Did the Election Save ObamaCare?

by John Goodman, NCPA

The morning after Tuesday’s vote, there is one thing every commentator agreed on. The election of Barack Obama guaranteed that his signature piece of legislation — health reform — can now go forward. Republicans are powerless to stop it.

Yet there is something all these commentators are overlooking. There are six major flaws in ObamaCare. They are so serious that the Democrats are going to have to perform major surgery on the legislation in the next few years, even if all the Republicans do is stand by and twiddle their thumbs.

Here is a brief overview.

ObamaCare is not paid for. At least it’s not paid for in any politically realistic way. As is by now well known, the legislation will lower Medicare spending over the next 10 years by $716 billion in order to fund health insurance for young people. This reduction will primarily consist of lower payments to physicians, hospitals and other providers — reductions that are so severe that they will seriously impair access to care for senior citizens.

In the last two Medicare Trustees reports, the Office of the Medicare Actuaries has predicted that these cuts will force one in seven hospitals out of the Medicare system in the next eight years. Payments to doctors under Medicare will fall below Medicaid levels in the very near future and will fall continuously behind Medicaid in the years ahead. From a financial point of view, seniors will be less desirable patients to doctors than welfare mothers. Harvard health economist Joe Newhouse envisions that seniors may have to seek care in the same places that now cater to Medicaid beneficiaries: at community health centers and in the emergency rooms of safety net hospitals.

During the election campaign, Barack Obama claimed that his administration had found $716 billion of “savings” and Democrats generally claimed that the money would come out of the pockets of doctors, hospitals and insurance companies, with no bad effects on seniors. In fact, no “savings” have been found and seniors will indeed be affected by low reimbursement rates — just as low-income patients must deal today with the fact that almost one in three doctors is not taking any new Medicaid patients.

But if the current crop of politicians is afraid to admit that they have taken something away from senior voters, what do you think future politicians are going to do when real pain starts setting in? The betting in Washington is that the cuts will be restored. That will mean that ObamaCare will hugely add to deficit spending, indefinitely into the future.

ObamaCare promises what it cannot deliver. To most politicians, acquiring health insurance means that people will be able to get medical care that the uninsured are not now getting. Yet in order for the country as a whole to get more medical care, there must be more doctors and nurses and hospital personnel — something that ObamaCare does not create.

Adding to the problem is that the law will require all of us to have access to a long list of preventive services without deductible or copayment. Economists at Duke University calculated that if every American actually got all of the recommended screenings and tests, the average primary care physician would have to spend 7 ½ hours of every working day doing nothing else but giving preventive care to mainly healthy patients!

What we will be facing is a huge increase in the demand for care, but no change in supply. As the waiting times grow, providers will tend to see those patients first whose insurance pays the highest fees. Those in plans that pay below market will be pushed to the rear of the lines. These will be the elderly and the disabled on Medicare, poor people on Medicaid and (if the Massachusetts model is followed) the newly insured in subsidized plans in the health insurance exchanges. In other words, access to care is likely to diminish for our most vulnerable populations.

ObamaCare mandates and subsidies will destabilize entire sectors of the economy. The law will require employers of workers earning $15 an hour or less to provide very expensive health insurance ($15,000 for a family) or pay a $2,000 fine. For these employees, the cost of family coverage is equal to more than half their income and there are no new subsides to help the employer or the employee bear this cost. Yet, if these workers don’t get insurance from an employer the government will pay almost all the cost of the insurance through Medicaid or in the new health insurance exchanges.

For this reason, employers in the restaurant and hotel businesses, for example, are moving to part-time employment — in order to escape the mandate. And if one firm manages to avoid a 50% increase in labor costs, that firm’s competitors cannot afford not to do the same.

The problems are really economy-wide. We could see entire firms dissolve and recombine, just in response to health insurance subsidies, rather than based on economic considerations.

ObamaCare creates perverse incentives that threaten the quality of care. Within the newly created health insurance exchanges, insurers must charge the same premium, regardless of expected health care costs. Since this necessarily means they will profit from healthy enrollees and incur losses on the less healthy, all plans will have a perverse incentive to attract the healthy and avoid the sick. Moreover, after enrollment, the incentive will be to over-provide to the healthy (to keep the ones they have and attract more just like them) and under-provide to the sick (to encourage the exodus of the ones they have and discourage enrollment of any more of them). That’s not good if you are sick.

A weakly enforced mandate will undermine the health insurance marketplace. The fine for being uninsured will be small, relative to the cost of insurance. And there is not much the IRS can do to people who ignore the mandate, other than withhold refund checks. It cannot garnish wages or attach assets, for example. Hence, people will have an incentive to stay uninsured while they are healthy (and avoid paying hefty premiums), enroll after they get sick (to get their medical bills paid) and then drop coverage after they are well again. Yet if everyone does this, only sick people will have health insurance and the premiums will be completely unaffordable.

A strongly enforced mandate will strain almost every family budget. For the past 40 years, health care spending has been growing at twice the rate of growth of our incomes, on the average. Nothing in ObamaCare is likely to change that. Yet if we are required to buy coverage and denied the right to scale back benefits, choose higher deductibles, etc., health insurance premiums will crowd out more and more of the average family’s budget. Eventually, health insurance costs will threaten to crowd out every other form of consumption!

Again, these problems have nothing to do with Republican opposition. They are inherent in the legislation itself. Democrats will be forced to face them whether they want to or not.