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.

Independent Report Shows How Socialism Will Raise Your Taxes

Democratic candidates for president continue to evade questions on how they will pay for their massive, $32 trillion single-payer health care scheme. But on Monday, the Committee for a Responsible Federal Budget (CRFB) released a 10-page paper providing a preliminary analysis of possible ways to fund the left’s socialized medicine experiment.

Worth noting about the organization that published this document: It maintains a decidedly centrist platform. While perhaps not liberal in its views, it also does not embrace conservative policies. For instance, its president, Maya MacGuineas, recently wrote a blog post opposing the 2017 Tax Cuts and Jobs Act, stating that the bill’s “shortcomings outweigh the benefits,” because it will increase federal deficits and debt.

Everyone’s Taxes Will Go Up—a Lot

Consider some of the options to pay for single payer CRFB examines, along with how they might affect average families.

A 32 percent payroll tax increase. No, that’s not a typo. Right now, employers and employees pay a combined 15.3 percent payroll tax to fund Social Security and Medicare. (While employers technically pay half of this 15.3 percent, most economists conclude the entire amount ultimately comes out of workers’ paychecks, in the form of lower wages.) This change would more than triple current payroll tax rates.

Real-Life Cost: An individual earning $50,000 in wages would pay $8,000 more per year ($50,000 times 16 percent), and so would that individual’s employer.

Real-Life Cost: An individual with $50,000 in income would pay $9,450 in higher taxes ($50,000 minus $12,200, times 25 percent).

A 42 percent Value Added Tax (VAT). This change would enact on the federal level the type of sales/consumption tax that many European countries use to support their social programs. Some proposals have called for rebates to some or all households, to reflect the fact that sales taxes raise the cost of living, particularly for poorer families. However, using some of the proceeds of the VAT to provide rebates would likely require an even higher tax rate than the 42 percent CRFB estimates in its report.

Real-Life Cost: According to CRFB, “the first-order effect of this VAT would be to increase the prices of most goods and services by 42 percent.”

Mandatory Public Premiums. This proposal would require all Americans to pay a tax in the form of a “premium” to finance single payer. As it stands now, Americans with employer-sponsored insurance pay an average of $6,015 in premiums for family coverage. (Employers pay an additional $14,561 in premium contributions; most economists argue these funds ultimately come from employees, in the form of lower wages—but workers do not explicitly pay these funds out-of-pocket.)

Real-Life Cost: According to CRFB, “premiums would need to average about $7,500 per capita or $20,000 per household” to fund single payer. Exempting individuals currently on federal health programs (e.g., Medicare and Medicaid) would prevent seniors and the poor from getting hit with these costs, but “would increase the premiums [for everyone else] by over 60 percent to more than $12,000 per individual.”

Reduce non-health federal spending by 80 percent. After re-purposing existing federal health spending (e.g., Medicare, Medicaid), paying for single payer would require reducing everything else from the federal budget—defense, transportation, education, and more—by 80 percent.

Real-Life Cost: “An 80 percent cut to Social Security would mean reducing the average new benefit from about $18,000 per year to $3,600 per year.”

The report includes other options, including an increase in federal debt to 205 percent of gross domestic product—nearly double its historic record—and a more-than-doubling of individual and corporate income tax rates. The impact of the last is obvious: Take what you paid to the IRS on April 15, or in your regular paycheck, and double it.

In theory, lawmakers could use a combination of these approaches to fund a single-payer health care system, which might blunt their impact somewhat. But the massive amounts of revenue needed gives one the sense that doing so would amount to little more than rearranging deck chairs on a sinking fiscal ship.

Taxing Only the Rich Won’t Pay for Single Payer

CRFB reinforced their prior work indicating that taxes on “the rich” could at best fund about one-third of the cost of single payer. Their proposals include $2 trillion in revenue from raising tax rates on the affluent, another $2 trillion from phasing out tax incentives for the wealthy, another $2 trillion from doubling corporate income taxes, $3 trillion from wealth taxes, and $1 trillion from taxes on financial transactions and institutions.

Several of the proposals CRFB analyzed would raise tax rates on the wealthiest households above 60 percent. At these rates, economists suggest that individuals would reduce their income and cut back on work, because they do not see the point in generating additional income if government will take 70 (or 80, or 90) cents on every additional dollar earned. While taxing “the rich” might sound publicly appealing, at a certain point it becomes a self-defeating proposition—and several proposals CRFB vetted would meet, or exceed, that point.

Socialized Medicine Will Permanently Shrink the Economy

The report notes that “most of the [funding] options we present would shrink the economy compared to the current system.” For instance, CRFB quantifies the impact of funding single payer via a payroll tax increase as “the equivalent of a $3,200 reduction in per-person income and would result in a 6.5 percent reduction in hours worked—a 9 million person reduction in full-time equivalent workers in 2030.”

By contrast, deficit financing a single-payer system would minimize its drag on jobs, but “be far more damaging to the economy.” The increase in federal debt “would shrink the size of the economy by roughly 5 percent in 2030—the equivalent of a $4,500 reduction in per person income—and far more in the following years.”

Moreover, these estimates assume a great amount of interest by foreign buyers in continuing to purchase American debt. If the U.S. Treasury cannot find buyers for its bonds, a potential debt crisis could cause the economic damage from single payer to skyrocket.

To say single payer would cause widespread economic disruption would put it mildly. Hopefully, the CRFB report, and others like it, will inspire the American people to reject the progressive left’s march towards socialism.

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.

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.

Three Reasons to Oppose the Swampy Budget Deal

On Monday, congressional leaders and the Trump administration announced agreement on legislation that would set budget and spending parameters for the next two years. The agreement would suspend the debt limit through July 2021, and establish spending levels for lawmakers to enact appropriations measures for the remainder of this Congress.

Conservatives have rightly criticized the agreement as abandoning the principles of smaller government, with a return to the trillion-dollar deficits seen under Barack Obama (and this time under a more robust economy). Among the many reasons to oppose the agreement, three in particular stand out.

1. More Spending Now

When the Budget Control Act, which established the existing spending caps, passed in the summer of 2011, Sen. Mitch McConnell (R-KY)—then the minority leader, now the majority leader—famously said it would slow down the “big government freight train.”

But in the time since that bill’s enactment, McConnell and his colleagues in Congress have repeatedly increased the Budget Control Act’s spending caps, speeding up the big government freight train over and over again.

2. More Spending Later

On one level, the agreement at least wins points for honesty, by abandoning the pretense that Congress has any interest in controlling spending. However, future generations will wish that Congress had substituted some actual fiscal discipline for profligacy.

3. No Policy Improvements

To assuage the conservative concerns about the package’s spending binge, Republican leaders have pointed to other language in the agreement. Specifically, the text states that Republican leaders and the White House would have a veto on any appropriations riders passed by the Democratic House that would seek to (for instance) defund regulatory actions by the current administration:

Congressional leaders and the Administration agree that, relative to the [Fiscal Year] 2019 regular appropriations acts, there will be no poison pills, additional new riders…other changes in policy or conventions…or any non-appropriations measures unless agreed to on a bipartisan basis by the four leaders with the approval of the President.

In theory, this language blocks Democrats from eliminating restrictions on taxpayer funding of abortion, among other liberal priorities.

If Democrats could block Republicans from enacting appropriations policy riders over the past two years, despite serving in the minority, could Republicans have blocked Democrats from enacting their own policy riders with continued control of the Senate and White House? That question should answer itself—provided Republicans had any spine (admittedly an uncertain prospect).

Instead, Republicans agreed to hundreds of billions of dollars in additional spending to “win” something they already had—an understanding that neither side would enact appropriations policy riders. Taken from the most cynical perspective, the agreement uses the pro-life community’s worries about Democratic riders—riders which both the White House and Republican Senate already had the means to stop—to rationalize congressional Republicans’ continued spending binge.

Trump came into office pledging to “drain the swamp.” But the new government spending contemplated by this agreement wouldn’t drain the swamp so much as grow it. Conservatives, and the American people as a whole, deserve better.

This post was originally published at The Federalist.

Ocasio-Cortez Wants Congress to Stop Pretending to Pay for Its Spending

Get used to reading more storylines like this over the next two years: The left hand doesn’t know what the far-left hand is doing.

On Wednesday, incoming House Speaker Nancy Pelosi (D-CA) faced a potential revolt from within her own party. Rep.-elect Alexandria Ocasio-Cortez (D-NY) and several progressive allies threatened to vote against the rules package governing congressional procedures on the first day of the new Congress Thursday, because of proposed changes they believe would threaten their ability to pass single-payer health care.

What’s Going On?

Ocasio-Cortez and her allies object to Pelosi’s attempt to reinstate Pay-as-You-Go (PAYGO) rules for the new 116th Congress. Put simply, those rules would require that any legislation the House considers not increase the deficit over five- and ten-year periods. In short, this policy would mean that any bill proposing new mandatory spending or revenue reductions must pay for those changes via offsetting tax increases and/or spending cuts—hence the name.

Under Republican control, the House had a policy requiring spending increases—but not tax cuts—to be paid for. Pelosi would overturn that policy and apply PAYGO to both the spending and the revenue side of the ledger.

Progressives object to Pelosi’s attempt to constrain government spending, whether in the form of additional fiscal “stimulus” or a single-payer health system.

However, Pelosi’s spokesman countered with a statement indicating that the progressives’ move “is a vote to let Mick Mulvaney make across-the-board cuts.” Mulvaney heads the Office of Management and Budget, which would implement any sequester under statutory PAYGO.

Regardless of what the new House decides regarding its own procedures for considering bills, Pay-as-You-Go remains on the federal statute books. Democrats re-enacted it in 2010, just prior to Obamacare’s passage. If legislation Congress passed  violates those statutory PAYGO requirements (as opposed to any internal House rules), it will trigger mandatory spending reductions via the sequester—the “across-the-board cuts” to which Pelosi’s spokesman referred.

To Pay for Spending—Or Not?

Progressives think reinstituting PAYGO would impose fiscal constraints hindering their ability to pass massive new spending legislation. However, the reality does not match the rhetoric from Ocasio-Cortez and others. Consider, for instance, just some of the ways a Democratic Congress “paid for” the more than $1.8 trillion in new spending on Obamacare:

  • A CLASS Act that even some Democrats called “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would have been proud of,” and which never went into effect because the Obama administration could not implement it in a fiscally sustainable manner;
  • Double counting the Medicare savings in the legislation as “both” improving the solvency of Medicare and paying for the new spending in Obamacare;
  • Payment reductions that the non-partisan Medicare actuary considers extremely unlikely to be sustainable, and which could cause more than half of hospitals and nursing homes to become unprofitable within a generation;
  • Tax increases that Congress has repeatedly delayed, and which could end up never going into effect.

A Bipartisan Spending Addiction

An external observer weighing the Part D and Obamacare examples would find it difficult to determine the less dishonest approach to fiscal policy. It reinforces that America’s representatives have a bipartisan addiction to more government spending, and a virtually complete unwillingness to make tough choices now, instead bequeathing massive (and growing) amounts of debt to the next generation.

In that sense, Ocasio-Cortez and her fellow progressives should feel right at home in the new Congress. Republicans may criticize her for proposing new spending, but the difference between her and most GOP members represents one of degree rather than of kind. Therein lies the problem: In continuing to spend with reckless abandon, Congress is merely debating how quickly to sink our country’s fiscal ship.

This post was originally published at The Federalist.

Three Elements of a Conservative Health Care Vision

Recently I wrote about how conservatives failed to articulate a coherent vision of health care, specifically issues related to pre-existing conditions, in the runup to the midterm elections. That article prompted a few Capitol Hill colleagues to ask an obvious question: What should a conservative vision for health care look like? It’s one thing to have answers on specific issues (i.e., alternatives to Obamacare’s pre-existing condition regulations), but what defines the vision of where conservatives should look to move the debate?

Henceforth, my attempt to outline that conservative health-care vision on a macro level with three relatively simple principles. Others may express these concepts slightly differently—and I take no particular pride of authorship in the principles as written—but hopefully they will help to advance thinking about where conservative health policy should lead.

Portable Insurance

Conversely, conservatives believe in insurance purchased by individuals—or, as my former boss Jim DeMint likes to describe it, an insurance policy you can buy, hold, and keep. With most Americans still obtaining health coverage from their employers, a move to individually owned coverage would mean individuals themselves would decide what kind of insurance to purchase, rather than a business’s HR executives.

Conservatives should also promote the concept of portable insurance that can move from job to job, and ideally from state to state as well. If individuals can buy an insurance policy while young, and take it with them for decades, then much of the problem of covering individuals with pre-existing conditions will simply disappear—people will have the same insurance before their diagnosis that they had for years beforehand.

I wrote approvingly about the Trump administration’s proposals regarding Health Reimbursement Arrangements precisely because I believe that, if implemented, they will advance both prongs of this principle. Allowing employees to receive an employer contribution for insurance they own will make coverage both individual and portable, in ways that could revolutionize the way Americans buy insurance.

A Sustainable Safety Net

As it is, the Medicare program became functionally insolvent more than a year ago. The year before Obamacare’s passage, the Medicare trustees asserted the program’s hospital insurance trust fund would become insolvent in 2017. Only the double-counting included in Obamacare—whereby the same Medicare savings were used both to “save Medicare” and fund Obamacare—has allowed the program to remain solvent, on paper if not in fact.

Reasonable people may disagree on precisely where and how to draw the line at the sustainability of our entitlements. For instance, I hold grave doubts that able-bodied adults belong on Medicaid, particularly given the way Obamacare’s expansion of Medicaid has encouraged states to discriminate against individuals with disabilities and the most vulnerable.

But few could argue that the current system qualifies as sustainable. Far from it. With Medicare beneficiaries receiving more from the system in benefits than they paid in taxes—and the gap growing every year—policy-makers must make hard choices to right-size our entitlements. And they should do so sooner rather than later.

Appropriately Aligned Incentives

Four decades ago, Margaret Thatcher hinted at the primary problem in health care when she noted that socialists always run out of other people’s money. Because third-party insurers—in most cases selected by HR executives at individuals’ place of business rather than the individuals themselves—pay for a large share of health expenses, most Americans know little about the price of specific health care goods and services (and care even less).

To state the obvious: No, individuals shouldn’t try to find health care “deals” in the ambulance on the way to the hospital. But given that much health care spending occurs not for acute cases (e.g., a heart attack) but for chronic conditions (i.e., diabetes), policymakers do have levers to try to get the incentives moving in the right direction.

Reforming the tax treatment of health insurance—which both encourages individuals to over-consume care and ties most Americans to employer-based insurance—would help align incentives, while also encouraging more portable insurance. Price transparency might help, provided those prices are meaningful (i.e., they relate to what individuals will actually pay out-of-pocket). Giving individuals financial incentives to shop around for procedures like MRIs, or even surgical procedures, also would place downward pressure on prices.

This post was originally published at The Federalist.

How Republicans Shot Themselves in the Foot on Pre-Existing Conditions

Republicans who want to blame their election shortcomings on last year’s attempt to “repeal-and-replace” Obamacare will have all the fodder they need from the media. A full two weeks before Election Day, the bedwetters caucus was already out in full force:

House Republicans are increasingly worried that Democrats’ attacks on their votes to repeal and replace Obamacare could cost them the House. While the legislation stalled in the Senate, it’s become a toxic issue on the campaign trail for the House Republicans who backed it.

In reality, however, the seeds of this problem go well beyond this Congress, or even the last election cycle. A health care strategy based on a simple but contradictory slogan created a policy orphan that few Republicans could readily defend.

A Dumb Political Slogan

Around the same time last year, I wrote an article explaining why the “repeal-and-replace” mantra would prove so problematic for the Republican Congress trying to translate the slogan into law. Conservatives seized on the “repeal” element to focus on eradicating the law, and taking steps to help lower health costs.

By contrast, moderates assumed that “replace” meant Republican lawmakers had embraced the mantra of universal health coverage, and would maintain most of the benefits—both the number of Americans with insurance and the regulatory “protections”—of Obamacare itself. Two disparate philosophies linked by a conjunction does not a governing platform make. The past two years proved as much.

A Non-Sensical Bill

In life, one mistake can often lead to another, and so it proved in health care. After having created an internal divide through the “repeal-and-replace” mantra over four election cycles, Republicans had to put policy meat on the details they had papered over for seven years. In so doing, they ended up with a “solution” that appealed to no one.

  1. Removed Obamacare’s requirements for what treatments insurers must cover (e.g., essential health benefits);
  2. Removed Obamacare’s requirements about how much of these treatments insurers must cover (e.g., actuarial value, which measures a percentage of expected health expenses covered by insurance); but
  3. Retained Obamacare’s requirements about whom insurance must cover—the requirement to cover all applicants (guaranteed issue), and the related requirement not to vary premiums based on health status (community rating).

As I first outlined early last year, this regulatory combination resulted in a witch’s brew of bad outcomes on both the policy and political fronts:

  • Because lawmakers retained the requirements for insurers to cover all individuals, regardless of health status, the bills didn’t reduce premiums much. If insurers must charge all individuals the same rates regardless of their health, they will assume that a disproportionately sicker population will sign up. That dynamic meant the bills did little to reverse the more-than-doubling of individual market insurance premiums from 2013-17. What little premium reduction did materialize came largely due to the corporate welfare payments the bills funneled to insurers in the form of a “Stability Fund.”
  • However, because lawmakers removed the requirements about what and how much insurers must cover, liberal groups raised questions about access to care, particularly for sicker populations. This dynamic led to the myriad charges and political attacks about Republicans “gutting” care for people with pre-existing conditions.

You couldn’t have picked a worse combination for lawmakers to try to defend. The bills as written created a plethora of “losers” and very few clear “winners.” Legislators absorbed most of the political pain regarding pre-existing conditions that they would have received had they repealed those regulations (i.e., guaranteed issue and community rating) outright, but virtually none of the political gain (i.e., lower premiums) from doing so.

Some people—including yours truly—predicted this outcome. Before the House voted on its bill, I noted that this combination would prove untenable from a policy perspective, and politically problematic to boot. Republicans plowed ahead anyway, likely because they saw this option as the only way to breach the policy chasm caused by bad sloganeering, and paid the price.

Lawmaker Ignorance and Apathy

That apathy continued after Obamacare’s enactment. While Suderman articulated an alternative vision to the law, he admitted that “Republicans can’t make the case for that plan because they’ve never figured out what it would look like. The GOP plan is always in development but never ready for final release.”

Emphasizing the “repeal-and-replace” mantra allowed Republicans to avoid face the very real trade-offs that come with making health policy. When a Republican Congress finally had to look those trade-offs in the face, it couldn’t. Many didn’t know what they wanted, or wanted a pain-free solution (“Who knew health care could be so complicated?”). Difficulty regarding trade-offs led to the further difficulty of unifying behind a singular policy.

Can’t Avoid Health Care

Many conservative lawmakers face something that could be described as “health policy PTSD”—they don’t understand it, so they don’t study it; they only define their views by what they oppose (e.g., “Hillarycare” and Obamacare); and when they put out proposals (e.g., premium support for Medicare and “repeal-and-replace” on Obamacare), they get attacked. So they conclude that they should never talk about the issue or put out proposals. Doubtless Tuesday’s election results will confirm that tendency for some.

Rather than using the election results to avoid health care, Republican lawmakers instead should lean in to the issue, to understand it and ascertain what concepts and policies they support. The left knows exactly what it wants from health care: More regulation, more spending, and more government control—leading ultimately to total government control.

Conservatives must act now to articulate an alternative vision, because the 800-pound gorilla of Washington policy will not disappear any time soon.

This post was originally published at The Federalist.

Will the Trump Administration Help Republicans Expand Obamacare?

For all the allegations by the Left about how the Trump administration is “sabotaging” Obamacare, a recent New York Times article revealed nothing of the sort. Instead it indicated how many senior officials within the administration want to entrench Obamacare, helping states to expand the reach of one of its costly entitlements.

Thankfully, a furious internal battle took the idea off the table—for now. But instead of trying to find ways to increase the reach of Obamacare’s Medicaid expansion, which prioritizes able-bodied adults over individuals with disabilities, the Trump administration should instead pursue policies that slow the push towards expansion, by making the tough fiscal choices surrounding expansion plain for states to see.

What ‘Partial Expansion’ Means

Following the court’s decision, the Obama administration determined expansion an “all-or-nothing” proposition. If states wanted to receive the enhanced match rate for the expansion—which started at 100 percent in 2014, and is slowly falling to 90 percent for 2020 and future years—they must expand to all individuals below the 138 percent of poverty threshold.

However, some states wish to expand Medicaid only for adults with incomes below the poverty level. Whereas individuals with incomes above 100 percent of poverty qualify for premium and cost-sharing subsidies for plans on Obamacare’s exchanges, individuals with incomes below the poverty level do not. (In states that have not expanded Medicaid, individuals with incomes below poverty may fall into the so-called “coverage gap,” because they do not have enough income to qualify for subsidized exchange coverage.)

States that wish to cover only individuals with incomes below the poverty line may do so—however, under the Obama administration guidance, those states would receive only their regular federal match rate of between 50 and 74 percent, depending on a state’s income. (Wisconsin chose this option for its Medicaid program.)

How ‘Partial Expansion’ Actually Costs More Money

The Times article says several administration supporters of “partial expansion”—including Health and Human Services (HHS) Secretary Alex Azar, Centers for Medicare and Medicaid Administrator (CMS) Seema Verma, and Domestic Policy Council Director Andrew Bremberg—believe that embracing the change would help to head off full-blown expansion efforts in states like Utah. An internal HHS memo obtained by the Times claims that “HHS believes allowing partial expansion would result in significant savings over the 10-year budget window compared to full Medicaid expansion by all.”

In reality, however, “partial expansion” would explode the budget, for at least three reasons. First, it will encourage states that have not embraced expansion to do so, by lowering the fiscal barrier to expansion. While states “only” have to fund up to 10 percent of the costs of Medicaid expansion, they pay not a dime for any individuals enrolled in exchange coverage. By shifting individuals with incomes of between 100-138 percent of poverty from Medicaid to the exchanges, “partial expansion” significantly reduces the population of individuals for whom states would have to share costs. This change could encourage even ruby red states like Texas to consider Medicaid expansion.

Second, for the same reason, such a move will encourage states that have already expanded Medicaid to switch to “partial expansion”—so they can fob some of their state costs onto federal taxpayers. The Times notes that Arkansas and Massachusetts already have such waiver applications pending with CMS. Once the administration approves a single one of these waivers, virtually every state (or at minimum, every red state with a Medicaid expansion) will run to CMS’s doorstep asking for the federal government to take these costs off their hands.

Medicaid expansion has already proved unsustainable, with exploding enrollment and costs. “Partial expansion” would make that fiscal burden even worse, through a triple whammy of more states expanding, existing states offloading costs to the federal government through “partial expansion,” and the conversion of millions of enrollees from less expensive Medicaid coverage to more costly exchange plans.

What Washington Should Do Instead

Rather than embracing the fiscally irresponsible “partial expansion,” the Trump administration and Congress should instead halt another budget gimmick that states have used to fund Medicaid expansion: The provider tax scam. As of last fall, eight states had used this gimmick to fund some or all of the state portion of expansion costs. Other states have taken heed: Virginia used a provider tax to fund its Medicaid expansion earlier this year, and Gov. Paul LePage (R-ME)—who heretofore has steadfastly opposed expansion—recently floated the idea of a provider tax to fund expansion in Maine.

The provider tax functions as a scam by laundering money to generate more federal revenue. Providers—whether hospitals, nursing homes, Medicaid managed-care plans, or others—agree to an “assessment” that goes into the state’s general fund. The state uses those dollars to draw down new Medicaid matching funds from the federal government, which the state promptly sends right back to the providers.

For this reason, politicians of all parties have called on Congress to halt the provider tax gimmick. Even former vice president Joe Biden called provider taxes a “scam,” and pressed for their abolition. The final report of the bipartisan Simpson-Bowles commission called for “restricting and eventually eliminating” the “Medicaid tax gimmick.”

If Republicans in Congress really want to oppose Obamacare—the law they ran on repealing for four straight election cycles—they should start by imposing a moratorium on any new Medicaid provider taxes, whether to fund expansion or anything else. Such a move would force states to consider whether they can afford to fund their share of expansion costs—by diverting dollars from schools or transportation, for instance—rather than using a budget gimmick to avoid those tough choices. It would also save money, by stopping states from bilking the federal government out of billions in extra Medicaid funds through what amounts to a money-laundering scam.

Rhetoric vs. Reality, Take 5,000

But of course, whether Republicans actually want to dismantle Obamacare remains a very open question. Rather than opposing “partial expansion” on fiscal grounds, the Times quotes unnamed elected officials’ response:

Republican governors were generally supportive [of “partial expansion”], but they said the change must not be seen as an expansion of the Affordable Care Act and should not be announced before the midterm elections. Congressional Republican leaders, while supportive of the option, also cautioned against any high-profile public announcement before the midterm elections.

In other words, these officials want to expand and entrench Obamacare, but don’t want to be seen as expanding and entrenching Obamacare. What courage!

Just as with congressional Republicans’ desperate moves to bail out Obamacare’s exchanges earlier this year, the Times article demonstrates how a party that repeatedly ran on repealing Obamacare, once granted with the full levers of power in Washington, instead looks to reinforce it. Small wonder that the unnamed politicians in the Times article worry about conservative voters exacting a justifiable vengeance in November.

This post was originally published at The Federalist.

Dr. Nick Riviera Explains Obamacare

Dr. Nick Riviera From ‘The Simpsons’ Explains Obamacare

He graduated from Hollywood Upstairs Medical College, thinks “choc-o-tastic” qualifies as a food group, and has a strange habit of jumping out of windows when called to the coroner’s office. He’s also an animated character, for what it’s worth. So what does Dr. Nick Riviera, Springfield’s resident quack on “The Simpsons,” have to do with Obamacare?

As it happens, plenty. Dr. Nick provides a humorous example of what may happen in future years, as cascading reductions in reimbursements due to Obamacare wreak havoc on our health care system—and could make “doctors” like Dr. Nick the only access option for some patients.

Productivity Adjustments Ahead

Most economists consider health care a superior good. That is, as income rises, people want more of it. Moreover, in many cases patients equate price with quality. People generally want the most, and best, health care money can buy, even if the most expensive care does not always equate to the best care. In Springfield, that high-cost care gets provided by giggling physician Dr. Julius Hibbert.

Obamacare included several major changes to reimbursement systems that attempted to change this drive for more, and more expensive, care, but also included arbitrary payment reductions that will lead to abysmally low payment levels. Most notably, the law included so-called “productivity adjustments” to the Medicare formula for hospitals and other providers, reducing the growth of their payments every year.

The CEO of a major hospital trade association admitted back in 2010 that this trade-off—a one-time increase in insured patients for hospitals in exchange for lower payments from Medicare forever—probably didn’t amount to a great deal for his industry in the longer term. Nonpartisan budget experts agree.

The Congressional Budget Office in September 2016 released an analysis showing the Obamacare productivity adjustments could more than double the number of unprofitable hospitals nationwide by 2025. In the longer term, the independent Medicare actuary believes that the productivity adjustments will become unsustainable. As Medicare payment levels keep dropping relative to private insurance, they will make 70 percent of skilled nursing facilities and 80 percent of home health agencies unprofitable, “raising the prospect of access and quality-of-care issues for Medicare beneficiaries.”

Although set by another formula—one created in 2015 rather than in Obamacare itself—Medicare physician payment rates face the same dilemma, as simulations also project payments to decline substantially over time when compared to other forms of coverage.

‘You’ve Tried the Best—Now Try the Rest!’

Into this payment breach steps none other than Dr. Nick Riviera. In season three of “The Simpsons,” the title family had to rely on Dr. Nick to perform open-heart surgery on Homer. Because Homer’s insurance wouldn’t cover the operation, the family turned to Dr. Nick upon seeing his television ad, in which he pledged to undertake any surgery for the ridiculously low price of $129.95. (“Call 1-600-DOCTORB—The B is for bargain!”)

The following scenes show an inept Dr. Nick attempting to learn bypass surgery on the fly. Only a well-timed intervention from smarty-pants daughter Lisa allows Dr. Nick to complete the surgery successfully, resulting in a happy ending for the Simpson clan.

Coming to a Hospital Near You?

Liberals might argue that this episode makes the case for Obamacare, by preventing the kind of care denials that led Homer to Dr. Nick in the first place. But in reality, Obamacare insurance plans currently provide increasingly narrow provider networks that could impede access to care. Moreover, the law’s productivity adjustments, by making hospitals and other providers unprofitable, will increasingly limit access to care for seniors in Medicare over time.

Democrats claim Obamacare made no changes to Medicare, and that reducing reimbursement levels amounts to no more than cutting “waste” out of the system. “Your guaranteed benefits won’t change,” House Minority Leader Nancy Pelosi argues.

That argument only holds merit to the extent that providers will accept lower and lower reimbursement levels in perpetuity. Medicare could lower payments for all surgeries to $129.95, but I doubt anyone other than our good friend Dr. Nick will perform them at that price.

So the next time Democrats try to argue that Obamacare didn’t harm Medicare, or will have a positive effect on our health-care system, think of Dr. Nick. In less time than you expect, his real-life equivalent could be coming to a doctor’s office or hospital near you.

This post was originally published at The Federalist.