In selling Obamacare before Congress a decade ago, President Barack Obama promised that he “would not sign a plan that adds one dime to our deficits, either now or in the future.”
From her perch behind the president, House Speaker Nancy Pelosi leaped out of her seat applauding at this line. So did Vice President Joe Biden and the entire Democrat caucus.
But it turns out that although these politicians talked about fiscal responsibility when passing Obamacare, they weren’t serious.
The government funding deal, expected to pass both houses of Congress and be signed by President Donald Trump this week, blows up any remaining facade that Obamacare was fiscally responsible.
The budget deal repeals Obamacare’s key revenue raisers, leaving mostly its big-spending provisions. For good measure, the deal guts potential program integrity efforts the Trump administration could take to tighten program spending.
Obamacare is expensive. The law’s massive expansion of Medicaid is busting spending forecasts in nearly every state that expanded. The federal government is spending about $70 billion a year on the Medicaid expansion, including for an estimated 2.3 to 3.3 million enrollees who aren’t eligible for the program.
The law’s insurance subsidies are also costly. The subsidies must track individual market premiums. As premiums exploded as a result of Obamacare’s requirements for what the insurance must cover and how it must be priced, so have the subsidies.
Overall, individual market enrollment is up only by about 3 million individuals since before Obamacare, even though the federal government is spending nearly $50 billion on premium subsidies—or nearly $17,000 per new enrollee.
Obama and Democrats claimed that all this spending would be fully paid for from other provisions of the law, including 20 new or expanded taxes, Medicare payment reductions, and a variety of financing gimmicks.
Although Obamacare’s Medicare payment reductions remain, Congress already has repealed or delayed several of the taxes and financing gimmicks.
This funding deal kills Obamacare’s “Cadillac” tax and health insurance tax—which collectively would raise deficits by $350 billion over a decade. Congress also would eliminate the medical device tax, which raises less revenue.
Understandably, industry opposes Obamacare taxes that negatively affect them. The medical device tax discourages innovation, and the health insurance tax raises premiums.
The so-called Cadillac tax was the law’s main provision to “bend the cost curve” by applying an excise tax on expensive health insurance. Currently, the tax benefit for health insurance is uncapped, which pushes up spending and reduces wages.
Rather than repealing the Cadillac tax, I outlined in July an alternative that would exempt contributions to health savings accounts from the value of the insurance. This would shift the tax advantage toward an account where consumers have greater control and an incentive to shop.
Another sensible alternative, as recommended by The Heritage Foundation, would be replacing the Cadillac tax with a cap on the amount of coverage that could be excluded from taxation.
The deal to strike the Cadillac tax without any alternative shows that neither party is serious about getting health care costs under control.
The deal also hands out more goodies to hospitals. Obamacare reduced federal funding to hospitals for uncompensated care. The law’s coverage expansion was supposed to make this funding unnecessary. No matter, the hospitals get these cuts restored and all the federal spending on the expanded coverage.
The deal also limits the executive branch from improving program integrity by curbing practices that increase taxpayer costs. For 2021, the Trump administration is prohibited from addressing how insurers have gamed Obamacare’s complicated subsidy formula in order to maximize their federal payments.
More appalling, the deal limits the administration’s ability to address improper enrollment. Like the incentives that have led to large numbers of improper enrollees in the Medicaid expansion, Obamacare includes similarly bad incentives for improper enrollment in the heavily subsidized insurance exchanges.
Efforts should be made to more closely scrutinize enrollment, not loosen reviews.
For example, current customers who don’t actively enroll in a new plan or maintain their current plan during open enrollment automatically are re-enrolled in a plan for the following year. This is true even if they pay no premium for the plan because taxpayers cover the entire cost.
Having enrollees do something affirmative, such as checking a box that they don’t have another source of affordable coverage and that they still desire this coverage, is commonsense policy with minimal burden on enrollees.
In sum, Democrats likely couldn’t have enacted Obamacare if they were upfront about the fact that it would explode federal deficits.
And Republicans should have tried to get policy reforms in exchange for relieving Democrats of the political pain of their Obamacare tax hikes. Instead, they got little in return, and Congress is about to make both fiscal and health policy worse.
