Exposing the myth: bigger government not an ally of the average person--Part II: Obamacare

Patrick Garry, RenewAmerica analyst

Perhaps the clearest distinction between the liberal and conservative political philosophies lies in their respective focus on government as the essential booster and protector of the working and middle classes. As Democratic Senator Charles Schumer has said, a belief in government is "what unites the Democratic party," since government is "the only thing that's going to get the middle class going again." This sentiment was echoed by the Daily Beast's Michael Tomasky: As "the party of government," Democrats are united in the belief that "the federal government can and must intervene in the economic and social spheres to even things out."

This commitment to government intervention and power reflects a central belief of modern liberalism. It provides the consistent explanation for all the positions taken by the Democratic Party. Indeed, it is the only explanation that justifies the Democratic support of the Export-Import Bank, which uses billions of taxpayer dollars to assist the largest U.S. corporations. It is the only explanation that justifies the continued Democratic opposition to any school-choice programs that give poor families a chance to attend the same schools as the wealthy elite attend. But as examined in our Part I essay, the liberal pronouncement of government as the savior of the average person is contradicted by reality.

Their undaunted push for more government, in the face of evidence showing that increased use of government power is often ineffectual or even destructive, reveals that liberals simply want the government to occupy a larger role within society, not that government should better perform this role. Essentially, the party of government demands more power for government, but not more accountability.

This Part II essay focuses on the Affordable Care Act ("ACA"), its implementation, and its effect on poor, working, and middle-class Americans. As a specific example of sweeping government power exerted in the name of the average person, the ACA and its implementation reveals that big government is often more powerful as an argument than as an actual antidote to social problems.

The betrayed promises of the government healthcare reform

Obamacare began with grandiose goals: to make adequate health insurance available to all Americans; to bring down the costs of health coverage; and to free Americans from the fear of losing their health insurance if they lose their job. To reach these goals, the Democratic Congress under President Obama's leadership enacted one of the most sweeping pieces of legislation in history, interjecting the federal government into every aspect of healthcare.

There is no question that changes needed to be made in the nation's healthcare system, and there is no question that the goals of Obamacare were laudable goals. But once the veil of needs and goals is pierced, a quite different picture of Obamacare emerges. Instead of being an unqualified benefit to working Americans, it has turned out to be a multi-layered drag on them.

Although promising to provide the benefit of affordable health insurance to all Americans, Obamacare in reality exerts a wide-ranging hindrance on both the individual and society. According to the Congressional Budget Office, Obamacare amounts to an implicit tax on workers that will reduce employment by as much as 2.3 million full-time jobs over the next seven years. Obamacare's insurance subsidies, which provide households with transfer payments to purchase health insurance, are lost as people move to full-time jobs and earn additional income. For every additional dollar a person earns, they lose money because of a decrease in insurance subsidies. Thus, Obamacare discourages work by making it more attractive for people to give up their full-time job rather than lose their subsidies. According to University of Chicago economist Casey Mulligan, the rational way to capture the biggest health-insurance subsidy is to stay underemployed or even jobless.

The ACA negatively affects employment in another way, slowing growth in future years and further hurting working Americans. The Act imposes penalties on employers based on the number and types of employees they have. And because of this, the Act places a significant tax on employers who expand their business. Of course, when there are such sizable penalties on hiring and expanding a business, there will be less hiring, particularly at the entry level.

Since the Act's "employer mandate" kicks in when an employer has 50 or more full-time employees who work more than 30 hours a week, many employers have cut back their employees to 29-hour work schedules. Even those who doubt the law will lead to a major loss in jobs acknowledge that the ACA is likely to result in a disproportionate shedding of low-wage jobs.

Aside from its job-inhibiting aspects, Obamacare's increased costs will fall largely on individuals who may be least able to pay them. According to an article in the magazine of the American Academy of Actuaries, for instance, around 6 million of the 19 million people with individual health policies will have to pay significantly more (up to 46 percent more) for their insurance premiums. The premium increases for another group, the small-group insurance market, will on average be less, but still significant. The nine million employees (plus family members) who work for employers that do not self-insure will see increases ranging from 13 to 23 percent. Another ten million people in the small-group market that are of low or average risk will also see higher insurance premiums.

In addition to these cost increases, millions of people in the individual and small-group market, because of Obamacare's mandates, will have their policies downgraded through a shifting to more restrictive networks of doctors and hospitals. Furthermore, according to Congressional Budget Office projections, three million people will lose their insurance altogether due to the law, and six million will have to pay the individual-mandate tax penalty in 2016 because they will not be able to afford coverage, even with the subsidies. Of course, none of these estimates count all those who will have their wages or hours reduced by employers facing Obamacare's tax penalties for policies that do not carry sufficiently generous insurance.

The group of employees most vulnerable to the adverse consequences of Obamacare will almost surely be those involuntarily underemployed. According to the Bureau of Labor Statistics, there are 10 million part-time workers who now work 30-34 hours per week. Reducing their hours to 29 will avoid the employer tax penalty, with relatively little disruption to the workplace. And yet, according to the Medical Expenditure Panel Survey, fewer than one million of these workers will be covered by employer-provided insurance that meets Obamacare requirements.

The employer mandate has proven to be an unworkable and even destructive mistake. Instead of prompting employers to give generous insurance coverage to their low-wage workers, the mandate pushes employers to cut back these workers to a part-time status. Perversely, those workers who most deserve help will suffer the consequences of lower incomes with no greater access to insurance.

Aside from its effects on jobs and workers, Obamacare is causing healthcare cost increases for everyone. By expanding coverage requirements and minimizing the risk considerations fundamental to pricing insurance, the law has already increased premiums from 20 to 200 percent in more than 40 states, according to an analysis by the Manhattan Institute. Moreover, contrary to assurances from the President, millions of Americans have lost their insurance coverage because it did not fit the new Obamacare requirements.

Another ominous feature of Obamacare is its Independent Payment Advisory Board (IPAB), which will have sweeping authority to set physician reimbursement rates and determine which procedures and drugs will be covered and at what price. Even Howard Dean, former chairman of the Democratic National Committee, warned that the "IPAB is essentially a health-care rationing body." By setting rates at levels where fewer and fewer doctors will perform certain services, the IPAB can essentially limit the access to medical care of those most dependent on public insurance. Because of the IPAB, over 52 percent of physicians have already limited or are planning to limit their treatment of Medicare patients, according to a survey for the Physicians Foundation.

Despite the government's promise that Obamacare would increase the insurance options available, the exchanges do just the opposite for those dependent on them and the government subsidies they offer. The average number of plans offered in individual states has decreased from 117 in 2013 to 41 in the new exchanges. Consumers in 16 states now have their choices limited to three or fewer insurers.

Obamacare is also eliminating access to many of the best specialists and hospitals for middle-income Americans. To meet the law's mandates, major insurers are avoiding the exchanges, or only offering plans that restrict physician choices and exclude many of the best hospitals. From 2013 to 2014 alone, the number of individual insurance offerings with restricted networks more than doubled, from 33 percent to 68 percent.

Meanwhile, concierge ("retainer"-based) practices are increasing rapidly, as wealthy patients, along with many top doctors, try to avoid the drawbacks of an increasingly restrictive health system. The American Academy of Private Physicians estimates that there are now about 4400 concierge physicians, 30 percent more than last year. In a recent survey, almost 10 percent of physicians planned to move to concierge or cash-only practices in the next one to three years. Doctors already spend more than 20 percent of their time on nonclinical paperwork, and the vastly increased regulations of Obamacare will take even more time away from patient care.

The ACA was advertised as expanding coverage and controlling costs, and thus particularly helping low-income earners. But that hasn't been the case. The government's own Centers for Medicare & Medicaid Services estimates that Obamacare will cause overall national health expenditures to increase by $311 billion over the next decade. Businesses facing these higher costs are unlikely to create new jobs and far more likely to eliminate many that already exist. Moreover, because increased employer costs disproportionately affect the unskilled labor markets, the jobs adversely affected most by these costs will be the low-wage jobs relied on by the poor.

Perhaps the most ironic example of how the Act adversely affects individuals can be seen in the reaction of the Harvard faculty to changes in their own health coverage. After being notified of increased costs, due to various Obamacare mandates, the faculty actually voted against the changes, although by this time it was much too late. One faculty member called the changes "deplorable" and "deeply regressive." But it is interesting how such a solidly liberal group, which undoubtedly favored the passage of the ACA for everyone else, now objects to it when applied to themselves.

The dark side of the pursuit for a continually growing government

The pursuit of an ever more powerful and active government necessarily seeks to eliminate all constraints on that government. Consequently, it seeks to make government less accountable. And the first casualty of abandoning accountability is transparency. Indeed, when all that matters is government's role and power, then transparency and honesty become mere tools, to be used only if and when they serve the larger goal of government growth.

The resultant caricaturing by liberals of the conservative notion of limited government as narrow-minded is one such deception. It is not a naïve or unrealistic desire to cut back the federal government to what it was during the more constitutional period. Rather, it is a concept deeply engrained within America's founding principles: that limitations should always exist on the federal government's power so as to ensure public control over that government.

Democratic accountability is the first and ultimate control on government, but for accountability to exist, there must be public knowledge of the workings of government. One of the true tests of when government has grown too big and complex is when it becomes indifferent to or defiant toward the public's knowledge of it. And when a government begins engaging in widespread deceptions about its aims and actions, it is a clear sign that the government no longer feels any accountability or true connection to the public.

The federal government's deceptions in the passage of the ACA present a prime example of how an arrogant government can abuse its power. And these deceptions reveal yet another side of the liberal push for a continual expansion of government.

Ever since the New Deal, the primary liberal thrust has been the expansion of the federal government into every aspect of social, cultural, and economic life. And this thrust has been waged in the name of the "common person." But as polls and elections repeatedly demonstrate, the common person, after seeing the results of government action, does not always trust government. This mistrust is interpreted in liberal circles as ignorance and ingratitude – as the narrow-minded views of a public not able to understand what is good for them and how government has enabled them to live comfortable lives. But ignorance cannot stand in the way of progress – and if government cannot be advanced through transparency, then subterfuge and deception is used. Because in the end, what matters above all else is the continued growth of government, not its accountability, which only limits that growth.

At times, the deceptions almost descend to the realm of the illogical. In the case of Obamacare, for instance, the public was told that the government would undertake this massive new project, giving hundreds of millions of people benefits they never had before, without adding any new costs or taxes, and without increasing the federal deficit.

Obamacare reconfigured the entire healthcare industry in the U.S., and it did so within a very short time and with relatively little congressional debate or study. The process began in 2009 and ended in 2010. But ever since its passage, Obamacare has become increasingly unpopular as the public has come to know its real impact and the deceptions made in securing its passage.

These deceptions have become particularly apparent in the past several months, with the dissemination of videos of Obamacare architect Jonathan Gruber discussing how the ACA was sold to the American public. According to Mr. Gruber, major parts of the law were purposely designed to mask the law's true cost. One example cited by Gruber is the so-called "Cadillac tax" – the Obamacare excise tax on high-value employer health plans. This tax imposes a 40 percent levy on individual health plans worth more than $10,200, and on family plans worth more than $27,500. But according to a study of the American Health Policy Institute, the tax is likely to hit many people who do not have such generous coverage.

Mr. Gruber acknowledged that the tax's reach will expand. "Over time, it's gonna apply to more and more health insurance plans," he said, elaborating in a separate speech that the "tax that starts out hitting only 8 percent of the insurance plans essentially amounts over the next 20 years to essentially getting rid of the exclusion for employer-sponsored plans." This revelation is further supported by a recent Towers Watson survey of employers showing that 82 percent of employers expect to incur "Cadillac tax" liability by 2023.

By 2022, Obamacare will have imposed over $1 trillion in new taxes, with less than a third of these taxes being paid by high-income taxpayers (individuals earning over $200,000 and families earning over $250,000). One reason for all these new taxes on middle and lower income Americans is that the Cadillac tax will increasingly hit more health plans. 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. Therefore, what was advertised as a 40 percent tax on a small number of "lavish" high-cost employer-provided health plans will by design evolve into a 40 percent tax on virtually every employer health plan, even those with lower than average costs.

In the recently discovered videos, Gruber admits that the real purpose of the Cadillac tax was to reduce the tax break available to the 170 million Americans who have employer-sponsored insurance. But the administration knew Congress would not go for that, so instead the ACA branded this tax as a Cadillac tax, making it appear as if it would only affect a small percentage of luxury-type plans, meanwhile leaving the employer-provided health insurance system in place. Obamacare was sold as supporting the employer-based system, not eroding it. But at its core, Obamacare is designed to do precisely that: to eventually force every American with employer-based coverage onto the Obamacare exchanges, whether they like it or not. And the way it does this is to remove the tax breaks received by employers and employees for that employer-provided insurance.

Another deception involved who would pay the tax. Even though the Act appeared to place the tax on insurance plans rather than on individuals, the administration knew the real impact of the tax would be on employees and consumers: "We just tax the insurance companies, they pass on higher prices...it ends up being the same thing. It's a very clever, you know, basic exploitation of the lack of economic understanding of the American voter," Gruber said. He admitted mislabeling the tax, "calling it a tax on insurance plans rather than a tax on people, when we all know it's a tax on people who hold those insurance plans."

Indeed, this is just what is happening – employees and consumers are seeing significant increases being passed on to them. And if they don't pay increased premium costs, they will see decreased coverage, because employers who want to try to avoid the Cadillac tax will reduce their health-care benefits to limit their exposure to the tax. But doing this will only cause employees to be hit by taxes in other ways. For instance, if employers increase wages to compensate for reducing the value of their health plans, then employees will pay more in income taxes for the same compensation package, as well as more out-of-pocket expenses for their own health care.

Under Obamacare, the low-wage worker gets hit twice. First, by getting a job with an employer-sponsored health plan, the worker loses the Obamacare subsidies. And then, once the Cadillac tax kicks in, affecting that employer-sponsored health plan, the worker faces increased healthcare costs.

The reason the Cadillac tax will affect so many health plans is because of how it is designed. The threshold amounts for the excise tax are indexed to the Consumer Price Index, which, according to the Congressional Budget Office, will be 2.1 percent over the next four years. But the Kaiser Employer Health Benefits Survey finds that the average cost of family coverage has risen 5.2 percent annually over the past 4 years. Therefore, with such a large gap between the rate at which the cost of employer-provided health coverage is increasing and the rate at which the Cadillac threshold rises, eventually every employer plan will be subject to the tax. This means that for most employers, it will be cheaper to simply pay the $2,000 penalty for not providing mandatory health insurance coverage and instead let workers shop on the exchanges. And in this way, Obamacare is moving America away from a world in which employers provide health coverage and toward one in which all health coverage is purchased through the Obamacare-established exchanges.

The reason the vast majority of Americans reportedly wanted healthcare reform was because costs were too high, but Obamacare makes health insurance even more costly. Yet, rather than address the underlying causes of high costs, Obamacare ends up accomplishing primarily only one thing – drastically escalating government's role in the nation's health system. And in fact, from 2009 to 2013, average premiums for family coverage grew by almost $3,000. This occurs in part because of another deception: that people can keep their plan if they like it, whereas in truth virtually all Americans will see mandated changes in their health insurance coverage – and these changes are further increasing the costs of coverage. But in November of 2009, the White House assured the public that Obamacare would not only lead to lower premiums for American families, but that these cost savings would come in addition to more generous healthcare benefits and increased insurance protections.

Conclusion

In perhaps the greatest deception of all, President Obama told Congress in September 2009 that the healthcare reform law would not add "one dime to our deficits, either now or in the future." All the increased benefits being promised would be paid for out of cost savings from a reform of a Medicare and Medicaid system that was "full of abuse and waste." In other words, Obamacare would extend health insurance to 30 million uninsured Americans, while also improving healthcare for millions more already-insured Americans, and yet not increase the deficit by one dime – all because Medicare and Medicaid would finally get cleaned up.

What a cleaning up that would be! But even if one accepts this argument, then the argument itself undermines big government. Because if Medicare and Medicaid, which accounted for nearly 20 percent of all federal spending in 2009, were that full of waste and inefficiency, then why weren't the programs reformed earlier? Why wasn't the waste eliminated earlier? And if two huge government programs nearly a half-century old can become so full of waste that a mere reform of them could pay for the biggest government social program since the Great Society era, doesn't that say something about how unaccountable big government programs can become?

Even if one grants the benefit of the doubt to the advocates of Obamacare, in terms of their honesty and openness about the financing of healthcare reform, then one has to fundamentally doubt the wisdom of bigger government. Because if government programs like Medicare and Medicaid develop such enormous waste, and if such waste cannot be eliminated even after almost a half-century, then how can big government ever be held accountable?

© Patrick Garry