The administration and Democrats in Congress have been trying to cultivate the impression in the media that passage of an Obama-style, sweeping health-care reform bill is all but inevitable — the only questions are about details and when.
But Obamacare was never inevitable (see my post from April), and it is getting less so by the day.
The reason is simple: There is no coherent and credible plan to pay for it. Most observers expect the legislation will cost somewhere between $1.0 trillion and $1.5 trillion over ten years.
This week we got a glimpse into the challenge the Democrats are now facing. The staff director of Joint Tax Committee sent a letter to Finance Committee Chairman Max Baucus outlining a few potential ways to raise taxes in the health-care bill. For weeks, Senator Baucus has been letting everyone know that he believes an important “pay-for” is capping the amount of premiums an employer can pay for a worker on a tax-free basis. JCT’s letter to Senator Baucus specified two options for doing so that are noteworthy. The first would set a cap at the actuarial value of the standard Blue Cross/Blue Shield option offered to federal employees. JCT estimates that this option would increase federal revenue by $418.5 billion over ten years. The second option would set the cap at the same level as the first but apply it only to households with higher incomes ($100,000 for single filers and $200,000 for couples). This option would only raise $161.9 billion over ten years — which means the cap which would apply regardless of income would increase taxes on middle and lower income families by $260 billion over ten years.
The Democrats are thus faced with an impossible choice. They can either impose a large new tax on the middle-class — thus breaking the president’s campaign pledge to only target the rich and angering their union allies. Or they can apply the cap just to upper income households — and fall far short of the revenue necessary to pay for their expensive new entitlement.
The administration may be hoping they can avoid endorsing any cap on employer-paid premiums by upping the ante in Medicare cuts. But that will be no picnic either. The president’s budget called for about $300 billion in Medicare savings over ten years. Now they are talking about perhaps $500 to $600 billion. But cuts of that magnitude will generate intense opposition from doctors, hospitals, nursing homes, insurers, and others, and rightfully so. Arbitrary price cutting drives willing suppliers out of the marketplace, which is what causes waiting lists and rationing.
Reality is starting to sink in. It’s one thing to promise massive new subsidies for insurance. It is quite another to put together a realistic plan to pay for the program, especially on a partisan basis. There is simply no politically easy or safe way to raise $1.5 trillion for a government takeover of American health care. Rank-and-file Democrats are starting to find that out.