Research Briefing

Obama’s Government-Run Health Care Experiment Will Make Health Care More, Not Less Expensive

OBAMA CLAIMS HIS PLAN WILL MAKE HEALTH CARE AFFORDABLE: “It provides health insurance to people who don’t have it at affordable prices. I would like to make sure that we’ve got that affordability really buttoned down. I think that’s one of the most important things is that if we’re offering people health insurance and we’re saying that people have to get health insurance if it’s affordable, we’ve got to make sure it’s affordable.”(CNN’s “State Of The Union,” 9/20/09)

BUT OBAMA’S NEW HEALTH CARE TAXES, MANDATES & REGULATIONS WILL DRIVE UP COSTS

New Tax On Insurance Benefits Will Increase Many Americans’ Premiums. “The new tax is intended to target ‘Cadillac’ plans offered to wealthy individuals. It would fall on plans valued at $8,000 or more for individuals, and at $21,000 or more for families. Unions say that would hit the plans of many of their members, who tend to have generous benefits. And while the tax is aimed at insurers, which oppose the levy, some large insurers have already said they plan to pass the cost on to consumers.” (Janet Adamy and Greg Hitt, “Tax On ‘Cadillac’ Plans Draws Flak,” The Wall Street Journal, 9/19/09)

• That Will Raise Health Care Costs For Small Businesses, Too. “Small employers would also probably be hit by the taxes — and, again, not because they offer overly generous coverage. Instead, small businesses tend to pay more for their insurance than bigger employers that can negotiate better premiums. And because they do not have large pools of workers to help spread the risk, small employers tend to pay even higher amounts if they have older or sicker workers.” (Reed Abelson, “A Proposed Tax On The Cadillac Insurance Plans May Also Hit The Chevys,” The New York Times, 9/20/09)

CBO Says New Taxes On Medical Devices Will Raise Insurance Costs. “Under current law, premiums on employment-based plans would not include the effect of the annual fees imposed under the proposal on manufacturers and importers of brand-name drugs and medical devices, on health insurance providers, and on clinical laboratories. Premiums for exchange plans would include the effect of those fees, which would increase premiums by roughly 1 percent.” (Douglas W. Elmendorf, Letter to Sen. Max Baucus (D-MT), 9/22/09)

• That Will Crush Medical Innovation, Exceeding Amount Invested In Industry. “In view of these changes, the proposed $40 billion tax on the medical device industry is particularly onerous. Such a tax will sharply cut the resources available for research and development of life-saving medical treatments. For context, consider that the majority of device companies combined spent a total of about $9.6 billion on research and development in 2007. This new tax is nearly half that amount. The tax also exceeds the total amount of venture capital dollars invested in device companies in 2007 ($3.7B) and on an annual basis, is four times what device companies raised in 2007 for IPOs ($1B).” (Advanced Medical Technology Association, “AdvaMed Statement On Chairman’s Mark,” Press Release, 9/16/09)

Mandates To Buy Insurance Makes Coverage More Expensive. “While mandates make health insurance more comprehensive, they also make it more expensive because mandates require insurers to pay for care consumers previously funded out of their own pockets. We estimate that mandated benefits currently increase the cost of basic health coverage from a little less than 20% to perhaps 50%, depending on the number of mandates, the benefit design and the cost of the initial premium.” (Victoria Craig Bunce and JP Wieske, “Health Insurance Mandates In The States 2009,” Council For Affordable Health Insurance, Accessed 8/26/09)

Higher Health Care Costs Due To Medicare Cuts Will Be Passed Along To Individuals, Businesses. “Unless doctors and hospitals are able to respond to the government cuts by becoming more efficient, the result could be higher costs for insurers, employers, and people with private medical coverage ... ‘I think there’s definitely risk that a portion of the reduction in hospital payments from Medicare will wind up as increased payments by private insurers,’ said Paul B. Ginsburg, president of the Center for Studying Health System Change. Depending on the circumstances, hospitals may have the motive and means to ‘transfer those charges to somebody else,’ and ‘we’ll see costs increasing on the private side and not necessarily falling everywhere,’ said Harold S. Luft, director of the Palo Alto Medical Foundation Research Institute.”  (David S. Hilzenrath, “Health-Care Cuts Could Shift Costs,” The Washington Post, 6/18/09)

CBO Says Obama’s Mandates For Preventive Care Could Raise, Not Lower Costs. “Although different types of preventive care have different effects on spending, the evidence suggests that for most preventive services, expanded utilization leads to higher, not lower, medical spending overall.” (Douglas W. Elmendorf, Letter To Rep. Nathan Deal, 8/7/09)