A Few Healthcare Financing Gimmicks
You may love healthcare reform. You may hate it. Either way, there are some very troubling developments that we should be able to agree on. Specifically, in order to achieve CBO scores that are politcally palatable, serious legislative gimmicks are being employed. This post documents a few, focusing on the Manager’s Amendment of the Reid bill.
* The additional Medicare payroll tax is applied to anyone who earns over $200,000 a year. That threshold amount is not indexed for future inflation. If and when inflation happens, more and more people will pay this tax. Why did the Senate do this? Healthcare inflation threatens to outstrip CBO-scored revenues. By not indexing the tax bracket, tax revenues will escalate at a faster rate, causing the bill to be estimated to pay for itself even in the second decade. I strongly suspect the average person would not support this structure.
* The lower-income premium subsidies are designed to require ever-increasing premium payments, as a percent of income. What this means is that even subsidized premiums become increasingly unaffordable in future years. This was done to help limit the increased cost of subsidies. Again, however, this is bad policy. If someone can’t afford more than x% of their income as premium in 2014, what justification is there to presume that they can afford a higher percentage of their income in 2019?
* There are more than 125 million Americans living at between 100% and 400% of the federal poverty level. Less than 20 million of those will receive the subsidies in the bill. All others will be behind “firewalls” that are estimated to keep them from receiving the subsidies. I doubt that these firewalls are sufficiently strong. Aside from that criticism, however, this mechanism makes the bill seem much less costly than it truly is.
* CLASS Act revenues are scored during the budget window. These revenues are dedicated to future benefits, but this liability is not scored during the budget window. In other words, we are using the revenue from a new entitlement to pay for cost overruns in another entitlement. Further, the CBO has to score the CLASS Act overall as not contributing substantially to the deficit because, according to the proposal, premiums will simply be increased to whatever level is necessary to pay for the ongoing costs of the program. I trust that the deceit of this mechanism requires no further comment.
* The tax on “Cadillac” plans serves two purposes to help scoring that may or may not translate into true cost savings. First, the number of plans that get hit by the tax are expected to increase because the threshold for what defines a Cadillac plan does not increase at the same rate as healthcare costs. Secondly, the CBO likely overstates the revenue from this provision because it assumes that an employer that slims their healthplan to avoid this tax will give workers a dollar-for-dollar wage increase to compensate for the cut in health benefits. Any leakage to profits, solvency, other non-taxable benefits is assumed to not exist in any substantial fashion.
* The Medicare in-patient cuts are assumed to happen as scheduled. All experts are quite skeptical that this will happen. These cuts are designed to be a crude function of economy-wide productivity. This means that in an economic downturn, which typically has employment falling and productivity climbing, per-stay reimbursements are expected to be cut more heavily than during economic upturns. The appropriate policy response for reform supporters was to delay the spending until *after* these cuts had happened, rather than commit ourselves to the spending on the hope that these cuts will happen.
* The Medicare physician cuts that have been over-ridden for almost 10 years in a row are assumed to be enforced through 2019. This is almost guaranteed not to happen, and this is worth more than $200 billion.
* The Medicaid program itself is unsustainable, but this problem remains unaddressed in this bill. In fact, Medicaid becomes stressed even more heavily as more people are placed onto that program. Can states absorb these costs? The CBO has to assume that doctors will serve the new Medicaid enrollees, and that states will find their share of the money and will cooperate in expanding enrollment.
* In general, there are only four full years of scorable expenditures on premium subsidies (2016-2019), but ten scoreable years as revenue. The illusion that the bill pays for itself in the latter years is supported only by many of the aforementioned gimmicks.
It is our duty as private citizens to demand good government. I don’t think anyone, regardless of whether they support reform, should support the fgimmikcs described above.