The Cost-Control Illusion

Breaking down the ObamaCare claims.

Above all other reasons, voters who oppose ObamaCare cite their fear over costs: They think it will cause their insurance premiums to soar and result in far higher taxes to fund a vast new entitlement. The public is right on both counts, which is why White House smokejumpers have been dispatched to put out this fire as the final votes approach.

Let’s take their claims one by one, as a public service while everyone else focuses on the whip count.

• A new entitlement can “save” money. That was the main thrust of a recent Washington Post op-ed by White House aides Peter Orszag and Nancy-Ann DeParle. The plan “more than meets the president’s commitments that health-insurance reform not add a dime to the deficit,” they write.

It’s true that the Congressional Budget Office estimates that the Senate version of ObamaCare would reduce the deficit by $118 billion over 10 years. But even that number was concocted by budget gimmicks, such as using 10 years of new taxes to fund six years of benefits, as Wisconsin Republican Paul Ryan showed at the White House health summit. Mr. Orszag says this doesn’t matter because CBO says the bill will save some $1 trillion in the second decade too.

In fact, CBO is careful to stress that it doesn’t really know “because the uncertainties involved are simply too great” over such a long time period. CBO also says that the new entitlement will grow by 8% a year, even as Medicare and Medicaid grow by similar magnitudes and overall federal spending is already at 25% of GDP. If this new entitlement actually “saves” money, it will be the first in history.

• Insurance premiums will fall. Dan Pfeiffer, Mr. Obama’s communications director, took to the White House blog to claim that the plan “will make insurance more affordable by providing the largest middle class tax cut for health care.” So subsidies are really tax cuts?

Insurance subsidies are transfer payments in which government takes money out of the private economy and gives it to someone else. Subsidies thus put an even larger share of health-care spending in government hands. When you subsidize something, you get more of it, which means higher demand for insurance and health-care services. Combine this with new mandates that have raised costs in every state where they have been tried, and you will get higher premiums.

In Massachusetts—where Mitt Romney imposed the beta version of ObamaCare in 2006 in the name of controlling costs—insurance carriers asked regulators this week to approve premium increases ranging from 8% to 32% for small businesses and individuals. That isn’t far from the top 39% increase by Anthem Blue Cross in California that Mr. Obama claims his plan would prevent.

The Cadillac tax. This is the 40% excise tax on high-cost insurance plans that the White House proposed because it lacked the political will to directly reduce the $250 billion annual tax subsidy for employer-based insurance. But then the White House scaled back even this effort, delaying its start until 2018 because of union opposition.

Not to worry, says Mr. Orszag, the tax would still create a “gradually increasing incentive to seek higher-quality and lower-cost health plans.” In other words, some future Congress will impose the pain Democrats refuse to impose today.

Mr. Orszag also says these future politicians won’t block the tax because this “would violate the statutory pay-go law just enacted.” He’s referring to the same “pay-go” rule that Congress has violated to the tune of $800 billion or so just in the last year.

• Pilot programs. Mr. Orszag and Ms. DeParle also boast about the bill’s micro-initiatives and Medicare demonstration projects. They write that “even if we thought we had the answer for containing costs and improving quality today, that would quickly change as health care evolved.”

It sounds reasonable. Yet they’re forced into this vague hope because their other ideas have either been killed by Congress or because CBO says they won’t save money.

About the “Hospital Value-Based Purchasing Program,” CBO says it will cut spending by $0 over 10 years.

The “National Pilot Program on Payment Bundling”? Also $0.

The Medicare commission. This is the real secret of Mr. Orszag’s cost-control confidence, and Harvard economist David Cutler wrote in our pages this week that this “independent board” of sages will have the power to recommend spending cuts and create “a process for fast-tracking such recommendations through Congress.” We’ll believe that when we see it, given how Congress has long overruled specific Medicare spending cuts.

But let’s say Congress does cede power to this unelected group of wise men. The commission will then function much like similar bodies do in Europe—controlling costs by denying coverage for new technologies or patients at the end of life, or by limiting spending on certain treatments and thus creating longer waits. Governor Deval Patrick has already announced the early stages of such a price-control regime in Massachusetts.


ObamaCare’s real cost-control plan boils down to this: First subsidize coverage so much that costs explode, raise taxes as much as possible to pay for it, and when that isn’t enough hand power to an unelected committee to limit treatment and control prices by government order. This is what Democrats are voting for.

Editorial, Wall Street Journal


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