Friday, June 12, 2009

Rangel: Health-Care Reform Needs $600 Million in New Taxes and Will Cost $1 Trillion

OK, it's not as famous as the other campaign promise of "read my lips, no new taxes." But does anyone remember this?



"I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes."
--Sen. Barack Obama, campaigning in Dover, Del., on Feb. 4, 2009

Well, you can pretty much toss that aside. House Democrats and administration officials are now working on the details of their proposed health-care industry overhaul; and the effect on your wallet is going to be significant.

House Ways and Means Committee Chairman Rep. Charles Rangel, Democrat from New York, told Laura Litvan of Bloomberg that the cost of the overhaul will exceed $1 trillion. That figure will come from a combination of $600 billion in tax increases and $400 billion in cuts to Medicare and Medicaid.

Rangel also said the measure’s cost will reach beyond the $634 billion Obama proposed in his budget request as a down payment for the policy changes.

How the legislation will read in the end is anybody's guess. There are two 700-page public verisons of the bill right now, and the over/under on the number of people who have actually read through all of both bills is three. But media reports say House and Senate Democrats are working on legislation forcing all Americans to have health insurance, prohibit insurers from refusing to cover pre-existing conditions and place other restrictions on the industry.

Another component of the legislation is the establishment of an online exchange for individuals to purchase insurance. Reports say it would require employers to provide health benefits to workers or pay a penalty. In addition, some Democrats want a federal program to expand coverage to the uninsured.

One could already predict the reactions. For instance, businesses are planning their strategy in opposition, as described by Patrick Yoest of Dow Jones Newswires:

The employer groups, which include the U.S. Chamber of Commerce and the National Federation of Independent Business, have organized meetings Friday to discuss health-care legislation written by Democrats on the Senate Health, Education, Labor and Pensions Committee.

According to a person with knowledge of the meetings, the groups will brief other business organizations on "what we have been advocating for and against, and where that process has taken us, based on the draft bill."

The groups meeting could play a major role in determining how difficult it will be for Democrats to pass that legislation.

Following the meetings, "a coalition may emerge to reinforce, to push back on some things or, to advance other issues in tandem," said the person.

In a statement Thursday in a hearing of the Senate Health panel, the U.S. Chamber of Commerce was highly critical of the committee's bill.

"The Chamber is gravely concerned by the process and the product thus far," the statement said. "As badly as reform is needed, we cannot support reform just for the sake of reform."

Shawn Tully of Fortune magazine had this analysis:
The crucial question about Obama's agenda has always been whether it really will slow the disastrous rise in health-care spending, or actually increase it while hiding the real costs of the new system. On analyzing the bills, the conclusion is inescapable: Obama promises Americans what appears to be a bargain by heavily subsidizing their premiums. But the only way to pay for what's really outrageously expensive coverage will be huge tax increases, especially on the same middle class that's being wooed as the chief beneficiary of reform.

The plans contain four proposals that will substantially weaken the ability of the market, already limited by burdensome regulation, to restrain medical spending.

First, they will impose rich, standard packages of benefits, with low deductibles, for all Americans. Those policies, typically containing everything from in-vitro fertilization to mental health benefits, are usually far more expensive than anything most people would pay for with their own money.

Second, the plans would impose on a federal level the doctrine of community rating, in which all customers have to be offered the same rates, regardless of their health risks. Community rating forces young people to pay far more than their actual cost, a main reason for today's 46 million uninsured, while it subsidizes older patients.

Third, Obama would ban consumers from buying private insurance across state lines, perpetuating the price differences in today's fragmented market, instead of allowing all Americans to shop anywhere for the best deals.

Fourth, both plans propose what's known as a "public option," or a Medicare-style plan that would compete with the private offerings. The previous three proposals would make the private plans extremely expensive. With the same subsidies, the Medicare-style plan could put them out of business.

Before we get into the specifics of each problem, it's important to note that Obama's health-care plan is not included in his 2010 budget. The administration pledges that his health-care plan won't expand the deficit because it will be entirely paid for by tax increases. But even if the deficit stays the same, spending and taxes will be far from the same. By most estimates, Obama's plan will cost more than $200 billion a year by 2019. All told, government outlays as a share of GDP are projected to reach 26% by that point, up five percentage points from when Obama took office.


He examines the cost to Americans in detail, and it's well worth your five minutes to jump over on the link to read them. But his conclusion is this:
The demand for everything from knee surgery to mental health counseling will soar. But the government will keep a lid on prices, so Americans, for the first time, will be faced with rationing. The hospitals and physicians simply won't be able to satisfy the unhinged demand for the services that look like a bargain.

The lines will grow. And so will the spending, and the taxes. And that's what Obama isn't telling you.

In light of all the criticism, Obama is on the offensive, using the tool he knows best: face-to-face communication with the American public. Here is what he had to say in Green Bay, Wis., on Thursday, as reported by Philip Elliott of the Associated Press:

Undertaking an aggressive new effort to push a major health-care measure through Congress by August, Obama rebuked critics from both the right and left -- conservatives who say his support for creating a government-sponsored insurance option alongside private coverage would send the country toward an unsustainable nationalized plan, as well as liberals who are concerned he won't go far enough to mandate universal coverage.

Obama said the question of what to do about health coverage, which has vexed Washington for decades, has reached near-emergency status.

"I know there are some who believe that reform is too expensive, but I can assure you that doing nothing will cost us far more in the coming years," Obama said. "Our deficits will be higher. Our premiums will go up. Our wages will be lower, our jobs will be fewer and our businesses will suffer."

By the way, his report quotes the cost as $1.5 trillion over 10 years.

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