Compiled for American First Principles Nov. 10, 2009
The disaster that is Obamacare passed the House in the dead of night by a vote of 220-215. Thirty-nine Democrats
jumped ship and voted against the bill...so from that point of view the bill was bi-partisan in that opposition was significant. The bill now goes on to the Senate. Hopefully it will be killed there.
Speaker Nancy Pelosi has reportedly told fellow Democrats that she's prepared to lose seats in 2010 if that's what it takes to pass ObamaCare, and little wonder. The health bill she unwrapped last Thursday, which President Obama hailed as a "critical milestone," may well be the worst piece of post-New Deal legislation ever introduced.
In a rational political world, this 1,990-page runaway train would have been derailed months ago. With spending and debt already at record peacetime levels, the bill creates a new and probably unrepealable middle-class entitlement that is designed to expand over time. Taxes will need to rise precipitously, even as ObamaCare so dramatically expands government control of health care that eventually all medicine will be rationed via politics.
Yet at this point, Democrats have dumped any pretense of genuine bipartisan "reform" and moved into the realm of pure power politics as they race against the unpopularity of their own agenda. The goal is to ram through whatever income-redistribution scheme they can claim to be "universal coverage." The result will be destructive on every level-for the health-care system, for the country's fiscal condition, and ultimately for American freedom and prosperity.
The spending surge The Congressional Budget Office figures the House program will cost $1.055 trillion over a decade, which while far above the $829 billion net cost that Mrs. Pelosi fed to credulous reporters is still a low-ball estimate. Most of the money goes into government-run "exchanges" where people earning between 150% and 400% of the poverty level-that is, up to about $96,000 for a family of four in 2016-could buy coverage at heavily subsidized rates, tied to income. The government would pay for 93% of insurance costs for a family making $42,000, 72% for another making $78,000, and so forth.
At least at first, these benefits would be offered only to those whose employers don't provide insurance or work for small businesses with 100 or fewer workers. The taxpayer costs would be far higher if not for this "firewall"-which is sure to cave in when people see the deal their neighbors are getting on "free" health care. Mrs. Pelosi knows this, like everyone else in Washington.
Even so, the House disguises hundreds of billions of dollars in additional costs with budget gimmicks. It "pays for" about six years of program with a decade of revenue, with the heaviest costs concentrated in the second five years. The House also pretends Medicare payments to doctors will be cut by 21.5% next year and deeper after that, "saving" about $250 billion. ObamaCare will be lucky to cost under $2 trillion over 10 years; it will grow more after that.
Expanding Medicaid, gutting private Medicare All this is particularly reckless given the unfunded liabilities of Medicare-now north of $37 trillion over 75 years. Mrs. Pelosi wants to steal $426 billion from future Medicare spending to "pay for" universal coverage. While Medicare's price controls on doctors and hospitals are certain to be tightened, the only cut that is a sure thing in practice is gutting Medicare Advantage to the tune of $170 billion. Democrats loathe this program because it gives one of out five seniors private insurance options.
As for Medicaid, the House will expand eligibility to everyone below 150% of the poverty level, meaning that some 15 million new people will be added to the rolls as private insurance gets crowded out at a cost of $425 billion. A decade from now more than a quarter of the population will be on a program originally intended for poor women, children and the disabled.
Even though the House will assume 91% of the "matching rate" for this joint state-federal program-up from today's 57%-governors would still be forced to take on $34 billion in new burdens when budgets from Albany to Sacramento are in fiscal collapse. Washington's budget will collapse too, if anything like the House bill passes.
European levels of taxation All told, the House favors $572 billion in new taxes, mostly by imposing a 5.4-percentage-point "surcharge" on joint filers earning over $1 million, $500,000 for singles. This tax will raise the top marginal rate to 45% in 2011 from 39.6% when the Bush tax cuts expire-not counting state income taxes and the phase-out of certain deductions and exemptions. The burden will mostly fall on the small businesses that have organized as Subchapter S or limited liability corporations, since the truly wealthy won't have any difficulty sheltering their incomes.
This surtax could hit ever more earners because, like the alternative minimum tax, it isn't indexed for inflation. Yet it still won't be nearly enough. Even if Congress had confiscated 100% of the taxable income of people earning over $500,000 in the boom year of 2006, it would have only raised $1.3 trillion. When Democrats end up soaking the middle class, perhaps via the European-style value-added tax that Mrs. Pelosi has endorsed, they'll claim the deficits that they created made them do it.
Under another new tax, businesses would have to surrender 8% of their payroll to government if they don't offer insurance or pay at least 72.5% of their workers' premiums, which eat into wages. Such "play or pay" taxes always become "pay or pay" and will rise over time, with severe consequences for hiring, job creation and ultimately growth. While the U.S. already has one of the highest corporate income tax rates in the world, Democrats are on the way to creating a high structural unemployment rate, much as Europe has done by expanding its welfare states.
Meanwhile, a tax equal to 2.5% of adjusted gross income will also be imposed on some 18 million people who CBO expects still won't buy insurance in 2019. Democrats could make this penalty even higher, but that is politically unacceptable, or they could make the subsidies even higher, but that would expose the (already ludicrous) illusion that ObamaCare will reduce the deficit.
The insurance takeover A new "health choices commissioner" will decide what counts as "essential benefits," which all insurers will have to offer as first-dollar coverage. Private insurers will also be told how much they are allowed to charge even as they will have to offer coverage at virtually the same price to anyone who applies, regardless of health status or medical history.
The cost of insurance, naturally, will skyrocket. The insurer WellPoint estimates based on its own market data that some premiums in the individual market will triple under these new burdens. The same is likely to prove true for the employer-sponsored plans that provide private coverage to about 177 million people today. Over time, the new mandates will apply to all contracts, including for the large businesses currently given a safe harbor from bureaucratic tampering under a 1974 law called Erisa.
The political incentive will always be for government to expand benefits and reduce cost-sharing, trampling any chance of giving individuals financial incentives to economize on care. Essentially, all insurers will become government contractors, in the business of fulfilling political demands: There will be no such thing as "private" health insurance.
All of this is intentional, even if it isn't explicitly acknowledged. The overriding liberal ambition is to finish the work began decades ago as the Great Society of converting health care into a government responsibility. Mr. Obama's own Medicare actuaries estimate that the federal share of U.S. health dollars will quickly climb beyond 60% from 46% today. One reason Mrs. Pelosi has fought so ferociously against her own Blue Dog colleagues to include at least a scaled-back "public option" entitlement program is so that the architecture is in place for future Congresses to expand this share even further.
As Congress's balance sheet drowns in trillions of dollars in new obligations, the political system will have no choice but to start making cost-minded decisions about which treatments patients are allowed to receive. Democrats can't regulate their way out of the reality that we live in a world of finite resources and infinite wants. Once health care is nationalized, or mostly nationalized, medical rationing is inevitable-especially for the innovative high-cost technologies and drugs that are the future of medicine.
Mr. Obama rode into office on a wave of "change," but we doubt most voters realized that the change Democrats had in mind was making health care even more expensive and rigid than the status quo. Critics will say we are exaggerating, but we believe it is no stretch to say that Mrs. Pelosi's handiwork ranks with the Smoot-Hawley tariff and FDR's National Industrial Recovery Act as among the worst bills Congress has ever seriously contemplated.
Back to Top The House Health Care Bill: A $700 Billion Tax Hike
October 29th, 2009
The New House Health Care Plan has several tax increases that will cost taxpayers $700 billion in the next ten years. Several of these taxes are new and were not in the earlier House bills.
The Surtax
The new Pelosi plan establishes a 5.4% surtax on joint filers with over $1 million in adjusted gross income or $500,000 for single filers. This is a single rate, which is different from the earlier House bills that had surtaxes at lower income levels. This surtax is not based on final adjusted gross income, but instead modified gross income. Thus the effective rate of the surtax is higher than just increasing marginal tax rates by 5.4%.
This surtax is also not indexed to inflation. This will cause more and more taxpayers to be hammered by the surtax even as their real income does not increase. This is one of the reasons that the Joint Tax Committee expects the cost of the surtax to more than double in year 10 of its estimate to $68.4 billion from $30.9 billion in 2011. The Joint Tax Committee estimates that taxpayers will be forced to pay $460.5 billion in higher taxes due to this provision. This is a larger tax increase than the 1993 Clinton income tax increase provisions that created a new tax bracket for high income taxpayers, increased the AMT, limited deductions and exemptions for high income earners.
Business Taxes
Businesses could pay a penalty of 8% on the average wage of their employees if they do not offer qualified health insurance. Small businesses with less than $500,000 in total payroll will be exempt from the business. Businesses with total payroll from $500-$750,000 will pay less than the full 8% depending on their total payroll size.
Business Rate Table
Does not exceed $500,000 ………………………….0 percent
Exceeds $500,000, but does not exceed $585,000 2 percent
Exceeds $585,000, but does not exceed $670,000 4 percent
Exceeds $670,000, but does not exceed $750,000 6 percent
Copying Baucus
The House bill copies the Baucus framework of having several small tax increases in an effort to raise additional income. For example, the House bill now also limits Flexible Spending Accounts to $2500 and limits the ability of FSA or HSAs to purchase goods by excluding over the counter drugs.
Here is a full list of the additional House tax increase items and their cost:
Health Savings Account Tax: Increases tax on health savings account funds not used for medical purposes from 10% to 20%. ($1.3 billion)
Flexible Spending Arrangement Cap: Caps contributions to flexible spending accounts at $2,500. ($13.3 billion/ ten years)
Medical Devices Excise Tax: Imposes 2.5% excise tax on sale of medical devices. ($20 billion/ ten years)
Self-Insured Health Fee: Imposes fee on insured and self insured health plans.
Itemized Deductions Definition: Conforms the definitions of medical expenses from employer-provide health insurance, merging flexible spending arrangements, health reimbursement arrangements, health savings accounts and archer MSAs to the definition of itemized deduction. ($5 billion/ ten years)
Medicare Part D: Eliminates deduction for expenses that can be allocated to the Medicare Part D subsidy. ($3 billion/ ten years)
Payments to Corporations: "Requires information reporting on payments to Corporations" ($17.1 billion/ ten years)
Worldwide Interest Allocation: Delays implementation of interest allocation. ($26.1 billion/ ten years)
Treaty Benefits Limit: Limits the treaty benefits for some deductible payments. ($7.5 billion/ ten years)
Economic Substance Payments: Codifies economic substance doctrine and imposes penalties for underpayments. ($5.7 billion/ ten years)
The health bill that House Speaker Nancy Pelosi is bringing to a vote (H.R. 3962) is 1,990 pages. Here are some of the details you need to know.
What the government will require you to do:
Sec. 202 (p. 91-92) of the bill requires you to enroll in a "qualified plan." If you get your insurance at work, your employer will have a "grace period" to switch you to a "qualified plan," meaning a plan designed by the Secretary of Health and Human Services. If you buy your own insurance, there's no grace period. You'll have to enroll in a qualified plan as soon as any term in your contract changes, such as the co-pay, deductible or benefit.
Sec. 224 (p. 118) provides that 18 months after the bill becomes law, the Secretary of Health and Human Services will decide what a "qualified plan" covers and how much you'll be legally required to pay for it. That's like a banker telling you to sign the loan agreement now, then filling in the interest rate and repayment terms 18 months later.
On Nov. 2, the Congressional Budget Office estimated what the plans will likely cost. An individual earning $44,000 before taxes who purchases his own insurance will have to pay a $5,300 premium and an estimated $2,000 in out-of-pocket expenses, for a total of $7,300 a year, which is 17% of his pre-tax income. A family earning $102,100 a year before taxes will have to pay a $15,000 premium plus an estimated $5,300 out-of-pocket, for a $20,300 total, or 20% of its pre-tax income. Individuals and families earning less than these amounts will be eligible for subsidies paid directly to their insurer.
Sec. 303 (pp. 167-168) makes it clear that, although the "qualified plan" is not yet designed, it will be of the "one size fits all" variety. The bill claims to offer choice-basic, enhanced and premium levels-but the benefits are the same. Only the co-pays and deductibles differ. You will have to enroll in the same plan, whether the government is paying for it or you and your employer are footing the bill.
Sec. 59b (pp. 297-299) says that when you file your taxes, you must include proof that you are in a qualified plan. If not, you will be fined thousands of dollars. Illegal immigrants are exempt from this requirement.
Sec. 412 (p. 272) says that employers must provide a "qualified plan" for their employees and pay 72.5% of the cost, and a smaller share of family coverage, or incur an 8% payroll tax. Small businesses, with payrolls from $500,000 to $750,000, are fined less.
Eviscerating Medicare:
In addition to reducing future Medicare funding by an estimated $500 billion, the bill fundamentally changes how Medicare pays doctors and hospitals, permitting the government to dictate treatment decisions.
Sec. 1302 (pp. 672-692) moves Medicare from a fee-for-service payment system, in which patients choose which doctors to see and doctors are paid for each service they provide, toward what's called a "medical home."
The medical home is this decade's version of HMO-restrictions on care. A primary-care provider manages access to costly specialists and diagnostic tests for a flat monthly fee. The bill specifies that patients may have to settle for a nurse practitioner rather than a physician as the primary-care provider. Medical homes begin with demonstration projects, but the HHS secretary is authorized to "disseminate this approach rapidly on a national basis."
A December 2008 Congressional Budget Office report noted that "medical homes" were likely to resemble the unpopular gatekeepers of 20 years ago if cost control was a priority.
Sec. 1114 (pp. 391-393) replaces physicians with physician assistants in overseeing care for hospice patients.
Secs. 1158-1160 (pp. 499-520) initiates programs to reduce payments for patient care to what it costs in the lowest cost regions of the country. This will reduce payments for care (and by implication the standard of care) for hospital patients in higher cost areas such as New York and Florida.
Sec. 1161 (pp. 520-545) cuts payments to Medicare Advantage plans (used by 20% of seniors). Advantage plans have warned this will result in reductions in optional benefits such as vision and dental care.
Sec. 1402 (p. 756) says that the results of comparative effectiveness research conducted by the government will be delivered to doctors electronically to guide their use of "medical items and services."
Questionable Priorities:
While the bill will slash Medicare funding, it will also direct billions of dollars to numerous inner-city social work and diversity programs with vague standards of accountability.
Sec. 399V (p. 1422) provides for grants to community "entities" with no required qualifications except having "documented community activity and experience with community healthcare workers" to "educate, guide, and provide experiential learning opportunities" aimed at drug abuse, poor nutrition, smoking and obesity. "Each community health worker program receiving funds under the grant will provide services in the cultural context most appropriate for the individual served by the program."
These programs will "enhance the capacity of individuals to utilize health services and health related social services under Federal, State and local programs by assisting individuals in establishing eligibility . . . and in receiving services and other benefits" including transportation and translation services.
Sec. 222 (p. 617) provides reimbursement for culturally and linguistically appropriate services. This program will train health-care workers to inform Medicare beneficiaries of their "right" to have an interpreter at all times and with no co-pays for language services.
Secs. 2521 and 2533 (pp. 1379 and 1437) establishes racial and ethnic preferences in awarding grants for training nurses and creating secondary-school health science programs. For example, grants for nursing schools should "give preference to programs that provide for improving the diversity of new nurse graduates to reflect changes in the demographics of the patient population." And secondary-school grants should go to schools "graduating students from disadvantaged backgrounds including racial and ethnic minorities."
Sec. 305 (p. 189) Provides for automatic Medicaid enrollment of newborns who do not otherwise have insurance.
Democrats' health bill will slash Medicare by more than one-half trillion dollars
$170 billion in cuts to Medicare Advantage (MA) which currently provides benefits to more than 11 million seniors. o The
$170 billion in cuts to Medicare Advantage (MA) which currently provides benefits to more than 11 million seniors.
The Congressional Budget Office (CBO) predicts these cuts "could lead many plans to limit the benefits they offer, raise their premiums, or withdraw from the program."
CBO also predicts 3 million seniors will lose the plan they currently have and the non-partisan Medicare Payment Advisory Commission (MedPAC) predicts these cuts will result in 1 in 5 seniors no longer having access to an MA plan;
$143.6 billion in across-the-board cuts by instituting a new, permanent "productivity adjustment" to reimbursement rates for all hospitals, Ambulatory Surgery Centers (ASCs), skilled nursing facilities (SNFs), hospice, clinical laboratories, and durable medical equipment (DME);
$56.7 billion in cuts to home health agencies by freezing payment rates in 2010, applying the productivity adjustment, and other reimbursement changes;
$42.3 billion in cuts to the Medicare prescription drug program (Part D) by imposing government price-controls for drugs. As a result, CBO predicts seniors' premiums will increase by at least 20%;
$23.9 billion in additional cuts to SNFs by freezing their payment rates in 2010;
$14.3 billion in provider reimbursement cuts by reallocating Medicare funding nationally;
$10.3 billion in additional cuts to hospitals by slashing reimbursements designed to cover uncompensated care;
$9.3 billion in yet further cuts to hospitals that have a high rate of readmitted patients;
$8.2 billion in undisclosed cuts determined by the new, unelected "Center for Medicare Innovation;"
$5.3 billion in cuts to inpatient rehabilitation facilities cuts by freezing payment rates in 2010;
$3 billion in reimbursement cuts to providers who use imaging equipment (MRI, CT scans, etc);
$1 billion cut to physician-owned hospitals, effectively legislating these hospitals out of existence. In some communities, physician-owned hospitals are the only hospital in the community.
$800 million in additional DME cuts (power wheelchairs); and
Plus, $14.5 billion in additional miscellaneous cuts to the Medicare program.
