Tom Sawyer persuaded his friends to
whitewash his fence. Barack Obama has done the same with his
claims that healthcare reform will save money.
Let’s mix some metaphors. Beauty is in the eye of the
beholder. But you can’t put lipstick on a pig. The
subject? Healthcare reform, of course.
The Obama administration continues to describe the Patient
Protection and Affordable Care Act as a callipygian ideal. From
the White House website: “The health policy experts and
economists who have looked at this legislation have said we are
pursuing every possible mechanism to reduce health care costs.
The Congressional Budget Office found that health insurance
reform will reduce the deficit by $210 billion in this decade
and by more than $1 trillion over the following 10 years. And a
family of four would save as much as $2,300 on their premiums
in 2014 compared to what they would have paid without
Oh, my. Where to start?
One of the central premises for enacting the law is that it
reduces deficits (never mind all the fees and taxes it raises).
The actual CBO estimate was $143 billion in deficit savings;
who knows where the $210 billion number comes from. In either
case, the numbers don’t stand up to scrutiny.
When Health and Human Services Secretary Kathleen Sebelius
appeared before Congress in March, she could not give an
explanation for an extra $111 billion proposed in the
president’s budget for subsidies to health exchanges.
Last year’s budget estimated the cost to be $367 billion
from 2014 to 2021. This year’s budget puts it at $478
billion over the same period. The secretary may have been
stumped, but she said the big increase is no cause for alarm
and that the administration is not forecasting an erosion of
employer coverage or higher insurance costs. That’s not
The White House continues to insist that only a tiny
fraction of the 162 million Americans in employer-sponsored
plans will migrate to exchanges that have subsidies for
families making up to $88,000 a year. But last fall McKinsey
released a study (criticized by the White House) indicating
that at least one in three employers will drop coverage in
favor of paying relatively small fines and shifting workers to
exchanges. Council broker members tell me that McKinsey is a
lot closer to the mark than the CBO or the administration. But
even if you split the difference between the two estimates, the
exchanges will cost hundreds of billions of dollars more.
In March, Sen. Ron Johnson, R-Wash., confronted Sebelius on
the issue. “The decision employers are going to have is
pretty linear; they can pay $15,000 for a family plan or pay
the $2,000 penalty,” the senator said.
“They’re not exposing their employees to financial
risk; they’re making them eligible for $10,000 subsidies
if they make $64,000 household income.”
Willis’s 2011-2012 Health Care Reform Survey put it
succinctly: “January 2014 may see a confluence of events.
Most employers will no longer be grandfathered, many may face
health cost inflation in excess of [the] regular trend as a
part of Health Care Reform compliance, and those who decide to
continue offering coverage may see a migration of workers,
spouses and eligible dependents from those employers who stop
There are other inconvenient fiscal truths. HHS wisely
discontinued implementation of the CLASS Act long-term care
provision of the Affordable Care Act. Because the CLASS program
was cynically “scored” during the political debate
(premiums would be paid for the first five years before
benefits would be paid), part of the administration’s
deficit “savings” would be $86 billion from the
claimed $143 billion. That’s now gone.
Further, the new law calls for $500 billion in Medicare
“savings” that are hoped for but not specified. To
be sure, the idea behind the new “Accountable Care
Organizations” is a good one—to help providers
better coordinate care. Jeff Goldsmith, the president of Health
Futures, a healthcare consulting firm, noted recently in The Wall Street Journal that ACOs in
practice are “like asking the hungry horse to guard the
granary.” In reality, he said, they look like a
“terrible business deal” for providers. “To
get any shared savings, they will have to spend millions on
consulting, systems, care managers and IT staff, give up a
dollar in immediately reduced income, and maybe, if they check
all the boxes right, get 50 or 60 cents back in 18
months,” Goldsmith told the Journal. “Looks more like Tom
Sawyer’s fence-painting project to me.”
Finally, the deficit reduction scenarios are most exposed by
what is not included in the
act—the recognition that Congress won’t allow laws
that would reduce reimbursements for doctors who treat Medicare
patients to go into effect. Everyone in Washington agrees that
the fee cut will not occur, but the problem is that the 27% pay
cut has already been figured into federal spending and deficit
Cha-ching! Over the next
decade, that amounts to another $316 billion in unpaid federal
The great Sen. Everett Dirksen, R-Ill., famously noted that
“a million here, a billion there, pretty soon,
you’re talking real money.” The claim that the
Affordable Care Act will actually reduce the stratospheric
federal debt is beyond fantasy.
Wood is The Council’s senior vice president of