Healthcare Reform: A Pricey Prescription | Citizens Against Government Waste

Healthcare Reform: A Pricey Prescription

The WasteWatcher

President Obama promised this would be the year of health care reform, but many are bracing for what this “reform” could really mean.  After much anticipation, Democrats have started to unveil their healthcare reform plans, revealing new policy proposals that would, among other things, expand Medicaid, impose individual and employer mandates, enlarge the almost bankrupt Medicare program, create a new government-run healthcare plan, and cost at least $1 trillion over 10 years.  The overall result will inevitably be higher taxes, less patient choice, and ultimately, rationing of care. 

In an effort to control rising medical costs and cover the uninsured, Democrats have proposed creating a government-run plan that could compete with private insurers.  The Obama administration has vowed that the American healthcare system will not wind up looking like the anemic Canadian or British single-payer systems, where patients wait months for necessary, sometimes even life-saving, treatments.  

Nevertheless, the creation of a government-run healthcare plan would be a slippery slope toward a single-payer system.  A highly politicized public plan will never sit on a level playing field with private businesses.  Insurers cannot compete with a public option that will undercut them on price, which the federal government will certainly do, all on the taxpayers’ dime.  According to the Heritage Foundation, public plan premiums would be 25 to 40 percent lower than private insurance premiums and would reimburse providers at a lower rate than private payers.  Such a system will inevitably drive private insurers (not to mention doctors, nurses, hospitals, and all other healthcare professionals) into the ground, leaving the American public with only one option: the government-run plan.  

Democrats have also proposed an individual mandate that the government will impose on all citizens.  But individual mandates will not solve the uninsured problem.  In Massachusetts, the first state to enact a plan that featured an individual mandate with tax penalties and fines, the public authorities have already exempted approximately 60,000 residents from its terms.

When government mandates that people purchase health insurance, it must define a minimum set of covered benefits that satisfies that mandate.  This conflicts with the American philosophy of free choice, as individuals should be able to determine what type of healthcare plan is best for them without government interference.  

The Obama administration has said that Americans will be able to keep their current insurance and choose their own plan.  However, the combination of a mandate with the government-run plan is a sure path toward a single-payer system that lacks flexibility and choice. 

Operational and administrative problems aside, financing this massive overhaul is infeasible.  The Congressional Budget Office (CBO) recently released its estimate of the costs associated with the Affordable Health Choices Act, co-sponsored by Sens. Edward Kennedy (D-Mass.) and Christopher Dodd (D-Conn.), which was the first plan under consideration.  CBO scored a portion of the then-incomplete plan at $1 trillion over 10 years to cover 16 million individuals, while estimating that it will still leave 34 million Americans uninsured.  That equals an annual average premium of $6,250, which is 33 percent greater than the average annual private health plan premium of $4,700. 

The estimated $1 trillion price tag does not include the creation of a government-run plan, significant Medicaid expansion, and new healthcare entitlements, since the Kennedy-Dodd plan conveniently omitted the details on those provisions from their draft. 

A similar bill is currently being cooked up by the Senate Finance Committee.  It would cost taxpayers more than $1.6 trillion over 10 years while leaving 15 million Americans uninsured, according to CBO estimates.  No one can accurately foresee how much either of these plans will cost, but one thing is certain: taxpayers will pay a hefty price.

The Kennedy-Dodd CBO score presumes $297 billion in offsetting savings, most of which would come from tax increases.  A slew of scary revenue-raising proposals have been floated as options for financing this healthcare “reform.”

Under current law, employers receive a tax exemption for providing health insurance to their employees.  The Employee Benefits Research Institute found that more than 70 percent of middle-income nonelderly Americans have employer-based health coverage and about half have a family income of less than $75,000.  Democrats have proposed repealing this tax exemption as a way to finance their universal healthcare system.  According to CBO reports, this would force at least 23 million Americans to forfeit their current health coverage because employers will opt out of covering the employees and dump them on the new, government-run plan. 

An independent analysis by the Lewin Group, a healthcare policy research firm, shows that a public plan open to all employers would bring enrollment to 131.2 million and would likely result in 119.1 million Americans being booted from their private coverage.  In this case, 70 percent of the 171.6 million people who currently have private insurance would lose the coverage they have today.

Individuals moving out their current employer-based coverage and into subsidized plans would not have the same tax exclusion from their income from payroll and income taxes, thus resulting in net tax increases.  If the income tax exclusion were repealed, it would impose a huge $2.3 trillion tax increase over 10 years. 

Democrats are also considering restricting or even ending Health Savings Accounts (HSA), tax-free accounts used for health expenses.  Ending all future HSA contributions would raise taxes by about $11 billion over the next 10 years.  These proposals would break President Obama’s promise not to increase taxes on the middle-class, something he will inevitably be forced to do in order to finance his massive healthcare plan. 

The Obama administration has also proposed reigning in spending on Medicare Advantage.  One in five seniors is currently enrolled in a Medicare Advantage private plan, including 40 percent of African-American seniors and more than 50 percent of Hispanic seniors.  Despite the popularity and success of Medicare Advantage, lawmakers want to cut back on these plans.

Higher corporate taxes are also on the table.  Despite the weak economy, the Obama administration is considering plans to raise taxes on U.S. multinational corporations by $210 billion over 10 years to pay for healthcare.  A corporate tax would ultimately lead to lower wages and benefits for American workers.  Microsoft, for example, has already said they it be forced to ship U.S. jobs overseas in order to stay competitive if these new tax hikes are imposed.

Senate Finance Committee Chairman Max Baucus (D-Mont.) has gone as far as recommending a “lifestyle tax” on alcoholic and sugary beverages.  Proposals being discussed would raise federal beer taxes from 33 to 81 cents per six-pack, wine taxes from 21 to 70 cents per bottle, and taxes on spirits from $2.14 per fifth to $2.54.  These increases would raise about $60 billion over 10 years.  A three-cent tax per 12-ounce sweetened beverage would raise another $50 billion over 10 years.  This is an outrageous proposal, one which unfairly targets the soda and alcohol industry, but more importantly, levies a regressive tax on consumers which will disproportionately fall on middle- and lower-income Americans.

The Democrats have written a prescription for the biggest headache of all time.  Even if all these new income taxes, payroll taxes, excise taxes, and corporate taxes were imposed, the government would still fall far short of their overly-optimistic $1.6 trillion mark.  The Kennedy-Dodd healthcare bill will increase the national deficit by at least $189 billion by 2019.  Rather than reduce the number of uninsured, these plans are aimed at forcing more currently insured individuals into a government-run plan.  Any lawmaker who thinks these expensive, complicated, bureaucratic healthcare proposals are a good idea should see their psychiatrist immediately … before their new government-run plan limits their ability to do so.

Erica Gordon