There were many of us long before Obamacare was even passed into law who doubted the absurd claims such a law would lower health care costs and not increase the deficit. We were called obstructionists and more. I lobbied several members of Congress trying to explain the faults in their assumptions, but what did I know compared with their twenty-something Harvard grad aides who politely insinuated I was out of touch with reality.
Having spent nearly fifty-years trying to manage health care costs, it was not hard to see through the pie in the sky claims, the naive assumptions and the lack of understanding of human nature that drove the laws design. Even some of the individuals participating in the law’s design noted false assumptions like more competition among insurers would lower costs.
Nothing has changed and while millions of Americans have gained health insurance, the original coverage claims were not fulfilled and many Americans are left in the gap between Medicaid and Obamacare; eligible for neither.
The assumptions for the 40% Cadillac tax were naive. Not only has the tax been delayed as explained below, but what organization was going to pay it in any case? Would you? Instead, immediately upon enactment employers started changing their plans to avoid the expected tax; all to the detriment to average workers – can you say cost-shifting❓Unions opposed the tax as well because they have among the most generous health benefit plans, especially through state government plans.
There would be no escape for workers with lower-income employees hurt the most because the tax is based not only on the value of the health benefits, but also includes the value of contributions to flexible spending accounts and health savings accounts; both designed to alleviate the impact of out-of-pocket costs.
We need health care reform that’s for sure, but we need it based on reality. What we have is another grandiose scheme from the left that over promises, and ignores human reaction and unintended consequences. The right, by the way, to date has nothing better and perhaps worse to offer.
The Congressional Budget Office’s latest long-term forecast, released last month, is a bracing report. As President Obama’s term comes to end, CBO finds that the federal government is on track to run up historically large deficits over the coming three decades, pushing federal debt to 141% of GDP, up from 39% in 2008.
The president has mostly avoided talking about the federal budget during his time in office, but he did promise that the Affordable Care Act — ObamaCare — would help lower deficits in the short and long term. CBO backed him up on this claim in 2010, estimating that the deficit would be reduced by 0.5% to 1.0% of GDP over the medium term. But the agency’s new forecast shows why the law is more likely to make the deficit worse, not better.
The law’s spending is certain, and growing. Paying for it is another matter.
A major source of revenue to finance the ACA is the “Cadillac” tax, a 40% excise tax on high-cost insurance plans. CBO estimated that the Cadillac tax would generate revenue equal to 0.6% of GDP annually by 2046. That’s almost the entirety of the expected deficit reduction CBO said the ACA would generate.
The Cadillac tax will generate substantial revenue because the thresholds that determine whether insurance is “high cost” are indexed to general consumer inflation instead of health care cost growth. This was done to generate a growing wedge of federal revenue over time to offset the rising costs of ObamaCare.
But the Cadillac tax is already on life support, before one dollar has ever been collected. The tax was supposed to go into effect in 2018 but was delayed until 2020 — a delay the president agreed to in response to strong opposition from businesses and unions.
Few expect the Cadillac tax to survive, and there are good reasons to dislike it. The tax is unfair. The same 40% excise tax will apply to plans offered to CEOs and hourly wage workers. A better approach would limit the existing tax break for job-based insurance. That would promote more efficient and less costly insurance without imposing an unreasonable tax burden on lower-wage workers, but the prospects for this sensible reform are dim.