Obamacare Joins Pile of Unfunded Liabilities

index1(A version of this Health Alert was published by the Orange County Register.)

The congressional vote last month to fund the government through next September, while extending some special-interest tax breaks and introducing some new ones, was the first time a majority of Republicans voted in favor of Obamacare. It looks like Congress’ alternative to Obamacare is deficit-financed Obamacare.

While failing to cut one penny of Obamacare spending, the so-called “taxibus” (tax extenders plus omnibus spending) cut almost $40 billion in Obamacare tax revenue by “temporarily” delaying three taxes for a year or two: the medical device excise tax, the health insurance fee and the excise tax on high-cost employer benefit plans.

Make no mistake: all three taxes are harmful and should be eliminated. However, just kicking them down the road without making any effort to cut Obamacare spending does nothing to repeal the Affordable Care Act.

A two-year moratorium on the 2.3 percent medical-device excise tax will reduce revenue by almost $4 billion but, when activated, the tax will increase health care costs and divert money to the government from job creation and research-and-development. Further, the tax discriminates against one industry.

The pharmaceutical industry has an Obamacare excise tax, too. However, the industry accepted it in exchange for freedom from government price controls. When Hillary Clinton talks about controlling pharmaceutical prices, she’s proposing to renege on that agreement.

Congress’s one-year moratorium on the fee on all employer-based health insurance will reduce tax revenue by about $12 billion. However, this money was designed to go right back to health insurers as credits, which reduce net premiums paid by individuals in Obamacare’s exchanges. Delaying this fee earned praise from employer groups.

Nevertheless, now that insurers are guaranteed Obamacare-exchange credits, while getting relief from employers’ complaints about the excise tax, there is no special interest to lobby to fix the broken Obamacare exchanges, in which 10 million people are trapped in policies with increasing costs and reduced care.

The excise tax on high-cost “Cadillac” health plans is a little different from the other taxes. Delaying it a couple of years will reduce tax revenue by about $20 billion. Although a bad tax, it tries to solve a real problem. Pre-Obamacare, no matter how much firms spent on employees’ health benefits, the value was excluded from their taxable income. This led to over-insurance, artificially high health care spending and higher income tax rates. Many proposed replacements for Obamacare would limit that open-ended exclusion with a standard deduction. The Cadillac tax should not be punted without some effort at such a reform.

Usually, a Congress that claims to be fiscally responsible compromises on an appropriations bill to win a big-spending president’s approval. Not this time: Congress had to fight the president to win deficit funding for Obamacare.

Originally these taxes were loaded onto Obamacare to paint a veneer of budget neutrality, and President Obama wants to maintain that appearance. It is the current Congress, not the president, that prefers to sugar-coat Obamacare with deficit spending.

Congress made not the slightest effort to match these tax delays with reduced spending. It could have. For example, repealing the individual mandate would reduce the deficit because many fewer people would buy coverage largely financed by credits paid to insurers in Obamacare exchanges. That would save Uncle Sam big bucks.

People who fantasize that these tax cuts alone are a down payment toward replacing Obamacare should be more mindful of how other deficit-funded entitlements have grown despite politicians’ perpetual promises of reform. Obamacare now joins Medicare, Medicaid and Social Security on this growing pile of unfunded liabilities.

Comments (7)

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  1. The big ham says:

    Put it all on the Chinese Credit card. We never have to pay that bill

  2. Erik says:

    There was a certain expedition in the Middle East that was also unfunded in the tune of trillions. Did NCPA complain about that?

  3. Don Levit says:

    Regarding the Cadillac tax the message seems to be trying to avoid it
    Is spending only $27,499 for a family seen as a victory for the employer and employee?

    • Yes, it really is focusing on the trees rather than the forest. Employers have failed to control health spending for decades. Blaming the Cadillac tax for the cost of employer-based health benefits is a real misfire.

    • Bart I says:

      The Cadillac tax seems discriminatory toward companies with a large percentage of older employees, and small businesses with any older employees.

  4. Bob Hertz says:

    The per-head fee on employers was I believe about $63 a yaar. As you point out, this fee was to fund one of the risk adjustment programs that try to stabilize ACA premiums.

    So what do we have here?
    Employers who sponsor health plans (and the employees who are covered) are almost universally more affluent than the working poor and self-employed souls who use the ACA exchanges.

    Corporate employers resist a measly $63 tax, which will eventually raise premiums for the poorer group of ACA enrollees.

    Dr Uwe Reinhardt has pointed out in this blog and elsewhere that America lacks the sense of solidarity that one often sees in other nations. This episode is case in point.