Archive for October, 2009

Straight from the pen of our very own political cartoonist Dave Hatch and resident poet laureates Greg Bennett and Brandon Greife:

Pelosi. Thrice the healthcare bill hath grown.

Reid. Thrice and once, our leader whin’d.

Pelosi cries:—’tis time! ’tis time!

Reid. Round about the chambers go;

In the poison’d amendments throw.—    Approval, under tax-funded stone,

The wasted days and nights have gone;

Hidden costs and redistribution got,

Boil thou first in the entitlement pot!

Double, double deficits and trouble,

Let the poor burn and sick people suffer,

Individual mandate, excise tax,

It falls on the youth’s backs,

Medicaid slashing and a public plan,

Trying to earn money but it all goes to the Man,

Out with free markets, in with socialism,

Watch everyone’s incomes fall in the schism,

Make the plan thick and shut the doors,

I dare the CBO to come up with a score,

Mortgage our future and our children,

To pay for the ingredients to our cauldron,

Double, double deficits and trouble,

Watch the poor burn and sick people suffer!

The Hidden Middle-Class Tax

President Obama campaigned on the promise that “if your family earns less than $250,000 a year, you will not see your taxes increased a single dime. I repeat: not one single dime.” Unfortunately, repeating it doesn’t make it true.

One of the main methods of funding the billions of dollars in new government spending is an excise tax on high priced gold-plated insurance plans. Under the Senate bill, providers of insurance plans that cost more than $8,000 must pay a 40% tax on any amount over that baseline. But what sounds like a tax on insurers would inevitably be passed on to the middle class in higher premiums.

The Joint Committee on Taxation admitted as much in a report conducted at the behest of Senator Orrin Hatch. Their analysis found that the tax would raise approximately $52 billion dollars. Of that, $8.9 billion would be borne by people with incomes under $50,000. Another $19.4 billion will come from taxpayers with incomes between $50,000 and $100,000. Finally, $17.4 billion will come from the pockets of those making between $100,000 and $200,000. That adds up to a lot of dimes.

Hurts Lower Wage Workers – Who are Disproportionately Younger

Health insurance reform will ultimately work to disadvantage poor workers in a number of ways. First, under the plans before Congress, it is more costly for businesses to continue to provide health care for their employees than to pay the penalty mandated in the bills. The Bureau of Labor Statistics estimates that currently employers are paying 10% to 12% of wages to provide health insurance to their employees. Under the pay-or-play systems, firms would have to pay an 8% penalty for refusing to provide employment based coverage. As the Congressional Budget Office explained, this would result in a net loss of people being covered,

“Some firms would probably decide not to offer coverage . . . That option would be most attractive to firms with lower-wage workers – both because the play-or-pay penalty for not offering coverage would be smaller in dollar terms and because their workers would be eligible for larger subsidies in insurance exchange. . . All told, [the CBO] estimate[s] that, in 2016, about 9 million people who would otherwise have had employer coverage would not be enrolled in an employment based plan.”

Second, the healthcare reform bills will force employers to avoid hiring low income workers. For instance, under the Baucus bill, employers who choose not to offer health coverage must pay the full cost of the available subsidy provided for under the plan. The lower the family income of the employee, the higher the subsidy that is given to the employee. Thus, employers are directly discouraged from hiring low wage workers because of the higher amount they would have to pay in subsidies.

All States Are Created Equal, But Some Are More Equal Than Others

While Democrats are proudly proclaiming that health care reform will cut costs and save a struggling economy, some states are weaseling their way out of the legislation.

Under all proposed legislation Medicaid will be expanded to include people with incomes less than 133% of the federal poverty level. The question is – who will pay for extra spending? One would think states would bear any increased costs equally. But four states receive Medicaid exemptions, meaning that the federal government would bear 100% of the new costs for those specified states while others are left to foot the bill. Basically, 46 states are left to subsidize the rest.

The favoritism doesn’t stop there. Democratic senators from New York and other states have pushed through a provision that exempts their states from having to pay the bill’s tax on gold-plated insurance plans.

The real scandal…each of the exempted states have Democratic senators up for re-election.

Reform Will Unfairly Increase Youth Premiums

Under the current law, young adults receive age-related discounts on their health insurance premiums. The lower price reflects the fact that the youth demographic are generally cheaper to insure due to their lower risk of numerous injuries, infections, diseases, etc. The system is fair in that price is keyed to risk. In other words, the people who require the most services pay the highest premiums. Many insurance plans allow youth a premium ratio of 5:1, meaning they pay substantially less for coverage than older individuals for the same plan. However, health care reform may change all that by forcing young adults, who require comparatively less treatment, to essentially subsidize other people’s higher insurance costs. Many of the proposed plans mandate a lower premium ratio, often 2:1, which would substantially increase the costs of coverage for the youth. As a result, many youth, which already represent the largest uninsured group, may be priced out of the market for health insurance

On Monday, Senate Majority Leader Harry Reid (D-NV) introduced a health care plan allowing states the right to opt out. As Reid described the provision, “under this concept, states will be able to decide what works for them.” Obviously sensing the public’s backlash to words like “mandate,” Sen. Reid has attempted to brand his new legislative approach as a choice. But while Sen. Reid has improved the branding, the underlying product remains inadequate. Although he hasn’t seen fit to provide any details of the plan, some serious questions arise.

1. Is it really a choice at all? Sen. Reid slyly made participation in the plan the default choice. This means that states must take the affirmative step to reject the proposal or else be included in the government plan. Although it’s unclear how each state will make the decision to opt-out, it will likely require approval by both chambers of the state legislation and the governor. As Con Carroll from the Heritage Foundation explained, “a one-vote majority of obstructionists in one chamber of a state legislation, by simply refusing to act, can consign a state’s residents to an eternity of government run health care.”

   Even more worrisome is the fact that there are only 9 states where Republicans have control of both the legislature and governor’s office. Thus, 41 states are likely to face the prospect of the public option. So much for “choice.”

   We need only look to the 1980s to find a historical argument against the notion of this being a “choice.” When Social Security legislation was passed state were given the opportunity to “opt out” of the plan and instead create their own retirement plans. Fast forward to today when every county in the nation with the exception of one has opted into federal Social Security. So much for “choice.”

2. From the time the government plan will take effect states will only have 1 year to make a decision about whether to permanently opt-out. This seems a clear power grab by Democrats to who realize that if they waited too long, Republicans may carry their current momentum into state legislatures and risk derailing their plan.

   Also, is 1 year really enough time to make an educated decision? For one, their doesn’t appear to be any plan to allow states a trial period to see for themselves how fast deficits rise and health care quality plummets. If you’re going to make states sign in blood, why not give them some time?

3. Handcuffing the future. From Sen. Reid’s brief comments this appears to be a “speak now or forever hold your peace” kind of deal. Thus, even if the citizens of a state who opted-in decide later that it was a bad idea, they have no remedy. They could elect Republicans who voted against the government expansion, but even they would be handcuffed by the inability to repeal this federal legislation. Even if the states were granted some power is there a scenario where the citizens would allow them to? That’s the problem with entitlements…once people have them, they are loathe to give them back. Republicans who wish for a return to free market health care would risk a backlash from people spoiled by a bloated government plan.

   Democrats have recognized the public relations possibilities. As liberal blogger Al Giordano wrote,

   “What nobody has mentioned so far – so let me please do so – is the political trap an “opt out” provision would set for health care opponents, particularly those in the Republican Party. . . All political hell would break loose in any state where the legislature and governor opted out of national public health care, because they won’t really be opting out, but, rather, would be slamming a door on their own constituents.”

   Do we really want to make citizens into pawns in a grand (and incredibly expensive) electoral scheme to get Democrats elected?

4. It’s a win-win for Congressional Democrats. As 2010 quickly approaches and the electoral landscape continues to look bleaker for Democrats, a legislative victory of any kind would buoy their flagging numbers. But as recent polls have demonstrated, public support for health care reform, and especially the public option, if steadily falling. Cue the opt-out solution. Under this plan Democrats in liberal districts can claim they won the battle for the public option. In conservative districts, Democrats can claim they worked for their state’s right to choose their own course. In other words, they can have their cake and eat it too.

5. Who foots the bill? One of Democrats main arguments in support of an individual mandate was that by forcing everyone to sign up (including the young and healthy) costs could be kept down. However, by allowing some states to opt out, risk cannot be spread over the same numbers. Further, if economics tell us anything, the oldest and sickest states would be more likely to sign up for the plan while the healthiest would continue to allow their residents choice. Would the states who opt-out be forced to subsidize the states who opt-in? By diluting the customer base of private and public insurance, aren’t you cutting economies of scale and driving prices up?

Unfortunately, so long as Sen. Reid and his cohorts continue to violate their promises of transparency and remain behind their locked doors, we will continue to wait for answers to any of these questions or concerns.

2.   The “Doc Fix” Shell Game

Every president has a “Read my lips…” moment. For Obama it was his promise that health care reform will be deficit neutral. At a campaign event in Ohio Obama said, “I have pledged that I will not sign health insurance reform that adds even one dime to our deficit over the next decade.”

Unfortunately, he seems to be ignoring the 2.47 trillion dimes included in the so called “doc fix” which was slyly removed from the larger health care bill. The $247 billion is needed to cover the costs of reimbursing doctors participating in the Medicare program.  The problem originates in the fact that Medicare reimburses doctors based on a specified rate tied to inflation. If Medicare spending grows faster than the economy then payments to doctors is reduced so that government expenditures do not get out of control. Turns out that cutting doctors salaries is political unpopular which has caused Congress to continuously block the cuts from going into effect.

The “doc fix” thus creates a huge road block for deficit neutrality. Obama’s solution? Cut it out of the health care bill altogether and voila – health care reform is now $247 billion dollars cheaper. Disregard the fact that I could make any particular bill “budget neutral” if I just moved the expensive parts to a new bill.

2. Burden or Bankrupt Small Businesses

Two of the main health care bills currently being debated in Congress include a “play-or-pay” employer mandate. These provisions force employers to offer health care insurance to their employees or pay a fine to the federal government. Either option presents significant costs to small business who may not be in a position to afford it. In estimates gathered by the Heritage Foundation, the mandates will cost businesses a minimum of $49 billion per year in extra fees and fines.

To shoulder this burden employers will be forced to find savings somewhere, putting 5.2 million low-wage workers in jeopardy of losing their job or cutting payroll by reducing the amount of hours worked. As John McCain said when discussing the burden on small businesses, “their only option is to lay off workers . . . if this is such a good deal, why do we have to threaten to fine people?”

The reform could have dire consequences for many small businesses and the young adults that they hire. A survey by the National Federal of Independent Businesses found that 20% of respondents would simply shut down when faced with the “pay-or-play” choice. Small businesses are the largest employer of youth in the United States, especially among those in their first jobs. A “pay-or-play” system that burdens or bankrupts small businesses also disadvantages the youth demographic who count on those jobs and wages to survive.

Over the next week I’ll be counting down the top 5 ways that health care reform will hurt our generation. Check back daily and spread the word…

1. Discourages Innovation – the Hallmark of Youth and Universities

Health care reform mounts a two pronged attack on innovation and invention. First, higher marginal tax rates and increase in payroll taxes for small businesses means the cost of entrepreneurialism rises. As the prospect of turning an idea into a functioning product becomes more expensive, the likelihood of taking the risk decreases. By pricing potential entrepreneurs out of the market we stifle innovation and invention.

Second, the United States is the global driver of health care innovation, an expensive but useful endeavor. However, by taking profit out of the equation you lessen the incentive for brilliant minds to solve health problems.  As Inventor Dean Kamen, when asked if there was a crisis in health care responded,

“Our healthcare system has seen some of the greatest achievements in human intellect since we started recording history: We’re developing incredible devices to improve the quantity and quality of people’s lives. We’re developing pharmaceuticals that alleviate the need for surgery and eliminate the volatile effects of diseases. We’re making the surgeries that are necessary ever less invasive . . . if we have a crisis, it’s the embarrassment of riches. . . The problem with that is that it’s enormously expensive.”[1]

Unfortunately the benefits of innovation are hard to measure in the short term, making it easy to convince people that reform is necessary. Thus, while the prospect of cutting costs through reform is attractive because it is instant, the price we pay in terms of innovation and health outcomes is delayed.

Removing the financial incentive to innovation will adversely affect universities which are a primary driver of research and scientific advancement. Many universities are able to capitalize on their research and intellectual property by selling their patents, spinning off profitable enterprises or working together with corporations. A secondary benefactor are students, who are able to do hands-on substantive research to solve real problems.  The ability of universities to make these profits and for students to learn outside the classroom would be harmed by innovation stunting reform.