The Magazine

Health Reform Breaks Bad

The deceptions and disasters of Obamacare

Oct 21, 2013, Vol. 19, No. 07 • By CHRISTOPHER J. CONOVER
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Candidate Obama’s claim that he could pull off this astonishing feat before the end of his first term was not some off-script bit of puffery in a campaign speech. As Kevin Sacks at the New York Times reported: “Mr. Obama’s economic policy director, Jason Furman, said the campaign’s estimates were conservative and asserted that much of the savings would come quickly. ‘We think we could get to $2,500 in savings by the end of the first term, or be very close to it,’ Mr. Furman said.”

Nevertheless, some supporters have argued the president’s promise meant not that premiums would go down, but that they would be $2,500 a year lower than they would have been otherwise. Moreover, while he made the promise repeatedly on the campaign trail, he usually didn’t claim it would be accomplished by the end of his first term. Yet even if we cut the president some slack on both points and give Obamacare 12 years to “bend the cost curve,” the best available estimates still show this promise will fail miserably. For three consecutive years, the Office of the Actuary at the Centers for Medicare & Medicaid Services has released 10-year projections that compare national health spending under Obamacare with spending assuming Obamacare had never been implemented. In each instance, the ACA increases aggregate national health spending above and beyond the amount that such spending would have increased otherwise.

The latest version of these projections, released just last month, shows that between 2010 and 2022, aggregate health spending will be $621 billion higher under the Obamacare scenario. For a typical family of four, this amounts to $7,579 over that 13-year period.

Some have argued that technically it would be possible for health spending to increase for the 30 million formerly uninsured Americans even as premiums dropped for those already covered. In fact, we’ve known since 2008 that the average uninsured individual generates just under $1,000 in uncompensated care costs each year. We’ve also known that three-quarters of those uncompensated care costs are borne by taxpayers (federal, state, and local), leaving at most $285 (2013 dollars) per capita uninsured to be shifted to those with private health insurance, a small fraction of the premium increases we’ll be seeing.

In truth, no well-informed American ever should have believed this absurd promise. At the time Obama made it, Factcheck.org charitably deemed this claim to be “overly optimistic, misleading and, to some extent, contradicted by one of his own advisers.” Rather than scale back his extravagant claims, President Obama on July 16, 2012, doubled-down, assuring small-business owners that “your premiums will go down.” He made this assertion notwithstanding the fact that by that time, in three separate reports between April 2010 and June 2012, the Medicare actuaries had demonstrated that the ACA would increase health spending. To its credit, the Washington Post fact-checker dutifully awarded the 2012 claim Three Pinocchios (“Significant factual error and/or obvious contradictions”).

Deception #4: no increase in the deficit

Obama’s promise: “I will not sign a plan that adds one dime to our deficits” (September 9, 2009).

Reality: This pledge was made in President Obama’s speech before a joint session of Congress—well before either chamber had voted on a plan. Using rules that everyone recognized were grossly misleading, the CBO scored the plan as a small deficit reducer. However, the president was well aware that his plan was “full of gimmicks and smoke-and-mirrors” (in the words of Rep. Paul Ryan) many weeks before the final bill was passed. Ryan’s analysis left no doubt that the president was trying to stuff a $2.3 trillion health plan (over 10 years) into a $1 trillion wrapper. Pleading ignorance is no excuse when it comes to breaking this particular promise.

According to former CBO director Douglas Holtz-Eakin and Michael Ramet of the American Action Forum, “A more comprehensive and realistic projection suggests that the new reform law will raise the deficit by more than $500 billion during the first 10 years and by nearly $1.5 trillion in the following decade.” Indeed, based on a more realistic (i.e., accurate) alternative fiscal scenario to the one CBO was forced to use to score Obamacare originally, the ACA has put us on a path to add $6.2 trillion (2011 dollars) to the deficit over the next 75 years. Reasonable people might quibble about the president’s level of knowledge when he first made this pledge, but there is little doubt it has turned out to be a promise broken—by a rather extraordinary margin.

Deception #5: you can keep your plan if you like it

Obama’s promise: “If you like your doctor, you will be able to keep your doctor, period. If you like your health care plan, you’ll be able to keep your health care plan, period. No one will take it away, no matter what” (June 15, 2009).

Reality: Virtually all Americans will see changes in their health insurance coverage, whether they want them or not. These changes will increase the cost of coverage for most Americans.

Some rules apply to all health insurance plans, even those that are “grandfathered”: (1) Plans can no longer impose annual or lifetime limits on how much health care coverage people may receive; (2) they must offer dependent coverage for young adults until age 26; (3) plans cannot retroactively cancel coverage because of a mistake made by plan members when applying; and (4) waiting periods for new employees cannot exceed 90 days.

Unless grandfathered, health plans will also be required to cover certain preventive care services at no cost. This is as idiotic as requiring auto insurers to pay for oil changes. You might wonder, if gas and oil are necessities for your car, what’s the big deal if auto insurance pays for them? Well, for starters, consumers become less price-sensitive knowing that all or nearly all of any higher price they pay for something will be borne by a third party. Steven Brill’s Time exposé last year and a more recent New York Times piece on the high cost of colonoscopies should settle any questions about whether this phenomenon is widespread in American medicine. In general, Americans pay the highest medical prices on the planet.

Consumers may also undertake preventive activities more frequently than they would otherwise (changing oil every 1,000 miles instead of every 3,000). Case in point: About one-quarter of Medicare patients undergo colonoscopies more often than clinically recommended. Clearly, some of this wasteful spending can be avoided by erecting rules and monitoring to preclude this, but these in turn lead to higher administrative costs. 

When someone else pays the bill, the payer always will need to undertake at least some form of monitoring activity to ensure that the service was needed/allowable, that it was actually provided to the customer (the most common forms of Medicare fraud are durable medical equipment never provided and services never performed), and that the price did not exceed some specified “reasonable” level. Otherwise that payer may be subject to massive fraud or excessive payouts. Even if consumers remained prudent shoppers (though there is no incentive to do so when someone else is paying most of the tab) and somehow are cajoled into using precisely the amount of preventive care that they would if they paid for such care on their own, these administrative costs make buying the service through a third-party payer more expensive than if the identical bill had been paid directly by the consumer.

This explains why we do not see auto insurance policies that cover the costs of fill-ups and oil changes, or homeowners’ policies that cover the cost of mowing the grass. It’s more sensible and less expensive to let consumers handle such expenses on their own. But when it comes to our bodies, Obama-care takes away that choice.

Other rules apply only to the individual and small-group markets (whether or not coverage is provided through the Obama-care health exchanges). Beginning in 2014, Obamacare will require all nongrandfathered health plans in the individual and small-group markets to cover essential health benefits (EHB), a broad range of services. These run the gamut from mental health care to preventive and wellness services. Many of these benefits were already routinely offered in employer health insurance plans, but others, such as dental care for children, were far less common. According to a study at HealthPocket.com, “less than 2 percent of the existing health plans in the individual market today provide all the Essential Health Benefits required under the Affordable Care Act.”

Obviously, higher premiums will result in any plans that formerly lacked these benefits. One of the most controversial of the “essential” health benefits is the contraception mandate—a threat to religious liberty so egregious that it has spawned at least 60 different lawsuits. According to the American Action Forum, “premium increases associated with coverage of the essential health benefits have ranged from 0.13 percent in Rhode Island to 33 percent in Maine, with most states expecting single-digit increases.”

Apart from telling individual and small-group plan members what benefits they must have, the law put a floor of 60 percent on the actuarial value of coverage, meaning that such plans had to be arranged to cover at least 60 percent of the expected costs for the average enrollee. This will result in further premium increases given that more than half the plans currently available on the individual market do not meet this 60 percent threshold. Indeed, 12 percent of individual and small-group plans have an actuarial value between 35 percent and 49 percent.

Premiums in the individual and small-group markets will escalate further owing to “modified community rating” (which prohibits insurers from charging their oldest subscribers more than three times the amount charged to any younger subscribers) and “guaranteed issue” (requiring insurers to take all comers, including those with preexisting conditions).

The bottom line is that a large number of those who now buy in the individual market (19.4 million Americans) and small-group market (28.5 million) will face significant changes in benefits as well as higher premiums. People now buying their insurance in the individual market will see the greatest rate shock. The American Action Forum recently compared premiums for the lowest-cost plan available in the nongroup market in January 2013 to the lowest cost bronze plan available on the exchange on October 1, 2013. On average, a healthy 30-year-old male nonsmoker will see his lowest-cost option increase in price by 260 percent. The amount varies by state, but an increase was observed in every state and in the District of Columbia, ranging from a low of 9 percent in Massachusetts to a high of 600 percent in Vermont. A Manhattan Institute analysis similarly concluded that 27-year-old males who purchase the least-expensive plan through the exchange will see their rates go up by an average of 97 percent (with only two states experiencing lower average premiums, Colorado and New Hampshire). For 27-year-old women, the average increase will be 55 percent (only four states would see lower average premiums, Colorado, New Hampshire, Ohio, and Rhode Island). For 40-year-olds the projected increases were 99 percent for men and 62 percent for women.

The small-group market will also see higher prices. The National Journal’s independent assessment concluded that even after taking into account subsidies available on the exchanges, 66 percent of workers with single coverage and 57 percent of workers with family coverage will face higher premiums on the exchange compared to what they would pay for employer-sponsored coverage. Admittedly, these increases will be smaller for grandfathered plans, but only about half of small-group workers are enrolled in grand-fathered plans. Already this is a decline from 2011, and eventually all plans will lose their grandfather status.

Defenders of Obamacare say the enhancements in benefits are worth the added premiums, but this defies common sense. There was nothing stopping plans from including any of the benefits now being forcibly imposed under Obamacare. That they did not do so voluntarily implies that the added premium costs associated with such plan enhancements were not worth the added cost to their customers. By definition, in forcing people to do what they would not do voluntarily, Obamacare reduces the social welfare of vast swaths of Americans.

It’s one thing for the content or price of one’s coverage to be changed by meddlesome regulations. It’s quite another to lose one’s coverage entirely. Yet Obamacare also will cause some employers to drop coverage, knowing that their employees can obtain coverage through the exchanges. Estimates of how many will do so are all over the map, with CBO estimating only 9 million employees will lose their employer-sponsored coverage, the Medicare actuary projecting the figure will be 14 million, and former CBO director Douglas Holtz-Eakin calculating the total may be as high as 35 million. As well, Obamacare will slash payments to Medicare Advantage plans, culminating (according to the Medicare actuary) in about half of Medicare Advantage plan members losing their coverage and being forced back into the wasteful and inefficient Medicare fee-for-service system.

‘I did it for myself’

One of the most satisfying scenes in Breaking Bad’s final episode is when meth kingpin Walter White finally comes clean with his wife Skyler (and himself) and admits his real motivation: “I did it for myself.” He may have started out with the intention of providing for his family, but what kept him going even when it was clear that the end could not possibly justify the means was self-interest.

I don’t doubt the sincerity of President Obama’s desire to reform health care to make things better for the American people. But in light of the gargantuan gap between what was promised and what is now being imposed, it’s reasonable to wonder whether he is stubbornly plunging forward because he has deceived himself into thinking he’s making things better, or is desperately clinging to his legacy with little regard for what damage it will do to the people who elected him.

Christopher J. Conover is a research scholar in the Center for Health Policy & Inequalities Research at Duke University,
an adjunct scholar at the American Enterprise Institute, and a senior scholar affiliated with the Mercatus Center at George Mason University.

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