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The Fiscal Irresponsibility of Obamacare

Hanns Kuttner

Health care coverage in the United States is an issue with two competing faces. The number of people in the U.S. without insurance and the high costs of obtaining insurance have long been dueling challenges for the American public at large. According to the U.S. Census Bureau, an estimated 50 million people in America are currently uninsured; a number that includes non-residents, illegal aliens, and those who choose to remain uninsured. Nevertheless, the dual problems of cost and access for those 50 million became, for the most part, the casus belli of overhauling the system through the Patient Protection and Affordable Care Act, known to some as “Obamacare” and others as the “Affordable Care Act,” signed into law by President Obama on March 23, 2010.

The President’s health care reform law, however, offers a strong response to only one of the two challenges. While the law aggressively pursues an access agenda and lays plans for the federal government, by way of the taxpayers’ dime, to pay for health insurance for tens of millions more Americans than it already does, the new law pursues the growing costs of health care with notably less vigor. On the contrary, Obamacare effectively increases the cost of health care for the majority of Americans who are already insured, without additional perks or benefits. The inevitable coming to terms with the cost challenge leaves the long-term significance of the March 23 signing ceremony, like the administration’s economic forecasts, subject to downward revision.

Increase Access, Increase Costs

The Affordable Care Act requires substantial bureaucratic activity to implement. This sprawling pronouncement on many topics is a lengthy discourse, 903 pages as a printed public law. The word comprehensive has been used to describe it; omnibus would be a better term. To put the bill in perspective, the United States Constitution was written on four pages alone­six if one includes the Letter of Transmittal and Bill of Rights.

If the bill truly took a comprehensive approach as its followers claim, the legislation would include some underlying logic, even if faulty, that would connect its approach to securing access with the implied cost. Instead, it could be said that what unifies the health care reform legislation is the glue applied to the document by the Government Printing Office. Beyond new subsidies, there are taxes and fees to offset part of the costs of subsidies, a new role for the federal government in regulating health insurance, another layer of detail in the administered prices used by the Medicare program, additional funds and potentially more for a broad array of federal health programs, and a new program to take money from paychecks now in exchange for promises of payments for nursing and home care in the future. The broad array of new authorities and initiatives eat away at the coherence of the law. These range from a new entitlement to health care for people possibly harmed by vermiculite mining in Montana to new regulation of what gets printed on the menus of chain restaurants.

Undoubtedly, the legislation provides an approach to getting health insurance cards into the wallets of millions of Americans. However, in doing so, it leaves those who already have health insurance, a far more numerous group, generally happy with what they have, to expect a growing share of their income to go toward health care costs. Cost increases will be particularly steep for those who buy coverage directly from insurers rather than through employers. According to a recent government report, as a result of the law, the cost of their health care premiums will increase by $2,100 for the average family. Moreover, spending on care is expected to spike by 9.7 percent when many of the new law’s reforms go into effect in 2014, as compared to the pre-law expected increase of 6.6 percent.

These higher costs will be felt by most Americans either through larger out of pocket costs, or through lower wages offered by employers in exchange for providing health insurance. Health care costs will continue to gnaw away at the public purse, and those who challenge the government to bring federal spending in line with revenue will only find their challenge greater because of this legislation.

Overall, the health care reform package has augmented the tension between public commitments to pay for health care and the federal government’s revenue. As long as that tension remains, the Obama legacy is in danger.

The same point could be made about Lyndon Johnson’s legacy and Medicare. Almost 50 years later, the U.S. government is still struggling with its cost, but Medicare hasn’t gone away. When President Johnson signed the Medicare law in 1965, there was a federal budget deficit, but it was only two tenths of one percent of the economy. The federal debt was 44 percent of a single year’s economic output, in the midst of a period when the debt fell from 121 percent of economic output in the year just after World War II to 31 percent in 1974.

Fiscal Irresponsibility

In addition to the long-term threat from the trajectory of health care costs, the would-be Obama legacy faces a nearer-term threat, one that existed even before Democrats’ electoral outlook for 2010 dimmed. President Obama’s signing ceremony took place in the midst of a fiscal year in which the federal government’s budget was in deficit by more than $1 trillion, an amount that is more than 11 percent of the economy. The debt is larger, relative to the economy, than it was when Johnson signed the Medicare law, and its trend is upward, on a fiscal path to levels not seen since Harry Truman was president.

Not to scare the American public, Congress cloaked its pricey health care legislation in rhetoric of fiscal responsibility. To obtain a spreadsheet from the Congressional Budget Office (CBO) that supported its talking points, Congress put spending and paying for health care on different timetables. Items prefaced by a minus sign would start sooner than the new spending. By 2014, the minus items, including changes to pay less to health care providers in Medicare and new taxes, would accumulate $118 billion more than new spending. Only then would the new subsidies for health care begin, and the cost of insurance subsidies would go from $4 billion in 2013 to $110 billion in 2016. Implementation of health care reform legislation is fiscally backloaded.

Shell games play an even more important role in the assertion that the new legislation will save even more money in subsequent decades. The law defines a future path for government payment to health care providers that pulls ever further away from prices in the rest of the economy. For this to hold, hospitals would have to pay substantially lower wages than workers could find elsewhere. Could a hospital hire a kitchen staff in 2030 offering wages half of what restaurants will be paying that year? It is doubtful.

On January 1, 2014, three months into the federal government’s fiscal year (FY) 2015, the Obamacare subsidies will go into effect. Stepping back and seeing health care reform in the context of the federal budget, the Obama administration’s budget proposals for FY 2015, according to CBO, show fiscal momentum moving in the wrong direction at that time. Indeed, the advantage of coming out of a recessiona growing economy and growing tax revenue, fewer unemployed and lower unemployment insurance costswill be less potent than expected. This is because fiscal forces like the growth of existing entitlement spending and new spending under Obamacare will move the direction of the deficit from shrinking to expanding.

One word consistently used to describe the federal fiscal outlook is “unsustainable.” Even as the annual deficit declines to below $1 trillion, something CBO expects will happen in FY 2012, the federal debtthe sum of all past deficitswill continue to rise. Forecasts of the relationship between the debt and the size of the economy show the debt reaching levels not seen since the end of World War II. The bond raters note the U.S. public debt may reach levels that are inconsistent with a AAA bond rating.

Balancing the Budget

There is a contradiction in the path pursued by bureaucrats who are implementing what became law in the March 23, 2010, signing ceremony and the greater fiscal realities that face the United States. The only way the feds can defuse this tension is to reduce the imbalance between the cost of health care and access to itaccomplished through limiting the amount of care dispensed.

It is easier for the federal government to expand access than contain costs. Handing out health insurance cards is easy; reducing health care costs is not. It is one thing to estimate that every third or fifth or tenth health care dollar is wasted and another to identify which dollars those are. The disagreements about which dollars pay for helpful services and which are unnecessary can easily move from a disagreement among technicians to something the everyday American easily understands by invoking the word “rationing.” Simply put, the federal government, no matter how much it taxes the public, cannot afford to pay for the health care costs created under Obamacare. Like Social Security, the government’s coffers will run dry.

Looking across the Atlantic, Americans can see into their future. There, governments are tightening belts, challenging fiscally untenable elements of the welfare state, and working to lower expectations about the size and scope of government.

A Different Approach to Access

An alternative approach could build on the goal set by the health care quality movement. Quality, they argue, should be measured in terms of the right person getting the right care at the right time. From this perspective, health insurance is something instrumental, not the end itself.

Moreover, health insurance is not the only way to connect patients with providers. Federal support for community health centers began as a “war on poverty” program during the Johnson administration. The centers that receive funding from this program provide health care to people in places that would otherwise not likely receive care. In short, health centers provide access to health care. Those organizations that receive federal funding today have evolved from the 1960’s “free clinics,” maintaining a sense of mission but also aware that they cannot pursue their mission if they do not mind their bottom line.

George W. Bush embraced health centers as a more affordable way to increase access than broader health insurance entitlements. Federal appropriations for this program doubled during his presidency, and 1,200 clinics either newly opened or expanded. The 2010 health reform law provides a guarantee of additional funds. The millions of patients cared for at health centers do not contribute to “access” statistics when it is measured as the number of people who have health insurance.

The United States has not had a more nuanced debate about access and health care for two reasons. First, those who have pushed the debate to the fore of the public agenda have concealed the cost and focused on access in terms of the number of people without a health insurance card. And second, these advocates have not encountered much resistance to framing it that way. The reality of the fiscal challenge ahead will make it necessary to frame our understanding and access more broadly.

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