Understanding the Health Care Law: The Obamacare Disaster

Understanding the Health Care Law: The Obamacare Disaster
July 22, 2011

Peter Ferrara

Peter Ferrara is senior fellow for entitlement and budget policy at The Heartland Institute, a... (read full bio)

Now that the Patient Protection and Affordable Care Act (or “Obamacare”) is law, “what is in it” is revealed by 3,256 pages of legislative text, including the 858 pages of the reconciliation bill (as printed at my local library).

Most of the bill’s provisions, except its tax increases, do not go into effect until 2014. So what follows is like a visit from the ghost of Christmas Future—shadows of what will be, but do not have to be, if we will change it.

In my appraisal of the law, I arrived at ten principal findings.

 

1. Government Takeover of Health Care.

Obamacare authorizes an astonishing expansion of government authority over doctors, hospitals, insurers, employers, and individuals. It creates more than 150 new bureaucracies, agencies, boards, commissions, and programs to rule over health care in the United States. Government authorities are empowered to tell doctors and hospitals what is quality health care and what is not, what are best practices in medicine, how their medical practices should be structured, and what they will be paid and when.

Government authorities will mandate exactly what health insurance with what benefits workers and employers must buy, and the Act imposes tax penalties on them if they do not comply. Government authorities will dictate to insurance companies exactly what health insurance they must sell, to whom they must sell it, and what they can charge. Obamacare even redistributes premium income among insurers under a new “risk adjustment” mechanism.

This adds up to nothing short of a government takeover of health care.

 

2. Soaring Health Care Costs.

Despite Obamacare’s promise of making health care more affordable, the increased regulations, “free” benefits, and guaranteed coverage for various groups will cause health insurance rates to rise sharply, simply so insurers will have the funds to pay promised benefits. Demand for health care services will rise due to the incentives from third-party payment for health care by insurers and the government, while the supply is reduced by constraining the payment for services and through other disincentives. That is a prescription for soaring health care costs.

 

3. Government Health Care Rationing.

Obamacare attempts to anticipate and prevent rising health care costs by giving government the authority to ration care. This begins by constraining the resources going to doctors and hospitals through nearly $3 trillion in Medicare cuts over the first 20 years. A new, democratically unaccountable Independent Medicare Advisory Board is created with authority to adopt still more Medicare cuts.

Payment practices adopted by Medicare will be copied by private insurers, spreading the impact throughout the entire health care system. The Act creates financial incentives for doctors and hospitals to deny health care, contrary to the interests of their patients. Government authorities will use their new power over payments to doctors and hospitals to favor those who follow their rationing dictates.

These constrained resources will decimate incentives for investment in health care facilities such as hospitals and clinics, and in the provision of current technologies and services. Already we have seen the cancellation of 60 proposed new doctor-owned hospitals across the country because of new burdens imposed by the legislation. This means less access for Americans to advanced medical technologies such as MRIs and CT scans.

 

4. Short-circuiting Innovation.

Obamacare also will discourage private investment in the development of new medical technologies and drugs. Politicians will use limited resources to keep popular services free or nearly free and copayments low, diverting funds from research and development where social benefits are longer-term and more difficult to see.

As investment in health care technology declines, Americans will lose access to new innovations that modern medical science could support, such as gene therapies and biotechnologies.

All of this rationing will get worse over time, as rising costs force government to constrain health care resources even further. We see this already in Massachusetts, which adopted the essentials of Obamacare in 2006.

 

5. Higher Taxes.

Obamacare imposes new taxes and increases tax rates starting in 2011, adding up to $500 billion over the first ten years. Some of these tax increases will add further to rising higher health insurance premiums and higher health costs as they are passed through to patients.

Even with the new entitlement subsidies in the Act, buying the required high-cost insurance will be like a new payroll tax on working people, from 2.8 percent at lower incomes up to almost 10 percent on everyone making more than 200 percent of poverty (about $44,000 for a family of four).

The penalty for not complying with the individual mandate is $695 per person in a family, up to a maximum of $2,085 a year. That applies to everyone regardless of income. These new taxes violate candidate Obama’s pledge in 2008 not to raise taxes on anyone making less than $250,000 per year.

 

6. Runaway Government Spending.

Even though we cannot remotely afford all of the entitlement promises we already have made through Social Security, Medicare, and Medicaid, Obamacare sharply expands Medicaid and creates a massive new health insurance entitlement subsidy program. The Congressional Budget Office (CBO) reports the Act will increase federal spending by almost $1 trillion over the first ten years. Over the first ten years of full implementation, starting the clock in 2014, the Act involves $2.4 trillion in increased spending, making it the most expensive legislation ever approved by Congress and signed by a president.

As all the effects of the legislation play out, actual spending will be much higher.

 

7. Higher Federal Budget Deficits.

President Obama barnstormed the country insisting Obamacare would reduce federal deficits, based on a CBO score. But he did not tell us the CBO score assumed $2.9 trillion in Medicare cuts over the first 20 years, which is highly unlikely to occur and, if it did, would create chaos in health care for seniors.

More realistic forecasts show Obamacare would add between $2 trillion and $3 trillion, perhaps more, to the national debt over the next 20 years. It is not exaggerating to say Obamacare could bankrupt the nation.

 

8. Lower Quality Care.

The American people currently enjoy the most technologically advanced and highest quality health care in the world. Many Americans are alive today only because of this high-quality health care. This is a central component of the traditional high standard of living in the United States.

Obamacare will sharply reduce the quality of care, particularly for the most vulnerable, such as premature babies, the elderly, and those suffering from cancer or heart disease. The authors of the Act promised “health care for all,” but in fact the new system will institutionalize a rationing system that will deny health care to the sickest and those who need it most.

 

9. Slashing Jobs, Wages, and Economic Growth.

Although President Obama repeatedly claimed Obamacare was essential to restoring long-term economic growth, the Act will have the opposite effect, slashing jobs, wages, and long-term growth. That will be the effect of the employer mandate and the increased taxes under the Act on investment income.

The Small Business Tax Credit highly touted by President Obama also will produce these effects, as the full credit is available only for very small firms paying very low wages, and the credit phases out as the number of workers or average wages increase. That effectively imposes a penalty on creating new jobs or paying higher wages, discouraging both.

Similarly, the health insurance subsidies under the Act also phase out as income rises, effectively doubling marginal tax rates in the income tax code for low, moderate, and middle-income workers.

 

10. Broken Promises.

Candidate Obama promised not to raise taxes in any form for anyone making less than $250,000 per year, and to not sign legislation if it would increase the deficit by a single dime. Signing Obamacare clearly broke those promises.

Candidate and then President Obama promised that if you like your current health insurance, you can keep it. But under the terms of the Act, many employers will drop their current coverage in response to the financial incentives created by the Act. Some insurers will terminate current lines of insurance or go out of business altogether.

The Chief Actuary of Medicare admits that once the Act is phased in, at least half of the nation’s seniors with Medicare Advantage will lose that coverage. Members of Congress and their staffers will lose their current generous coverage under the Federal Employee Health Benefits program.

Obama promised repeatedly that if you like your current doctor you could keep him or her. But will your doctor keep you under Obamacare? Many doctors are likely to terminate their Medicare practices under the Act, or at least refuse to see new Medicare patients. Many specialists you have come to know and expect to rely on will no longer be available to serve you because of payment practices under the Act. Because of reduced payments and loss of freedom to control their own practices, many doctors will retire early or leave their practices for other professional opportunities.

 

Tragically Unnecessary

Tragically, none of this was necessary. Coverage could have been extended to all of the uninsured who could not afford it simply by providing some assistance for them to buy it, with a tax credit or voucher. Many policy analysts, including this author, have been advocating this and other “patient power” reforms for many years.

 

This would have required relatively small additional costs largely offset by savings. But President Obama and the Congressional Democrats refused to consider this type of reform, which does not involve expanded government power and control over health care.

 

Peter Ferrara (peterferrara@msn.com), an attorney, is director of entitlement and budget policy for the Institute for Policy Innovation and a senior fellow of The Heartland Institute. He served as a senior staff member in the White House Office of Policy Development under President Ronald Reagan and as associate deputy attorney general under President George H.W. Bush. This article is adapted from the executive summary of his book The Obamacare Disaster, published by The Heartland Institute and available for free at http://teapartytoolbox.org.

 

Internet Resources:

The Obamacare Disaster, Peter Ferrara.

Peter Ferrara

Peter Ferrara is senior fellow for entitlement and budget policy at The Heartland Institute, a... (read full bio)