Federal Budget notes, “much of the revenue from [repealing accelerated] depreciation comes from a timing shift that increases tax payments now but reduces them later.” Under Warren’s proposal, companies could still write off their equipment, they just couldn’t do so as quickly as under current law. As with an expansion of Roth IRAs, this proposal would generate up-front revenue, but that revenue would decline over time.

Second, increasing corporate tax rates—which Congress just lowered, with bipartisan support—would again encourage companies to relocate overseas. An appendix to Warren’s paper admits that the long-term revenue impact of this change “depends on how U.S. multinationals would change the location of their profits, the location of their headquarters (i.e., inversions), and the evolution of the tax rates applied by other countries.” Ironically enough, if other countries raise their tax rates, a minimum tax on foreign earnings would yield the United States no revenue.

Gimmick Factor: 7. The depreciation proposal by definition will generate diminishing revenue for the federal government, and both will encourage companies to make inefficient, and therefore growth-sapping, decisions to avoid taxes.

Revenue Proposal 5: Taxes on ‘The 1 Percent’

How Much: A total of $3 trillion in revenue from high earners, including an additional 3 percent wealth tax on those with net worth over $1 billion ($1 trillion) and higher capital gains taxes for “the top 1 percent” ($2 trillion).

What’s the Catch? The first prong of this proposal would increase Warren’s wealth tax from 3 percent to 6 percent. (Her initial 3 percent wealth tax would fund other proposed programs.) This tax would force individuals to forfeit to the federal government 6 percent of their net worth per year, every year.

Lawrence Summers, a former advisor to both Presidents Clinton and Obama, wrote earlier this year that Warren’s initial wealth tax would not generate as much revenue as promised, due to likely attempts at tax avoidance. (Summers also noted that nine of 12 countries in the Organization for Economic Cooperation and Development have repealed their wealth taxes since 1990, finding them too cumbersome to administer.)

For instance, individuals could accelerate donations to charities, to decrease the amount of their wealth subject to the tax. Doubling the proposed wealth tax rate from 3 percent to 6 percent would only encourage this type of behavior, lowering its potential to generate revenue.

The second prong of this proposal would require “the top 1 percent” (not defined more specifically) to pay capital gains taxes every year. If a stock held by such an individual rose from $40 to $45 during a year, for instance, the individual would owe taxes on the $5 worth of appreciation—whether the individual sold the stock or not.

Beyond the fact that individuals might have to sell assets early just to pay the new capital gains tax, Warren’s proposal creates another problem: This “mark-to-market” approach would likely lead to major revenue fluctuations, and potentially revenue losses, for the federal government during recessions. For instance, if the stock held by the individual referenced above dropped in value from $45 to $35 over the course of a year, the individual could write off that $10 loss too. The net result would be dramatic drops in revenue for the federal government that coincide with drops in the stock market.

Gimmick Factor: 8. Taxing “the rich” may represent good politics, but seems unlikely to generate anywhere near the amount of revenue Warren would have you believe. (It also will generate negative economic impacts—which, as noted above, Warren’s advisors did not consider when arriving at their estimates.)

Revenue Proposal 6: Tax Enforcement

How Much: $2.3 trillion in revenue from increased tax compliance, including additional funding for the IRS’s Criminal Investigation Division, and expanded third-party withholding and reporting requirements.

What’s the Catch? The Congressional Budget Office estimated last December that a $20 billion increase in the IRS’s enforcement budget would raise a total of $55 billion in revenue over a decade. The net increase in revenue of $35 billion amounts to 1.52 percent of the $2.3 trillion Warren promises these provisions would collectively raise.

Gimmick Factor: 9. This proposal likely worked backwards from a number—“Let’s assume we can reduce the tax compliance gap [the gap between taxes owed and taxes paid] from 15 percent down to 10 percent”—and then filled in some policies that they claim could reduce the tax gap by one-third. However, analysts at CBO likely will not use the same crude methodology to derive their estimates, nor should they. Moreover, adding the new requirements Warren proposes will raise compliance costs, including for small business owners and self-employed individuals (including this one) firmly ensconced in the middle class.

Revenue Proposal 7: Immigration Changes

How Much: $400 billion in direct revenue from immigration policy changes.

What’s the Catch? First, the fact that for more than a decade, both Republican and Democratic Congresses have failed to enact immigration legislation, meaning this proposal assumes something that likely will not happen.

Warren apparently looks to use the same money from immigration reform twice—first to fund single payer, and then to fund Social Security benefits for new immigrants.

Second, the Urban Institute report from which Warren derived her own estimates admitted that “we do not attempt to estimate any potential effect of additional residency (legal or otherwise), or medical tourism that could result” from single payer. It seems one-sided for Warren not to consider any potential increase in health-care spending resulting from immigrant populations—because even Hillary Clinton has admitted that “too many…illegal aliens…come in [to the United States] for medical care as it is”—while simultaneously using tax revenue from immigration reform to pay for her plan.

Third—and most importantly—Warren’s plan relies on a 2013 Congressional Budget Office score of an immigration reform plan to derive its supposed $400 billion in revenue. But that CBO score showed that the budgetary savings from enacting immigration reform came off-budget. That means that some or all of the “revenues” from immigration reform—which Warren wants to use to fund single payer—could come from immigrants paying payroll taxes, which they will eventually receive back in the form of Social Security payments.

Just like Democrats used reductions in Medicare spending both to “save Medicare” and “fund [Obamacare],” Warren apparently looks to use the same money from immigration reform twice—first to fund single payer, and then to fund Social Security benefits for new immigrants.

Gimmick Factor: 10. Warren knows she can’t use immigration to pass single payer, and her advisors undoubtedly know that any payroll tax revenue from changes to immigration laws would need to be directed to Social Security benefits. They just found themselves short of revenue, and decided to add changes to immigration laws as a “magic asterisk” to make their numbers work—at least on paper.

Revenue Proposal 8: Elimination of the Overseas Contingency Operations Fund

How Much: $800 billion from eliminating and defunding the Overseas Contingency Operations Fund.

What’s the Catch? Ironically enough, OCO’s prominence—and Warren’s decision to use it as a funding source for single payer—comes in large part from its current use as a budget gimmick. The 2011 Budget Control Act exempted OCO funds from the legislation’s caps on defense spending. To avoid a sequester of defense spending under the BCA, Congress and the administration have used OCO to fund operations previously included in the “base” Pentagon budget, and which have little or no direct connection to overseas operations, or the Global War on Terror.

As it happens, however, the Budget Control Act’s enforcement mechanisms for discretionary spending (including defense spending) are already scheduled to expire at the end of Fiscal Year 2021—September 30, 2021. Warren’s pledge to eliminate an account whose prime purpose (i.e., circumventing defense spending caps and the sequester) will already end eight months after her potential inauguration seems unnecessary at best, and disingenuous at worst.

Gimmick Factor: 8. This particular example of fiscal legerdemain seems particularly meta—engaging in one budget gimmick by repealing another budget gimmick.

This post was originally published at The Federalist.

In Fourth Dem Debate, Warren Maintains Her Health Care Evasion

On Tuesday, Sen. Sherrod Brown—a notable leftist who has said he supports a single-payer health care system in theory—said in a CNN story that “it’s a terrible mistake if the Democratic nominee would publicly support ‘Medicare for All.’” On Tuesday evening, two of the party’s leading contenders for that nomination, Sens. Bernie Sanders and Elizabeth Warren, redoubled their commitment to such a policy, with Warren drawing fire from all sides about her lack of detail surrounding the issue.

As she had in previous debates, Warren refused to get into specifics about how she would pay for the single-payer plan that Sanders has introduced as legislation, and which Warren has endorsed. Sanders has previously admitted that taxes on the middle class would go up under his plan.

Warren would not admit that taxes on the middle class would go up under single payer. She claimed that costs for the middle class would go down on net under her plan, and that she would not sign any legislation that raised costs on the middle class.

However, even this supposed promise raised additional questions:

Who qualifies as middle class in Warren’s estimation? A family making under $50,000, a family making under $250,000, or somewhere in between?
Does Warren’s promise mean that no middle-class families will see their costs go up on net? If so, that seems like an impossibly high bar to clear, as virtually every major law creates both winners and losers. Even though the left tries to turn the federal government into another version of “Oprah’s Finest Things”—“You get a car! You get a car! You get a car!”—it rarely works out that way in practice.
In September 2008, Barack Obama made a “firm pledge” that he would not raise taxes on families making under $250,000 per year—“not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.” That promise lasted for less than a month of his administration. On February 4, 2009, two weeks after taking office, Obama signed a children’s health insurance reauthorization that included a large increase in tobacco taxes—taxes that hit working class families hardest. Given how quickly Obama did an about-face on his campaign promise, why should the American people take Warren’s word any more seriously than they did Obama’s “firm pledge?”

South Bend Mayor Pete Buttigieg also chimed in on the funding discussion. He had previously characterized Warren as “extremely evasive” on the issue during the last debate, and released ads prior to this debate questioning Warren’s and Sanders’ proposals to prohibit private health insurance. During the CNN debate, he pressed both issues, noting (as this commentator has) that Warren has “a plan for everything, except this.” With that, Warren derided Pete’s plan as “Medicare for all who can afford it.”

It seems particularly noteworthy that Warren wants to enact a major expansion of the federal government’s role—the largest expansion of government’s role ever, in both its financial scope and massive reach into every American’s life—yet cannot find a sufficient justification to admit the middle class will pay even a little bit more in taxes to fund this socialist utopia. The former speaks volumes about the left’s ultimate objective—full, unfettered power over the economy—and the latter speaks to the deception they are using to obtain it.

This post was originally published at The Federalist.

The Broken Promises of Louisiana’s Medicaid Expansion

Some in Louisiana want to claim that the state’s expansion of Medicaid to able-bodied adults represents a success story. The facts indicate otherwise. Medicaid expansion has resulted in large costs to taxpayers, significant amounts of waste, fraud, and abuse, and tens of thousands of able-bodied adults shifting from private coverage to government insurance—even while individuals with disabilities continue to wait for care. On issue after issue, Medicaid expansion has massively under-performed its sponsors’ own promises:

The Issue: Enrollment

The Claim: “The Department [of Health] had originally based its projections based on U.S. Census data that counted about 306,000 people as uninsured.” – New Orleans Times-Picayune[1]

The Facts:

Even though the Department of Health tried to increase its projected enrollment numbers as soon as it made its first estimate, the expansion population has soared well past even these higher claims.[2]
As of April 2019, 505,503 individuals had enrolled in Medicaid expansion—65.2% higher than the Department’s original estimate, and 12.3% higher than the Department’s revised enrollment estimate of 450,000 individuals.[3]
Medicaid enrollment has declined slightly since April 2019, but only because the Department of Health removed tens of thousands of ineligible individuals from the rolls that were receiving benefits they likely did not deserve.[4]
In the spring of 2019, the Department of Health commissioned several LSU researchers to project Medicaid enrollment in future years. The researchers concluded that participation in Medicaid expansion would bounce back from recent enrollment declines to reach an all-time high this year of 512,142 individuals. The researchers also concluded that Medicaid expansion enrollment would continue to increase in future years. Despite spending a total of $71,120 of federal and state taxpayer dollars on this report, the Department of Health has yet to release it publicly.[5]
The fact that the Department of Health cited Louisiana’s uninsured population as only 306,000, and yet enrollment has far exceeded that number, further demonstrates that Medicaid expansion has led residents to drop their private insurance to go on to the government rolls—and encouraged people who do not qualify for subsidized coverage to apply anyway.[6]

The Issue: Costs and Spending

The Claim: “In Fiscal Year 2017, Medicaid expansion saved Louisiana $199 million. Beginning July 1, 2017, these savings are expected to surpass $350 million.” – John Bel Edwards[7]

The Facts:

Louisiana’s Medicaid expansion has cost far more than expected, placing a higher burden on taxpayers.
In 2015, the Legislative Fiscal Office estimated that expansion would cost around $7.1 billion-$8 billion over five years, or approximately $1.2 billion-$1.4 billion per year.[8]
For the fiscal year ended June 30, 2019, Medicaid expansion cost taxpayers an estimated $3.1 billion—more than twice the Legislative Fiscal Office’s original estimates.[9]
Because most Louisiana residents also pay federal taxes, shifting spending from the state to the federal government does not “save” Louisianans money. Rather, it means Louisiana taxpayers will continue to pay for this skyrocketing spending, just through their federal tax payments instead of their state tax bills.

The Issue: Fraud

The Claim: “Louisiana Medicaid is tough on fraud….When it comes to getting tough on Medicaid fraud, Louisiana is among an elite group of states leading the way by doing the right thing.” – John Bel Edwards[10]

The Facts:

Because Louisiana rushed its way into Medicaid expansion without first building a proper eligibility system, the state has spent hundreds of millions of taxpayer dollars providing subsidized health insurance to ineligible individuals.
More than a year after Gov. Edwards made his claim about Medicaid fraud, the Legislative Auditor found that numerous individuals with incomes well above the maximum eligibility thresholds had applied for, and received, subsidized Medicaid benefits.[11] One household sampled in the audit claimed income of $145,146—more than Gov. Edwards’ annual salary of $130,000.[12]
Belatedly, the Department of Health finally removed approximately 30,000 ineligible individuals from the Medicaid rolls, including 1,672 individuals with incomes of over $100,000.[13]
The Medicaid program spent approximately $400 million less in the fiscal year ended June 30, 2019, in large part due to the disenrollments—suggesting that in prior years, Louisiana taxpayers had spent hundreds of millions per year providing subsidized health coverage to ineligible individuals.[14]

The Issue: Efficient Use of Taxpayer Dollars

The Claim: “I know that any misspent dollar is one that could have paid for health care services for those truly in need. My top priority is to ensure every dollar spent goes toward providing health care to people who need it most.” – Health Secretary Rebekah Gee[15]

The Facts:

Internal records indicate that Secretary Gee’s own Department knew that tens of thousands of individuals were dropping private coverage to enroll in government-run Medicaid—yet did little about it.
For much of 2016 and 2017, the Louisiana Department of Health compiled data indicating that several thousand individuals per month dropped their existing health coverage to enroll in Medicaid expansion.[16]
At the end of 2017, the Department of Health stopped compiling data on the number of people dropping private coverage, claiming the data were inaccurate. However, the Department’s stated reasoning for its action suggests that, to the extent the data were inaccurate, they likely under-estimated the number of people dropping private coverage to enroll in Medicaid.[17]
Based on the program’s average cost per enrollee, Medicaid has paid hundreds of millions of dollars per year subsidizing the coverage of people who previously had health insurance.[18] This spending comes over and above taxpayer dollars paid to cover individuals ineligible for benefits, as outlined above.

The Issue: Uncompensated Care

The Claim: “Disproportionate share payments to hospitals have decreased as the uninsured population decreased.” – Louisiana Department of Health[19]

The Facts:

Uncompensated care payments to hospitals have remained broadly flat since expansion took effect, and by some measures have actually increased.
During the three fiscal years prior to expansion, the state paid an average of $1,039,444,880 to Medicaid providers for uncompensated care—$1,011,324,118 in Fiscal Year 2014, $1,000,502,910 in Fiscal Year 2015, and $1,106,507,612 in Fiscal Year 2016.[20]
In the fiscal year ended on June 30, 2019, Medicaid spent an estimated $1,056,458,352 on uncompensated care payments—greater than the average spent on uncompensated care in the three years prior to expansion.[21]
The meager $50 million in uncompensated care savings between Fiscal Year 2016 and Fiscal Year 2019 does not even begin to match the more than $3.1 billion annual cost to taxpayers of expansion.[22]
Even if the Department of Health wants to claim the modest reduction in uncompensated care from Fiscal Year 2016 to Fiscal Year 2019 as “savings,” that means the Medicaid program is spending approximately $62.03 for every dollar it “saves” in uncompensated care payments.

The Issue: Jobs

The Claim: “An analysis by LSU estimates that Medicaid expansion created more than 19,000 jobs and generated $3.5 billion in economic activity in 2017 alone.” – Health Secretary Rebekah Gee[23]

The Facts:

Since Medicaid expansion took effect in July 2016, Louisiana’s economy has created only 2,700 jobs—less than one-seventh of the jobs the LSU study claimed expansion would create.
In June 2016, the month before expansion took effect, Louisiana’s non-farm payrolls totaled 1,979,100.[24] According to federal data, as of July 2019 Louisiana’s non-farm payrolls now stand at 1,981,800—a meager increase over more than three years.[25]
One year before expansion took effect, in July 2015, Louisiana had nearly 10,000 more jobs (1,991,500) than it does today (1,981,800).[26]
Since Medicaid expansion took effect, the total labor force within the state has declined by more than 65,000 individuals, or more than 3%—from 2,161,299 in June 2016 to 2,095,844 today.[27]
Within days of the LSU report’s release in April 2018, the Pelican Institute published a rebuttal demonstrating that the LSU researchers likely omitted key facts in their calculations, which meant the study made inaccurate and inflated claims about the fiscal impact of Medicaid expansion.[28]
Following an exhaustive series of public records requests with LSU, the university finally admitted that the researchers did indeed omit a key data source from their calculations, leading to inflated claims in their study.[29] While the researchers conceded in one document that their 2018 report “overstate[d] the economic impact of” Medicaid expansion, they have yet to admit this error publicly, and the Department of Health has refused to release the document in which they admitted their error.[30]

The Issue: Vulnerable Individuals Waiting for Care

The Claim: “It’s inconvenient that the facts don’t follow this story. [The Department of Health] ended the wait list for disabilities last year in partnership with the disability community. #Fakenews.” – Health Secretary Rebekah Gee[31]

The Facts:

While the Department of Health may have changed the name from a “waiting list” to a “Request for Services Registry,” nearly 15,000 vulnerable individuals continue to wait for access to care.
The Department of Health’s own website regarding waiver services includes the following passage: “Waiver services are dependent upon funding, and are offered on a first-come, first-served basis through the Request for Services Registry.”[32] The reference to “first-come, first-served” consideration for waiver applicants clearly indicates that vulnerable individuals continue to wait for care.
According to information provided by the Department of Health in response to a public records request, as of May 2019 a total of 14,984 individuals were on the “Request for Services Registry.”[33]
Since Medicaid expansion took effect in Louisiana, at least 5,534 individuals with disabilities have died while on waiting lists to access care—more than one-quarter of the at least 21,904 individuals with disabilities nationwide who have died while waiting for services under Medicaid expansion.[34]
By giving states a greater federal matching rate to cover able-bodied adults than individuals with disabilities, Obamacare has encouraged state Medicaid programs to discriminate against the most vulnerable individuals in our society.[35]

Medicaid expansion has singularly failed to its advocates’ own promises of success. Louisiana should begin the process of unwinding this failed experiment, and put into practice reforms that can reduce the cost of care for beneficiaries, while focusing Medicaid on the vulnerable populations for which it was originally designed.[36]

[1] Kevin Litten, “Louisiana’s Medicaid Expansion Enrollment Could Grow to 450,000,” New Orleans Times-Picayune January 20, 2016, https://www.nola.com/politics/2016/01/medicaid_expansion_500000.html.

[2] Ibid.

[3] Healthy Louisiana Dashboard, http://www.ldh.la.gov/HealthyLaDashboard/; Kevin Litten, “Louisiana’s Medicaid Expansion Enrollment.”

[4] Sheridan Wall, “GOP Legislators Renew Attacks on Medicaid Management as Data Emerges on Misspending,” Daily Advertiser April 9, 2019, https://www.theadvertiser.com/story/news/local/louisiana/2019/04/09/gop-legislators-renew-attacks-medicaid-management-data-emerges-misspending/3418133002/.

[5] Chris Jacobs, “The Report the Department of Health Doesn’t Want You to Read,” Pelican Institute, September 26, 2019, https://pelicaninstitute.org/blog/the-report-the-department-of-health-doesnt-want-you-to-read/.

[6] Chris Jacobs, “What You Need to Know about Medicaid Crowd-Out,” Pelican Institute, May 20, 2019, https://pelicaninstitute.org/wp-content/uploads/2019/05/PEL_MedicaidCrowdOut_WEB-2.pdf.

[7] Louisiana Department of Health, “Louisiana Medicaid Expansion 2016-2017 Annual Report,” http://ldh.la.gov/assets/HealthyLa/Resources/MdcdExpnAnnlRprt_2017_WEB.pdf, p. 2.

[8] Louisiana Legislative Fiscal Office, Fiscal Note on HCR 3 (2015 Regular Session), http://www.legis.la.gov/legis/ViewDocument.aspx?d=942163.

[9] Louisiana Department of Health, “Medicaid Forecast Report: May 2019,” June 10, 2019, http://www.ldh.la.gov/assets/medicaid/forecast/FY19MedicaidForecast-may2019.pdf, Table 3, Expenditure Forecast by Category of Service, p. 2.

[10] Louisiana Department of Health, “Louisiana Medicaid Expansion 2016-2017 Annual Report,” p. 7.

[11] Louisiana Legislative Auditor, “Medicaid Eligibility: Wage Verification Process of the Expansion Population,” November 8, 2018, https://lla.la.gov/PublicReports.nsf/1CDD30D9C8286082862583400065E5F6/$FILE/0001ABC3.pdf.

[12] Ibid., Appendix E, Targeted Selection Individual Medicaid Recipient Cases, pp. 27-29.

[13] Sheridan Wall, “GOP Legislators Renew Attacks on Medicaid Management.”

[14] Melinda Deslatte, “Louisiana Medicaid Spending $400M Less Than Expected,” Associated Press June 12, 2019, https://www.nola.com/news/2019/06/louisiana-medicaid-spending-400m-less-than-expected.html.

[15] Rebekah Gee, “Medicaid Expansion, Fighting Fraud, Equally Important,” Daily Advertiser April 21, 2019, https://www.theadvertiser.com/story/opinion/editorial/2019/04/21/medicaid-expansion-fighting-fraud-equally-imoportant/3534502002/.

[16] Chris Jacobs, “What You Need to Know about Medicaid Crowd-Out.”

[17] Chris Jacobs, “Medicaid Expansion Has Louisianans Dropping Their Private Plans,” Wall Street Journal June 8, 2019, https://www.wsj.com/articles/medicaid-expansion-has-louisianans-dropping-their-private-plans-11559944048.

[18] Chris Jacobs, “What You Need to Know about Medicaid Crowd-Out.”

[19] Louisiana Department of Health, “Louisiana Medicaid Expansion 2016-2017 Annual Report,” p. 7.

[20] Louisiana Department of Health, “Louisiana Medicaid 2016 Annual Report,” http://ldh.la.gov/assets/medicaid/AnnualReports/2016AnnualReport.pdf, Table 3, Medicaid Vendor Payments for Budget Programs by State Fiscal Year, p. 5.

[21] Louisiana Department of Health, “Medicaid Forecast Report: May 2019,” Table 2, Expenditure Forecast by Budget Program, p. 1.

[22] Ibid, Table 3, Expenditure Forecast by Budget Category of Service, p. 2.

[23] Rebekah Gee, “Medicaid Expansion, Fighting Fraud, Equally Important.”

[24] Bureau of Labor Statistics, “Regional and State Employment and Unemployment—July 2016,” August 19, 2016, https://www.bls.gov/news.release/archives/laus_08192016.pdf, Table 5: Employees on Non-Farm Payrolls by State and Selected Industry Sector, Seasonally Adjusted, p. 13. The report for July 2016 reflects final (as opposed to preliminary) data for the June 2016 period.

[25] Bureau of Labor Statistics, “Regional and State Employment and Unemployment—August 2019,” September 20, 2019, https://www.bls.gov/news.release/archives/laus_09202019.pdf, Table 3: Employees on Non-Farm Payrolls by State and Selected Industry Sector, Seasonally Adjusted, p. 10. The report for August 2019 reflects final (as opposed to preliminary) data for July 2019.

[26] Bureau of Labor Statistics, “Regional and State Employment and Unemployment—July 2016,” Table 5, p. 13.

[27] Bureau of Labor Statistics, “Regional and State Employment and Unemployment—July 2016,” Table 3, Civilian Labor Force and Unemployment by State and Selected Area, Seasonally Adjusted, p. 11; Bureau of Labor Statistics, “Regional and State Employment and Unemployment—August 2019,” Table 1, Civilian Labor Force and Unemployment by State and Selected Area, Seasonally Adjusted, p. 8.

[28] Chris Jacobs, “Why Expanding Louisiana’s Program to Able-Bodied Adults Hurts the Economy,” Pelican Institute, April 17, 2018, https://pelicaninstitute.org/policy-brief-debunking-pro-medicaid-report/.

[29] Chris Jacobs, “LSU, Department of Health Inflate Claims in Medicaid Expansion Studies,” Houma Today July 27, 2019, https://www.houmatoday.com/news/20190727/opinion-lsu-department-of-health-inflate-claims-in-medicaid-expansion-studies.

[30] Louisiana State University response to Pelican Institute Public Records Act request, September 23, 2019.

[31] @rebekahgeemd, May 20, 2019, https://twitter.com/rebekahgeemd/status/1130459486307667968.

[32] Louisiana Department of Health Office for Citizens with Developmental Disabilities, “Waiver Services,” http://www.ldh.la.gov/index.cfm/page/142, accessed June 15, 2019.

[33] Louisiana Department of Health, response to Pelican Institute Public Records Act request, May 21, 2019.

[34] Nicholas Horton, “Waiting for Help: The Medicaid Waiting List Crisis,” Foundation for Government Accountability, March 6, 2018, https://thefga.org/wp-content/uploads/2018/03/WAITING-FOR-HELP-The-Medicaid-Waiting-List-Crisis-07302018.pdf.

[35] Chris Jacobs, “How Obamacare Undermines American Values: Penalizing Work, Citizenship, Marriage, and the Disabled,” Heritage Foundation Backgrounder No. 2862, November 21, 2013, http://www.heritage.org/research/reports/2013/11/how-obamacare-undermines-american-values-penalizing-work-marriage-citizenship-and-the-disabled.

[36] Chris Jacobs, “Reforming Medicaid in Louisiana,” Pelican Institute, January 30, 2018, https://pelicaninstitute.org/wp-content/uploads/2018/01/PEL_MedicaidPaper_FINAL_WEB.pdf.

Third Dem Debate Leaves Major Health Care Questions Unanswered

For more than two hours Thursday night in Houston, 10 presidential candidates responded to questions in the latest Democratic debate. On health care, however, most of those responses didn’t include actual answers.

As in the past several contests, health care led off the debate discussion, and took a familiar theme: former vice president Joe Biden attacked his more liberal opponents for proposing costly policies, and they took turns bashing insurance companies to avoid explaining the details behind their proposals. Among the topics discussed during the health care portion of the debate are the following.

How Much—and Who Pays?

The problems, as Biden and other Democratic critics pointed out: First, it’s virtually impossible to pay for a single-payer health care system costing $30-plus trillion without raising taxes on the middle class. Second, even though Sanders has proposed some tax increases on middle class Americans, he hasn’t proposed nearly enough to pay for the full cost of his plan.

Third, a 2016 analysis by a former Clinton administration official found that, if Sanders did use tax increases to pay for his entire plan, 71 percent of households would become worse off under his plan compared to the status quo. All of this might explain why Sanders has yet to ask the Congressional Budget Office for a score of his single-payer legislation: He knows the truth about the cost of his bill—but doesn’t want the public to find out.

Keep Your Insurance, or Your Doctor?

Believe it or not, Biden once again repeated the mantra that got his former boss Barack Obama in trouble, claiming that if people liked their current insurance, they could keep it under his plan. In reality, however, Biden’s plan would likely lead millions to lose their current coverage; one 2009 estimate concluded that a proposal similar to Biden’s would see a reduction in private coverage of 119.1 million Americans.

For his part, Sanders and Warren claimed that while private insurance would go away under a single-payer plan, people would still have the right to retain their current doctors and medical providers. Unfortunately, however, they can no more promise that than Biden can promise people can keep their insurance. Doctors would have many reasons to drop out of a government-run health plan, or leave medicine altogether, including more work, less pay, and more burdensome government regulations.

Supporting Obamacare (Sometimes)

While attacking Sanders’ plan as costly and unrealistic, Biden also threw shade in Warren’s direction. Alluding to the fact that the Massachusetts senator has yet to come up with a health plan of her own, Biden noted that “I know that the senator says she’s for Bernie. Well, I’m for Barack.”

Biden’s big problem: He wasn’t for Obamacare—at least not for paying for it. As I have previously noted, Biden and his wife Jill specifically structured their business dealings to avoid paying nearly $500,000 in self-employment taxes—taxes that fund both Obamacare and Medicare.

A March to Government-Run Care

I’ll give the last word to my former boss, who summed up the “contrasts” among Democrats on health care.

As I have previously noted, even the “moderate” proposals would ultimately sabotage private coverage, driving everyone into a government-run system. And the many unanswered questions that Democratic candidates refuse to answer about that government-run health system provide reason enough for the American people to reject all the proposals on offer.

This post was originally published at The Federalist.

The Good, The Bad, and The Ugly of Nancy Pelosi’s Drug Pricing Proposal

During the midterm election campaign, Democrats pledged to help lower prescription drug prices. Since regaining the House majority in January, the party has failed to achieve consensus on precise legislation to accomplish that objective.

However, on Monday a summary of proposals by House Speaker Nancy Pelosi (D-CA)—which became public via leaks from lobbyists, of course—provided an initial glimpse of the Democrat leadership’s policy approach. Party leaders claimed the leaked document describes an old legislative draft (they would say that, wouldn’t they?).

The Good: Realigning Incentives in Part D

Among other proposals, the Pelosi proposal would rearrange the current Part D prescription drug benefit, and “realign incentives to encourage more efficient management of drug spending.” Under current law, once beneficiaries pass through the Part D “doughnut hole” and into the Medicare catastrophic benefit, the federal government pays for 80 percent of beneficiaries’ costs, insurers pay for 15 percent, and beneficiaries pay for 5 percent.

This existing structure creates two problems. First, beneficiaries’ 5 percent exposure contains no limit, such that seniors with incredibly high drug spending could face out-of-pocket costs well into the thousands, or even tens of thousands, of dollars.

The Pelosi proposal follows on plans by MedPAC and others to restructure the Part D benefit. Most notably, the bill would institute an out-of-pocket spending limit for beneficiaries (the level of which the draft did not specify), while reducing the federal catastrophic subsidy to insurers from 80 percent to 20 percent. The former would provide more predictability to seniors, while the latter would reduce incentives for insurers to drive up overall drug spending by having seniors hit the catastrophic coverage threshold and thus can shift most of their costs to taxpayers.

The Bad: Price Controls

The Pelosi document talks about drug price “negotiation,” but the policy it proposes represents nothing of the sort. For the 250 largest brand-name drugs lacking two or more generic competitors, the secretary of Health and Human Services would “negotiate” prices. However, Pelosi’s bill “establishes an upper limit for the price reached in any negotiation as no more than” 120 percent of the average price in six countries—Australia, Canada, France, Germany, Japan, and the United Kingdom—making “negotiation” the de facto imposition of price controls.

Drug manufacturers who refuse to “negotiate” would “be assessed an excise tax equal to 75 percent of annual gross sales in the prior year,” what Pelosi’s office called a “steep, retroactive penalty creat[ing] a powerful financial incentive for drug manufacturers to negotiate and abide by the final price.” Additionally, the “negotiated” price would apply not just to Medicare, but would extend to other forms of coverage, including private health insurance.

But the solution to that dilemma lies in trade policy, or other solutions short of exporting other countries’ price controls to the United States, as outlined in both the Pelosi and Trump approaches. Price controls, whether through the “negotiation” provisions in the Pelosi bill, or related provisions that would require rebates for drugs that have increased at above-inflation rates since 2016, have brought unintended consequences whenever policy-makers attempted to implement them. In this case, price controls would likely lead to a significant slowdown in the development and introduction of new medical therapies.

The Ugly: New Government Spending

While the price controls in the drug pricing plan have attracted the most attention, Democrats have mooted some version of them for years. Price controls in a Democratic drug pricing bill seem unsurprising—but consider what else Democrats want to include:

With enough savings, H.R. 3 could also fund transformational improvements to Medicare that will cover more and cost less—potentially including Medicare coverage for vision, hearing, and dental, and many other vital health system needs.

In other words, Pelosi wants to take any potential savings from imposing drug price controls and use those funds to expand taxpayer-funded health care subsidies. In so doing, she would increase the fiscal obligations to a Medicare program that is already functionally insolvent, and relying solely on accounting gimmicks included in Obamacare to prevent shortfalls in current seniors’ benefits.

This post was originally published at The Federalist.

Rant by Congressional Spouse Illustrates the Problem Facing American Health Care

Last week, the wife of Rep. Joe Cunningham (D-S.C.) went on a self-described “rant on social media” about her health coverage.

Amanda Cunningham’s comments echo claims by Democratic lawmakers like Reps. Alexandria Ocasio-Cortez (D-N.Y.) and Rep. Cindy Axne (D-Iowa) about the problems with their health coverage. For many members of Congress that comes via Obamacare-compliant policies sold on health insurance exchanges.

The comments raise one obvious question: If Democrats don’t like Obamacare plans for themselves, then why did they force all Americans to buy this insurance under penalty of taxation? But beyond demonstrating the bipartisan dissatisfaction with Obamacare, Amanda Cunningham’s story illustrates the larger problems plaguing the American health care system.

Mental Health Parity

In her Instagram post, Cunningham complained that under her Blue Cross Blue Shield policy, “all of my mental health therapy sessions are denied, in addition to all of our marriage counseling sessions.” She continued: “It’s just mind-blowing to me that these basic well-known needs, that mental health is health care, are still being denied, that we’re still fighting for these absolutely basic things—it’s unbelievable to me.”

Cunningham didn’t go into many specifics about her case, but on one level, her argument sounds compelling. The opioid crisis has shone a brighter spotlight on the people who need treatment to cover mental illness or substance use disorders. Congress passed mental health parity legislation (as part of the TARP bill, of all things) in 2008, and Section 1311(j) of Obamacare extended these provisions to exchange plans.

Other People’s Money

On the other hand, consider that members of Congress receive a salary of $174,000 annually—more than most Americans (myself included). Consider also that unlike all other Americans purchasing coverage on Obamacare exchanges (myself included), Cunningham, other members of Congress, and their staff receive (likely illegal) subsidies offsetting much of the cost of their health insurance premiums.

More importantly, consider that each coverage requirement on insurers—whether to cover a certain type of treatment (e.g., mental health, in-vitro fertilization, etc.) or treatments provided by a certain type of provider (e.g., marriage counselor, podiatrist, etc.)—raise the price of health insurance each month. Collectively, the thousands of mandates imposed nationwide increase premiums by hundreds of dollars per year.

They also send a paternalistic message to Americans: The policy-makers who impose these coverage requirements would rather individuals go uninsured, because their premiums have become unaffordable, than purchase a plan without the covered benefit or treatment in question.

She didn’t say it outright, but in her “rant,” Cunningham wanted to raise premiums on other Americans—most of whom earn far less than her family—so she would receive “free” therapy. Viewed from this perspective, her objections seem somewhat self-serving from a family in the upper tier of the income spectrum.

Therein lies the problem of American health care: Everyone wants to spend everyone else’s money rather than their own. Everyone wants “their” treatments—in this case, Cunningham’s counseling sessions—covered, even if others pay more. And if their chosen therapies are covered by insurance, with little to no cost-sharing, patients will consume more health care, because they believe they are spending their insurer’s money rather than their own.

Obamacare Made It Worse

The 2010 health care law didn’t cause this problem. However, as the Congressional Budget Office (CBO) noted in its November 2009 analysis of the legislation’s premium impacts, the federal benefit requirements included in the measure raised insurance rates significantly:

Because of the greater actuarial value and broader scope of benefits that would be covered by new nongroup policies sold under the legislation, the average premium per person for those policies would be an estimated 27 percent to 30 percent higher than the average premium for nongroup policies under current law (with other factors held constant). The increase in actuarial value would push the average premium per person about 18 percent to 21 percent above its level under current law, before the increase in enrollees’ use of medical care resulting from lower cost sharing is considered; that induced increase, along with the greater scope of benefits, would account for the remainder of the overall difference.

In CBO’s view, the law required people to buy richer insurance policies, and those richer policies encouraged people to consume more health care, both of which led to a rise in premiums. Unfortunately, that rise in premiums over the past several years has led millions of individuals who do not qualify for insurance subsidies (unlike Amanda Cunningham) to drop their coverage.

Get the Incentives Right

Sooner or later, our country will run out of other people’s money to spend on health care. Despite her impassioned plea, only a movement away from the solutions Cunningham advocated for can prevent that day from coming sooner rather than later.

This post was originally published at The Federalist.

The Fundamental Dishonesty Behind Kamala Harris’ Health Plan

When analyzing Democrats’ promises on health care ahead of the 2020 presidential campaign, a researcher with the liberal Urban Institute earlier this year proffered some sage advice: “We should always be suspect of any public policy—especially when it comes to something as complicated as health care—when anybody tells us everybody is going to get more and pay less for it. It’s really not possible.”

Someone should have given that advice to Sen. Kamala Harris (D-Calif.). Her health plan, a modified version of Sen. Bernie Sanders’ single-payer health care program that she released on Monday in a Medium post and on her website, pledges that it will lead to the following outcomes:

Every American will be a part of this new Medicare system….Seniors will see stronger Medicare benefits than they have now. We will cover millions more people who don’t have health insurance today. And we will reduce costs, save our country money, and ensure that no American has to sacrifice getting the care they need just because the cost is a barrier.

As with Barack Obama’s salesmanship of Obamacare more than a decade ago, Harris’ health plan relies upon the exact strategy the Urban Institute researchers decried of promising everything to everybody. In her socialist utopia, everyone will have coverage—coverage that provides better benefits than the status quo—even as health costs decline dramatically.

Like Obama’s “like your plan” pledge, which PolitiFact dubbed the “Lie of the Year” for 2013, Harris’ plan rests on optimistic scenarios that have little possibility of coming to fruition. But one false premise underpins the entire plan:

We will set up an expanded Medicare system, with a 10-year phase-in period. During this transition, we will automatically enroll newborns and the uninsured into this new and improved Medicare system, give all doctors time to get into the system, and provide a commonsense path for employers, employees, the underinsured, and others on federally-designated programs, such as Medicaid or the Affordable Care Act exchanges, to transition. This will expand the number of insured Americans and create a new viable public system that guarantees universal coverage at a lower cost. Expanding the transition window will also lower the overall cost of the program. [Emphasis mine.]

As any math major can explain, extending the transition window for a move to a single-payer health-care system will not, as Harris tries to claim, lower the overall cost of the program once the entire program takes effect. But it will significantly lower the cost of the program during the transition.

Extending the single-payer transition period to ten years—which conveniently coincides with the ten-year budget window that the Congressional Budget Office uses to analyze major legislation—will keep most of the program’s costs “off the books” and hidden from the public until after her proposal makes it on to the statute books. It also means that her plan wouldn’t take full effect until well after Harris leaves office, meaning she can blame her successor for any problems that occur during the implementation phase.

This fiscal gimmick—delaying most of the spending associated with single payer to outside the ten-year budget window—allows Harris to draw a contrast with Sanders, in which she claims that many middle-class families would not have to pay a single cent in added taxes for all the “free” health care they would receive under a single-payer system:

One of Senator Sanders’ options is to tax households making above $29,000 an additional 4% income-based premium. I believe this hits the middle class too hard. That’s why I propose that we exempt households making below $100,000 [from new taxes to pay for single payer], along with a higher income threshold for middle-class families living in high-cost areas.

Analysts from across the political spectrum agree that the $30 trillion (or more) in new taxes needed to fund a single-payer health care system cannot come from the wealthy alone. Yet Harris proceeds to make that exact argument—that the middle class can have all the “free” health care they want, with someone else footing the bill.

Apart from the fiscal legerdemain, the proposal contains other controversial provisions. While she now claims she would allow private insurance to continue—a reversal of her earlier comments this past January—Harris’ plan states that these insurers would get “reimbursed less than what the [government-run] Medicare plan will cost to operate.” She may tolerate private insurers for the sake of political expediency, but her bias in favor of the government-run plan demonstrates that they would have little more than a token presence in any system of her design.

This post was originally published at The Federalist.