Change We Shouldn’t Believe In

Against the strong wind of public opinion, Congressional Democrats passed a massive government takeover of health care in America on Sunday. This slap in the American people’s face is all the more egregious because of the opportunity the Democrats had to pass truly landmark, bipartisan legislation under allegedly “post-partisan” leadership from President Obama. Republicans and Democrats alike agree that health care is too expensive, and that, in the absence of reform, budgetary realities of Medicare and Medicaid will force harsh fiscal choices.

The opportunity for cost curve-bending reform was there: there were substantive changes on which Republicans would have voted “Aye.” Instead, the Democrats chose to pass along party lines a 2409-page bill, with an additional 153 pages of amendments, dictating from Washington how to operate 16 percent of the economy. According to the Congressional Budget Office, the bill calls for $938 billion in spending over the next decade. Where will the nearly $1 trillion in spending be funneled?

The bill’s central tenet is a law preventing insurers from denying coverage to individuals with pre-existing conditions. To do this, Democrats mandate that all Americans buy insurance in order to prevent people from gaming the system. This mandate in turn requires government subsidies for those who cannot afford coverage.  These three new regulations amount to what Paul Krugman calls the “three-legged stool” of reform.

But the overwhelming reason many Americans lack sufficient coverage is not pre-existing conditions, but rather the cost of health care, which the bill does little to correct. Moreover, even the “three-legged stool” appears unstable when you examine the details.

First, 16 million Americans will be added to the failing government-run Medicaid and Children’s Health Insurance Program rolls. That is, half of the 32 million Americans that the bill’s proponents claim will be covered are dumped into a government-run program that America already cannot afford. While 87 percent of doctors reported accepting all or most new privately insured patients in 2008, only 53 percent of doctors reported accepting all or most new Medicaid patients, because Medicaid reimburses doctors below market rates.  What good is Medicaid coverage if a doctor refuses to see you because of it?

Meanwhile, the bill’s new subsidies are hardly targeted at the have-nots. A family of four making up to $88,200 annually—roughly $30,000 more than the 2008 median household income—will receive subsidies from the legislation. Democrats claim that these changes, plus other minor provisions (like allowing children to remain on their parents’ insurance until age 26 and limiting the amount that smokers can be charged relative to non-smokers for insurance) will reduce the deficit. With nearly $1 trillion in new spending, how could this possibly be true?

The answer: a combination of tax increases and fiscal smoke and mirrors. The legislation raises taxes by $569.2 billion and cuts funds from Medicare and Social Security. Democrats are also able to claim that the bill cuts the deficit because, while the insurance subsidies don’t start until 2014, many of the taxes kick in within months. In other words, the changes the bill makes to the health-care system itself will cost $938 billion, as estimated by the CBO, and to fund it, Democrats use taxes and accounting gimmicks. Not only could the new revenue sources have instead been used to fund better ends like healthcare vouchers or lowering the deficit, but they are also unrelated to the systemic causes of high health care costs (like moral hazard caused by the incentives of the current fee-for-service system and the lack of preventive care). The idea that the alleged deficit reduction comes from bending the cost curve in any meaningful way is breathtakingly disingenuous.

One example of the type of “savings” the bill offers is the “Doc Fix” provision. Under current law, Medicare payments to doctors are scheduled to be cut by 21 percent in April, and then continue to decline for the rest of the decade. While this cut is typically reversed by Congress before it occurs, the oft-quoted CBO analysis of the Democratic health care legislation assumes that the cut will proceed and adds the savings to the reform’s tally. Without the “Doc Fix,” the CBO concludes that the bill adds to the deficit over the next decade. We’ll believe that Democrats will cut Medicare payments when we see it. But even if they are serious, wouldn’t it make more sense to put these savings toward the $100 trillion unfunded liability in Medicare, Medicaid, and Social Security than to compound the budgetary problem by forcing more Americans on to Medicaid?

That’s what makes this attempt at reform so disheartening. Democrats could have, with Republican support, enacted radical changes to the U.S. healthcare system that would reduce costs for American families. Instead, they put a costly, partisan band-aid on the gaping bullet wound of skyrocketing health care costs. This is not “change” we can, or should, believe in, and we can only “hope” that Republicans win back enough seats in November to repeal it.

Colin J. Motley ’10 is an economics concentrator in Winthrop House. Caleb L. Weatherl ’10, a Crimson editorial writer, is an economics concentrator in Currier House. They are both former presidents of the Harvard Republican Club.