Baucus’ Hefty Bill

The New York Post, October 9, 2009

So the Congressional Budget Office has produced the product that Senate Finance Committee Chairman Max Baucus and President Obama needed: a contorted acknowledgement that — if taxes are hiked, Medicaid expanded and Medicare reimbursements slashed permanently by 25 percent—Baucus’ $829 billion bill will insure 29 million more people and produce a slight surplus over 10 years.

Keep the champagne on ice: The CBO’s “preliminary analysis” is a work of fantasy.

First off, CBO makes clear that it’s not dealing with the actual bill (there isn’t one) but a summary. And it assumes Congress will actually make Baucus’ unlikely cuts:

  • Radically reduce Medicare spending from current levels.
  • Reallocate $162 billion over 10 years from fee-for-service Medicare Advantage to health care for others.
  • Cut $45 billion from hospitals that now serve low-income Americans.
  • Hold government payments to health-care providers below the rate of inflation— when all modern experience tells us that payments will rise.

Baucus also assumes that Americans will shell out $46 billion in new taxes to keep their current insurance.

If any of these assumptions fails, the plan will produce large deficits.

In any case, Baucus relies on a now-common trick for reducing his bill’s apparent effect on the deficit: His benefits don’t begin until 2013, but most tax hikes start this coming January. These include $6.7 billion a year in new taxes on insurers, $2.3 billion on drug companies and $4 billion on medical-device firms—all of which will merely be passed on to consumers, increasing prices.

Oh, yes: Don’t confuse a plan that doesn’t cost the government money with one that doesn’t cost Americans money.

The CBO is merely concerned with the federal budget, not the household budget. Yet Baucus would throw many middle-class household budgets into deficit with its new taxes, mandates and fines.

Indeed, the Baucus plan reverses “health-care reform” from its once-advertised purpose: We were originally told that the problem was the high and rising cost of health care—yet Baucus plans to tax myriad forms of care.

When we want people to smoke less, politicians tax cigarettes, claiming the higher prices will produce less quantity demanded and less smoking. How is it, then, that to give more people health care, Baucus wants to tax health insurance, medical devices and pharmaceuticals?

Baucus needs that cash to fund his spending:

He’d use $345 billion to add 14 million more to the Medicaid rolls. For Baucus, this has the “advantage” of forcing the states to spend $33 billion more (per CBO) for their share of Medicaid — outlays that won’t count against the federal costs of the bill, but would add to the states’ own budget woes.

He’d spend $461 billion to subsidize the purchase of insurance on government-run health-care exchanges that will eventually design and broker all private health policies—and subsidize insurance for some.

But consider what the bill assumes Americans will spend out of their own pockets. It requires all Americans to spend up to 8 percent of their income on health insurance or face fines. A family earning $88,200 (four times the poverty level) would have to spend $7,056 on insurance alone.

So it’s clear that many of the now-uninsured will spend more than they do now—and even many now-insured will face higher bills and higher taxes.

Baucus has some nasty moves for middle-class Americans with quality insurance and above-average health bills. Most important, he’d levy a brutal 40 percent excise tax on high-quality “Cadillac” health-care plans, starting in 2013.

The problem is he defines “health plans” as including all benefits offered by employers— dental and vision coverage and even the self-funded Flexible Savings Accounts. And he doesn’t start raising the cutoff for his tax to cut in until 2014 and even then raises it only slightly, well below the rate of medical inflation.

In other words, Baucus has set up his “Cadillac” tax to eventually hit millions of “Taurus” and “Civic” health policies.

Nor will employers sit tight and pay these taxes. Instead, they’ll cut benefits—forcing more costs onto the vast majority of Americans who are now happy with their coverage.

The pursuit of health-care reform has taken on an unworldly life of its own: President Obama and Democrats in Congress have abandoned their original goal of reforming the system to make care affordable for the middle class. Instead, they are cutting Medicare, taxing middle-class plans and coercing individuals into unaffordable insurance. All of this so they can expand Medicaid and claim to have moved toward universal care.

Sally C. Pipes is president and CEO of the Pacific Research Institute. Her latest book is “The Top Ten Myths of American Health Care.”

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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