James Pethokoukis

Politics and policy from inside Washington

It’s not just McKinsey suggesting Obamacare is a mess

Jun 20, 2011 20:34 UTC

Editor’s Note: This piece has been updated. Please see the update below.

Consulting firm McKinsey kicked up a hornet’s nest with these recent findings:

The Congressional Budget Office has estimated that only about 7 percent of employees currently covered by employer-sponsored insurance (ESI) will have to switch to subsidized-exchange policies in 2014. However, our early-2011 survey of more than 1,300 employers across industries, geographies, and employer sizes, as well as other proprietary research, found that reform will provoke a much greater response.

· Overall, 30 percent of employers will definitely or probably stop offering ESI in the years after 2014.

· Among employers with a high awareness of reform, this proportion increases to more than 50 percent, and upward of 60 percent will pursue some alternative to traditional ESI.

· At least 30 percent of employers would gain economically from dropping coverage even if they completely compensated employees for the change through other benefit offerings or higher salaries.

· Contrary to what many employers assume, more than 85 percent of employees would remain at their jobs even if their employer stopped offering ESI, although about 60 percent would expect increased compensation.

As I have written, there was pressure on McKinsey to release its methodology, which it finally has.

Yet missed in all this was another consulting firm which also found some worrisome Obamacare trends (as explained by the Heritage Foundation):

PricewaterhouseCoopers (PWC) recently released its annual report on medical cost trends for 2012, and it is revealing.

1) The report shows health care costs and premiums continuing to rise—and uncertainty increasing for employers who offer insurance to their workers. Health care spending increased by 7.5 percent in 2010 and will grow by 8 percent this year.

2) In 2012, it will rise again by 8.5 percent. This is exactly the opposite of the President’s promise that his health care plan would reduce premiums by $2,500 per person.

3) Perhaps most concerning are the findings of a survey also released by PWC divulging how employers are likely to react to Obamacare.  The survey showed that nearly half of employers will drop their coverage, dumping employees into the government-run exchanges. Individuals who qualify would then receive generous federal subsidies to purchase insurance. If more employers than expected dump coverage, as other experts have predicted, the cost of the subsidy program will explode deficit spending. The results of the PWC survey indicate this is likely to be reality.

4) Even if employers do not dump coverage entirely under the new law, according to the survey, five out of six employers will completely re-evaluate their benefits strategy. Four out of five employers will make changes to help cover new costs under Obamacare, including raising premiums, deductibles, and co-payments.

5) Employers who offer coverage to their workers face growing uncertainty regarding costs under the new law. The negative consequences of Obamacare’s changes will be threefold: higher costs for those with employer-sponsored coverage; a greater debt burden on current and future taxpayers; and slower growth in job creation and the overall economy.

Update:

The folks at PricewaterhouseCoopers disagree with Heritage’s interpretation of its report:

As you will see, the Heritage Foundation’s statement that PwC’s survey found that nearly half of employers will drop their coverage and dump employees into government-run exchanges is false.

In fact, PwC asked about “employer subsidies” not “coverage.” These are different. Employers can decrease the level at which they subsidize employees premiums and still retain health insurance coverage. Furthermore, PwC found that employers’ subsidy level has not changed. The question PwC asked was: “As a result of the new healthcare reform PPACA provisions, how likely is it that your company will significantly change or eliminate company subsidies for employee medical coverage? “

Very likely: 11%

Somewhat likely: 34%

Unlikely 55%

It would be inappropriate and inaccurate to interpret that employers who answered “very likely” or “somewhat likely” would eliminate coverage, and it is impossible to allocate which employers are consider which option to take. Furthermore, PwC found that fewer than 7 percent of employers (not half) said they were very likely to cover employees through state-run health insurance exchange pools. Interestingly, the primary approach that employers intend to take in the future is to increase health and wellness programs to improve the health and productivity of their workforce.

Furthermore, PwC clearly clarified in both its report and news release dated May 18, 2011 that “The health reform law will have minimal effect on the medical cost trend in 2012. Provisions of the Patient Protection and Affordable Care Act that took place prior to 2012 were small changes that employers already have fully accounted for.”

 

 

COMMENT

when the “worlds greatest” nation fails to provide medical care for its most needy and they are forced to something similar to this: www DOT guardian.co.uk/world/2011/jun/21/verone- one-dollar-robbery-healthcare, just to get basic medical care. you really need to consider what is wrong with your country.

This heathbill can only spell good for America and should be heralded as a genuine change for the better, advancing medical care and taking money away from Corporations who aren’t looking out for your interests (ie health), only their profits.

The right wing media (read Bill O’Reilly, FOX etc) would like to make you believe this is bad, but really, open your damn eyes… Countries in Europe have a healthy balance of State and Private medical care, why doesnt the US?

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Obamacare court ruling gives a shoutout to Tea Party movement

Jan 31, 2011 20:43 UTC

From page 42 of the ruling by Judge  Roger Vinson:

It would be a radical departure from existing case law to hold that Congress can regulate inactivity under the Commerce Clause. If it has the power to compelan otherwise passive individual into a commercial transaction with a third party merely by asserting — as was done in the Act — that compelling the actual transaction is itself “commercial and economic in nature, and substantially affects interstate commerce” [see Act § 1501(a)(1)], it is not hyperbolizing to suggest that Congress could do almost anything it wanted. It is difficult to imagine that a nation which began, at least in part, as the result of opposition to a British mandate giving the East India Company a monopoly and imposing a nominal tax on all tea sold in America would have set out to create a government with the power to force people to buy tea in the first place. If Congress can penalize a passive individual for failing to engage in commerce, the enumeration of powers in the Constitution would have been in vain for it would be “difficult to perceive any limitation on federal power”[Lopez, supra, 514 U.S. at 564], and we would have a Constitution in name only.

COMMENT

“Obamacare court ruling gives a shoutout to Tea Party movement”-

Which is exactly why Judge Vinson’s hyper-political and confusing misjudgments produced a ruling that’s not only flawed, but hard to respect as a work of legal scholarship.

The outcome of this case was a foregone conclusion. This particular case was brought by conservative state officials from 26 states, who carefully chose the venue. Vinson had already telegraphed the outcome, so the ruling just makes official what everyone expected anyway. Republicans are thrilled, of course, because activist court rulings are to be celebrated, just so long as it’s activism the right can agree with.

So two Republican-appointed federal district court judges have found that the individual mandate, an idea Republicans came up with, is unconstitutional. And two other federal district court judges, appointed by Democratic presidents, came to the opposite conclusion. About a dozen other federal courts have dismissed challenges to the health care law.

In other words, when you hear Pethokoukis say that “courts” have a problem with the Affordable Care Act, remember that it’s actually a minority of the judges who’ve heard cases related to the law.

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New Obama health plan moves hard in wrong direction

Feb 22, 2010 18:06 UTC

Well, let’s see: It costs $75 billion more than the Senate plan. It delays the one sure-fire cost-control measure, the tax on high-end plans. And it gives the federal government new authority to block insurers from increasing premiums. That last one is particularly wrong-headed. The policy thrust of ObamaCare was supposed to be to reduce costs by changing how healthcare was delivered, not through rationing. But price caps are nothing more than rationing. As Cato’s Mike Cannon puts it:

As I have written elsewhere, artificially limiting premium growth allows the government to curtail spending while leaving the dirty work of withholding medical care to private insurers: “Premium caps, which Massachusetts governor Deval Patrick is currently threatening to impose, force private insurers to manage care more tightly — i.e., to deny coverage for more services.” No doubt the Obama administration would lay the blame for coverage denials on private insurers and claim that such denials demonstrate the need for a so-called “public option.
Who knows if this thing can actually pass, but using reconciliation to do it will only amp up the partisan and polarized nature of Congress.

COMMENT

This health bill will force the average small business to fire 3-4 workers on account of the hefty fines. I work for http://storyburn.com, and I can see why folks are pulling their hair out over the temp job being the new full time job, China stealing our mojo, Wall Street bonuses at record highs, and people taking a 10% paycut and asked to work unpaid overtime. We have the most read home foreclosure story as well as several job hunting stories

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Taxing investments to pay for healthcare reform is a bad idea

Jan 14, 2010 17:50 UTC

Labor unions are balking at President Barack Obama’s move to pay for healthcare reform by taxing their gold-plated health benefits. So Democrats are considering also taxing investment income. Not only would that approach make reform more costly and potentially worsen the U.S. fiscal deficit, it could politically doom the whole plan.

As things stand, the year-end expiration of the 2003 Bush tax cuts means top rates on capital gains and dividends automatically rise unless Obama and congressional Democrats intervene. Now, in addition to that, if organized labor prevails in killing a plan to slap a 40 percent excise tax on its members’ pricey health plans, investors can expect to tack on an additional one or two percentage points. That would push the peak cap gains rate to 22 percent and dividends to 42 percent.

To appease these powerful special interest groups some congressional Democrats suggest for the first time extending a portion of the current 3 percent Medicare payroll tax on labor income to investment income for individuals making $200,000, a group that pays some 80 percent of investment taxes. With this source of revenue – perhaps $10 billion a year or more — the tax on union health plans could be scaled way back.

Setting aside the negative impact this could have on the formation of risk capital and savings more broadly, a health plan tax is a key mechanism for controlling rising costs. Expensive and untaxed health plans encourage overconsumption of healthcare. Arguably all deductions for health benefits should be removed to eliminate this distorting subsidy.

Taken as a whole, new investment taxes run the risk of weakening Senate support for reform – the loss of even a single vote would be lethal — since the upper chamber has shown little interest in new taxes on capital. Coming at a time when Americans’ net worth has fallen $11 trillion, it shouldn’t be hard to find one principled Senator willing to quash this misguided attempt to succor labor at the expense of investors.

Is a healthcare deal close? Maybe not

Jan 13, 2010 19:12 UTC

This compilation of opinion from the great Igor Volsky at the Wonk Room

- Ways and Means Chairman Charlie Rangel (D-NY): “Normally you’re just dealing with the Senate and they talk about 60 votes and you listen to them and cave in, but this is entirely different,” he said. “I’m telling you that never has 218 been so important to me in the House.”

- Rep. Anthony Weiner (D-NY): “We keep hearing them squeal like pigs in the Senate that they had a tough time getting to 60,” Weiner said. “Well, it wasn’t particularly a picnic for us to get to 218. Generally speaking, the Senate kabuki dance has lost its magic on those of us in the House.”

- Rep. Pete Defazio (D-OR): “They only got two votes to spare in the House. I think this will be a tougher negotiation than they think.”

- Rep. Emmanuel Cleaver (D-MO): “In spite of the fact that the news media is proclaiming this bill approved, I’m not in a position, based on everybody I’ve spoken with to agree with them. …I think what comes out may be disapproved and then in 30 days, when they bring something else forth — because we’ve never been this close before — but it may take a ‘no’ vote in order to get people back on board.”

- Rep. Rosa DeLauro (D-CT): “This is no walk in the park. This is bare-knuckled policy and politics to get this done.”

A “senior House Democrat” told Roll Call that “no progress has been made this week on any of the key sticking points in the House and Senate bills, despite steady meetings with union leaders and the White House.” “There’s no agreement. No deal on anything. Nothing,” the lawmaker said.

COMMENT

smokescreen

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What Ben Nelson didn’t tell Nebraskans

Dec 31, 2009 03:44 UTC

Suddenly down some 30 points to a hypothetical 2012 challenger, Ben “60th vote” Nelson — a guy who won his 2006 race with 64 percent — is taking to the airwaves to explain his decision to vote for ObamaCare.

But in a TV spot, Nelson failed to tell his fellow Nebraskans that while the Senate bill supposedly improves the U. S. fiscal picture, it employs some Enron-esque bookkeeping tricks to get there.

The Patient Protection and Affordable Care Act promises to cut the federal budget deficit by $132 billion over the next decade, according to the Congressional Budget Office. That’s not a huge amount given that healthcare spending drives the government’s long-term fiscal woes, but it’s something. Indeed, at first glance the tab for expanded health insurance coverage appears more than met through a mix of Medicare spending cuts and payroll tax increases.

Yet this minor bit of fiscal prudence is a mirage. The act would reduce Medicare spending on hospital stays by $245 billion from 2010-2019, while increasing tax revenue by $113 billion. So on paper, Medicare’s hospital insurance trust fund would be some $358 billion to the better, boosting its long-term solvency. But the government then takes that $358 billion and uses it to pay for increased, non-Medicare healthcare spending — leaving $358 billion worth of IOUs in the Medicare trust fund. If not for that $358 billion shift, the act would worsen the deficit by $226 billion over the next ten years.

It’s a clever trick that takes advantage of the CBO’s treatment of both the Medicare and Social Security trust funds as essentially off-balance sheet vehicles. Money owned to them is not treated by the CBO as the same as money owed to Treasury bondholders. The former is treated as a mere obligation, the latter a concrete liability. Yet both are future claims on taxpayer resources.

And that’s not the only bit of chicanery: 1) There’s a similar $50 billion double-counting trick with the Social Security trust fund. 2) CBO healthcare scoring assumes a huge reduction in government payments to doctors even though a separate bill moving through Congress would restore the $250 billion cut.3) The payroll tax hike isn’t indexed for inflation, generating unrealistically high revenue forecasts. 4) And as Andrew Biggs of the American Enteprise Institute notes, the cost-cutting Medicare advisory commission would merely limit spending growth to pretty much the current baseline forecast (GDP plus 1 percent) which translates into $62 trillion of additional deficits over the next 75 years.

(Then again, budget scoring overall is dodgy. John Williams of Shadow Government Statistics calculates that using Generally Accepted Accounting Principles as public corporations do, the total 2009 budget deficit would be roughly $8.8 trillion, not the $1.4 trillion reported on a cash basis.)

Nope, Ben Nelson didn’t tell deficit-fearing Nebraska voters any of that.

COMMENT

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Healthcare vote may wound some Dems, like Ben Nelson

Dec 29, 2009 15:53 UTC

Truly shocking numbers on  Sen. Ben “60th Vote” Nelson from Rasmussen:

The good news for Senator Ben Nelson is that he doesn’t have to face Nebraska voters until 2012.

If Governor Dave Heineman challenges Nelson for the Senate job, a new Rasmussen Reports telephone survey shows the Republican would get 61% of the vote while Nelson would get just 30%. Nelson was reelected to a second Senate term in 2006 with 64% of the vote.

Nelson’s health care vote is clearly dragging his numbers down. Just 17% of Nebraska voters approve of the deal their senator made on Medicaid in exchange for his vote in support of the plan. Overall, 64% oppose the health care legislation, including 53% who are Strongly Opposed. In Nebraska, opposition is even stronger than it is nationally.

Fifty-six percent (56%) of voters in the state believe that passage of the legislation will hurt the quality of care, and 62% say it will raise costs.

COMMENT

Dr. Bohn,
I red somewhere that some docs, particularly ob/gyn surgeons, are working for about 1/2 year just to cover malpractice insurance, but it looks like you have it even worse – it’s 2/3. Working just for coverage from January thtough August – it’s completely ridiculous. If there’s any place for public insurance option, it’s right there – in malpractice insurance. Maybe if Uncle Sam himself becomes the target of trial lawyers, he’ll be able to keep them back, and the costs of coverage more reasonable then they are now.

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Repealing healthcare reform

Dec 29, 2009 15:28 UTC

Assuming ObamaCare passes, the GOP is already making a pledge to repeal it ASAP part of their 2010 (and beyond) electoral strategy. But Igor Volsky over at the Wonk Room makes some good points indicating the political difficulty of doing so, putting side an Obama veto of any attempts:

1) The bill immediately prohibits insurers from rescinding coverage, imposing life-time or annual limits or denying coverage to children with pre-existing conditions.

2) Applicants who are unable to find insurance in the individual market, can purchase catastrophic coverage and young adults can stay on their parents’ policies until their 27th birthday.

3) Small businesses that provide health coverage will also be eligible for tax credits beginning in 2010.

4) The bill requires health insurers to spend 80 to 85 percent of all premium dollars on medical care and reduces the size of the coverage gap in Medicare Part D “by $500 in the first year.” The bill also guarantees “50 percent price discounts on brand-name drugs and biologics purchased by low and middle-income beneficiaries in the coverage gap.”

5) These benefits could also improve as the Senate bill moves into conference. Several House progressives have pledged to push the conference committee to move up the implementation date of the exchanges in the final bill and front load more benefits into the interim period of the final legislation.

The news regs on private health insurance are likely to be quite popular. More than likely, any GOP efforts will have to work within the general framework that is created, such as healthcare exchanges.

COMMENT

So what.

If necessary, rescind the entire monstrosity and pass another with the 1% that makes sense.

Or pass a Republican version with tort reform, portability, limits on dropped coverage, and interstate competition.

It’s simply ridiculous to say we are stuck with a poison pill of 2700 pages when 20 pages might make sense.

And btw, a good bit of the 4 points listed are just plain stupid. Just because some nutter liberal likes government give-aways doesn’t mean that rational people can’t spot redistribution on a stick.

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Surprise! Gaming CBO rules masks how healthcare reform may actually make deficit worse

Dec 23, 2009 21:23 UTC

[See update at bottom] A group of Republican senators, led by Jeff Sessions and Judd Gregg, are accusing the Democrats of double-counting Medicare tax hikes and spending cuts as both extending the solvency of the program and paying for expanded healthcare coverage. So they asked the CBO for its opinion. Here is the CBO’s response:

The key point is that the savings to the HI trust fund under the PPACA would be received by the government only once, so they cannot be set aside to pay for future Medicare spending and, at the same time, pay for current spending on other parts of the legislation or on other programs. Trust fund accounting shows the magnitude of the savings within the trust fund, and those savings indeed improve the solvency of that fund; however, that accounting ignores the burden that would be faced by the rest of the government later in redeeming the bonds held by the trust fund. Unified budget accounting shows that the majority of the HI trust fund savings would be used to pay for other spending under the PPACA and would not enhance the ability of the government to redeem the bonds credited to the trust fund to pay for future Medicare benefits. To describe the full amount of HI trust fund savings as both improving the government’s ability to pay future Medicare benefits and financing new spending outside of Medicare would essentially double-count a large share of those savings and thus overstate the improvement in the government’s fiscal position. [Bold is mine-JP]

Me: Basically, the government is taking money out of Medicare’s Hospital Insurance trust fund, replacing it with IOUs and then spending it. But the CBO doesn’t score such intra-governmental transfers as the same sort of debt as when a Treasury bond is issued. But it is an obligation just the same. If not for this accounting quirk, the Senate health bill seemingly would be scored as increasing the budget deficit by $170 billion or so over the next decade (itself a funny number since taxes come first, then benefits) instead of cutting the deficit by $130 billion.  This is a similar shell game played by the government when it uses Social Security surpluses to mask the true depth of the budget deficit. I don’t see how supposed Dem budget hawks like Mark Warner and Kent Conrad and Evan Bayh can go along with this. This is just as bad as the shunting $250 billion in doctor payments into a different bill to hold down the official cost of ObamaCare.

The Centers Medicaid & Medicaid Services made a similar statement a couple of weeks back on Medicare funding:

The combination of lower Part A costs and higher tax revenues results in a lower Federal deficit based on budget accounting rules. However, trust fund accounting considers the same lower expenditures and additional revenues as extending the exhaustion date of the Part A trust fund. In practice, the improved Part A financing cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions under the PPACA) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.

UPDATE: Douglas Holtz-Eakin, a former CBO director, adds his two cents:

I read the CBO and they made the point exactly right: money can only be spent once.  The D’s are (again) trying to use dollars twice.  The first time (Bennet) amendment said they would not reduce Medicare benefits, but used medicare savings to fund subsidies.  Now they are saying they will put the money in the trust fund (and spend it on medicare) but use it to fund subsidies.  It is fundamentally dishonest.

COMMENT

For the love of Pete, lets stop talking about it and fire all of Congress and the President, NOW, not later.

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The bear case on healthcare reform

Dec 22, 2009 15:09 UTC

So now what? My pal Rich Lowry takes a crack at the bear case for healthcare reform. His main points:

1) Public opinion.  The bill was already under water in every major public-opinion poll, and opposed by a margin of almost 2 to 1 in the latest CNN poll. The latest NBC News/Wall Street Journal poll put its support at freezing, 32 percent. A few ticks downward and the bill will be in the 20s. … The Democrats have shown no inclination to let public opinion hold them back, but the stiff headwind makes everything a little harder and reduces an already-small margin for error. One subset of public opinion will be particularly important: Nebraska. If Ben Nelson is perceived to have made a career-defining choice that will end his designation as a conservative Democrat and a pro-lifer, and if he takes an immediate dive in the polls, it will cast a pall over other Blue Dogs inclined to play ball.

2) Abortion. After her initial 220–215 victory, Pelosi can afford to lose only two net votes. Bart Stupak has declared the Nelson language unacceptable and vows to oppose the final bill if it doesn’t include the restrictions contained in his amendment. As John McCormack points out, earlier in the year Stupak was part of a bloc of Democrats who wrote a letter to Pelosi saying they’d stand against “any health-care-reform proposal unless it explicitly excludes abortion from the scope of any government-defined or -subsidized health-insurance plan.” Eleven of those signatories voted for the House bill.

3) Money. The Senate relies on a so-called Cadillac tax on pricey insurance plans, the House on a surtax on the wealthy. The Senate long ago declared the surtax anathema, and the House is just as dismissive of the Cadillac tax. The unions hate the Cadillac tax, since they enjoy such plans themselves, the fruit of collective bargaining. If the House gives in, it will create even more unrest on the Left. If the Senate gives in, it could upset the fragile deal for 60. If this disagreement over financing doesn’t represent as dire a threat to the future of the bill as the other factors we are cataloguing, it’s still a stumbling block.

4) Blue Dogs. When Obamacare first passed the House, 28 Blue Dog Democrats, more than half of their 52-member coalition, were on board. This is a pool that surely includes some very nervous votes. As Michael Barone points out, nearly 70 percent of the Blue Dogs represent districts that voted for John McCain. A vote for this bill must look even more like a potentially career-ending decision now than it did the first time around.

Keep an eye especially on the Pennsylvanians. Rep. Patrick Murphy already has four GOP opponents in his suburban Philadelphia district. After supporting round one of Obamacare, the auto bailouts, TARP, and the stimulus, Murphy may be looking for a way back toward the center. Reps. Kathy Dahlkemper and Christopher Carney, both elected in the 2006 anti-Bush sweep, represent blue-collar districts in the Keystone State in which Obama failed to reach 50 percent last year. You can bet that trio is watching the polls. Other Blue Dogs are simply getting out. In the past month, Reps. Bart Gordon (D., Tenn.), Dennis Moore (D., Kan.), and John Tanner (D., Tenn.) have all announced their retirements.

5) Liberals. No fewer than 60 liberals in the House imprudently made a pledge to oppose a bill without a public option. Almost all of them can be expected to eat it. But what if one or two don’t? Public-option scold Rep. Anthony Weiner (D., N.Y.) is continuing to pressure Obama to move further left. “What we’re saying is now’s your moment, big guy, you’re the Mariano Rivera of this situation,” he said to MSNBC last week. “You’re going to come in at the end, and there’s still a chance to do it.” That’s not going to happen, but perhaps a few of Weiner’s colleagues are ideologically besotted enough to lash out at the president’s “betrayal” when he doesn’t “come in” the way they hope he will.

COMMENT

Shadow-boxing is only entertaining in situation comedy. The mainstream Democratic Party, like all its Republican brethren, has shown how uniformly serious it is about selling America out to zombie corporations on every single issue there is – banking, insurance, telecommunications, consumer and civil rights included.

So really, this laughable “detailed” analysis isn’t all that amusing right now. Neither of America’s major political parties is worth saving, or even listening to, any more.

There is only one thing to do with zombies. One.

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