a $2.6-trillion expansion of
government, to seize control of one-sixth of the U.S. economy
April 2010 The Democratic health care legislation.
will enlarge government, increase
Federal spending, deficits, and debt, and create a dependence on the Federal Government at odds
with America’s historic commitment to individual liberty and personal responsibility. It was
muscled through Congress on a purely partisan vote, and through an unprecedented abuse of a
specialized budget process intended to control the size of government, not expand it. The
principal consequences of the legislation include:
It initiates a government takeover of the health care sector (one-sixth of the U.S.
economy), intrudes in the doctor-patient relationship, and increases total spending by$2.6 trillion.
It raises taxes by more than a half-trillion dollars over the next 10 years – the largest tax
increase in American history
It cuts more than a half-trillion dollars from Medicare to finance a new entitlement, and
includes a series of additional gimmicks that hide the true cost of the legislation
It adds to an already unsustainable rate of government spending growth that will
overwhelm the Federal budget and sacrifice the Nation’s future prosperity.The discussion that follows details these points.
A GOVERNMENT TAKEOVER, AND A SURGE OF NEW SPENDING Seizing Control of the Health Care Sector
From the beginning, the Democratic Majority pushed legislation that envisioned a centralized,controlling government role in the provision and financing of health care. They failed to focus on the underlying problem – unconstrained growth in health costs – which puts health insurance out of reach for many. In the end, their approach led to an inevitable chain of additional governmentmandates, spending, and taxes. Even without the so-called “public option,” their health care billis an outright government takeover of health care.
The legislation consists of two bills: the Senate-passed Patient Protection and Affordable Care Act
(H.R. 3590), subsequently also passed by the House; and the Reconciliation Act of 2010 (H.R. 4872),
which modified the Senate bill. H.R. 4872 also contains changes in Federal student loans.
Contrary to the Majority’s claims, the Democratic health care legislation does not reduce deficits;
it does not control costs; it will bend the health care cost curve upward, increasing national health
expenditures by $222 billion.
2 It adds a new trillion-dollar health care entitlement when the
government cannot pay for the entitlement programs already on the books. It will also expand the
Federal budget commitment to health care by $390 billion over the next 10 years.
Some key components of the legislation:
The measure creates a new, open-ended health care entitlement for anyone earning up to
400 percent of the poverty level.
It imposes an unprecedented Washington mandate that forces everyone to buy health
insurance, or pay a fine.
It essentially eliminates the individual insurance market by prohibiting individuals from
using their government health coverage subsidies outside the new federally regulated insurance exchanges.
Its “play or pay” scheme, sold as a way of encouraging employers to provide coverage,
may actually do the reverse if the penalties cost companies less than providing health coverage. As a result, workers may be pushed off their job-based health insurance and forced to buy a government-subsidized plan.
It expands the Federal workforce – already on track to add 274,000 employees by the end
of this year – including legions of Internal Revenue Service agents to monitor its new tax provisions.
It nationalizes the regulation of health insurance premiums, usurping a State government
role and further smothering the normal market forces that would otherwise encourage innovation and cost-saving efficiencies.
It ignores the real cost drivers in health care, such as the third-party payment system,
which promotes overconsumption; the rising costs of health care services; and the payment mechanisms that encourage doctors to provide more services, not necessarily better outcomes.
It lets Washington decide what kind of health insurance will be available. The proposal
gives the Secretary of Health and Human Services [HHS], and a new Health Benefits Advisory Committee – an unelected group of Federal bureaucrats – unprecedented power to create and change the requirements for “acceptable coverage.” This will in turn restrict competition, stifle innovation, and limit the kinds of coverage that will be available to Americans. (Elderly watch out) It gives the U.S. Preventive Services Task Force (the group that made the controversial recommendations regarding mammograms) new powers to further limit patient choice,allowing the HHS Secretary to unilaterally deny payment for prevention services contrary to Task Force recommendations.
It empowers a “comparative effectiveness board,” created by last year’s “stimulus” bill,
that will restrict providers’ decisions about what treatments are best for their patients.
It creates a new Medicare commission – the Independent Payment Advisory Board
[IPAB] – another group of unelected bureaucrats who will recommend future cuts inMedicare benefits.
The underlying top-down approach of the legislation – imposing more layers of management and control on the health care sector – makes it impossible to achieve both of its claimed principal goals: vastly expanding health coverage while at the same time reducing costs. This is especially true considering the legislation’s failure to address the cost drivers and incentives noted above.But economic forces play a role even in a government-dominated system. With the policies in this legislation, those forces will lead to higher costs, or a reduction in the quantity or quality of healtcare services. Consider:
Supply and Demand. The mandate requiring effectively universal insurance will lead to a
higher demand for health care services. But at the same time, the legislation limits the supply of services by constraining payments to providers and suppliers. Hence demandwill continue outpacing supply, leading to upward pressure on costs and prices.
Government Price Controls. Instead of promoting real competition – which would
moderate costs naturally – the legislation nationalizes the regulation of health insurance premiums. This will lead to shortages and rationing: waiting times will replace prices as a means of balancing limited supply and higher demand. Quality will decline as consumers begin facing restricted access to the full range of treatment options. Greater government regulation also will limit incentives for medical innovation.New Spending In contrast to the Majority’s optimistic claims of deficit reduction and cost control, a thorough analysis of updated Congressional Budget Office [CBO] estimates, coupled with additional information,
shows a huge increase in entitlement spending, and growing budget deficits that
will add to the government’s already unsustainable growth of debt.
This discussion is based on an updated estimate by CBO and the Joint Committee on Taxation of an
amendment in the nature of a substitute for H.R.4872, and its effects in combination with the Senate-passed Patient Protection and Affordable Care Act (H.R. 3590), dated 2 March 2010. It differs from CBO’spreliminary estimates, released on 18 March 2010, which applied to an earlier version of the legislation,and it makes certain technical refinements as well. This discussion also reflects CBO’s analysis whcertain alternative factors are included, as requested by Budget Committee Ranking Member Ryan,19 March 2010.The two documents can be found at:
Costly Consequences of Health Care Legislation
The legislation contains roughly $2.6 trillion in total spending in the 10-year window once the new entitlement is implemented (2014-23).
It provides $464 billion for Federal subsidies to purchase government-run health
coverage ($15 billion in excess spending relative to the Senate bill).
It adds $434 billion for Medicaid and the State Children’s Health Insurance Program ($48
billion in excess spending relative to the Senate bill). Medicaid already is growing by 23 percent this year (partly from the “stimulus” bill), and is projected to grow by about 11 percent next year, increasing the already heavy burdens on State government budgets.Yet all this additional spending does not include $208 billion over 10 years for the “doc fix,”which was removed by the Democratic Leadership to hide the true cost of the health carelegislation.
A total of $569 billion in new tax increases – representing a new record for the largest tax increase in U.S. history.The $2.6-trillion estimate is from the Senate Budget Committee Republican staff, 21 March 2010:
The $569 billion is a gross tax increase figure. CBO also counts a tax reduction against this amount,
yielding a net tax increase of $525 billion for the combination of H.R. 3590 and H.R. 4872 – still the largest
tax increase in history. The previous record was established by the Omnibus Budget Reconciliation Act of
1993, which increased revenue by $241 billion over 10 years, according to CBO estimates (see Table 2-2 in
CBO’s 1993 Update of the Budget and Economic Outlook:
Costly Consequences of Health Care Legislation.
The largest single tax hike in the bill – $210 billion – results from a 0.9-percent increase
in the Medicare payroll tax on wages for job creators and small businesses, and a new
3.8-percent surtax on net investment income.
- The threshold amounts for these surtaxes are not indexed for inflation, meaning
that although the taxes are aimed at “wealthy” individuals today, they will reach
increasing numbers of middle-income taxpayers over time, just like the
alternative minimum tax.
- For instance, an individual earning $100,000 today would cross the $200,000
threshold within 2 decades, assuming a yearly inflation rate of 3.5 percent.
These new taxes will be in addition to numerous proposed tax increases for individuals
and businesses outlined in the administration’s budget, adding to the total drag on
economic growth and job creation just as the economy is struggling to emerge from the
worst downturn since the Great Depression.
The CBO can only make estimates based on the way legislation is written – and what the
Majority presented to CBO is full of spending gimmicks and hidden costs. Budget Committee
Ranking Member Ryan exposed the smoke and mirrors at the Blair House health care summit on
25 February 2010 – and CBO confirmed many of these gimmicks in its letter of 19 March 2010.
The legislation includes 10 years of tax increases and 10 years of Medicare cuts to pay
for 6 years of spending. So the estimated $938-billion cost for health care subsidies,
which start in 2014, does not reflect a full 10 years of spending. A true 10-year cost
estimate, starting when subsidies begin (2014-23), is $2.6 trillion.
In addition, the CBO cost estimate is derived from the March 2009 baseline – instead of
the March 2010 baseline, which has been released. The outdated cost estimate hides the
true price tag of the legislation.
The legislation as written double-counts several “savings” items, including the following:
A total of $53 billion in “savings” over 10 years ($29 billion after enactment of the A total of $53 billion in “savings” over 10 years ($29 billion after enactment of the
reconciliation bill) from increased Social Security payroll tax revenues is used for the new entitlement. (Taking from social security again!!!)
These funds already are dedicated to future Social Security.*****
The legislation counts as offsets $70 billion intended as premiums for the long-term care
insurance provisions – the Community Living Assistance Services and Supports
[CLASS] Act. Senator Conrad has termed the inclusion of the CLASS Act in the health
care bill “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would have
been proud of.”
The measure double-counts $528 billion in reductions from Medicare – making the false
claim of extending Medicare’s solvency while also offsetting costs of the new health care entitlement. For the Medicare Hospital Insurance fund alone, CBO has calculated that $398 billion in savings over 10 years is being double-counted. The legislation also includes $202 billion in reductions to the Medicare Advantage Program, representing nearly $14 billion more in cuts than the Senate-passed bill.
The CBO estimate does not include at least $70 billion in appropriations that will be
required to implement this vast expansion of government. If all explicit authorized appropriations were extended over 10 years, the additional cost for the legislation would exceed $100 billion.After stripping away the double-counting of Medicare cuts, the Social Security payroll tax “savings,” and the CLASS Act, and counting the necessary appropriations, the legislation increases the deficit by $425 billion over the first 10 years. When the “doc fix” is added, it increases the government’s long-term deficits by one-quarter of a percent of gross domesticproduct [GDP] – which translates to more than $600 billion in the second decade. Also, the President’s budget claimed $150 billion in deficit reduction from health care legislation. Even with this effect included, his budget then doubles the debt in 5 years, and triples it in 10years – reaching 90 percent of GDP by 2020. The health care legislation he signed falls short of his deficit-reduction allowance from health care – so the debt increase will likely be even worse.
The Missing ‘Doc Fix’
In addition, as noted above, the legislation does not include the “doc fix,” preventing scheduled
cuts in Medicare physician payments assumed in current law – even though the provision was
included in previous iterations of both the House and Senate health care legislation. Adding this
cost, along with correcting the double-counts cited above, increases the total cost of the legislation to $638 billion over 10 years.
A final irony in this package is the inclusion of a government takeover of the student loan
industry, using the projected profits – assuming they materialize – to expand government now.
Title II of the Reconciliation Act of 2010 (H.R. 4872) contains the main components of the
Student Aid and Fiscal Responsibility Act [SAFRA], which abolishes the 40-year-old Federal
Family Education Loan Program [FFELP] as of 1 July 2010, and requires that all future Federal
student loans be Direct Loans [DL]. This will turn the Department of Education into the seventh
largest bank in the Nation.
The Direct Loan program was started in the 1990s by the Clinton administration. Proponents
argued this “public option” would provide competition to FFELP, a guaranteed lending program
that leverages private capital to help students attend college. At its height, the DL program
captured about 34 percent of loan volume, but historically it has hovered around 25 percent.
Will Americans come to depend more on the government than on themselves and whether America declines into a culture of dependency, or rejuvenates itself as a culture of initiative, opportunity, and creativity – the principles on which the Nation was founded