Government Watch

The Unaffordable Care Act

from NRO – by Yuval Levin –

As Obamacare begins to roll out, its champions are beginning to have to confront reality. But because they’re getting a lot of leeway and protection from the political press, the results of this confrontation with the consequences of the law’s poor design and misguided economic assumptions often take the form of little nuggets of truth buried in mountains of frantic, wishful obfuscation. Such was the little nugget buried in the middle of a story that was itself buried in the back of the A section of last Friday’s New York Times.

The story was about the enormous challenges of implementing the law, and while it was careful to inform us (in the mouths of unnamed “supporters of the law”) that a lot of these problems are surely functions of the fact that “President Obama has done little to trumpet its benefits, educate the public or answer the critics,” it also notes the following curious fact:

Mr. Obama scored his biggest legislative achievement exactly three years ago when he signed the Affordable Care Act. But this week the administration cautioned officials to be careful about suggesting that the law would drive down costs.

After extensive research, the administration said it was unwise to tell consumers that they could get “health insurance that fits your budget.” That message, it said, is “seen as highly motivational, but not as believable.

This makes it sound like the “extensive research” in question was research into public opinion, which it may well have been. But of course, the more fundamental reason “to be careful about suggesting that the law would drive down costs” is that no one really expects it to do so — not even the administration.

Administration officials and many others on the left who talk about slowing health costs in the coming years never really attribute that expectation in any concrete way to the new law. Rather, they point to the fact that the growth of health costs has slowed a bit during the recession and the painfully slow recovery of the past few years, and they simply expect that slow rate to continue even as they simultaneously expect the economy to recover much more robustly in the coming years.

It’s very important to understand just how much the Left now hangs on this very implausible expectation about health costs. It is at the core of the Democrats’ fiscal arguments, and at the core of their optimistic assumptions about how Obamacare will work out.

That expectation is, to begin with, what allows Paul Krugman and others (including administration officials) to suggest that we just don’t have to worry about the deficit and debt at this point because they will be pretty stable for about a decade before beginning a catastrophic rise that would crush the economy. That’s what amounts to fiscal optimism these days, and it’s the essence of the Democrats’ resistance to entitlement reform. It is embodied, for instance, in this chart that you’d find if you trudged through the president’s 2013 budget proposal all the way to the 510-page “analytical perspectives” volume that was released with the budget:

This projection, which predicts an epic disaster for the American economy if we remain on our current fiscal course in the long run, is, to repeat, a very rosy view, since it suggests we have about ten years of relative stability (if at a high level of debt) in which to change course before the steep upward trajectory of debt resumes — although the people who use this figure somehow use it to argue against changing course. But in any case, even this sorry excuse for optimism is only made possible by the notion that the growth of health costs won’t soon return to even its postwar norm, let alone to its norm of the last two decades. It assumes, for instance, that Medicare spending will only be 3.3 percent of GDP in 2020, while the Congressional Budget Office assumes it will be 4.2 percent of GDP — a huge difference. And it’s a difference that has a massive effect on medium and long-term expectations. The CBO uses somewhat less rosy assumptions (but still assumes health-cost growth will take a while to resume), and so expects federal debt to reach 200 percent of GDP not in 2080 but in 2037 — again, a huge difference, which means the CBO sees a far steeper rise in deficits and debt in the near and medium term.

But the optimistic assumptions about health-care costs have much more immediate consequences too. The relative stability projected in that chart for the next decade is simply assumed, it is not asserted to be a function of any particular reform in Obamacare. In fact, it is assumed in the administration’s expectations of how the Obamacare rollout itself will work out, and therefore allows them to skirt over two huge problems with the law’s design.

The first is that, unless health costs grow very slowly and keep the growth of Medicare costs very low, Obamacare’s additional price controls (in the form of the IPAB) would have to kick in, and, because they are only allowed to take the form of across-the-board rate cuts for providers, they would result in drastically reduced access to health care for seniors. The actuaries of the Medicare program (who work for Barack Obama) have projected that this would require payment rates for doctors in Medicare to dip well below Medicaid rates and keep falling. Here’s how they see it:

 

We know that Medicaid’s low payment rates cause many doctors to refuse Medicaid patients, and therefore make it difficult for many poor Americans to find health care. Taking Medicare rates below that level should have similar, but even more drastic, effects. It’s not even worth trying to think through the details of what that would look like because it would simply never happen — we’ve seen that far smaller cuts than that are undone each year through the “doc fix” and there is no way doctors or seniors would put up with such blunt across-the-board cuts and such a loss of access to care. The only way to really avoid that mess is if health costs just magically remain very low, and that’s basically what the administration (and to some extent the CBO) now project when assessing the law. The CBO assumes, for instance, that the IPAB wouldn’t even have to start doing anything at all until after 2022.

But that’s not all. The second large design problem that the rosy health-costs scenario allows the administration to ignore reaches even closer to the heart of Obamacare. After the law’s designers got their first real CBO score in 2009, they realized they had to find some way to cut the projected costs of the law’s exchange subsidies if they were to have any chance of pretending the law would cost less than a trillion dollars over a decade. So they inserted a provision that kicks in in 2018 and requires that, if the cost of the exchange subsidies exceeds 0.5 percent of GDP in any given year, the level of subsidy would be cut in a means-tested way. The provision didn’t draw much attention even from health wonks at first, but in 2011 the CBO produced an analysis of it showing that it would cause very significant declines not just in the growth of subsidies but in their nominal value year-over-year for many middle-class families. These families’ out-of-pocket costs would quickly grow larger than the penalty (or tax, for John Roberts fans) they would have to pay for not having coverage, and many could well opt to go uninsured until they needed care. (Jed Graham of Investors Business Daily has done some great reporting on this provision, especially here and here.)

Until this year, the CBO has always assumed that these families just wouldn’t drop their coverage, but in its latest score of Obamacare, the agency for the first time projects that the number of people in the exchanges will actually begin to drop after 2018, declining by almost a tenth over the subsequent five years even as the population grows. And since the people who remained in the exchanges would tend to be poorer and sicker, the costs of providing them subsidies would grow very quickly (by almost 6 percent annually), since the exchange pool would become more risky. (And this projection, remember, is still based on rosy expectations about overall health-cost growth.) This nightmare scenario, too, is pretty unlikely to happen, since the people involved would be middle-class families. They’re not going to accept the enormous downside of Obamacare without even the modest upside of exchange subsidies, and they’re not going to like being forced to go uninsured. The politics of this just wouldn’t hold.

In both cases, it is only possible to imagine that Obamacare might be sustained if we assume very low growth in health costs. That assumption is absolutely critical to liberal fiscal and health policy today. But of course, Obamacare doesn’t really offer any serious mechanism to achieve such low costs — in fact, it’s actively hostile to the kind of consumer incentives and competitive pressures it would take to achieve it.

These are just a few of the many increasingly evident reasons why Obamacare in its current form has no future. For now, you’ve got to dig pretty deep in your newspaper to see it. But it’s going to become clearer and clearer to real voters as implementation proceeds.

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9 Comments on "The Unaffordable Care Act"

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joe
3 years 5 months ago

We need to get rid of all liberals (legally of course) and ban the Dumocrats from ever running for office again.
The comments above say it all and there is very little that I poor dumb conservative that I am can add.

LR
3 years 5 months ago
As a 58 year old single working woman, the outlook for my retirement anytime soon looks very bleak. I have worked long and hard for 50 years and always paid my taxes for social security, federal taxes, state taxes, local property taxes, local school taxes, local taxes on everything I purchase, etc. Now that it is almost time to enjoy my “golden years,” I am at a loss for how to plan wisely without becoming a future financial burden on my two grown sons. Every budget scenario I play out doesn’t give me much to work with and adding the tax burdens of the federal health care law into the equation scares me to death. And I know that my future health care will be compromised; I know what socialized medicine looks like and it’s not good. These crazy Washington politicians just don’t get it; that I am sick and… Read more »
DaveP
3 years 5 months ago

Politicians do not use “overly-optimistic assumptions” as PaulE says. They lie, they lie, they lie, then they lie some more. Do you realize if a private sector business used similar tactics to promote their business the same way the gov’t does, they’d go to jail.

PaulE
3 years 5 months ago

Hi DaveP,

If you read my post, you would see that is what overly optimistic assumptions means in the political speak of Washington. It means they lied to the American people and got caught. However, since they’re politicians, they rarely have to pay any consequences. Why the American people continue to re-elect the same names over and over again, scandal after scandal, is beyond reason. Most of Washington should be locked up.

Jesse James
3 years 5 months ago
It was never intended to be a “healthcare” act. In Saul Alinkys book, Rules for Radicals, the approach is stated there. Obama by his own admission in 2008 lauded this book as “very influential” in his life. “Always cloak naked self interested with moral principles”. There it is. The proverbial “healthcare act”. It was and is ALL about power. Never was anything else. Government takeover of more and more and more. Oblama (the blamer) sees himself as King Hussein Obama. The pesky constitution and the separation of powers are trivial obstacles to be sidestepped when at all possible. The food stamp program is about power. Jobs for all would ruin the 50 million currently on food stamps. Those are votes. Give them opportunity to earn money and they will forget the fat government tit from which they suck the milk of easy and free stuff. Oblama is one of the… Read more »
Jim G
3 years 5 months ago

Jessie,

Six years ago or more I knew this lying rat was a Marxist Comunist so I am never surprised (but I am sickened) to hear and see what he is saying and doing. At this point all we can do is pray to God that american citizens don’t let him have the house and the senate. If you havent already done so I would encourage you and everybody else to join the Heritage Foundation and Heritage Action For America. By doing so you will know that you are supporting the changes all of us know is necessay to move away from this foolishness and take our government back.

KarenFaye
3 years 5 months ago

Unfortunately, you have nailed it. Why is it so many thousands of Americans can’t see what you do? We saw it in 2007 while he was campaigning (not that he has ever stopped) – but people seemed oblivious, and thought Mr. Cool was the ONLY one to vote for. Then, the second election came around, and no one wanted to vote against the first “Black’ president – or give up their free cell phones, Obamamoney, and other freebies. If Social Security goes broke, it will because of the millions who are now collecting SSDI in lieu of an honest job. America is the next HAITI with most living in tent cities under this ridiculous regime of fools.

Jonath
3 years 5 months ago

I’m not an economist so I most appreciate the description and charts cooborating the asserts being made here. Thank you Yuval!

As to the comment made prior to mine. I am also a realist and I realize that crying over spilt milk is pointless. Concentrating then on the future… how about a national registry (this should but probably won’t appeal to Obama and his big goverment proponents) wherein is recorded all the public officials (elected or appointed or otherwise) and administrators of government usurpation of the civil contract. Alongside each name would be the particulars and level of participation in each big-government initiative.

We as the public may have short memories so the act of referring to notes should not be unreasonable..Upon each occurrence of election or presidential appointment or nomination this registry is once again exposed to the public.

PaulE
3 years 5 months ago
Virtually every government program has used overly-optimistic assumptions in order to get the program passed and initially funded. In the private sector, we would call it lying and there are reprocussions. In the public sector, they call it either “unintended consequences” or “unintended cost over-runs” and no one is ever held accountable. After the program is passed and initially funded, reality takes over and the cost of the program typically explodes upward. Hey, things cost what they cost and just because they obfuscate their costs in ordert get approval of the program, doesn’t change the real-world economics behind the program itself. However, once passed into law, it is virtually unheard of at the federal level to eliminate the program. The program creates its own protective bureaucracy designed to ensure its survival. So as it grows more expensive each year, the public and some politicians complain about it, but at the… Read more »
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