Romneycare’s End, Obamacare’s Future

On exchanges and Medicaid:

States that have refused to implement the Obama health law have already blocked $80 billion of its new deficit spending. If more states follow suit, they can block the other $1.6 trillion and force Congress to repeal the law.

The law relies on states to implement two of its most essential pieces: health-insurance “exchanges” and a vast expansion of Medicaid. Exchanges are government agencies through which the law channels $800 billion to private health-insurance companies.

The Medicaid expansion adds another $900 billion to the federal debt, with private insurers again taking a slice. States are under no obligation either to implement either. Responsible state officials will say no to both.

It is a myth that creating an exchange gives states more control over their insurance markets. Yes, the law directs the federal government to create one in states that do not. But every exchange must be approved by federal bureaucrats, empowering them to impose whatever oppressive rules on “state-run” exchanges they would impose through a federal exchange.

In contrast, by refusing to create an exchange states can block the law’s debt-financed subsidies to private insurance companies and avoid new taxes on their employers and consumers.

The law imposes a $2,000 per-worker tax on employers, but only in states that create an exchange. (If Virginia creates one, there will be a giant sucking sound as employers flee to Louisiana, Texas, South Carolina and Florida, which have said they will not.) States creating exchanges will have to increase taxes another $10 million to $100 million per year to cover their operating costs.

The Supreme Court further empowered states when it overturned the law’s Medicaid mandate. That mandate required states to expand their Medicaid rolls dramatically on pain of losing all federal Medicaid funds, which comprise 12 percent of state revenues. Twenty-six states challenged that mandate as unconstitutionally coercive.

They won. The court held the federal government cannot withhold existing Medicaid grants from states that fail to expand their programs. States may now refuse to expand their programs without fear.

And they should. My Cato Institute colleague Jagadeesh Gokhale estimates this expansion would cost Florida, Kansas, Illinois and Texas roughly $20 billion each in its first 10 years. New Jersey and New York would pay $35 billion and $53 billion, respectively.

The Wall Street Journal today reports on the realities of the fiscal crisis facing the states. Pension obligations are part of it, but you won’t be surprised to learn what the real driver is:

Medicaid. This state-federal program that increasingly pays for middle-class health care is the major albatross. Spending has grown faster than the economy every year since the 1960s, 7.2% annually over the last decade. It is now the largest part of state budgets – 24% on average – and “the imbalance (or structural budget gap) can no longer be absorbed without significant cuts to other essential state programs like education or unpopular tax increases or both.”

The panel also found that these costs are driven by states choosing to increase enrollment and create new benefits, rather than by rising underlying medical costs. One of four New Yorkers is on Medicaid, and 70% of the coverage is not required by federal law.

Some 29% of California’s population is in Medicaid, though it only accounts for 11.8% of the Golden State budget, well below the national average of 15.8%. But that share is so low only because California spends so much on other things too. New York spends more on Medicaid than Florida, Texas and Pennsylvania – combined.

Medicaid costs over the decade are due to jump 8.1% annually, as required by the Affordable Care Act’s expansion. Without ObamaCare, the yearly rise would still be 6.6%.

This is a rather odd move:

As he prepares to leave office, Gov. Mitch Daniels is asking the three candidates seeking to replace him how they would like the state to handle the task of implementing pieces of the new health care law.

Indiana must give the federal government an answer by Nov. 16 whether it will set up and run its own exchange, where individuals could shop for and purchase health insurance, or just go with an exchange set up by the federal government.

That’s after the Nov. 6 election, but before the winner of the race between Republican U.S. Rep. Mike Pence, Democratic former Indiana House Speaker John Gregg and Libertarian activist Rupert Boneham takes office.

Another key decision must be made before November’s election. Indiana must tell the federal government by September what should be included in the state’s “Essential Health Benefits” package – that is, the minimum level of coverage that all insurance plans must offer.

The outgoing Republican governor said he wants input – and perhaps an agreement – from the gubernatorial hopefuls on how to proceed. In a letter, he said his staff is available to discuss the options and their implications.

“Because the cost and consequences of our decision in these two matters will be borne by the next administration, I do not believe it would be right for me to make these choices,” Daniels said in a letter to each campaign.

Though Daniels did not offer his opinion, he said administering a state-run exchange could cost between $50 million and $65 million per year – a new expense that would have to be added to Indiana’s $14 billion annual budget if the state operates its own exchange.

Responses by the Pence and Gregg campaigns Thursday indicated only they intended to follow up with the Daniels administration.

Pence said he hopes to see the health care law repealed by a Republican-led Congress next year – a move that would keep the state from having an exchange at all.

“Any action Indiana takes must include careful consideration of the long-term costs to both Hoosier taxpayers and the state. I appreciate Gov. Daniels seeking my input, and I will provide a thoughtful, written response in a timely manner,” Pence said.

Gregg’s campaign also declined to address Thursday whether it would prefer a state-run exchange or for the federal government to handle the task.

Virginia governor doesn’t say whether he’ll implement, but does criticize the administration for failing to provide sufficient guidance.

In Virginia, our Medicaid program already is nearly 20 percent of the commonwealth’s budget, and this number continues to grow. This is without the proposed Medicaid expansion under PPACA. I was elected to be a careful and responsible steward of our limited tax dollars, and it would be irresponsible to infuse billions of tax dollars into a program that we all agree is broken.

The Medicaid expansion, though optional now, is only one of many flawed pieces of PPACA. I strongly support, as do all governors, increasing coverage and access to care. But PPACA aims to achieve that laudable goal in the wrong way: by favoring dependency over personal responsibility. In its current form, the law will destroy the private insurance market while increasing health care costs. America’s economy continues to recover slowly, but it is greatly restricted by skyrocketing deficits and a record national debt. Our national spending is both immoral and unsustainable. PPACA only makes that spending worse. Neither states nor the federal government can afford the Medicaid expansion or the promised federal subsidies needed to make any health benefits exchange functional.

Reform does not happen when it fails to be sustainable or affordable, and PPACA is neither. The United States spends nearly 18 percent of its gross domestic product on a broken health system, while it’s projected that 42.7 million Americans will not have access to health care in 2013. We should not be pushing these uninsured Americans into a crippled paradigm that does nothing to reform the health delivery and payment systems that are the root of the health crisis today. For all these reasons, I continue to call on Congress to repeal PPACA and replace it with meaningful health reforms. We don’t need excessive federal mandates, the creation of bureaucrat-influenced marketplaces, and ill-conceived ideas that are expected to be implemented in unreasonable time frames. We need real market-based health care reforms that will actually make this system work both now and in the years ahead.

Notwithstanding the failed policies within PPACA, an area of significant concern that the spotlight often misses is that our existing health system is currently incapable of handling an increased demand for health care. Why? Because we simply do not have a health workforce large enough to appropriately care for the surge of patients that will flood the system in 2014 if PPACA remains in place. In Virginia, we are taking steps to address this problem by allowing physicians and nurse practitioners to practice in a team-based model of care. Additionally, we are encouraging coordinated care to ensure that people are receiving the right care at the right time and in the right setting.

Some amusing interaction with Missouri Gov. Jay Nixon:

In May, Missouri’s General Assembly (both houses are controlled by Republicans) passed a ballot measure for the November elections that would prohibit establishment of state health insurance exchanges, a cornerstone of the Affordable Care Act, without approval by the legislature or the voters. The reform law directs states by 2014 to set up the exchanges on the Internet, where consumers can comparison-shop for the health plan that best suits them.

GOP State Sen. Robert Schaaf, the bill’s author, said he wanted to block Jay Nixon, the Democratic governor who is running for re-election, from establishing an exchange by executive order. Nixon spokesman Scott Holste said the governor has no intention of issuing such an order.

What the ballot initiative all but ignores, however, is that if the state does not implement its own health care exchange by 2014, the health law requires the federal government to impose its own version.

Missouri Secretary of State Robin Carnahan, a Democrat who is not running for re-election and who is responsible for explaining difficult issues for the voters, clearly spotted this hole in the initiative language and in early July decided to make her own political statement. Her summary, to appear on the ballot on Election Day, did not use a light touch.

Shall Missouri law be amended to deny individuals, families, and small businesses the ability to access affordable health care plans through a state-based health benefit exchange unless authorized by statute, initiative or referendum or through an exchange operated by the federal government as required by the federal health care act?”

Republicans were outraged, none more so than Lt. Gov. Peter Kinder, who stepped in “within minutes of publication,” he said in an interview. This “biased, loaded language is not fair, it’s not accurate, it’s not impartial – we have to get this into court.” So he filed suit to have Carnahan’s summary thrown out.

Tim Noah makes a valid point:

As it happens, Obamacare includes a fairly significant new tax on incomes, one that conservatives could scream and yell about without raising all this inconvenient context. More than two years ago I wondered in print why Republicans weren’t raising holy hell about it. Not that I wanted them to, mind you – the tax is a progressive one, and we have to pay for health care reform somehow. I hesitate to bring it up now lest Republicans seize on it. But I’m not a politician, I’m a journalist, and it’s my job to point out when even politicians I disagree with fail to act in their rational self-interest. If Republicans really want to complain that Obama is raising your taxes in the dubious service of expanding access to health care, they’d do better to bitch about the Medicare payroll tax increase.

The payroll tax has two components: OASDI (for “Old-Age, Survivors, and Disability Insurance”), which is the Social Security tax, and HI (for “Hospital Insurance”), which is for Medicare.

The OASDI part (Social Security) is ordinarily 12.4 percent on incomes up to $110,100 (that includes contributions by both employer and employee), but for the past few years it’s been knocked down to 10.4 percent in order to put more money into the pockets of working people. …

The HI part (Medicare) is 2.9 percent on all incomes. The absence of a ceiling makes it less regressive than the OASDI part. The Obamacare tax increase makes it less regressive still by adding, starting in 2013, an additional 0.9 percent on incomes above $250,000 (if you’re married and filing jointly) or $200,000 (if you’re single). It also does something else: It requires people in this income category to pay a new 3.8 percent tax on investment income – capital gains, dividends, etc. This is new; nobody’s ever had to pay payroll tax on anything except wages before.