Briefing Report: The Realities of Federal Health Care "Reform" and Repeal

Wednesday, August 25, 2010

"But we have to pass the bill so that you can find out what is in it..."
- Speaker Nancy Pelosi, March 9, 2010

On March 23, 2010, despite polls showing consistent and broad public opposition to health care "reform" legislation1, President Obama signed the "Patient Protection and Affordable Care Act," proclaiming "the core principle that everybody should have some basic security when it comes to their health care."2 This was the first of the two bills comprising federal health care "reform" that reached his desk with no Congressional Republican support. Congressional and other national Republicans immediately announced they would work to repeal the new law. Five months after enactment, even as the public has begun to "find out what is in it," support for President Obama's signature legislative accomplishment continues to diminish, with one recent poll showing opposition increasing to 60% of 'likely voters' favoring full repeal.3

The reality of declining public support was just seen in Missouri, a noted "swing" and "battleground" state, on August 3rd when 71% of voters in the state's primary election favored a non-binding initiative to block imposition of the new health care law in Missouri.4 Even Congressional Democrats, looking at the probability of their health care votes compromising their re-election prospects in November, have begun to shift their health care message from "reducing costs and improving care" to "the law is not perfect, but it does good things and helps many people. Now we'll work to improve it."5 If the political situation for Democrats on their top issue was not bad enough, on the legal front, U.S. District Judge Hudson in Richmond, Virginia on August 2 nd declined to throw out the Virginia attorney general's lawsuit challenging the constitutionality of the federal health care law's individual mandate,6 allowing it to move ahead.

Repeal Gains Strength

In light of growing public opposition and legal setbacks, it would appear unraveling health care "reform" is simply a matter of an election or two at most, or even a favorable court ruling. After all, the President and the Democrat majorities in Congress suffer from rapidly declining support as voter concerns with exploding federal deficits, enduring recession and high unemployment, as well as eroding personal wealth are all driving issues in November's mid-term elections.7 Nor does it appear the President is capable of resolving voter concerns with those matters before facing re-election. One would think likely new Republican congressional majorities in 2011 or even a new president in 2013 should make repeal efforts nearly a sure thing. It will not be that simple, though.

Embedding Health Care "Reform"

Congressional Democrats faced numerous obstacles in enacting their health care "reforms;" the scope and cost of their sweeping changes was such that it was necessary for them to phase in their changes over six years, with the most significant and costly program elements becoming effective in 2014.8 This need to phase in their new health care program had a collateral benefit too: it enabled them to design the program to start with popular measures with minimal cost (relative to the massive taxes and public subsidies to follow in later years), thus making repeal efforts more difficult. So now, in many ways, Republicans face comparable obstacles to repeal. The most obvious impediments are the elections themselves, as the mid-terms are still uncertain, and the presidential election in 2012 is more uncertain still. Even if Republicans unseat Democrats from their congressional majorities and recapture the White House, the reality of already running programs makes wholesale repeal unlikely. Additionally, California, like most other states, has already begun conforming to elements of the federal health care "reform;"9 even if national Republicans succeed in unwinding much of the national program, many of the "off-budget" market mandates will be embedded in state laws.

Already this year, the federal government has issued rules to prohibit health insurers from ending coverage for people when they become ill (known as rescission). Young adults are now able to keep coverage from their parents' plans until age 26, and many states have taken up the federal government's offer to run "high-risk pools," with federal funding, for uninsurable adults with pre-existing conditions. Seniors in Medicare Part D (the drug program) who have the "doughnut hole" coverage gap will get a $250 rebate, and qualifying small businesses will receive a tax credit for buying coverage for their employees. Beginning in 2011, Medicare will start providing a free annual wellness and prevention plan visit, and new health coverage will be required to cover preventive services at little or no cost to patients. To fund some of these reforms, the government will begin collecting an annual fee on pharmaceutical companies determined by market share.

In 2012, the health care "reform" measures slated to take effect then will focus on enhancing primary care services and improving hospital outcomes, including incentive payments to physicians and hospitals. A $17 billon tax increase on small businesses, focusing on transactions of $600 or more, was slated to take effect in 2012, but was recently repealed by Congress. Additionally, while President Obama is in office, should Republicans be able to advance legislation to repeal these elements of the health care law, they would most likely be vetoed. Recognizing this, Congressional Republicans have begun discussing plans to use the budget process to de-fund the new health care programs,10 yet that entails some political risk, as it depends upon ongoing public opposition to the President's health care reform.

Biggest Changes after 2012

The fact that the biggest changes do not occur until after the presidential election, offers Republicans the best opportunity to repeal the most expensive and comprehensive elements of the new health care law. In 2013, Medicare will begin a pilot program to bundle payments to encourage doctors, hospitals and other care providers to improve patient care coordination. 2013 is also when the most significant tax increases to fund the new health care plan begin to take effect, when the threshold for claiming medical expenses on itemized tax returns is raised to 10% from 7.5% of income. The Medicare payroll tax is raised from 1.45% to 2.35% for individuals earning more than $200,000 and married couples with incomes over $250,000, and a 2.9% excise tax imposed on the sale of medical devices. It is not difficult to imagine these will be significant issues in the presidential campaign.

Should President Obama be re-elected, or Democrats retain control of either house of Congress, 2014 will become the most important year in implementing health care reform. 2014 is when state health insurance exchanges for small businesses and individuals are scheduled to begin; it is also when eligibility for Medicaid is expanded to individuals with income up to 133% of the federal poverty level ( FPL). Persons with incomes up to 400% of FPL become eligible for health care tax credits, which will be provided as a refundable tax credit. Health insurers will be prohibited from excluding persons with pre-existing conditions from coverage, and employers with 50 or more workers who fail to offer coverage fines. In following years, other changes are slated, the notable of which is an excise tax on "high cost" employer-provided plans (the so-called "Cadillac plans") will be imposed.

Summary

Repealing federal health care reform will be difficult; given the massive public subsidies for coverage for seniors and low- to middle-income families, the politics of the issue will likely soon resemble those of reforming Social Security and Medicare. The greater risk for America lies in what happens if health care "reform" is left to stand. The program was sold to Americans as one that would expand access, control costs, and improve quality. Yet the program will fail on its own terms, as it was built upon unreasonable assumptions: that unproven technology and prevention programs can significantly reduce costs; that federal bureaucrats and regulations can realize efficiencies that will reduce costs and improve care; that the existing shortage of doctors and bed space will somehow magically meet growing demand resulting from newly subsidized coverage, without rationing. Repeal will be very difficult, but much less so than "reform" achieving its own unreasonable expectations.

For more information on this report or other Health issues, contact Tim Conaghan, Senate Republican Office of Policy at 916/651-1501.

1RealClearPolitics.com
2New York Times
3Rasmussen Reports
4 Kansas City Star
5Politico.com
6Christian Science Monitor
7 Gallup Poll
8 HealthCare.gov
9San Diego Union Tribune
10The Economist