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What Savings? Obamacare & the Deficit
Posted By: Christina DiSomma - 07/16/13

Poor Charlie Brown. Lucy’s snatched the football away again - except this time, the football is Obamacare’s “deficit savings” and the American taxpayer is the one knocked flat on the ground.

Obamacare was sold on the premise that it would reduce the deficit.  The Congressional Budget Office reported reductions of $130 billion in the first decade after passage, and $1.2 trillion in the second. President Obama even went so far as to say that the legislation was “the most significant effort to reduce the deficit since the Balanced Budget Act in the 1990s.”

Since the passage of the act, however, we’ve seen development after development completely disintegrate what many already viewed as misleading claims of budget relief.

As noted, the bill was written to hide the costs beneath inflated “savings,” and higher insurance premiums and poor actuarial work would take their toll as well. The Heritage Foundation also tore the claims to pieces, pointing out that legislators ignored the expensive “doc fix,” and set the terms of several taxes and subsidies to falsely boost the idea of deficit reduction.

Now, after three years, the story of the “debt reducing” parts of the Affordable Care Act likely has the initial skeptics echoing Jurassic Park’s Ian Malcolm in saying, “Boy do I hate being right all the time.”

The most blatant attempt to cover “Obamacare’s” new spending was the CLASS Act. It offered, for what seemed like a reasonable premium, average long-term insurance benefits of at least $50 per day. Originally, the Congressional Budget Office (CBO) estimated that CLASS could cut the deficit by $70 million. Unfortunately, the program itself was unworkable from the get-go.

The CBO couldn’t even effectively measure the program, because no benefits were scheduled for distribution until at least five years after initial enrollment. CBO scores only cover the ten-year span after a law is enacted - so for the first half of the study, the “cost” of the program was effectively zero. Naturally, this bit of budget wonk-ery quickly caught up to the administrators of the program. As NTU noted, “an ‘insurance death spiral’ was inevitable – high premiums and a short vesting period would discourage all but the sickest Americans from signing up...this would drive premiums even higher, further discouraging the young, healthy people needed to keep costs manageable.”

The Department of Health and Human Services “realized” this before long as well, and CLASS was abandoned in October 2011 having done its main job of reducing the Affordable Care Acts CBO score.

The Employer Mandate is the most recent piece of “Obamacare’s” deficit reduction bundle to bite the dust. One of the most crucial financial supports of the Affordable Care Act, the mandate requires every employer with more than 50 employees to provide health insurance or pay a hefty penalty. A non-insurance providing company will owe $2,000 for each employee ineligible for low-income exchanges, and $3,000 for each employee eligible for the exchanges. The penalties are intended to fund the exchanges themselves, and tax credits for insurance purchase. However, the Obama administration recently delayed the mandate, extending the deadline for employer insurance coverage to 2015.

This is a budget-buster in more than one way: not only will the administration lose out on $10 billion in potential penalties in the upcoming year, but the infamous individual mandate was not tied to the employer one. This is creating an incentive for companies to dump employee insurance ahead of schedule, avoiding both the cost of health insurance and the first year’s fees. However, those unlucky employees will still be bound by the individual mandate, and many will likely be forced onto government exchanges. If Congress doesn’t act to delay the individual mandate as well, the costs could spiral much higher, both for the consumer and for Obamacare.

Finally, inefficient insurance exchanges threaten to chew up any “savings” created by other programs, and then some. Originally, wage and income data from the IRS was supposed to be used to determine eligibility for exchange subsidies. The problem is, the information needed didn’t (and still doesn’t) exist in a “real time” database. Such a collection of information would be costly and time-consuming to create, not to mention the requirements of keeping such a database secure.

Eventually, the administration admitted defeat, and announced that they would be offering subsidies based on self-reporting: basically, “the honor system.” Given the government can only impose penalties for fraud on your tax refund, the honor system is a particularly expensive way to conduct business. If you don’t collect a refund, no penalties will be imposed.

“Obamacare’s” supporters used “deficit reduction” as a major plank in arguing for passage of the law. As many critics predicted, though, in actual practice they’re limited by structural deficiency and an inability to respond efficiently to market forces. Now, the budget-busting reality of his health care reform boondoggle should be clear to all, but sometimes it seems only those paying the bills truly notice.

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The Late Edition: May 21, 2013
Posted By:  - 05/21/13

Today’s Taxpayer News!

The House plans to vote tomorrow on moving forward with the Keystone XL pipeline, an economically beneficial project which NTU and a wide coalition of interests support.

In the midst of unraveling the IRS’s targeting of conservative groups, it has also come to light that the agency improperly gained access to millions of personal health records, calling into question its upcoming role in implementing “Obamacare.” Read the full story from the Heartland Institute.

A Washington Post-ABC News poll released today finds that 56 percent of those polled believe the IRS intentionally singled out conservative groups for unfair treatment, says The Hill.

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The Late Edition: May 14, 2013
Posted By:  - 05/14/13

Today’s Taxpayer News!

NTU’s Pete Sepp expresses concern over a proposal to have the IRS pre-fill tax returns, in light of the scandal surrounding allegations the agency singled out conservative 501(c)(4) tax exempt organizations for increased scrutiny. Read more from Politico.

The list of organizations opposed to the “Dairy Market Stabilization Program” (DMSP), which would artificially raise milk prices and limit the dairy supply, is growing. The Wall Street Journal lists almost 150 organizations which have come out in opposition to the legislation, including NTU.

According to Businessweek, Health and Human Services Secretary Kathleen Sebelius has been soliciting funds from private organizations to help enroll people in “Obamacare” exchanges.

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The Late Edition: May 1, 2013
Posted By:  - 05/01/13

Today’s Taxpayer News!

NTU’s Michael Tasselmyer writes on the defense debate brewing over cutting off funding for Abrams tank production in this piece.

With just 35 percent of Americans holding a favorable view of ObamaCare, Democrats are worried their chances in the 2014 midterm elections could be hindered, says Politico.

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The Late Edition: April 4, 2013
Posted By:  - 04/04/13

Today’s Taxpayer News!

NTU’s Pete Sepp discusses the unfair campaign to increase the tax burden on the oil and gas industry in this piece from The Hill.

Trouble in ObamaCare paradise? This article from HuffPo explains ObamaCare’s rapidly dissolving pledge to eliminate costly waste in the healthcare industry.

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The Medical Device Excise Tax: It's Complicated
Posted By: Michael Tasselmyer - 03/27/13

As President Obama's health care reform bill is gradually implemented, there are growing concerns over new taxes required to pay for it. In particular, a tax on medical devices has sparked protest from some legislators and professionals within the health care industry.

The 2.3 percent excise tax went into effect on January 1, 2013. The provision is important for financing benefits under Obamacare: the Joint Committee on Taxation estimates that the tax could raise $29 billion over the next ten years, and medical device manufacturers have paid some $388 million to the IRS since the beginning of the year.

Since the law took effect, there's been some confusion over how and when to pay the tax. Not only does it factor into sales of complex medical devices such as CT scanners, X-ray machines, and pacemakers, it's also enacted on sales of other, more basic products, such as tongue depressors and possibly even latex gloves. The IRS lists certain devices that are exempt from the tax, including eye glasses, contact lenses, and other retail or over-the-counter items designed for individual use. Devices used exclusively for veterinary purposes are exempt -- but devices that are designed for both human and animal use are taxed. However, the details on how to make the distinction, when to apply the tax, and how much it could affect consumers and pet owners are still uncertain.

The complexity of the tax may lead to some manufacturers overpaying to comply with the law. As the Tax Foundation notes, an important component of the law is its "constructive sales pricing." That portion of the tax code is designed to allow firms that don't usually sell their products to outside companies to derive a market value for any medical devices they do sell. It presents an additional layer of compliance that manufacturers must navigate in order to avoid trouble with the IRS. Smaller firms are typically less able to hire advisors to guide them through the compliance procedures, which could exacerbate the problem. The IRS has now issued guidelines twice to medical device manufacturers.

On the other hand, there are some who believe the negative effects of the law have been overstated. The Center on Budget and Policy Priorities (CBPP) published a study suggesting that as the Affordable Care Act expands medical coverage to more people, the increased demand for medical devices will lead to higher sales of medical devices, offsetting the additional cost of the tax. CBPP also argues that any increased production costs that manufacturers have to pay to comply with the tax are unlikely to be passed on to the consumer.

In February, NTUF examined a bill sponsored by Congressman Erik Paulsen (R-MN) designed to repeal the 2.3 percent tax. It picked up over 212 cosponsors in the House, and the Senate version of the bill had 30 cosponsors as of this post's publication. Because NTUF estimated that the bill would likely only have regulatory- and revenue-related effects, under BillTally rules, we scored the legislation as a "No Cost" revenue bill. Last week, the Senate approved an amendment during budget votes that would repeal the tax altogether; that amendment passed by a bipartisan 79-20 vote.

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The Late Edition: March 26, 2013
Posted By:  - 03/26/13

Today’s Taxpayer News!

Pete Sepp responds to the Senate budget vote which advanced the Marketplace Fairness Act.

How much does it cost to set up a healthcare exchange as mandated under ObamaCare? Reason magazine zeroed in on California to find out.

Taxpayers picked up the tab for ex-presidents to the tune of $3.7 million for 2012 alone. Read more HuffPo.

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Part D “Bundling” … and Media Bungling
Posted By: Pete Sepp - 03/11/13

As far as complexity goes, the Medicare system makes a Gordian knot look like an untied baby shoe, which is one reason why recent revelations over the budgetary savings behind an obscure part of the “fiscal cliff” deal amount to a cautionary tale.

The so-called American Taxpayer Relief Act – which preserved some of the 2001 and 2003 taxpayer relief laws but unwisely boosted tax burdens elsewhere – also contained a new “doc fix” that prevented Medicare reimbursement rates for doctors from declining.

One “pay-for” to absorb the costs of this policy involved a highly technical change to the process of how Medicare reimburses drug costs for patients with End Stage Renal Disease (ESRD). Instead of allowing certain oral ESRD medications to be absorbed into a “bundled” payment system next year, the legislation permitted separate, non-bundled reimbursement to continue until 2016. Although several changes to bundled payments were apparently under discussion in Congress for the better part of a year, they were included in the fiscal cliff deal on evidence suggested by the Government Accountability Office that doing so could help control other ESRD treatment costs for Medicare.

Shortly after passage of the fiscal cliff deal, the indignation erupted. The New York Times accused Congress of delivering “a gift” to a handful of biotech companies that make the excluded drugs, thereby costing Medicare as much as $500 million. The Washington Post chimed in (, calling the provision “a $500 million windfall.”

But then the sizzle turned to fizzle upon release of a Congressional Budget Office (CBO) cost estimate for the provision, which showed what its proponents had thought all along.

The CBO report, requested by Senate Finance Committee Republican staff, examined several scenarios associated with ESRD oral drugs, and determined that the two-year delay in putting the drugs into the bundled payment scheme amounts to a savings of $100 million. Extending the delay to 2017 pumps the savings up to $500 million, owing to a “competitive Part D market dynamic coupled with more intensive generic erosion.” Oops.

The provision and its surrounding brouhaha caught my eye because of our previous work on Medicare reform in general and ESRD in particular.

Several years ago National Taxpayers Union weighed in on what was at the time a patently ridiculous government policy that compelled ESRD patients receiving dialysis to make Medicare their primary provider (ahead of private insurance) after 30 months of treatment. According to testimony on various Medicare reforms NTU submitted in 2008 to the Senate Finance Committee:

This payment arrangement exists for only one disease – ESRD – and is unknown   anywhere else in the federal government’s health insurance system. …We find the       current policy of forcing privately insured ESRD patients undergoing dialysis treatments onto the Medicare rolls after 30 months to be fiscally unwise as well as disdainful toward consumers who may wish to remain under their primary carrier’s coverage. We agree with the Administration’s position that changing this rule should be a part of any effort to “rationalize Medicare payment policy” and in so doing save taxpayers considerable outlays.  The Administration has proposed extending the period of private insurance coverage [Patient Coverage Extension, PCE], from 30 to 60 months. 

The latter passage is also important to the current debate, since it illustrates that Medicare rules surrounding ESRD treatments have often been very narrowly drawn. Thus, it would not be unusual for ESRD-specific provisions to show up in later laws without them necessarily being tied to nefarious “giveaways.”

The past is prologue in another aspect. Back then doubters said that the concept of PCE could trap patients in private care settings whose quality and facilities would be inadequate, while claiming the burden of throwing more ESRD sufferers into Medicare was minimal. But then as now, CBO’s estimates got in the way of naysayers’ arguments. As we noted in 2008, “The 2007 CBO Budget Options publication includes an analysis of extending the PCE period from 30 to 60 months, a change CBO determined would save Medicare $1.02 billion over five years and $3.07 billion over 10 years.”

To be clear, we’ve had our disagreements with CBO’s scoring methods. Most recently, for example, the President called for extracting more “rebates” from pharmaceutical companies supplying drugs to Part D. The very term “rebate” is deceptive, since it amounts to a forced payment from manufacturers to the government (not consumers) while putting at risk the resources companies need to discover new blockbuster cures. CBO continues to score rebate proposals like the President’s as budget savings, even though their impact on private-sector drug development (and in turn cost-cutting therapies for government health programs) could be highly detrimental.

Yet, beyond all of the obtuse discussions over delays in ESRD drug bundling, it appears that several media sources may have jumped to conclusions about the fiscal cliff deal’s provision in pursuit of a “gotcha” story.

The ultimate upshot of this episode, however, is that unraveling the complexities of the Medicare system and finding a simpler way forward for patients and providers is an absolute imperative. Our 2008 testimony prescribes a host of still-relevant reforms ranging from comprehensive means-testing to allowing purchases of health insurance across state lines. Policymakers must focus on core issues such as these rather than allowing hype over topics such as Part D drug bundling to inordinately occupy their attention.

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The Late Edition: March 11, 2013
Posted By:  - 03/11/13

NTU’s Pete Sepp speaks out about the spending cuts in the sequester, which although not ideally placed, still proved a win for fiscal conservatives. Read more from Real Clear Politics.

GMU’s Mercatus Center has taken a look at the complex decisions facing state lawmakers about the optional expansion of Medicaid under ObamaCare.

The chart below illustrates the choices states will need to make:


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ObamaCare: Finding out More of What's in It
Posted By: Brandon Arnold - 03/06/13

The sequester continues to dominate the headlines in Washington, but several Congressional committees are closely examining another important and controversial subject: the Affordable Care Act, better known as ObamaCare.

Yesterday, the Oversight Subcommittee of the House Ways & Means Committee held a hearing to review the tax provisions found in ObamaCare.  This coincided with a lengthy new report from the Joint Committee on Taxation (JCT) that describes the law’s 47 new taxes or tax related provisions. All in all, ObamaCare’s new taxes will extract approximately $1 trillion from taxpayers over the next 10 years.

As the JCT study shows, several of these tax hikes just took effect at the beginning of 2012, like the 2.3 percent excise tax on medical device manufacturers and an increase in Medicare payroll taxes for higher income earners. Some will not kick in until 2014, like the individual mandate tax and the health coverage provider “fee,” and the “haircut” on the medical expense deduction, a write-off claimed by more than 10 million people. It takes effect this year but won’t be felt until tax returns are filed in 2014. And some, like the “Cadillac tax” on high-cost employer-provided insurance, won’t take effect for several years.

Meanwhile, the House Energy & Commerce Committee and Senate Health, Education, Labor & Pensions Committee released a joint report showing other disturbing facts about ObamaCare.  It demonstrates that contrary to President Obama’s claims, the law will make health insurance significantly more expensive for families and individuals.  According to the report:

“Some estimates show some Americans facing startling premium increases of 203 percent because of the law. A study by actuarial firm Oliver Wyman suggests premiums in the individual market will increase an average of 40 percent. The Society of Actuaries similarly estimates an average premium increase of 32 percent in the individual market.”

As then-Speaker Nancy Pelosi infamously said in 2010, “we have to pass the [health care] bill so that you can find out what’s in it.” Well, we continue to learn more about ObamaCare and, unfortunately for taxpayers, it ain’t pretty.

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