After a year of angst and agony, Congress passed and the president signed two major bills governing health care. The 2,800-page law will almost certainly provide more Americans with health insurance. But nothing is free. Our nation's biggest flaw may be the unrealistic view that you can get something for nothing.
In this case, more Americans may be insured, but this worthy goal will impose huge costs - costs that some of the new law's most ardent supporters have intentionally obfuscated: 1. The new law will increase the federal budget deficit. Shortly before the penultimate vote, Democrats trumpeted the bill as reducing the deficit. They relied on last minute scoring from the Congressional Budget Office (CBO) reporting that the bill will reduce the federal deficit by $138 billion over 10 years. As a result, proponents declared the bill as good for the deficit and the economy. History will prove whether this claim is true. But anyone who has even peeled back one layer of this onion knows the CBO was boxed in to giving a distorted picture. This law will be proven quickly to expand our bloated deficit -- and sadly, the media was asleep at the switch and did not report on it. The big distortion occurred by the CBO assumption that the 21 percent cut in doctors' Medicare reimbursements would stay in place. The 21 percent drop in doctors' pay began April 1 (no April Fools) and was included by CBO scorekeepers as permanent. This allowed them to claim $450 billion in Medicare savings. Yet, the same politicians who voted for the bill have also promised doctors a "fix" and that they will restore the drastic cuts in Medicare reimbursement. Even before the 21 percent cuts, increasing numbers of doctors refused to take Medicare patients, as the Medicare reimbursements are tiny compared to private insurance reimbursements, not even factoring in the cost and time of the additional paperwork, audits and hassle of collecting from the government bureaucracy. With a 21 percent cut in Medicare reimbursement, tens of thousands more doctors will refuse Medicare patients and the goal of getting more Americans health coverage will be countered by fewer available doctors. Medicare patients, our oldest Americans, will suffer, and a marketplace form of rationing will be imposed. This real problem begins this month, and the promise to "fix" Medicare reimbursements puts both Democrats and Republicans in a pickle. If they don't reverse the Medicare cuts, thousands of doctors will close their doors to Medicare patients, depriving millions of needed health care and belying the promise of the health care bill. But if they vote to restore the doctors' cuts, then the myth of deficit neutrality will be exposed for Democrats, and the promise of fiscal prudence will not be met for Republicans.
In any case, either Americans will suffer or the myth of the new medical law's deficit neutrality will be exposed. Members of Congress from both sides expect a vote within weeks. That vote will transform the entire financial assumption underpinning the health care law. And if you are not convinced yet that the new health care law is not a deficit expander, here are two other tricks the CBO used to hide the true costs. First, the CBO used 10 years of revenue-raising and only six years of expenditures. Had the 10 years been based on both revenue and expenditures, it would cost $114 billion annually. More, the CBO was told to assume many plans would pay the 40 percent excise tax on plans and offset the costs of this new government benefit. This 40 percent tax will impact very few plans - if any. If realistic assumptions were used for those two items, then the law clearly does not reduce the deficit. If that's not enough, other revenue assumptions have been labeled by fantasy. For example, The Hill notes that the $2.7 billion assumed to be raised by a tax on tanning salons would require tanning customers to make 3.9 billion visits to tanning salons over the next 10 years.
The government takeover of student loan processing is assumed to save $70 billion and presents the questionable assumption that government can do something cheaper than private industry. Government scorekeepers rarely consider the true cost of government employee pensions, overhead, real estate, support by other government employees or supplies when calculating theoretical savings of "insourcing." The calculations by Congress of every new entitlement program have been multiples off the mark. The 1965 Medicare program was supposed to cost only $9 billion by 1990. Instead it cost $67 billion in 1990 and it now costs $521 billion. This expansion of the deficit is an enormous cost that we are imposing on our children. 2. The new law will reduce jobs in private industry.
Every employer with over 50 employees soon must provide health insurance for every employee or face stiff penalties. This mandate will impose new costs on those employers that now do not provide insurance. Simple economics means these companies will reduce jobs to pay the costs of the new law. Less visible are the millions of starter and entry-level jobs it will eliminate.
For example, my company now hires about a dozen paid interns every summer and we use seasonal employees for our big annual event, the International CES. Both types of jobs - and the entry level full-time positions to which they are designed to lead - could now be discouraged because of the new mandate that every employee have employer-provided health insurance. The legislation also includes new taxes on medical equipment, passive income for millions of Americans, and new Medicare taxes - all costs to those making investments in job-creating businesses. It is a zero-sum game and every dollar of new costs means a dollar not invested in a business or paid to an employee. More, the law also removed thousands of jobs from the banking industry that provided student loans. This last minute add-on to the bill had nothing to do with health care - but it does kill a private industry and turn it into a government-run industry. The millions of private jobs lost will be only partially offset by new jobs created for additional health care professionals. And of course the heath care law creates new work for lawyers who litigate over the hastily drafted and often ambiguous language. 3. The new law will increase government jobs.
Estimates are that 17,000 new IRS agents will be hired to make sure the new complex laws for hiring and buying insurance are followed. More, the federal takeover of student loans will create a new bureaucracy with thousands of new government jobs. These will be jobs with good pay and lifetime benefits and they will further expand the deficit. 4. The new law will hurt health care for those with critical needs.
The American health care system is the envy of the world as almost every innovation now comes from the United States, and the wealthiest people from around the world come here when they are very sick.
The bill's supporters claimed that the legislation is necessary as we have poor health care in the United States, and the present system needed to be changed. They pointed to our low ranking in the developing world on various measures of health care, such as infant birth rate and average mortality rate. These rankings are cause for alarm as they reflect unhealthy lifestyle choices. Americans eat more, consume unhealthy food, and exercise less. More, many American girls have babies at a young age. But on measures where our doctors have influence, like cancer survival rates, we top the world. If there is any doubt that the legislation will hurt quality of care, I suggest following the membership of the American Medical Association (AMA). The AMA supported the legislation - even though the AMA doesn't represent most American doctors and most doctors had serious concerns with the proposals. If you learn soon that many doctors quit the AMA you can conclude that the doctors voted on the bill with their feet. Indeed, every major specialist group opposed the bill as bad for patients with critical and thus highly specialized needs. 5. The new law will reduce American innovation.
The new law will reduce innovation in several ways. First, specific taxes on innovative medical devices and new costs for drug companies mean a special tax on innovation. New taxes will be added to the overall cost of treatment and innovation thus will be discouraged.
Second, innovative medical treatments will be discouraged in America. Articles by American doctors dominate almost every medical journal in the world. Today's system encourages breakthroughs and creativity. Yet the new health law encourages cookie-cutter treatments and punishes deviation from treatment norms thereby discouraging innovation. Third, the bill imposes several new taxes on investment. This means less money will go to new businesses and taking risks. The result will be less money for research, development and innovation. Sadly, the costs of insuring the uninsured using the methods in the new law are real and not speculative. In my ideal world, we would have reached national consensus on the problem (uninsured Americans), agreed on facts (we are innovators and innovation should be preserved) and then brainstormed solutions (cut malpractice, encourage healthy lifestyles, encourage competition in health care). Indeed, at several points in the last year good faith, bipartisan efforts were heading in this direction. But politics got hold and any solution was viewed as preferable to a well-considered bi-partisan solution.
At the end, recalcitrant Democrats were then purchased with special favors (Michigan airport repairs, water projects, special state Medicare payments, to name just a few). Some legislators were even convinced that this was a necessary vote to preserve the historic presidency or their majority in Congress. These legislators went for ego and a person who is president rather than what was best for America. Some may challenge this recognition of reality as sour grapes. Perhaps. But there would be fewer sour grapes if we could agree on the facts and that this new sweeping mandate imposes costs. Even with the factual mirage described above, this is the first time in our history Congress imposed a major change opposed by a majority of Americans. The factual cloud Congress sought to obscure will blight the result and challenge the credibility of those who imposed it. As our economy sags under the weight of this newest mandate, we must learn and approach every future proposal with a long-term, honest view of its impact on our nation's deficit, jobs and innovation and investment.
Gary Shapiro is the president and CEO of the Consumer Electronics Association.