Magazine August 10, 2009, Issue

Wrong Big Picture, Dangerous Fine Print

But otherwise Obamacare is swell

There are only two problems with the emerging Democratic plan to reform health care in the United States: the big picture, and the fine print.

From a macro perspective, the bills now moving through House and Senate committees call for a combination of employer and individual mandates to force more, though not all, Americans to purchase federally set levels of insurance coverage. Some Americans — mainly those without full-time jobs — would be eligible for a new entitlement to discounted premiums. The federal government would try to tell doctors and hospitals what constitutes appropriate medical practice. 

The bills would pay for their insurance subsidies with significant new taxes, mainly on work and entrepreneurship, as well as some benefit cuts in Medicare. The bills would also create a new government-run insurance plan that would be available to many working-age people and would likely constitute the first step toward a single-payer system. 

That’s the broad vision of Obamacare, which is bad enough because of what it will mean for the quality of American medical care over time. There are only two ways to allocate health-care resources: with a market or with government regulation. The Democratic vision firmly rejects consumer choice and a decentralized marketplace in favor of near-total federal-government control of health care. In time, that will mean cost control in the form of waiting lists, less innovation, and reduced quality. 

But the fine print is likely to be just as alarming to Americans as this big picture is. The bills are chock-a-block with government intrusion into medical practice, limits on personal freedom, costly requirements that will stifle the private economy, massive and expensive government bureaucracy, taxes, fees, and fines.

It’s apparent that Democratic leaders in Congress and the Obama administration would like to keep these details out of the public spotlight, which is why there is an odd disconnect between the timeline for the legislation’s consideration in Congress and the timeline for its implementation. 

President Obama has of late been spending much of his energy arguing that it is absolutely urgent that both chambers of Congress pass a bill this summer so that a final bill will get to his desk by October. Why? Why, because “the time is now.” And the status quo is unacceptable. And we’ve never been this close before. 

Never mind that in the bills as now written, nothing would actually happen for more than three years. Indeed, no uninsured American would get health insurance under the Democratic bills until 2013 at the earliest. In fact, the CBO has estimated that the number of uninsured Americans will increase in 2011 and 2012, before the bills’ major provisions go into effect. And of course 2013 is safely after the next presidential election, just in case anyone’s keeping track.

This is about political momentum. The administration and Democratic leaders in Congress understand that the more people learn about what these bills would actually do to American health care, the less the public will like them. Consider just this small sampling of the bills’ details:

Severe limits on the purchase of private insurance. The House Democratic bill would make it illegal for Americans to buy health insurance from a company outside of the new structure. It’s the government-approved system or nothing.

Government-controlled market access. In the bill approved by Democrats on the Senate Health, Education, Labor and Pensions (HELP) Committee, states would have the authority to limit the number of insurance offerings provided to consumers in “exchanges,” which are the government-run agencies that oversee consumer enrollment in insurance plans. Qualified insurers seeking to offer coverage to “exchange” participants may or may not get to do so. It would be up to government bureaucrats, who could deny market entry to an insurer for apparently any reason. It’s entirely predictable that this broad authority will be abused to benefit politically connected providers — at the expense of consumers. 

The “commissioner.” House Democrats would hand over vast powers to a new “Health Choices Commissioner,” the head of the new bureaucracy charged with regulating basically all health insurance offered in America. The commissioner would become the choke point for all major health-care-policy decisions, such as what constitutes qualified insurance or employer compliance with the federal mandate to offer coverage. States would even be required to enter into agreements with the commissioner regarding the operation of their Medicaid programs. Vast power and little accountability: It’s a recipe for unresponsive bureaucracy, arbitrary rulemaking, meddling, and even more paperwork.

Penalizing work. In both the House and the Senate HELP bills, full-time work is heavily penalized. For the most part, the unemployed and part-timers are entitled to subsidized insurance. But full-time workers get no such subsidy. Their employers must offer them coverage or face severe penalties, and the workers have no choice but to take it, because otherwise they would face severe penalties themselves. This burden will be especially hard on low- to middle-income Americans who don’t sign up for job-based insurance today because they can’t afford it.

Funding abortion and abortion providers. Both the Senate HELP and House Democratic bills fail to exclude abortion from the services that constitute “qualified” insurance — which means, as a practical matter, abortion would be a required “covered benefit.” Thus, federal taxpayers would be forced to pay for abortions, and everyone would be forbidden to get insurance that does not cover abortion, even if he is spending only his own money.

Raising premiums with taxes on health benefits. The House bill creates something called a Health Care Comparative Effectiveness Research Trust Fund (CERTF), which would be funded by fees on insurance providers. But insurers won’t pay these fees themselves; they will be passed on to consumers in the form of higher premiums. President Obama pilloried Senator McCain for proposing “for the first time in history . . . taxing people’s health-care benefits,” yet that is essentially what House Democrats are looking to do in their bill.

Deep Medicare cuts for beneficiaries living in low-cost areas. House Democrats are determined to force seniors out of the private-insurance program of Medicare, called Medicare Advantage (MA). According to the Congressional Budget Office, their bill is likely to work as planned: Some 5 million MA enrollees would get pushed back into the traditional government-run program, with its lower benefits and higher cost-sharing. This would happen because the House bill bases MA payment rates on the estimated regional cost of covering someone in the traditional program; those living in lower-cost areas would see their payment rates drop, making the traditional program look more attractive. 

This approach worsens the unfair regional disparities that exist today. For instance, this year, the MA payment rate in Portland is only $819 per month, while Miami’s is $1,238 per month. The House bill would widen this gap by cutting Portland’s MA payments by 26 percent, since Portland is a low-cost region with a culture of judicious use of health services. Meanwhile, Miami, which is rife with Medicare fraud and abuse, would get only a 2 percent cut in its MA payment rate. Medicare beneficiaries in Salt Lake City, Sacramento, Albuquerque, and other low-cost cities would get hit almost as hard as Portland’s beneficiaries. This runs precisely counter to the notion, popularized by Atul Gawande in The New Yorker and heartily embraced by the Obama administration, that we should try to replicate, or at least reward, areas that provide more efficient health care. 

Undermining entitlement reform. Section 1901 of the House bill would repeal a trigger intended to alert Congress and the broader public to the financing problems in the Medicare program. Under current law, the HHS secretary must propose Medicare program adjustments to eliminate projected funding shortfalls when the Medicare trustees forecast excessive program reliance on subsidies from the Treasury. Repealing this provision is one more indication that Democrats are not serious about addressing the explosion of entitlement spending, which will push U.S. fiscal policy off a cliff in relatively short order. 

More government-run health care. So much attention has been focused on President Obama’s push for a new government-run insurance plan that many people do not realize that the Democrats are also seeking the largest expansion of Medicaid in the program’s history. Medicaid spending is already on track, along with Medicare, to push federal finances to the brink. Between 2009 and 2035, the CBO expects combined spending for these two programs to increase from 5.3 to 10 percent of GDP. But that’s apparently not enough: The House bill would add 11 million more enrollees to Medicaid, bringing total enrollment to about 71 million and adding more than $80 billion in new spending to the budget in 2019 — on top of the $426 billion that the program will already cost under current law.

These bills are a massive overreach by the Democrats, who see this year as a once-in-a-generation opportunity to have something like a New Deal or Great Society moment. Most Democrats believe strongly in total governmental control of health care, and they are determined to try to achieve it now, regardless of the fiscal and political consequences. So they press on, even as every day brings new revelations of the incoherence, hubris, and excesses of their plan. 

It might work; the legislation might pass. Then again, it might not, as a restless public is becoming increasingly alarmed at what is emerging from Washington. A government takeover of health care seems not to be what the public wants — meaning that the Democrats may find themselves advocating bad policy that is unpopular to boot. 

Mr. Capretta, a fellow at the Ethics and Public Policy Center and a health-policy consultant, was an associate director at the White House Office of Management and Budget from 2001 to 2004. Mr. Troy, a visiting senior fellow at the Hudson Institute and a health-policy consultant, was deputy secretary of health and human services from 2007 to 2009.

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