Prepare for Obamacare II

Prepare for Obamacare II

After a long legislative battle, the Obama administration and Democratic congressional leaders suddenly seem to want health care news stories to fall off the front page.

In April, House Energy and Commerce Chairman Henry Waxman (D-CA) abruptly cancelled a high-profile hearing he had called just days earlier to berate corporate CEOs who dared to tell their investors the health-care bill would raise their costs. Waxman and his staff apparently realized his transparent effort to intimidate anyone who tells the truth about the legislation could backfire and turn into a public relations disaster, as CEOs who employ tens of thousands of people talked about how much Congress is disconnected from reality.

No Cost Cuts

The Democratic contention the bill actually lowers costs for American business is not supported by any rigorous analysis that would justify use in auditable corporate accounting methods. What is certain is the new health care law reduced the value to America’s corporations of federal support for retirees’ drug-benefit coverage. That means it will cost these companies more to provide such coverage.

There’s no disputing that. In fact, there’s no disputing the companies had an obligation to acknowledge this cost in their financial statements. One way or another, some Americans will be forced to pay more for health care because of this provision, in the form of reduced prescription-drug benefits for retirees or reduced value for the shareholders of the firms in question.

Sea of Red Ink

Now Congress faces the matter of the budget resolution. Congressional leaders are scrambling to avoid having to debate levels of taxation, federal spending, deficits, and debt before the midterm election.

Their reticence is understandable. President Obama is presiding over the largest expansion of the federal government in a generation, even though the government is already rushing headlong toward a debt crisis. The government is expected to run a budget deficit in excess of $1 trillion in 2010 after running a deficit of $1.4 trillion in 2009. And the Congressional Budget Office estimates the Obama administration’s latest budget plan would push the nation’s debt to more than $20 trillion in 2020, up from $5.8 trillion in 2008.

VAT Possible

No one should be fooled into thinking the administration and its congressional allies will never again revisit the budget and health care. They will, largely because the president will have no choice. He is presiding over a spending and borrowing binge unlike anything ever experienced in the nation’s postwar history. It can’t go on much longer without precipitating some kind of economic crisis.

When the administration does make a push for closing the budget deficit, its plan will start with the mother of all tax increases, probably a value-added tax (VAT), which the president recently endorsed as an idea worth considering.

More Price Controls Coming

An Obama-style budget fix almost certainly wouldn’t end there. To get support for the tax increase, he and his advisors realize they have to appear to be cutting some spending too – in this case, likely via price controls on payments to medical providers.

The recently enacted health care bill includes large cuts in Medicare payments to hospitals, nursing homes, and others. These cuts aren’t based on quality or efficiency; they’re across-the-board cuts hitting every service provider.

The bill also creates a new independent board charged with essentially enforcing a cap on overall Medicare spending beginning in 2015. But the board can’t touch the Medicare benefit itself, much less propose a move toward more choice and market competition. The only option is more and deeper price controls.

Government Health Care Takeover

Ultimately, to show their willingness to cut entitlement spending, Obama and his allies in Congress will push to broaden Medicare’s price controls to parts of the health system currently beyond their reach, including prescription drugs and the federally subsidized insurance arrangements enacted as part of the new health law.

It will be one more step toward their ultimate goal, a fully government-run health care system, with all that entails—including waiting lists and restricted access to care.

James Capretta (jcapretta@eppc.org) is a fellow at the Ethics and Public Policy Center in Washington, DC. This column is adapted from his blog, http://www.thenewatlantis.com/blog/diagnosis. Reprinted with permission.