Health Reform Breaks Bad

Breaking Bad is the story of a seemingly well-intended but very misguided man who turned to cooking meth in order to amass enough wealth to provide for his family once he dies of cancer. The consequences of that unfortunate decision—not to mention the lies and deceptions to keep it on track—pyramid alarmingly over the course of five seasons, culminating in mayhem and a head-spinning body count.

Obamacare isn’t a TV drama. But it will unleash its own tsunami of unintended consequences: more than a million jobs lost, an economy increasingly made up of part-time workers, higher health spending (at least a half-trillion dollars just over the next decade), a decline in medical innovation (and attendant loss of life).

While Obamacare undoubtedly will do a modest amount of good, the urgent question is whether the law’s supporters will come to see that the good pales in comparison to the damage. Obamacare may still crash and burn (see Medicare Catastrophic Coverage Act of 1988), or it may endure as a monument to government ineptitude and inefficiency (see U.S. Postal Service, whose deficit last year alone was $15.9 billion, despite being exempt from taxes, regulations, and even parking tickets!).

While there are many cooks who spoiled this particular broth, there’s little question that but for Barack Obama himself, this monstrosity would unlikely ever have been signed into law. Health policy scholars have known a dirty little secret for decades: When it comes to “universal coverage,” Americans have never been willing to put their money where their mouth is. Public opinion polls going back to the 1940s rather consistently show a majority of Americans in favor of “national health insurance” (as it was called then) or “universal coverage.” But such opinions were in response to open-ended questions that gave no sense of how such a program might affect respondents’ taxes. Starting about three decades ago, pollsters began taking a more sophisticated approach that probed the willingness to pay for expanded coverage of the uninsured. If one took the results of such polls at face value, i.e., assumed one could collect the actual amount of taxes respondents said they were willing to pay, the combined amount of taxes would cover only one-third to two-thirds of the cost of universal coverage.

This hard truth was so pervasively known in the health policy community that it was the theme of a Christmas card sent out by Princeton health economist Uwe Reinhardt in the late 1980s: Eighty-five percent purported to favor universal coverage, yet only 20 percent were willing to pay more than $50 a year in taxes to achieve this purpose. In short, pursuit of universal health care was either a fool’s errand (from a political standpoint) or would require the wool to be pulled over the eyes of the American public.

In Barack Obama, reformers found a candidate willing and able to rise to the occasion. Notwithstanding a campaign pledge to “always be honest with you about the challenges we face,” candidate Obama offered Americans the moon: He would cover most (albeit not all) of the uninsured; to the degree higher taxes were required to deliver on this promise, every penny would come out of the pockets of “rich” Americans; not only would middle-class Americans not have to pay a penny in new taxes for this dramatic but expensive new entitlement, the “typical” family of four would save $2,500 a year in premiums (before the end of his first term); and the plan would not add a dime to the deficit.

Another hard truth had emerged from the spectacular failure of the Clinton health reform initiative in 1994: The majority of Americans are generally satisfied with their own coverage and deeply resistant to anything that might threaten it. No problem. Obama had that covered as well: If you like your plan (and your doctor), you can keep them. These were the deceptions that brought us Obamacare. Let us examine them in turn.

Deception #1: universal coverage

Obama’s promise: “I will sign a universal health care bill into law by the end of my first term as president that will cover every American” (June 23, 2007).

Reality: Politifact.com views this as a campaign promise kept since President Obama signed into law a plan that included an individual mandate with few exemptions. And keep in mind this promise, unlike the others, actually was doable. However, the Affordable Care Act will not deliver universal coverage. According to the latest CBO projections, when fully implemented, Obamacare will cover fewer than half of the nation’s uninsured (leaving 31 million uninsured in 2023). Nevertheless, this turned out to be the closest the president came to keeping one of his promises. As we will see, the others missed by a mile.

Deception #2: no new taxes on the middle class

Obama’s promise: “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” (September 12, 2008).

Reality: By 2022, Obamacare will have imposed just over $1 trillion in new taxes. It’s true that $318 billion of this will come in the form of taxes on payroll, dividends, capital gains, and other investment income specifically targeting taxpayers earning over $200,000 (singles) or $250,000 (married). 

The remaining taxes, however, represent a laundry list of levies and limitations that will hit the pocket-books of both middle-class and low-income families. One could argue that the Cadillac tax on high-cost health plans ($111 billion) will tend to hit higher-than-average income workers (though certainly not just the top 1 or 2 percent). That may be true initially, but the threshold for determining which plans are taxed is indexed to general inflation rather than medical inflation. Consequently, Bradley Herring, a health economist at Johns Hopkins Bloomberg School of Public Health, estimates that as many as 75 percent of plans could be affected by the tax just in the next decade.

As well, Obamacare’s employer mandate penalties ($106 billion) assuredly will hit the lowest-income workers, since they are the ones least likely to be covered through employer health plans. Similarly, taxes levied on health insurers ($101.7 billion), drug manufacturers ($34.2 billion), and medical device manufacturers ($29.1 billion) nominally are levied on big corporations. But everyone knows these ultimately will be passed along to consumers in the form of premium increases or higher out-of-pocket spending.

How do we know this? Because the Congressional Budget Office told us so, in November 2009, months before Obamacare was actually signed into law. Oliver Wyman, a well-known international consulting firm, has estimated the health-insurers tax alone is expected to increase premiums for single coverage by a minimum of $2,150 over the next 10 years while boosting family premiums by $5,080 during the same period. Even older people on Medicare Advantage plans, who tend to have lower-than-average incomes, will see premiums go up by $3,590 over 10 years according to the Oliver Wyman calculations.

Even for progressives who might fantasize that these corporate levies will somehow come out of big business’s (presumably obscene) profits, there can be little doubt that the individual mandate ($55 billion)—which, in fairness, wasn’t a tax until Chief Justice John Roberts declared it to be—will hit the little guy. Likewise, the new limits on Flexible Spending Accounts ($24 billion) and the higher threshold for deducting medical expenses from one’s income tax ($18.7 billion) will hit average families squarely in the pocketbook.

In short, when all is said and done, the very folks the president assured wouldn’t see taxes go up a dime to bankroll health reform will shoulder close to 70 percent of Obamacare’s tax burden. The president has shown himself to be a diligent student of former Louisiana senator Russell Long: “Don’t tax you, don’t tax me, tax that fellow behind the tree.”

And that’s just in the short term. Despite repeated pledges to make “hard decisions” and have an “adult conversation” over entitlements, the president has put us on a fiscal path that his own Treasury Department has declared “unsustainable.” Health entitlements (including Obamacare) will grow so rapidly that federal spending as a share of GDP will rise by more than 40 percent by the year 2085. Rising health entitlements will account for every penny of that increase! All this from a president who assured us last year that “it is not a bigger government we need.”

Deception #3: annual premium savings of $2,500

Obama’s promise: “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 as president of the United States” (June 5, 2008).

Reality: Taken literally, we know this promise failed spectacularly. According to the authoritative annual Kaiser Family Foundation/HRET Employer Health Benefits Survey, average premiums for family coverage (i.e., the kind of private coverage the “typical” family has) were $13,375 in 2009 and $16,531 in 2013. In short, average premiums for family coverage grew by $2,976 by the end of President Obama’s first term. Thus, we can accurately say that both in direction and magnitude reality turned out to be the opposite of what the president pledged.

Candidate Obama’s claim that he could pull off this astonishing feat before the end of his first term was not some off-script bit of puffery in a campaign speech. As Kevin Sacks at the New York Times reported: “Mr. Obama’s economic policy director, Jason Furman, said the campaign’s estimates were conservative and asserted that much of the savings would come quickly. ‘We think we could get to $2,500 in savings by the end of the first term, or be very close to it,’ Mr. Furman said.”

Nevertheless, some supporters have argued the president’s promise meant not that premiums would go down, but that they would be $2,500 a year lower than they would have been otherwise. Moreover, while he made the promise repeatedly on the campaign trail, he usually didn’t claim it would be accomplished by the end of his first term. Yet even if we cut the president some slack on both points and give Obamacare 12 years to “bend the cost curve,” the best available estimates still show this promise will fail miserably. For three consecutive years, the Office of the Actuary at the Centers for Medicare & Medicaid Services has released 10-year projections that compare national health spending under Obamacare with spending assuming Obamacare had never been implemented. In each instance, the ACA increases aggregate national health spending above and beyond the amount that such spending would have increased otherwise.

The latest version of these projections, released just last month, shows that between 2010 and 2022, aggregate health spending will be $621 billion higher under the Obamacare scenario. For a typical family of four, this amounts to $7,579 over that 13-year period.

Some have argued that technically it would be possible for health spending to increase for the 30 million formerly uninsured Americans even as premiums dropped for those already covered. In fact, we’ve known since 2008 that the average uninsured individual generates just under $1,000 in uncompensated care costs each year. We’ve also known that three-quarters of those uncompensated care costs are borne by taxpayers (federal, state, and local), leaving at most $285 (2013 dollars) per capita uninsured to be shifted to those with private health insurance, a small fraction of the premium increases we’ll be seeing.

In truth, no well-informed American ever should have believed this absurd promise. At the time Obama made it, Factcheck.org charitably deemed this claim to be “overly optimistic, misleading and, to some extent, contradicted by one of his own advisers.” Rather than scale back his extravagant claims, President Obama on July 16, 2012, doubled-down, assuring small-business owners that “your premiums will go down.” He made this assertion notwithstanding the fact that by that time, in three separate reports between April 2010 and June 2012, the Medicare actuaries had demonstrated that the ACA would increase health spending. To its credit, the Washington Post fact-checker dutifully awarded the 2012 claim Three Pinocchios (“Significant factual error and/or obvious contradictions”).

Deception #4: no increase in the deficit

Obama’s promise: “I will not sign a plan that adds one dime to our deficits” (September 9, 2009).

Reality: This pledge was made in President Obama’s speech before a joint session of Congress—well before either chamber had voted on a plan. Using rules that everyone recognized were grossly misleading, the CBO scored the plan as a small deficit reducer. However, the president was well aware that his plan was “full of gimmicks and smoke-and-mirrors” (in the words of Rep. Paul Ryan) many weeks before the final bill was passed. Ryan’s analysis left no doubt that the president was trying to stuff a $2.3 trillion health plan (over 10 years) into a $1 trillion wrapper. Pleading ignorance is no excuse when it comes to breaking this particular promise.

According to former CBO director Douglas Holtz-Eakin and Michael Ramet of the American Action Forum, “A more comprehensive and realistic projection suggests 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.” Indeed, based on a more realistic (i.e., accurate) alternative fiscal scenario to the one CBO was forced to use to score Obamacare originally, the ACA has put us on a path to add $6.2 trillion (2011 dollars) to the deficit over the next 75 years. Reasonable people might quibble about the president’s level of knowledge when he first made this pledge, but there is little doubt it has turned out to be a promise broken—by a rather extraordinary margin.

Deception #5: you can keep your plan if you like it

Obama’s promise: “If you like your doctor, you will be able to keep your doctor, period. 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” (June 15, 2009).

Reality: Virtually all Americans will see changes in their health insurance coverage, whether they want them or not. These changes will increase the cost of coverage for most Americans.

Some rules apply to all health insurance plans, even those that are “grandfathered”: (1) Plans can no longer impose annual or lifetime limits on how much health care coverage people may receive; (2) they must offer dependent coverage for young adults until age 26; (3) plans cannot retroactively cancel coverage because of a mistake made by plan members when applying; and (4) waiting periods for new employees cannot exceed 90 days.

Unless grandfathered, health plans will also be required to cover certain preventive care services at no cost. This is as idiotic as requiring auto insurers to pay for oil changes. You might wonder, if gas and oil are necessities for your car, what’s the big deal if auto insurance pays for them? Well, for starters, consumers become less price-sensitive knowing that all or nearly all of any higher price they pay for something will be borne by a third party. Steven Brill’s Time exposé last year and a more recent New York Times piece on the high cost of colonoscopies should settle any questions about whether this phenomenon is widespread in American medicine. In general, Americans pay the highest medical prices on the planet.

Consumers may also undertake preventive activities more frequently than they would otherwise (changing oil every 1,000 miles instead of every 3,000). Case in point: About one-quarter of Medicare patients undergo colonoscopies more often than clinically recommended. Clearly, some of this wasteful spending can be avoided by erecting rules and monitoring to preclude this, but these in turn lead to higher administrative costs.

When someone else pays the bill, the payer always will need to undertake at least some form of monitoring activity to ensure that the service was needed/allowable, that it was actually provided to the customer (the most common forms of Medicare fraud are durable medical equipment never provided and services never performed), and that the price did not exceed some specified “reasonable” level. Otherwise that payer may be subject to massive fraud or excessive payouts. Even if consumers remained prudent shoppers (though there is no incentive to do so when someone else is paying most of the tab) and somehow are cajoled into using precisely the amount of preventive care that they would if they paid for such care on their own, these administrative costs make buying the service through a third-party payer more expensive than if the identical bill had been paid directly by the consumer.

This explains why we do not see auto insurance policies that cover the costs of fill-ups and oil changes, or homeowners’ policies that cover the cost of mowing the grass. It’s more sensible and less expensive to let consumers handle such expenses on their own. But when it comes to our bodies, Obama-care takes away that choice.

Other rules apply only to the individual and small-group markets (whether or not coverage is provided through the Obama-care health exchanges). Beginning in 2014, Obamacare will require all nongrandfathered health plans in the individual and small-group markets to cover essential health benefits (EHB), a broad range of services. These run the gamut from mental health care to preventive and wellness services. Many of these benefits were already routinely offered in employer health insurance plans, but others, such as dental care for children, were far less common. According to a study at HealthPocket.com, “less than 2 percent of the existing health plans in the individual market today provide all the Essential Health Benefits required under the Affordable Care Act.”

Obviously, higher premiums will result in any plans that formerly lacked these benefits. One of the most controversial of the “essential” health benefits is the contraception mandate—a threat to religious liberty so egregious that it has spawned at least 60 different lawsuits. According to the American Action Forum, “premium increases associated with coverage of the essential health benefits have ranged from 0.13 percent in Rhode Island to 33 percent in Maine, with most states expecting single-digit increases.”

Apart from telling individual and small-group plan members what benefits they must have, the law put a floor of 60 percent on the actuarial value of coverage, meaning that such plans had to be arranged to cover at least 60 percent of the expected costs for the average enrollee. This will result in further premium increases given that more than half the plans currently available on the individual market do not meet this 60 percent threshold. Indeed, 12 percent of individual and small-group plans have an actuarial value between 35 percent and 49 percent.

Premiums in the individual and small-group markets will escalate further owing to “modified community rating” (which prohibits insurers from charging their oldest subscribers more than three times the amount charged to any younger subscribers) and “guaranteed issue” (requiring insurers to take all comers, including those with preexisting conditions).

The bottom line is that a large number of those who now buy in the individual market (19.4 million Americans) and small-group market (28.5 million) will face significant changes in benefits as well as higher premiums. People now buying their insurance in the individual market will see the greatest rate shock. The American Action Forum recently compared premiums for the lowest-cost plan available in the nongroup market in January 2013 to the lowest cost bronze plan available on the exchange on October 1, 2013. On average, a healthy 30-year-old male nonsmoker will see his lowest-cost option increase in price by 260 percent. The amount varies by state, but an increase was observed in every state and in the District of Columbia, ranging from a low of 9 percent in Massachusetts to a high of 600 percent in Vermont. A Manhattan Institute analysis similarly concluded that 27-year-old males who purchase the least-expensive plan through the exchange will see their rates go up by an average of 97 percent (with only two states experiencing lower average premiums, Colorado and New Hampshire). For 27-year-old women, the average increase will be 55 percent (only four states would see lower average premiums, Colorado, New Hampshire, Ohio, and Rhode Island). For 40-year-olds the projected increases were 99 percent for men and 62 percent for women.

The small-group market will also see higher prices. The National Journal’s independent assessment concluded that even after taking into account subsidies available on the exchanges, 66 percent of workers with single coverage and 57 percent of workers with family coverage will face higher premiums on the exchange compared to what they would pay for employer-sponsored coverage. Admittedly, these increases will be smaller for grandfathered plans, but only about half of small-group workers are enrolled in grand-fathered plans. Already this is a decline from 2011, and eventually all plans will lose their grandfather status.

Defenders of Obamacare say the enhancements in benefits are worth the added premiums, but this defies common sense. There was nothing stopping plans from including any of the benefits now being forcibly imposed under Obamacare. That they did not do so voluntarily implies that the added premium costs associated with such plan enhancements were not worth the added cost to their customers. By definition, in forcing people to do what they would not do voluntarily, Obamacare reduces the social welfare of vast swaths of Americans.

It’s one thing for the content or price of one’s coverage to be changed by meddlesome regulations. It’s quite another to lose one’s coverage entirely. Yet Obamacare also will cause some employers to drop coverage, knowing that their employees can obtain coverage through the exchanges. Estimates of how many will do so are all over the map, with CBO estimating only 9 million employees will lose their employer-sponsored coverage, the Medicare actuary projecting the figure will be 14 million, and former CBO director Douglas Holtz-Eakin calculating the total may be as high as 35 million. As well, Obamacare will slash payments to Medicare Advantage plans, culminating (according to the Medicare actuary) in about half of Medicare Advantage plan members losing their coverage and being forced back into the wasteful and inefficient Medicare fee-for-service system.

‘I did it for myself’

One of the most satisfying scenes in Breaking Bad’s final episode is when meth kingpin Walter White finally comes clean with his wife Skyler (and himself) and admits his real motivation: “I did it for myself.” He may have started out with the intention of providing for his family, but what kept him going even when it was clear that the end could not possibly justify the means was self-interest.

I don’t doubt the sincerity of President Obama’s desire to reform health care to make things better for the American people. But in light of the gargantuan gap between what was promised and what is now being imposed, it’s reasonable to wonder whether he is stubbornly plunging forward because he has deceived himself into thinking he’s making things better, or is desperately clinging to his legacy with little regard for what damage it will do to the people who elected him.

Christopher J. Conover is a research scholar in the Center for Health Policy & Inequalities Research at Duke University,
an adjunct scholar at the American Enterprise Institute, and a senior scholar affiliated with the Mercatus Center at George Mason University.