Obamacare: It's Even Worse Than You Think

Published August 3, 2009

Weekly Standard Volume 014, Issue 43

President Obama's strategy to pass sweeping health care legislation rested on stealth and speed. The idea was to fill the conversation for months on end with vague talk about expanding coverage, “bending the cost-curve,” improving quality, and rooting out waste, without showing the public how the plan would actually work or what it would cost. Legislation, meanwhile, would be composed behind closed doors, and the bills would be introduced as close as possible to when they might come up for a vote to minimize the time in which they could actually be read and thought about by those who would vote on them and those who would live under them. By the time the details emerged, maybe momentum and being “closer than ever before” would be enough to overcome the torrent of objections that were sure to be raised when people got a real look at the nuts and bolts.

That moment has now come. House Democrats finally unveiled their plan on July 14, with the aim of passing it by July 31, the last day before the August congressional recess. The Senate's Health, Education, Labor, and Pensions Committee has released its part of the plan, but the Finance Committee (which must figure out how to pay for it all) has yet to do so. There, too, the leadership hoped for a vote before the recess.

But things have not gone as the Democrats intended. As details have emerged, an extraordinary wave of public concern has washed over the debate and left the plan's champions reeling. It is all but certain that both the House and Senate will recess for August without voting on health care, despite the president's insistence on its urgency. And the emerging tone of the public debate casts serious doubt on the fate of Obamacare more broadly.

The reasons for the public revolt are easy to see. The Democrats want to spend $1.5 trillion over a decade, impose an $800 billion tax increase in the midst of the worst recession in a generation, increase federal borrowing by $239 billion (on top of the $11 trillion the Obama budget already requires us to borrow through 2019), impose costly mandates on employers that will discourage hiring as unemployment nears 10 percent, force individuals to buy one-size-fits-all government defined insurance, and insert the government in countless new ways between doctors and patients. All of that would occur whether or not the plan includes a “public option,” which at this point it does include and which will exacerbate all of these problems.

As these facts have become clear, Obama's standing has fallen and public opinion has grown decidedly less enthusiastic for the administration's approach. The trend is likely to continue, because the details of the plan reveal that its two most serious drawbacks–its cost and the prospect of government rationing–are worse than even most of their critics have grasped.

First, there are massive hidden costs inherent in a little-understood provision of the plan. The centerpiece of Obamacare is a new premium subsidy program. In the House bill, families with incomes up to four times the poverty level would get a fixed cap on their insurance premiums, tied to their incomes. For instance, a family whose income is twice the poverty level would pay no more than 5 percent of its total income for insurance. But providing that guarantee to all such households in America would cost far more than even the Democrats are willing to propose. The plan therefore would make subsidies available only to households getting insurance through the new “exchanges,” insurance pools set up in each state as a parallel system to job-based coverage. And full-time workers in all but the smallest firms would be barred from entering the exchanges, at least for a time, so they wouldn't have access to the new entitlement.

This means that two households, identical in all respects including income, would be treated very differently depending on whether they got their insurance through the exchange or through their employer. At twice the poverty level, a family of four today makes $44,000. Such a family insured through an exchange would pay no more than $2,200 for a policy that could cost $12,000, so it would receive a federal subsidy totaling nearly $10,000. The family next door, meanwhile, with the same income but with health insurance provided through the workplace, would receive an implicit tax break for the $12,000 in employer paid premiums worth only $3,600. That's a bonus of more than $6,000 for being in the exchange–or a penalty of $6,000 for having employer coverage. This disparate treatment would be widespread. The Census Bureau counts 102 million people under age 65 in households with incomes between 150 and 400 percent of the poverty level, but the Congressional Budget Office (CBO) estimates that only 20 million of them would receive insurance through the exchanges in 2014.

Such disparate treatment of lower income workers would create a powerful incentive to flee employer coverage for the exchanges. And there would at the same time be pressure to extend the subsidy to workers generally satisfied with the plans provided at work but displeased about paying so much more for them than other similarly situated people. This would vastly increase the cost of the plan, since Congress is not known for resisting constituent pressure. CBO's estimates of the cost of the bill assume the barriers to a vastly larger entitlement program would hold. But the Lewin Group, a health policy consulting firm, concluded otherwise: that about 130 million people would be moved from job-based coverage to the exchanges, with most ending up in the new “public option” very quickly. So, one way or another, the bill's promise of “capped” premiums would be all but certain to become a 100 million person entitlement, which would cost several times what the CBO has so far estimated.

Meanwhile, it is becoming increasingly clear that Obamacare would involve not just rationed care but centrally managed and controlled care. For months, the president said he knew how to “bend the cost-curve” with painless innovations like information technology and new effectiveness research, but CBO said these simply wouldn't work. So, now, at the eleventh hour, the president is hailing a new approach–vast new powers for a board of experts in Washington to set rules and calibrate fees–as the secret to cutting costs and bringing the system under control, first within Medicare and then beyond. But in a system as complex as ours, this is a recipe for one-size-fits-all inefficiency and the shortages, misallocations, and waiting lines that come with it. This is even worse than simple rationing; it is an attempt at technocratic central planning for a country of over 300 million people.

The idea of subtle adjustments of rules and incentives to drive doctor and patient behavior is nothing new, of course. It has been tried several times in America–most notably in 1989, when an expert commission was assigned to devise a new fee schedule for Medicare that would reward general practitioners and drive more medical students to become family physicians. The group sought carefully to manipulate prices and payments to drive practitioner decisions, but the results of their efforts were exactly the opposite of their intent. Specialists have triumphed with tests and procedures, general practitioners have vanished–not just for Medicare patients but for everyone–and doctors despise the complicated fee schedule.

There is no reason to think the new council of experts would be any better able to bring America's vast and complex health care system under centralized rational control. Doctors know better than anyone that efforts at such control constrain their ability to respond to the needs of the unique patient in front of their nose–and they are growing increasingly uneasy with this element of the Obama plan, just as the general public is growing uneasy about costs.

Paying more for a great health care system might perhaps be justifiable, and there might even be a ca
se for accepting a system worse than the one we have now in order to save money. But paying more for a worse health care system simply makes no sense–yet this is the bargain the president and his allies are proposing.

None of this means Obamacare is dead. The Democrats have some serious political muscle to flex, and they may still be able to force their plans through. Conservatives should not grow confident or careless at the sight of public opposition to liberal health care reform. Instead, they must use the August recess to clarify the problems with Obamacare to voters, and to make the case that America must not be rushed into a terrible mistake. There is time to find the right way to reform American health care, and there are good ideas out there for doing so–ideas that use competition and consumer choice to put downward pressure on prices rather than rationing care, displacing the currently happily insured, and bankrupting the government.

The next few weeks will be crucial to the future of American health care and American prosperity. Opponents of the president's proposal have managed to slow it down enough to allow for a real debate. Now they must win the argument.

–James C. Capretta is a fellow at the Ethics and Public Policy Center & Yuval Levin is Hertog Fellow at the Ethics and Public Policy Center.

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