Tag Archives: Guaranteed issue

Self-Righteous Sanctimony from an Obamacare Hypocrite

Why would someone who never truly believed in repealing Obamacare attack others for wanting to keep it? Maybe because Mitch McConnell asked him to.

Avik Roy’s piece blasting Sen. Mike Lee (R-UT) for “preserving every word of Obamacare” contains flawed logic on several fronts. Let’s examine that first, before considering the source.

Roy essentially argues that the 2015 reconciliation bill that Sen. Lee and others supported did not repeal or reform any of the regulations raising premiums, but this year’s Senate Republican bill did. The first point is accurate but misleading, and the second point inaccurate, at least from a conservative perspective.

When it comes to the 2015 reconciliation bill, Republican leaders made a strategic choice—as current White House adviser Paul Winfree noted just after the election—not to litigate with the Senate Parliamentarian whether and what insurance regulations could be repealed under the special budget reconciliation procedures. Conservatives such as myself have argued that, while that 2015 bill represented a good first step—demonstrating that reconciliation could be used to dismantle Obamacare—lawmakers needed to go further and repeal the regulations outright.

It’s unclear from his piece whether Roy knew of this strategical gambit back in 2015, or knows, but doesn’t want to admit it—and to be candid, both could be true. The article contains the following statement of “fact:”

Senate rules require that the reconciliation process can only be used for fiscal policy—taxing and spending—not regulatory policy. To boot, reconciliation can’t be used to change Medicare or Social Security. [Emphasis mine.]

The first part of this argument does not follow: He’s claiming that reconciliation cannot be used for regulatory policy, while also arguing that the bill currently before the Senate—which is a budget reconciliation bill—would make massive changes to Obamacare’s regulatory apparatus, such that it warranted Lee’s support.

The second part of this argument is flat-out false. While the Senate’s “Byrd rule” prohibits changes to Title II of the Social Security Act (as per 2 U.S.C. 644(b)(1)(F) and 2 U.S.C. 641(g)), Congress can—and does—make major changes to Medicare under budget reconciliation. For instance, the Balanced Budget Act of 1997—a bill considered under budget reconciliation—included over 200 pages of legislative changes to Medicare, including major changes to Medicare managed care (then called Medicare+Choice) and the creation of the infamous Sustainable Growth Rate Mechanism for physician payments. Roy has previously argued that lawmakers could not make changes to Medicare under budget reconciliation—he was wrong then, and he’s wrong now.

So why should anyone believe the procedural and tactical arguments of someone who 1) never worked in the Senate and 2) has repeatedly made false claims about the nature of the budget reconciliation process? Answer: You shouldn’t.

Back to the arguments about the Senate bill’s regulatory structure. Roy claims that the bill currently being considered would make significant modifications to those regulations. But from a conservative perspective, the bill doesn’t attack some of the costliest drivers of higher premiums—specifically Obamacare’s guaranteed issue regulations. Moreover, it doesn’t actually repeal any of the regulations themselves, choosing instead to modify or waive only some of them.

If a bill can modify regulations under the budget reconciliation procedures, it can repeal them too—moderate Senators just lack the political will to do so. If you’re like me—a supporter of federalism who doesn’t believe Washington should impose a regulatory apparatus on all 50 states’ health insurance markets—then you might find the Senate bill did not sufficiently dismantle the Obamacare framework to make it worth your support. It appears Sen. Lee also came to that conclusion.

Now it’s worth examining why the article specifically attacks Mike Lee. The piece fails to note until the 16th paragraph of a 19-paragraph story that other Senators came out and opposed the bill as well. Continued concern from moderates—who didn’t want to repeal Obamacare—made it obvious that the bill was going to die—but no one wanted to deliver the coup de grace. Sen. Lee finally came out and did so, along with Sen. Jerry Moran (R-KS). It’s disingenuous for Roy to claim, as he does for most of the piece, that Senator Lee was solely, or primarily, responsible for killing the bill.

Why might he make such a claim? Jonathan Chait may have sniffed out an answer several weeks ago, when Roy made a winking non-admission admission that he had worked with Senator McConnell’s office on drafting the Senate bill. Given that fact, and the way in which Senate staff promised to “make it rain” on moderates by giving out “candy” in the form of backroom deals, it’s reasonable to ask whether Roy coordinated his attack on Senator Lee with Senator McConnell’s office—and was promised anything for doing so.

Nearly three years ago, Avik Roy published a piece claiming that “conservatives don’t have to repeal Obamacare” and that “there are political benefits to implementing the plan without repeal.” Last night, Roy didn’t even attempt to explain on Twitter how he could reconcile those prior statements with his purported support for Obamacare repeal. Yet now he wants to attack Mike Lee for not sufficiently supporting repeal? It’s a disingenuous argument.

When it comes to Roy’s flip-flopping on repeal, his factual inaccuracies, or his not-so-secret ties to Senate leadership on the legislation, when evaluating his attack on Mike Lee, conservatives would be wise to consider the source.

The Binary Choices of “Repeal-and-Replace”

During the run-up to the aborted vote on House Republicans’ Obamacare “repeal-and-replace” legislation, Speaker Paul Ryan repeatedly called the vote a “binary choice”: Republicans could support the leadership-drafted legislation, or, by failing to do so, effectively choose to keep Obamacare in place.

The rhetoric led to criticism of the speaker for attempting to bully or rush members of Congress into supporting legislation despite policy concerns and political unpopularity. That said, health care policy does involve several largely binary choices. They do not break down along the political fault lines the speaker proposed—support the leadership bill, or support Obamacare—but they demonstrate how health policy involves significant trade-offs that should be made very explicit as part of the policy-making process. Here are just three.

1: Obamacare’s Regulations Are (Mostly) All-or-Nothing

Just prior to the scheduled vote, Republican leadership and the Trump administration found themselves in trouble when they proposed eliminating Obamacare’s essential health benefits, for both legal and policy reasons. A more clearly drafted policy could minimize the former, but likely not the latter.

Here’s the problem: As long as insurers are required to accept all applicants regardless of health status or pre-existing conditions—a requirement known as guaranteed issue, and included in Obamacare—removing at least three other important Obamacare regulations would likely lead to unsustainable and perverse outcomes:

Community rating: Theoretically, insurers would have little problem with a requirement to accept all applicants, so long as they can charge those applicants an actuarially fair rate. However, “offering” a cancer patient an insurance policy priced at $50,000 per month would likely yield few acceptances (and would be politically unsustainable).

Obamacare allowed insurers to vary premiums only by age, family size, geography, and tobacco use. The House bill expanded the permissible rating variation, but only with respect to age. While this change would lower premiums for younger applicants, encouraging them to purchase insurance, it might not change insurers’ underlying assumption that applicants will be sicker-than-average.

Essential benefits: Requiring insurers to accept all applicants regardless of health status, but allowing them to vary benefit packages, would create incentives for insurers to structure their policies in ways that discourage sick people from applying.

For instance, no rational insurer would provide much (if any) coverage of expensive chemotherapy drugs, because doing so would prompt a flood of cancer patients to purchase coverage and run up large bills. Since Obamacare’s passage, HIV patients have already faced discrimination because of these inherent flaws in the law, even with the essential benefit requirements in place. Removing them would only accelerate a “race to the bottom.”

Actuarial value: Here again, removing the requirement that plans cover a certain percentage of expenses would lead to a rapid downsizing of generous plans from the marketplace—again, so insurers can avoid sick patients. Platinum plans have already become a rare breed on the Obamacare exchanges; removing the requirements would likely cause gold and silver plans to disappear as well.

These four major regulations—guaranteed issue, community rating, essential health benefits, and actuarial value—are inextricably linked. Repealing only one or two without repealing all of them, particularly the guaranteed issue requirements, would at best fail to lower premiums (largely what the Congressional Budget Office, or CBO, concluded about the House bill) and at worst could severely disrupt the market, while making the sickest individuals worse off.

The CBO largely agrees with this analysis. In a January document, CBO noted that Obamacare included major regulatory changes that require insurers to: “Provide specific benefits and amounts of coverage”—essential health benefits (the types of services covered) and actuarial value (the amount of that coverage), respectively; “Not deny coverage or vary premiums because of an enrollee’s health status or limit coverage because of pre-existing medical conditions”—guaranteed issue; and “Vary premiums only on the basis of age, tobacco use, and geographic location”—community rating.

CBO views these four interlinked changes as at the heart of the Obamacare regulatory regime. While lawmakers could repeal piecemeal other mandates beyond the “Big Four,” such as the requirement to cover “dependents” under age 26, or the preventive services mandate, doing so would have a much smaller effect on reducing premiums than the four changes referenced above.

2: Keeping Obamacare Regulations Requires Significant Insurance Subsidies

The January CBO analysis of the 2015 repeal bill passed under reconciliation illustrates the second binary choice. Because that 2015 reconciliation bill repealed Obamacare’s insurance subsidies (after a delay) and mandate to purchase coverage, but not its regulatory requirements on insurers, CBO concluded that the bill would severely damage the individual health insurance market. By 2026, premiums would double, and about three-quarters of the country would have no insurers offering individual insurance coverage, in CBO’s estimate.

The analysis revealed one big reason why: Eliminating subsidies for insurance would result in a large price increase for many people. Not only would enrollment decline, but the people who would be most likely to remain enrolled would tend to be less healthy (and therefore more willing to pay higher premiums). Thus, average health-care costs among the people retaining coverage would be higher, and insurers would have to raise premiums in the non-group market to cover those higher costs.

In short, CBO believed repealing Obamacare’s subsidies while retaining its insurance regulations would lead to an insurance “death spiral.”

By contrast, CBO concluded that this year’s House Republican bill, which (largely) retained Obamacare’s regulations and included a new subsidy for insurance, would lead to a stable marketplace: “Key factors bringing about market stability include subsidies to purchase insurance, which would maintain sufficient demand for insurance by people with low health care expenditures…”

The obvious conclusion: While the individual health insurance market remained relatively stable without subsidies prior to Obamacare, and repealing both the law’s subsidies and its regulations would restore that sustainable market, as long as the regulatory changes wrought by the law remain in place, the market will require heavy insurance subsidies to remain stable.

3: Banning Pre-Existing Condition Consideration Versus Repealing Obamacare

This binary choice follows from the prior two. If the “Big Four” insurance regulations are so interlinked as to make them a binary proposition, and if a market with those “Big Four” requires subsidies to remain stable, then Republicans have a choice: They can either retain the ban on pre-existing condition discrimination—and the regulations and subsidies that go with it—or they can fulfill their promise to repeal Obamacare.

Consider, for instance, Ryan’s response to a reporter on February 16 questioning the similarities between the refundable tax credits in the House plan (later the House bill) and Obamacare: “They call them refundable tax credits—they’re subsidies. And they’re subsidies that say ‘We will pay some people some money if you do what the government makes you do.’ That is not a tax credit. That is not freedom. A tax credit is you get the freedom to do what you want, and buy what you need—and your choice.”

Based on Ryan’s own definition, the House bill qualifies as an Obamacare-esque subsidy, and not a tax credit. It gives some people (those with employer coverage or other insurance do not qualify) some amount—the credits had to be means-tested to solve major CBO scoring issues—if they buy insurance that meets government requirements.

For an individual “buy[ing] what [they] need,” the option to purchase health insurance without under-26 “dependent” coverage, or without maternity coverage for males, did not exist. So it’s not that others derided the House bill as “Obamacare Lite,” it’s that the bill qualifies as such under Ryan’s own definition.

Much of the problem lies in House Republicans’ Better Way proposal released last summer, which stated a desire to retain Obamacare’s pre-existing condition provision. The import of this proposal was not clear at the time. There are other, simpler ways to provide coverage to individuals with pre-existing conditions (such as high-risk pools), and as Yuval Levin has pointed out, prior conservative health proposals did not include promises on pre-existing conditions. But Republicans’ unwillingness to upset the Obamacare standards for pre-existing conditions has significantly boxed in the party’s policy options regarding repeal.

To Govern Is To Choose

As with Barack Obama in 2008, Republicans face a self-inflicted dilemma, having over-promised voters by claiming they could keep the popular portions of Obamacare (pre-existing condition protections) while repealing the law.

But Republicans face what looks increasingly like a binary choice: going back to the status quo ante on pre-existing conditions, or breaking their seven-year-long pledge to repeal Obamacare. As the saying goes, to govern is to choose—but in this case, failing to govern may be the worst choice of all.

This post was originally published in The Federalist.

Three Points CBO Omitted from Its Report on Obamacare Repeal

This morning, the Congressional Budget Office (CBO) released a report analyzing the effects of Obamacare repeal. Specifically, CBO claimed that enacting a reconciliation bill that the last Congress passed, but President Obama vetoed, would increase the number of uninsured (even relative to pre-Obamacare numbers) while raising insurance premiums appreciably. CBO believes that leaving Obamacare’s major insurance regulations in place—which last year’s reconciliation bill did—while repealing the law’s subsidies, and effectively repealing the individual mandate, will destabilize insurance markets, cause insurers to exit the marketplace, and raise premiums.

However, there are three important facts the CBO report didn’t address:

CBO Has Gotten Previous Estimates Wrong

While no forecaster has a perfect batting average, CBO’s track record with respect to Obamacare is perhaps less ideal than most. CBO thought that the CLASS Act—which Democratic Senator Kent Conrad infamously called “a Ponzi scheme of the first order, the kind of thing for which Bernie Madoff would be proud of—could be implemented in an actuarially sound manner. The Obama Administration eventually had to admit that the CLASS Act was not a fiscally sound program. And CBO failed to conduct enough analysis that could have predicted the CLASS Act’s failure prior to Obamacare’s passage—a point former Director Doug Elmendorf has publicly refused to admit.

With respect to enrollment, CBO significantly over-estimated the number of individuals that would sign up for Obamacare. In March 2010, as Democrats were ready to pass the law, CBO claimed that in 2016, 21 million individuals would sign up for coverage on insurance Exchanges. The reality has proven far different: Less than half as many individuals (10.4 million) had Exchange coverage as of June 30, 2016. And this much lower enrollment comes despite the 2012 Supreme Court ruling making Medicaid expansion optional for states—which actually increased Exchange enrollment in states that have declined to expand Medicaid.

CBO claimed in 2010 that the individual mandate would cause tens of millions of individuals to sign up for coverage. It hasn’t happened. Now CBO claims that effectively repealing the mandate while leaving insurance regulations in place will cause healthy individuals to cancel coverage en masse. Could that happen? Absolutely. But given their recent track record on this specific issue, should one really take CBO’s word as gospel…?

The Solution Is More Repeal, Not Less

In a paradoxical way, the CBO report actually makes a strong case for expanding the scope of last year’s reconciliation bill. The paper notes on several occasions that repealing Obamacare’s insurance subsidies, and effectively repealing the individual mandate, while leaving its insurance regulations in place, would harm insurance markets. For instance, CBO notes that:

The number of people without health insurance would be smaller if, in addition to the changes in [last year’s reconciliation bill], the insurance market reforms mentioned above were also repealed.

Congress chose not to litigate the question of whether Obamacare’s major insurance mandates were budgetary in nature, and thus could be included in a budget reconciliation bill, last year. It should do so now. The findings of this CBO paper, along with other scoring estimates, give ample ammunition to those who consider it entirely consistent with past Senate precedents to include repeal of the major insurance regulations in budget reconciliation.

The Trump Administration Can Mitigate Repeal’s Effects

Even if Congress cannot or will not expand the scope of the reconciliation bill to include the major insurance regulations under Obamacare, the Trump Administration can act to mitigate against the kinds of concerns outlined in the CBO paper. A report I released just this morning outlines some of them. The Administration can significantly shorten—to just a few weeks, or even shorter—the annual open enrollment period, which can protect against individuals signing up for coverage after they get sick. It can reduce special enrollment periods outside of open enrollment, and require verification for all special enrollment. And it can take other administrative actions to mitigate the effects of a spike in premiums.

Weakening Obamacare’s Individual Mandate — And the Law

A New York Times article last weekend explained how the administration has moved to lessen the impact of Obamacare’s individual mandate “to avoid a political firestorm.” But there is a cost to taking political cover: President Barack Obama’s executive actions to blunt the mandate’s impact on the public will give future administrations an opportunity further to undermine the mandate and, with it, much of the health-care law.

This tax filing season brings the first enforcement of two main Obamacare provisions: the repayment of excess insurance subsidies received by individuals and the individual mandate. As I wrote in a Think Tank post last month, the complex provisions, and the Internal Revenue Service’s limited resources for customer assistance, are likely to result in headaches for millions of Americans.

To cushion the blow, the Treasury Department has administratively created exemptions to the individual mandate beyond the numerous exemptions written into the Affordable Care Act itself. The Times reported “more than 30 types of exemptions from the penalty for not having insurance.” The administration released data suggesting that, while as many as 6 million people will face the mandate penalty, up to five times as many—15 million to 30 million Americans—will receive exemptions from it.

Creating numerous exemptions for political reasons could cause policy headaches down the road. One could occur if insurers believe the mandate has become ineffective at drawing in healthy individuals and, fearing an influx of costly, sicker patients, decide to exit the exchanges en masse. It’s also possible that a future administration—relying on the Obama administration’s unilateral actions on health care and immigration—could create additional exemptions or other forms of leniency for mandate violators, thereby hastening the insurer exodus.

In the 2008 Democratic primaries, then-Sen. Obama famously opposed the individual mandate, citing its application in Massachusetts: “There are people who are paying fines and still can’t afford [health insurance], so now they’re worse off than they were. They don’t have health insurance and they’re paying a fine.” But after having embraced the mandate in 2009 to ease Obamacare’s passage, the administration is now trying to avoid the political dilemma Mr. Obama described seven years ago. Whether and how it does so will have far-reaching policy implications for voters, future administrations, and the future of the law.

This post was originally published at the Wall Street Journal’s Think Tank blog.

Wisconsin Survey a Microcosm of Obamacare’s Flaws

Late last week, the governor’s office in Wisconsin released a report analyzing the impact of Obamacare on the state and its insurance markets.  To those who predicted that the law would result in higher premiums and individuals losing their current coverage, the results are not surprising:

Losing Coverage:  According to the report, “very few” Wisconsin residents will keep their current individual market coverage thanks to Obamacare’s restrictions.  Instead, 150,000 individuals will give up their current coverage to move to the government-regulated Exchanges.  An additional 100,000 individuals will lose access to employer-sponsored coverage, because the firms they work for will decide to drop coverage instead.

Mandates Raising Price of Insurance:  Nearly two in five (38%) participants in Wisconsin’s individual market will be forced to buy richer coverage than they have now, due to the new mandates and insurance restrictions included in Obamacare.

Higher Premiums:  Government mandates will raise individual market premiums for more than four in five participants – more than 41% of participants face premium increases of more than 50% before federal insurance subsidies are applied.

Winners and Losers:  Even AFTER federal insurance subsidies are applied, 59% of individual market participants will pay more – an average of nearly 31% more – for their coverage, so that a smaller minority can pay less.  To take one example, costs in the individual market for Wisconsin residents aged 19-29 will go up by a whopping 34%, so that costs for residents aged 55-64 can go down by $31, or a mere 1%.  And Wisconsin’s more than 5.5 million residents will pay higher federal taxes – on their drugs, income, and insurance premiums, to name but a few examples – so that only about 220,000 newly insured will receive taxpayer-financed insurance under Obamacare.

Government-Forced Insurance:  340,000 individuals in Wisconsin will obtain coverage under Obamacare, but that if the individual mandate were repealed (or struck down as unconstitutional), coverage would only increase by 60,000.  In other words, nearly 300,000 Wisconsin residents will obtain health coverage not because they want to purchase it, but because the federal government is forcing them to do so.

What IS surprising however is the fact that the report was commissioned last year by the Democrat then-Governor, and completed by Jonathan Gruber, who was a paid – though undisclosed – consultant on Obamacare itself.  If even an Obamacare supporter reaches conclusions this ominous about the impact of the statute on one state, how can Democrats continue to defend their flawed, 2700-page law?

Three Pinocchios for DNC Chair’s “Mediscare” Tactics

In case you didn’t see it, this morning the Washington Post’s Fact Checker column gave three Pinocchios to Democrat National Committee Chairman Debbie Wasserman Schultz’s claim that the Medicare proposals in the House-passed budget would throw seniors “to the wolves.”  From the column:

“Wasserman Schultz did not say voucher, but her statement suggests that people would be handed a check (“X number of dollars”) and then have to go out and find a plan that they can afford.  She also said the plan would “allow insurance companies to deny you coverage and drop you for pre-existing conditions.”

Neither of those claims are true.  The system as envisioned by Republicans would operate much like the Medicare prescription drug plan currently does.  The government would not give people a check or anything like that; the government would handle the funds, just as they do under the drug plan.  As the nonpartisan Congressional Budget Office said when it examined the plan, “The premium support payments would go directly from the government to the plans that people selected.”

Meanwhile, different plans approved by Medicare would compete for business, as under the drug plan.  Moreover, the GOP proposal specifically says that to participate in the Medicare exchange, insurance companies would have to accept all retirees.”

This of course does not represent the first time Democrats have been accused of what the Post called “scaremongering metaphors” when it comes to Republican plans for entitlement reform.  But it does raise another question:  If she doesn’t like the House Republican plan, then exactly what kind of entitlement reform is the DNC chair FOR?

Bill Summary: H.R. 1473, Six-Month Continuing Resolution

As you will be aware, the House Appropriations Committee filed the six-month continuing resolution (through September 30) early this morning.  Text is available here, and a list of discretionary program reductions outlined by the Appropriations Committee is available here. (The Rules Committee also posted the text of two separate enrolling resolutions related to health care; summaries of those provisions will be sent under separate cover.)  House floor action is expected as soon as tomorrow, with the Senate expected to follow thereafter.

Below is a summary of the health care policy-related changes included in the CR.  Provisions related to the Department of Health and Human Services can be found on pages 311-324 and 337-342 of the text posted online.  (As usual, Food and Drug Administration funding is included in the Agriculture Department appropriations title, pages 191-95, and Indian Health Service funding is included in the Interior appropriations title, page 300.)  However, a BIG caveat for those reading through the CR text itself: Section 1119 provides for a 0.2 percent across-the-board rescission of budget authority for ALL discretionary appropriations, applying to “each discretionary account” and “each program, project, and activity.”  In other words, the discretionary account figures included in the text of the Labor-HHS title do NOT represent the final budgetary authority given – so don’t forget to read the bill with that in mind.
Prevention “Slush Fund”:  Section 1855 requires that all money transferred from the Prevention and Public Health Fund established in the Patient Protection and Affordable Care Act (PPACA) to discretionary accounts (e.g., Centers for Disease Control, HRSA, etc.) comply with Section 503 of Division D of P.L. 111-117, which prohibits funds from being used “for publicity or propaganda purposes.”

GAO and Related Audits:  Section 1856 calls for several audits related to provisions included in PPACA:

  • A GAO report listing contracts, outside firms, and consultants used to implement new authorities provided by PPACA, due within 90 days of enactment;
  • A GAO report auditing “requests for administrative waiver of the annual limit requirements” under PPACA, including “an analysis of the number of approvals and denials of such requests and the reasons for such approval or denial,” due within 60 days of enactment;
  • A report by the Medicare actuary, due within 90 days of enactment, containing “an estimate of the impact of the guaranteed issue, guaranteed renewal, and community rating requirements…on premiums for individuals and families with employer-sponsored health insurance.  Such estimate shall cover the 10-year period beginning with 2014 and shall include an estimate of the number of such individuals and families who will experience a premium increase as a result of such requirements and the number of such individuals and families who will experience a premium decrease as a result of such requirements.”
  • A GAO report “that includes the results of an audit of expenditures made for comparative effectiveness research funds” in the “stimulus” or PPACA, due within 60 days of enactment.

Co-Op Rescission:  Section 1857 rescinds $2.2 billion of the $6 billion in start-up funding provided for the Consumer Operated and Oriented Plan (Co-Op) program created under Section 1322 of PPACA.

Free Choice Program:  Section 1858 repeals Section 10108 of PPACA, which provided for “free choice” vouchers for workers whose employer-provided health insurance premiums cost between 8 percent and 9.8 percent of family income.

Performance Bonuses:  Section 1859 rescinds $3.5 billion in performance bonus payments authorized in the 2009 SCHIP reauthorization (P.L. 111-3).  The program provides for bonuses for states that increase their Medicaid enrollment above threshold levels while engaging in at least five enrollment and retention provisions specified in the statute.  In 2009, the Congressional Budget Office scored the performance bonus provisions as costing $4.4 billion over the 2009-2019 budget window in its estimate of the SCHIP legislation as enacted.

A Cautionary Tale on Government Controlling Health Costs

The Boston Globe reports this morning on the rollout by Massachusetts Governor Deval Patrick of a series of “reforms” intended to lower skyrocketing health costs within the Commonwealth.  The full story is clipped below my signature, but among the key takeaways – the legislation would give the Commonwealth “the authority to scrutinize insurers’ contracts with, and fees paid to, hospitals and doctors and consider whether those fees are appropriate before approving insurers’ requests for premium increases.”  In other words, under the proposal, government would micro-manage not just insurance companies’ practices, but the spending habits of thousands of doctors and hospitals as well.

It’s worth noting the sequence of events that led Massachusetts to this point – which provides a cautionary tale to those who believe the Patrick Administration’s latest plan will actually reduce costs:

  • In the 1990s, the Commonwealth (along with other states) enacted requirements requiring insurance companies to accept all applicants, regardless of health status.  This government regulation led many healthy Massachusetts residents to wait until they got sick to purchase insurance.  As a result, premiums skyrocketed.
  • Because the new insurance regulations quickly caused a market failure, Massachusetts legislators decided the solution to a government-imposed problem was…more government – specifically, a mandate that all residents purchase health insurance.  Unfortunately, data from multiple insurance companies show that many people are paying the tax associated with the mandate while healthy, only to obtain coverage and run up high health costs once becoming sick – placing more upward pressure on insurance premiums.  Moreover, the reforms passed in 2006 focused solely on expanding coverage, to the exclusion of cost control efforts – a further recipe for skyrocketing health expenses.
  • As costs continue to rise – and the Commonwealth is forced to hire private enforcers to police its controversial government-imposed insurance mandate – the Patrick Administration thinks the cost pressures created by the insurance regulations and mandates can be remedied by yet more government involvement, by regulating health insurers’ private contracts with doctors and hospitals.
  • And if the Patrick Administration’s proposals for new regulations don’t work, what will be the solution to them?  You guessed it – more government.  As one executive put it, if the new proposals don’t contain costs, “it’s likely we’ll see even bigger sticks coming our way,” imposed by government elites and bureaucrats.

The article admits that health costs are threatening to bankrupt the Commonwealth, and that the “reforms” of the past two decades if anything have increased, not decreased, those cost pressures.  At what point will Massachusetts learn that when it comes to containing costs, “government is not the solution to our problems – government IS the problem?”

AP Analysis of Health “Reform:” Higher Premiums

The Associated Press is out with a new analysis this morning showing how the health legislation signed last week will raise premiums for young adults.  Specifically, the AP’s analysis, conducted by a subsidiary of the Rand Institute, found that the narrower community rating provisions will raise premiums for individuals under age 35 by 17%, or nearly $500 per year.  Moreover, the analysis only examined the impact of community rating, and did NOT analyze the impact of the richer benefits package required under the law; the Congressional Budget Office found that those mandates would raise premium costs by as much as 30%, over and above the impact of the rating requirements discussed below.

These new findings will only strengthen the concern that young, healthy people will have a strong financial incentive to drop coverage and pay the tax penalty for violating the individual mandate, as many are currently doing under Massachusetts’ reform initiative.  In other words, a 17% premium increase could represent the lower bounds of what might happen if the new exchanges end up with a largely (if not exclusively) older, sicker population.  Regardless, after spending $2.6 trillion on a government takeover of health care, many may question how rising premiums – which violate the President’s campaign promise to lower insurance costs by $2,500 “by the end of my first term as President” – constitute “reform” in the first place.

Legislative Bulletin: H.R. 3590, Patient Protection and Affordable Care Act

Senate Democrat Health “Reform” Legislation:
Short Summary of the Government Takeover of Health Care


On November 18, 2009, Senator Harry Reid and the Senate Democrat leadership introduced the Patient Protection and Affordable Care Act as an amendment to a House-passed bill (H.R. 3590).  The full Senate began consideration of the legislation on November 21, 2009.  Backroom deals produced a manager’s amendment that was introduced early on the morning of December 19, and a vote on final passage of the bill as amended could come as early as December 24, 2009.

Buried within the contents of the more than 2,000 page bill—as well as the separate 383-page manager’s amendment, and a 276 page Indian Health Care reauthorization that would be enacted by reference—are details that would see a massive federal takeover of the health care system in America, including the following:

  • A new regime of government-run exchanges that would cause as many as 10 million Americans to lose their current employer-sponsored coverage—thus breaking the central promise of then-Senator Obama’s presidential campaign;
  • An increase in total national health spending, as well as an increase in premiums that could total $2,100 per year—a far cry from then-Senator Obama’s promise to lower costs for families by $2,500 annually;
  • Stifling insurance regulations that would raise premiums and encourage employers to drop coverage;
  • Trillions of dollars in new federal spending that would exacerbate the deficit and imperil the nation’s long-term fiscal solvency;
  • A board of unelected bureaucrats being empowered to re-write Medicare statutes in a way that could well lead to government rationing of health care;
  • Federal funding of insurance policies that cover elective abortion—and an unprecedented federally managed plan that would cover elective abortion procedures;
  • Tens of billions in unfunded mandates in the form of a massive Medicaid expansion that would compel all States—except Nebraska—to dedicate more scarce taxpayer resources to fund government-run health coverage in their States—or alternatively to drop Medicaid entirely;
  • Taxes on all Americans—individuals who purchase insurance, individuals who do not purchase insurance, and small and large businesses alike—that would kill jobs and raise premiums; and
  • Cuts to Medicare Advantage plans that would result in higher premiums and dropped coverage for more than 10 million seniors.


The Government Takeover

Creation of Exchange:  The bill requires States to create their own Health Benefit Exchanges.  Uninsured individuals would be eligible to purchase an Exchange plan, as would those whose existing employer coverage is deemed “insufficient” by the federal government.  Employees with an “unaffordable” offer of group coverage would be able to take the value of their employer’s contribution in the form of a tax-free voucher to shop for plans on the Exchange.  The bill allows States to open Exchanges to all employers beginning in 2017, further expanding the scope and reach of the government-run Exchanges.

Benefit Standards:  The bill establishes a process for the Secretary of Health and Human Services to impose benefit standards for all plans.  Plans in the Exchange would fall into several tiers: bronze (covering 60 percent of anticipated expenses), silver (70 percent), gold (80 percent), and platinum (90 percent).  A young adult plan offering streamlined benefits would also be available, but only to individuals under aged 30.  Employer plans—including those with Health Savings Accounts—could impose maximum deductibles of $2,000 for an individual or $4,000 for a family.  These onerous standards would hinder the introduction of innovative models to improve enrollees’ health and wellness—and by insulating individuals from the cost of health services with restrictive cost-sharing, could raise health care costs.

“Low-Income” Subsidies:  The bill provides subsidies only through the Exchange, again putting private health plans at a disadvantage.  Individuals with access to employer-sponsored insurance whose group premium costs exceed 9.8 percent of modified gross income would be eligible for subsidies.  Some may note that the newly defined “modified gross income” (as opposed to adjusted gross income) excludes deductions for items like contributions to Individual Retirement Accounts (IRAs) or Health Savings Accounts (HSAs), thus imposing an effective tax on savings.

Premium subsidies provided would be determined on a sliding scale.  Individuals with incomes above 133 percent of the Federal Poverty Level (FPL, $29,327 for a family of four in 2009) and thus ineligible for the Medicaid expansion would be able to receive subsidies, which would phase out entirely for individuals with incomes at 400 percent FPL ($88,200 for a family of four), who would be expected to pay 9.8 percent of their income.  Many may also note that, because the definition of FPL for a couple is not twice the size of the poverty level for a single person, the bill creates a marriage penalty—meaning that married couples may lose hundreds, even thousands, of dollars in health insurance subsidies.

The bill further provides for cost-sharing subsidies, such that individuals with incomes under 100 percent FPL would have two-thirds of their cost-sharing covered for a platinum level plan, while individuals with incomes at 400 percent FPL would have one-third of their cost-sharing covered for a silver plan.  These rich benefit packages, in addition to raising subsidy costs for the federal government, would insulate plan participants from the effects of higher health spending, resulting in an increase in overall health costs—exactly the opposite of the bill’s purported purpose.

“Fannie Med” Co-Operatives and National Plan:  The bill as amended requires the Office of Personnel Management (OPM) to “offer at least two multi-State qualified plans through each Exchange in each State.”  The bill requires that at least one insurance plan option offered be a non-profit entity.

The bill establishes a Consumer Operated and Oriented Plan (CO-OP) program to provide grants or loans for the establishment of non-profit insurance cooperatives to be offered through the Exchange, but does not require States to establish such cooperatives.  The bill authorizes $6 billion in appropriations for start-up loans or grants to help meet state solvency requirements.

Many may be concerned that both the OPM federally sanctioned plans and cooperatives funded through federal start-up grants would in time require ongoing federal subsidies, and that a “Fannie Med” co-op would do for health care what Fannie Mae and Freddie Mac have done for the housing sector.  Some may also note that former OPM Director Linda Springer has publicly expressed concern that her former office lacks the capacity to oversee such a project in the manner that it currently oversees the Federal Employee Health Benefits Program (FEHBP).

Medicaid Expansion:  The bill would expand Medicaid to all individuals with incomes under 133 percent of the federal poverty level ($29,327 for a family of four).  Under the bill, the bill’s expansion of Medicaid to more than 10 million individuals would be fully paid for by the federal government only through 2016—thus imposing billions in unfunded mandates on 49 States.

However, as part of the “compromise” negotiated by Leader Reid, one State—Nebraska, home of Sen. Ben Nelson—would have 100 percent of its Medicaid costs paid in perpetuity.  Given public comments by Senate HELP Committee Chairman Tom Harkin (D-IA) that such a precedent could eventually lead to the federal government paying 100 percent of all Medicaid costs for all States, many may question whether this provision constitutes a special deal for Nebraska in exchange for Sen. Nelson’s vote, or a way to grow federal spending later by shifting unfunded State mandates back on to federal taxpayer rolls.

Federal Funding of Abortion Coverage:  The bill specifically permits taxpayer subsidies to flow to private health plans that include abortion, but creates an accounting scheme designed to designate private dollars as abortion dollars and public dollars as non-abortion dollars.  Specifically, the provisions claim to segregate public funds from abortion coverage and would allegedly prevent funds used on abortion from being considered when determining whether plans meet federal actuarial standards. However, press reports have been skeptical about whether and how this accounting mechanism would prevent federal funding of abortions.  The accounting scheme has likewise been rejected by pro-life organizations, which recognize it as a clear departure from long-standing federal policy against funding  plans covering abortion (e.g., Federal Employee Health Benefits Program, Medicaid, SCHIP, etc.).

Unlike government-run programs like Medicare and Medicaid, which can specifically prohibit coverage of a particular service, funds provided to a third-party insurance company to subsidize an individual’s coverage would by definition make that individual’s “supplemental” abortion coverage more affordable.  Therefore many Members may believe that the only way to prevent federal funds from subsidizing abortion coverage is to prevent plans whose beneficiaries receive federal subsidies from covering abortions.

The bill as amended by the manager’s amendment would modify the segregation regime slightly, requiring plans to follow “generally accepted accounting requirements” while establishing the regime.  The bill also allows States to “prohibit abortion coverage in qualified health plans” offered in their State’s Exchange.  However, these provisions would still result in federal funds flowing to plans that cover elective abortions—and would not prohibit citizens in States which have opted-out of elective abortion coverage in their own Exchange seeing their federal funds flow to plans that cover elective abortion in other States.  To that end, even pro-life Democrats like Rep. Bart Stupak (D-MI) have criticized the bill language as unacceptable, and a far cry from the standards established in the Stupak amendment—which extended the current law Hyde Amendment prohibitions on federal funding for abortion coverage–  that passed on a strong bipartisan vote in the House.

Further, the “Fannie Mae” model administered through OPM created by the manager’s amendment contains zero prohibition on coverage of elective abortion—an unprecedented federal sanctioning of plans that cover elective abortions.  To that end, many may note that insurance plans within the FEHBP—which Members of Congress themselves utilize—have been prohibited from offering abortion coverage since 1995, and federal employees have expressed strong satisfaction with their choice of plan options.

Medicare Payment Board:  The bill would create a new Independent Medicare Advisory Board established to make recommendations about the future growth of Medicare spending.  The appointed bureaucrats would be required to submit recommendations to Congress to keep Medicare spending below targeted levels—and such recommendations would be legally binding absent legislative action by Congress.

Particularly given the controversy surrounding the recent recommendations by the US Preventive Services Task Force with respect to mammogram coverage, many may be concerned that the Medicare Board contemplated by the legislation could result in additional coverage decisions being made by unelected bureaucrats largely or exclusively on cost grounds.  Moreover, many may be concerned that in time this provision could closely resemble a concept advocated by former Senator Tom Daschle—a board of unelected bureaucrats making health care decisions for all health plans nationwide, including decisions about which therapies and treatments the federal government will cover.  In his book Critical, Daschle wrote that, “We won’t be able to make a significant dent in health-care spending without getting into the nitty-gritty of which treatments are the most clinically valuable and cost-effective.”

Funneling Patients into Government Care

Federal Insurance Restrictions:  The bill imposes new regulations on all health insurance offerings, with only limited exceptions.  The bill imposes price controls on insurance offerings, requiring insurers with a ratio of total medical expenses to overall costs (i.e. a medical loss ratio), of less than 80 percent in the individual and small group market, or 85 percent in the large group market, to offer rebates to beneficiaries.  Some Members may be concerned that government-imposed price controls, by requiring plans to pay out most of their premiums in medical claims, would give carriers a strong disincentive not to improve the health of their enrollees through prevention and wellness initiatives—as doing so would reduce the percentage of spending paid on actual claims below the bureaucrat-acceptable limits.  The bill would also “require health plans…to submit a justification for any premium increase” in advance, and permit Exchanges to reject bids by insurance companies with “excessive” (term undefined) price increases—thus permitting bureaucrats to exercise arbitrary controls over health insurance companies.

Existing policies could remain in effect—but only so long as an individual does not move, change jobs, or experience any other material change in life status.  Contrary to President Obama’s repeated promises that “You will not have to change [health insurance] plans,” CBO found that “relatively few non-group policies would remain grandfathered by 2016”—meaning millions of individuals would lose their current individual health insurance plans as a result of Democrats’ government takeover of health care.

Mandates on Employers; “Fair Share” Penalties:  The bill imposes a series of mandates related to  employers offering health insurance coverage.  Specifically, the bill taxes large employer plans (i.e. with more than 50 workers) that impose long “waiting periods” of over 30 days on coverage eligibility up to $600 per full-time employee.  The bill also taxes large employers who do not offer coverage, or who offer coverage that results in employees obtaining subsidies because that coverage costs more than 9.8 percent of modified gross income, to pay taxes.  The penalty in the first instance is $750 per employee, and in the second instance constitutes $3,000 per employee receiving subsidies, or $750 per worker, whichever is less.

Members may be concerned that the “fair share” penalties would most adversely affect those workers whom health “reform” is intended to help.  For instance, the taxes would discourage employers from hiring married individuals or parents raising children—as such individuals would be more likely to qualify for subsidies, thus triggering penalties.  In particular, single parents would be much more likely to qualify for insurance subsidies based upon their income, making it much less likely that such workers would be hired.  The liberal Center for Budget and Policy Priorities also previously notes that the provisions “likely would have discriminatory racial effects on hiring and firing.  Because minorities are much more likely to have low family incomes than non-minorities, a larger share of prospective minority workers would likely be harmed.”

Individual Mandate:  The bill places a tax on individuals who do not purchase “minimum essential coverage,” as defined by the bureaucratic standards in the bill.  The tax would constitute 2 percent of adjusted gross income, up to the amount of the national average premium for bronze plans offered through the Exchange.  The tax would not apply to non-resident aliens, those exempted on religious grounds, individuals for whom coverage is “unaffordable” (i.e. costing more than 8 percent of modified gross income), and those with short (i.e. fewer than three month) gaps in coverage.  “Acceptable coverage” includes qualified Exchange plans, “grandfathered” individual and group health plans, Medicare and Medicaid plans, and military and veterans’ benefits.

For individuals with incomes of under $100,000, the cost of complying with the mandate would be under $2,000—raising questions of how effective the mandate would be, as paying the tax would in many cases cost less than purchasing an insurance policy.  As then-Senator Barack Obama pointed out in a February 2008 debate, in Massachusetts, the one State with an individual mandate, “there are people who are paying fines and still can’t afford [health insurance], so now they’re worse off than they were.  They don’t have health insurance and they’re paying a fine.”

Medicare Advantage:  The bill would phase in a system of Medicare Advantage (MA) competitive bidding over a three-year period beginning in 2012.  The bill also imposes an arbitrary adjustment on MA payment benchmarks as part of the competitive bidding process.  Many may note that despite its title, traditional Medicare would not be required to compete head-to-head against private health plans in MA “competitive bidding”—thus giving government-run Medicare an advantage.  The Congressional Budget Office has stated that these provisions would collectively cut $120 billion from Medicare Advantage, and would result in millions of seniors losing access to their current plans, and/or having the extra benefits—reduced cost-sharing, dental and vision coverage, etc.—that MA plans provide curtailed or eliminated entirely.

The bill also gives the Secretary blanket authority to reject “any or every bid by an MA organization,” as well as any bid by a carrier offering private Part D Medicare prescription drug coverage, giving federal bureaucrats the power to eliminate the MA program entirely—by rejecting all plan bids for nothing more than the arbitrary reason that an Administration wishes to force the 10 million beneficiaries enrolled in MA back into traditional, government-run Medicare against their will.

Tax Increases

Government-Forced Insurance Penalties:  Offsetting payments to finance the government takeover of health care would include taxes on individuals not complying with the mandate to purchase coverage, as well as taxes by businesses associated with the “fair share” penalties, as outlined above.  The individual mandate as modified by the manager’s amendment would raise $15 billion and $28 billion respectively over ten years.

“Cadillac” Tax on High-Cost Plans:  The bill imposes a 40 percent excise tax on the excess cost of employer-sponsored plans above threshold amounts.  In 2013, the threshold amounts would be $8,500 for an individual policy and $23,000 for a family policy.  Individuals in certain “high-risk professions” would be subject to a higher threshold, and the 17 States with the highest costs (as determined by the average employer-sponsored insurance premium) would see the threshold amounts phased in during the years 2013-2015.  In future years the threshold amount would be raised for inflation at the rate of general price inflation (i.e. Consumer Price Index) plus one percent—which based on past trends would imply that the “Cadillac” tax would hit more plans over time.  According to the Joint Committee on Taxation, the provisions would raise $148.9 billion over ten years.

While some Members may support changing the current tax treatment of health insurance, many may oppose the bill’s model of raising taxes to finance a government takeover of health care.  Many may also note that the bill applies a standard 40 percent tax on all plans regardless of the purchaser’s income—potentially subjecting millions of low-income and middle-class families with employer-sponsored coverage to tax rates exceeding the highest marginal rate under current law.

Higher Payroll Taxes:  The bill imposes a 0.9 percent increase in Medicare payroll taxes on individuals with incomes over $200,000 and families with incomes over $250,000, raising $86.8 billion over ten years.  The tax is NOT indexed for inflation, meaning it would affect many more taxpayers over time.  In addition to being administratively burdensome—as individual employers would have to base tax withholding in part on the salary of an employee’s spouse—many may be concerned about the precedent set for diverting Medicare payroll taxes in a way that finances a $2.5 trillion new entitlement scheme for younger Americans.

Taxes on Health Plans:  The bill prohibits the reimbursement of over-the-counter pharmaceuticals from Health Savings Accounts (HSAs), Medical Savings Accounts, Flexible Spending Arrangements (FSAs), and Health Reimbursement Arrangements (HRAs), and increases the penalties for non-qualified HSA withdrawals from 10 percent to 20 percent, effective in 2011.  Because these savings vehicles are tax-preferred, adopting these provisions would raise taxes by $6.3 billion over ten years, according to the Joint Committee on Taxation.

The bill would place a cap on FSA contributions, beginning in 2012; contributions could only total $2,500 per year, subject to annual adjustments linked to the growth in general (not medical) inflation. Members may be concerned that these provisions would first raise taxes by $13.3 billion, and second—by imposing additional restrictions on health savings vehicles popular with tens of millions of Americans—undermine the promise that “If you like your current coverage, you can keep it.”  At least 8 million individuals hold insurance policies eligible for HSAs, and millions more participate in FSAs.  All these individuals would be subject to additional coverage restrictions—and tax increases—under this provision.

The bill raises the threshold to itemize health expenses from 7.5 percent to 10 percent of adjusted gross income, beginning in 2013; seniors over age 65 would receive a four-year extension of the 7.5 percent income threshold for four additional years (i.e. until 2017).  This provision would raise taxes by $15.2 billion.  The bill also repeals the current-law tax deductibility of subsidies provided to companies offering prescription drug coverage to retirees, raising taxes by $5.4 billion.  Many may be concerned that this provision would lead to companies dropping their current coverage as a result.

Taxes on Health Products:  The bill would impose several health-related excise taxes: A $2.3 billion tax on drug makers (raises $22.2 billion over ten years), an annual fee on medical device makers rising to $3 billion (raises $19.2 billion), and a tax on insurance companies that rises to $10 billion annually in  beginning in 2011, raising taxes by $59.6 billion. Many may echo the concerns of the Congressional Budget Office, and other independent experts, who have confirmed that these taxes would be passed on to consumers in the form of higher prices—and ultimately higher premiums.

Taxes on Insurance Industry Executives:  The bill would cap the deductibility of insurance industry executive salaries at $500,000 beginning in 2013, raising $600 million.  Many may question why the insurance industry—alone among health care industries, or indeed all industries—warrants such treatment, and whether or not this provision constitutes an attempt to extract political retribution on a particular industry out of favor with Democrats.


Cost:  According to the Congressional Budget Office’s preliminary score of H.R. 3590 and the manager’s amendment to the bill, the legislation would spend nearly $1 trillion over its first ten years.  More specifically, CBO estimates that the bill would spend $871 billion to finance coverage expansions—$395 billion for the Medicaid expansions, $436 billion for “low-income” subsidies, and $40 billion for small business tax credits.  The spending on coverage expansions does not even include additional federal spending included in the legislation—including a new reinsurance program for retirees, $10 billion in mandatory spending on community health centers, closing the Medicare Part D “doughnut hole,” and a $13 billion trust fund for public health—that totals $95.5 billion.  When combined with the cost of the coverage expansions, total spending under the bill actually approaches $1 trillion.  Moreover, staff on the Senate Budget Committee have estimated that the bill’s total cost in its first ten years once coverage expansions take effect (i.e. 2014-2023) approaches $2.5 trillion.

In its score, CBO notes that “under the legislation, federal outlays for health care would increase during the 2010-2019 period, as would the federal budgetary commitment to health care”—by a total of $200 billion over that ten year period.  Many may be concerned that spending at least $1 trillion to finance a government takeover of health care would not only not help the growth in health costs, but—by creating massive and unsustainable new entitlements—would also make the federal budget situation much worse.

Savings would come from reductions within the Medicare program, of which the biggest are cuts to Medicare Advantage plans (net cut of $119.9 billion), reductions in adjustments to certain market-basket updates for hospitals and other providers (total of $147 billion), skilled nursing facility payment reductions (total of $23.9 billion), various reductions to home health providers (total of $39.4 billion), and reduction in imaging payments ($3 billion).  A further $35.7 billion in savings would come from reducing subsidies (i.e. means-testing) to Medicare Part D prescription drug plans for the first time, and from freezing the current annual adjustment to the Part B means test at its current level (i.e. $85,000 for a single retiree and $170,000 for a couple) until 2019.  A further $28.2 billion in savings is projected from the automatic reductions in Medicare spending expected to be triggered by the Independent Medicare Advisory Board during the years 2015-2019.

CBO has also confirmed that the legislation as introduced would raise health care premiums for struggling middle-class families, resulting in non-group premium increases of $300 per year for individuals and $2,100 for families.  While the Obama campaign promised that its plan would reduce premiums by $2,500 per year for families, CBO confirmed that premiums would still continue to rise—and for millions, premiums would rise higher than under current law.

In terms of overall spending on health care costs, many may note that the independent actuaries at the Centers for Medicare and Medicaid Services found that H.R. 3590 would raise total national health spending by more than $200 billion between 2010-2019.  Many may cite this data point to question the effectiveness of Democrats’ health “reform,” given that the legislation was originally intended to reduce costs, not raise them.

Tax Increases:  Offsetting payments include $15 billion in taxes on individuals not complying with the mandate to purchase coverage, $149 billion from the “Cadillac tax” on high-premium insurance plans, $28 billion in payments by businesses associated with the employer “free rider” penalty, and $65 billion in associated other revenue interactions.

The Joint Committee on Taxation notes that other bill provisions would increase federal revenues over and above the $257 billion in tax increases noted above.  JCT found that the increase in the Medicare payroll tax would raise $86.8 billion, corporate reporting would raise $17.1 billion, the worldwide interest implementation delay would raise $26.1 billion, the treaty withholding provisions would raise $7.5 billion, and the codification of the economic substance doctrine would raise $5.7 billion.  Taxes on Health Savings Accounts (HSAs) and other similar savings vehicles would raise $19.6 billion, while provisions relating to retiree drug subsidies would raise taxes by $5.4 billion.  Raising the threshold to itemize health expenses from 7.5 percent to 10 percent of adjusted gross income would generate $15.2 billion in revenue, limiting the deductibility of insurance industry executive salaries would raise $600 million, and a 10 percent tax on indoor tanning services would raise $2.7 billion.

The excise tax on medical devices would raise taxes by $19.2 billion.  Similar excise taxes on insurance companies and drug manufacturers would raise $59.6 billion and $22.2 billion respectively.  Finally, the tax on health benefits used to finance the Comparative Effectiveness Research Trust Fund would raise $2.6 billion over ten years.

Out-Year Spending:  The score indicates that of the $871 billion in spending for coverage expansions under the specifications examined by CBO, only $17 billion—or less than two percent—of such spending would occur during the first four years following implementation (i.e. 2010-2013).  Moreover, the bill in its final year would spend a total of nearly $200 billion to finance coverage expansions.  In other words, the Democrat bill spends so much, it needs its many of its tax increases to take effect immediately to finance spending beginning in 2014—and even then cannot come into proper balance without relying on budgetary gimmicks.

Budgetary Gimmicks:  While the CBO score claims H.R. 3590 as amended would reduce the deficit by $132 billion in its first ten years, Democrats achieved that “deficit-neutral” solely by excluding the cost of reforming the Sustainable Growth Rate (SGR) mechanism for Medicare physician payments—the total cost of which stands at $285 billion over ten years, according to CBO—from this bill, and including it instead in separate legislation (H.R. 3961; S. 1776) that is not paid for.  While Members may support reform of the SGR mechanism paid for in a fiscally responsible manner, many may view any legislation that presumes a more than 21 percent cut in Medicare payments to physicians in 2010 as an inherent gimmick designed solely to hide the apparent cost of health “reform.”

The bill also relies on $72 billion in revenue from a new program for long-term care services.  As the long-term care program requires individuals to contribute five years’ worth of premiums before becoming eligible for benefits, the program would find its revenue over the first ten years diverted to finance other spending in Democrats’ health care “reform.”  However, even Democrats, such as Senate Budget Committee Chairman Kent Conrad (D-ND), have called the program a “Ponzi scheme,” and non-partisan actuaries at the Centers for Medicare and Medicaid Services found that the program faces “a significant risk of failure.”  Therefore, many may find any legislation that relies upon such a program to maintain “deficit-neutrality” fiscally irresponsible and not credible.