Health care law will deepen deficit

Rep. Darrell Issa
Politico
08/22/2011

The White House sold “Obamacare” as an instrument for lowering health insurance premiums and reducing federal budget deficits. “Altogether,” President Barack Obama said, “our cost-cutting measures would reduce most people’s premiums, and bring down our deficit by more than $1 trillion over the next two decades.”

Studies, however, reveal a far different picture. Health care spending will increase because of Obamacare, according to a recent report from the Centers for Medicare and Medicaid Services. Premiums are set to increase for most Americans, and government actuaries now estimate the growth in the net cost of health insurance will increase by 14 percent — compared to 3.5 percent if Obamacare never passed.

Moreover, emerging evidence suggests that the health care program will deepen our future deficits.

Yet Obamacare purported to reduce future deficits because its tax increases and Medicare cuts would be large enough to exceed the cost of its health insurance subsidies and Medicaid expansion. Of course, former House Speaker Nancy Pelosi simultaneously warned against these pre-passage predictions, saying, “We have to pass the bill so you can find out what is in it.”

Now that the bill has passed, and experts have had an opportunity to analyze the law, it is becoming clear that Obamacare will be more expensive than advertised — adding to a deficit already crippling the economy.

So far, the main culprit is the law’s expensive health insurance subsidies, available to some people who lack employer-sponsored health insurance. “The massive federal subsidies are money on the table” Douglas Holtz-Eakin, former Congressional Budget Office director, wrote, “inviting a vast reworking of compensation packages, insurance coverage and labor market relations.”

In other words, when government offers a subsidy, it invites people to change their behavior and take advantage of it — even if this wasn’t the intent.

Beginning in 2014, tens of millions of employees will be eligible for these new subsidies. Many already have access to health insurance through their employers but are likely to find it more advantageous if this insurance is dropped, and they can instead have taxpayer health care subsidies and slightly higher wages.

While this creates a win-win for the employer and worker, it creates a lose-lose for the nation’s credit rating and taxpayers. Holtz-Eakin has calculated that previous projections may have underestimated Obamacare’s 10-year cost by roughly $1 trillion.

That’s more than the entire cost of the much maligned “stimulus.”

Several employer surveys have verified Holtz-Eakin’s concern. McKinsey & Co. found that 30 percent of employers — and 28 percent of large ones — said they will definitely or probably drop coverage after 2014. Roughly 57 percent of small companies now offering coverage are at least somewhat likely to drop health insurance, according to the National Federation of Independent Businesses, if employees begin to opt out of the employer-sponsored health plan and into subsidized coverage.

While Holtz-Eakin focused on Obamacare’s perverse incentives to get rid of some employer-based health care insurance outright, there will also be strong incentives for employees to have their employer reduce the contribution to health insurance to take advantage of federal subsidies, according to a new study by economists Richard Burkhauser, Sean Lyons and Kosali Simon.

Though the CBO estimates that Obamacare’s new spending will cost about $200 billion per year when the law takes effect, it assumed only a small change in behavior in response to the law. For this to happen, millions of businesses and workers are going to have to act contrary to their economic interests.

Obamacare cuts Medicare and spends those savings — plus hundreds of billions in additional deficit-spending — on new welfare programs. As Congress looks for ways to cut spending to get America back to AAA credit status, reducing Obamacare’s new spending for programs that have not yet even begun is an obvious place to start.

Obamacare, in fact, represents the largest expansion of the U.S. welfare state in nearly 50 years. At a time when the nation’s credit has been downgraded for the first time and our country is struggling to finance and reform existing entitlement programs, Obamacare’s creation of new entitlements increases dependency on government and pushes our country deeper into a fiscal crisis of Greek proportion.

As Congress and the president seek bipartisan ground to address the national debt, we must remember that the first step out of a hole is to stop digging.

Rep. Darrell Issa (R-Calif.) serves as the chairman of the House Committee on Oversight and Government Reform.