The Perils of Health Reform Implementation Are Legion

Stuart Butler had some very provocative things to say about health reform today at the National Economists Club. The respected Heritage Foundation economist said:

1. “The public plan is not dead!” The Senate health reform bill, H.R.3590, as modified by the reconciliation bill, H.R.4872, which the House expects to pass tonight, will create a national health exchange run by the Office of Personnel Management which could easily grow into a national health plan. The state-run exchanges will include “more and more federal content over time.”

2. “We’re moving toward the end of employer-provided health care.” Don’t believe the promises that if you like your employer-provided plan, you won’t be affected. Employers are bound to drop coverage despite penalties in these bills, and “The firewall between employer plans and the exchanges will erode over time.”

3. “Long-run public sector health care costs will soar. We will have to make profound changes [in the future to contain them].” He listed three broad paths we might follow: 1) impose conventional price controls; 2) set up an expert commission with broad authority to control costs, like the U.K. National Institute for Clinical Excellence (NICE), but often pejoratively called NASTY for rationing treatment; or 3) establish a defined contribution model, where a fixed amount for health care is budgeted each year for which health providers would bid. He said the Congressional Budget Office estimates are “understated” because of assumptions it is required to make, but which won’t pan out, e.g. that future taxes and reduced Medicare reimbursement rates will take effect and that providers and consumers will respond as CBO assumed.

4. “The implementation of the Cadillac tax on high-end health insurance plans will be continually pushed back.” The Senate bill would impose it in 2013, but the reconciliation bill pushed that back to 2018.

5. State Medicaid costs, now averaging 40% of state budgets, will increasingly be assumed by the federal government further worsening the already deep federal fiscal crisis.

Butler went into more detail in this February 25 article.

Butler also recommended yesterday’s New England Journal of Medicine article by Henry Aaron of the Brookings Institution and Bob Reischauer of the Urban Institute enumerating more problems faced by the IRS and state Medicaid programs in meeting the demands of health care reform.

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About Pete Davis 99 Articles

Affiliation: Davis Capital Investment Ideas

Pete Davis advises Wall Street money managers on Washington policy developments that affect the financial markets. President of his own consulting firm since 1992, Davis Capital Investment Ideas, he draws on 11 years of experience as a Capitol Hill economist with the Joint Committee on Taxation (1974-1981), the Senate Budget Committee (1981-1983), and Senator Robert C. Byrd (1992). He worked in the House and Senate, and for Republicans and Democrats.

Davis brought the first computer policy model, the Treasury Individual Income Tax Model, to Capitol Hill in early 1974, when he became a revenue estimator on the Joint Committee on Taxation. He formulated the 1975 rebate, the earned income tax credit, the 1976 estate tax rates, the 1978 marginal tax rates, and the Roth-Kemp tax cut. He left Capitol Hill in 1983 for the Washington Research Office of Prudential-Bache Securities, where he advised investors for seven years.

Davis has long written a newsletter on the Washington-Wall Street connection for his clients; Capital Gains and Games is his first foray into the blogosphere.

Visit: Capital Gains and Games

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