Commentary Magazine


The Three Failed Promises of ObamaCare

No matter the degree of disastrousness of its October debut, no matter the efforts of Republicans to derail it, there is little or no chance that ObamaCare can be stopped before the president leaves office in January 2017. The Affordable Care Act and its complicated and costly system of mandates, regulations, and subsidies will now shape our health-care system.

Of course, the rollout of the law has been so nightmarish that liberals have gone into a panic; having fronted for the administration on the wisdom and saliency of the Affordable Care Act for three years, they feel betrayed by the staggering incompetence the administration has displayed in the early going. Still, they pretty much agree with what President Obama said as he defended himself against the early slams: “The product is good.”

Just as liberals will never be able to bring themselves to call ObamaCare a failure, everybody knows that Republicans will never be willing to judge it a success, even in the (admittedly unlikely) event that the law works as promised and lowers costs while covering 30 million more people.

For the truth is that ObamaCare is more than just a law; it is the apotheosis of liberal governance in the 21st century. Therefore, if you are a liberal, it must succeed; if you are a conservative, it must fail. The partisan and ideological battle lines are drawn.

And yet it is the law, and it will be the law for at least three more years. So, given this impasse in public discourse, how will anyone be able to judge it accurately and fairly? The first order of business should be to build an intellectual foundation for the appraisal of ObamaCare—one that begins with evaluating the law against its stated goals, particularly those that were used to attract its supporters. This is not just a theoretical exercise. Both liberals and conservatives are going to have to convince the great American middle of their case for and against the law. The only real way to do so is to measure ObamaCare against the president’s promises.

President Obama and the law’s Democratic proponents emphasized three promises when promoting the health-care law. First, it will provide “universal coverage.”

Second, it will “bend the cost curve”—Washington-speak for reducing costs.

Finally, it will not take away your current health-care plan if you want to continue with it.

Let us examine these in order of importance.

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The primary promise was universal coverage. In the year that preceded the law’s passage, President Obama emphasized over and over again the number of Americans who were uninsured, which ranges from 30 million to 47 million, and explained that the nation had a moral imperative to cover those who could not find coverage on their own. The range was so vast because the number of uninsured at any given moment is a snapshot; it changes radically over time. And it changes depending on whom you count among the uninsured. The most expansive definitions include both illegal immigrants (who are not ordinarily deemed to live inside the national social safety net) as well as individuals who, for whatever reason, are already eligible for public assistance (administered by Medicaid) but do not partake of it. Regardless of the definition, universal coverage was a priority.

But what would universal coverage even mean? One complicating factor was that the recession increased the number of the uninsured by 6 million. So when Obama officials set as their goal the signing up 7 million people for insurance in the first year, they were in fact setting a low bar for success—they were only aiming for a net increase of 1 million people who had never been insured before. In addition, the Congressional Budget Office originally estimated after the passage of the law that, in 2019, there would be 54 million uninsured if it did not pass. After its passage, the CBO predicted, there would be only 22 million uninsured, a reduction of 32 million uninsured individuals. Of those 32 million, the CBO said half would be covered by the new “exchange” system, and half through the expansion of Medicaid. Then, in 2013, before the law was even implemented, the CBO came up with the new estimate: There would be 31 million uncovered Americans in 2019.

These numbers do not provide much confidence that the government even knows how many people are uninsured or how many the government can afford to insure. But at the very least, we’re looking at somewhere between 20 and 30 million who will remain uncovered. It would be more than fair for the American people to ask if the law justifies its huge costs when it comes nowhere near providing “universal coverage.”

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The second promise was to reduce the cost of health care, specifically the cost of premiums. Universal health care would provide greater economies of scale for insurance companies, while new regulations would keep insurance companies and doctors from getting too greedy. On numerous occasions, President Obama promised that his reforms would reduce the cost of premiums by $2,500 for a family of four.

This is not going to be the case. Using the same methodology that Obama used to come up with the $2,500 figure, health-care expert Avik Roy (working with Chris Conover) found that costs per family of four would increase by $7,450 by 2022. Furthermore, the cost hikes in certain states are going to be far worse, including a 41 percent increase in average premiums for Ohioans in 2014, a 72 percent increase for Indianans, and a whopping 198 percent increase for Georgians. That figure is clearly an outlier; a recent Manhattan Institute analysis shows an overall average increase of 41 percent. Whatever that is, it’s not a $2,500 decrease.

ObamaCare proponents note that higher premiums will not be felt because the law will provide subsidies to offset the increases. That’s nice, but premiums will still be higher under the new law. The subsidies only mask the impact of the premium increases for certain individuals. Others, not eligible for the subsidies, will get the double hit of paying more for insurance (which they are now required by law to purchase) and of paying higher taxes, now and in the future, to cover the costs of the subsidies to others.

The subsidies provide the starting point for a deeper discussion. We can expect ObamaCare supporters to try to dominate the argument with a few anecdotes or stats about selected beneficiaries whose lives have been improved. But such happy talk should not be allowed to disguise the cost of the overall program to the American taxpayer. A serious examination requires us to look both at net costs and gross costs, especially since the Obama administration claimed that the program would be “budget-neutral.”

It will be nothing of the sort. The original 10-year cost of the bill was said to be around $940 billion, offset by tax hikes and spending reductions—most notably a $716 billion cut in Medicare. In 2013, the CBO estimated the cost at $1.8 trillion; it is likely to be closer to $2.5 trillion by 2015. The gross costs of the ObamaCare insurance subsidies alone will be $1.8 trillion over the first 10 years; in other words, the costs will be lowered for those who get the subsidies at a cost of $180 billion a year to everyone else. Meanwhile, a Government Accounting Office estimate suggests ObamaCare’s guarantees could increase our long-term costs by $6.2 trillion over 75 years.

How could the original estimates have been so wrong? Wishful thinking and political pretense. Health-care costs have been steadily rising for a long time, faster than the rate of inflation, and have continued to increase throughout the Obama presidency. It is true that in recent years, the rate of increase has declined somewhat, which is a most welcome development. ObamaCare partisans tout this reduction in the rate of increased spending—and not, to be sure, a reduction in the amount of spending—as evidence that ObamaCare is working.

There are two problems with this claim. First, there is little to no evidence that ObamaCare has caused the reduction in the rate of increase, especially since ObamaCare has not yet been fully implemented. The administration’s own Medicare actuary attributes the recent reductions in the growth rate to the recent recession. Furthermore, when ObamaCare is actually implemented, evidence suggests that inflation will increase. Again, according to the CMS Actuary, “in 2014 the implementation of provisions of the Affordable Care Act related to major coverage expansions is expected to accelerate health spending growth to 6.1 percent.”

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The third promise was that if you like your health-care plan, you can keep it. During his year of salesmanship, President Obama mentioned it nearly every time he spoke about the act, often stating it more than once in the same setting. The exact wording of the comment varied over time, but the political strategy behind the statement was clear: If you were among the 85 percent or so of Americans who already had insurance, ObamaCare would have its impact on other people, not on you.

The early indicators are not encouraging. One CBO analysis has estimated that ObamaCare will cause approximately 7 million people currently covered to lose employer-sponsored coverage. On top of that, millions of Americans who purchase insurance via the individual market are already receiving letters notifying them that their coverage is being terminated. In response to this development, the Washington Post’s Fact Checker reexamined President Obama’s promise that if you like your health-care plan you can keep it and found it wanting, granting the claim a whopping “4 Pinocchios,” the worst possible rating. In addition to these changes in the individual market, employers across the nation are taking the rational step of looking at their health-care offerings and reassessing whether what they do is acceptable under the new law and whether it is worth their while to continue to provide health-care coverage to employees. They can instead drop coverage and pay a penalty (which will be cheaper than the cost of providing health care) when that penalty goes into effect in 2015. Those workers could then join the exchange system, pay a higher premium cost, and apply for subsidies to lower the cost.

Again, it is too soon to say what the full effects will be, but it is not too early to suggest that the promise that everyone could keep their insurance was at best irresponsible and at worst deliberately deceitful. It was obviously misleading with respect to the individual market. Furthermore, it failed to take into account the fact that people (and companies) respond to economic incentives and that such a rushed and vast health-care law would lead employers to a wholesale reassessment of their existing practices.

So far, these three promises appear empty, false, or impossible to fulfill.

This analysis has looked at ObamaCare solely on its proponents’ terms.  When we begin to look at other real-world effects, the picture gets even worse. First, the law raises taxes by $1.1 trillion, which in itself has long-range economic effects. Additionally, there is the impact on the job market. Many smaller employers are looking at the elements of the employer mandate and are trying to configure their workforces so that they do not go over the 50 workers or 30-hour thresholds governing when they would be subject to that mandate. These known effects on employers remain an important reason why hiring is still sluggish, and why ObamaCare will probably limit full-time hiring for the foreseeable future. As restaurant CEO Andrew Puzder wrote in the Wall Street Journal, “the evidence that ObamaCare is having a negative impact on hiring is unequivocal, abundant, and consistent with common sense.”

There is also the matter of the law’s impact on health-employment itself. Health care is an important job sector in the U.S., and it has also been one of the few sectors that has continued to grow in the past five years. And yet in September, just before ObamaCare went “live,” there were more layoffs among health-care providers than in any other industry. Hospital layoffs were the biggest driver of this disconcerting figure, as hospitals girded for readjustments of their reimbursement levels from ObamaCare, as well as rules designed to generate fewer hospital stays. ObamaCare will also drive changes among this nation’s 850,000-plus physicians. Faced with the prospect of lower reimbursement, greater paperwork burdens, and more oversight in how they practice medicine, many doctors are already leaving smaller entrepreneurial practices for larger hospital groups; in the future, others will choose to retire early while prospective doctors will eschew medical school altogether, exacerbating an already-worrisome expected doctor shortage.

ObamaCare will not only change how many employers approach hiring; it will also reduce incentives to work. Thanks in part to ObamaCare, the percent of pay and other compensation that full-time workers with median incomes will bring home will fall below 50 percent beginning in 2015. As Ronald Reagan long argued, if workers cannot keep the fruits of their labor, they will have less incentive to engage in that labor.

Finally, the law will limit choices and the ability to move our health-care system in a more consumer-driven way. One of the best ways to improve quality and reduce costs is the ability to let markets work, encourage providers to tailor service to patients, and empower consumers to act in economically rational ways to find the deals that are best for them. Unfortunately, our system has long been dominated and distorted by third-party payment systems, both public and private. For the past five decades, this has reduced the power of individuals to act in market-oriented ways. ObamaCare will only exacerbate this unfortunate trend. Since the development of Medicare and Medicaid in 1965, the percentage of spending on out-of-pocket costs has declined precipitously, while the cost of health care has been spiraling upward. ObamaCare will accelerate the movement toward third-party payment by limiting Health Savings Accounts and Flexible Spending Accounts and by imposing insurance mandates that will make it harder if not impossible to purchase a bare-bones, high-deductible plan that incentivizes individuals to control spending habits by spending their own money on health care.

These long-term health-care developments are already taking shape during the ObamaCare implementation period. It is in this period that the views on ObamaCare will be shaped and begin to set in what constitutes the collective American mind.

Critics of the law should not take too much solace from the law’s many opening glitches. Such an approach can be all too easily turned back by competent computer programmers. A better argument is that bloated and inefficient government lacks the capacity to accomplish what its proponents claim it can do.  Opponents of ObamaCare need to make the case based on how much ObamaCare costs those who are trying to get care, how it limits their choices, and how it drives up deficits. Otherwise, Democrats will trump their arguments by highlighting every individual who got a check. And history has shown that check distribution can be a very powerful argument.

About the Author

Tevi Troy, a former deputy secretary of health and human services, is a frequent contributor to Commentary. His latest book is What Jefferson Read, Ike Watched, and Obama Tweeted: 200 Years of Popular Culture in the White House.