Google+
Close

Critical Condition

NRO’s health-care blog.

Are Democrats Going to Tax Health Benefits and “Cap” Medicare?



Text  



Let’s start with some good news:  the House health-care bill is, for all intents and purposes, dead, and the president is the one who killed it.

 

In a key passage in his health-care speech last week, Pres. Obama committed himself to opposing any bill that would add “one dime” to the federal budget deficit over the next decade — or ever.  As David Brooks pointed out in his Friday column, that presidential line in the sand should be the final nail in the coffin for the House bill because it would so plainly violate the president’s “deficit-neutral” commitment.  And not by a little bit.  The Congressional Budget Office (CBO) said in July that the House bill would set in motion a new entitlement program with costs growing at about 8 percent per year, while the revenue raised to pay for it would only grow at about 5 percent per year.  In the medium and long-term, after everything is phased in, the House legislation would therefore add increasing amounts of deficit spending to an already disastrous long-term budget outlook.  Last week, the Lewin Group confirmed CBO’s finding and said the House bill, as reported out of the Energy and Commerce Committee, would add $1 trillion to the federal budget deficit from 2020 to 2029.

 

Of course, it was only a few weeks ago that the president was trying to strong arm the House bill through the lower chamber.  And a couple of months ago the president talked of “bending the cost curve,” not deficit neutrality.  Still, given the unambiguous nature of the Obama pledge and where and when it was made, it’s hard to see how House leaders could resurrect the budget-busting bill they were working on in July.

 

Now for the bad news:  The death of the House bill does not mean the death of Obamacare, unfortunately.  The president and his allies are simply moving on to plan B (or perhaps it is C or D).

 

This latest version of Obamacare is likely to include two key provisions that Democrats hope will get them over the CBO hurdle.  Depending on the specifications, it is certainly conceivable that provisions could be written to generate savings from within the “health system” that keep pace with the massive entitlement Democrats want to create.

 

The first provision the president endorsed was a new tax on health benefits.  He didn’t put it that way in his speech, of course.  He said he was for imposing a tax on high-cost insurance plans.  But there really is no such thing as a tax on high-cost insurance plans.  Sen. Max Baucus has included such a tax in his draft proposal, but the financial burden would fall entirely on insurance enrollees, not insurance companies.  Insurers, and employers who sponsor expensive insurance plans, would respond to such a tax by making adjustments in coverage, such as imposing higher deductibles, to ensure the cost of their plans fall below whatever threshold is set (now $21,000 for family coverage in the Baucus draft).  And so its consumers and patients who would pay more if this particular Obama tax were to get enacted — including many in middle class households and some who are union workers.  Moreover, such a tax would amount to a tax on health benefits “for the first time in history” — which is the same criticism Pres. Obama launched against the McCain plan in the final stages of the 2008 campaign.

 

The second provision the president endorsed in his speech was an “automatic trigger” to cut health spending if the savings he envisions from other changes don’t materialize.  The president provided no specifics on how this mechanism would work, but a piece in the New York Times last week speculated that additional cuts in Medicare’s hospital and physician payment rates would kick in if health spending targets were missed. 

 

We’ve seen this kind of “reform” before in Medicare.  Physician fees are capped today, and Congress regularly overrides the automatic cuts which are supposed to occur to keep spending in line.  There’s no evidence to suggest Congress will act differently in the future than it has in the past.

 

Moreover, Democrats have made a living attacking Republicans for harboring secret plans to undermine Medicare.  Are they really ready now to endorse a plan that amounts to a permanent “cap” on Medicare spending?  Apparently, some administration allies are trying to convince House and Senate members to do just that to get around their CBO problem.  They argue that the trigger will never be pulled because other “reforms” in the bill will work so well that governmental health-care savings will more than offset the expanded entitlement programs.

 

But that’s a very dubious assumption.  The bills as they now stand have very little in them which will change the basic financial incentives for most health-care providers, which is why CBO and most everyone else sees no reason to believe cost escalation will slow in any meaningful way.  So if the Democrats impose a cap on Medicare spending, hospitals and physicians should assume the trigger will be pulled, forcing them into a never-ending struggle to get fully paid for what it costs to take care of Medicare patients.

 

It’s pretty clear at this point that Pres. Obama will do just about anything to get a health-care bill to his desk this year.  It remains to be seen if he is so persuasive that he can convince his fellow Democrats that they are better off endorsing taxation of health benefits and a cap on Medicare than compromising with Republicans.  Smart Democrats will be more than a little skeptical of that argument.



Text  


Sign up for free NRO e-mails today:

Subscribe to National Review