A Fine Mess
The substance of the Reid bill is as bad as the process that produced it.
The reason for this, as for everything in this fine mess of a bill, is purely tactical: In order to get the Congressional Budget Office to score the cost of the bill below $900 billion over its first ten years (which was President Obama's arbitrary goal), the Democrats had to begin the spending provisions in the fifth year of the ten-year window, while tax collection and Medicare cuts would begin sooner. Some taxes and fees, like those on pharmaceutical companies, would start immediately under the bill. Others, like the surtaxes on medical devices and health insurers (which would result in higher premiums for employers and individuals buying coverage) would take effect in the course of 2010. And several major tax hikes, like the tax on particularly generous employer health plans, the increased Medicare payroll tax on high earners, and limits in allowable deductions for health care expenses, would begin in 2013.
This timeline of tax and spending implementation corresponds rather awkwardly to the political calendar confronting the Democrats. The new entitlement, insurance rules, and other elements of the plan will not go into effect until well after the 2010 congressional elections and even the next presidential election, but some serious tax hikes will take place by then.
Meanwhile, again to make for a palatable CBO score, the bill envisions radical cuts in Medicare beginning quite soon. For instance, steep cuts in Medicare Advantage start in 2011, which means millions of seniors will begin hearing the bad news in 2010 as their plans withdraw from the program, cut their benefits, or raise their premiums. In addition, the bill assumes other deep cuts in Medicare provider payment rates, including a massive reduction in physician fees scheduled for 2010. These are extremely unlikely actually to occur, as Congress has for decades proven incapable of sustaining serious cuts in Medicare.
But whether the cuts happen or not, they present a major political problem for Democrats in the short term--by the end of 2011, they will either have enacted massive and unpopular Medicare cuts (the proceeds of which will go to a new entitlement, rather than to fix Medicare itself), or they will have failed to enact them and shown the fiscal underpinnings of their health care agenda to have been a sham. Either way, the pain will come almost three years before benefits that might assuage voter concerns begin to flow.
None of this makes the bill any better for the right or the center. It only means that Obamacare has become an equal opportunity fiasco. The Reid bill, which will very likely be the blueprint for the final legislation before the House and Senate in the new year, is an exceptionally ill-designed and misbegotten mess--substantively, strategically, fiscally, and (for its sponsors) politically. About the only good news to be found in the fine print is that even if it passes it will not go into effect for four long years--leaving genuine reformers time to repeal it and start anew.
James C. Capretta is a fellow at the Ethics and Public Policy Center and a health policy consultant. Yuval Levin, also a fellow at EPPC, is the editor of National Affairs.