Bigger Government is Not Always the Answer—The Obamacare Example

by Prof. Patrick Garry:

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 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.”

_MG_1317This 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 the liberal pronouncement of government as the savior of the average person is contradicted by reality.

An example of this undaunted push for more government is 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 Health Care Reform

Obamacare began with grandiose goals: to provide adequate health insurance to all Americans; to bring down the costs of health coverage; to free Americans from the fear of losing their health insurance if they lose their job.  And 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 health care.

There is no question that changes needed to be made in the nation’s health care 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.  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 the Act places a significant tax on employers who expand their 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.

The group of employees most vulnerable to the adverse consequences of Obamacare are those who will almost surely be 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.  Moreover, 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.

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 doubled, from 33 percent to 68 percent.

Meanwhile, concierge 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.

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.

Obamacare’s Tax Increases

 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.  This so-called Cadillac tax is the Obamacare excise tax on high-value employer health plans.  It tax imposes a 40 percent levy on individual health plans worth more than $10,200, and on family plans worth more than $27,500.

However, a recent Towers Watson survey of employers showed that 82 percent of employers expect to incur Cadillac tax liability by 2023.  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.

The Cadillac tax will affect so many health plans 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 $2000 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 wanted health care 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 $3000.  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.

Patrick Garry is a professor of law at the University of South Dakota, and Director of the Hagemann Center for Legal & Public Policy Research.

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