Wow, this attempt to turn a plan the Democrats passed without a single Republican vote in the Senate into “a Republican Plan” tells me one thing - you guys are running from it as fast as you can because you know it’s a godawful mess.
To give a better answer to Brian Ekers, here are the fundamentals of the plan:
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The government sets up public insurance exchanges to cover people who can’t get health care insurance through their employers.
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The government disallows insurance companies from refusing anyone who has pre-existing conditions. Or perhaps that only applies to the exchanges - I can’t remember.
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The government fines employers who do not provide health care insurance for their employees $2000 dollars per employee, per year. This money helps finance the exchanges. Companies with fewer than 50 employees are exempt from this requirement.
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Punishment for weak employer plans. To prevent employers from offering very weak coverage insurance to avoid the penalties, the government stipulates that if even a single employee leaves an employer-provided plan for the exchanges, the employer can be fined $3000 for every employee - not just the one who left.
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Tax credit for employers. The government will provide up to $40 billion in tax credits to employers who want to offer health care coverage to their employees.
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Price Controls. A new health care advisory board will require all rate increases for insurers to be approved by them.
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Mandatory coverage. All citizens age 26 and above will be required to buy health insurance, either from a private insurer or from the exchanges. People below 26 years of age can seek coverage under their parent’s health plans.
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Low income aid: To allow people to afford the mandatory coverage, the government will provide financial aid for health insurance, indexed to income. People with incomes up to $80,000 will be eligible for health insurance supplements, but only if they get their insurance from the public exchanges. If their employer provides coverage, they get nothing.
All of this is promised to cost about a trillion dollars over ten years. And we all know government estimates of the cost of new programs are right on the money.
To pay for this new system, revenue will be raised in the following ways:
[ul]
[li]Broaden Medicare tax base for high-income taxpayers: $210.2 billion[/li][li]Annual fee on health insurance providers: $60 billion[/li][li]40% excise tax on health coverage in excess of $10,200/$27,500: $32 billion[/li][li]Impose annual fee on manufacturers and importers of branded drugs: $27 billion[/li][li]Impose 2.3% excise tax on manufacturers and importers of certain medical devices: $20 billion[/li][li]Require information reporting on payments to corporations: $17.1 billion[/li][li]Raise 7.5% Adjusted Gross Income floor on medical expenses deduction to 10%: 15.2 billion[/li][li]Limit health flexible spending arrangements in cafeteria plans: $13 billion[/li][li]All other revenue sources: $14.9 billion[/li][/ul]
That gets you almost half of the way there. The other half of the costs are supposed to be clawed out of the Medicare system in the form of cuts to doctor reimbursements and finding savings by cutting ‘waste, fraud, and abuse’. And we all know those kinds of promised cuts always happen.
If I were a Democrat right now, I’d be trying to accelerate this lawsuit to the Supreme Court, hoping that they strike down the whole mess. Because this bill is a disaster. It’s probably a major factor holding back job creation right now. Businesses are terrified of this, because it is just riddled with unknowns and is going to have a major distortionary effect on the economy.
Notice that there is $60 billion in taxes on insurance companies, plus they are being forced to accept people with pre-existing conditions, plus the cost of medical devices is going up by $20 billion and non-generic drugs by $27 billion, plus insurers will be forced to pay for the children of insurees up to the age of 26. These are all new cost drivers for insurance. How much are businesses that currently offer health insurance going to see their rates increase by? No one knows.
We do know that price controls are a giant fail. If the government caps the amount insurers are allowed to charge, but dumps new fees and mandates on them, it could drive the health insurance business underwater. Shortages are always the inevitable result of price controls. Some cynics have suggested that this is a back-door way to get to a single payer system - make everything except the government exchanges unaffordable. But even if that doesn’t happen, there could be shortages. Some companies may not be able to find insurance for their employees, which could open them up to fines.
This program is going to heavily distort the economy in strange ways. For example, if you’re a company with 49 employees, the marginal cost of that 50’th employee is through the roof because hiring that person will require that you then provide health insurance for everyone, or you’ll pay $40,000 per year in penalties (the law allows you to skip the charge for the first 30 employees, so you’ll pay $2,000 X 20, per year). That’s going to kill jobs in the very sector we rely on to create the most - growing businesses.
As another example: Let’s say you make skis. You have a large, labor-intensive manufacturing system, and you employ 1000 people. Your competitor invested a few hundred million in automation for his skis, so his capital costs are higher but he only employs 100 people. The two of you are competitive, and have about the same market share. But along comes Obamacare, and suddenly your company is hit by a fine of $2,000 per employee, so your bottom line costs just went up by $200,000, while your competitor’s only went up by $20,000. Now you can’t compete as well, and you lose market share.
Or, consider two large companies. One pays its employees on average $4,000 per month, plus health care benefits. The other has made a different deal with employees - it pays them an average of $4500 per month, but they pay for their own health care. But now, this company is also getting fined $2,000 per employee. Can it just roll back salaries to compensate? Probably not. Wages are sticky. People’s expenses grow to match their wages. It’s always hard to roll them back. So suddenly the second company is at a disadvantage, even though both gave their employees equal compensation before the health care law came along.
And so it goes. Companies with high income employees will be at a disadvantage over companies with low income employees, because the second company gets an implicit subsidy because the employees get tax credits for their health care. Even worse, these changes will affect prices in the supply chain, and since no one knows the details of their suppliers’ labor negotiations, no one really knows how this is going to change the price mix and their competitiveness and market share.
Then there’s the big unknowns. Let’s say you offer health care today. Is it good enough? It has to be good enough that none of your employees will seek out the exchanges, or you’re going to get hit with massive fines. But the health exchanges haven’t been set up yet, and the rules and coverage schedules haven’t been written, so no one knows.
Would you hire people today if you had no way of knowing if they were going to cost you $3,000 per year more in 2014? Would you increase your workforce now if you knew there was a chance that you were going to be put at a competitive disadvantage in the market in 2014, and that disadvantage will be worse with each employee you hire?
The CBO originally scored this as deficit neutral, but that’s no longer true. Actually it wasn’t true then either, because the Democrats cooked the books to get the CBO score by front-loading taxes and back-loading benefits. But it’s no longer true even under the CBO formulation. The 1099 form requirement has been dropped. The ‘gold-plated insurance’ plan has been dropped under pressure from the unions. No one believes the $500 billion in savings from Medicare will ever materialize. But even if that savings did, it could just as easily have been taken from there and applied to the deficit. What this plan does is soak up all the ‘low-hanging fruit’ where budgets could have been cut, making future budget reductions in health care that much harder.
Obama has already deferred the cuts to doctor’s payments twice. But if he does cut them, the net effect will be the same as what happened to medicaid - doctors will stop treating people who fall under this plan. Even worse (and the reason why various states are now returning the seed money for setting up exchanges), if the cuts completely go through, doctors would get paid more under medicaid. This means that more people may wind up being forced into medicaid to get treatment - and the states have to pay a big chunk of that. So the federal government’s books look okay, but the states get clobbered.
I could go on all day. This stupid plan is going to slam into the economy like a drunken sailor, causing unintended consequences everywhere. We’ve already seen it with the 1099 reporting. Boston Scientific, a medical device manufacturer, has already announced its closing its American manufacturing and moving it to China to avoid the mandates and new excise taxes. The Obama White House has already issued about a thousand temporary waivers to various businesses, because the rules set up for 2011, 2012, and 2013 turned out to be unrealistic.
Oh, and if the individual mandate is shot down by the courts, this thing is dead. Without that, a huge part of the funding mechanism for this - the requirement for healthy, young people to pay in - will vanish. If you can’t be turned away for pre-existing conditions and the amount insurance providers can charge is capped, the obvious strategy for everyone would be to go uninsured until they get sick or injured, then sign up. That destroys the entire insurance model.