The GOP's Obamacare Lite: Retreat, Retweak, Rename, Renege

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I have always said “repeal and replace” was a political scam perpetuated by the spineless GOP congressional leadership, and that it would soon bite the clueless Team Trump in the posterior.

Now comes the outline of Speaker Ryan’s plan, and self-evidently it’s a big nothing-burger that makes a complete mockery of the Donald’s campaign pledge.

In fact, let’s just call it Obamacare Lite and here’s why.

Health care socialism — that is, cost pool averaging and elimination of market pricing — is what will finally bankrupt America. Under current law, government programs will cost at least $24 trillion over the next decade.

That staggering sum includes the Congressional Budget Office’s (CBO) $16.5 trillion cost estimate for the Federal medical programs — plus $4 trillion in tax benefits for employer health plans and $3.5 trillion for the state share of Medicaid.

The government health care total is nearly double the 10-year cost of $13.2 trillion for social security.

Health care socialism is the most fiscally explosive entitlement ever conceived because it destroys market discipline on costs — even as it corrodes individual accountability for the ultimate drivers of medical care demand such as personal fitness and nutrition habits and practices.

In my judgment, the GOP’s swell new Obamacare Lite will end up costing $23 trillion or 95% of the current baseline over the next decade, and will leave all the anti-market and collectivist features of the existing health care doomsday machine fully in place.

Worse still, it will take the GOP a full year or even more to get a heavily diluted version of Obamacare Lite to Trump’s desk for signature. During that legislative ordeal of shuffling the deck chairs on the medical care Titanic, the rest of the fanciful Trump Stimulus — sweeping tax cuts and an infrastructure boom — will fall by the wayside, thereby assuring a financial crash and renewed plunge into recession.

The source of the public anger that Trump tapped into with his strident attack on Obamacare during the campaign was the runaway cost and bureaucratic rigidity of the entire U.S. health care system, not just the soaring premiums being experienced by the 8 million or so enrollees in the state health exchanges.

Yet Obamacare Lite does exactly nothing about that.

Here is just one example of the old Ryan double-shuffle at work in his newly released outline. The Medicaid expansion piece of Obamacare is projected to cost $1.1 trillion over the next decade due to 15 million new beneficiaries on the rolls by 2026.

This huge expansion is being driving mainly by increasing the Medicaid eligibility threshold to 133% of the poverty line.

Presumably, the GOP repeal plan would save Uncle Sam the $1.1 trillion price tag — a goodly sum that Washington doesn’t have anyway. But when you read the fine print, it is evident that despite all the liberal arm-waving Ryan’s plan doesn’t roll back the Medicaid coverage expansion at all!

It just reduces the 90% Federal matching rate for these new populations to the normal 57% (average for all states), meaning that savings would amount to just $300 billion thru 2027.

But that won’t go to the bottom line either because Ryan recycles $100 billion of that into a new handout called “innovation grants” for funding high risk pools and other state determined benefits.

And that’s just for starters. The GOP governors were in town this past weekend and you can be sure that pumping more money into the “innovation grant” side-car has already been promised right and left.

Folks, I have some considerable experience in the legislative sausage factory.

When the Republicans get done haggling over the total amount of the above referenced “innovation grants” and other details, it will be a miracle if Obamacare Lite saves a single dime from the $8.5 trillion combined Federal/state spending for Medicaid built into current law over the next decade.

Ryan has no plan to cut Medicaid because he has no plan to attack the underlying inflationary bias of the entire health care system. All the strum and drang of the coming battle will be about jiggering Medicaid reimbursement formulae in a manner that satisfies red state governors and congressional delegations, not fixing the relentless cost escalation that is driving Medicaid costs.

The only solution to the latter is three-fold.

First, there must be a sharp reduction in the massive government fiscal transfers flowing into all sectors of the system — Medicare/Medicaid, employer plans and the individual coverage market. After all, the U.S. spends an incredible 18% of GDP on the health care system and gets no better results than most European democracies at 10-12%.

Secondly, free market pricing, resource allocation and utilization discipline must be introduced back into the health care sector in place of the pervasive and dysfunctional third party insurance and payments model.

And finally, that means a drastic rollback of third-party payments for medical services in favor of out-of-pocket purchases by financially motivated and attentive health care consumers.

Against these requisites of true health care reform, Ryan’s plan has nothing to do with pro-market reforms. Obamacare Lite is just one more example of Ryan’s typical content-free rhetoric about relying on market forces when in fact his policies are simply a more medical cartel friendly form of state action.

The truth is, there is no longer any such thing as free markets in the health care sector. The underlying problem with the bloated U.S. health care system — of which soaring Medicaid costs are only a symptom — is too much insurance, not too little competition; and too much government money in the system.

And most important of all, there are few market-based, price-sensitive medical care consumers — just several hundred million cost-indifferent prepaid patients.

That’s the essence of the matter. When everything is paid for by third-parties, you do not have price-conscious, shopping-oriented, cost-minimizing consumers who have their own money at risk.

America’s consumers, in fact, have been economically euthanized by the current system. It turns cost-conscious customers patrolling the aisles at Wal-Mart or relentlessly searching on Amazon for bargains into zombie patients who sit around the doctor’s office instagramming on their iPhones waiting to be seen for a visit that will be charged to an anonymous payor.

Needless to say, there is no such thing as a free market when their are no real consumers. What passes for the health care market today is just a bureaucratic clearing house where provider cartels attempt to maximize their billings while insurance companies and health care cartels seek to minimize what they certify for payment.

The consequence is high prices, endless hassles over coverage and pre-approvals and a complete loss of consumer sovereignty over their own health care costs and quality. And that is what the public is fundamentally objecting to under the rubric of “Obamacare.”

Nothing will be remedied until the underlying problem of a third-party payment system is addressed head on.

Obamacare Lite does not challenge the failing fundamentals of the current health care system; it’s a cop-out which reinforces everything which is wrong with it. Abolishing the Obama health exchanges or rejiggering the Medicaid expansion will do absolutely nothing to curtail soaring costs and premiums.

Obamacare is politically vulnerable. But the GOP is completely blowing the political opportunity it has provided.

That’s largely because the GOP is owned by the insurance companies, HMOs and organized provider groups. So as the fiscal crunch in the Imperial City intensifies, the crony capitalist gangs which fed on these giant pre-paid health pools will resist controls and cost containment with a vast mobilization of lobbying and campaign lucre.

It is the ensuing hand-to-hand combat in the corridors of Washington which will further paralyze the fiscal process.

The Donald and many of his conservative supporters in the GOP back-benches mean well, of course. But under the deceitful leadership of Paul Ryan and his henchman, they are heading into a Swamp far deeper than any of them can possibly imagine.

At the end of the day, huge political capital will be consumed to enact Obamacare Lite, but it will not make America’s health care system great again. It will only trigger the political conflagrations that are inherent in an irrational and dysfunctional third-party payment system that has become hideously costly.

And now there’s even more to come.


David Stockman
for The Daily Reckoning

The Daily Reckoning