From Under The Cherry Tree | What Will They Mandate Next? A House, a Hybrid, Charitable Giving…Wait a Minute…What Will They Mandate Next? A House, a Hybrid, Charitable Giving…Wait a Minute… | From Under The Cherry Tree

I’ve seen a lot of responses to the recent Supreme Court decision on the Affordable Care Act, taking the Act and the decision in many different lights – everything from supporters cheering the future “reduced cost of healthcare” to those critics lamenting that “the government can now mandate that I purchase anything and everything”.  I’d like to take a minute and debunk some of the more common comments I’ve seen that turn out to be misleading at best..or completely false at worst.

“The ACA will reduce the cost of healthcare!”

No, it won’t.  For the majority of Americans today, their healthcare costs will stay the same or even go a bit up.  How can this be?  Well, for that you have to look at the parts of the Act that directly impact care, rather than just health insurance.  Such provisions are actually few and far between and are mostly limited to the provision of preventative care and certain medications (notably birth control) without a co-pay or deductable.  That would certainly reduce the cost of those items – if the Act stated that premiums could not then be raised, which it does not.

There are other provisions that people point to in saying that the cost of care will go down – namely those provisions that provide for risk pooling and eliminate the ability for insurers to price-in pre-existing conditions (or to decline those with pre-existing conditions).  The problem with that argument is that while the price of healthcare may go down somewhat for those with chronic conditions who do not have employer-provided insurance (note that employer-provided insurance never priced in these items), it will go UP for those that don’t have it.  Insurance companies have to at least cover the cost of providing the care to their members – so if they cannot cover it by raising premiums on the heavy users of care, they will have to raise premiums across the board.  Similarly, if they cannot limit their exposure to risk by declining unhealthy persons, they will have to raise their rates on all of their customers to compensate for the new expenditures.

The Act does not enact measures that would substantially change the cost that hospitals must charge – things like limiting the ability to sue for malpractice or the size of the awards that can be granted, or reducing the cost of new technology and scans – nor does it place limits on what can be charged for care by the hospitals/doctors.  Further, the argument that hospitals can now charge less because they will have fewer uninsureds coming in is also a non-starter – they only do so to pass on the cost of their care that those people cannot pay…which will still be happening, just through higher taxes (for Medicaid covered care) and higher premiums (for those uninsureds who use the exchanges to acquire health insurance).

“The ACA won’t increase the deficit!” and “My state is getting more FREE Medicaid money to use!”

This is another favorite of ACA proponents – the idea that somehow the Federal government can give out more money (either directly to them or to their states) and it won’t either a.) increase the deficit or b.) increase taxes. Or do both.  The problem with this should be clear – the Federal government (while it can just print money) cannot increase spending without getting the funding from somewhere.  Proponents like to point to the original March 2011 Congressional Budget Office estimation that the Act would reduce the deficit by some $124 billion.  However, they fail to mention that same CBO released a revised estimate in March 2012 that showed a much higher net cost, leading to an INCREASE in the deficit of ~$188 billion.

The logic that the Medicaid money to the state to expand their programs is somehow “free” is also incorrect – the money that forms those block grants must come from somewhere.  The Act largely anticipates that this will come from an increased Medicare tax base (so a new tax) and new penalties on those that don’t sign up for insurance.  The problem is that it’s circular logic – if the Act encourages a good number of people who are today uninsured to sign up for insurance, then there won’t be as many that have to pay the penalty…and so their won’t be enough funding for the Act’s programs.  We must remember this; money that comes from an entity that you in part finance isn’t free.

“Cheap generic drugs, here we come!”

There is exactly one provision of the ACA that impacts generic drugs – a grant of authority to the FDA to allow generic makers to make biologic drugs after only 12 years of exclusivity (down from the normal patent period).  While this may allow for cheaper (though still not cheap) biologics, it may have an unanticipated side effect on the drug market – one that we are in part already seeing.  There’s a good reason that new pharmaceuticals are so expensive – it takes decades of research and trials to bring a drug to market.  And as drugs become harder and harder to discover (more and more exotic compounds/sources), they require ever more research.   Research that is funded by then selling the successfully found medications.  But with the push towards increasing the availability of generic versions of medications, that funding is being limited and any failed trials can push a company to the brink or out of the business entirely.  If generics are pushed even more, who knows how many potential discoveries we’ll lose out on forever?

“With this decision in hand, Congress can start mandating everything that I spend my money on!”

This one isn’t quite true either – Congress has exactly the same powers as it did before.  I’ll explain – per the ruling, the ACA cannot compel anyone to purchase health insurance – in fact, it would be unconstitutional for Congress to attempt to require any sort of purchase.  What Congress can do is use its taxing power to “encourage” certain courses of action.  In this case, the ACA states that all those who do not purchase health insurance will be subject to a penalty in the form of an additional income tax based on their adjusted gross income, similar to any other income tax.

To understand the distinction the court has made, it is useful to think about the effect that the law has, rather than the language that is used.  What would be the effect if Congress had instead enacted an income tax increase generally, with a new deduction for those that purchase health insurance?  Would that not be the same in overall impact?  Certainly – and it would have the same impact of increasing the likelihood that each citizen would purchase insurance to avoid having to pay the tax.

But then doesn’t that mean that Congress could “mandate” any purchase in a similar fashion?  Yes, in fact it does – but they have for years!  Every time they create a deduction for one thing or another, they are effectively “mandating” that in the same way as they now have for health insurance – deductions for mortgage interest on home purchases are designed to increase home buying, deductions for charitable giving encourage more donations, and so on.  There are deductions for purchasing alternative fuel cars, investing in renewable energy and many more, all of which are in effect no different than this new “mandate”.

“The US finally has universal healthcare!”

No, we’re still a long way from there.  This isn’t even universal health insurance, let alone universal healthcare.

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4 Responses to What Will They Mandate Next? A House, a Hybrid, Charitable Giving…Wait a Minute…

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  1. Korey says:

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  2. I take issue with your claim that the new CBO report reverses the older one’s deficit reduction claims. As evidence, I point to the first page of the report which conveniently sums it up:

    CBO and JCT now estimate that the insurance coverage provisions of the ACA
    will have a net cost of just under $1.1 trillion over the 2012–2021 period—about
    $50 billion less than the agencies’ March 2011 estimate for that 10-year period
    (see Table 1, following the text).

    There’s a section on the second page you may be misconstruing. It is a summary of the increases in the costs, which are, it turns out, more than offset by increases in revenue.

    • GW says:

      Perhaps, but I was comparing page 11 of the 2011 report to page 1 of the 2012 report.

      “In March 2010, CBO and JCT estimated that enacting PPACA and the Reconciliation Act would produce a net reduction in federal deficits of $143 billion over the 2010–2019 period as a result of changes in direct spending and evenues…The net decrease in deficits from enacting all of those provisions except those affecting education had three major components (see Table 1 on page 2):
      PPACA and the Reconciliation Act contained a set of provisions designed to expand health insurance coverage that was estimated to increase federal deficits…For the 2010–2019 period, those provisions yielded estimated gross costs of $938 billion and estimated net costs (after accounting for the offsets just mentioned) of $788 billion.”

      “CBO and JCT now estimate that the insurance coverage provisions of the ACA will have a net cost of just under $1.1 trillion over the 2012–2021 period…The net costs reflect:
      ■ Gross additional costs of $1.5 trillion for Medicaid, the Children’s Health Insurance Program (CHIP), tax credits and other subsidies for the purchase of
      health insurance through the newly established exchanges and related costs,
      and tax credits for small employers,
      ■ Offset in part by about $0.4 trillion in receipts from penalty payments, the new excise tax on high-premium insurance plans, and other budgetary effects (mostly increases in tax revenues).”

      So even though they say they had previously estimated a net cost of $1.15 trillion, it looks in the 2011 report like they had net costs of $788 billion FOR THAT PROVISION. Looks like an increase from $788 billion to $1.1 trillion..which wipes away any positive economic effect out of the act.

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