Making Health Care Worse
Obamacare’s policies are even worse than its broken promises.

Source: Milliman Inc.


“Health-care reform will allow all Americans to keep their insurance if they wish.”
On the day Obama signed the Affordable Care Act, he repeated another promise that he had often made as he traveled across the country: “If you like your current insurance, you will keep your current insurance.”

But Obamacare left many companies wondering whether it makes financial sense to continue providing their employees with health insurance at all. The ACA levies penalties on certain companies that drop their employees’ coverage, but the penalties may turn out to be less than what they would save by dropping their employees’ insurance — and sending them to the new, taxpayer-funded state health-insurance exchanges.

An August 2011 report from the consulting firm McKinsey & Co. examined this possibility and suggested that “overall, 30 percent of employers will definitely or probably stop offering ESI [employer-sponsored insurance] in the years after 2014.” Corroborating these expectations are internal documents released from several large employers, including Caterpillar, John Deere, AT&T, and Verizon. These companies have calculated that they could cut costs by dropping insurance for at least some of their employees, giving them a raise, and paying the tax penalty. And last week Deloitte, a business-consulting firm, released a study suggesting that one in ten employers plans to drop coverage, with many more considering that possibility.

Even the CBO has estimated that up to 20 million Americans could lose the employer-based coverage they have today.

In a Manhattan Institute report, David Hyman and Richard Epstein point out that Obamacare will also mean that policyholders who keep their plans will find their coverage substantially changed. They’ll face higher premiums. Hyman and Epstein argue that the Affordable Care Act’s protection of existing coverage plans exists “in name only.” They note that while “plan serial numbers may temporarily remain the same,” the core provisions of the Affordable Care Act — especially its “combination of high taxes, large subsidies, and extensive mandatory contractual terms” — will result in substantial changes to most people’s insurance plans. Obamacare’s provisions could “eventually drive most private insurance plans out of business.”

The challenge remains the high cost of health care and health insurance
Government spending on Medicare and Medicaid is slowly strangling state and federal budgets alike, threatening to impose either cuts to other critical government functions (such as national defense) or massive tax increases. The promise of Obamacare was that it would not just be budget-neutral but would actually reduce the deficit in the long term. That promise doesn’t add up.

Some budget experts have argued all along that the projected savings from Obamacare were based on a series of gimmicks — reflecting revenues from the CLASS Act (since rescinded) and Social Security revenues (which are paid out later) but not reflecting substantial implementation costs ($114 billion).

Obamacare obscures its true cost also by front-loading revenues while back-loading spending. The CBO scored the bill over a customary ten-year window, but the law phases in its revenue provisions before phasing in its core spending provisions. And so in the CBO’s scoring of the bill, ten years of tax increases are counted against just six years of new spending. The initial CBO score of $940 billion has since been revised upwards to $1.76 trillion by 2019.

Also contributing to Obamacare’s facade of financial sustainability is double counting, which defies common sense: While the law claims $575 billion in deficit reduction through cuts to Medicare, a substantial portion of that amount will then be used to finance the law’s new subsidies for private insurance and Medicaid expansion. Obviously, the savings will not materialize if they are used to fund the ACA’s new coverage expansions. The CBO has noted that without the $575 billion in Medicare savings that the law projects, the ACA will increase deficits by $226 billion through 2019.

The Medicare actuary, meanwhile, expects that some of the ACA’s central cost-cutting provisions will prove unsustainable and will eventually be rolled back by Congress.

Some Obamacare defenders cite small demonstration projects whose track record so far is poor. And one significant cost-saving mechanism — the Cadillac tax on high-cost health plans, scheduled to take effect in 2019 — will be resisted strenuously by unions, who persuaded the administration to delay its implementation in the first place.

We should not be surprised, of course, that policymakers, Republican and Democrat, represent their favored polices as all dessert and no spinach when pitching them to voters. And we shouldn’t be shocked when they break their promises. But by focusing on expanding coverage through new taxes and spending without first addressing the drivers of health-care costs, Obama has doubled down on many of the worst aspects of the status quo. He understands that the U.S. health-care system is on an unsustainable trajectory, but his hallmark legislation will only make it worse.

Instead of tackling the nation’s most daunting health-care challenges, the Obama administration has expended political energy — and vast sums — on creating a new entitlement while expanding a broken one (Medicaid). Without large tax increases or cuts to other important programs, the creation of new constituencies for increased government spending will only weaken the nation’s ability to resolve existing deficits.

President Obama has burdened us with bad policies worse than any broken promises. Unless Obamacare is repealed by a future Congress, we’re all going to be paying for those policies for years to come.

Paul Howard is director and senior fellow at the Center for Medical Progress of Manhattan Institute for Policy Research.


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