On the Brink of Disaster - by Jacob Laksin

Obamacare – and a government takeover of health care – moves toward final passage in the Senate.

As this magazine goes to press, Senate Democrats are set to present the country with America’s most unwanted Christmas gift: a shotgun overhaul of the country’s health care system that would hike taxes, inflate the deficit, and raise insurance premiums, all while dramatically expanding the government’s role in health care.

Senate Majority Leader Harry Reid claims that Democrats now have a 60-vote majority that would allow them to trump a Republican filibuster and push the country’s most polarizing piece of legislation toward a final vote this morning. But while that could be a political victory for Democrats and President Obama, who has praised the Senate bill for including “95 percent” of what he wants, the successful passage of the bill would mark a setback for fiscal responsibility and set the stage for a large new burden on American taxpayers. Even without its two most unpopular elements – a government insurance “public option” and a Medicare expansion for those as young as 55 – the Senate bill remains a spectacularly bad deal.

Wishful Accounting

Literally the biggest problem with the legislation is the cost: an expected $871 billion over the next 10 years. Republicans charge that this price tag actually understates the true cost of the legislation, which they peg as high as $2.5 trillion. Not to worry, counsels President Obama:

“For all those who are continually carping about how this is somehow a big spending government bill, this cuts our deficit by $132 billion the first 10 years, and by over a trillion in the second. That argument that opponents are making against this bill does not hold water.”

Appealing as the president’s arithmetic might be, the $132 billion in savings is largely illusory: It is based on the Congressional Budget Office’s (CBO) projections of promised cuts – for instance, a 21 percent reduction in Medicare physician payments scheduled to go into effect in 2010 – that Congress has yet to make and, likely, never will. History offers a sobering guide. Despite repeated Congressional pledges to cut Medicare costs, it is now the country’s largest government program and a perennial drain on the federal budget. With $89 trillion in unfunded future liabilities, it will also remain one for years to come.

That explains why the CBO hedged its projected $132 billion in savings with the conspicuous caveat that this estimate “is subject to substantial uncertainty.” In touting the Senate bill, President Obama has neglected to mention this part of the CBO’s findings. And no wonder: The CBO has warned that its long-term calculations are based on the assumption that the spending cuts promised in Senate bill “are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation.” Thus, the deficit cuts forecast by the CBO are based entirely on assumptions about Congress’s ability to make Medicare spending cuts – assumptions that the CBO itself acknowledges are unsafe. President Obama’s dubious contribution to the health care debate has been to elevate such wishful accounting to the status of hard proof.

The Taxman Cometh

Of course, spending cuts, even if they should materialize, won’t pay for the budget-busting legislation. So the Senate bill includes some $400 billion in tax increases that range from the burdensome to the downright bizarre.

In the former category are insurance mandates that would compel Americans to purchase health insurance or face a fine of $750 for individuals and $2,250 per family. Not only is that a tax in all but name, but it would primarily affect those making less than $250,000 – a clear violation of President Obama’s campaign promise not to raise taxes on those in the lower tax brackets.

Higher-income individuals and small businesses would also see their taxes rise. Individuals earning over $200,000 and families earning over $250, 000 would be hit with a Medicare payroll tax. Small businesses with 50 employers or more who don’t offer health insurance would face a “free rider” penalty that could total $28 billion over the next ten years.

While the wisdom of taxing small businesses in an economic recession may seem questionable at best, the Senate bill applies the formula liberally. Among the odder tax increases in the Senate bill targets the country’s 20,000 indoor tanning salons. Although this would be a large cost for a small industry – about 90 percent salons of have just one owner – Democrats have deemed salons a worthy victim as they seek to collect $3 billion over the next ten years to pay for their health care spending spree. (The cosmetic surgery industry narrowly escaped the taxes thanks to its superior lobbying clout.) Besides spurring additional job cuts, the new taxes are likely to be passed on to consumers in the form of higher prices.

Bigger industries will also feel the strain of new taxes. The medical device industry, one of the country’s more innovative fields, would face the prospect of $20 billion in new taxes over the next decade, the product of a $2 billion annual tax that would rise to $3 billion in 2018. Unsurprisingly, industry representatives have protested that the tax increase could slow research and development in an industry responsible for such lifesaving medical advancements as stents that reduce the rate of heart bypass surgeries. How punishing an industry that has helped improve health care can be considered a worthwhile “reform” is one of the puzzles of the Senate bill.

Paying the Premium

Spending and tax increases arguably could be justified if the Senate bill did what it is supposed to do – namely, reduce health insurance premiums that are rising faster than American’s wages. Instead, it would raise premiums for most Americans.

A recent actuarial analysis by management consulting firm Oliver Wyman found that annual premiums will be 54 percent higher five years from now if the Democrats’ “reform” passes. Individuals would see their premiums increase by $1,576, while families would pay an extra $3,341. Young people, ironically among the most steadfast supporters of the Democrats’ reforms, would also come off the worst under the Senate bill. Of all demographic groups, they would see their premiums would rise the most, as much as 35 percent in some cases.

There is no mystery behind the increased premiums. The Senate bill would force insurance companies to provide policies on a “guarantee issue” basis that does not discriminate against those with preexisting or chronic medical conditions. The likely result: Those with chronic conditions would purchase insurance, while younger and healthier people would choose to pay a fine. With a disproportionate number of sick among the enrollees, insurance rates would rise for everyone.

Let’s Make a Deal

Even more unseemly than the substance of the Senate bill is the sleazy and borderline corrupt way it has been brought to the brink of passage.

The most obvious outrage is the undisguised vote buying directed at wayward Democrats, most prominently Nebraska’s Ben Nelson. For agreeing to join ranks with his party on the health care bill, Nelson won a concession from Congress to permanently exempt his state from paying the $45 million annual cost of expanding the Medicaid program for the poor. (Never mind that Nebraska has comparatively low levels of poverty: 35 states have higher poverty rates.) The other 49 states will have only a yawning budget gap to look forward to. Fittingly, the deal has since aroused questions about the constitutionality of such ethically challenged deal making.

The “Nebraska compromise” is only the most blatant example of what Sen. Orrin Hatch has aptly called the Senate bill’s “grab bag of back-room Chicago-style buyoffs.” Slightly less generous but no less scandalous sweetheart deals have also been offered to Vermont, Massachusetts and Louisiana. Vermont and Massachusetts will get temporary increases in the portion of their Medicaid costs paid by the federal government. In Louisiana, once-waffling Democrat Mary Landrieu discovered a sudden appreciation for the health care legislation after her state was presented with a $100 million handout.

The bill has also proved a boon for assorted Democratic allies. AARP, the leading lobby for the elderly, would stand to benefit if Congress made good on its plans to cut payments for programs like Medicare Advantage, since that would drive up demand for the Medigap policies offered by the organization. Unions would also catch a tax break. Although the bill would impose a hefty 40 percent tax on high-cost “Cadillac” insurance plans, it would specifically exclude favored constituencies like the longshoreman’s union. (Policemen, firefighters, construction workers, coal miners, and some farmers and fishermen are already protected from the tax penalty.)

When not bribing their way to final passage, Senate Democrats have tried to achieve victory by legislative fiat. Leading the way is Harry Reid, who snuck the now-notorious “Section 3403” into an amendment to the Senate bill. The section, which refers to the power of the Independent Medicare Advisory Board, also established by the bill, to hold down Medicare costs, stipulates that

“it shall not be in order in the Senate or the House of Representatives to consider any bill, resolution, amendment or conference report that would repeal or otherwise change this subsection.”

In other words, the Democrats’ work is not to be undone. In fairness to Reid, the measure makes a certain amount of sense. To control the runway growth of Medicare, any advisory board would have to be immune from the political pressures of Congress. As a procedural matter, Section 3403 nevertheless represents a dangerous – and transparently undemocratic – breech of Senate Democrats’ authority.

Change We Can’t Believe In

For all its flaws, the one virtue of the Senate bill may be that it differs in some important ways with its predecessor in the House. Indeed, some liberal House Democrats have already complained that they cannot support the Senate bill. Meanwhile, the defection of Alabama Congressman and conservative Democrat Parker Griffith to the GOP earlier this week may be a sign that moderate and Blue Dog Democrats are worried about the electoral consequences of supporting their party’s health care agenda. Since the two versions of the health care bill have to be merged later this January, these factional splits can only delay Obamacare’s final passage.

The bitter irony for President Obama is that most Americans now consider that a good thing. When the administration first announced its plans to transform health care, the country shared a common belief that the system could not be left as is. That belief remained unchanged even as certain elements of the Democrats’ plan, such as the government insurance option, became unpopular.

No longer. According to a recent Wall Street Journal/NBC News poll, a majority not only opposes the Senate bill but, for the first time, more support the status quo over the bill’s passage. The health care “change” that Obama promised has arrived. And Americans, increasingly, hope it doesn’t succeed.