Ronald Reagan Socialized Medicine Quotes — The Hill Blog — NYT Economix  (Socialized Medicine) — WSJ (Critical Condition) — Ronald Reagan/Milton Friedman You Tube Videos


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  • Freedom is never more than one generation away from extinction. We didn’t pass it on to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same, or one day we will spend our sunset years telling our children what it was once like in the United States when men were free.
    • Address to the annual meeting of the Phoenix Chamber of Commerce, (1961-03-30).
    • Later variant : Freedom is a fragile thing and is never more than one generation away from extinction. It is not ours by inheritance; it must be fought for and defended constantly by each generation, for it comes only once to a people. Those who have known freedom and then lost it have never known it again.
      • California Gubernatorial Inauguration Speech (1967-01-05).

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  • Back in 1927, an American socialist, Norman Thomas, six times candidate for President on the Socialist Party ticket, said that the American people would never vote for socialism but he said under the name of liberalism the American people would adopt every fragment of the socialist program.
    • Ronald Reagan Speaks Out Against Socialized Medicine (recording) (1961)

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  • But at the moment I’d like to talk about another way because this threat is with us and at the moment is more imminent. One of the traditional methods of imposing statism or socialism on a people has been by way of medicine. It’s very easy to disguise a medical program as a humanitarian project. . . . Now, the American people, if you put it to them about socialized medicine and gave them a chance to choose, would unhesitatingly vote against it. We have an example of this. Under the Truman administration it was proposed that we have a compulsory health insurance program for all people in the United States, and, of course, the American people unhesitatingly rejected this.
    • Ronald Reagan Speaks Out Against Socialized Medicine (recording (1961)

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  • The doctor begins to lose freedom. . . . First you decide that the doctor can have so many patients. They are equally divided among the various doctors by the government. But then doctors aren’t equally divided geographically. So a doctor decides he wants to practice in one town and the government has to say to him, you can’t live in that town. They already have enough doctors. You have to go someplace else. And from here it’s only a short step to dictating where he will go. . . . All of us can see what happens once you establish the precedent that the government can determine a man’s working place and his working methods, determine his employment. From here it’s a short step to all the rest of socialism, to determining his pay. And pretty soon your son won’t decide, when he’s in school, where he will go or what he will do for a living. He will wait for the government to tell him where he will go to work and what he will do.
    • Ronald Reagan Speaks Out Against Socialized Medicine (recording (1961)

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  • Government is like a baby. An alimentary canal with a big appetite at one end and no responsibility at the other.
    • Joke during his 1965 campaign for Governor of California, as quoted in The New York Times Magazine (14 November 1965), p. 174
    • Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other.
      • As quoted in The Reagan Wit (1981) by Bill Adler, p. 30

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  • Welfare’s purpose should be to eliminate, as far as possible, the need for its own existence.
    • Interview, Los Angeles Times (1970-01-07)

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If it’s to be a bloodbath, let it be now.

Appeasement is not the answer…


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Five things you need to know about the House Democrats’ health care bill (Rep. Cynthia Lummis)

July 29th, 2009

1. New Government Run Plan to “Compete” with Private Companies

* Doctor Payments Based on the Medicare Model. Plan would reimburse providers at Medicare payment rates for at least the first three years, with a 5% bonus payment. After that, reimbursement could be no more than Medicare rates. The Secretary of Health and Human Services could coerce doctors to participate in the program by tying participation to other government run health programs.

* Lawsuits. Bill exposes employers operating group health plans to state law remedies and private causes of action, but the government run plan can only be sued in federal court.

* Rationing. A new Health Care Commissioner would have unprecedented authority to determine what is “acceptable” health care coverage and set all the rules for what an health care coverage must include in addition to what treatments patients could receive and at what cost.

* The “Invisible” Government Run Plan. Requires private insurers to comply with new coverage and underwriting rules in order to offer insurance products both inside and outside of the new national and state insurance exchanges.

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2. Costs Go Up for the Government and Everyone Else

* CBO Director Elmendorff said on July 16th that, “…the legislation significantly expands the federal responsibility for health care costs… The way I would put it is that the [cost] curve is being raised…”

* Bigger Deficits. CBO estimates that the bill will increase the deficit by $239 billion in the first ten years. Even this is misleading though, since the tax increases in the bill start immediately, but the new spending is delayed. Once the spending fully starts, the bill adds over $60 billion a year to the deficit.

* New Tax on Individuals of 2.5% if they don’t purchase “acceptable coverage.”

* Many Currently Insured Individuals Will Face More Expensive Insurance Premiums based on new rules for “acceptable” insurance coverage.

* Expands Medicaid eligibility to all individuals up to 133% of poverty and “low income” subsidies” can go to a family of four making more than $88,000.

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3. Pay or “Play” Employer Mandate

* An 8 percent Payroll Tax on: Employers who can’t afford to offer health insurance to their employers; employers who do the right thing and offer health coverage to their employees but it’s deemed “insufficient” by the government; and employers who aren’t paying at least 72.5% of an employee’s premium (65% for family coverage).

* Fines of up to $500,000 on employers who make an honest mistake, thinking they had provided what the government deemed “sufficient” coverage.

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4. If You Like What You Have, You Can’t Keep It

* 2 out of 3 Workers will Lose Coverage. Independent analysis by the Lewin Group shows that 2 out of every 3 people would lose their current coverage, including over 114 million people who receive health benefits through their employer or other current coverage.

* 11 million Seniors will Lose Medicare Advantage Plans

* More than 8 million Health Savings Accounts not deemed “acceptable coverage.”

* It will be Illegal to Renew your Current Health Insurance and you will be left only with plans approved by a new federal regulator—plans that can’t compete with a new government run plan.

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5. Raises Taxes on Small Businesses through Surtax Increase

* Filers making $280,000 ($350,000 joint) will be hit with a 1% surtax, filers making $400,000 ($500,000) will be hit with a 1.5% surtax and filers making $800,000 ($1,000,000) will be hit with a 5.4% surtax. The Democrats imbedded an automatic tax increase in their bill by doubling the 1% and 1.5% small business tax in 2013 continuing their revenue grab from small businesses.

* Of taxpayers who file in the top brackets more than half of them are small business. The Democrat plan, according to a study by the Tax Foundation, would raise the top tax rate in 39 states to more than 50%.

* According the National Association of Manufactures, an industry hit hard by the economy, 68% of manufactures file as S-corporations with an average income of $570,000, well above the $350,000 base the Democrats have set for the surtax.


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What Is ‘Socialized Medicine’?: A Taxonomy of Health Care Systems

Uwe E. Reinhardt is an economics professor at Princeton.

With another “national conversation” about health reform upon us — as it is every decade or so — we will hear a lot of derisive talk about the evils of “socialized medicine.”

The term is regularly confused with “social health insurance,” which is not at all the same concept. The chart below may be helpful in appreciating the distinction.

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Socialized medicine refers to health system in which the government owns and operates both the financing of health care and its delivery. Cell A in the chart represents socialized medicine.

Social health insurance, on the other hand, refers to systems in which individuals transfer their financial risk of medical bills to a risk pool to which, as individuals, they contribute taxes or premiums based primarily on ability to pay, rather than on how healthy or sick they are.

Socialized medicine is one form of social insurance. More typically, however, social insurance is coupled on the health-care delivery side with a mixture of government-owned facilities (e.g., municipal hospitals), private nonprofit hospitals (roughly 90 percent of all American hospital beds) or private for-profit facilities (investor-owned hospitals, private medical practices, pharmacies and so on). It follows that one cannot simply treat social insurance as socialized medicine. In principle, one could have social insurance with 100 percent private for-profit delivery facilities.

Under private commercial insurance, individuals also transfer the financial risk of bills for health care to a risk pool, but the premium the individual contributes to the risk pool reflects that individual’s health status. These premiums are, as actuaries put it, “medically underwritten” and “actuarially fair.” The risk pools under private insurance can be operated by not-for-profit or for-profit insurers. And like social insurance, private insurance typically is coupled with a mixed private and public delivery system.

In the chart, cells A, B, C jointly represent single-payer social insurance — e.g., traditional Medicare. Cells D, E, F jointly represent multiple-payer social insurance — e.g., Medicaid Managed Care. Cells G to L jointly represent individually purchased private insurance with actuarially fair premiums. Finally, cells M, N and O represent the uninsured or the cost-sharing portion of insured persons.

In between these distinct systems falls employment-based health insurance.

Large employers typically self-insure and use private insurers only to procure health care on behalf of employees (e.g., negotiate fees with the providers of health care) and administer claims. Other employers do not self-insure and instead purchase so-called group health insurance policies for all their employees jointly, as if they were one large family. The premium for a group policy is “experience rated” over the covered group of employees, which means that they reflect the average actuarial cost of all of one company’s employees.

The individual employee’s own contribution toward his or her employment-based insurance, however, is divorced from the individual’s (or the attached family’s) health status. In this sense, then, employment-based insurance could be described as “private social insurance,” as distinct from “government-run social insurance.

Former Mayor Rudolph Giuliani of New York has exemplified the perennial confusion in this country over socialized medicine. In his ill-fated presidential bid, and subsequently as a supporter of Senator John McCain’s bid for the presidency, Mr. Giuliani routinely decried as socialized medicine (or “socialist”) any proposal presented by Democratic candidates, because typically the latter advocated tax-financed subsidies toward the purchase of health private insurance or expansions of public insurance programs. But technically none of them advocated socialized medicine.

Perhaps Mr. Giuliani was unaware that Americans all along the ideological spectrum reserve the purest form of socialized medicine — the V.A. health system — for the nation’s veterans. I find this cognitive dissonance amusing. Indeed, if socialized medicine is so evil, why didn’t Republicans privatize the V.A. health system when they controlled both the White House and the Congress during 2001-06?

Mr. Giuliani also seems to forget that, in 1996, he found social health insurance a perfect solution to the financial problems faced by former Mayor John V. Lindsay, who fell on financially hard times during the 1990s as a result of chronic illness.

In a fit of compassion, then Mayor Giuliani rushed to his friend’s assistance with — you guessed it — taxpayers’ money, rather than with a private sector solution. He did so by appointing Mr. Lindsay to two no-show city jobs that came with tax-financed municipal health insurance and a tax-financed pension.

It seems fair, then, to ask Mr. Giuliani why it was perfectly fine to bail out a financially distressed man who had been wealthy enough in his younger years to provide adequately for his old age, when proposals to extend the same kind of assistance to hard-working, uninsured members of lower-income families are decried by him as “socialism.”

One can only hope that our members of Congress and the typical American voter can make the right distinctions.


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Critical Condition

A transcript of the weekend’s program on FOX News Channel.

Paul Gigot: Up next:

President Obama: We will pass reform that lowers cost, promotes choice, and provides coverage that every American can count on, and we will do it this year.

Gigot: President Obama’s health-care scramble amid falling poll numbers and Democrats in disarray. Will he get the bill he wants when he wants it? Plus, your stake in the overhaul. Can you really keep your current insurance plan, and will the middle class get stuck paying the bill? We’re breaking down the policy and the politics of health care on this special edition of “The Journal Editorial Report.”

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Gigot: Welcome to “The Journal Editorial report.” I’m Paul Gigot.

Well, from a prime-time press conference to a town-hall meeting in Ohio, it was a full-court press by President Barack Obama this week to sell his health-care reform plan to an increasingly skeptical public. A new FOX News/Opinion Dynamics poll shows that nearly half of all Americans, 45%, think the quality of their family’s health care would be worse under the proposed reforms. Just 29% think it would be better. Are they right to be worried?

Former New York lieutenant governor Betsy McCaughey is a patient advocate and chairman of the Committee to Reduce Infection Deaths. She joins me now.

Good to have you back again.

McCaughey: Thank you.

Gigot: Now, you wrote this week that seniors could be the biggest losers under this health-care reform plan that’s emerging in Congress. How so?

McCaughey: Certainly seniors bear the brunt under this bill, the House bill, and under the companion Senate bill, produced largely by Sen. Kennedy’s staff, for several reasons. One is–first, they will pay for with it cuts to Medicare. The $1 trillion to $1.6 trillion price tag on these bills will be paid for by tax hikes. Everybody’s heard about those.

Gigot: Right.

McCaughey: But by at least $500 billion to $550 billion in cuts to Medicare.

Gigot: Estimated over 10 years.

McCaughey: That’s right, and that’s about a 10% cut in the Medicare budget at the same time that Medicare enrollment will be increasing by about 30% as the baby boomers reach Medicare age.

Gigot: Well, this is fascinating to me, because how can they cut Medicare spending–because doctors are already complaining they get reimbursed by Medicare, only 20% or 30% less than the real costs of their procedures. Hospitals as well.

McCaughey: It’s going to mean reductions in hip replacements, knee replacements, bypass surgery, angioplasty–the major procedures that have enabled this generation of the elderly to–

Gigot: Lead better lives.

McCaughey: –avoid disability, avoid deteriorating in nursing homes, and instead lead active lives.

Gigot: Well, wait a minute. How is that going to happen? I mean, doctors are not going to stop prescribing these things. How is that–what is that mechanism?

McCaughey: Well, they will have to. They will have to. Tucked into the stimulus package that was signed into law on Feb. 17 was a provision for computers to be in doctors’ offices and hospitals at bedside–computers that would deliver protocols to doctors electronically on what the government deems cost-effective and appropriate care. And there will be penalties built-in for doctors who are not meaningful users of this system. In March, the president appointed Dr. David Blumenthal national coordinator of health information technology, and he’s going to oversee ensuring that doctors obey these protocols. In fact, on April 9 in The New England Journal of Medicine, he wrote an article describing how he’s going do it. And he said he does anticipate some push-back, some rebellion from doctors who don’t like losing their autonomy over what’s good for their patients.

Gigot: I would think push-back too from Congress. Do you really think that this is something that the American public is going to stand for? Won’t Congress push back?

McCaughey: Well, that’s why Peter Orszag, head of the Office of Management and Budget–again, part of the White House–went to Congress earlier this week and asked for permission to really remove those decisions from Congress. He asked Congress to delegate the authority to make these decisions about what Medicare covers and how doctors are paid instead to a body outside of Congress, either MedPAC–a body that already exists, an advisory board–or a council created within the White House.

Gigot: This MedPAC idea–the president really, really hit this hard at his press conference this week. And this would be a group, a council of wise men and women, medical experts presumably, who would propose protocols for spending–for saving costs, in particular, trying to be more effective, they say, with their medical procedures–then present those as a package to Congress, which could vote up or down. And what’s wrong with that? Why shouldn’t we turn this away from these political types in Congress and give it to a panel of experts?

McCaughey: Well, Congress is accountable, and seniors would certainly raise a lot of fury if suddenly they could not avoid the crippling affects of arthritis by getting a knee replacement. And the fact is that the president likened this proposal to a base-closing commission so it would be immune from those popular impacts.

But the fact is, I don’t believe we can count on the doctors that would be appointed to this to make the right decisions because, for example, the doctors that the president has already chosen to be his chief health advisers are ardent advocates of limiting care for the elderly. Dr. Ezekiel Emanuel, for example–brother of president’s chief of staff, Rahm Emanuel–highly educated man who has written extensively on his views that the elderly should get less care, that Americans are too enamored with high-tech care, and that people who have incurable illnesses–and he uses specifically the example of dementia–should not be guaranteed health care because they no longer contribute to society. These are views that most of us don’t share.

Gigot: All right. Well, we certainly need a debate about this. But let’s get another clip of the president on this point.

Obama: Overall, our proposals will improve the quality of care for our seniors and save them thousands of dollars on prescription drugs, which is why the AARP has endorsed our reform efforts.

Gigot: Why wouldn’t the American Association of Retired Persons oppose this if what you say is in fact going to happen?

McCaughey: Paul, I am shocked at the AARP’s behavior, and frankly, to me they’ve betrayed seniors. I’m amazed that seniors continue to pay their dues to the AARP. The AARP says that they support universal coverage. Well, seniors already have that. And they have so much to lose under this.

One of the other things that’s very dangerous to seniors in this legislation is the dramatic shift in funding for–away from specialty medicine to primary care, on the misconception that Americans overuse specialists and drive up health costs in the process. But study after study showed that people with heart disease who rely on primary-care medicine are frequently misdiagnosed and incorrectly treated.

Gigot: Cardiologists are better at heart care.

McCaughey: That’s right. They are readmitted to the hospital far more often, and they die sooner.

Gigot: All right, Betsy. Thanks so much.

We’re going to have much more. When we come back, the House and Senate health care plans up close. What exactly is in the proposed legislation, and how do they plan to pay for it? Our panel breaks it down and answers the big questions, next.

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Obama: If you have health insurance, the reform we’re proposing will provide you with more security and more stability. It will keep government out of health-care decisions, giving you the option to keep your insurance if you’re happy with it.

Gigot: Perhaps the biggest concern for many Americans, being able to keep their current health-care plan. President Obama says you can. But for how long?

We’re back with Betsy McCaughey. Also joining the panel, Wall Street Journal assistant editorial page editor James Freeman, senior editorial page writer Joseph Rago and Washington columnist Kim Strassel.

All right, Joe, let’s take them one by one. Let’s start with that claim you will be able to keep your health plan if you want to. Can you? Is that true?

Rago: Well, no. I don’t think so at all. First, you’re going to have a government insurance option, like Medicare but open to the middle class, that will pay doctors and hospitals submarket rates, undercut private insurers. Private insurers will be regulated to within an inch of their life basically. And then you’ve got the government mucking around with some of these rules that allow large employers to offer coverage to their employees.

Gigot: And avoid state mandates and state rules because they have national plans.

Rago: And a lot of federal rules, too. So now this will be sort of be subject to a Health Choices Administration that will gradually make employer-sponsored coverage work just as poorly as the rest of the insurance markets.

McCaughey: It’s not a matter of speculation, however, or even prediction. The letter of the bills say that you will be able to keep your existing plan. You will be forced to move into a managed-care plan that restricts your access to specialists and diagnostic tests.

If you look on the Senate bill, page 15 through 17, or in the House bill–excuse me, the House bill, 15 to 17, the Senate bill, 56 to 58–you will see that you are required to enroll in a qualified plan. That means a plan that the government deems appropriate. And it has to be managed care. That’s spelled out in the bill. If you get your insurance through your employer–if you get your insurance through your employer, as most Americans do, your employer will have a grace period in which to move you into managed care. If you buy your insurance individually, through a broker, for example, you won’t have a grace period. As long as anything changes in your current contract, your co-pay changes–

Gigot: So once the contract changes, then you go into this government–new government regulation, OK.

McCaughey: So it’ll be in a few months, right, because usually those things change every year.

Gigot: All right, but what about the fact that you have these union plans that are done, that are the product of collective bargaining done in good faith, that are often very, very good health care. Are they really going to abrogate these contracts?

McCaughey: Some of the union plans are exempted under these bills. But most employers will only have the grace period to move their employees, all of them, into these lower-grade HMOs, because the point of these bills is not to just cover the uninsured. It’s to limit everyone’s health care consumption–and using managed care will do that–and to ensure that everyone has the same health-care experience regardless of ability to pay. They don’t want executives or people who go out and buy more-expensive plans to have a different health-care experience.

Gigot: All right, James, let me ask you about this–the public option. Because the president says, Look, all this is, is going to compete with the private plans, keep them honest. The insurers are making a lot of money right now. We need to keep them honest.

Freeman: Right, and I think the beauty of this is we don’t need to guess or estimate or just posit what might happen, because the people of Massachusetts since 2006 have been running the experiment for all of us, and we can go to school on it.

Gigot: Thanks to Mitt Romney, former Republican governor.

Freeman: That’s right.

Gigot: Or no thanks to Mitt Romney.

Freeman: And it’s very clear what happens. Private insurance goes away, more people go on the public plan, costs explode, more costs go onto small business, and people lose their jobs or they get salary freezes.

McCaughey: That’s a very important point that more and more people are losing their jobs in Massachusetts. I was reading about an employer just today, who had to close up part of her business, close one office, sell a couple of trucks, and lay off an employee in order to meet the government requirement to pay for health insurance.

Gigot: OK, Kim Strassel, let me ask you about the cost question, because that’s an important one. CBO said–the president of the Congressional Budget Office said the president’s proposal–the House proposal will not save money. But can you save money overall, somehow, if you cover more people, if you cover 44 million more people? How do you save money?

Strassel: Well, the argument that the White House has always made is that if you did that and you had more competition and you somehow managed to get more efficiency across the board, that you could lower costs in the long term. The CBO has blown that up. They have done an initial analysis of the House bill. It says that there’s going to be about $820 billion in new taxes, most of them on families and small businesses. And even with that, there’s still going to be another $250 billion of more deficit spending over the next 10 years. And even then, that doesn’t count in the fact that both of these bills, bear in mind, are designed to hide a lot of the costs that are going to come up front, and only have them start to kick in toward the end of the bill. So what we’re actually looking at is trillions in new spending over the upcoming years.

Joe, I want to give the House Democrats credit for one thing. By raising, by proposing–putting this tax increase on the table, a 5.4-percentage-point surtax, they’ve at least showed people this is not going to be a free lunch, that somebody is going to have to pay for it. Now they claim that it’s only going to be the wealthy will have to pay that, to the tune of $550 billion. But this thing is going be enormously expensive.

Rago: Yeah, I mean, all government health programs start small and grow over time.

Gigot: That was the experience with Medicare.

Rago: Experience with Medicare. And this is sort from the same playbook. On the taxes, you know when you’ve got some states–California, New York–with top rates pushing 50%–.

Gigot: Sixty percent.

Rago: Sixty pecent.

Gigot: Higher than Sweden! Federal-state combination: Oregon, California, New York, New Jersey would have top marginal tax rates higher than almost all of Europe.

Rago: Yeah, and the truth is you can’t finance health care for 98% of the population with tax increases on 2%.

Gigot: On 2% of the population.

Rago: So eventually this is just going to have to reach down into the middle class. There’s just no way to make the money work.

Gigot: All right, thank you all.

Still ahead, the politics of health-care overhaul. Amid the president’s falling numbers and Democratic disarray, all eyes are on Republican senator Chuck Grassley. We’ll tell you why when we come back.

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Gigot: We’ll get to the Republicans in a minute. But as the president touts his health-care overhaul and his plan to tax the rich to pay for it, he’s finding he can’t even count on some members of his own party. There’s the so-called Blue Dog Coalition that met with President Obama this week at the White House, and some freshmen Democrats from the nation’s wealthiest congressional districts are balking at the plan as well.

All right, Kim, so, what’s the problem the president has with these Democrats? Or maybe, what problem do the Democrats have with his plan?

Strassel: The problem that he has is that he stepped back and let some of the most liberal members of Congress write the bills that have come out of both the House and the Senate, so Ted Kennedy in the Senate and Nancy Pelosi and Henry Waxman in the House. And what has happened is these bills that have come out with these soaring taxes, these business mandates, individual mandates, the lack of choice for consumers, have scared a lot of Blue Dog and freshmen Democrats. Remember, Mrs. Pelosi’s margin was based on winning a lot of seats in very conservative districts over 2006 and 2008. These guys do not want to go home and say they voted for a bill that looks like this. So he cannot get his caucus together.

Gigot: So what the president’s saying now to get the Blue Dog Democrats on board, who care a lot about costs, is, he’s talking about MedPAC, which Betsy and I talked about before, which is this idea that a council of wise men and women would somehow propose things that would keep costs down. Is that kind of cover going to work for them, Joe?

Rago: Well, it might. I mean, the Blue Dogs are always looking for a reason to roll over–

Gigot: Roll over and vote for it, yeah.

Rago: –and vote for what they said they weren’t going to.

And I think the larger issue is that Congress tries all sorts of schemes like this all the time, and it never happens, so spending continues to rise. The only thing that would prevent that from happening is when the liabilities are just so large that they’re swamping the entire federal budget.

McCaughey: I predict that there will be real rebellion to the decisions of this MedPAC commissioner or other commissions, because baby boomers are not going to want to live their later years in pain.

Gigot: But will that happen before this passes, Betsy? That’s the question. The Blue Dogs are looking for political cover, and the president is trying to give it to them by saying we have this commission that will solve everything.

McCaughey: You know, I’m curious about why the Republicans have not much more aggressively proposed a fix-what’s-broken-leave-the-best-alone alternative that reaches out to provide coverage for the 24.7 million or so people who are involuntarily uninsured–they can’t afford a health care plan; they earn too much to be eligible for Medicaid or Schip–and we could take this issue of the uninsured simply off the table in a compassionate way and say we’ve fixed the problem.

Gigot: But the Republicans have proposed some ideas like that, through a refundable tax credit, for example. Now, they haven’t gotten a lot of publicity because everybody is focused–rightly so, I think–on what the Democrats, who run Congress and the White House, are proposing. So there are some other ideas out there that could–you’re saying, solve this problem in a more humane and less costly way.

McCaughey: Oh yes, it would cost $28 billion to $49 billion a year, depending on the level of coverage provided to uninsured individuals in this income group–lower-middle-income families who are struggling to pay for health insurance. And it could be implemented quickly, because in all 50 states, debit-card technology has enabled state governments to deliver purchasing power to families, even people who need it temporarily. And 22% of the uninsured are just in a temporary dilemma.

Gigot: All right, I think that those are excellent points. But that’s not going to happen in Congress unless–right now, because the president is focused on these current efforts that we’ve been describing. That’s where the Republicans come in.

Freeman: Yeah, he’ll have to abandon them, and these alternatives are going to start to get a lot more attention, because right now his sales pitch is higher taxes, less care for the elderly, and Washington’s going to decide whether your kid gets a tonsillectomy. This is not a winner as a political sales pitch. So these alternatives–using the tax code, fixes to encourage more people to get insurance–are going to start to get more attention.

Gigot: But in the immediate term, as he’s dealing–trying to get through this Congress–Kim Strassel, what you’re seeing is the president really trying to work with some Republicans in the Senate, particularly Iowa Republican Chuck Grassley, senior Republican on the Senate Finance Committee, to get him to sign on with Senate Democrats and maybe some other Senate Republicans to some kind of compromise they can then get through the Senate, get the 60 votes they need. And so they’re looking for that Republican cover. What role do you think Grassley’s playing?

Strassel: Well, up to now, I mean–and you’re right, this is all about cover. They need Grassley to bring along both a handful of Republicans and reassure their conservative Democrats. But the role he is playing here is–I mean, Chuck Grassley is increasingly the guy who is either going to blow up some of these bad ideas–and he has the power to do that by stepping back and saying no–or the guy who may become the Republican known for delivering the nation socialized health care. So he’s really in the middle. He’s been working very hard with Max Baucus to try and get a compromise. We don’t know what’s happening in those negotiations. They now have an extension of time because the president has basically said he’ll step back and wait to see what happens after the August recess.

Gigot: So the president hauled in the CBO director, Doug Elmendorf, who had given that bad score that–brought him in with a phalanx of White House aides. Was that subtle pressure?

Rago: I don’t think it was subtle at all. It sort of put LBJ to shame. But you know, I think what the Republicans really have to do now is kill this thing as it is, so that opens up the space for other alternatives. Otherwise, they’re just going to be providing a bipartisan gloss on what is really a terrible plan.

Gigot: But Republicans can’t kill it. Democrats have to kill it. If every Republican voted against this, it could still pass.

McCaughey: When Democrats go home, they will hear loud and clear from their constituents that people don’t want to give up the health plans they have now for the rigors of managed care. They rejected it in the 1990s, and they want to stick with the health plans they have.


rr_av473-18


Related You Tube Links:

Ronald Reagan speaks out on Socialized Medicine – Audio

Ronald Reagan on Capitalism and Socialism – Audio

Milton Freidman – Socialism vs. Capitalism

The Power of Choice – Milton Friedman

Charlie Rose – An Appreciation of Milton Friedman

Other Related Links:

Dick Morris And Eileen McGann:  SOCIALISM DOESN’T WORK – EVEN IN CHINA


End

Congressional Budget Office
Additional Information Regarding the Effects of Specifications
in the America’s Affordable Health Choices Act Pertaining to
Health Insurance Coverage
July 26, 2009
The Congressional Budget Office (CBO) and the staff of the Joint Committee on
Taxation (JCT) recently completed a preliminary analysis of the specifications related to
health insurance coverage that are reflected in the America’s Affordable Health Choices
Act. That analysis, which was transmitted in a letter to the House Committee on Ways
and Means, was released on July 14, 2009; subsequent analysis, which took into account
the other parts of the legislation that would raise taxes or reduce other spending, was
released on July 17. Among other things, those specifications would establish a mandate
for most legal residents to obtain health insurance, significantly expand eligibility for
Medicaid, regulate the pricing and terms of private health insurance policies, set up
insurance “exchanges” through which certain individuals and families could receive
federal subsidies to reduce the cost of purchasing insurance, and offer a “public plan”
option similar to Medicare through those exchanges.
This report provides additional information about the effects of the specifications in that
act regarding health insurance coverage. In particular, it examines their likely effects on
enrollment in private coverage, in the new public plan, and in Medicaid; the effects on
private-sector insurance premiums and the labor market; the longer-term cost of the plan;
and the allocation of its net budget impact between outlays and revenues. For reference,
the table released on July 14 summarizing the preliminary analysis of the coverage
specifications is included in this report. The report, however, does not represent a formal
or complete cost estimate for the draft legislation.
Effects on Enrollment in Private Coverage
Compared with what would happen under current law, the legislation would induce some
people to move out of employment-based coverage and others to move into employmentbased
coverage, and our estimate of the net effect of those changes is shown in the
attached table. A number of questions have arisen about that estimate—particularly
regarding our conclusion that only a small share of firms would choose to stop offering
health insurance to their workers once the new subsidies became available in the
insurance exchanges. Several factors contribute to that conclusion:
• Workers who get insurance through their employer receive a significant subsidy
because the cost of that insurance is not treated as taxable earnings for the worker and
thus avoids both income and payroll taxes. In most cases, that exclusion applies to the
portion of the premium that workers pay as well as the amount the employer
2
contributes. On average, that tax exclusion gives workers a subsidy of roughly
30 percent for purchasing insurance through their employer—a subsidy that would be
forgone if the employer chose not to offer coverage and the workers instead obtained
coverage in the new insurance exchanges.
• In general, firms that decided to stop sponsoring insurance coverage for their workers
would not be able to reduce their operating costs because, in a competitive labor
market, they would have to offer higher wages and other forms of compensation
instead. Indeed, workers might be particularly motivated to demand such increases
under the proposal because they would be required to obtain insurance. That added
compensation would generally be taxable. (This consideration and the preceding one
help explain why most workers are offered health insurance by their employers
today.)
• Under the proposal, nearly 90 percent of workers would be employed by firms that
would either have to offer qualified coverage and contribute a significant share
toward the premium or pay a tax equal to 8 percent of their total payroll. That “playor-
pay” penalty would constitute a substantial portion of the average cost of providing
insurance coverage, which has been estimated at about 12 percent of payroll currently
(but which would rise over time). In dollar terms, the penalty would obviously vary
depending on a firm’s payroll; for example, a firm with average wages of $40,000 per
year that did not offer qualified coverage would have to pay a penalty of $3,200 per
worker. Moreover, that penalty would make no direct contribution to those workers’
insurance costs; they would then need to obtain coverage from another source in
order to fulfill the individual mandate.
• Many firms have a mix of employees with differing levels of individual or family
income—some of whom would qualify for relatively generous subsidies in the new
insurance exchange and some of whom would not. Consistent with the available
evidence, we anticipate that an employer would generally take into account the
effects on all of its workers in deciding whether or not to offer coverage. In most
cases, having their employer offer coverage would be the best option for the
workforce overall, even with the new insurance exchanges.
• Finally, the available evidence indicates that in making decisions about offering
insurance, many firms are not very responsive to the availability of outside options
for their workers to obtain coverage; in particular, that responsiveness tends to
decline as firm size increases. One reason is that larger firms have relatively low
administrative costs that would generally make it advantageous for their workers to
keep that coverage rather than pay higher administrative costs for a plan in an
3
insurance exchange. Because larger firms account for the lion’s share of all
employment-based coverage, that lack of responsiveness limits the likely extent of
any erosion in coverage.1
In most cases, the combination of the subsidy from the current tax exclusion and the
penalty for firms that did not offer qualified coverage would provide a strong financial
inducement for employers to continue offering coverage to their workers.2 To give an
example in today’s terms, the average employment-based health insurance plan currently
has a premium of about $5,000 for single coverage and $13,000 for family coverage. The
subsidy provided by the tax exclusion is thus worth about $1,500 for single coverage and
about $4,000 for family coverage, on average. For a firm with average wages of $40,000,
the $3,200 penalty combined with the subsidy from the tax exclusion would roughly
equal the total amount of the single premium and would constitute more than half of the
typical cost of family coverage. Only workers who would receive larger percentage
subsidies in the exchanges would be better off if their employer stopped offering
coverage—and that would be a distinct minority of workers.3
Taking those considerations into account, some firms would probably decide not to offer
coverage, CBO and the JCT staff estimate. That option would be most attractive to firms
with lower-wage workers—both because the play-or-pay penalty for not offering
coverage would be smaller in dollar terms and because their workers would be eligible
for larger subsidies in the insurance exchanges (or through Medicaid). An additional
factor is that smaller firms (those with an annual payroll of less than $400,000) would
either be exempt from the play-or-pay penalty or would pay a lower tax rate. However,
an offsetting consideration is that small employers with low-wage workers would be
eligible for a tax credit covering up to 50 percent of the employer’s contribution toward
health insurance premiums. On balance, CBO and the JCT staff estimate that, in 2016,
about 3 million people (including spouses and dependents of workers) who would be
covered by an employment-based plan under current law would not have an offer of
coverage under the proposal.
Other people would have an offer of coverage from an employer but would choose to
make use of the subsidies that would be available in certain cases through the exchanges.
1 For further discussion of the factors affecting employer coverage, see Congressional Budget Office, Key
Issues in Analyzing Major Health Insurance Proposals (December 2008), pp. 4–8 and 43–48; and CBO’s
Health Insurance Simulation Model: A Technical Description, Background Paper (October 2007).
2 In the legislation considered by the Senate Committee on Health, Education, Labor, and Pensions, the
penalty amounts per worker are much smaller. However, that proposal would also provide less inducement
for employers to stop offering coverage, because it would provide no new subsidies for insurance coverage
for individuals with income below 150 percent of the federal poverty level.
3 Over time, as the costs of health care rose more rapidly than payrolls, the penalties would gradually
decline in importance relative to the tax exclusion and exchange subsidies. That evolution is incorporated
in CBO’s analysis and helps explain why the estimated effect of the proposal on employer coverage
changes gradually over time.
4
In 2016, nearly 3 million people who would be covered under an employment-based plan
under current law—and who could be covered by that plan under the proposal—would
choose instead to obtain coverage in the exchanges because the employer’s offer would
be deemed unaffordable and they would therefore be eligible to receive subsidies through
the exchanges. In addition, some part-time employees, who could receive subsidies via an
exchange even though they had an employer’s offer of coverage, would choose to do so.
All told, we estimate that, in 2016, about 9 million people who would otherwise have had
employer coverage would not be enrolled in an employment-based plan under the
proposal.
The net effect of the proposal on employment-based health insurance reflects larger
changes in the other direction, however. We estimate that about 12 million people who
would not be enrolled in an employment-based plan under current law would be covered
by one in 2016, largely because the mandate for individuals to be insured would increase
workers’ demand for insurance coverage through their employer. On net, therefore, about
3 million more people would have their primary coverage through an employer under the
proposal than under current law (as shown in the attached table).
Enrollment in the Public Plan
A related question concerns how many firms would provide coverage to their workers but
would do so by letting their workers purchase coverage in the insurance exchanges—and,
in particular, how many of those enrollees would end up in the new public plan. Under
the proposal, firms with 20 or fewer workers would be given the option to let their
workers buy coverage through the insurance exchanges starting in 2014, and the official
overseeing the exchanges would be allowed to let larger employers purchase coverage in
that way starting in 2015. In those cases, the workers would not receive exchange
subsidies but would instead be subsidized through the tax exclusion as under current law;
as a result, CBO’s table showing the effect of the proposal on sources of insurance
coverage counts those enrollees as being covered by employment-based insurance rather
than as exchange enrollees.
For the preliminary estimate of the proposal, CBO and the JCT staff assumed that only
firms with 50 or fewer employees would be permitted to buy coverage through the
exchanges, and we estimated that about 6 million workers and their dependents would
obtain coverage in that way. We also estimated that about one third of those enrollees
would choose the public plan—an assessment that is consistent with our overall estimate
of the share of people in the exchanges choosing that plan.
What options employers would have under the proposal depends on whether the official
overseeing the insurance exchanges would give larger firms access to the exchanges, and
predicting what that official would do is difficult. On the one hand, workers at some
firms would find that option attractive, particularly in areas where the public plan has
relatively low premiums, and they might apply pressure to be admitted to the exchanges.
On the other hand, providers of health care and private insurers might be opposed to
expanding access to the public plan, and they might apply pressure to keep larger firms
5
out of the exchanges. In addition, the official might be concerned about the potential for
adverse selection into the exchanges, which could arise if employers choosing to take
advantage of the option had older or less healthy workers.
If we assumed that workers at larger firms would be allowed to purchase coverage
through the exchanges, our estimate of the number of enrollees involved would
undoubtedly be greater than 6 million, but we have not estimated the magnitude. Analysts
at the Lewin Group recently estimated that if all employers were given access to the
insurance exchanges, more than 100 million people would end up enrolling in the public
plan.4 For several reasons, we anticipate that our estimate of the number of enrollees in
the public plan would be substantially smaller than the Lewin Group’s, even if we
assumed that all employers would have that option.
One consideration that would affect our analysis is that large employers would generally
have lower administrative costs for health insurance than would plans offered in the
exchanges, because (under the proposal) those plans would need to sign up enrollees
individually; as a result, employees of large firms would be less likely than those of small
firms to find the option of purchasing coverage through the exchange attractive, holding
other factors equal. Although we assumed that the public plan would have somewhat
lower administrative cost per enrollee than would private plans in the exchanges, the
public plan would probably have to incur much of the same cost in order to attract and
retain members.
More generally, the Lewin analysis uses a much larger gap than does our analysis
between the premium of the public plan and the premiums of the private plans against
which it would be competing. As indicated in our letter of July 14, we estimate that the
public plan’s premium would, on average, be about 10 percent lower than that of a
typical private plan offered in the insurance exchanges. That estimate is based in part on
available data from the Medicare Advantage program about the difference in costs
incurred by private plans and the traditional Medicare plan to provide the same set of
benefits. Indeed, the most recent analysis of that difference concluded that the costs of the
traditional Medicare plan were only 2 percent lower, on average, than the costs of private
plans participating in Medicare to provide the same benefits (though that difference
varied geographically and by the type of private plan that was offered).5
Another factor relevant to our estimate is our assessment that some providers would
choose not to participate in the public plan, which would discourage some enrollees from
choosing that plan despite its lower average premium. Even so, we expect that the
4 Statement of John Sheils, Vice President, The Lewin Group, before the House Committee on Energy and
Commerce, The Impact of the House Health Reform Legislation on Coverage and Provider Incomes (June
25, 2009).
5 See Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment Policy (March
2009), Chapter 3. CBO’s larger estimate of the gap in premiums between the public plan and private plans
under the proposal also incorporates expected differences in such factors as benefit management and
providers’ payment rates.
6
provider network would be large enough to attract a sizable minority of participants in the
exchanges.
Because all of these factors are uncertain, estimating enrollment in the public plan is
especially difficult—as we emphasized in our earlier letter. Given our assessment of the
likely difference in premiums, however, offering more firms the option of letting their
workers purchase insurance through the exchanges would probably have a limited effect
on the proposal’s net budgetary impact. As noted above, workers with employment-based
insurance who obtained coverage through the exchanges would receive no exchange
subsidies and would have the same tax preference as if they had obtained coverage
outside the exchanges. Thus, if more employers purchased coverage through the
exchanges than we anticipate and purchased somewhat less expensive insurance via the
public plan, the principal effect on federal deficits is that those employers would end up
increasing their workers’ taxable compensation and thereby would generate slightly
higher tax revenues. Greater enrollment in the public plan would also increase the plan’s
outlays and premium collections, which would be included in the federal budget, but as
long as the public plan charged premiums that covered its costs (as it is supposed to do
under the proposal), those amounts would be offsetting.
Effects of the Proposed Medicaid Expansion
A further question is the number of people who we estimate would enroll in Medicaid
under the proposal that would have private coverage under current law. CBO does not
anticipate a substantial shift from private insurance to Medicaid. Specifically, we
estimate that about 1 million people who would otherwise have employment-based
insurance or individually purchased coverage would end up enrolling in Medicaid in
2016. We also estimate that about 10 million people would newly enroll in Medicaid
under the proposal, but the great majority of them would be people who would otherwise
be uninsured rather than privately insured. As a result, our estimated rate of crowd-out—
that is, the share of people gaining Medicaid coverage who would otherwise be insured
privately—is about 10 percent under this proposal.
Although the proposal would sharply increase the number of people eligible for
Medicaid, several factors help to explain the relatively low rate of crowd-out of private
insurance that we expect:
• The expansion of Medicaid would encompass relatively poor people (including some
childless adults whose income is well below the poverty level), who are less likely
than people with higher income to have private insurance coverage. Our analysis
indicates that only about a quarter of the people who would be made newly eligible
for Medicaid under the proposal would have private coverage under current law.
• Unlike prior expansions of public coverage on which estimates of crowd-out are
generally based, this proposal would impose a considerable penalty on employers that
did not offer qualified insurance and contribute a substantial share of the premium.
7
Those requirements would help offset the incentives under the proposal for employers
to cease offering coverage as a result of the expansion in Medicaid eligibility.
• Unlike past expansions of Medicaid, the proposal would include a requirement for
people to obtain insurance. As a result, those who would be eligible for Medicaid
(whether under current law or because of the expansion) and who would otherwise be
uninsured would be more likely to enroll in that program.
In sum, because of the specific features of the proposal, the number of people who might
leave private coverage for Medicaid would be relatively small, and the number of people
who would newly enroll in Medicaid would be relatively large—so together, those
features of the proposal would reduce the expected rate of crowd-out.6
Effects on Private-Sector Premiums
Many observers have asked about the effect of the proposal on health insurance
premiums in the private sector outside the insurance exchanges. After 2012, all newly
issued policies purchased by individuals would have to be bought through the insurance
exchanges; as a result, the proposal’s effects on premiums outside the exchanges would
be seen in premiums for coverage provided by or through employers (which is the
predominant source of insurance for the nonelderly population under current law and
would remain so, in our estimation, under this proposal). The proposal contains a number
of elements that could affect those premiums, both directly and indirectly—some of
which could cause the premiums to increase and some of which could cause them to
decrease. Although the direction of the overall impact is not certain, the magnitude of the
effect on average premiums would probably be modest.
Effects on the Risk Pool
One concern that has been expressed about proposals to establish and subsidize coverage
through the new insurance exchanges is that firms would see their relatively young or
healthy enrollees switch to those plans. If that happened, the average costs for covering
the remaining enrollees would be higher. Under the proposal, however, full-time workers
with an offer of coverage from their employer would generally be prohibited from
receiving subsidies through the exchanges—a restriction known as a “firewall,” which we
believe would be largely effective.7 Moreover, the proposal would allow premiums in the
insurance exchanges to vary only by age and then only to a limited degree, so the plans
available in the exchanges might not be substantially more attractive to younger and
6 For more information about the potential effect of expanding public insurance coverage on the number of
people with private insurance, see Congressional Budget Office, The State Children’s Health Insurance
Program (May 2007), pp. 7–13.
7 An exception would be granted for full-time workers who had to pay more than 11 percent of their
income for their employer’s insurance. In addition, part-time workers could receive subsidies via the
exchanges regardless of the availability or cost of coverage through their employers. As noted above, CBO
and the JCT staff estimated that several million workers would take advantage of those exceptions.
8
healthier workers than they would be for other workers—reducing the incentive to
circumvent the firewall.
At the same time, CBO and the JCT staff estimate that several million more people, on
balance, would enroll in employment-based insurance than is projected under current
law. The resulting pool of enrollees would be somewhat healthier, on average, than is the
pool of enrollees in employment-based insurance today; as a consequence, the average
cost of covering those enrollees would be several percent lower than under current law
(holding other factors equal). The extent and manner in which that change would affect
premiums for employment-based coverage is more difficult to determine; for example,
that effect might be seen primarily in the premiums for single coverage (rather than
family coverage) because most of the younger and healthier enrollees who would sign up
for employment-based coverage as a result of the proposal would choose that type, but
how premium costs are allocated within firms is less clear. Also, the main reason some
people would be paying less for their coverage is because newly enrolled people would
be making premium payments they would not otherwise have made—so the changes in
premiums would largely represent a transfer among workers rather than an improvement
in the efficiency of employment-based insurance plans.
The proposal’s restrictions on insurance markets could also affect premiums for
employment-based coverage. In particular, the proposal would prohibit insurers from
varying the premiums charged to employers to reflect differences in the health status or
likely costs of their employees. Existing policies would be exempt from that requirement
through 2017 but would then have to come into compliance with that prohibition.
(Insurers would still be permitted to adjust premiums, albeit to a limited degree, to reflect
the age of the enrollees.) That change would not apply to employers who chose to bear
the financial risk of providing health insurance to their workers, but it would affect
employers who purchased such coverage from an insurer. Relative to current law (under
which relatively few states impose the same restrictions on variation in premiums), those
limits might not have a substantial effect on the average premium paid by employers, but
they would tend to increase premiums for firms with relatively healthy workers and
decrease them for firms with relatively unhealthy workers.
Effects of Cost Shifting
A less direct way in which the proposal could cause private-sector premiums to change is
by affecting the extent of “cost shifting”—a phenomenon in which lower rates paid to
health care providers for some patients (such as uninsured people or enrollees in
government insurance programs) can lead to higher payment rates for others (privately
insured individuals). The proposal would have opposing effects on the pressures for such
cost shifting to occur.
On the one hand, the proposal’s expansion of eligibility for Medicaid and other
provisions would substantially increase enrollment in that program (by an estimated
10 million to 11 million people in the latter part of the 2010–2019 period). In addition,
many provisions of the proposal would reduce payments to hospitals and other providers
9
under Medicare. Furthermore, the legislation would establish a public plan to be offered
in the insurance exchanges; that plan would be set up by the Secretary of Health and
Human Services and pay Medicare-based rates to providers of health care. By
themselves, those changes would tend to increase the pressure on providers to shift costs
to private payers.
On the other hand, we estimate that the proposal would ultimately reduce the uninsured
population by roughly two-thirds, which would greatly attenuate the pressure to shift
costs that arises today when uncompensated or undercompensated care is provided to
people who lack health insurance. One recent estimate indicates that hospitals provided
about $35 billion in such care in 2008—an amount that would grow under current law but
would be expected to decline considerably under the proposal. (Recent evidence also
indicates that physicians collectively provide much smaller amounts of uncompensated or
undercompensated care, so all else held equal, the overall impact of expanded insurance
coverage on their payments rates would also be smaller.)
The net effect of those opposing pressures would thus depend on their relative magnitude
and also on the degree to which cost shifting occurred in each case. Given the size of the
annual decline in undercompensated care that seems likely to ensue, the adverse effects
on hospital finances stemming from greater enrollment in Medicaid, cuts in Medicare
payment rates, and enrollment in the public plan would also have to be substantial to
offset those savings for hospitals as a group. (The net effect would differ from hospital to
hospital.) As for the extent of cost shifting, CBO’s assessment of the evidence is that
some does occur but that it is not as widespread or extensive as is commonly assumed.
Well-designed studies have found that a relatively small share of the changes in payment
rates for the government’s programs is passed on to private payment rates, and the impact
of changes in uncompensated care is likely to be similar.8 Overall, therefore, the effect
the proposal would have on private-sector premiums via cost shifting is unclear.
Changes in Payment Methods
In addition to proposed changes in Medicare’s payment rates, the proposal would also
alter some of Medicare’s payment methods—or at least test such changes—which might
ultimately reduce private insurance costs to a limited degree. For example, the proposal
would establish a demonstration project to examine the use of “accountable care
organizations” and would make other modifications that could encourage reductions in
health care spending.9 To the extent that future steps to implement such changes in a
more aggressive way also changed how doctors treated privately insured patients, some
benefits could “spill over” to the private sector. However, such effects would probably
represent a small fraction of privately insured medical costs over the next 10 years,
8 For a more extensive discussion of this issue and the evidence about its effects, see Congressional Budget
Office, Key Issues in Analyzing Major Health Insurance Proposals (December 2008), pp. 112–116.
9 For an explanation of how accountable care organizations might reduce Medicare spending, see Option 37
in Congressional Budget Office, Budget Options, Volume 1: Health Care (December 2008), p. 72.
10
paralleling the relatively small effects in Medicare itself as a proportion of total program
spending in that period.
Impact on the Labor Market
This proposal, like others to reform the health insurance system, could affect labor
markets in several ways.10 In general:
• Requiring employers to offer health insurance—or pay a fee if they do not—would be
likely to reduce employment, although the effect would probably be small.
• Providing new subsidies for health insurance that decline in value as a person’s
income rises could discourage some people from working more hours.
• Increasing the availability of health insurance that is not related to employment could
lead more people to retire before age 65 or choose not to work at younger ages. It
might also encourage other workers to take jobs that better match their skills, because
they would not have to stay in less desirable jobs solely to maintain their health
insurance.
Under the proposal, employers with annual payroll above specified levels would be
required to offer health insurance to their workers and contribute a significant share
toward the premium or pay a tax equal to as much as 8 percent of their total payroll. For
the firms that chose not to offer qualified insurance, that penalty would increase the cost
of employing each worker by somewhat less than 8 percent (because total compensation
generally exceeds the taxable payroll to which this fee would apply). The overall impact
on employment would probably be muted, however, because employers would be
expected to pass the costs of such fees on to workers in the form of lower wages than
would otherwise be paid—just as the costs paid by employers for health insurance are
generally passed on to workers. Because the requirement would not be instituted until
2013, employers would be able to plan for its implementation; CBO also projects that the
economy will have largely recovered from the current recession by that date.
Nonetheless, such a change would tend to reduce the hiring of workers at or near the
minimum wage, because their wages might not be able to decline by the full amount of
the fee (or by the costs of the health insurance that would have to be provided to avoid
the fee). Still, the impact of the proposal on low-wage workers would probably be small
because studies suggest that moderate increases in the minimum wage generally have
limited effects on employment. An 8 percent increase in the cost of hiring a worker
10 For a more extensive discussion, see Congressional Budget Office, Effects of Changes to the Health
Insurance System on Labor Markets, Issue Brief (July 13, 2009). The overall impact of health reform
proposals on labor markets is difficult to predict. Although economic theory and experience provide some
guidance as to the effect of specific provisions, large-scale changes to the health insurance system could
have more extensive repercussions than have previously been observed and could also involve numerous
factors that would interact—affecting labor markets in significant but potentially offsetting ways.
11
making the minimum wage—which was just increased to $7.25 per hour—would amount
to roughly $0.60 per hour, which is also about the size of the increase in the minimum
wage that just took effect. Moreover, firms with an annual payroll below $250,000 would
be exempt from the play-or-pay requirement.
Another feature of the proposal relevant to labor markets is that the subsidies for
insurance coverage offered via the exchanges would phase out as enrollees’ income rose,
effectively reducing the compensation they would receive for each additional hour
worked. That effect, which is an “implicit tax,” can lead people to work fewer hours than
they otherwise would, in the same way that income and payroll taxes can. Specifically,
the proposal would provide subsidies to help cover the costs of purchasing insurance and
would phase out those subsidies as income increased from 133 percent to 400 percent of
the federal poverty level. Over that range, the share of income that enrollees would have
to pay in premiums for coverage in the exchanges would increase from 1.5 percent to
11 percent, and the extent of coverage that would be subsidized would also decline so
that enrollees with higher income would pay higher out-of-pocket costs as well. With
limited exceptions, the subsidies would not be available to the vast majority of workers
who had a qualified offer of health insurance from their employer; in addition, some
workers who would not have employment-based insurance would have income above
400 percent of the poverty level. As a result, changes in the work hours of people affected
by this implicit tax would have a much smaller proportionate effect on total hours worked
in the U.S. economy.11
To express those effects in round terms using current levels of premiums and income, the
subsidy might decline from roughly $5,000 to zero for single adults over an income range
of about $30,000, and from roughly $13,000 to zero for a family of four over an income
range of about $60,000. Thus, the implicit tax rate over that income range—that is, the
extent to which those subsidies would decline as income rose—would be around
20 percent (but would vary somewhat across income levels because the subsidies would
not phase out in a uniform way).12 A proposal that phased out subsidies more quickly
would yield even higher implicit tax rates; for example, the implicit tax rate would range
from about 28 percent to about 35 percent if the same subsidies were phased out
uniformly between 133 percent and 300 percent of the federal poverty level. Conversely,
those implicit tax rates could be reduced by extending the subsidies further up the income
scale, but doing so would expand the number of people affected by this implicit tax and
would also increase the budgetary cost of the proposal. In any event, the implicit tax rates
created by the phase-out of subsidies would come on top of existing income and payroll
tax rates.
11 The proposal would also raise tax rates on higher-income taxpayers through a surcharge. This report does
not address the effects of that surcharge.
12 Over time, as the costs of health care rose more rapidly than income, the implicit tax rate would increase.
12
Through the insurance exchanges and expanded eligibility for Medicaid, the proposal
would enhance access to health insurance for people who are not employed and would
provide subsidies for insurance to people with income below 400 percent of the federal
poverty level who do not have employment-based coverage. Those provisions could
encourage more people to retire before age 65, and they might lead some people to
choose not to work at younger ages. The provisions might also lead to better matches
between workers and jobs, because workers would not have to stay in less desirable jobs
solely to maintain their health insurance.
Longer-Term Costs of the Proposal
Estimating the effects of major changes to the health care and health insurance systems
over the next 10 years is very difficult and involves substantial uncertainty; generating
longer-term estimates is even more challenging and is fraught with even greater
uncertainty. As a result, CBO does not provide formal cost estimates beyond the 10-year
budget window. However, we have said that in evaluating proposals to reform health
care, the agency will endeavor to offer a qualitative indication of whether they would be
more likely to increase or decrease the budget deficit over the second decade.13
The starting point for such an analysis of the recent House proposal is our estimate of the
proposal’s impact on the federal budget deficit in the first 10 years. As discussed in
CBO’s letter of July 17, we estimate that the proposal as a whole would increase federal
deficits by $239 billion over the 2010–2019 period. That estimate has three major
components: the net effect of the coverage specifications, which affect both spending and
revenues and which would add an estimated $1,042 billion to cumulative deficits over
that period; the effect of other provisions, primarily regarding Medicare, that would
reduce direct spending by a net $219 billion; and the effect of still other provisions
(primarily, an income tax surcharge on high-income individuals) that would increase
revenues by $583 billion. Under the proposal, federal spending on health care would
increase by approximately the difference between the net cost of the coverage
specifications and the reductions in direct spending.
Looking ahead to the decade beyond 2019, CBO tries to evaluate the rate at which the
budgetary impact of each of those broad categories would be likely to change over time.
The net cost of the coverage provisions would be growing at a rate of more than 8 percent
per year in nominal terms between 2017 and 2019; we would anticipate a similar trend in
the subsequent decade. The reductions in direct spending would also be larger in the
second decade than in the first, and they would represent an increasing share of spending
on Medicare over that period; however, they would be much smaller at the end of the
10-year budget window than the cost of the coverage provisions, so they would not be
likely to keep pace in dollar terms with the rising cost of the coverage expansion.
Revenue from the surcharge on high-income individuals would be growing at about
5 percent per year in nominal terms between 2017 and 2019; that component would
13 For discussion of our approach to developing such qualitative information, see the CBO Director’s Blog,
“The Effects of Health Reform Legislation beyond the Next Decade” (July 24, 2009).
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continue to grow at a slower rate than the cost of the coverage expansion in the following
decade. In sum, relative to current law, the proposal would probably generate substantial
increases in federal budget deficits during the decade beyond the current 10-year budget
window.
Under any proposal that provided new federal subsidies for the purchase of health
insurance, the rate of growth in federal spending would depend importantly on how the
subsidies were indexed over time. As long as overall spending for health care continued
to expand as a share of the economy, people’s share of insurance costs would continue to
rise faster than their income, or the government’s subsidy costs would continue to rise
faster than the tax base, or both. The proposal limits the share of income that eligible
people would have to pay when they purchased coverage in the insurance exchanges, and
that share of income would not change over time. In addition, insurance plans offered
through the exchanges would be required to pay a specified share of costs for covered
services (on average), and that share also would not change over time. Combining those
provisions, increases in health care spending in excess of the rate of growth in income
would be borne entirely by the federal government in the form of higher subsidy
payments—because those payments would have to cover the entire difference between
the total premium for insurance coverage and the capped amount that enrollees would
pay. Those factors help explain why the costs of the coverage provisions would continue
to grow rapidly in the decade after 2019.
Allocation of the Net Budgetary Impact Between
Outlays and Revenues
On July 14, CBO and the JCT staff provided preliminary estimates of the effects of the
proposal’s specifications regarding insurance coverage on the federal budget; the relevant
table from that letter is attached for reference. Those estimates included the major cash
flows that would affect the budget and the net effects on the budget deficit during the
2010–2019 period, but they did not allocate the net budgetary impact into changes in
outlays and changes in revenues. Moreover, the preliminary estimates did not include all
of the cash flows that would appear in a formal and complete cost estimate.
The amounts shown in the table for new federal spending on Medicaid and the Children’s
Health Insurance Program would be outlays, as would the spending for subsidies to
purchase insurance coverage through the new exchanges. Those two streams of outlays
would amount to an estimated $1,211 billion over 10 years.
All of the other flows of funds shown in the table would represent changes in revenues,
netting to a projected increase in federal revenues of $169 billion over 10 years. Increases
in revenues would include the payments by employers to the exchanges for workers who
received coverage there (amounting to $45 billion); payments of penalties by uninsured
individuals ($29 billion); and payments of play-or-pay penalties by employers
($163 billion). Together, those provisions would increase federal revenues by a total of
$238 billion over 10 years. Other flows would represent decreases in revenues. Under the
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