The vote looming in the Senate to raise the debt limit should serve as a wake-up call that federal spending is out of control. Instead, Democratic leadership has tried to convince Americans that passing costly health care legislation is not only sensible, but requisite, and must be done now.
Neither is true. The bills use weak spending limits, weak tax provisions, and even weaker cuts to current spending to pay for reform. Democrats claim these provisions mean that the massive health bill will not only be paid for, but will decrease the federal deficit. In a recent testimony to the House Budget Committee, health care expert James Capretta outlines why this is contrary to Obamacare’s more likely fiscal future.
Weak Cost Control on New Entitlements. Both bills increase coverage by expanding Medicaid or offering subsidies to purchase insurance on the exchange. Lavish subsidies will be available to those who do not qualify for Medicaid but make under 400 percent the Federal Poverty Level. While 127 million Americans fall in this category, only 18 million are projected to receive the subsidy, due to a “firewall” to prevent those who are offered employer-sponsored coverage from receiving it. This creates gross inequity within income brackets. As is the way with Congress, lawmakers will likely give in to taxpayer pressure down the road to extend the subsidies and eliminate the inequity. Expanding this entitlement will cost billions, adding to the deficit.
The bills create another new entitlement via the CLASS Act, which provides community living assistance. Beneficiaries would pay premiums but would not receive benefits until years later, thus creating one-time savings at the programs onset. Obviously, years down the road this spending cushion would deteriorate, and the program would become insolvent. This is not accounted for in ten year cost projections.
Weak and Unpopular New Taxes. The Senate bill is paid for with a 40 percent excise tax on high-cost insurance plans. This provision is to deter Americans from purchasing unnecessarily extravagant health plans, but it is also responsible for about half of the revenue used to pay for the bill. This tax is widely unpopular, and Washington has already begun and will likely continue to carve out favored constituencies who balk at this tax. Union members have already been exempt through 2017, which eliminates 40 percent of expected revenue from this tax.
Presumed Cuts to Medicare. Finally, both bills are largely paid for by cuts to Medicare of approximately half a trillion dollars. These cuts will presumably be made to payment rates for certain care providers by decreasing inflation updates. The expectation that this will actually occur is almost laughable. At the same time that lawmakers are proposing to pay for health care form using cuts to Medicare, they are trying to pass the “doc fix” legislation to end cuts to Medicare that were enacted to—you guessed it—contain costs. Every year, Congress is supposed to decrease physician payment rates in order to control Medicare spending. And every year, Congress votes to suspend the doctors’ payment decrease due to pressure from the industry. The House recently passed legislation that would get rid of the payment cuts for good. And yet without blinking an eye, they propose to use the same failed method to pay for health care reform.
These cuts to Medicare are even more unlikely considering their full impact. As Capretta points out, “The Chief Actuary of the Medicare program has warned that these arbitrary reductions could have serious consequences for beneficiaries’ access to care, as [they] would push about one out of every five hospital facilities into insolvency.”
The House and Senate bills received positive cost estimates by the Congressional Budget Office based on these weak spending controls and the fact that the CBO analysis looks at the first ten year window, which for both bills, includes ten years of raising revenue, but only six years of spending. The country is facing a fiscal crisis as the population faces a demographic transformation of 30 million citizens entering old age within the next twenty years, Capretta points out. Lawmakers need to acknowledge the precariousness of America’s fiscal future and be honest about the true cost of Obamacare.