Postelection update: GovCare

The Patient Protection and Affordable Care Act (often referred to as Obamacare, but we consider GovCare more suitable) was enacted in 2010 without a single Republican vote. For legislation with such far-reaching implications, this lack of bipartisanship was unusual if not unprecedented.

It would seem fair to say GovCare was sold to the American public without being forthrightly explained. As then House Speaker Nancy Pelosi commented at the time, “we have to pass the bill so you can find out what is in it.”

The GovCare legislation is lengthy and complex, the regulations even more so, and most people still lack a clear understanding of much that is involved. Based on what they have gleaned from experience, personal contacts, and/or the media, however, over half of Americans disapprove. As new enrollment period starts, ACA approval at 37%, Justin McCarthy, gallup.com,
11/17/14.

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Some conservatives say GovCare must be scrapped, thereby clearing the way for better ideas to be implemented. Others believe things have gone too far for this and the focus should be on finding some ways to improve the healthcare system that is being created.

Read on for discussion of an area that may loom large in the 2016 presidential election. Current status – key issues – the path forward.

A. GovCare highlights - Several government healthcare insurance (HCI) programs were in place before GovCare, and they covered a big chunk of the population: (1) Seniors were covered by Medicare and also, in some cases, Medicaid; (2) The indigent were covered by Medicaid; and (3) The young were covered by the Children’s Health Insurance Program (CHIP).

But working age Americans had to rely on employer-provided HCI, purchase HCI individually, or go without insurance, with the exception of those whose income was low enough to qualify for Medicaid.

Including cases in which people eligible for publicly provided coverage failed to sign up, some 15% of the population lacked HCI coverage. Some observers viewed this statistic as a national disgrace, and GovCare was designed to narrow the gap by action on several fronts. It was anticipated that 30 million residents or so would remain without HCI, however, as some people would choose to pay a fine rather than signing up and illegal immigrants would be ineligible for GovCare benefits.

FIRST, Medicaid limits were raised so more Americans would qualify for this assistance, with the federal government being obligated to cover most of the extra cost for the first few years versus splitting it with the states involved. GovCare empowered the federal government to effectively force states to expand their Medicaid coverage as contemplated, but the US Supreme Court struck down this provision in
National Federation of Independent Business v. Sebelius, June 2012.

SECOND, private HCI coverage was made available for working age Americans who exceed the Medicaid limits by (a) requiring larger employers to provide such coverage or pay fines (employer mandate), and (b) requiring workers to obtain such coverage or pay fines (individual mandate). The criteria for “acceptable” HCI policies were prescribed, which would purportedly ensure better insurance for people who already had insurance as well as for those who would now be getting it. Thus, children can remain on their parents’ policies until age 26, no one can be denied coverage due to preexisting conditions, various physical conditions must be covered, premiums for older versus younger participants can only vary by a stated percentage (thereby overcharging the young and healthy on an actuarial basis, while undercharging the old and sick), administrative costs may not exceed a given percentage of total premiums, etc. As a natural consequence of the foregoing, HCI providers would be forced to raise their premiums if too few of the young and healthy (aka “invincibles”) signed up.

THIRD, state HCI exchanges (or in their absence federally run exchanges) would assist working age Americans without employer-provided HCI to review available HCI plans and enroll in the one they preferred. To encourage enrollment, lower income participants will receive subsidies to reduce the cost of their premiums to a presumably affordable level while higher income participants pay the full cost. These government payments represent a new entitlement, which we’ll refer to, for lack of a better term, as HCI Subsidies.

FOURTH, it was claimed the government would recoup the additional Medicare cost, HCI Subsidies, and added administrative costs from (a) savings to be wrung out of Medicare, and (b) an array of taxes embedded in the GovCare legislation. The Congressional Budget Office initially scored the legislation as slightly reducing deficits, but it is now declining to assess the fiscal impact of the law. Obama and the CBO – no longer “giddy”, Larry Elder, Townhall.com,
6/12/14.

B. GovCare issues – The biggest problem with the healthcare system before GovCare was not the number of Americans without HCI (most of whom nevertheless had some access to medical care), but rather the relentless growth in healthcare costs (which are considerably higher per capita in the US than in any other major country). Accordingly, the prime focus for reform efforts should have been on seeking ways to reduce costs – thereby benefitting all concerned – rather than launching new healthcare programs. A “ready, aim, fire” approach to healthcare reform, 3/30/09.

As healthcare spending rises, the issue of who pays for it becomes increasingly important. Individuals, private employers, and state & local governments are all finding it difficult to keep up. Even the federal government is not “too big to fail,” and healthcare outlays will be a big part of the reason if a fiscal meltdown does take place.

There is no “cost free” way to provide subsidized HCI for millions of additional people and the enhanced access to healthcare services that would presumably go along with it. And if the cost is to be covered by “robbing Peter to pay Paul,” some people will surely wind up with the short end of the stick – although GovCare proponents sought to suggest otherwise. The website is fixable, but GovCare has deeper problems,
11/4/13 (Section A).

Americans already covered by healthcare insurance could keep what they had and pay less, it was said, while uninsured Americans would be taken care of as well. This picture was painted during the presidential campaign in 2008 and repeatedly thereafter until GovCare was enacted in 2010.

One way of “robbing Peter” has already been mentioned, namely imposing fines for noncompliance with the individual and employer mandates. This device was upheld by the Supreme Court in the National Federation of Independent Business case, with the result turning on Chief Justice John Roberts’ conclusion that the levies involved should be viewed as “taxes.”

The individual mandate levy was set at a rather nominal level for 2014, but it is scheduled to rise sharply. Penalties for uninsured not signing up for Obamacare to more than triple, washingtoncbslocal.com, 11/12/14.

Uninsured Americans who decide not to enroll [for 2015] will face a penalty of $325 per person, more than tripling the $95 penalty those who did not enroll had to pay the first time around. Children under the age of 18 will be fined $162.50. The maximum amount an uninsured family will be penalized is $975 under the flat-rate method.

The employer mandate was deferred by executive action, so it will first come into play for 2015. Smaller businesses (fewer than 50 employees) will have a choice of providing GovCare-compliant HCI to their employees or cancelling their existing HCI plans and sending employees to the exchanges. No fines will apply for their opting out, so many smaller company HCI plan cancellations are expected. Larger businesses will face an annual fine of $2,000 per employee for opting out. Betsy McCaughey: 30 million could lose healthcare due to Obamacare, Todd Beamon, newsmax.com,
10/4/14.

A second technique for robbing Peter is to cut back existing HCI coverage, which will be done in a variety of ways.

Individual HCI plans offered on exchanges in 2014, for example, typically had sharply higher premium costs (before HCI Subsidies if applicable) due to the mandated new features (no exclusions for preexisting conditions, etc.). Comparisons to premiums on previously available HCI plans were mitigated somewhat, however, by higher deductibles, fewer doctors and hospitals on the network, etc. Here’s an example based on one couple’s experience. Ouch! The website is fixable, op cit.,
11/4/13 (Section C).

The Griffins, who live near Philadelphia, pay $770 monthly for their soon-to-be-terminated healthcare plan with a $2,500 deductible. The cheapest plan they found on their state insurance exchange was a so-called bronze plan charging a $1,275 monthly premium with deductibles totaling $12,700.

It is also planned to squeeze Medicare outlays to the tune of some $700 billion over the first ten years. Leverage to ensure compliance is to be vested in an Independent Payment Advisory Board (IPAB), whose 15 appointed members will have extraordinary powers and be effectively shielded from oversight by either Congress or the courts. A legal challenge is underway, but it remains to be seen whether the Supreme Court will be willing to entertain it at this point (no IPAB members have been appointed yet). A bad provision even by Obamacare standards, Tom Coburn & Phil Roe, Wall Street Journal, 12/3/14 (no link available).

The statute says IPAB can take any and all actions necessary to control Medicare costs. Although it is prohibited from “rationing,” that term is nowhere defined in the Affordable Care Act. Hence IPAB can control costs by lowering physician reimbursements—thus driving more doctors away from treating Medicare patients—or by reducing the services eligible for reimbursement. In other words, by rationing care.

The growth in healthcare spending has been slowing for several years, and the Center for Medicare and Medicaid Services recently reported that overall healthcare spending rose at a 3.6% rate in 2013. This was said to be “the lowest level of growth ever recorded since the agency began measuring in 1960.” Slower healthcare spending growth may reflect GovCare changes re how healthcare providers are reimbursed by Medicare, and also rising deductibles on employer-provided and individual HCI policies that make consumers more cost conscious. A spike in healthcare spending is expected as GovCare adds to the number of Americans with HCI, however, and there is reason to doubt that top-down cost controls will be effective over the longer term. Consumer-driven healthcare a more sustainable way to contain spending, Philip Klein, Washington Examiner,
12/5/14.

. . . in a separate report released in July, Medicare’s chief actuary warned that Obamacare’s changes will be unsustainable because eventually medical providers will lose money by serving Medicare patients, forcing them to exit the program. This will either reduce access or force Congress to restore funding, thus driving spending back up.

Another way to rob Peter is by raising taxes, and to this end an assortment of tax increases are embedded in the GovCare legislation. Several examples follow that seem particularly egregious. Top 10 Obamacare taxes coming your way, humanevents.com, 7/14/12.

•We doubt the desirability of a 3.8% surtax on investment income of high earners, but in any case why should the proceeds by earmarked for healthcare programs versus, say, infrastructure repairs or deficit reduction?

•The 2.3% excise tax on medical devices will be passed on to consumers, thereby inflating healthcare costs. Why does such a tax belong in an Affordable Care Act?

•Rising healthcare costs could result a lot of HCI plans being subjected to the 40% excise tax on “Cadillac” HCI plans.

•A $50K excise tax on charitable hospitals failing to comply with various new regulations, such as new standards in assessing community health needs and financial assistance requirements, sounds like bureaucratic overreach.

Although illegal immigrants are currently not covered by Medicare, Medicaid or GovCare, we doubt this state of affairs will continue. First, there will be pressure to provide HCI coverage for this population on moral grounds. Second, the existing rules could have a perverse effect on hiring decisions. Obamacare offers firms $3,000 incentive [the $2K fine for not complying for the employer mandate on an eligible worker is not tax deductible] to hire illegals over native-born workers, Stephen Dinan, Washington Times,
11/25/14.

A second legal challenge for GovCare has made it to Supreme Court, this one based on an IRS determination to recognize HCI Subsidies (tax credits) for plans acquired on federal (vs. state) exchanges. The IRS position arguably contravenes the plain meaning of the statute, and it’s possible that the Court will reject it. If the government loses, the viability of GovCare would be cast into question in over half the states of the union. A decision is expected in June. Supreme Court to hear new Obamacare challenge, FoxNews.com,
11/7/14.

Last but not least, the post-GovCare healthcare system does not seem like the end of the line. While essentially all segments of the population (with the possible exception of illegal immigrants) would be given an opportunity to obtain affordable HCI, the coverage categories are overlapping and confusing.

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Moreover, the resulting system is unlikely to function smoothly or deliver superior results. Big government advocates will predictably say, “the system is broken” (a stock phrase they often use), and push for a single payer plan. Unless fiscal visionaries can come up with an appealing counterproposal, they will be worn down and run over.

C. Conservative strategy – Buoyed by having won control of the Senate, Republicans may seek to enact a bill repealing GovCare in the new Congress. We doubt such an effort would succeed, however, since they can’t expect to get 60 votes in the Senate (necessary to stop a filibuster) and a presidential veto could be expected.

The next step would be to start proposing changes to GovCare as it currently stands, ideally bite-sized bills that would resonate with the public and be hard for Democrats to oppose without being labeled as obstructionists. Here are four suggestions, which are meant to be illustrative rather than exhaustive.

•Repeal the medical devices tax, which is unpopular on both sides of the aisle. Offer to “pay” for the resulting loss of revenue by announcing a limited time window for US companies to repatriate foreign subsidiary earnings with only a 5% tax to be collected.

•Repeal the excise tax on Cadillac HCI plans, which is resented by some Democratic supporters, namely the unions. Same source of income as repeal of the medical devices tax, but put this change in a separate bill.

•Repeal the IPAB provisions, which are of dubious wisdom or legality. If liberals attempted to defend these provisions, they might be digging a hole for themselves.

•Amend the employer mandate so that HCI coverage would not be required for part-time employees (less than 40 hours a week vs. the current 30 hours a week).

=========================COMMENT============================
A counterproposal would shift the focus from the deficiencies of GovCare to the purported inadequacies and heartlessness of the new plan. Conservatives should just cut spending on key items in GovCare and destabilize it. – SAFE director


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