An Obamacare Report Card
The grades are bad so far—and likely to get worse
Feb 17, 2014, Vol. 19, No. 22 • By CHRISTOPHER J. CONOVER
Promise #3: Annual Premium Savings of $2,500. Candidate Obama promised on June 5, 2008: “We’ll lower premiums by up to $2,500 for a typical family per year. . . . We’ll do it by the end of my first term.” This promise was reiterated at least 14 times, most recently in a campaign speech on July 16, 2012. An adviser who helped calculate the original figure is on record as saying that the claim that premiums would decline by $2,500 per family was a “misstatement”; what was originally intended was that total health spending would decline by this amount. So let us give the president the benefit of the doubt by (a) reframing his promise as a prediction about health spending rather than premiums and (b) allowing Obamacare a full 12 years to achieve the promise instead of taking candidate Obama’s rash claim “by the end of my first term” literally. Even by that relaxed standard, all the available evidence makes this claim provably false.
The latest report from the Medicare actuaries shows that in its first dozen years, Obamacare will boost health spending by “roughly $621 billion”—or an average of $7,579 for a family of four—above the amount Americans would have spent without this misguided law. When even the fact-checker at the Washington Post awards Three Pinocchios to a claim and PolitiFact deems it a Promise Broken, it seems reasonable to label it a failure. Grade: F.
Promise #4: Bend the Cost Curve. On December 15, 2009, after meeting with Senate Democrats, President Obama asserted that the Senate bill (which passed nine days later) “will finally reduce the costs of health care.” While conceding that health spending would go up in the first 10 years as a result of the expansion of coverage, PolitiFact scored this statement as Half True on grounds that the plan would “bend the cost curve” (a term of art championed by former OMB director Peter Orszag and used repeatedly by the president in explaining his goals for the proposed plan). That is, in the final year of the 10-year projection used by the Medicare actuaries to score the plan, the rate of growth in health spending under the Senate bill (essentially the version signed into law) would be slightly lower (6.9 percent) than under the status quo (7.2 percent). Unfortunately, the Medicare actuaries, along with the Medicare trustees, CBO, and Government Accountability Office, also have questioned whether the deep cuts in Medicare—which are central to any estimated reductions in the long-term rate of health spending growth—are either wise or politically sustainable in light of their potentially devastating effects on access to care (more on that shortly). Under a more realistic “alternative fiscal scenario” (which the independent, nonpartisan Committee for a Responsible Federal Budget argues “is probably a lot closer to where we are going” than the baseline scenario used by CBO), Medicare spending by 2085 will absorb 9.8 percent of GDP rather than only 6.5 percent of GDP under the less realistic current law projection that was used by CBO to conclude that Obamacare would reduce the deficit. Since this was a long-term promise that may yet bear fruit (however improbable that is given what we know), it is fairest to award the Grade: Incomplete.
Promise #5: No Increase in the Deficit. On September 9, 2009, President Obama promised: “I will not sign a plan that adds one dime to our deficits.” While the CBO scored the plan as reducing the deficit in its first 10 years, Rep. Paul Ryan eloquently and decisively revealed the “gimmicks and smoke-and-mirrors” underlying that assessment (which counted 10 years of revenue but only 6 years of spending, for instance). Medicare public trustee Charles Blahous went even further in documenting that some of the conventional assumptions used in CBO’s analysis contravene actual law. A far more accurate assessment using more realistic assumptions was made by former CBO director Douglas Holtz-Eakin and the research analyst Michael Ramlet, who concluded 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.” Similarly, using a more realistic fiscal scenario than the one CBO was forced to use to score Obamacare originally, the Government Accountability Office has shown that ACA has put us on a path to add $6.2 trillion (2011 dollars) to the deficit over the next 75 years. Grade: F.
Promise #6: You Can Keep Your Plan If You Like It. On June 15, 2009, President Obama promised: “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.” This promise in various forms was made three dozen times. As of December 11, 2013, some 6 million Americans had lost their coverage as a result of the cancellation of nongroup policies that did not meet Obamacare coverage standards. The RAND Corporation projects that of 17.7 million who would have had nongroup coverage in 2016 absent Obamacare, only 0.2 million will retain that coverage. Likewise, but for the one-year delay of the employer mandate, many would have seen their employer-based plans canceled. Estimates of how many will lose their employer-based coverage because their employer drops it are all over the map, ranging from 11 million (CBO), to 14 million (Medicare actuary), to 17.2 million (Lewin Group), to as high as 35 million (American Action Forum).
And because Obamacare will slash payments to Medicare Advantage plans, the Medicare actuary has calculated that once these cutbacks are fully phased in by 2017, about half of Medicare Advantage plan members (7.4 million) will lose their Part C coverage and be forced back into the wasteful and inefficient Medicare fee-for-service system. Regrettably, a disproportionate number of those losing Medicare Advantage plans are low-income seniors who had discovered it was much less expensive to join a Part C plan than pay premiums for regular Medicare coverage. In short, leaving aside the tens of millions who will pay higher premiums for “enhanced” coverage they may not want or need, the number who see their plans canceled whether they like them or not can also be measured in tens of millions. There is no need to calculate the exact number to arrive at a grade since PolitiFact declared this promise the Lie of the Year for 2013. Grade: F.
Promise #7: If You Like Your Doctor, You Can Keep Your Doctor. On June 15, 2009, President Obama promised: “If you like your doctor, you will be able to keep your doctor, period.” As the Washington Post recently reported, “Many small businesses are also discovering that the new plans have more restrictions on access to specific doctors, hospitals and prescription drugs.” Because the law requires those in the individual and small group markets to purchase coverage that is more comprehensive than some buy today, the principal remaining strategy for holding down premium increases is to narrow the provider networks offered. It is difficult to say how many of the nearly 6 million who have lost their nongroup coverage have been unable to find a plan that lets them keep their doctor. The same can be said of the tens of millions who may eventually lose their employer-based coverage and the 7.4 million affected by the Medicare Part C cutbacks. Worth noting is that as of mid-January, 4.5 million have signed up for Medicaid (and CBO projects that when fully implemented in 2015, Medicaid will cover a total of 12 million newly eligible). But RAND simulations indicate that 27 percent of newly Medicaid-eligible people will be individuals losing employer-based coverage, and another 5 percent will have given up nongroup coverage. Since one third of doctors are currently unwilling to see new Medicaid patients, at least some unknown fraction of newly Medicaid-eligible people will lose their doctors. Grade: F.
Promise #8: I’m Not Going to Touch Medicare. On July 29, 2009, the president asserted at a town hall meeting: “Medicare is a government program. But don’t worry: I’m not going to touch it.” Yet when the chief actuary for Medicare scored the law less than a month after its passage, he found that it would cut Medicare by $575 billion in its first 10 years. In four consecutive annual reports, the Medicare actuary reported that if these steep cuts in provider payment rates were actually implemented, 15 percent of hospitals, skilled nursing facilities, and home health agencies would be operating in the red by 2019. Likewise, Obamacare eventually would drive Medicare payment rates to physicians to less than half the levels paid by Medicaid, which most experts agree would push providers to abandon Medicare in droves. Even though Medicare Advantage plans are 9 percent less expensive when fairly compared with regular fee-for-service Medicare, Obamacare will also slash payments to such plans by $145 billion in its first 10 years. The Medicare actuary projects these cutbacks will result in a 50 percent reduction in Medicare Advantage plan membership by 2017. Grade: F.
Midterm Grade, Promises vs. Performance: F. This student has a persistent tendency to make outlandish promises that too often have turned out to be the opposite of what the student predicted. Not one of these promises was inherently implausible when uttered, but the prospect of achieving even one of them by the final grading period seems vanishingly remote. This student would do well to consider abandoning this project in favor of starting over with a new approach.
Second Grading Standard:
In medical care, researchers often resort to process measures because they typically are easier to meas-ure and tend to be available on a more timely basis. Instead of comparing reality (or projected reality) with the student’s own promises, in this section we can compare presidential performance against that of the peers who preceded him in office.
Peer Comparison #1: Transparency. In a January 31, 2008, campaign debate, candidate Obama promised: “That’s what I will do in bringing all parties together, not negotiating behind closed doors, but bringing all parties together, and broadcasting those negotiations on C-SPAN so that the American people can see what the choices are.” In a detailed examination of this issue, McClatchy Newspapers showed that substantial negotiations on health reform were held behind closed doors. These include separate agreements with the drug industry and hospitals over how to reduce costs in the next decade. In Congress, too, most negotiations took place behind closed doors, as is standard practice. The most difficult negotiations take place in private, before bills come to committee or the House or Senate floor. For better or worse, most experienced observers have concluded the Obamacare process was far more open than that used to create Hillarycare, which entailed a 500-person task force that worked entirely behind closed doors. One could argue that the president had no control over the process once he delegated the task of writing the bill to Congress. Nevertheless, PolitiFact scores this as a promise broken.
Moreover, something the president did have control over was a related pledge to post online for five days all nonemergency bills before he signed them, allowing the public to comment on pending legislation. This promise was broken at least 10 times during his first three months in office; so it was not surprising to see it broken again in the case of Obamacare (which passed the House on March 21, 2010, and was signed into law on March 23, without having been posted for even a minute on the White House website). In light of all the “drafting errors” later discovered (some of which have triggered lawsuits that may yet unravel components of the law), failure to follow through on this simple promise was inadvisable from a policy perspective, even though it arguably eased the politics for the president and his party. Similarly, the president and his advisers were far less than forthcoming with members of Congress as they sought to discharge their monitoring and oversight responsibilities. More timely and accurate information about the progress of implementation might have permitted Congress to take actions to avert the inexcusably poor rollout of the Obamacare exchanges. Grade: D.
Peer Comparison #2: Legitimacy of the Statutory Process. In October 2007, candidate Obama solemnly promised: “We are not going to pass universal health care with a 50-plus-one strategy.” Instead, he pledged to bring the nation together by forming huge congressional majorities to support his policies. Although he had less than three years of Washington experience at that juncture, candidate Obama’s intuition was on the money. No major piece of domestic policy legislation had ever in U.S. history been enacted on a pure party-line vote. A majority of Republicans in the House voted for Medicare, and Senate Republicans were nearly evenly divided when that law passed in 1965. Likewise, in 1935, House Republicans voted more than 5 to 1 in favor of Social Security, and Senate Republicans voted more than 3 to 1 in favor. Note that in both cases, the Democrats held far more commanding majorities in both chambers than in 2010. Thus, in principle, Presidents Roosevelt and Johnson might well have elected to drive through a version of their plans more to their liking on a purely partisan vote but recognized the foolishness of such a divisive strategy.
Although he could not foresee it in 2007, a critical difference between Obama’s health initiative and these other major pieces of legislation was the lack of public support for the former. Medicare, for example, persistently had majority public supports, and Social Security has enjoyed high public support since its inception. Even the Clinton health plan began with pretty solid public support; within six months, however, there was majority opposition to the plan that persisted until its demise in the fall of 1994.
In sharp contrast, Obamacare has faced years of steadfast public opposition. Of 140 polls tracked by Real Clear Politics between April 2009 and the bill’s passage, less than a year later, supporters of the plan outnumbered opponents in only 16 polls (11.4 percent). With the exception of 3 polls that were tied, the remaining 121 saw opponents outweighing supporters by as many as 25 percentage points. This was by no means preordained: Between late April 2009 and late June, polls showed majority support by as much as 9 points. But the more people learned about the plan in the summer of 2009, the more their opposition grew.
Democrats like Nancy Pelosi expressed confidence that things would turn around, but this never happened. Real Clear Politics has tracked 298 polls since Obamacare’s passage. Only 10 (3.3 percent) show supporters outnumbering opponents. Once again, leaving aside 2 polls that were tied, the rest show margins of opposition typically in double-digits and up to 31 percentage points. Real Clear Politics has separately tracked polls focused on repeal of the health care law, and these show an even stronger pattern of opposition. Of 145 polls tracked since March 2010, exactly 1 showed opponents of repeal outnumbering proponents. Most showed advocates of repeal leading by double-digits, once by 29 percentage points.
In light of these numbers, President Obama’s decision to go for broke in early 2010—despite having lost his filibuster-proof Senate majority with the election of Scott Brown—was bold, not to say rash. His chief of staff, Rahm Emanuel, a veteran of the Clinton health debacle, had strongly counseled finding a more modest bipartisan compromise. But at the end of the day, Obama should get credit for having made the call (recognizing that it would have been worthless without Pelosi’s skillful execution).
President Obama assuredly won the battle. It remains to be seen, however, whether he wins the war. Ramming Obama-care through on a party-line vote has had some predictable adverse consequences.
It is unlikely this level of opposition would have persisted this long had the law enjoyed widespread support among the public. It remains to be seen whether the political damage caused by the decision to pass Obamacare on a party-line vote will fade or could cause the law to unravel entirely. Grade: D.
Peer Comparison #3: Legitimacy of the Implementation Process. From the beginning, the administration appears to have adopted a lax approach to implementation. In some cases, this took the form of using regulations or not-so-subtle coercion to implement provisions never written into the law, while in others, it meant selectively enforcing the law as written, issuing waivers or delays without statutory authorization. And in cases where it had explicit statutory authority, the administration routinely used it to reward politically favored groups.
For example, the law was intended to prevent insurers from excluding children with preexisting conditions effective in 2010. But because of an alleged drafting error, the statute made this provision applicable in January 2014 (when it applied to adults as well). Within days of the law’s signing, Health and Human Services secretary Kathleen Sebelius began jawboning insurers to comply with her interpretation of Congress’s intent rather than the law itself. HHS subsequently issued a rule on June 28, 2010, that beginning on September 23, 2010, group health plans could not exclude enrollees (employees, spouses, or dependents) under age 19 because of preexisting conditions. Such lawless action was not without consequences. Even though the insurance industry was too meek to challenge the secretary in court, a 2011 survey showed that Obamacare had prompted at least one health insurance carrier in each of 39 states to abandon the child-only market, including 17 states in which no carriers were willing to sell new child-only health plans.
More than half a dozen different types of waivers have been issued, some provided for in the law (“medical loss ratio” waivers for states, state innovation waivers, and individual mandate waivers), others invented on the fly in response to political pressure (contraception waivers, MLR waivers for mini-med plans, annual limit waivers for mini-med plans, a two-year waiver to Massachusetts to end-run certain insurance rules). Despite Obamacare’s extraordinary grant of authority to Secretary Sebelius—the law contains more than 2,500 references to the secretary of HHS, including 700 statements that the secretary “shall” do something, more than 200 that she “may” take regulatory action, and 139 passages where the law mentions decisions that the “Secretary determines”—she unilaterally extended that authority. Secretary Sebelius ultimately granted thousands of mini-med waivers affecting roughly 4 million individuals; 58 percent of those benefiting from these waivers were labor union members, a pattern of favoritism towards political allies that was amplified in the distribution of $5 billion in taxpayer funds under the Early Retiree Reinsurance Program (where public employee union plans accounted for 47 percent of plans given assistance, while private unions accounted for another 10 percent).
Unilateral administrative decisions to (a) postpone the employer mandate one year, (b) postpone out-of-pocket spending limitations one year, (c) allow continuation of already-canceled plans one year, (d) permanently give Congress favored treatment on the exchanges, and (e) permit payment of subsidies on federally run exchanges, violating the letter of the law, all are of dubious constitutionality. Likewise, the U.S. Office of Special Counsel ruled that in early 2012 Sebelius violated the Hatch Act (which prohibits executive branch personnel from engaging in partisan political activity); Hatch Act violations normally require the employee to be terminated, yet the violation was dismissed by the administration as an “inadvertent error.” In May 2013, Sebelius brazenly solicited contributions from the insurance industry even though federal law prohibits department officials from fundraising in their professional capacity. Leaving aside the roughly 100 lawsuits that have challenged provisions of the law itself, these lawless implementing actions have triggered a steady stream of legal challenges that may yet cripple the law’s operation. Grade: D-.
Peer comparison #4: Quality of Rule-Writing. A Mercatus study of the first eight major rules issued under Obamacare revealed that in the rush to implement key regulations, agencies sped through the process of regulatory analysis. When compared with regulatory analysis for economically significant regulations in previous years, that accompanying the ACA rules was of lower quality and produced poorly substantiated claims about the law’s benefits and costs. That is, the analysis was even worse than is typical for rules of this scope. Grade: C-.
Midterm Grade, Peer Comparisons: D. This administration has been far less transparent than it should have been, especially for the president’s signature domestic initiative. It used a process of questionable legitimacy to enact the law and followed up with an implementation process that too often skirted legal and constitutional constraints. Even if the implementation had remained within legal bounds, the administration’s rule-writing was below-par.
Third Grading Standard: Outcomes
Outtcome #1: Uninsured Risk. As I have noted in Forbes, it remains to be seen how many people ultimately gain coverage under Obamacare. The great uncertainty about the actual numbers underscores how poorly the enrollment process has been managed. As of mid-January 2014, anywhere from 4.6 to 6.4 million people had been enrolled in Medicaid. But this grossly overstates the effect of Obamacare since in the handful of states that keep separate statistics, redeterminations account for 32 to 48 percent of the total enrolled since October 1. As well, Medicaid was constantly enrolling new people before Obamacare. Once these “routine” enrollments and redeterminations are taken into account, the net increase in Medicaid enrollment attributable to Obamacare is only 190,000 to 380,000. But even that doesn’t tell the whole story since actuarial models suggest that only 63 percent to 72 percent of the newly Medicaid-enrolled were previously uninsured, meaning that Medicaid expansion has only covered 120,000 to 274,000 previously uninsured people in its first 100 days.
On the exchanges, the story is similarly dismal. As of January 21, 3.5 million had enrolled on the exchanges. However, only 11 to 35 percent of these were previously uninsured, that is, 385,000 to 1.2 million people. Finally, between 2.2 and 2.6 million young adults have gained coverage on their parents’ health insurance. Thus, all told, Obamacare likely has covered at least 2.7 million uninsured and perhaps as many as 4.1 million. However, nearly 6 million nongroup plans have been canceled. Even if we generously assume that 1 million of those dropped were able to keep their plan after all because of the president’s plea to allow canceled policies to remain in force for another year, the chances appear far better than even that Obamacare has not reduced the total number of uninsured as of early 2014. Grade: F.
Outcome #2: Health Spending. Through 2013, Obamacare added only $32 per capita to national health spending. Of course, serious expansion of coverage did not begin until January 1, 2014; consequently, this figure will escalate—according to Medicare actuaries, it will rise 100-fold, to more than $3,500 per person over the next four years. Nevertheless, for purposes of grading, the increase to date (like the benefits to date) has been rather small.
The story on private health insurance premiums is far less benign. Milliman Inc. in a study commissioned by the Society of Actuaries (SOA) calculated that premiums in the individual market nationwide would increase from 8 to 37 percent in 2014. So while some individuals may face lower premiums on the exchanges (e.g., near-elderly females), this is an estimate of the overall average increase in premiums for the roughly 14.6 million Americans with nongroup coverage in 2013 (excluding those with Medicare supplements). In addition, the SOA estimates that nearly half of exchange members will be drawn from those who previously had employer-based coverage. Even after accounting for subsidies available on the exchanges, National Journal estimates that 66 percent of workers with single coverage and 57 percent of workers with family coverage will face higher premiums on the exchanges than they would pay for employer-sponsored coverage. For those who remain in the group market, premium increases will be somewhat smaller. The consulting firm Aon Hewitt conducted a survey of 26 health plans covering 32 million individuals, on the basis of which it estimated that in 2011 Obamacare-required changes in coverage (e.g., free preventive services) increased premiums by an average of 1.5 percent in the small group market and 0.8 percent in the large group market. When averaged across the entire population with private coverage, the annual premium increase attributable to Obamacare to date would be less than 1.5 percent. This is certainly worse than the premium savings predicted by the president, but likely much better than many feared. Grade: B-.
Outcome #3: Quality. While Obamacare has launched a series of changes designed to improve quality (e.g., Medicare penalties for hospital readmissions), actual data on quality improvements are not yet available. Moreover, any such improvements may be counterbalanced by the deep cuts in Medicare payments to hospitals. This is worrisome since one study of previous Medicare cutbacks to hospitals found that for every $1,000 reduction in hospital reimbursements, there was a 6-8 percent increase in hospital mortality rates. Put a different way, each 1 percent reduction in hospital reimbursements was associated with a 0.3 percent increase in mortality rates. In addition, taxes on medical device manufacturers and pharmaceutical companies may well lower the sums spent on R&D in these industries, resulting in avoidable deaths due to the suppression of innovations that might otherwise been produced by this research. Grade: Incomplete.
Outcome #4: Employment. When both direct and indirect effects are taken into account, Obamacare eventually is expected to reduce the number of full-time-equivalent workers by 2.5 million, according to the CBO report released last week. And once the employer mandate takes effect, it is expected that the law will result in an additional 10 million workers transitioning from full-time to part-time. Nevertheless, because the employer mandate was delayed until 2015, most of these adverse consequences are in the future. To date, nearly 400 employers have cut back on employee hours to keep them below the 30-hour-per-week threshold that would trigger the Obamacare employer mandate. But in an economy with 145 million workers, such actions are too small to register in aggregate employment statistics. Although there were some disturbing signs in various employment indicators of a shift towards part-time employment in the first half of 2013, these patterns reversed themselves after the delay of the employer mandate was announced in early July. Most experts agree that current employment statistics do not (yet) show a shift towards part-time employment. Thus, the biggest measureable adverse employment impact that has resulted from Obamacare comes from a synthesis of Obama-care regulations showing that to date they impose an annual burden of 127 million hours (equivalent to 63,000 full-time workers). Grade: C.
Outcome #5: Federal Budget Deficit. Similarly, the adverse impact of Obamacare on the federal budget deficit is in the future. Because revenues were front-loaded and spending back-loaded, Obamacare had no adverse effect on the federal budget deficit through 2013. When all federal tax revenues are taken into account, Obamacare raised $58.3 billion in its first four years. Because much of the additional spending was exactly matched by spending reductions elsewhere (predominantly Medicare), the net effect was to reduce the federal budget deficit by $45 billion over this period. Thus, although its financing arguably is far more convoluted and less transparent than it should be, the law in its early years at least was honestly financed. Thus, the net cost to taxpayers was $13.3 billion or $43 per capita. Grade: A.
Midterm Grade, Outcomes: C+. Even though expanded coverage was its central purpose, Obamacare has failed to achieve it so far—a performance that may improve in the future. Conversely, Obamacare gets much better midterm marks for its modest impact on health spending and employment and high marks for its short-term effects on the federal budget deficit. Unfortunately, all signs point to worsening performance on each of these dimensions over the next five years.
Net Assessment and Outlook
Here’s the bottom line: Obamacare has failed miserably on nearly every major promise made about it (Grade: F). The processes used to enact and implement the law have been tarnished by actions of questionable legality and a pervasive lack of transparency (Grade: D). On actual outcomes, Obamacare has fared better in the short term (Grade: C+), but there are worrisome signs that by most measures, the law’s performance will get significantly worse by the time final grades are handed out.
I’ll admit, I’m a pretty tough grader. In this era of grade inflation, some Americans may be inclined to be more generous. But after doing this for nearly four decades, I think I’m a fairly good judge of health policy work and its likelihood of success when put into practice. We’re only at midterm, but I’d have to say the long-term outlook for Obamacare is very poor indeed.
Christopher 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 Mercatus Center-affiliated senior scholar.
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