Tag Archives: Joint Economic Committee

Tomi Lahren Is What’s Wrong with Obamacare

Over the weekend, as commentators Chelsea Handler and Tomi Lahren engaged in a political debate, a comment by the latter unwittingly pointed to one of the singular problems of Obamacare. When Handler asked what health plan she belonged to, Lahren responded, “Luckily I am 24 so I am still on my parents’…” Cue sarcastic laughter from the crowd.

The liberal audience in Pasadena mocked Lahren for her hypocrisy—attacking Obamacare while benefiting from it by staying on her parents’ health insurance—but they weren’t wrong in their criticism. While Lahren rightly pointed out that Obamacare “fails the very people that it’s intended to help,” if she wants to know the root cause of that failure, she should look in the mirror.

The Slacker Mandate Is Aptly Named

One report on the incident claimed that “extending insurance to older ‘dependents’ is not typically targeted by conservatives who criticize Obamacare.” In reality, though, conservatives have targeted this mandate—for instance, the paper released in 2012, while I worked for the Senate Republican staff of the Joint Economic Committee. It noted that mandates such as the under-26 provision raise premiums by a minimum of several hundred dollars per year, and that proposals to provide health insurance to 20-something “dependents” like Mark Zuckerberg (then 28) would create definite costs to achieve questionable benefits.

Since then, the case against this particular mandate has only increased. A National Bureau of Economic Research paper released last year found a significant economic impact: “We find evidence that employees who were most affected by the mandate, namely employees at large firms, saw wage reductions of approximately $1,200 per year. These reductions appear to be concentrated among workers whose employers offer employer-sponsored health insurance; however, they do not seem to be only borne by parents of eligible children or parents more generally.”

As the Wall Street Journal noted last year, the paper made clear that “no alleged government benefit is free and people should be allowed to make the trade-offs for themselves.” Apparently, however, alleged “conservative” Lahren believes otherwise.

The Tomi Lahren Case Study

Lahren’s comments provide a perfect case study against the under-26 mandate, in two respects. First, the “dependent” mandate has few statutory limits—whether income, lack of access to employer coverage, or both. That a pundit like Lahren can hold lucrative media contracts while remaining on her parents’ health coverage speaks to the absurdity of Obamacare’s definition of “dependent.”

Second, it proves Lahren’s criticism of Obamacare that the law “fails the very people it’s intended to help.” Because Lahren refuses to buy her own insurance plan, she raises premiums 1) for her parents’ co-workers, who have to pay for Lahren’s health costs as part of their coverage and 2) on insurance exchanges, where individuals are older and costlier than average precisely because many young adults remain on their parents’ policies.

With upper-middle-class households largely obtaining coverage through employers, and households of more modest means going through exchanges instead, the under-26 mandate represents a sizable transfer of wealth from the working class—who pay higher premiums—to the affluent—who gain the benefit of “free” coverage for their children. So Lahren is correct that Obamacare “fails the very people it’s intended to help”—because of people like her, who grab government “benefits” irrespective of the other individuals those “benefits” harm.

The end of the 2012 Joint Economic Committee paper noted that “a welfare state administered by the private sector, yet mandated by government, remains a welfare state at its core.” If Lahren wants to help the people Obamacare hurts, or even if she just wants to adhere to the conservative political beliefs she purports to follow, then perhaps she should use the coming weeks to explore her own health insurance options, rather than remaining part of the Obamacare welfare state she claims to abhor yet perpetuates.

This post was originally published at The Federalist.

Obamacare Is NOT Saving Americans Money

Yesterday the Department of Health and Human Services (HHS) released a report that claims to highlight how Obamacare is working for Americans—but in reality, it actually shows how the law has fallen short of candidate Obama’s promises.

If a picture is worth a thousand words, then one chart in the report tells the tale. Figure 3 of the HHS report (below) highlights what happened when insurers requested to increase premiums by more than 10 percent—triggering a new rate review process established under Obamacare. While some of these premium increases were modified or withdrawn, nearly three in five (57.8 percent) were approved “unmodified” by regulators:

HHS_Fig3

However, if Obama’s campaign promises had come true, NONE of those proposed premium increases would have occurred—because candidate Obama promised premiums would go down under his plan:

For those who have insurance now, nothing will change under the Obama plan — except that you will pay less. Obama’s plan will save a typical family up to $2,500 on premiums.

The HHS report claims that, because rate review lowered the average premium increase—from 8.1 percent to 7.1 percent for those who purchased insurance coverage on their own, and from 5.8 percent to 4.7 percent for small businesses buying insurance—Americans “saved” $1.2 billion due to Obamacare. But one report released last year found that the Obama Administration had fallen over $800 billion short of its promise to lower premiums by $2,500 per family.

The fact that regulators are having to approve premium increases of 10 percent or more demonstrates that Obamacare has singularly failed to achieve candidate Obama’s pledge to lower insurance premiums. It’s why Congress should focus on stopping the law now, before premiums can rise any further.

This post was originally published at the Daily Signal.

Updated JEC Member Viewpoint: The $840 Billion Price Tag of Obama’s Broken Promise on Premiums

When campaigning for the presidency, then-candidate Barack Obama repeatedly promised that under his health care reform proposal, health insurance premiums would go down by $2,500 by the end of his first term. 1 The end of President Obama’s first term is now approaching, and the change in average family premiums is surprisingly close to candidate Obama’s promise: the problem is, that change is in the wrong direction. Instead of falling $2,500, the average employer-sponsored family premium has increased $3,065. 2

The difference, then, between candidate Obama’s promise and President Obama’s record is $5,565. 3 But that is just the difference for 2012. If the promised $2,500 decline is allocated proportionally over four years and across different plan types, the cumulative gap between actual and promised premiums for private employer-based health insurance equals $12,832 for the average family and $4,331 for the average individual (excluding any rebates). 4

 Premium Promise Broken

Of course, to be fair, the Medical Loss Ratio (MLR) provision of Obamacare will result in some health insurance enrollees receiving rebate checks from their insurance providers. This provision is Obamacare’s attempt at driving down insurance costs by dictating how insurance companies can spend money freely given to them by employers and individuals who wish to purchase their services. For the 2011 plan year, an estimated $1.3 billion in rebate checks will be sent to about 16 million enrollees, for an average rebate amount of $85. 5 Assuming a similar level of rebates go out in 2013 for the 2012 plan year, the MLR rebates reduce the gap between promised premiums and actual premiums by only three-tenths of one percent, to a cumulative difference of $12,791 for the average family and $4,318 for the average individual. That is $12,791 less money that was spent (on something other than health insurance), saved, or invested by the average family and $4,318 less by the average individual.

When you add up all the extra money – beyond the level promised by candidate Obama – Americans have spent on health insurance over the past four years, the economy-wide impact is an astounding $840 billion. 6 That’s as much as the President’s failed stimulus package, and not so far off from the initially reported $940 billion ten-year cost of Obamacare (the updated ten-year cost is $1.76 trillion, not including the costs of implementation). 7 What’s worse though is that this figure will only rise over time as Obamacare’s many taxes and regulations continue to drive up the cost of health insurance.

In terms of full-time jobs, the $840 billion difference is equivalent to the cost of private-sector employers supporting an average of 3.2 million jobs each year between 2009 and 2012, and a total of 5.2 million jobs in 2012 alone. 8

Difference in Premium Costs

With more than $840 billion less in Americans’ pockets than Obama promised, it’s no wonder our economy continues to struggle. It is the government-knows-best view of the Obama Administration and Democrats in Congress that has contributed to the American economy stalling out. His promise to reduce premiums by $2,500 and his administration’s estimate that the stimulus would cut the unemployment rate to 5.6% (by August 2012) show President Obama’s conviction that government is the solution to driving down costs and creating jobs. 9 Unfortunately, that conviction has proven unfounded. Excessive government spending and intervention have not driven down health insurance premiums by $2,500, but rather contributed to a $3,065 increase. And unprecedented deficit-financed stimulus spending has not brought the unemployment rate down to 5.6%, but rather kept it up above 8%, with employers and investors holding back as Obamacare and other regulations have increased their costs and as unsustainable deficit spending has given rise to fear over coming tax hikes.

 

Analytical Appendix

Population and Insurance Coverage

The Census Bureau publishes data on the number of people in the United States with health insurance coverage. These data are broken down into private insurance coverage and government insurance coverage. Within private coverage, the data are segmented into individuals with employment based health insurance and direct purchase health insurance. The data from the Census Bureau are available through 2011. Data for 2012 are estimated based on the average annual percentage increase in each category of insurance from 1995-2011.

For allocation of insured individuals between individual or self-only plans and family plans, data were taken from the 2011 Medical Expenditure Panel Survey (MEPS). These data show that individual or self-only plans made up 50.2% of all private sector employer health plans while family plans comprised the remaining 49.8%. This breakdown was also applied to the direct purchase market and across all years. The resulting allocation of individuals across private plan types is shown below.

Coverage Type

For each family plan, there are assumed to be 3.05 members. This statistic is based on a breakdown of direct purchase family policies by size from ehealthinsurance.com, and it assumes an average of eight members per plan within the category of 6+ members.

Breakdown of Family Policies

Premium Costs

Data on average annual premium costs for employment based health insurance come from the Kaiser Family Foundation Annual Employer Health Benefits Survey. Data on premium costs for direct purchase health insurance come from the ehealthinsurance.com Annual Cost and Benefit Reports. As of this updated publication, the data on direct purchase plans from ehealthinsurance.com were only available through 2011. The analysis conservatively assumes no rise in direct purchase premiums from 2011 to 2012.

Actual Private Premium Costs

 

Promised Reductions

The promise of a $2,500 reduction in the average family premium by the end of President Obama’s first term is applied as a $625 per year reduction in costs for the average family premium (-$625 in 2009, -$1,250 in 2010, -$1,875 in 2011, and $-2,500 in 2012). The applicable promised reduction for the average individual or self only premium is $927 for employer based health insurance and $1,077 for direct purchase health insurance. These individual premium promised reduction amounts are based on the ratio of individual to family premium costs in 2008, when the promise was made. At that time, the average employment based individual premium was equal to 37.1% of the average family premium (.371*-$2,500 = -$927) while the average direct purchase individual premium was 43.1% of the average direct purchase family premium (.431*-$2,500 = -$1,077).

Promised Private Premium Costs

Aggregate Estimates of the Broken Promise

For aggregate estimates of amounts paid for health insurance vs. those promised, the number of people in each insured group (individual employment based, individual direct purchase, family employment based, and family direct purchase) was multiplied by the difference between the promised premium cost and the actual premium cost in each year from 2009 to 2012. The sum of additional premium costs across these privately-insured individuals and families from 2009 to 2012 amounts to $843 billion ($843,135,995,165). The new Medical Loss Ratio (MLR) component of the Affordable Care Act is estimated to result in roughly $1.3 billion ($1,343,496,719) in rebates to be paid by insurers to enrollees (beginning in August 2012) for the 2011 plan year. In keeping with the conservative estimate that direct purchase premiums did not rise from 2011 to 2012, MLR rebates in 2013 (for the 2012 plan year) are also assumed to hold steady at $1.3 billion. Excluding the $2.6 billion of cost-reducing MLR rebates, the total gap between promised and actual premium costs equals $840 billion ($840,449,001,727).

Additional Premium Costs

Jobs Equivalent Cost Estimates

Estimates translating the annual cost differences between promised and actual premiums into the cost of private-sector job creation were obtained by dividing the total economy-wide cost difference for each year by the average employee compensation for full-time, private-sector employees in that year. Compensation data come from the Bureau of Labor Statistics Employer Costs for Employee Compensation Survey (data were available through the second quarter of 2012). The table below shows the annual jobs equivalent costs estimates.

Jobs Cost Equivalent

1 Freedom Eden, “Obama: 20 Promises for $2,500,” March 22, 2010, http://freedomeden.blogspot.com/2010/03/obama-20- promises-for-2500.html.

2 Kaiser Family Foundation, Annual Employer Health Benefits Surveys 2008-2011, http://www.kff.org/insurance/index.cfm

3 Data on 2012 premiums costs for direct purchase premiums were not yet available. This analysis relies on a conservative estimate that direct purchase premiums will not rise in 2012, but will remain constant at their 2011 level.

4 Data on private, direct purchase health insurance premiums for 2008-2011 come from ehealthinsurance.com. See Analytical Appendix for a detailed analysis of estimates.

5 Kaiser Family Foundation, “Insurer Rebates under the Medical Loss Ratio: 2012 Estimates,” April 2012, http://www.kff.org/healthreform/upload/8305.pdf.

6 See Analytical Appendix.

7 Congressional Budget Office, “Estimate of direct spending and revenue effects for the amendment in the nature of a substitute released on March 18, 2010,” http://www.cbo.gov/sites/default/files/cbofiles/attachments/hr4872_0.pdf and “Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act,” March 13, 2012, http://cbo.gov/publication/43076.

8 Estimates based on data from the Bureau of Labor Statistics Employer Costs for Employee Compensation Survey (quarterly data through the 2nd quarter of 2012) and private-sector, full-time employee compensation. In the first two quarters of 2012, the average cost of employee compensation was $67,020.

9 Unemployment estimate comes from Christina Romer and Jared Bernstein, “The Job Impact of the American Recovery and Reinvestment Plan,” January 9, 2009, http://www.politico.com/pdf/PPM116_obamadoc.pdf.

An earlier version of this document in PDF form can be found on the Joint Economic Committee’s website.

Which Is Greater: $2 Billion or $843 Billion?

Yesterday the Administration released a report claiming that Obamacare saved Americans from more than $2 billion in health insurance premiums.  The report includes many questionable assumptions; one footnote admits the claim that rate review reduced individual insurance premiums by 1.4 percent was “not weighted by enrollment” – meaning that the numbers in the report could have very little resemblance to what individuals actually purchased in the “real world.”  Politico concluded this morning that the HHS “analysis” was deceptive:

[Administration officials] admitted during a conference call yesterday that the report did not distinguish between savings from rate reviews that would have been achieved by the state systems in place before [Obamacare] came along and savings from the law’s new mandatory review of double-digit increases, for instance.  And it did not estimate what greater savings had been gotten from the substantial assistance HHS has given to states to beef up their rate review operations.  Long story short: The lead on the press release — “The health care law — the Affordable Care Act — has saved consumers an estimated $2.1 billion on health insurance premiums” — is a little misleading.

Of course, there’s a reason why the Administration felt the need to put out this “misleading” report yesterday – to distract from Tuesday’s coverage of the annual Kaiser survey on employer-provided insurance, which showed that premiums went up by nearly $700 per family this year.  That increase is in direct contradiction to candidate Obama’s repeated promises to CUT premiums by $2,500 per family.  Overall, premiums have gone up by $3,065 per family since Barack Obama was elected President, compared to his promise that premiums would go down by $2,500 per family.

In light of yesterday’s Kaiser Foundation study, and today’s release of updated Census Bureau data on health insurance coverage, we’ve revised the JEC paper released last month on the premium impact of Obamacare’s failure to deliver.  The updated JEC report finds that the average family has paid $12,791 more in health insurance premiums over the past four years due to Barack Obama’s failed premium promise – and the failed promise has cost the economy as a whole more than $843 billion.

I’m no math major, but last time I checked, $843 billion was a LOT bigger than $2 billion.  Meaning that even if you think yesterday’s HHS report isn’t “misleading,” it’s still a mere drop in the bucket when compared to Obamacare’s much larger failure to deliver for the American people.

JEC Member Viewpoint: Sen. Jim DeMint on Obamacare’s $805 Billion Broken Promise

When campaigning for the presidency, then-candidate Barack Obama repeatedly promised that under his health care reform proposal, health insurance premiums would go down by $2,500 by the end of his first term. The end of President Obama’s first term is now approaching, and the change in average family premiums is surprisingly close to candidate Obama’s promise: the problem is, that change is in the wrong direction. Instead of falling $2,500, the average employer-sponsored family premium has increased $2,393.

The difference, then, between candidate Obama’s promise and President Obama’s record is $4,893. But that is just the difference for 2012. If the promised $2,500 decline is allocated proportionally over four years and across different plan types, the cumulative gap between actual and promised premiums for private health insurance equals $12,271 for the average family and $4,177 for the average individual.

See the entire JEC Republican study in pdf format here.

805 Billion

JEC Member Viewpoint: Sen. Jim DeMint on Mandates to Cover Dependent Children

Health Insurance Mandates to Cover Dependent Children

Numerous press reports in recent weeks have focused on what actions Congress may take in the event that Obamacare is repealed, or struck down in its entirety by the Supreme Court.  Many of these stories have focused on the law’s new mandate requiring insurers to cover policy holders’ children under age 26.  Several Members of Congress have expressed support for this provision, and one has even proposed extending the mandate for coverage of dependent children to all those under age 31.[1]  If the latter proposal passes, 28-year-old Mark Zuckerberg, with an estimated net worth of $17.5 billion, would be one of those eligible for dependent coverage under his parents’ health insurance.[2]

While the Obama Administration has attempted to use the under-26 mandate to sell their unpopular health law, the mandate itself is not without costs and perverse incentives, both to the health system and the economy as a whole.  A closer examination of the costs of this new government mandate reveals it may not be the panacea supporters have claimed.

Impact on Costs:  In its interim final rule implementing the under-26 mandate, the Administration claimed the provision would impose transfer costs of $3.5-$6.9 billion annually, and would raise premiums by 1 percent per year.[3]  However, a George Mason University study released in January found that the Administration omitted several key components in its regulatory impact analysis for this rule, understating its cost, potentially by billions.[4]  Given an average premium for employer-sponsored insurance of $15,073 in 2011,[5] an under-26 mandate raising costs by 1 to 3 percent would increase premiums by $151 to $452 per year.[6]  Conservatives have frequently criticized Obamacare for raising health insurance premiums, in direct violation of candidate Obama’s promise to lower them.[7]  Even the Administration admits that the under-26 mandate has led to higher premiums for businesses and families.

Impact on Coverage:  While many press reports have focused on the “children” obtaining coverage thanks to the under-26 mandate, fewer have examined how many individuals have lost coverage due to the federal requirements.  However, studies suggest these numbers are not insignificant.  For instance, multiple[8] studies[9] have suggested that every 1% increase in premiums increases the number of uninsured by approximately 200,000-300,000 individuals nationwide.  With the under-26 mandate raising premiums by at least 1%, and potentially much more for some plans, it is reasonable to conclude that hundreds of thousands of individuals have lost coverage – because they were priced out of the individual market, or because their employers decided to stop offering coverage – as a result of the new requirements.  These newly uninsured individuals represent what authors William Graham Sumner and Amity Shlaes famously referred to as the “Forgotten Men” – the individuals suffering harm as a result of government intervention.

Meanwhile, the mandate would turn one of the health market’s few remaining natural incentives on its heads, discouraging young adults from purchasing insurance for themselves.  Instead of mandating that health insurance plans include family coverage for adult children, policy should encourage all young adults to purchase an individual health plan that they can afford and keep throughout their lives.

Impact on Jobs:  The under-26 mandate could have a negative impact on jobs and the economy, in two respects.  First, to the extent that businesses are forced to absorb the billions of dollars in costs associated with the mandate, they would prove less eager to take on additional workers, or increase hours for existing workers.  Second, numerous[10] studies[11] have illustrated that extended unemployment benefits tend to lengthen the average duration of unemployment, and increase the unemployment rate, by discouraging individuals from looking for work.

For similar reasons, some would argue that the under-26 mandate likewise provides financial incentives that discourage work, thereby increasing unemployment.  Both the Congressional Budget Office and then-Speaker Pelosi have admitted that Obamacare’s health insurance provisions will hinder the labor market.  The CBO stated that the law as a whole will “discourage work,”[12] reducing the labor supply by about 800,000 jobs.[13]  Pelosi encouraged young people to “leave your work” and “go be creative and be a musician or whatever,” because Obamacare would provide them with health insurance, thanks to the under-26 mandate and similar provisions.[14]

The heightened focus on under-26 coverage in many respects focuses on the symptom of a larger problem.  Put simply, fewer Americans would need to remain on their parents’ health insurance if they had stable, full-time work.  As of last year, a majority of firms, and more than five of six firms with more than 25 employees, offer insurance coverage to their workers.[15]  However, most firms do not offer health benefits to part-time or temporary workers.[16]  Recent surveys indicating that half of all recent college graduates are unemployed or under-employed – a devastating indictment of the Obama Administration’s failed economic policies – illustrate the real reason why the under-26 provision has attracted so much attention:  Because millions of young Americans can’t find full-time work.[17]

Given prolonged economic stagnation and its toll on young Americans, economic growth and job creation – not new government mandates – should take precedence.  Just as conservatives insisted on reducing the length of extended unemployment benefits as part of the payroll tax extension earlier this year, removing disincentives for young people to seek full-time employment may be one ingredient necessary to restoring the job market to full strength.

As policymakers ponder the fate of the law in the wake of the Supreme Court’s ruling, Congress would be wise to consider the economic impacts listed above.  Re-instituting a government mandate on the private sector would have significant economic costs, and would also undermine the cause of individual liberty in the process.  A welfare state administered by the private sector, yet mandated by government, remains a welfare state at its core.

A PDF version of this document can be found on the Joint Economic Committee’s website.


[1] Louise Radnovsky, Naftali Bendavid, and Sara Murray, “Tension in GOP Over Health Care Response,” Wall Street Journal May 23, 2012, http://online.wsj.com/article/SB10001424052702304019404577420210854278188.html.

[2] “Mark Zuckerberg,” Forbes 400 Profile, http://www.forbes.com/profile/mark-zuckerberg/.

[3] “Interim Final Rules for Group Health Plans and Health Insurance Issuers Relating to Dependent Coverage of Children to Age 26 Under the Patient Protection and Affordable Care Act,” Federal Register May 13, 2010, http://www.gpo.gov/fdsys/pkg/FR-2010-05-13/pdf/2010-11391.pdf, Tables 1 and 5, pp. 27127-29.

[4] Christopher J. Conover and Jerry Ellig, “Beware the Rush to Presumption, Part A: Material Omissions in Regulatory Analyses for the Affordable Care Act’s Interim Final Rules,” Mercatus Center Working Paper 12-01, January 2012, http://mercatus.org/sites/default/files/publication/Beware_the_Rush_to_Presumption_PartA_ConoverEllig.pdf, pp. 14-15, 40-49.

[5] 2011 Kaiser Family Foundation/HRET Employer Health Benefits Survey, http://ehbs.kff.org/pdf/2011/8225.pdf, Exhibit 1.1, p. 1.

[6] Bruce Japsen, “Young Adults’ Coverage May Cost Parents Even More,” New York Times Prescriptions blog, November 23, 2011, http://prescriptions.blogs.nytimes.com/2011/11/23/young-adults-coverage-may-cost-parents-even-more/

[7] Freedom Eden, “Obama: 20 Promises for $2,500,” http://freedomeden.blogspot.com/2010/03/obama-20-promises-for-2500.html.

[8] Todd Gilmer and Richard Kronick, “It’s the Premiums, Stupid: Projections of the Uninsured through 2013,” Health Affairs Web Exclusive, April 5, 2005, http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.143/DC1.

[9] Government Accountability Office, Impact of Premium Increases on Number of Covered Individuals is Uncertain GAO Report HEHS-98-203R, July 7, 1998, http://archive.gao.gov/paprpdf2/160930.pdf, pp. 3-4.

[10] Bhashkar Mazumder, “How Did Unemployment Insurance Extensions Affect the Unemployment Rate in 2008-10?” Chicago Fed Letter No. 285, April 2011, http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2011/cflapril2011_285.pdf.

[11] Lawrence F. Katz and Bruce D. Meyer, “The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment,” NBER Working Paper No. 2741, October 1988, http://www.nber.org/papers/w2741.pdf.

[12] Congressional Budget Office, “The Budget and Economic Outlook: An Update,” August 2010, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/117xx/doc11705/08-18-update.pdf, Box 2-1, Effects of Recent Health Care Legislation on Labor Markets, pp. 48-49.

[13] Lester Feder and Kate Nocera, “CBO: Health Law to Shrink Workforce by 800,000,” Politico February 10, 2011, http://www.politico.com/news/stories/0211/49273.html.

[14] Nicholas Ballasy, “Pelosi to Aspiring Musicians: Quit Your Job, Taxpayers Will Cover Your Health Care,” CNS News May 14, 2010, http://cnsnews.com/node/65950.

[15] 2011 Kaiser Family Foundation/HRET Employer Health Benefits Survey, Exhibit 2.3, p. 37.

[16] Ibid., Exhibits 2.5 and 2.6, p. 39.

[17] Associated Press, “Half of New Graduates are Jobless or Underemployed,” USA Today April 23, 2012, http://www.usatoday.com/news/nation/story/2012-04-22/college-grads-jobless/54473426/1.

JEC Member Viewpoint: Sen. Jim DeMint on Obamacare’s $4 TRILLION in Tax Increases

Highlights

  •   Based on CBO data, Obamacare will impose $4 trillion in new taxes by 2035.
  •   The “Cadillac” tax will lead to reduced medical benefits and higher taxes across all income classes.
  •   The “high-income” surtaxes are not indexed and will eventually hit low- and middle-income families who simultaneously receive Obamacare’s subsidies.
  •   Despite President Obama’s campaign promise to reduce average family premiums by $2,500, families are now paying almost $2,400 more.
  •   Obamacare’s $4 trillion in taxes across all sectors and income classes will diminish economic growth as the private sector faces both higher prices and lower incomes.

There are many reasons Americans dislike Obamacare: its tremendous and rising costs, which CBO recently revealed to have risen by $51 billion since just last year; the Administration’s unprecedented mandate that all employers, even religious schools and hospitals, pay for employees’ abortion-inducing drugs, sterilization, and contraception; and tens of millions of employees soon to be wondering what happened to President Obama’s promise that, “if you like your insurance, you can keep it.” 1

With the April 15th tax deadline just past and individuals and businesses freshly reminded of the $2.3 trillion they paid in federal taxes in 2011, Obamacare will unload an additional $4 trillion in new taxes onto the economy between now and 2035. 2 The tax burden may be relatively light this year, at just $15 billion, but come 2035, that burden will be magnified more than 20-fold to $320 billion. Even if the economy in 2035 is not already crushed by the growing burden of old-age entitlements, Medicaid, and a bloated government sector consuming as much as a third of the entire economy, will it really be able to handle an additional $320 billion in new taxes – the equivalent of $3,290 for a family of four? 3,4

Obamacares Rising Tax Burden

The Administration would like you to believe that these taxes will not be paid by ordinary, middle-income Americans. Rather, they allege the taxes will be paid by insurance companies that offer “Cadillac” health plans, “high-income” earners and investors, medical device companies, insurance providers, drug manufacturers, and tanning salons. But, in reality, a substantial portion of Obamacare’s $4 trillion in new taxes will be paid by average, everyday Americans.

Take the “Cadillac” tax for example. Not only will the tax quickly begin to hit “Honda” insurance plans because its threshold is not indexed to medical inflation, but it will cause employers to reduce healthcare benefits or drop healthcare coverage entirely. Ironically, the establishment of medical loss ratios within Obamacare makes it nearly impossible for insurance companies to actually pay the “Cadillac” tax because they must devote 80% to 85% of the premiums they charge to the direct provision of healthcare benefits. When scoring the bill, the Congressional Budget Office recognized that the bulk of revenues from the “Cadillac” tax would not be paid by platinum health insurance plans, but rather by employees who are forced to exchange tax-free health insurance benefits for taxable wages after employers reduce or eliminate health insurance.

Next up are the so-called “high income” surtaxes equal to 0.9% of wages above $200,000 for individuals and $250,000 for married couples, and investment income above those amounts. Although classified as “high-income” taxes, the $200,000 and $250,000 thresholds are not indexed for inflation. This means that in just 10 years from now, the so-called “high-income” thresholds will have effectively ratcheted down to $152,000 and $190,000 in today’s dollars. And 40 years from now, when today’s young workers are retiring and beginning to draw down on their investment income, those thresholds will have dropped to $66,000 and $83,000 in today’s dollars. 5 In other words, low- and middle-income families who receive subsidies under Obamacare will simultaneously be “high-income” earners taxed to support those subsidies.

High Income Tax Threshold

And then there are the taxes on the healthcare industry: the insurance companies providing healthcare plans and the companies that develop and manufacture life-saving drugs and medical devices. Taxing these healthcare components will simply drive up the cost of the products and services they offer. The cost of drugs and medical devices will rise, adding a double-whammy to health insurance costs, which will be driven up directly by the tax on insurance companies and indirectly by the rising cost of drugs and medical devices paid for by insurance companies.

President Obama campaigned on a promise to reduce the average family’s health insurance premium by $2,500 within his first term. Yet just the opposite has occurred – the average family is now paying $2,400 more for health insurance. 6 Obamacare’s upward pressure on health insurance premiums now and into the future was confirmed by a recent estimate from the Joint Committee on Taxation which concluded that repealing Obamacare would reduce premiums by 2%-2.5%.

Kaiser Premiums 2011

Faced with higher prices across the healthcare sector, consumers will be able to deduct even less of their healthcare expenses as the cap on itemized deductions falls to 7.5% of AGI (from 10%) and a $2,500 limit for Flexible Spending Accounts (FSAs) is imposed.

Despite Democrats’ and the Administration’s rhetoric that we can somehow provide insurance to all by simply holding down costs and making the wealthy pay their fair share, nothing is further from reality. Obamacare will impose $4 trillion in new taxes on the economy between now and 2035 and these taxes will not be restricted to the wealthy and profitable healthcare businesses. Instead, the weight of $4 trillion in new taxes will be spread across all sectors and all income classes as incomes and economic growth decline.

1 President Barack Obama, weekly address, August 15, 2009, http://www.youtube.com/watch?v=1LRcLMScEqo.
2 The $4 trillion estimate of new taxes from 2012-2035 is based on CBO’s score of the 2012-2021 revenue provisions (represented as a percent of GDP) contained in its estimated cost of repeal of Obamacare, including an estimate of 0.70% of GDP in 2021 (excluding the effects of the individual mandate penalty). In CBO’s 2011 long term budget outlook, the tax provisions of Obamacare are said to rise to 1.2% of GDP by 2035. A straight-line increase in revenues as a share of GDP, from 0.70% in 2022 to 1.2% in 2035, was applied, along with CBO’s estimates for real GDP, to generate total tax increases from 2012-2035 of $3.989 trillion in real, 2011 dollars.
3 According to CBO’s June 2011 Long Term Budget Outlook, total federal government spending will equal 33.9% of GDP in 2035.
4 Calculation based on CBO’s projection of a $320 billion tax increase in 2035 (real 2011 dollars) and the Census Bureau’s projected population estimate of about 390 million people in 2035.
5 Estimates based on the Social Security actuaries’ annual inflation assumption of 2.8% for its intermediate estimates.
6 Kaiser Family Foundation, Employer Health Benefits 2011 Annual Survey, 2011, http://ehbs.kff.org/?page=charts&id=2&sn=16&ch=2116 

A PDF of this Member Viewpoint is available on the Joint Economic Committee’s website.

Sen. Jim DeMint on Obamacare’s $4 TRILLION in Tax Increases

Sen. DeMint has released a Joint Economic Committee member viewpoint on the tax increases in Obamacare.  The major takeaway from the report is that while CBO scores Obamacare as raising taxes by $800 billion over 10 years, the law actually will raise taxes by $4 trillion over 25 years.  The total number of tax increases will explode outside the first decade because the law’s new “Cadillac tax” (which doesn’t take effect until 2018) is not indexed to medical inflation, and the “high-income” tax is not indexed to inflation at all.

As a result, the non-partisan Congressional Budget Office (CBO) concluded last year that Obamacare would raise taxes by 1.2 percent of GDP in 2035 (see Table 6-2 on page 65 here).  Multiplying the average tax increase impact as a percentage of GDP by the CBO’s estimated economic output for the next 25 years reveals that Obamacare will raise taxes by approximately $4 trillion between now and 2035.

To put Obamacare’s tax increases in further perspective, the law will raise taxes by “only” $15 billion this year, but that number will skyrocket to $320 billion – or nearly $3,300 for a family of four – by 2035.

Sen. DeMint has written an op-ed in today’s Investor’s Business Daily on the issue, which is also pasted below.  Overall, the report – and the $4 trillion in massive tax increases facing the American people thanks to Obamacare – illustrate perfectly why the 2700-page measure must be repealed.

 

ObamaCare’s $4 trillion Tax Will Hit Middle Class

By SEN. JIM DEMINT Posted 04:52 PM ET

Recent news has provided Americans a steady stream of new reasons to support a full repeal of President Obama’s controversial health care takeover.

Just in the last few months, we’ve seen the administration impose an unprecedented mandate that all employers, even religious schools and hospitals, pay for employees’ abortion-inducing drugs, sterilization and contraception.

We have seen the Congressional Budget Office further expose the true costs of ObamaCare, raising estimates of spending on insurance subsidies by $51 billion, and admitting that millions more Americans will lose their employer coverage to get dumped into ObamaCare’s brave new insurance world.

And of course, last month we heard the administration’s lawyers hem and haw at oral arguments before the Supreme Court, further undermining ObamaCare’s already dubious constitutionality.

But if those weren’t reason enough to support the full repeal of ObamaCare by Congress and a new president, Happy Tax Day! I’ve got four trillion more of them for you.

You probably already know that ObamaCare is full of what Democrats these days call “revenue enhancements” — job-killing tax increases on everything they can think of to pay for their health care takeover.

What you might not know is that the largest tax increases in the ObamaCare legislation are not indexed for inflation.

For example, the “high-earners” surtax hits individuals who make more than $200,000, and couples who earn more than $250,000. People making that much will comprise about 3% of the country in 2013.

But as time goes by, and inflation drives up income, today’s “high-earner” threshold will “medium” earners and, eventually, “almost everyone” earners.

According to the nonpartisan Medicare actuary, by 2080, ObamaCare’s tax on high earners will hit 79% of American taxpayers.

Meanwhile, the 40% tax on high cost health plans, the so-called “Cadillac health plans,” was linked to general inflation, instead of the much higher inflation rate in the health care sector.

So it won’t be long before the president’s “Cadillac” tax starts hitting Americans with “Honda” insurance. (A cynic might even wonder if this is why the tax won’t kick in until 2018, long after the end of Obama’s presumed second term.)

According to the CBO, all of the ObamaCare tax hikes will raise taxes by about 0.7% of gross domestic product by 2021. As more and more Americans sneak into the president’s definition of “high earner,” by 2035, it will be 1.2% of GDP, and rise from there.

Between now and 2035, that comes out to more than $4 trillion — that’s what happens when taxes, aimed at the rich, inevitably hit the middle class.

The pain from ObamaCare taxes is already being felt.

Medical device manufacturers, whose products ObamaCare slaps with a special tax, are already laying off workers. Even businesses in industries unconnected to the health care sector are holding back.

As an analyst at UBS put it, ObamaCare’s burdens are already “arguably the biggest impediment to hiring, particularly hiring of less skilled workers.”

Consider that $4 trillion in new taxes between now and 2035 comes out to $169 billion taken out of the private economy every year.

Since it costs businesses about $63,000 to create one middle class job, ObamaCare is already going to cost Americans 2.7 million lost jobs per year.

The total comes out to $3,300 in higher taxes for the average family, on top of the $2,400 increase in health insurance premiums (which the president promised would actually drop by $2,500).

How do you solve a problem like ObamaCare? Simple: you don’t. Its out-of-control costs will either destroy our health care system, or bankrupt our country — and, eventually, both.

This is a big part of why the public opposed ObamaCare in 2010, why they want the Supreme Court to overturn it and why they want Congress to repeal it.

For all the hidden taxes, for all the exploding spending projections, for all the untold dollars and freedoms that will be lost under government-run health care, for all the unknown unknowns, the American people actually seem to know exactly what ObamaCare will always cost them: more.

• DeMint, U.S. senator from South Carolina, sits on Congress’ Joint Economic Committee.