MEMORANDUM EXCLUSIVE FOR REDSTATERS
FROM: Michael Hammond
RE: The Pelosi Bill

-The real cost of the bill is at least $1.3 trillion (the CBO score, plus the “doc fix”) –- and probably much, much more.

-The absolute minimum increase in the deficit would be $150 billion. You can probably add to this most of the $426 billion in supposed Medicare “cuts,” plus the substantial overruns in program costs as a result of underestimation of premiums. A deficit increase of between half a trillion dollars and a trillion dollars is almost certain.

-Employers would be required to purchase government-mandated government-prescribed insurance for all of their employees with premiums which, according to some estimates, would be double the minimum wage. With a penalty which, for most employees, would be 8% of payroll, it would be more economical to drop insurance for anyone making under $2-300,000, depending on the level of employer contribution.

-As a result, most individuals with employer-provided insurance will not be able to “keep the insurance they currently have.” The 10.2 million seniors with Medicare Advantage will also lose “the coverage they currently have.” And it is possible that the “grandfather” protection of individuals could be defeated by something as simple as a rate increase.

-Premiums will go through the roof and, unlike currently, Americans will be required to pay them, under penalty of law. Price Waterhouse estimates that the average family policy for a family of four will be $25,900 by 2019 (under the comparable Reid bill). And, although the study does not look at the impact of the subsidies, unlike the liberally touted Kaiser study, it does not ignore the impact of taxes on premiums.

-This means that the individual mandate (which would require most Americans to have government-approved insurance) would tax a family of four at a rate of up to $25,900 a year by 2019 –- substantially in excess of the premium cost if Congress did nothing. And Wellpoint comes in with an even more dire projection — estimating that the bills will cause insurance premiums to triple. The CBO projects that the bills will increase premiums as well. In a very real sense, these bill-caused skyrocketing insurance costs are taxes.

-Section 115 contains a much more explicit provision on electronic data than in any other bill. This section inserts a new section entitled “Standardize Electronic Administrative Transactions,” which says: “The Secretary shall adopt and regularly update standards consistent with the goals described in paragraph (2).” Paragraph (2) requires that electronic submissions for payments be “comprehensive, efficient and robust, requiring minimal augmentation by paper transactions or clarification by further communications.” It is foolish to assume that this will not require the submission of an individual’s entire medical file.

-On abortion, the bill would make the federal government the guarantor that every American would have access to abortion coverage. The public option could, at the Obama administration’s discretion, require funding for late term, third trimester, and “convenience” abortions. And any restrictions on taxpayer-subsidized policies could be easily circumvented by accounting tricks considerably less devious than those being used to push this bill.

-The “public option” –- contained at Subtitle B of Title III (section 321 et seq.) –- differs from the liberals’ dream bill in only one significant respect: It allows rates to be negotiated with providers, rather than being statutorily pegged at Medicare (or Medicare + 5%) rates. Of course, this does not prohibit the Obama administration from taking a hard line in negotiations and achieving the same result which would have previously been achieved by statutory language.

Other taxes include:

-a 2.5% tax on medical devices such as pacemakers and artificial limbs;

-a decrease of maximum contributions to health FSA’s to $2,500, which is expected to result in an $816 tax increase for a family earning $66,000;

-an elimination of the tax deduction for employers who receive government assistance for providing retiree prescription drug coverage; and

-various harassing taxes on Health Savings Account owners, including a doubling of the penalty for non-health distributions and elimination of non-taxable reimbursements of over-the-counter medications.

COST

The CBO has scored the bill at $1.055 trillion.

-This does not take into consideration that fact that the ten-year window contains ten years of revenue and only three to eight years of major payouts –- meaning that the bill will bleed red ink during the period from 2020 to 2024, after the spending has kicked in. (Incidentally, this means that the bill cannot go through “reconciliation.”)

-In addition, of course, this excludes the cost of the $247 billion kickback to the AMA — the so-called “doc fix” -– which is as much a part of the bill as anything in the bill, but which is excluded from the “cost” through the fraudulent practice of passing it in separate legislation. This is comparable to Bernie Madoff telling his clients that his firm was solvent, but failing to ell them about a massive liability which swallowed their investments. If Congress was honest about this, the cost of the bill would be $1.3 trillion.

-Finally, this assumes Congress can make $426 billion in largely unspecified cuts in Medicare, even though it is simultaneously proving itself incapable of sticking to the $247 billion in Medicare cuts which it promised in 1997. Apologists claim that these cuts, unlike previous cuts, are enforceable because they involve “achievable” goals like purchasing drugs at generic prices. But there are no such specific requirements in the bill, and we have no reason to believe that the general monetary goals set by the non-binding “deals” with pharmaceuticals and other industries are any more binding than comparable “sustained growth rates” (i.e., the 1997 doctor “cuts”) which Congress has overridden so consistently.

THE INDIVIDUAL MANDATE

Section 501 imposes a 2.5% tax on, essentially, the adjusted gross income of anyone who fails to meet the “acceptable coverage” requirement. “Acceptable coverage” is defined by subsection 501(d) to include government health coverage, “grandfathered” policies, and “Coverage under a qualified health benefits plan (as defined in section 100(c) of the ).” [sic] (“Grandfathered health insurance coverage” is defined in section 202, and includes a requirement that the insurer “does not change any of its terms and conditions.” [Section 202(a)(2)] Although paragraph 202(a)(3) specifically defeats “grandfather” coverage if the insurer varies the percentage increase within a risk group, it does not prevent the HHS secretary from taking away “grandfather” protection under paragraph 202(a)(2) on the basis of a rate increase.)

To get back to section 501, the reference to “section 100(c) of the ).” is just one of thousands of errors in the bill. There is no section 100(c). But section 1(c) says “”acceptable coverage” has the meaning given such term in section 302(d)(2).” Section 302(d)(2) defines “acceptable coverage” in the same way as section 501(d), but, at its core, defines it as “a qualified health benefits plan.” Section 1(c)(25) defines “qualified health benefits plan” to mean a “health benefits plan that –-

“(A) meets the requirements for such a plan under title II and includes the public health insurance option; and

“(B) is offered by a QHBP offering entity that meets the applicable requirements of such title with respect to such plan.”

Title II, section 201(b), says that “a health benefits plan shall not be a qualified health benefits plan under this division unless the plan meets the applicable requirements of the following subtitles for the type of plan and plan year involved:

“(1) Subtitle B (relating to affordable coverage);

“(2) Subtitle C (relating to essential benefits);

“(3) Subtitle D (relating to consumer protection).”.

Subtitle B prohibits preexisting conditions, mandates guaranteed issue and renewal, sets insurance rating rules (limiting age variation to a 2:1 ratio, and limiting the only other permissible considerations to location and family size), requires family policies to children who are dependents to last until the child reaches 27 years of age, and requires drug dependency coverage and mental health parity.

Subtitle C delineates “essential benefits,” including, in subsection (b) “mental health and substance use disorder services, including behavioral health treatments,” preventive services, “well-baby and well-child care and oral health,” etc. Subsection (c) also limits deductibles and copayments to $5,000 for individuals and $10,000 for families in the first year, adjusted for inflation, as determined by premium increases (which is in addition to section 109’s elimination of lifetime aggregates).

Subtitle C also addresses abortion. The government-mandated insurance packages may not require Americans to buy packages which provide for abortions for themselves, but, on the other hand, the government would be required to become a guarantor that everyone in America would have access to abortion coverage.

The “public option” is REQUIRED to cover any abortions allowed by the Hyde amendment, and may, at the discretion of the Obama administration, be extended to cover ALL abortions, including partial birth and late term abortions. The abortions which would be REQUIRED to be covered would currently include abortions in the case of rape and incest, but, if the Hyde amendment is expanded to cover the “health of the mother,” this class of abortions would also be covered by the “public option,” a Fannie Mae-type entity which is put in place with taxpayer funds. But this statutory requirement is almost irrelevant, because the Obama administration would, by regulation, impose abortion coverage which is much, much broader.

In addition to the statutorily mandated benefits, subtitle C also delegates to a Health Benefits Advisory Committee (and to the HHS Secretary to which it reports) the authority to write the details of insurance policies and the benefits which government-mandated insurance is required to provide. The panel consists of up to 27 members -– all of which would be appointed by the Obama administration or by the Comptroller General, without the advice and consent of the Senate. The HHS Secretary would almost certainly determine the makeup of most of the advisory committee, but, if for some reason, she disagreed with the committee’s recommendations, she, in section 224(b), would be empowered to write virtually every insurance policy in America by regulatory fiat.

The language in section 224 is broad enough to allow the secretary to not only require coverage for politically correct purposes (such as sex change operations and same-sex couples), but also to exclude coverage for “dangerous” activities such as hunting and keeping a gun in the house for self-defense.

On the last point, the bill’s “wellness” initiatives (such as section 112(b)’s “qualified wellness program”) may also be used to impose gun control, notwithstanding section 211’s supposed bar on consideration of preexisting conditions.

Finally, we would expect Sebelius to use section 224 to impose a data submission requirement as a condition of receiving benefits. Thus, by regulatory fiat, providers would be required to submit confidential medical records to a federal database. But, aside from this, section 115 contains a much more explicit provision on electronic data than in any other bill. This section inserts a new section entitled “Standardize Electronic Administrative Transactions,” which says: “The Secretary shall adopt and regularly update standards consistent with the goals described in paragraph (2).” Paragraph (2) requires that electronic submissions for payments be “comprehensive, efficient and robust, requiring minimal augmentation by paper transactions or clarification by further communications.” It is foolish to assume that this will not require the submission of an individual’s entire medical file.

Incidentally, a recent study, published in the Washington Post, found that computerized records caused 28,000 medical errors and resulted in nearly three times the number of deaths as paper records.

EMPLOYER MANDATES

Every employer with a payroll in excess of $500,000 would have to purchase government-approved insurance for its employees –- or pay a fine which would range from 2% of payroll at the $500,000 level to 8% at $750,000 or above.

There has been a lot of talk about the bill allowing Americans to “keep the coverage they currently have.” But, after year #5, any grandfather protection for employment-based plans expires, and plans have to comply with the requirements of individual “qualified health benefits plans.” In virtually all cases, for Americans lucky enough to keep employer-provided insurance, this would result in dramatic rewrites of their policies, which would affect the doctors they could see and the treatments they would be entitled to receive.

However, if studies are correct -– and these government-approved policies would cost $25,900 a year or more by 2019 for employees who may be earning little more than the minimum wage -– then the temptation of most employers will be to dump insurance coverage altogether and either (1) pay the job-destroying (but relatively manageable) fine, or (2) downsize the workforce. This is particularly true because section 110 would prohibit any employer-provided policy from reducing benefits for any reason after the employee has retired, even if those cuts are necessary to preserve the solvency of the business. In fact, it would be more economical to drop insurance for anyone making under $2-300,000, depending on the level of employer contribution.

Those Americans who lost their insurance under these provisions would be subjected to the “individual mandate” and would be required to purchase very expensive policies for which many middle-income Americans (those individuals earning over $44,000 and families earning over $88,000) would receive no relief.

THE PUBLIC OPTION

The “public option” –- contained at Subtitle B of Title III (section 321 et seq.) –- differs from the liberals’ dream bill in only one significant respect: It allows rates to be negotiated with providers, rather than being statutorily pegged at Medicare (or Medicare + 5%) rates. Of course, this does not prohibit the Obama administration from taking a hard line in negotiations and achieving the same result which would have previously been achieved by statutory language.

TAXES

How big a tax increase does this bill represent? And how much would come from the middle class?

Estimates of the Baucus bill were that 90% of its $400 billion of tax increases would fall on those earning under $200,000, and 50% would fall on those earning under $100,000.

But, to some extent, the answer to this question depends on how you define “tax increase.” The individual mandate would require most Americans to have government-approved insurance. Price Waterhouse estimates that the cost to a family of four will climb to $25,900 a year under the Baucus bill by 2019 –- substantially in excess of the premium cost if Congress did nothing. And Wellpoint estimates that the bills will cause insurance premiums to triple. The CBO projects that the bills will increase premiums as well.

In a very real sense, these bill-caused skyrocketing insurance costs are taxes. This is because the law requires that young, middle class, relatively healthy people buy insurance which subsidizes the health care of the very ill. Similarly, the 2.5%-of-income penalties are also taxes, and are imposed under the Internal Revenue Code and enforced by the IRS.

For individuals earning over $44,000, there will be no relief to help them pay for the roughly $10,000 in premiums which even individuals will be required to pay. And families in the $88,000-$250,000 range, which Obama pledged not to tax, would experience annual “income transfer” insurance premium bills climbing to almost $26,000 -– again without relief.

The House leadership has talked a lot about the “millionaires’ tax.” But this mandated purchase of government-approved politically correct insurance represents by far the biggest tax. And it falls squarely on the middle class.

True, the House bill currently contains a graduated limit on the percent of income which persons below 400% of the poverty level can be required to spend on mandated premiums, under penalty of law. But, in the unlikely event that this remains through conference, all this means is that, even for the lower middle class, a larger and larger percent of the population will be uninsured because it is unable to afford the escalating premiums mandated by this legislation.

Other taxes include:

-a 2.5% tax on medical devices such as pacemakers and artificial limbs;

-a decrease of maximum contributions to health FSA’s to $2,500, which is expected to result in an $816 tax increase for a family earning $66,000;

-an elimination of the tax deduction for employers who receive government assistance for providing retiree prescription drug coverage; and

-various harassing taxes on Health Savings Account owners, including a doubling of the penalty for non-health distributions and elimination of non-taxable reimbursements of over-the-counter medications.