Monday, July 02, 2012

Obamacare still stinks

Avik Roy explains how Obamacare may greatly increase the deficit. states may choose to cut back their coverage of families under Medicaid and let them be covered by exchanges that are much more expensive and are funded by the federal government.
The Affordable Care Act, as passed, expanded Medicaid to cover all adults below 138 percent of the federal poverty level (100 percent of FPL is $23,050 for a family of four). In addition, the law created state-based exchanges, which sell subsidized private insurance, for people between 100 and 400 percent of the federal poverty level. Roughly half of the law’s coverage expansion—17 million, according to the Congressional Budget Office—comes from Medicaid, and the other half—16 million—comes from the exchanges and other instruments.

Democrats structured the law this way because Medicaid is much less expensive, on a per-person basis, than are the subsidized exchange plans. In addition, Medicaid is partially funded by the states.

However, now that states can opt out of the law’s Medicaid expansion, states that currently cover people above 100 percent of FPL with Medicaid now have a significant financial incentive to shrink Medicaid eligibility down to 100 percent of FPL, and let the federal government (read: taxpayers in other states) pay for the rest.

This, again, will lead to substantially higher costs for the federal government, because exchange subsidies are much more generous than Medicaid is.

State governors are already beginning to announce that they will not enroll their states in the new Medicaid provisions in the ACA. While some experts had predicted that states wouldn't do this because the benefits paid by the federal government are so large, that is ignoring the fact that, over time, the federal disbursements would shrink and states would be on the hook for the added costs. Ed Morrissey links to this analysis from Charles Blauhaous to explain this point. And if the states don't cover the poor through Medicaid, the law says that they will be insured through exchanges. The cost of those exchanges could balloon the federal deficit if we have to depend on those exchanges. The result for the federal deficit will be much worse than the CBO projected because it assumed that more people would be covered through Medicaid, but now the Supreme Court has given states the ability to opt out of the Medicaid payments without losing their present Medicaid money from the federal government.
It could thus well be that if the court’s decision shifts coverage from Medicaid to the new health exchanges, the law’s budgetary effects may be much worse than last projected.

How much worse? No one (perhaps outside of CBO) can say. But under past estimates, a 1 million-person reduction in the law’s reliance on Medicaid has meant an increase in net costs of about $50-$90 billion over ten years. With 26 states joined in a lawsuit to be released from this forced coverage expansion, the fiscal worsening could be substantial.

The side effects of the court ruling don’t end there. The health law also contains a “fail safe” provision requiring that total costs of the health exchange credits be limited to 0.504% of GDP per year after 2018. In previous estimates, CBO projected that subsidy percentages would “eventually” be cut by this provision to keep their total costs beneath this cap. But if health exchange participation is to be significantly higher than previously projected, then costs will be also much higher. This would force significant cuts in subsidies to low-income individuals starting in 2019; the text of the law is explicit that the cap will be enforced by reducing these subsidies. Lawmakers would thus have to choose between allowing these cuts to low-income individuals to go into effect, and waiving the existing fiscal constraints of the health care law.

Much attention has been given to the argument that without the individual purchase mandate, other parts of the health care law would become unworkable. Much less attention has been given to the fact that without the states forced to be on board with the Medicaid expansion, the law’s health exchange subsidies might be fiscally unworkable. The Supreme Court may have just set in motion of chain of events that could lead to the law’s being found as busting the budget, even under the highly favorable scoring methods used last time around.
As Morrissey concludes, this busts a hole in the Democrats phony claims that Obamacare would bend health care costs down.
So much for the promise of cost control, which was always a shell game, with the states playing the role of sucker. ObamaCare backers could only claim cost control by shifting the costs for the Medicaid expansion to the states, while taking credit for more-or-less universal coverage. That would mean either higher state taxes, reductions of other state services, or both. By freeing the states from having to bear those costs, the bill will come due at the federal level instead
And people have probably not absorbed how awful the Independent Payment Advisory Board or IPAB will be to limit our health care choices.
Congress set up the Independent Payment Advisory Board (IPAB). This group of regulators “is directed, starting in 2015 and every two years thereafter, to make recommendations … to limit the ability of Americans to put resources into healthcare so that they stay below certain goals set forth in the legislation.” IPAB sets a price cap, a dollar amount beyond which Americans cannot pay for care. All of those limits are required to be below the rate of medical inflation.

To illustrate this principle, Balch used an analogy with food prices. “Imagine a situation where Congress said, ‘Whenever you go out to buy food, if the price of food has risen by ten percent next year, you’re not allowed to pay that extra ten percent to get the same food that you got this year. You’re only allowed to pay five percent more.’” Such a policy would force citizens to buy less food, or lower quality food, each year.

IPAB aims to “reduce the treatment that doctors are allowed to give to their patients.”

“That,” Balch said, “is the most massive example of rationing.”
And there are limits on what Medicare recipients would be able to spend of their own money beyond what the government decides to pay for.
“Medicare advantage” plans, which senior citizens can purchase during the “open season” period, allow them to use their Medicare vouchers for private health care plans.

“Under the Obama health care law,” Balch explained, “the Department of Health and Human Services is given the authority to exclude or limit your ability to add your own money.” HHS does this indirectly, by restricting access to Medicare advantage.

Insurance plans cannot participate in the voucher side of Medicare “if they allow people to spend what” the department considers “too much money.”
It might be complicated to explain, but it is still true that the entire system is set up to use rationing to lower health care costs.
“So they get you coming and going,” Balch said. “It’s done from the supply side, by limiting what doctors and hospitals are allowed to give you in terms of treatment, and it’s done from the insurance side, by limiting the insurance plans that companies can offer.”
Meanwhile, Keith Hennessey notes that the CBO has predicted that, even after the Affordable Care Act, there will still be 21 million uninsured people. And the majority of those people will not be subject to paying the Obamatax. HHS will have the authority to waive anyone they want from paying the tax. Meanwhile, there are lots of exceptions that will include many of those uninsured people. Now, remember that the whole purpose of the mandate was to give money for insurance companies to compensate them for the guaranteed issue portion of the bill. If people do pay the tax, it will go to the federal government, not the insurance companies. So they will have to raise their rates for everyone in order to fund the increased costs they will now face with being forced to give health insurance to everyone regardless of previous conditions.

Holman Jenkins points to the solution for the GOP to endorse in order to make it easier for those who are uninsured to get coverage.
The solution is a tweak. Republicans already are lip-committed to a national health-insurance charter that allows insurers to design their own policies and market them across state lines. Republicans are also lip-committed to a tax reform to equalize the tax treatment of health care whether purchased by individuals or by employers on behalf of individuals.

Now just modify the Affordable Care Act so buying any health policy authorized by the new charter, no matter how minimalist, satisfies the employer and individual mandate.

What would follow is a boom in low-cost, high-deductible plans that leave individuals in charge of managing most of their ordinary health-care costs out of pocket. Because it would be cheap, millions who would opt not to buy coverage will buy coverage. Because it will be cheap, companies will direct their low-wage and entry-level employees to this coverage.

Now these workers will be covered for serious illness or injury, getting the rest of us off the hook. As they grow older, wealthier and start families, they will choose more extensive but still rationally limited coverage. Meanwhile, the giant subsidies ObamaCare would dish out to help the middle class afford ObamaCare's gold-plated mandatory coverage would be unneeded.

With consumers shouldering a bigger share of health expenses directly, hospital and doctors would discover the advantages of competing on price and quality. This way lies salvation. In the long run, whatever share of GDP society decides to allocate to health care, it will get its money's worth—the fundamental problem today.
Such a common sense solution was available in 2009, but Obama and the Democrats decided they preferred to use their filibuster-proof majority in the Senate to plow ahead with their vision of remaking health care.

It is now up to the Republicans to remind people of why they opposed Obamacare in 2010. The reasons that people reacted against the law was not really because of the individual mandate but because of all the dangers to our present health care system that the law imposed. Those dangers are still there. It is up to the Republicans to remind people why they disliked the law in the first place. Douglas Hotz-Eakin has a good summery of how the law will damage the economy and harm our health care system. And it will just exacerbate the nation's fiscal problems.
The so-called Medicare surtax increases marginal tax rates on the return to saving, investment, and innovation. The medical-device tax will hurt innovation and cost jobs. A bill to repeal it is gathering dust in the Senate. Also, the insurers fee — the “premium tax” — will roil insurance markets, disrupt patient-provider relationships, and place the vast majority of the burden on the middle class.

The ACA remains an unwise expansion of entitlement programs at a dangerous fiscal moment in U.S. history. The U.S. has suffered a downgrade, has a debt-to-GDP ratio over 100 percent — a level historically associated with 1 percentage point slower growth and a heightened probability of financial crisis — and faces a spending-driven explosion of debt over the next decade. Also, the ACA does not reform Medicare, which has a cash-flow deficit of nearly $300 billion annually and is responsible for one-fourth of all federal debt since 2001.

Finally, the ACA is a vast regulatory expansion. The overall regulatory burden has cost the private sector and states $21.9 billion thus far. The regulations are so extensive that HHS has missed 20 of 42 deadlines. The medical-loss ratio (MLR) regulation harms insurance innovation. And the Independent Payment Advisory Board is a bureaucratic intrusion on seniors’ care that will harm medical innovation. (See the post for links)
The argument of how Obamacare will stifle future innovations is an important one. By placing taxes and regulations on pharmaceutical and medical device manufacturers there will be a slowdown in the development of new medicines and devices to help patients. We won't see this, but it is one of the unintended consequences of the law. We will never know of the discoveries and breakthroughs that won't be made because of this law, but what is unseen can be just as important and consequential an effect as what is unseen.

All this is why Matthew Continetti refers to this as "the Tea Party's Roe" in that it will motivate a fervent group of voters to change the ruling. You can tell that the Obama campaign has been wary of pushing his signature legislation in how little he's been talking about it this year. If they truly thought it was a slam dunk politically, he'd be talking about it all the time and reminding people of all that he has done for them. We'll see who ends up talking about it more, the law's opponents or proponents.

As the WSJ writes, "it's up to the voters now."