Budget Sequestration’s Impact on Obamacare Subsidies

A PDF of this Issue Brief is available on the Heritage Foundation website.

Many Americans could face a rude awakening when they discover that the subsidies they thought they were getting to offset their health care costs are less than what they were promised. Some claim that the Obamacare subsidies are exempt from the spending reductions established by the Budget Control Act (BCA), but that is only half right.[1]

The BCA exempts only the premium subsidies, not the cost-sharing subsidies, from upcoming cuts. Regrettably, the Obama Administration has not taken steps to inform the American people of this fact as they navigate coverage options in the government exchanges.

The Sequester’s Impact on Obamacare Subsidies

Obamacare provides two forms of subsidies:

  1. Premium subsidy. Section 1401 provides that individuals with incomes under 400 percent of the federal poverty level ($94,200 for a family of four) who do not have access to “affordable” employer-based coverage and meet other relevant criteria are eligible to receive refundable tax credits for coverage purchased in the exchanges.
  2. Cost-sharing subsidy. Section 1402 provides cost-sharing subsidies to reduce maximum out-of-pocket expenses for households with incomes below four times the federal poverty level. Other language in Section 1402 directs cost-sharing subsidies to increase the actuarial value—the average amount of expected health expenses paid by insurance—for households with incomes below 250 percent of the poverty level.

The BCA exempted the premium subsidies from sequestration—not explicitly but by definition. The sequester mechanism in the BCA was largely based on formulae developed by the Gramm–Rudman–Hollings Act of 1985, which exempts refundable tax credits under the Internal Revenue Code from any federal sequestration.[2] Because Obamacare structured the premium subsidies as refundable tax credits, they remain exempt from the BCA sequestration.

However, with regard to sequestration’s spending reductions, the cost-sharing subsidies under Section 1402 of Obamacare are distinct from the premium subsidies under Section 1401 of the law in at least two significant ways:

  1. The language authorizing Obamacare cost-sharing subsidies is included as part of the Public Health Service Act (Title 42 of the U.S. Code). The sequester exemption for refundable tax credits requires that they be “made pursuant to provisions of Title 26” of the Internal Revenue Code.[3]
  2. Obamacare specifically requires the Secretary of Health and Human Services to “make periodic and timely payments to the issuer” of the insurance policy reflecting the increased cost-sharing. The sequester exemption in Gramm–Rudman–Hollings for refundable tax credits provides that only “payments to individuals,” not to insurance companies, are exempt from sequester reductions.[4]

For these reasons, the Congressional Research Service (CRS) has concluded that the cost-sharing subsidies under Section 1402 of Obamacare “appear to be fully sequestrable” under the BCA.[5]

Administration Confirms Cuts but Has No Plan

The Administration has likewise agreed that the cost-sharing subsidies are subject to sequestration spending reductions. An Office of Management and Budget (OMB) report issued in May 2013 categorized the cost-sharing subsidies as mandatory spending subject to sequestration.[6]

The report further estimated that a 7.2 percent cut in these subsidies, as required by sequestration, would reduce spending by $286 million in fiscal year 2014—a period that covers the first nine months of Obamacare’s coverage expansions, from January through September 2014.[7]

However, the Administration has not been similarly forthcoming about how the 7.2 percent spending reductions will be applied. Centers for Medicare and Medicaid Services (CMS) Administrator Marilyn Tavenner acknowledged that CMS had not communicated to officials who are operating exchanges, both federal and state, how this sequestration will be applied to the cost-sharing subsidies. However, she pledged to do so “before open enrollment, which starts on October 1, 2013.”[8] To date, no guidance has been released by either CMS or OMB.

Limited Options

It is impossible to predict how CMS intends to implement the required sequestration reductions. In the absence of clear guidance from the Administration about the impact of sequestration, one can envision two possible scenarios.

Scenario 1: Consumers Pay. Under this scenario, the individuals eligible for cost-sharing subsidies would face higher cost-sharing. Eligible individuals would face some combination of higher co-payments, higher deductibles, higher co-insurance, or the loss of some benefits to make up for the reduced cost-sharing subsidies.

The structure and requirements of sequestration place a high emphasis on regulatory guidance from CMS. The sequestration law requires that spending reductions “shall apply to all programs, projects, and activities within a budget account.”[9] But it remains unclear how the Administration will implement this requirement. For instance, CMS could decide to reduce all eligible individuals’ cost-sharing subsidies by an equal 7.2 percent. Alternatively, the Administration could try to implement the reductions on a sliding-scale basis so that households with lower incomes face a smaller-scale reduction.

However, because the Administration has not issued any form of guidance, the cost-sharing information currently published on the exchanges does not accurately reflect the impact of sequestration on the cost-sharing subsidies.[10] Thus, for those few individuals who have actually enrolled in subsidized health insurance on exchanges, their co-payments and cost-sharing may increase next year. Accurate information cannot exist until CMS publicly states how it intends to implement the required sequestration reductions.

Scenario 2: Insurers Pay. A second possible scenario would see insurers being forced to absorb the costs of the sequester reductions in cost-sharing subsidies themselves. CRS, examining Obamacare’s statutory requirements on insurers to provide cost-sharing reductions, considered this scenario a likely outcome:

The impact of sequestration is unclear. [Obamacare] entitles certain low-income exchange enrollees to coverage with reduced cost-sharing and requires the participating insurers to provide that coverage. Sequestration does not change that requirement. Insurers presumably will still have to provide required coverage to qualifying enrollees but they will not receive the full subsidy to cover their increased costs.[11]

This scenario would see insurers absorbing $286 million in losses in the law’s first nine months alone—losses that would grow over time. Citing estimates from the Congressional Budget Office and the Joint Committee on Taxation, CRS noted that the federal government is scheduled to spend $149 billion on cost-sharing subsidies between 2014 and 2023.[12] Given that sequestration is scheduled to remain in place through 2021, the reductions in cost-sharing subsidies under current law would likely total several billion dollars at a minimum.

The scale of the numbers at issue raises questions about whether and under what circumstances insurance companies would actually continue to offer exchange coverage, knowing they would be guaranteed to incur losses if they do so.

More Than a “Glitch”

While Obamacare’s defenders are fond of claiming that “glitches” are the only thing holding back the law’s implementation, the Administration’s failure to confront the impact of BCA cuts signed into law two years ago is no mere “glitch.” Either individuals who endure an arduous process to sign up for insurance on balky exchanges will face a “bait-and-switch,” with cost-sharing levels higher than advertised, or insurers will face the prospect of billions of dollars in losses. Neither option is acceptable.

The Administration that promised to be the “most transparent and accountable” in history has neglected to inform the American people about the impact of sequestration on its prized accomplishment.


[1]See, for instance, Ezra Klein, “Democrats Should Surrender on Taxes,” Bloomberg, October 16, 2013, http://www.bloomberg.com/news/2013-10-16/democrats-should-surrender-on-taxes.html (accessed October 24, 2013).

[2]2 U.S. Code 905(d).



[5]C. Stephen Redhead, “Budget Control Act: Potential Impact of Sequestration on Health Reform Spending,” Congressional Research Service Report for Congress, May 31, 2013, Table 4, p. 22, http://www.fas.org/sgp/crs/misc/R42051.pdf (accessed October 24, 2013).

[6]Office of Management and Budget, Revised Sequestration Preview Report for Fiscal Year 2014, May 20, 2013, p. 23, http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/fy14_preview_and_joint_committee_reductions_reports_05202013.pdf, (accessed October 24, 2013).


[8]Marilyn Tavenner, “PPACA Pulse Check,” testimony before the Committee on Energy and Commerce, U.S. House of Representatives, August 1, 2013, http://energycommerce.house.gov/hearing/ppaca-pulse-check (accessed October 24, 2013).

[9]2 U.S. Code 906(k)(2).

[10]Tavenner, “PPACA Pulse Check.”

[11]Redhead, “Budget Control Act,” p. 15.

[12]Ibid., Table 4, p. 23.

Interpreting Obamacare’s Premium Estimates for 2014

A PDF of this Issue Brief is available on the Heritage Foundation website.

In recent weeks, several organizations have released studies projecting premiums in Obamacare’s new exchanges next year. However, many of these studies suffer from the same flaw: They ignore or minimize the fact that, due to Obamacare, individuals will be forced to buy levels of health insurance that they may not need or want. As a result, average insurance premiums on the individual health insurance market will rise significantly in most states.

Apples and Oranges

In its recent issue brief estimating exchange premiums for 2014, the Kaiser Family Foundation noted many new changes in insurance regulation taking effect next year due to Obamacare. For instance, new requirements regarding “essential health benefits” will expand the breadth of insurance offerings—requiring plans to cover additional categories of treatments, such as habilitative services—while new requirements regarding actuarial value will expand insurance plans’ depth—that is, the percentage of expected health expenses covered by health insurance. The Kaiser brief argued:

These [and other] changes make direct comparisons of exchange premiums and existing individual market premiums complicated.… Therefore, we do not attempt to compare the exchange premiums to existing market rates in this report.[1]

As a result, rather than comparing next year’s premium projections with existing rates, the Kaiser brief focused on the point that early premium projections in some states may be below prior Congressional Budget Office (CBO) estimates.[2]

However, such statements ignore a key element that then-Senator Barack Obama used during his presidential campaign to sell people on his health care plan:

For those who have insurance now, nothing will change under the Obama plan—except that you will pay less. Obama’s plan will save a typical family up to $2,500 on premiums by bringing the health care system into the 21st century.[3]

Candidate Obama did not promise that “you will pay more for insurance, but you will get a better health plan in return.” He explicitly promised that “you will pay less.” And by refusing to compare existing premiums to the higher rates individuals will face on exchanges next year, the Kaiser study avoids facing this clear broken promise.

Mandates Raising Premiums

A report by the Rand Corporation, requested and funded by the Department of Health and Human Services, estimated “a 22 percent increase in average premiums” due to Obamacare next year, “with several states experiencing an increase of 30 percent or more.”[4]

However, the report went on to argue that “average premium increases can be very misleading because they do not adjust for changes in benefit generosity (measured by actuarial value)” and other factors. After adjusting for those factors, Rand concluded that “there could be a decline in total premiums for the United States”[5]—and it was this conclusion that drew the greatest amount of press attention.[6]

However, the Rand study’s conclusion that, after adjusting for actuarial value, premiums will not increase under Obamacare next year misses the point. Premiums will increase next year precisely because Obamacare requires an increase in actuarial value.

A study in Health Affairs from May 2012 found that most insurance plans purchased by individuals did not meet Obamacare’s actuarial value requirements.[7] The article’s title makes the point clear: “More Than Half of Individual Health Plans Offer Coverage That Falls Short of What Can Be Sold Through Exchanges as of 2014.” Because Obamacare requires most exchange plans to carry an actuarial value—that is, the percentage of expected health expenses covered by insurance—of at least 60 percent, those individuals currently in plans that do not meet the requirement will have to purchase richer coverage beginning next year, thus raising their premiums.

When analyzing Obamacare premiums in 2009, the CBO agreed that the law’s mandated benefits would raise health insurance premiums:

Average premiums [under Obamacare] would be 27 percent to 30 percent higher because a greater amount of coverage would be obtained. In particular, the average insurance policy in this market would cover a substantially larger share of enrollees’ costs for health care (on average) and a slightly wider range of benefits. Those expansions would reflect both the minimum level of coverage (and related requirements) specified in the proposal and people’s decisions to purchase more extensive coverage in response to the structure of subsidies.[8]

The CBO notes that the “minimum level of coverage” prescribed in the law will result in insurance covering “a substantially larger share of enrollees’ costs for health care”—exactly the changes in actuarial value that the Rand study ignores.

The Rand study contains other methodological flaws. It assumes, for instance, that “all smokers” will face surcharges for tobacco usage,[9] even though a recent “computer glitch” means insurers will not be able to impose the full tobacco surcharge for “at least a year.”[10] And the Rand model also does “not allow for the possibility that firms might reduce worker hours or change size in response to” Obamacare[11]—even though many firms have been doing just that.[12] However, the study’s biggest shortcoming is its lack of discussion of the mandates in Obamacare, particularly the actuarial value requirements, that will raise premiums for many Americans.

Stop Obamacare

Even before all state exchanges release their premium data, the evidence is clear: Overall, Obamacare’s benefit mandates will raise premiums, not lower them—and candidate Obama’s promise to lower rates by $2,500 per family amounts to a massive broken promise. For these reasons and more, Congress should use its “power of the purse” to stop Obamacare before these new costly mandates take effect on January 1.

[1]Cynthia Cox et al., “An Early Look at Premiums and Insurer Participation in Health Insurance Marketplaces, 2014,” Kaiser Family Foundation, September 5, 2013, p. 1, http://kaiserfamilyfoundation.files.wordpress.com/2013/09/early-look-at-premiums-and-participation-in-marketplaces.pdf (accessed September 13, 2013).

[2]Ibid., p. 8. The Kaiser brief claims that the latest CBO projections “imply that the premium for a 40-year-old in the second lowest cost silver plan would average $320 per month nationally” and that projected premium rates in most of the states examined fall below this figure. However, neither in the issue brief nor in its interactive subsidy calculator (http://kff.org/interactive/subsidy-calculator/) does Kaiser fully explain the methodology used to derive the $320 per month figure.

[3]Obama for America, “Background Questions and Answers on Health Care Plan,” 2008 campaign document, http://www.scribd.com/doc/191306/barack-obama-08-healthcare-faq (accessed September 13, 2013).

[4]Christine Eibner et al., “The Affordable Care Act and Health Insurance Markets: Simulating the Effects of Regulation,” Rand Corporation, September 2013, p. 22, http://www.rand.org/content/dam/rand/pubs/research_reports/RR100/RR189/RAND_RR189.pdf (accessed September 13, 2013).

[5]Ibid., p. 23.

[6]See, for instance, Elise Viebeck, “No Widespread Premium Increases Coming Under Obamacare, Study Says,” The Hill, August 29, 2013, http://thehill.com/blogs/healthwatch/health-reform-implementation/319381-no-widespread-premium-increases-coming-under-obamacare-study-says (accessed September 13, 2013).

[7]Jon Gabel et al., “More Than Half of Individual Health Plans Offer Coverage That Falls Short of What Can Be Sold Through Exchanges as of 2014,” Health Affairs (May 2012), http://content.healthaffairs.org/content/early/2012/05/22/hlthaff.2011.1082 (accessed September 13, 2013).

[8]Congressional Budget Office, letter to Senator Evan Bayh (D–IN) regarding premium effects of the Patient Protection and Affordable Care Act, November 30, 2009, p. 6, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/107xx/doc10781/11-30-premiums.pdf (accessed September 13, 2013).

[9]Eibner et al., p. 9.

[10]Ricardo Alonso-Zaldivar, “Another Obamacare Glitch: Computer Problem Temporarily Limits Penalties for Smokers,” Associated Press, July 9, 2013, http://www.foxnews.com/politics/2013/07/09/another-obamacara-glitch-computer-problem-temporarily-limits-penalties-for/ (accessed September 13, 2013).

[11]Eibner et al., p. 8.

[12]Jed Graham, “Obamacare: 258 Employers Cut Work Hours, Jobs in New IBD Scorecard,” Investor’s Business Daily, September 4, 2013, http://news.investors.com/politics-obamacare/090413-669682-obamacare-employer-mandate-spurs-work-hours-job-cuts.htm (accessed September 13, 2013).

How Obamacare Threatens Privacy in America

A PDF of this Issue Brief is available on the Heritage Foundation website.

Over the past several months, a stream of reports from government auditors and news stories has raised serious questions about the Administration’s implementation of Obamacare and its effects on the privacy of millions of Americans. The reports paint a portrait of an Administration casting aside security concerns—potentially putting Americans’ financial and health data at risk—in its push to open insurance exchanges in all 50 states by October 1. These recent developments should provide further impetus for Congress to defund the entire law before the exchanges are able to undermine personal privacy.

Security Delays, Timetables Slipping

In August, the Department of Health and Human Services (HHS) inspector general released a report highlighting many missed deadlines with respect to the security measures surrounding the Obamacare data hub.[1] The hub will provide access to government data from various government agencies—tax filings and Social Security records, for example—allowing exchanges to determine eligibility for subsidized insurance.

The inspector general’s report found that “several critical tasks remain to be completed in a short period of time” in order to ensure the data hub’s security.[2] Important elements of the security testing were delayed by two months. As a result, the official certification that the data hub is secure is not scheduled to occur until September 30, 2013—one day before the exchanges are scheduled to open for business.[3]

The inspector general’s report noted the obvious problem that this tight timetable presents: “If there are additional delays…the authorizing official may not have the full assessment of implemented security controls needed for the security authorization decision by” the time open enrollment begins.[4] In other words, government officials could face a choice about whether to open the exchanges despite the potential risk to Americans’ data security. Even if the security assessments are completed on time, there is no assurance they will work properly; the inspector general’s report “did not review the functionality of the [data] hub.”[5]

Warnings Ignored

Some government officials have warned of the privacy and security implications arising from shoddy data security—even as the Obama Administration ignored those concerns. Michael Astrue, a former general counsel of HHS, offered objections while serving as the commissioner of Social Security through February 2013. He has called the Administration’s exchange portal “an overly simplistic system without adequate privacy safeguards”:

The system’s lack of any substantial verification of the user would leave members of the public open to identity theft, lost periods of health insurance coverage, and exposure of address for victims of domestic abuse and others.[6]

Astrue dubbed the version of the portal “the most widespread violation of the Privacy Act in our history,” noting that both he and the head of the IRS “raised strong legal objections” with the Office of Management and Budget—objections that, Astrue argues, have been ignored in favor of what he calls “an absurdly broad interpretation of the Privacy Act’s ‘routine use’ exemption.”[7]

Navigators Pose a Security Risk

While the data hub creates concerns that Americans could be subjected to electronic identity fraud, Obamacare’s “navigators” could subject Americans to in-person scams.[8] HHS recently announced it was lowering by one-third—from 30 hours to 20—the minimum training time for navigators.[9] As a result, individuals can be certified as navigators with fewer than three full days’ training—and few security checks. While guidelines regarding navigators released in July permitted states to establish “minimum eligibility criteria and background checks” for navigators, it did not require them to do so.[10]

Because their job involves helping Americans figure out their insurance options, navigators will often have access to sensitive personal information—bank accounts, Social Security numbers, insurance identification, and more. Yet navigators will not be required to undergo background checks, and the process for filing complaints about unscrupulous navigators remains unclear at best. Even California’s insurance commissioner—a Democrat and strong supporter of Obamacare—raised concerns that navigators would put consumers at risk for scams: “We can have a real disaster on our hands.”[11]

Not One Dime

Federal agencies have already encountered difficulties preserving the integrity of Americans’ sensitive information. Earlier this year, a medical provider in California sued the IRS for improperly seizing 60 million records of 10 million Americans.[12] Yet under Obamacare, the IRS and other federal agencies will hold more new powers and have access to even more of Americans’ personal health and financial information.

In its mad rush to implement its unworkable law, the Obama Administration has taken a slapdash and shoddy approach to Americans’ personal security. Given these stakes, the choice for Congress could not be clearer: Congress should preserve Americans’ privacy by refusing to spend another dime implementing Obamacare.


[1]Gloria Jarmon, “Memorandum Report: Observations Noted During the OIG’s Review of CMS’s Implementation of the Health Insurance Exchange—Data Services Hub,” Department of Health and Human Services Inspector General Report A-18-13-30070, August 2, 2013, http://oig.hhs.gov/oas/reports/region1/181330070.pdf (accessed August 29, 2013).

[2]Ibid., p. 1.

[3]Ibid., p. 5.

[4]Ibid., p. 5.

[5]Ibid., p. 2.

[6] Michael Astrue, “Privacy Be Damned,” The Weekly Standard, August 5, 2013, http://www.weeklystandard.com/articles/privacy-be-damned_741033.html (accessed August 29, 2013).


[8]For more information on the navigator program, see Alyene Senger, “The Cost of Educating the Public on Obamacare,” Heritage Foundation Issue Brief No. 3983, July 1, 2013, http://www.heritage.org/research/reports/2013/07/public-outreach-on-obamacare-cost-of-educating-the-public-on-health-care-reform.

[9]Amy Schatz, “Preparations for Health Exchanges on Tight Schedule,” The Wall Street Journal, August 7, 2013, http://online.wsj.com/article/SB10001424127887324170004578638100820728288.html (accessed August 29, 2013).

[10]“Department of Health and Human Services: Patient Protection and Affordable Care Act; Exchange Functions: Standards for Navigators and Non-Navigator Assistance Personnel; Consumer Assistance Tools and Programs of an Exchange and Certified Application Counselors; Final Rule,” Federal Register, Vol. 78, No. 137 (July 17, 2013), p. 42824, http://www.gpo.gov/fdsys/pkg/FR-2013-07-17/pdf/2013-17125.pdf (accessed August 29, 2013).

[11]“Fraud Fear Raised in California’s Health Exchange,” The Reporter, July 14, 2013, http://www.thereporter.com/rss/ci_23658245 (accessed August 29, 2013).

[12]Scott Gottlieb, “Suit Alleges IRS Improperly Seized 60 Million Personal Medical Records,” Forbes, May 15, 2013, http://www.forbes.com/sites/scottgottlieb/2013/05/15/the-irs-raids-60-million-personal-medical-records/ (accessed August 29, 2013).

Defunding Obamacare: The Next Best Option

A PDF of this Issue Brief is available on the Heritage Foundation website.

Congressional opponents of Obamacare continue to search for the best approach to relieve the American public of the unpopular law’s burdens. Of course, the ideal solution is Obamacare’s full repeal. However, short of its full repeal, Congress’s best option is to defund the entire law to prevent its implementation.

What Defunding Does

Because the Constitution grants Congress the ultimate “power of the purse,” Congress can refuse to fund Obamacare implementation for the upcoming fiscal year. Such an action would follow a long history of amendments added by Congress to its annual appropriation bills in ways that prohibit executive action. These so-called limitation-of-funds amendments can prevent any expenditure of federal taxpayer dollars.

Limitation-of-funds amendments can apply to both mandatory (i.e., entitlement) and discretionary spending. For instance, every year since 1976, Congress has enacted the Hyde Amendment, which has restricted federal funding for abortion coverage in the Medicaid entitlement for nearly four decades—even though this amendment is passed every year as part of discretionary appropriations legislation.[1]

Defunding can prevent executive enforcement of Obamacare’s mandates, regulations, and tax increases for as long as the defunding provision remains valid. However, defunding would not change existing law or the regulations regarding Obamacare released to date. In spite of this, full defunding would represent the best interim approach to alleviating the law’s burdens now—with the goal of fully repealing the measure in the future.

Legislative Remedies

Senator Ted Cruz (R–TX) introduced the Defund Obamacare Act (S. 1292), and Representative Tom Graves (R–GA) introduced the same legislation in the House as H.R. 2682. Each version of the bill would permanently defund the law’s new entitlements and prohibit Obama Administration bureaucrats from taking any further steps to implement or otherwise advance Obamacare’s objectives.

The first provision states that “no federal funds shall be made available to carry out any provisions” of the law. This provision would stop the appropriation of funds with respect to both mandatory and discretionary spending. The blanket prohibition on funding would ensure that all federal agencies and bureaucrats would be prohibited from expending resources toward any action to implement Obamacare—whether issuing rules, meeting with special interest groups, engaging in public relations events, or any other activity related to the law.

The bill’s second provision states that “no entitlement to benefits under any provision of [Obamacare] shall remain in effect on and after the date of enactment.” This provision would stop the appropriation of the new entitlement spending for the law’s Medicaid expansion and exchange insurance subsidies.

The third provision rescinds all unobligated balances related to Obamacare. This provision would return to the Treasury all funds previously appropriated but not yet spent on Obamacare implementation. Projects that could have their funding revoked under this provision include the hundreds of millions of dollars being spent on “navigators” to enroll individuals in Obamacare programs[2] and promotional activities related to the law that include questionable sponsorships and appearances.[3]

The versions of the Defund Obamacare Act introduced in both the House and Senate would permanently defund the health law. However, defunding amendments could also be added to the annual appropriations bills moving their way through Congress. While such defunding amendments would remain in effect only for the life of the spending bills, the amendments could be renewed in future fiscal years, as the Hyde Amendment has been since 1976.

Moreover, because appropriations for the current fiscal year expire on September 30, a defunding amendment on “must-pass” legislation funding the federal government would stop Obamacare before its major coverage expansions take effect.

Not One Dime

Congress has every incentive to take action and defund Obamacare this fall. The law’s exchanges are scheduled to open for enrollment on October 1 and will start accepting applications for subsidized insurance plans taking effect on January 1, 2014. According to the Congressional Budget Office (CBO), next year federal taxpayers will subsidize exchange insurance plans for 6 million Americans and fund a Medicaid expansion covering an additional 9 million enrollees.[4] Over time, spending on Obamacare will explode. The CBO projects that spending on these two new subsidies will grow from $48 billion in fiscal year 2014 to $250 billion in 2023—a more than five-fold increase.[5]

The list of Obamacare’s failures grows by the day.[6] It is not that portions of the law are unworkable—the entire law is unworkable. Absent the law’s complete repeal, only full defunding would ensure that the American people are not subjected to any of these destructive policies. Congress can do its part in remedying these failures by using its all-important “power of the purse” to set a very clear line in the sand: not one single dime to fund Obamacare.

[1]Chuck Donovan, “Obamacare: Impact on Taxpayer Funding of Abortion,” Heritage Foundation WebMemo No. 2872, April 19, 2010, http://www.heritage.org/research/reports/2010/04/obamacare-impact-on-taxpayer-funding-of-abortion.

[2]Alyene Senger, “The Cost of Educating the Public on Obamacare,” Heritage Foundation Issue Brief No. 3983, July 1, 2013, http://www.heritage.org/research/reports/2013/07/public-outreach-on-obamacare-cost-of-educating-the-public-on-health-care-reform.

[3]See Chris Jacobs, “Roll Out the Barrels? Obamacare Funds to Sponsor Bourbon Festivals,” The Heritage Foundation, The Foundry, July 12, 2013, http://blog.heritage.org/2013/07/12/roll-out-the-barrels-obamacare-funds-to-sponsor-bourbon-festivals-2/.

[4]Congressional Budget Office, May 2013 estimate of the budgetary effects of the insurance coverage provisions contained in the Affordable Care Act, table 1, p. 1 http://cbo.gov/sites/default/files/cbofiles/attachments/44190_EffectsAffordableCareActHealthInsuranceCoverage_2.pdf (accessed July 30, 2013).

[5]Ibid., table 2, p. 2.

[6]See Chris Jacobs, “Obamacare’s ‘Dirty Dozen’ Implementation Failures,” The Heritage Foundation, The Foundry, July 8, 2013, http://blog.heritage.org/2013/07/08/morning-bell-obamacares-dirty-dozen-implementation-failures/.

Pediatric Research Bill: Obamacare’s Road to Rationing?

A PDF of this Issue Brief is available on the Heritage Foundation website.

Later this month, the House of Representatives could consider legislation regarding pediatric research.[1] Legislation regarding this issue (H.R. 1724) was first introduced in April, and a new version of the bill (H.R. 2019) was introduced in May.

Although largely similar, H.R. 1724 would require the director of the National Institutes of Health (NIH) to provide a justification for any existing grants studying health economics, and would prohibit new grants until “a federal law has been enacted authorizing the National Institutes of Health to use funding specifically for health economics research.”[2] Press reports indicate that H.R. 2019 excludes the restrictions included in H.R. 1724 “in order to please Democrats who favor the research.”[3]

This is a mistake. The House should ensure that H.R. 1724’s proposed restrictions on health economics research remain in any NIH-related legislation that comes to the House floor. To do otherwise would provide tacit approval to Obamacare’s road to government-rationed health care.

Proposed Restriction a Necessary Protection

The provision omitted from H.R. 2019 would have instituted an important and necessary protection on taxpayer-funded research on cost-effectiveness in health care. In recent years, the federal government has funded numerous such studies. For instance, a June 2011 Government Accountability Office report examining projects funded by the “stimulus” highlighted NIH grants studying the cost-effectiveness of various medical treatments, including:

  • “A Comprehensive Model to Assess the Cost-Effectiveness of Patient Navigation,”
  • “Cost-Effectiveness of Hormonal Therapy for Clinically Localized Prostate Cancer;”
  • “Clinical and Cost-Effectiveness of Biologics in Rheumatoid Arthritis,” and
  • “Cost-Effectiveness of HIV-Related Mental Health Interventions.”[4]

Liberals Favor Cost-Effectiveness Research

Setting aside the wisdom of using taxpayer funds to examine the cost-effectiveness of various treatments, such research could eventually be used to deny patients access to certain kinds of care. Quotes from key policymakers reveal how some would use cost-effectiveness research as a way for government bureaucrats to block access to treatments that are deemed too costly:

  • Former Senator Tom Daschle (D–SD), President Obama’s first choice for Secretary of Health and Human Services, wrote in 2008 that “we won’t be able to make a significant dent in health-care spending without getting into the nitty-gritty of which treatments are the most clinically valuable and cost effective. That means taking a harder look at the real costs and benefits of new drugs and procedures.”[5]
  • In a 2009 interview with The New York Times, President Obama argued that “the chronically ill and those toward the end of their lives are accounting for potentially 80 percent of the total health care bill out here.… There is going to have to be a very difficult democratic conversation that takes place.”[6]
  • Former Medicare Administrator Dr. Donald Berwick, in his infamous 2009 interview, strongly argued in favor of taxpayer-funded cost-effectiveness research when stating that “the decision is not whether or not we will ration care—the decision is whether we will ration with our eyes open.”[7]

Lawmakers have already expressed their desire to use cost-effectiveness research to restrict access to certain treatments. A report prepared by the House Appropriations Committee in 2009, discussing “stimulus” funding for the types of projects highlighted above, noted that thanks to the research funding, “those items, procedures, and interventions that are most effective to prevent, control, and treat health conditions will be utilized, while those that are found to be less effective and in some cases more expensive will no longer be prescribed.”[8]

Road to Rationing

Although research comparing the relative merits and costs of medical treatments may sound appealing, past experience has demonstrated that such research can, and often is, used as a blunt tool by governments to restrict access to certain kinds of care. At a time when genetic advances have opened the door to personalized medical treatments, Obamacare has moved health policy in the opposite direction, expanding the federal bureaucracy in an attempt to micromanage the health care system.[9]

Imposing the restrictions on cost-effectiveness research included in H.R. 1724 would represent a good first step in restoring the balance between federal bureaucrats and patients.


[1]Daniel Newhauser, “Mindful of Previous Defeat, Cantor Pushes Bill to Increase Pediatric Research,” Roll Call, June 10, 2011, http://www.rollcall.com/news/mindful_of_previous_defeat_cantor_pushes_bill_to_increase_pediatric-225436-1.html?zkPrintable=true (accessed June 13, 2013).

[2]The Kids First Research Act of 2013, H.R. 1724, § 4.

[3]Newhauser, “Mindful of Previous Defeat.”

[4]U.S. Government Accountability Office, HHS Research Awards: Use of Recovery Act and Patient Protection and Affordable Care Act Funds for Comparative Effectiveness Research, GAO-11-712R, June 14, 2011, http://www.gao.gov/new.items/d11712r.pdf (accessed June 13, 2013).

[5]Tom Daschle, Scott Greenberger, and Jeanne Lambrew, Critical: What We Can Do about the Health Care Crisis (New York: Thomas Dunne Books, 2008), pp. 172–173.

[6]David Leonhardt, “After the Great Recession,” The New York Times, April 28, 2009, http://www.nytimes.com/2009/05/03/magazine/03Obama-t.html (accessed June 13, 2013).

[7]Biotechnology Healthcare, “Rethinking Comparative Effectiveness Research,” June 2009, http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2799075/pdf/bth06_2p035.pdf (accessed June 13, 2013).

[8]Helen Evans, “Comparative Effectiveness in Health Care Reform: Lessons from Abroad,” Heritage Foundation Backgrounder No. 2239, February 4, 2009, note 3, http://www.heritage.org/research/reports/2009/02/comparative-effectiveness-in-health-care-reform-lessons-from-abroad.

[9]Kathryn Nix, “Comparative Effectiveness Research Under Obamacare: A Slippery Slope to Health Care Rationing,” Heritage Foundation Backgrounder No. 2679, April 12, 2012, http://www.heritage.org/research/reports/2012/04/comparative-effectiveness-research-under-obamacare-a-slippery-slope-to-health-care-rationing.

The Taxman Cometh: The IRS’ Role in Implementing Obamacare

This Issue Brief is available at the Heritage Foundation website.

The recent admission by the IRS that its employees improperly subjected certain organizations to heightened scrutiny based upon their political affiliation raises troubling questions about the agency’s ability to manage Obamacare in a competent and impartial manner. At a time when doubts are growing about the IRS’s politically biased behavior, Obamacare grants the agency massive new authority to implement its complex and bureaucratic regime.

Trillions in New Taxes

Obamacare contains no fewer than 18 tax increases, including new taxes on medical devices, insurers, and pharmaceutical companies, to name but a few.[1] According to the most recent estimates, those tax increases will raise revenue by at least $1 trillion over the next 10 years—followed by higher sums in future decades.[2]

Moreover, 12 of the 20 tax increases will affect middle-class families,[3] directly violating Barack Obama’s “firm pledge” to families making under $250,000 per year that he would not raise “any of your taxes.”[4]

Gusher of Spending—and Bureaucrats

To implement all of Obamacare’s tax increases, the IRS has needed additional infusions of taxpayer funds. The Government Accountability Office (GAO) estimated that the IRS would spend $881 million on implementing the law from 2010 through 2013 and that, of that amount, the IRS would spend more than half a billion dollars from an Obamacare implementation “slush fund.”[5]

Treasury Secretary Jack Lew recently testified before Congress that the IRS had approximately 700 full-time equivalent staff working on Obamacare implementation.[6] However, in its budget request this spring, the IRS assumed that a force nearly three times that size—1,954 full-time equivalent employees—would work on the law’s implementation in the coming fiscal year.[7]

Complexity for Bureaucrats and Citizens Alike

Obamacare contains what the Treasury’s inspector general called “the largest set of tax law changes in 20 years.”[8] Obamacare is so complex that auditors cannot agree on how many provisions the IRS is charged with implementing. The GAO wrote that the IRS “has responsibilities in the implementation of 47” provisions,[9] while the Treasury inspector general concluded that “at least 42 provisions [of Obamacare] add to or amend the Internal Revenue Code.”[10]

Regardless, the law’s massive changes led the IRS’s National Taxpayer Advocate to worry in 2010—well before the current scandal became public—that she was “concerned about [the IRS’s] ability to administer the new health care credits and penalty taxes in a fair and compassionate way.”[11]

More Intrusions into Americans’ Lives

Obamacare requires all insurance companies to report to the IRS the name, address, identification number, and type of policy purchased by every customer, along with a determination whether the insurance was “government-approved” for purposes of complying with Obamacare’s individual mandate.[12] Likewise, individuals will have to file similar forms demonstrating they held “government-approved insurance” with their tax returns.

Privacy Concerns

At a time when the IRS will receive massive new amounts of personal health information from virtually all Americans, the agency’s ability to manage the health records it already receives has come under scrutiny. The American Enterprise Institute’s Scott Gottlieb writes that “an unnamed healthcare provider in California is suing the IRS and 15 unnamed agents, alleging that they improperly seized some 60 million medical records of 10 million Americans, including medical records of all California state judges on March 11, 2011.”[13] These allegations raise additional concerns about the IRS’s competence to manage the confidential health details of millions of American citizens.

Sound Familiar?

Both the IRS scandal and Obamacare contain similar themes: government overreach, massive intrusions, and bureaucrats granted opportunities to abuse their power in arbitrary and harmful ways. The American people should not be subjected to either.


[1]Alyene Senger and John Fleming, “Obamacare’s 18 New Tax Hikes,” The Heritage Foundation, The Foundry, August 20, 2012, http://blog.heritage.org/2012/08/20/obamacares-18-new-tax-hikes/.

[2]Congressional Budget Office, cost estimate for H.R. 6079, Repeal of Obamacare Act, July 24, 2012, http://cbo.gov/sites/default/files/cbofiles/attachments/43471-hr6079.pdf (accessed May 16, 2013).

[3]House Ways and Means Committee, “Democrats Have Increased Taxes.”

[4]Barack Obama, speech in Dover, New Hampshire, September 12, 2008, http://www.youtube.com/watch?v=6HE-rGGKksQ (accessed May 16, 2013).

[5]Government Accountability Office, Patient Protection and Affordable Care Act: IRS Managing Implementation Risks, but Its Approach Could Be Refined, GAO–12–690, June 13, 2012, pp. 1 and 5, http://gao.gov/assets/600/591566.pdf (accessed May 16, 2013).

[6]Cited in letter by Representative Charles Boustany (R–LA) to Acting IRS Commissioner Steven Miller, March 21, 2013, http://waysandmeans.house.gov/uploadedfiles/irs_aca_resources.pdf (accessed May 16, 2013).

[7]Internal Revenue Service, Fiscal Year 2014 Budget Justification, p. 169, http://www.treasury.gov/about/budget-performance/CJ14/10.%20IRS%20CJ%20FINAL%20v2.pdf (accessed May 16, 2013).

[8]Treasury Inspector General for Tax Administration, “The Modernization and Information Technology Services Organization Is Effectively Planning for the Implementation of the Affordable Care Act,” September 19, 2011, p. 1, http://www.treasury.gov/tigta/auditreports/2011reports/201120105fr.pdf (accessed May 16, 2013).

[9]Government Accountability Office, Patient Protection and Affordable Care Act: IRS Should Expand Its Strategic Approach to Implementation, GAO–11–179, June 2011, p. 2, http://www.gao.gov/new.items/d11719.pdf (accessed May 16, 2013).

[10]Treasury Inspector General for Tax Administration, “Modernization and Information Technology Services.”

[11]National Taxpayer Advocate, “Report to Congress: Fiscal Year 2011 Objectives,” June 30, 2010, p. 9, http://www.irs.gov/pub/irs-utl/nta2011objectivesfinal..pdf (accessed May 16, 2013).

[12]Patient Protection and Affordable Care Act, Public Law 110–148, Section 1502.

[13]Scott Gottlieb, “Suit Alleges IRS Improperly Seized 60 Million Personal Medical Records,” Forbes, May 15, 2013, http://www.forbes.com/sites/scottgottlieb/2013/05/15/the-irs-raids-60-million-personal-medical-records/ (accessed May 16, 2013).