The President’s health care proposal contains little that is new. The well tested rhetoric used by the White House to sugarcoat the health policy outline should not fool ordinary Americans. This proposal is even more expensive than the Senate bill upon which it is apparently based: $950 billion over ten years rather than $871 billion.
Consider the claims made by the White House regarding the effects of the President’s proposal on the health care system.
The Rhetoric on Affordability.
“It makes insurance more affordable by providing the largest middle class tax cut for health care in history, reducing premium costs for tens of millions of families and small business owners who are priced out of coverage today.”
The Reality: In fact, the tax credit would be limited to only a limited number of persons within a limited set of income brackets, not the entire middle class. One cannot ignore the tax increases, or the prescribed cost of the health care benefits packages themselves. As the premiums increase, the cost of the subsidies, based on percentage of income, would track these increases, resulting in another direct cost shift onto all taxpayers. In fact, the President’s proposal, based on the Senate bill, would result in major tax increases (estimated at $629 billion over ten years) and would include a variety of middle class tax increases. This, of course, once again violates the president’s promise to refrain from imposing taxes on those with family incomes of less than $250,000 per year.
The Rhetoric on Personal Choice. According to the White House:
“It sets up a new competitive health insurance market giving tens of millions of Americans the exact same insurance choices that members of Congress will have.”
The Reality: The Health Exchanges in Congress’ health bills and the President’s proposals are not structured to serve as a real competitive marketplace for insurance, in the sense of anything that would resemble real free market competition; rather these institutions would primarily serve as the federally designed mechanism to impose strict federal regulation on private insurers. By contrast, in the FEHBP, the federal government does not standardize the health benefits of private health plans for its employees. For federal employees and retirees, there are a wide variety of health benefit offerings and combinations of benefit packages, ranging in price from expensive health plans (like the Blues Standard Option) to low cost plans (like the Mail handler’s Value Plan, a union plan), and a variety of health plan types, ranging from comprehensive plans to health savings accounts and high deductible plans, plus a wide range of premiums and co-payments.
The Rhetoric on Health Insurance Accountability. According to the White House draft outline:
“It brings greater accountability to health care by laying out commonsense rules of the road to keep premiums down and prevent insurance industry abuses and denial of care.”
The Reality: The reference to the proposal’s requirement of guaranteed issue, regardless of pre-existing conditions, raises a number of thorny issues. Whatever one’s views on the wisdom of eliminating pre-existing conditions for enrollment and providing for guaranteed issue, this provision will increase premiums dramatically. The problem is aggravated in the individual health insurance market; most of the problems that politicians cite with denials or discrimination do not apply to the vast majority of Americans in group health insurance. Already under the Senate bill, upon which the president’s latest proposal is based, CBO projects an increase up to 13 percent for the premium price of individual insurance through the state based health insurance exchanges. When health insurance enrollment in the individual market is eased in this fashion for older and sicker persons, those most in need of coverage, the result is an increase in the volume of medical claims and a sharp increase in the average insurance claims costs. This drives up premium costs, and the likely effect is that younger and healthier persons, those least in need of coverage, drop out of the insurance pool.
The President’s proposed remedy to counteract the bad effects (the inevitable higher premium costs) of this government intervention is to prescribe yet another government intervention: force the younger and healthier persons to buy the government’s higher cost health insurance through the imposition of an individual mandate.
In the original Senate bill, upon which the President’s proposal is based, the individual mandate would impose an annual penalty for not buying the government specified insurance, progressively increasing year by year until it reaches $750 in 2016. The Obama proposal would lower the flat payment from $750 to $695 in 2016, and would raise the percentage of income that would be assessed by 2016 to 2.5 percent of income. The president proposes that persons who do not file income taxes would be exempt from the penalty; that’s a lot of people. Like the Senate bill, there would be a “hardship” exemption.
None of these tweaks reverse the plain economic incentives. If a person perceives that payment of the mandate penalty (a cheaper option) is a better deal than buying the health insurance (a more expensive option), then the economic incentives run directly against the purchase of health insurance. The problem is aggravated if the regulatory regime imposed by Obama and Congress would enforce guaranteed issue and pre-existing exclusions, insurers would have to take “all comers”, meaning that as person could literally sign up for health insurance from a hospital bed and drop it later and pay the cheaper fine. This would guarantee higher premium costs, and invite 70’s style price controls (already embodied in the Obama proposal), which means, of course, fewer, not more, hospital beds. Thus, the proverbial liberal cat chases its leftwing tail. As Professor Martin Feldstein at Harvard has observed, the economic incentives built into this regulatory regime could result in even higher rates of un-insurance, more risk segmentation, and even higher premium costs. As Feldstein points out, the end result, we could end up passing a trillion dollar health bill and find ourselves with even more uninsured Americans.
The Rhetoric on Fiscal Responsibility. According to the White House outline:
“It puts our budget and economy on a more stable path by reducing the deficit by $100 billion over the next ten years – and about $1 trillion over the second decade – by cutting government overspending and reining in waste, fraud and abuse.”
The Reality: The White House promise of fiscal and economic responsibility is based on a prescription for a huge entitlement expansion (through Medicaid), major tax increases and massive spending, and the never-ending crusade against “waste, fraud and abuse.” This would be comical if the President and Congressional leaders were not so incessantly earnest. That rhetoric only continues to undermine public trust.
Consider the previous promises of deficit reduction through the health care bills. They were based on transparently dishonest accounting gimmicks- assumption of the continuation of physician Medicare payment rules and reductions ( or separating out the Medicare physician payment cost increases in other bills), different start dates for full tax and benefit implementation ( $2.5 trillion for the Senate bill according to Senator Max Baucus, the Montana Democrat) and double counting of Medicare “savings”, for example.
Concerning the President’s proposal, the Congressional Budget Office, the official budget scorekeeper for Congress, said,
“Preparing a cost estimate requires very detailed specifications of numerous provisions, and the materials that were released this morning do not provide sufficient detail on all of the provisions. Therefore, CBO cannot provide a cost estimate for the proposal without additional detail”.
The President’s proposal is similar to the House and Senate bills, but contains several new and much more costly provisions. It is thus safe to assume it would cause the same deficit increase, especially when elements such as the “doc fix” or the CLASS Act are properly accounted for.
Washington’s “political class” supports the Congressional and Presidential health initiatives. But ordinary Americans are tired of official Washington’s deceitful but flowery rhetoric, accompanied by the shameless sellout of taxpayers to special interest pressure groups (the union exemptions from high taxes on health benefits, the Nebraska and Louisiana Medicaid deals, among others).
Members of Congress attending the Summit must remember that the American people oppose Washington’s takeover of the health care sector of the economy. Elected officials should listen to those they govern and start afresh with health care reform.
Co-authored by Kathryn Nix.
Businesses have to deal with nearly unprecedented levels of uncertainty due to Washington’s inability to give them a clear roadmap of what policy changes lay ahead. A large part of this uncertainty is about the level of future taxes and increased regulations. Businesses are reluctant to hire when they could be facing additional labor costs due to government policies. This, at a particularly vulnerable time due to the credit crunch and financial crisis, spells a death sentence for many small businesses, and stunts the growth of others. The health care debate typifies what has become all too clear to political observers—that liberals in Washington will jam through Congress whatever high-tax-and-spend legislation they can. Whether or not the American people want the new rules and regulations to them is of no concern. Most importantly, this leaves the small business owner in the dark when preparing for the future.
The problem is that businesses don’t know if liberals will get their way or not. Unforeseen circumstances such as the recount that brought Al Franken to power in Minnesota, or the upset victory of Scott Brown in Massachusetts can not be predicted before they occur. Those events changed what type of laws Congress could legislate with a disregard of the willingness of the American people, and changed the political landscape that small business owners have to deal with. Will they have to pay thousands of dollars extra per employee for government mandated health insurance or won’t they? Will they have to pay a 45 percent death tax on their business’s assets when they die, or will they pay a zero percent death tax? Whether or not the healthcare bill will be enacted into law, or whether financial regulations will be tightened to prevent future financial crises, will at least indirectly affect small business owners who must plan for the future, which is currently uncertain and unpredictable. It makes a difference regarding how much money business owners have to hold in rainy day funds for rain that may never arrive. If the rain isn’t coming, these business owners would gladly invest in growing their businesses instead.
Until there is a sense of predictability of exactly what major legislation is going to be enacted into law, businesses will simply remain on the sidelines, biding their time, and waiting to expand their companies and hire new workers. High productivity from the critical workers who have not lost their jobs means that businesses can delay hiring with little consequences. This is not the attitude that we need from the private sector when the unemployment rate is hovering at 10 percent. This pending legislation could make the cost of labor more expensive. Small business’s reluctance to hire means no jobs will be created until Washington removes the problematic uncertainty and the American people will continue to struggle with a crisis of confidence.
Increasingly, policy experts are concerned about the effect Washington’s policies are having on the economy. There has been a chorus of support for clarifying what future red tape business owners may or may not have to face. Afterall, one in 6.25 small business owners (PDF) who say now is not a good time to expand their businesses say the uncertain political climate is the reason.
Narayan R. Kocherlakota, the president of the Federal Reserve Bank of Minneapolis recently lamented: “I see two areas of concern. First, there is a great deal of uncertainty related to major policy initiatives under consideration in Washington. Congress is considering proposals for enormous changes in health care and in the structure of financial regulation. These proposals have generated a great deal of uncertainty, for the capricious winds of politics seem to change them on a near-daily basis. As bankers, you know that too much uncertainty in a business plan makes for a risky loan. The same is true for the economy as a whole. I see this kind of political uncertainty as problematic for the prospects of rapid recovery.”
Meryl Witmer, General Partner at Eagle Capital Partners recently told Barron’s magazine,
“What is it going to cost? In the past six months, whenever I have talked to a company I asked the chief executive or chief financial officer what it would take to bring jobs here. They said, ‘You know, the workforce isn’t that good, and there is so much regulation. I’m moving jobs out of the U.S.’ The government needs to cut back on regulation and taxes and open things up for business, or the jobs will continue to leave.”
Maine Senator Olympia Snowe asked U.S. Secretary Timothy Geithner this on February 2: “Would you put your money on the line? That’s the issue,” she said. “And I heard it over and over again, and rightfully so. So until we get certainty on taxes, on regulation, on the issue of health care and how that’s, you know, boomeranging off the walls here between the House and Senate, we’re not going to experience job creation.”
Finally, this from Dennis P. Lockhart, the President and Chief Executive Officer of the Federal Reserve Bank of Atlanta speaking on February 18, 2010:
“I’ve heard anecdotal comments from retailers that they have been willing to forgo sales to avoid an unwanted building of inventory. This inventory caution could very well continue. On the other hand, if uncertainties lift, businesses may be less inclined to give up revenues for inventory cost savings. If significant inventory replenishment does occur, growth could be much stronger this year than my forecast suggests.
A second factor is just the atmosphere of uncertainty and the effect this has on business investment. What are the uncertainties weighing on business decisions, especially capital expenditure decisions? I would cite problems in the commercial real estate sector that could compromise the repair of credit markets and banks and, as a consequence, business access to credit. I would also cite public policy coming out of Washington in areas such as health care, tax, regulation, and the federal deficit.
Business spending slowly trended up through 2009 from a quite negative growth rate at the beginning of the year to a barely positive growth rate at the end of the year. Because of the cloud of uncertainty, my forecast does not include much further improvement of capital spending in 2010. But again, if some of that uncertainty lifts, business spending could push the economy higher.”
This blog post was co-authored by Aleksey Gladyshev.