Many things have been said and written, both positive and negative, about the Affordable Care Act(ACA) (if you have some spare time, you can click here to read it in full text). Many continue to claim it's virtues, but Senators Tom Coburn (R-OK) and John Barrasso (R-WY) have a different opinion. Their report, Grim Diagnosis, lays out 9 areas of concern (though only 7 are unique in my view) where the Senators feel the ACA is harmful both from both financial and job perspectives.
1 Jobs -
The Senators first point to a CBO analysis that says that expanding Medicaid coverage and the phasing out of subsidies on expensive insurance will diminish some individuals' incentives to work. On the one hand, it is argued, an increased availability of Medicaid will lead to some workers reducing or eliminating the hours they currently work. For the subsidies, the Senators connect the reduction in subsidies to an effective increase in marginal tax rates, which reduces the incentive for a worker to work more hours.
The report goes on to look at the new "excise tax", estimated to bring $20B, imposed on manufacturers of medical devices. The tax is based on gross sales by the manufacturer (2.3% to be exact). While margins will vary from company to company, it is not unreasonable to think that companies currently experiencing a 2.3% net margin (or less) would now be in a bad place. In order to maintain profitability, some may consider off-shoring or reduced investment in innovation, and also may not grow at the pace (growth = jobs) previously expected.
2 - Penalize Low Income Workers
While many are aware of the relatively unpopular "individual mandate" (the part that effectively allows insurance companies to eliminate coverage denials for pre-existing conditions, among other things), there is also an effective "employer mandate" of sorts embedded in the new law. Beginning in 2014, businesses with more than 50 employees will be "fined" $2,000 per employee if they choose not to provide approved insurance for their employees. So, an employer of 51 employees would pay $102,000 in fines annually for not providing coverage (or for providing coverage that for some reason does not get "approved" status). Alternatively, the employer could provide coverage, which would likely cost much more. At best, this would give a disincentive to businesses around 50 employees from growing (preventing new job creation). At worst, employers could be in a position to reconsider the employment of low-wage employees, finding that the additional cost of employing them no longer is financially beneficial due to increased cost. Somewhere in the middle is the idea that employees will be kept on, but wages will drop to compensate for the added costs. In any case, the majority of impacted workers will likely be low-wage, less-skilled employees, likely in the retail or food service industries.
3 - Rising Deficits
The Senators point out an interesting point about the way the Congressional Budget Office (CBO) reviews legislation for cost. The CBO looks at the immediate 10 year budget window and determines net cost. The ACA begins to "generate revenue" (taxes) year one, but does not implement many costs until many major insurance market changes take effect, in 2014. This front-load of revenue, while delaying the implementation of costs, skews the review of the 10 year window. So, while the bill was scored as a savings in the first 10 years, it is likely that costs will catch up with the taxes quickly, then adding to the deficit.
4 - Challenging Increases to State-Level Costs
Anyone who followed the health care debate remembers the Nebraska provision called the "Cornshucker Kickback." Under the agreement, which was later abandoned and removed from the law, the federal government was to fully absorb and fund the estimated $100 million increase in Medicaid costs (though actual costs will likely be much more in Nebraska). All states will experience in costs, and this is expected to further challenge cash-strapped treasuries. With limited options for deal with state-level budget deficits, we're likely to see increases in tax burden or decrease in state spending to compensate.
5 - Increased ER Waits and Costs
Common ground covered by advocates of the health care reform bill was the idea that unfunded health care utilization, by those without health care coverage, increases the bill for all of those who are covered. Family USA estimated the cost of unfunded care at more than $1000 annually in premium cost for each insured family. Much of this unfunded care is thought to be in ER visits, as hospitals are federally required to provide basic care, even if they know they will not be paid.
The health care overhaul will not eliminate ER wait times or costs. In fact, because of network restrictions within Medicaid programs, many Medicaid patients have issue quickly getting access to their primary care physician, driving them to visit ERs. (not to mention limited out of pocket costs to help deter ER utilization) Increasing the Medicaid roles will only exacerbate this wait time issue.
Also, increasing coverage to 30 million additional people (many through state Medicaid programs) will no decrease costs. The unfunded ER costs will now be covered under Medicaid (no real change expected to the utilization) and some people who DO avoid using the health care system due to their inability to pay will no longer have that barrier. All in all, increased cost AND increased waits at emergency rooms.
6 - CLASS
Admittedly, before I read the Grim Diagnosis report, I was not aware of the inclusion of the "Community Living Assistance Services and Supports" program (CLASS). This is will basically be federally guaranteed Long Term Care insurance, designed to help people stay in their homes longer, by paying for assistance with activities of daily living, like bathing, eating or dressing. Premiums would be based on the age of a participant when they enter the program, and would remain relatively fixed as long as they remain in the program.
The CLASS program sounds good overall, but unfortunately is a potentially unfunded liability, much like Social Security... If managed poorly, the program could quickly be underwater, with no one left to bail it out but the American taxpayer.
Also, CLASS was an additional budget trick. Participants must be enrolled in the program for 5 years before benefits begin to be paid out. So, for the 10 year budget period reviewed by the CBO, there was 10 years of premiums to be considered, but only 5 years of cost. Sound familiar?
7 - Medicare Remains Underfunded
Medicare's unfunded liabilities are in the trillions of dollars. Unfortunately, the health care reform bill did little improve this.
The report goes on to talk about impacts to young workers entering the workforce, and higher expenses for employers, which are both extension of points made before.
Overall, the report focuses on the negatives (or potential negatives) that are outputs of the health care reform, and spends no time looking at potential positives. Even so, these are mostly valid points and perspectives that raise serious questions about the viability of the future of the health care system in America - specifically the purpose of the bill to begin with.
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