Tag: health reform

My Question for the President

President Obama will hold a press conference tonight to answer questions about his health care reform proposal. This is what I would ask him:

Mr. President, during your campaign, you said, “I can make a firm pledge…Under my plan, no family making less than $250,000 a year will see any form of tax increase.”  You also said that “no one will pay higher tax rates than they paid in the 1990s.”

Your National Economic Council chairman, Larry Summers, has written that employer mandates “are like public programs financed by benefit taxes.”  Under the House health reform bill, an uninsured worker earning $50,000 per year, with no offer of coverage from her employer, would face a 15.3-percent federal payroll tax, a 25-percent federal marginal income tax rate, an 8-percent reduction in her wages (to pay the employer penalty), plus a 2.5 percent uninsured tax.  In total, her effective marginal federal tax rate would reach 50.8 percent.

Do you stand by those pledges, and would you therefore veto any employer mandate or individual mandate as a tax on the middle class?

(Add it to the questions I posed here and here.)

Sen. Kennedy’s Budget-Breaking “Reform” Bill

It appears that the Obama administration has decided to disown the venerable Senator.  No wonder.  The Congressional Budget Office estimated the ten-year cost of Sen. Kennedy’s bill at $1 trillion, but admitted that its analysis was incomplete. 

Now the consulting group HSI Network, LLC comes foward with an estimate of $4 trillion:

The Senate Committee on Health, Education, Labor and Pensions (HELP) have proposed a health reform bill called the Affordable Health Choice Act (AHC) that seeks to reduce the number of uninsured and increase health system efficiency and quality. The draft legislation was introduced on June 9th, 2009. The proposal provided adequate information to suggest what the impact would be of AHC using the ARCOLA™ simulation model. AHC would include an individual mandate as well as a pay or plan provision. In addition, it would include a means-tested subsidy with premium supports available for those up to 500% of the federal poverty level. Public plan options in three tiers: Gold, Silver and Bronze are proposed in a structure similar to that of the Massachusetts Connector, except that it is called The Gateway. These public plan options would contain costs by reimbursing providers up to 10% above current reimbursement rates. There is no mention of removing the tax exclusion associated with employer sponsored health insurance. There is also no mention of changes to Medicare and Medicaid, other than fraud prevention, that could provide cost-savings for the coverage expansion proposed. Below, we summarize the impact of the proposed plan in terms of the reduction on uninsured, the 2010 cost, as well as the ten year cost of the plan in 2010 dollars.

HELP Affordable Health Choices Act

  • Uninsurance is reduced by 99% to cover approximately 47,700,000 people
  • Subsidy - Tax Recovery = Net cost:
    • $279,000,000,000 subsidy to the individual market
    • $180,000,000,000 subsidy to the ESI market with
    • Net cost: $460,500,000,000 (annual)
    • Net cost: $4,098,000,000,000 (10 year)
  • Private sector crowd out: ~79,300,000 lives

HSI figures that a lot more people will take advantage of federal health insurance subsidies, driving costs up far more than indicated by the CBO figure.  (H/t to Phil Klein at the American Spectator online.)

Of course, no one knows what the bill would really cost in operation.  But the history of social insurance and welfare programs is sky-rocketing expense well beyond original projections.  Go back and look at the initial cost estimates for Medicare and Social Security, and you will run from the room simultaneously laughing and crying.

Health care reform would be serious business at any moment of time, but especially when the country faces $10 trillion in new debt over the next decade on top of the existing $11 trillion national debt.  And with the $100 trillion Medicare/Social Security financial bomb lurking in the background, rushing to leap off the financial cliff with this sort of health care legislation would be utterly irresponsible.

GOP Health Care Alternative: Not as Bad as Advertised

Like my colleague, Michael Cannon, I was convinced by the staff summary and general spin accompanying the Republican health care bill introduced by Sens. Tom Coburn (R-OK) and Richard Burr (R-NC), and Reps. Paul Ryan (R-WI) and Devin Nunes (R-CA) that the bill headed, albeit more slowly, down the same road to government-run health care as expected Democratic proposals. However, a closer reading of the actual bill shows that, while there are still reasons for concern, it may be much better than originally advertised.

First, it should be pointed out that the centerpiece of the bill is an important change to the tax treatment of employer-provided health insurance. The Coburn-Burr-Ryan-Nunez bill would replace the current tax exclusion for employer-provided health insurance with a refundable tax credit of $2,300 per year an individual worker or $5,700 per year for family coverage. This move to personal, portable health insurance has long been at the heart of free market healthy care proposals. The bill would also expand health savings accounts and make important reforms to Medicaid and Medicare.

And, the bill should receive credit for what it does not contain. There is no individual or employer mandate. (I could live without the auto-enroll provisions, but they look more obnoxious than truly dangerous). There is no government board determining the cost-effectiveness of treatment. There is no “public option” competing with private insurance. In short, the bill avoids most of the really bad ideas for health reform featured in my recent Policy Analysis.

Other aspects are more problematic. The authors still seem far too attached to the idea of an exchange/connector/portal. The summary implied that states would be required to establish such mechanism. In reality, however, the bill merely creates incentives for states to do so. Moreover, I have been repeatedly assured that the bill’s authors are aiming for the more benign Utah-style “portal,” rather than the bureaucratic nightmare that is the Massachusetts “connector.” Still, I would be more comfortable if the staff summary had not singled out Massachusetts as the only state reform worthy of being called “an achievement.”

And, if states choose to set up an exchange, a number of federal requirements kick in, such as a requirement that at least one plan offered through the exchange provide benefits equal to those on the low cost FEHBP plan. There is also a guaranteed issue requirement.

Elsewhere, there are also requirements that states set up some type of risk-adjustment mechanism although the bureaucratic ex-post option that I criticized previously, appears to be only one option among many for meeting this requirement. And, I wish the authors hadn’t jumped on the health IT bandwagon. Health IT is a very worthy concept, but one better handled by the private sector.

And, if we should praise the bill for what it doesn’t include, we should criticize it in the same way. The bill does not include one of the best free market reform proposals of recent years, Rep. John Shadegg’s call for letting people purchase health insurance across state lines.

The bills (there are minor differences between the House and Senate versions) run to nearly 300 pages, and additional details, both good and bad, may emerge as I have more opportunity to study them. But for now, the bill, while flawed, looks to have far more good than bad.

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The Coburn-Burr-Ryan-Nunes Mandate-Price-Control Bill

Today, Senators Tom Coburn (R-OK) and Richard Burr (R-NC), along with Reps. Paul Ryan (R-WI) and Devin Nunes (R-CA) announced that they will introduce a health care reform bill. If my reading of the bill summary is correct, their bill would:

  • Mandate that states create a new regulatory bureaucracy called a “State Health Insurance Exchange,”
  • Mandate that all plans offered through those exchanges meet federal regulatory standards,
  • Mandate “guaranteed issue” in those exchanges,
  • Mandate “uniform and reliable measures by which to report quality and price information,”
  • Impose price controls on those plans by prohibiting risk-rating,
  • Launch a government takeover of the “insurance” part of health insurance, by means of a “risk-adjustment” program intended to cope with the problems created by price controls, and
  • Fall just short of an individual mandate by setting up (mandating?) automatic enrollment in exchange plans at “places of employment, emergency rooms, the DMV, etc.” – essentially, trying to achieve universal coverage by nagging Americans to death.

Needless to say, I am troubled.

The bill summary is self-contradictory. On the one hand, it lists “No Tax Increases” as a core concept. Do its authors not know that imposing price controls on health insurance premiums imposes a tax on healthier-than-average consumers? And where do they think the money for “risk-adjustment” payments will come from? Heaven?

The bill sponsors seem to want to cement in place the monopoly regulation that currently exists at the state level – when they’re not encouraging Congress to take over that function. Have they abandoned their colleague Rep. John Shadegg’s (R-AZ) proposal to allow for competitive regulation of health insurance?

And if Massachusetts created an “exchange” on its own, why do other states need federal legislation?

The bill includes some ideas for which I have more sympathy, like its tax-credit proposal and expanding health savings accounts.

But the above provisions would sow the seeds of a government takeover of health care – so much so that The Washington Post’s Ezra Klein is salivating:

The word of the day is “convergence.” That – and that alone – is the definitive message of the conservative health reform alternative developed by Sens. Tom Coburn (Okla.) and Richard Burr (N.C.), as well as Rep. Paul Ryan (Wisc.). For now, some of the key provisions are about as clear as mud. The plan’s changes to the tax code, in particular, are impossible to discern. So I’ll do another post when I can get some clarity on those issues. The politics, however, are perfectly straightforward.

A superficial read of the Patients’ Choice Act – which I’ve uploaded here – would make you think you’re digging into a liberal bill. A fair chunk of the rhetoric is lifted straight from Sen. Ted Kennedy’s office. “It is time to publicly admit that the health care system in America is broken,” begins the document. “Health care is not a commodity in the traditional sense,” it continues. “States should provide direct oversight of health insurers to make sure they are playing by fair rules,” it demands. The way we pay private insurers in Medicare “wastes taxpayer dollars and lines the pockets of insurance executives,” it says. Elsewhere, it praises solutions that have worked in several European countries.”

And though it’s still too early to say how the policy fits together, it’s clear that many traditionally Democratic concepts have been embraced. To put it simply, the plan wants to encourage a version of the Massachusetts reforms – which it calls a “well-known, bi-partisan achievement of universal health care” – in every state. There are some differences, of course. The plan doesn’t have an individual mandate. It doesn’t have an obvious tax on employers. But it strongly endorses State Health Insurance Exchanges. And that, for Republicans, is a radical change in policy.

This idea – present in every Democratic proposal but absent in Arizona Sen.John McCain’s plan – would empower states to create heavily regulated marketplaces of insurers. The plans offered would have to “meet the same statutory standard used for the health benefits given to Members of Congress.” Cherrypicking would be discouraged through risk adjustment, which the PCA calls “a model that works in several European countries.” The government would automatically enroll individuals in plans whenever they interacted with a government agency and states would be able to join into regional cooperatives to increase the size of their risk pool.

In essence, Coburn, Burr, and Ryan are abandoning the individual market entirely. Like Democrats, they’re arguing that individuals cannot successfully navigate the insurance market, and they need the protection of government regulation and the bargaining power that comes from a large risk pool. This is literally the opposite approach from McCain, who attempted to unwind the employer-based insurance and encourage families to purchase health coverage on the individual market. The core elements of this plan, in other words, make it the same type of plan Democrats are offering. A plan that enlarges consumer buying pools rather than shrinks them. It’s pretty much exactly what I’d expect a Blue Dog Democrat to propose. And it’s further evidence that the argument over health reform is narrowing, rather than widening. And it’s narrowing in a direction that favors the Democrats.

UPDATE: After discussions with Sen. Coburn’s staff, I happily issued a few corrections. Still, concerns remain.

On Taxing Employer Health Benefits

Democrats in Congress are reportedly considering taxing employer-provided health insurance benefits as a way to pay for their health care reform plan.  And, even though he brutally attacked John McCain for something similar (see below) during the campaign, President Obama may now go along with the idea.

Much of the media coverage around the idea has equated this tax hike with the McCain plan and other proposals by advocates of market-based health reform over the years that would shift the tax break from employer-provided insurance to individual insurance.  However, there is an important distinction.  The market-based proposals would have taxed employer-provided health benefits (treating them as taxable compensation), but would have provided workers with a deduction or credit for purchasing insurance regardless of whether they receive it through work or pay it on their own.  The result, for all but a handful of workers with the most expensive gold-plated employer plans, would have been tax neutral.  In fact, many workers would receive a net tax cut.   The shift in tax treatment was simply part of a larger strategy to move from a system of employer-provided insurance to one where health insurance was personal, portable, and owned by workers.

The plan being discussed by Congress, on the hand, is simply a tax hike.  It is not revenue neutral—it is a $1 trillion tax increase that will fall heavily on the middle-class.  It is designed not to change the system, but simply to raise revenue. 

That’s a very different thing!

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Why Can’t the Destroyers Just Get Along?

A friend comments on my “How Does It Feel to Be at the Table Now?” post thus:

I think there is a pyschological element at work here a la Atlas Shrugged — many of the Washington lobbyists who were here in 93-94 feel repentant of having killed health reform back then and don’t want another 15 years of being considered “bad people” in Washington cocktail party circles. So they genuinely want to be “part of the solution” this time. The hard part is selling that to the folks who pay their salaries!

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How Does It Feel to Be at the Table Now?

On Monday, the Obama administration held a well-publicized love-fest with lobbyists for the health care industry.  It turns out that rather than a “game-changer,” the event was a fraud.  And the industry got burned.

At the time, President Obama called it a “a watershed event in the long and elusive quest for health care reform”:

Over the next 10 years — from 2010 to 2019 — [these industry lobbyists] are pledging to cut the rate of growth of national health care spending by 1.5 percentage points each year — an amount that’s equal to over $2 trillion.

By an amazing coincidence, $2 trillion is just enough to pay for Obama’s proposed government takeover of the health care sector.

Yet The New York Times reports that isn’t the magnitude of spending reductions the lobbyists thought they were supporting:

Hospitals and insurance companies said Thursday that President Obama had substantially overstated their promise earlier this week to reduce the growth of health spending… [C]onfusion swirled in Washington as the companies’ trade associations raced to tamp down angst among members around the country.

Health care leaders who attended the meeting…say they agreed to slow health spending in a more gradual way and did not pledge specific year-by-year cuts…

My initial reaction to Monday’s fairly transparent media stunt was: “I smell a rat.  Lobbyists never advocate less revenue for their members.  Ever.” The lobbyists are proving me right, albeit slowly.  (Take your time, guys.  I don’t mind.)

The Obama administration seems a little less clear on that rule.  Again, The New York Times:

Nancy-Ann DeParle, director of the White House Office of Health Reform, said “the president misspoke” on Monday and again on Wednesday when he described the industry’s commitment in similar terms. After providing that account, Ms. DeParle called back about an hour later on Thursday and said: “I don’t think the president misspoke. His remarks correctly and accurately described the industry’s commitment.”

How did the industry find itself in this position? Politico reports:

The group of six organizations with a major stake in health care…had been working in secret for several weeks on a savings plan.

But they learned late last week that the White House wanted to go public with the coalition. One health care insider said: “It came together more quickly than it should have.” A health-care lobbyist said the participants weren’t prepared to go live with the news over the weekend, when the news of a deal, including the $2 trillion savings claim, was announced by White House officials to reporters.

Gosh, it’s almost like the White House strong-armed the lobbyists in order to create a false sense of agreement and momentum.  Pay no attention to that discord behind the curtain!

At the time, I also hypothesized that this “agreement” was a clever ploy by all parties to pressure a recalcitrant Congressional Budget Office to assume that the Democrat’s reforms would produce budgetary savings.  “Otherwise, health care reform is in jeopardy,” says Senate Finance Committee chairman Max Baucus (D-MT).  Turns out there was no agreement, and the industry was just being used.

American Hospital Association president Richard Umbdenstock was more right than he knew when he told that group’s 230 members:

There has been a tremendous amount of confusion and frankly a lot of political spin.

Merriam-Webster lists “to engage in spin control (as in politics)” as its seventh definition of the word “spin.”  Its second definition is “to form a thread by extruding a viscous rapidly hardening fluid — used especially of a spider or insect.” Which reminds me…

CORRECTION: My initial reaction to Monday’s media stunt – “I smell a rat” – was transcribed incorrectly.  It should have read, “I smell arachnid.”

(HT: Joe Guarino for the pointers.)