The Weekly Standard

An Obamacare Report Card

The grades are bad so far—and likely to get worse

Christopher J. Conover

February 17, 2014, Vol. 19, No. 22

Perhaps the most unpleasant aspect of my otherwise quite enjoyable job as a college professor has been the requirement to assign grades to students. Given that we’re now about halfway through implementation of the Affordable Care Act—which even President Obama is happy to call “Obamacare”—it seems appropriate to assign midterm grades. These are not intended as a forecast of the final grade; moreover, implementation of Obamacare is the responsibility of many thousands of individuals, not just one. Nevertheless, as President Truman’s legendary Oval Office desk sign reminds us, “The buck stops here” when it comes to presidential leadership. So whether President Obama likes it or not, the public and historians are likely to base their assessment of his performance on how well his “signature piece of domestic legislation” is implemented.

First the Grading Standard:

Promises vs. Performance

Both as a candidate and as president, Barack Obama has made at least 80 promises related to health care. For purposes of grading, I have focused on the 8 most consequential.

Promise #1: Universal Coverage. Candidate Obama promised on June 23, 2007: “I will sign a universal health care bill into law by the end of my first term as president that will cover every American.” The latest CBO projections last May show that as of the end of 2013, Obamacare will have reduced the number of nonelderly uninsured by less than 4 percent. This figure excludes 11 million unauthorized immigrants (51 percent of whom are uninsured). Even when Obamacare is fully implemented in 2017, it will cover only 92 percent of the nonelderly population who are not unauthorized immigrants (nearly everyone age 65 and above is already covered by Medicare), and 84.7 percent of that group already had coverage in March 2009, a full year before Obamacare was signed into law. Even if we concede that other countries relying on an individual mandate have failed to drive their uninsured rates below 1 percent (Switzerland) or 1.5 percent (Netherlands), Obamacare will close only 53 percent of the gap that existed when President Obama was sworn into office. Grade: F.

Promise #2: No New Taxes on the Middle Class. Candidate Obama promised on September 12, 2008: “I can make a firm pledge under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.” Using official estimates from the Congressional Budget Office and the Joint Committee on Taxation, the House Ways and Means Committee projects that Obamacare will increase federal revenues by $1.058 trillion between 2013 and 2022. Only 30 percent of this total will be raised from taxes that exclusively target taxpayers earning over $200,000 (singles) or $250,000 (married). The remaining 70 percent will be borne by households at all other income levels. Tax Policy Center figures show that such households do not account for more than half of all federal taxes. So even if we generously assume such households will bear a similar share of the myriad levies to be imposed on health insurers, medical device manufacturers, and drug manufacturers—levies which will be passed onto consumers—that still leaves at least 35 percent to be borne by families at or below middle-class incomes.

And these figures do not include the hundreds of billions of dollars in new revenue that will have to be collected by states to pay for their share of Obamacare-induced growth in Medicaid. Nor do they include the impact of “taxation by regulation”—i.e., the tens of billions of dollars in higher premiums that young Americans are being forced to pay under Obamacare’s modified community rating rules in order to subsidize predominantly higher-income people who happen to be older. In short, President Obama’s promise at best was 65 percent true and more likely 50 percent or less true. Grade: F.

Promise #3: Annual Premium Savings of $2,500. Candidate Obama promised on June 5, 2008: “We’ll lower premiums by up to $2,500 for a typical family per year. .  .  . We’ll do it by the end of my first term.” This promise was reiterated at least 14 times, most recently in a campaign speech on July 16, 2012. An adviser who helped calculate the original figure is on record as saying that the claim that premiums would decline by $2,500 per family was a “misstatement”; what was originally intended was that total health spending would decline by this amount. So let us give the president the benefit of the doubt by (a) reframing his promise as a prediction about health spending rather than premiums and (b) allowing Obamacare a full 12 years to achieve the promise instead of taking candidate Obama’s rash claim “by the end of my first term” literally. Even by that relaxed standard, all the available evidence makes this claim provably false. The latest report from the Medicare actuaries shows that in its first dozen years, Obamacare will boost health spending by “roughly $621 billion“—or an average of $7,579 for a family of four—above the amount Americans would have spent without this misguided law. When even the fact-checker at the Washington Post
awards Three Pinocchios to a claim and PolitiFact deems it a Promise Broken, it seems reasonable to label it a failure. Grade: F.

Promise #4: Bend the Cost Curve. On December 15, 2009, after meeting with Senate Democrats, President Obama asserted that the Senate bill (which passed nine days later) “will finally reduce the costs of health care.” While conceding that health spending would go up in the first 10 years as a result of the expansion of coverage, PolitiFact scored this statement as Half True on grounds that the plan would “bend the cost curve” (a term of art championed by former OMB director Peter Orszag and used repeatedly by the president in explaining his goals for the proposed plan). That is, in the final year of the 10-year projection used by the Medicare actuaries to score the plan, the rate of growth in health spending under the Senate bill (essentially the version signed into law) would be slightly lower (6.9 percent) than under the status quo (7.2 percent). Unfortunately, the Medicare actuaries, along with the Medicare trustees, CBO, and Government Accountability Office, also have questioned whether the deep cuts in Medicare—which are central to any estimated reductions in the long-term rate of health spending growth—are either wise or politically sustainable in light of their potentially devastating effects on access to care (more on that shortly). Under a more realistic “alternative fiscal scenario” (which the independent, nonpartisan Committee for a Responsible Federal Budget argues “is probably a lot closer to where we are going” than the baseline scenario used by CBO), Medicare spending by 2085 will absorb 9.8 percent of GDP rather than only 6.5 percent of GDP under the less realistic current law projection that was used by CBO to conclude that Obamacare would reduce the deficit. Since this was a long-term promise that may yet bear fruit (however improbable that is given what we know), it is fairest to award the Grade: Incomplete.

Promise #5: No Increase in the Deficit. On September 9, 2009, President Obama promised: “I will not sign a plan that adds one dime to our deficits.” While the CBO scored the plan as reducing the deficit in its first 10 years, Rep. Paul Ryan eloquently and decisively revealed the “gimmicks and smoke-and-mirrors” underlying that assessment (which counted 10 years of revenue but only 6 years of spending, for instance). Medicare public trustee Charles Blahous went even further in documenting that some of the conventional assumptions used in CBO’s analysis contravene actual law. A far more accurate assessment using more realistic assumptions was made by former CBO director Douglas Holtz-Eakin and the research analyst Michael Ramlet, who concluded that “the new reform law will raise the deficit by more than $500 billion during the first 10 years and by nearly $1.5 trillion in the following decade.” Similarly, using a more realistic fiscal scenario than the one CBO was forced to use to score Obamacare originally, the Government Accountability Office has shown that ACA has put us on a path to add $6.2 trillion (2011 dollars) to the deficit over the next 75 years. Grade: F.

Promise #6: You Can Keep Your Plan If You Like It. On June 15, 2009, President Obama promised: “If you like your health care plan, you’ll be able to keep your health care plan, period. No one will take it away, no matter what.” This promise in various forms was made three dozen times. As of December 11, 2013, some 6 million Americans had lost their coverage as a result of the cancellation of nongroup policies that did not meet Obamacare coverage standards. The RAND Corporation projects that of 17.7 million who would have had nongroup coverage in 2016 absent Obamacare, only 0.2 million will retain that coverage. Likewise, but for the one-year delay of the employer mandate, many would have seen their employer-based plans canceled. Estimates of how many will lose their employer-based coverage because their employer drops it are all over the map, ranging from 11 million (CBO), to 14 million (Medicare actuary), to 17.2 million (Lewin Group), to as high as 35 million (American Action Forum).

And because Obamacare will slash payments to Medicare Advantage plans, the Medicare actuary has calculated that once these cutbacks are fully phased in by 2017, about half of Medicare Advantage plan members (7.4 million) will lose their Part C coverage and be forced back into the wasteful and inefficient Medicare fee-for-service system. Regrettably, a disproportionate number of those losing Medicare Advantage plans are low-income seniors who had discovered it was much less expensive to join a Part C plan than pay premiums for regular Medicare coverage. In short, leaving aside the tens of millions who will pay higher premiums for “enhanced” coverage they may not want or need, the number who see their plans canceled whether they like them or not can also be measured in tens of millions. There is no need to calculate the exact number to arrive at a grade since PolitiFact declared this promise the Lie of the Year for 2013. Grade: F.

Promise #7: If You Like Your Doctor, You Can Keep Your Doctor. On June 15, 2009, President Obama promised: “If you like your doctor, you will be able to keep your doctor, period.” As the Washington Post recently reported, “Many small businesses are also discovering that the new plans have more restrictions on access to specific doctors, hospitals and prescription drugs.” Because the law requires those in the individual and small group markets to purchase coverage that is more comprehensive than some buy today, the principal remaining strategy for holding down premium increases is to narrow the provider networks offered. It is difficult to say how many of the nearly 6 million who have lost their nongroup coverage have been unable to find a plan that lets them keep their doctor. The same can be said of the tens of millions who may eventually lose their employer-based coverage and the 7.4 million affected by the Medicare Part C cutbacks. Worth noting is that as of mid-January, 4.5 million have signed up for Medicaid (and CBO projects that when fully implemented in 2015, Medicaid will cover a total of 12 million newly eligible). But RAND simulations indicate that 27 percent of newly Medicaid-eligible people will be individuals losing employer-based coverage, and another 5 percent will have given up nongroup coverage. Since one third of doctors are currently unwilling to see new Medicaid patients, at least some unknown fraction of newly Medicaid-eligible people will lose their doctors. Grade: F.

Promise #8: I’m Not Going to Touch Medicare. On July 29, 2009, the president asserted at a town hall meeting: “Medicare is a government program. But don’t worry: I’m not going to touch it.” Yet when the chief actuary for Medicare scored the law less than a month after its passage, he found that it would cut Medicare by $575 billion in its first 10 years. In four consecutive annual reports, the Medicare actuary reported that if these steep cuts in provider payment rates were actually implemented, 15 percent of hospitals, skilled nursing facilities, and home health agencies would be operating in the red by 2019. Likewise, Obamacare eventually would drive Medicare payment rates to physicians to less than half the levels paid by Medicaid, which most experts agree would push providers to abandon Medicare in droves. Even though Medicare Advantage plans are 9 percent less expensive when fairly compared with regular fee-for-service Medicare, Obamacare will also slash payments to such plans by $145 billion in its first 10 years. The Medicare actuary projects these cutbacks will result in a 50 percent reduction in Medicare Advantage plan membership by 2017. Grade: F.

Midterm Grade, Promises vs. Performance: F. This student has a persistent tendency to make outlandish promises that too often have turned out to be the opposite of what the student predicted. Not one of these promises was inherently implausible when uttered, but the prospect of achieving even one of them by the final grading period seems vanishingly remote. This student would do well to consider abandoning this project in favor of starting over with a new approach.

The story continues with….

• Peer Comparisons
  
• Third Grading Standard: Outcomes 
  
• Net Assessment and Outlook (i.e. Final Thoughts)
  

Read the entire report here: The Weekly Standard – The Obamacare Report Card