It’s increasingly clear that the initial impact of President Obama’s health-care reform will be to raise the cost of health insurance and the number of uninsured Americans, perhaps sharply.
You see, the parts of the reform package that promised to reduce insurance costs, and get more people insured, kick in years after the legislation would start imposing hefty new costs on consumers.
Obama has endorsed the bill produced by the Senate Finance Committee, which is being tweaked for a vote by the full Senate. The plan’s core element — the creation of state-based exchanges for the purchase of subsidized coverage — won’t change, nor will the basic schemes on how Democrats plan to pay for it.
Yet it prescribes added pain first, and promised relief only later.
Starting in 2010, the bill would impose annual fees of $2.3 billion on brand-name drugs and $4 billion on medical devices, plus $6.7 billion on certain insurance providers — and more than $100 billion in cuts to what Medicare pays to health-care providers. These costs will immediately shift onto consumers, in the form of higher prices on medical products and rising premiums.
Meanwhile, the promised subsidies to help pay for insurance don’t fully kick in until 2014. (And those subsidies only go to people earning below 300 percent of the poverty line, or about $66,000 for a family of four.)
Front-loading these taxes and cuts in reimbursements is the only way Congress has found to keep the nominal cost of ObamaCare below $900 billion. It’s a gimmick: The bill uses 10 years of revenue to pay for about five years of benefits, since the subsidies don’t fully kick in until after 2014.
Worse, it’s a gimmick that imposes a stiff price on the public: The taxes and spending cuts of the early years will force the cost of private insurance up immediately, prompting some Americans to drop coverage before they have any access to the plan’s subsidies. (And putting some form of government-run “public” insurance option into the bill can’t change this grim equation.)
People who buy their own insurance individually will get hit hardest. The exchanges will standardize insurance benefits and then establish how those policies should be paid for, with strict limits on how insurers can offer better deals. The Senate Finance bill permits only four tiers of health plans in the individual market — and, “no health insurance policies could be issued (other than grandfathered plans) that do not meet the actuarial standards set for these plans.”
This means that the private individual-insurance market will unravel, probably well before 2014.
Consumers who get their insurance at work could also face hardships. Many employers considering new coverage, or mulling over the expansion of existing group plans, will remain on the sidelines to see what happens in 2014, when the exchanges kick in.
Under the plan, employers who choose not to offer coverage to their employees will have to pay a tax equal to the value of the government’s subsidies to those workers. Businesses looking ahead to 2014 will be unsure whether it will make more sense to continue offering coverage, or pay the tax and have employees get their coverage in the exchanges. Even if a small fraction of employers choose to sit on their hands ’til 2014, it could add a big increase to the number of uninsured Americans.
Plus, the Obama plan cuts reimbursement to specialist medical doctors and to seniors enrolled in private health plans. Providers will try to make up for these cuts by charging more to private-paying patients.
The plan also encourages doctors to consolidate their individual medical practices into larger groups. The assumption is that medical care and its costs will be easier to regulate by a remote Medicare agency once doctors become part of larger organizations. Yet, as doctors consolidate, they’ll gain leverage over private insurers, and negotiate higher rates to make up for what they’re losing under Medicare. It’s another example of how the reform plan’s provisions work against its stated goal of lowering the cost of private insurance.
There are ways to mitigate these up-front blows to consumers — but they’re not cheap, and they might violate the president’s promise to keep the bill’s first-10-years’ cost under $900 billion. Is the White House gambling that it can fix these problems later?
Voters who expect quick relief from health reform will be sorely disappointed. The first thing it will deliver is new financial pain.
Scott Gottlieb, a physician and American Enterprise Institute resident fellow, was a senior official at the Centers for Medicare and Medicaid Services and is partner to a firm that invests in health-care companies.