Senate Finance Committee Chairman Max Baucus has finally
achieved broad bipartisanship with his new health overhaul plan.
Nobody else has been able to unite 99 Senators behind any idea in
health reform. But Baucus has managed to do just that, with 99
Senators unified behind the idea of NOT supporting his
plan.
The plan is carefully crafted to scare away anyone
interested in good public policy or just good politics (read
re-election). The Baucus bill is grossly underestimated to cost
almost $1 trillion in new spending, all financed by higher taxes
on health care and health insurance, particularly union health
plans, and Medicare cuts for senior citizens, while still leaving
at least 25 million uninsured according to the CBO. It still
provides for a government takeover of health care and the
bureaucratic structure for government rationing of health care,
increasing rather than lowering health costs overall.
What is most instructive about the bill is that it shows
why Republicans and conservatives cannot support anything like
what President Obama and the Democrats are talking about on
health care. Below are the features of the Baucus plan that no
Republican or conservative could possibly support, even though it
is too “moderate” for the rest of the Democrat party.
Higher Health Costs
The Baucus plan is carefully structured to raise
health costs for everyone, federal, state and local governments,
businesses, and families. The CBO estimates it will raise federal
spending by almost $1 trillion over 10 years, but the bill’s
spending would mostly be operational for only 6 of those years.
That means the true 10-year cost once it is fully phased in would
be closer to $2 trillion.
Health insurance prices will soar under the Baucus bill.
One reason is that the government will force everyone to buy the
health insurance coverage that the government insists you must
have, which will include all the politically correct benefits
like coverage for abortion that altogether add up to big costs.
Insurance is also required to cover anyone who shows up no matter
how sick they are and how expensive their health care will be
(called guaranteed issue), and they can’t be charged more for
that coverage just because they may need highly expensive care
(called community rating), which will raise insurance costs even
more. The government will also limit the deductibles,
co-payments, and out of pocket costs that people can choose for
their health insurance. The Council for Affordable Health
Insurance (CAHI), which includes some of the smartest free market
economists on health care in the country, estimates that these
factors alone would cause health insurance premiums to almost
double.
Over 50 years old, I currently enjoy a health insurance
plan with a $10,000 annual deductible that costs me under $260 a
month. That’s about $3,000 a year, and that is all I need because
it protects me against the high costs of serious illness. But
when President Obama and his socialist Democrats get done helping
me, my insurance will probably cost more than twice that, which I
will be compelled to pay for under threat of force.
The new taxes on health care and insurance in the Baucus
bill will also increase health costs. The bill imposes a tax on
higher cost health plans, mostly union health plans, equal to 35%
of the cost above $8,000 for individuals and $21,000 for
families. But those thresholds are indexed only to grow with
general inflation, not health costs. So over time, more and more
health plans will be subject to the tax. After just 10 years, the
most popular plans in the Federal Employee Health Benefits
program will be subject to a tax of almost $1,000 a year. This
indicates that average health plans will be paying such a tax
burden by that time. These higher costs will be paid by workers
and employers.
But the bill includes another tax on all health insurance
plans as well that has been overlooked, further increasing costs.
Additional taxes are imposed on prescription drugs, medical
devices, and clinical labs. All of these will mean higher costs
for workers and their insurance plans. Employers who do not
provide the government mandated health insurance will pay an
additional tax of $400 for each worker eligible for government
assistance to buy such insurance on his own. This will further
increase costs for employers and cause some low and moderate
income workers to lose their jobs.
A bigger impact than any of this will be the effect of
incentives from the bill in increasing the demand for health
care. With the government or insurance companies paid in part by
the government paying the bill, consumers will have every
incentive to demand more and more health care. This increased
demand will just raise health care prices, meaning higher
insurance costs as well.
Runaway Entitlements
The Baucus bill provides for a ridiculous runaway
explosion in entitlement spending. Medicaid is already projected
to cost almost $5 trillion over the next 10 years, reaching $674
billion for 2017. Yet the bill sharply expands Medicaid to
everyone up to 133% of poverty, include childless adults not
previously covered under the program.
Worse is a new middle class entitlement in the bill
providing government subsidies to buy health insurance to
everyone with incomes up to 400% of poverty, which is $88,000 for
a family of four. Have Mr. Baucus and his fellow left-wing
Democrats who think even his bill is not enough not heard of the
long-term entitlement crisis? Are they completely ignorant of the
long-term budget projections showing we can’t even pay for the
entitlement overpromises we have already made? The unfunded
liabilities for Social Security and Medicare are now over $100
trillion, while our entire economy only produces $14 trillion a
year, and that will be declining even more soon enough unless the
current socialist reign of error in Washington is ended.
No they are not ignorant and yes they have heard of the
entitlement crisis. After next year’s midterm elections their
plan will to suddenly be to announce, “Oh, my gosh, these
long-term deficits are completely unacceptable.” The
establishment media will echo with wise Washington greybeards
intoning that of course the only responsible course is massive,
unprecedented tax increases, to Swedish socialist levels and
beyond. Most Congressional Democrats secretly harbor dreams of
returning to the glory days of 90% top income tax rates, placing
a socialist cap on success in America.
Block grant Medicaid and SCHIP back to the states like we
did so successfully in 1996 for AFDC, they’ll say, and let each
state design a true safety net to make sure no one suffers
without essential health care. In their view, the federal
government along with the states can spend enough to make sure
that the uninsured that truly can’t afford basic health insurance
have the money they need to do so. But no Republican,
conservative, or any grown-up who can count can support the
massive entitlement spending increases in the Baucus bill, or the
other Democrat health overhaul plans.
Higher Taxes, Higher Deficits
The Baucus bill provides for $350 billion in new
taxes, all focused on health care, which, again, will raise
health costs. This includes taxes on prescription drugs and
“medical devices” including condoms, tampons, contact lenses,
contact lens solution, hearing aids, home pregnancy tests, and
blood glucose monitors to control diabetes. Last year when asking
for our votes Democrats promised us they would not raise taxes
“in any form” on people earning less than $250,000 per year. They
were just going to rob from “the rich” to pay for merry making by
the rest of us. They apparently do not know that condoms,
tampons, contact lenses and hearing aids are used by people
making less than $250,000 per hear, some of whom have diabetes.
Or maybe they were lying. There is no honor among
thieves.
In a letter to Baucus, Democrat Senators Amy Klobuchar,
Evan Bayh, and Al Franken, including Republican Richard Lugar,
write regarding the medical devices tax:
Recent independent estimates indicate that this tax could
translate into an annual income tax surcharge of between 10%
and 30% on medical device manufacturers. The amount of capital
that these companies would have available to reinvest n product
development and innovation would be threatened, dramatically
reducing both the number of jobs in the industry and the types
of devices available to patients….[W]e are concerned that this
tax will stifle technological innovations that can improve
patient outcomes and lower health costs.
Amen. So true. They can really think when they want
to.
Workers who do not obtain the government mandated health
insurance plan will have to pay a special tax of $750 to $950, or
$1,500 to $3,800 per family, depending on income, another
violation of the pledge not to raise taxes on the middle class.
Employers not providing the government required health insurance
will have to pay an additional tax of $400 per worker, as
specified above.
Anyone, including Blue Dog Democrats, who took the
Americans for Tax Reform Pledge not to raise taxes cannot vote
for this bill without breaking faith with voters. For those Blue
Dogs who refused to take the Pledge, now you can see what they
had in mind.
CBO scores the Baucus bill as not increasing the deficit.
But this is a fantasy, because the CBO fails to consider how the
Baucus taxes will change behavior. The score assumes that most of
the increased tax revenues, $215 billion, will come from the tax
on high cost health plans. But employers will negotiate with
their unions to avoid that tax, and it will not generate nearly
that much. The rest of the tax revenues would come from working
people and their employers, and they will fall short as
well.
On the spending side, the government notoriously estimated
in 1965 that Medicare would cost $12 billion in 1990. When 1990
came around, it actually cost $110 billion, 9 times as
much.
Medicare Cuts
Senator Baucus provides for almost $400 billion
in Medicare cuts in his bill. This includes $123 billion in cuts
to Medicare Advantage. Almost one-fourth of seniors, about 10
million, have chosen the private insurance options in Medicare
Advantage for their Medicare coverage because they get better
benefits than through standard Medicare. (Note: I published an
article over 20 years ago in The Yale Law and Policy
Review proposing what has become Medicare
Advantage). The insurance company Humana quite rightly wrote in a
letter to its policyholders recently that because of these cuts,
“millions of seniors and disabled individuals could lose many of
the important benefits and services that make Medicare Advantage
plans so valuable.”
That understates the case, because with over $100
billion in cuts for such plans, seniors will
lose a lot of the benefits they enjoy from Medicare
Advantage today. Reflecting the outright fascism that is always
just below the surface with “liberal” Democrats, Baucus
complained to the Centers for Medicare and Medicaid Services
(CMS) about this Humana letter. CMS ordered Humana to cease and
desist, lamely claiming in old Soviet style fashion that the
letter was “misleading and confusing,” and opening a federal
investigation threatening “compliance and enforcement
actions.”
The Wall Street Journal
reported yesterday, “Nearly half of Humana’s yearly revenue
comes from Medicare Advantage” and “Humana could be fined or
booted from Medicare Advantage altogether” just for exercising
its free speech to tell the truth. But Baucus in a press release
lauded this CMS action, saying:
It is wholly inappropriate for insurance companies to
mislead seniors regarding any subject — particularly on a
subject as important to them, and to the nation, as health care
reform….The…bill we released last week strengthens Medicare and
does not cut benefits covered under the Medicare
program….
But besides the cuts to Medicare Advantage, the Baucus bill
includes almost $200 billion in additional Medicare cuts
involving, as CBO explained, “[p]ermanent reductions in the
annual updates to Medicare’s payment rates” to doctors and
hospitals for the services they provide to seniors. That will
result in cutbacks by doctors and hospitals in the services they
provide to seniors, the start of the health care rationing in the
bill. The Baucus bill also creates a Medicare Commission of
unelected bureaucrats with the power to adopt still more Medicare
cuts in the future.
As the Journal concluded
regarding the government’s scandalous mistreatment of Humana,
“This episode neatly shows how all U.S. health care will operate
if Mr. Baucus’s bill becomes law.” But that is an overly polite
understatement of the ugly reality. What the episode shows is
that AMERICA IS NO LONGER A FREE COUNTRY while these left-wing
extremist Democrats are in power.
Co-Op Foolishness
The Baucus bill also includes $6 billion in start-up
funds “to establish health care cooperatives that would provide
insurance coverage and operate as non-profit organizations,” as
the CBO explains. This is in service to the left-wing notion that
insurance company profits are the problem in health care. But
such profits are a negligible factor in health costs. As
economist John Lott explains, “The Kaiser Foundation estimates
that self-insured companies covered about 75 million out of 137
million workers in 2008.” In the remaining market, Lott
continues:
[T]he dominant players…are non-profits….In state after
state, Blue Cross and Blue Shield hold the largest market
share. On average, the largest non-profit holds over half of
the “full” market share in…29 states. Why add another
non-profit to the mix? Getting rid of profits would not make
costs go down. They would go up, because without profits there
would no longer be the same incentive to hold down costs.
Profits are the reward firms get for figuring out what
consumers want.
The other big problem in the Baucus bill is that it
provides the foundation for government rationing of health care.
This is done through bureaucracies granted the power to make
decisions regarding “comparative effectiveness,” which involves
the government deciding what medical treatments work and what
don’t (as if faraway government bureaucrats are going to know
better than your own doctor), “cost effectiveness,” which
involves whether particular medical treatments are worth the cost
(as if the government can really make judgments about that
either), and whether or when new medical technologies and
breakthroughs can be adopted and implemented. When legislation
talks about “quality,” that is often defined to include cost
control, meaning ultimately rationing.
The Baucus bill is hazardous to your health, as well as
your wallet.
