Will the Supreme Court’s Ruling on Subsidies Be ObamaCare’s Downfall?

By Sally C. Pipes

The battle over ObamaCare has shifted to the courts. This time, the president is on the defensive. Last month, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit ruled 2-1 in Halbig v. Burwell that the federal government lacks the authority to provide subsidies to offset the cost of health insurance to folks shopping for coverage on HealthCare.gov, the federally run exchange. The federal government has since asked the full Circuit Court to hear the case.

The same day that the D.C. Circuit panel issued its ruling, the Court of Appeals for the Fourth Circuit, based in Richmond, Virginia, arrived at the opposite conclusion in a similar case, King v. Burwell, and upheld the federal subsidies as legal. The disagreement practically begs the U.S. Supreme Court to weigh in. The plaintiffs in King v. Burwell have petitioned the U.S. Supreme Court for cert. If granted, the case will go to the high court. It’s unlikely that the high court will hand down a decision until spring or fall 2015.

The D.C. Circuit panel has the law on its side. Should the Supremes agree with them, then ObamaCare could quickly unravel. And if it does, Congress should be ready with a replacement health care reform plan that empowers doctors and patients, not the federal government.

The Affordable Care Act’s text is unambiguous about how the insurance exchanges are supposed to work. According to the law, federal subsidies are available through exchanges “established by the State.” Thirty-six states didn’t set up exchanges. In some cases, their elected leaders decided not to. Other states tried to build their own. In many cases—among them Oregon, Maryland, Vermont, and Hawaii―they failed.

The law provided that the federal government would step in if the states did not. As a result, the federal government has found itself running an exchange that serves more than two-thirds of the states. And it’s decided, based on the counsel of the legal eagles at the IRS, to ignore those four words— “established by the State”—in order to dole out subsidies.

Even as it sided with the federal government, the Fourth Circuit observed, “If Congress did in fact intend to make the tax credits available to consumers on both state and federal Exchanges, it would have been easy to write in broader language, as it did in other places in the statute.” The court, which ruled for the government, went on to say that it “cannot ignore the common-sense appeal of the plaintiffs’ argument; a literal reading of the statute undoubtedly accords more closely with their position.”

ObamaCare’s supporters argue that “congressional intent” justifies direct federal subsidies. But they’ll have a tough time proving that before the Supreme Court. An early version of the health care reform bill did include an explicit authorization to distribute subsidies through a federal exchange. But it was absent from the final version.

That’s a problem for the Obama Administration, as U.S. Supreme Court precedent holds “that Congress does not intend sub silentio to enact statutory language that was earlier discarded in favor of other language.” Or as another Supreme Court decision put it, “the starting point for interpreting a statute is the language of the statute itself. Absent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive.”

If the Supremes forbid the Obama Administration from distributing subsidies through the federal exchange, the law will crumble. That’s because many, if not most, exchange shoppers will be unable to afford policies without subsidies. As more and more people go without insurance, the exchange pool will skew sicker and premiums will head higher.

Already, average monthly premiums for a mid-level silver plan are $324. They’ll rise 8 percent next year, according to Avalere, a consulting firm. Eighty-seven percent of the people in the 36 states that rely on the federal exchange are receiving subsidies. Without those subsidies, premiums for some 5 million people will spike dramatically. The disappearance of subsidies would also destroy the employer mandate, which requires employers with more than 50 full-time workers to provide insurance coverage.

Fortunately, there are other ways to expand access to affordable insurance. Subsidizing insurance does little to encourage insurers to rein in premiums. In fact, if distributed as a percentage of premiums, subsidies can reward them for hiking prices. Expanding competition among insurers, by contrast, can make insurance more affordable and drive down costs. Creating a truly national marketplace—where Americans could purchase health insurance across state lines—would do just that. There’s no reason insurance should cost 2.5 times more in Rhode Island than in Alabama.

Allowing individuals to purchase health insurance tax-free—just as those who have employer-sponsored insurance through their work can—would also make coverage more affordable. Most Americans get health insurance through their place of work. So they have little incentive to consume care judiciously. After all, they’re not paying the bill. Increased usage of the health care system leads to higher overall premiums.

Two years ago, ObamaCare’s individual mandate survived before the U.S. Supreme Court. The law’s exchange subsidies may not be so lucky.

Sally C. Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute in San Francisco. She is a guest contributor for Cascade Policy Institute. A version of this article was originally published by Forbes.

Oregon’s Prescription-Only Cold Medicine Law Needs a New Look

In recent years, Cascade Policy Institute has tracked and analyzed the effectiveness of a 2006 Oregon state law that requires all citizens to obtain a doctor’s prescription before buying pseudoephedrine-based cold and allergy medication.

Overall, our analysis found that the law produced a minimal impact on the state’s methamphetamine problem, based on the fact that not only did Oregon see a significant decline in meth lab incidents prior to the law’s passage, but that Oregon’s neighboring states experienced a similar decline in meth labs over the same time period without enacting such a prescription law.

Since Cascade published our study in 2012, Oregon’s meth problem has shown no signs of improvement.

Last month, Oregon’s High Intensity Drug Trafficking Area (HIDTA) program released its 2015 Program Year “Threat Assessment and Counter-Drug Strategy.” Within the report, a number of new data points and law enforcement survey findings cast fresh doubts on the 2006 law. Among the most troubling findings:

  • While the number of meth lab seizures remains low, volume confiscated in Oregon has grown dramatically since 2007. Ninety percent of law enforcement officials indicate crystal meth was highly available in their area.
  • Meth-related arrests in Oregon nearly doubled from 2009 to 2014.
  • According to Oregon law enforcement officials, meth is the drug that contributes most to violent crime and property crime and is the primary funding source for major criminal activity.
  • According to the Oregon State Medical Examiner Division, the number of fatalities related to meth use rose to a historic high of 123 deaths in 2013, over twice the number of fatalities in 2001.

By any reasonable measure, the 2006 law has failed in spectacular fashion. The newly released 2015 HIDTA report should compel Oregon policymakers to reexamine the law and look for anti-meth measures that actually will lead to progress in the fight against meth.

Oregon’s pseudoephedrine prescription requirement law is poor policy because it fails to address the fundamental causes of meth crime. Clearly, Oregon’s meth users and dealers have been able to bypass the prescription requirement in the same manner criminals have done so relative to prescription medicines, despite strict controls on those products. Meanwhile, law-abiding Oregonians live in one of two states in the entire country that prohibit over-the-counter purchases of popular and effective pseudoephedrine-based cold and allergy medicines. Those products offer powerful relief that allows patients in other states to avoid the costly hassle of making a doctor’s appointment and asking for a prescription.

It doesn’t have to be this way.

A number of other states, including Oklahoma, Alabama, and Kentucky, have experienced drastic success against meth criminals due to targeted legislative solutions that penalize criminals, not consumers. Each of those states employs an electronic pseudoephedrine tracking system that automatically blocks illegal pseudoephedrine purchases and provides law enforcement with critical evidence that leads to meth busts and arrests. Oklahoma, for instance, uses a meth-offender block list, which prohibits certain drug offenders from being able to buy pseudoephedrine products. Since 2012, the state has seen a decline in meth-lab incidents of more than 50 percent.

Oregon’s law enforcement officers regularly put their lives on the line to make our communities safer. Given what is at stake, elected officials have a responsibility to debate and pass legislation that fixes problems and improves the quality of life for the people they serve. Equally important, however, is the responsibility to make changes to laws that have failed to deliver results, especially when those laws inconvenience law-abiding consumers without solving crime-related problems.

It’s time to take a look at the prescription requirement law. The stakes are too high not to.

Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

U.S. Has the Worst Health Care? Not by a Long Shot

By Sally C. Pipes

Few complaints about the U.S. health care system are as common as the claim that we spend too much on health care and get too little for all that spending in return—especially compared to other industrialized nations.

A new Commonwealth Fund report is the latest to indict U.S. health care. It pegs the American system dead last in a survey of 11 developed countries. But like virtually every other study that trashes the U.S. health care system, Commonwealth’s rankings rely on questionable assumptions, like giving weight to those systems that treat people equally rather than well. At the same time, Commonwealth ignores the problems that countries with socialized health care systems have actually treating people once they’re sick. And on that metric—that is, actually delivering care to those who need it—the United States is without peer.

The Commonwealth Fund report begins by asserting that the U.S. health care system “is the most expensive in the world.” It’s true that the United States spends a larger share of its Gross Domestic Product—17.9 percent, or almost $3 trillion—on health care than other countries. But by itself, that statistic means nothing.

The United States also happens to be one of the richest countries in the world. Once basic needs are taken care of, an increasing share of each extra dollar will go to what were once considered luxuries. That’s borne out by national spending data. Between 1990 and 2012, for example, spending on health care climbed 290 percent, significantly faster than overall GDP growth of 171 percent.

But household spending on live entertainment went up more than 500 percent over those same years, while spending on pets climbed 353 percent. By the Commonwealth Fund’s logic, America also faces a pet-care spending crisis. In contrast, spending on staples like food, clothing, housing, and furnishings climbed more slowly than overall GDP.

The Commonwealth Fund concludes that the United States “underperforms relative to most other countries on most other dimensions of performance” despite having the most expensive health care system in the world. But a closer look at those “dimensions” calls that claim into question.

Take infant mortality rates, where the United States typically places far down the list behind France, Greece, Italy, Hungary, even Cuba.  This comparison is notoriously unreliable, because countries either use different definitions of a live birth—or fudge their numbers. The United States, for example, counts every live birth in its infant mortality statistics. But France only includes babies born after 22 weeks of gestation. In Poland, a baby has to weigh more than 1 pound, 2 ounces to count as a live birth. The World Health Organization notes that it’s common practice in several countries, including Belgium, France, and Spain, “to register as live births only those infants who survived for a specified period beyond birth.”

What’s more, the United States has significantly more pre-term births than other countries. That fact alone accounts for “much of the high infant mortality rate in the U.S.,” according to a report from the Centers for Disease Control and Prevention (CDC). The CDC found that if the United States had the same pre-term birth rate as Sweden, our infant mortality rate would be cut nearly in half.

What about life expectancy, where the United States ranks below its peers as well? International measures of longevity typically fail to account for differences in obesity, accidental deaths, car accidents, murders, and the like, all of which shorten lives no matter how good a nation’s health care system is. The U.S. murder rate, for example, is far higher than all the other countries in the Commonwealth Fund study. The United States has a worse highway death rate than all but one of them. And U.S. obesity rates are more than double Canada’s and more than four times Switzerland’s.

A far more meaningful comparison of international health systems would take stock of how people afflicted with diseases such as cancer fare in different countries. And on this measure, there’s no question the United States stands above the rest. Five-year survival rates for breast cancer are higher in the United States than England, Denmark, Germany, and Spain, according to the American Cancer Society. In the United States, the survival rate for prostate cancer is 99.1 percent. In Denmark it’s 47.7 percent. For kidney cancer patients, the survival rate here is 68.4 percent. It’s just 45.6 percent in England—which the Commonwealth Fund ranked as the number-one health care system in the world.

Finally, the Commonwealth Fund study also ignores massive problems with actual access to care in the countries it heralds. Every citizen of a country with socialized medicine may have insurance. But that doesn’t mean they can get the care they need.

Treatment delays were so chronic in the United Kingdom, for example, that the government had to issue a formal requirement that patients shouldn’t have to wait more than four months for treatments authorized by their general practitioner. The Royal College of Physicians found that poor care—including doctors trying to keep costs down—caused nearly two-thirds of asthma deaths in the U.K. in 2012.

In Canada, the average patient seeking an elective medical service has to wait four-and-a-half months between being recommended for treatment by their primary care physician and actually receiving it. Waiting for care is the norm in Canada, even though Madam Chief Justice Beverley McLachlin of the Canadian Supreme Court declared nine years ago, in a ruling holding a ban on private health insurance in Quebec illegal, “Access to a waiting list is not access to health care.”

The Commonwealth Fund is right about one thing—the U.S. health care system is too expensive. But rationing care—as Commonwealth’s favored systems do—is not the answer. Oregonians should pay special heed to this warning since your “Bold Experiment That Failed,” the Oregon Health Plan rationing scheme, is still seen by many as a model for all of you.

Sally C. Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute in San Francisco. She is a guest contributor for Cascade Policy Institute. A version of this article was originally published by Forbes.

ObamaCare Inflates Enrollment—And Premiums

By Sally C. Pipes

HealthCare.gov has officially closed and, despite months of technical hiccups, enrollment appears to have finished strong.

The Obama Administration estimates that 8 million people have signed up for coverage through the marketplaces. The president cited the figure as proof that “this law has made our health care system a lot better.”

Hardly. His enrollment numbers are artificially inflated. And the real rate of coverage may decline even further once consumers find out how much they’ll have to pay for insurance thanks to ObamaCare.

For starters, the administration’s 8 million enrollees include everyone who picked a plan—not just those who have actually paid for their coverage.

Insurers are reporting that 15% to 20% of those who have signed up haven’t paid their first premium. In other words, about 1.5 million people that the Administration counts as “enrolled” may still be uninsured.

Just because a consumer pays his first premium doesn’t mean he’ll make his second payment.

Insurance industry consultant Bob Laszewski has reported that 2% to 5% of enrollees haven’t paid their second month’s premium. If that sort of attrition continues, thousands of “enrollees” could end up uninsured before summer.

Further, many of ObamaCare’s 8 million enrollees previously had insurance—they just swapped out their existing policies for ones issued through the exchanges.

A recent RAND Corp. survey found that only one-third of exchange enrollees were previously uninsured.

The Congressional Budget Office reports that ObamaCare will spend $17 billion on exchange subsidies this year. A big chunk of that money will no doubt go to the two-thirds of exchange customers who previously secured coverage on their own.

Not exactly the wisest stewardship of taxpayer dollars.

Meanwhile, about a million of the 5 million people whose policies were canceled because they did not meet ObamaCare’s new rules remain uninsured.

The demographic composition of the exchange population also presents a problem.

Because the law forbids insurance companies from charging the old and sick more than three times what they charge the young and healthy, insurers must attract enough young, low-cost people to keep premiums down.

That hasn’t happened. Just 28% are between the ages of 18 and 34—well below the 40% the Administration said would be needed to keep ObamaCare’s exchange pools financially stable. It’s already clear that the exchange population is sicker than average.

According to a report from pharmacy benefit manager Express Scripts, exchange enrollees use 47% more specialty medications than the general insured population.

Demand for HIV meds is four times higher in the ObamaCare pool than in the existing commercial pool. Anti-seizure medication prescription rates are 27% higher.

Those drugs are more expensive. As Express Scripts puts it, “Increased volume for higher cost specialty drugs can have a significant impact on the cost burden for both plan sponsors and patients.”

Insurers will adjust to this reality by raising premiums. WellPoint predicts “double-digit-plus” rate increases across the country. In some areas premiums could go up 100%.

Cigna CEO David Cordani says his company has already brought up the coming “rate shock” with the Administration—and is pushing for changes to mitigate it.

ObamaCare’s exchanges appear to have survived their first enrollment period. But the government health-insurance platforms are far less healthy than the administration claims—and may crumble when they next open for business this fall.

Sally C. Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute in San Francisco. She is a guest contributor for Cascade Policy Institute. A version of this article was originally published by Investors Business Daily.

Cover Oregon: Out of the Frying Pan


*This event is currently sold out. You can add your name to the waiting list by clicking the “Add to Waitlist” link in the Eventbrite registration box below.


Please join us for Cascade’s monthly Policy Picnic led by Cascade Policy Institute founder and senior policy analyst Steve Buckstein on Wednesday, May 21st, at noon.

Cover Oregon’s board has admitted its $200 million plus website failure, but the decision to move Oregonians to the healthcare.gov website could backfire big-time. Not only might the board not have the authority to pull the plug on Oregon’s health care exchange, but a federal court case threatens to deny Oregonians the tax credits that ObamaCare promised would make our insurance premiums “affordable.”  What else could go wrong?

Admission is free. Please bring your own lunch. Coffee and cookies will be served. Space is limited to sixteen guests on a first come, first served basis, so sign up early.

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Cover Oregon: Out of the Frying Pan…

On April 25th, after wasting more than $200 million in federal cash, Cover Oregon’s Board voted to pull the plug on Oregon’s failed ObamaCare health insurance exchange and go with the federal exchange technology as the “core” of its system. The first open enrollment period for Oregonians ends today. Oregon hopes to be back in business using the federal technology when the next enrollment period opens up on November 15.

The only problem is that―as I testified before the Board―the Affordable Care Act states some nine times that only individuals signing up through “state established exchanges” qualify for federal tax credits to make their insurance premiums more “affordable.” Those using the federal exchange aren’t eligible for these credits, although the Obama Administration has ignored the clear wording of the law and granted them anyway.

On March 25 the Federal D.C. Circuit Court of Appeals heard arguments on this in the Halbig v. Sebelius case. One judge seemed to telegraph how he might rule by stating, “There is an absurdity principle, but there is not a stupidity principle. If the law is just stupid, I don’t think it’s up to the court to save it.”

If the courts eventually rule against granting tax credits to those using the federal exchange, Cover Oregon’s Board may have just pushed many Oregonians out of the frying pan and into the fire.

Steve Buckstein is founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

What Would Jefferson Say to the Little Sisters of the Poor?

In 1804 an Ursuline nun in New Orleans asked Thomas Jefferson to clarify in writing her religious community’s right to retain their property and to continue their ministries without government interference following the Louisiana Purchase. As French Catholic Louisiana was being incorporated into the Anglo-Protestant United States, the nuns were concerned about the status of their institutions under U.S. law. President Jefferson assured her that the government would not interfere with the sisters’ property, ministries, and way of life. In a letter dated May 15, 1804, he wrote:

“I have received, holy sisters, the letter you have written me wherein you express anxiety for the property vested in your institution….The principles of the constitution and government of the United States are a guarantee to you that it will be preserved to you, sacred and inviolate, and that your institution will be permitted to govern itself according to its own voluntary rules, without interference from the civil authority.”

Jefferson confidently promised that the American Constitution would protect the nuns and that the government would leave them alone. So why don’t Catholic sisters today even qualify for a religious exemption from ObamaCare’s insurance mandate that requires contraception and abortion coverage? It may seem unbelievable, but according to the Obama Administration’s definition of “religious employer,” sisters are not included.

Last year the Department of Health and Human Services (HHS) directed almost all employers to include coverage of contraceptives and abortion-inducing drugs in their employee health insurance policies, or else pay a fine of $100 per employee, per day. HHS subsequently published a final rule that requires many health insurers to charge all enrollees to cover the cost of elective abortions.

The “HHS Mandate” has a narrow conscience exemption that applies only to organizations whose purpose is solely to inculcate religious values and which employ and serve primarily members of their own faith. The exemption does not include religiously affiliated or faith-based institutions which serve all people without discrimination (like hospitals, colleges, schools, and social service agencies). And it doesn’t apply to communities of nuns.

Because of this, the Becket Fund for Religious Liberty filed a lawsuit September 24 in federal district court in Denver on behalf of the Little Sisters of the Poor. The Sisters are a nearly 200-year-old religious community dedicated to caring for the elderly poor. They run 30 homes in the U.S. (four in the West) and care for nearly 13,000 people in 31 countries.

“We cannot violate our vows by participating in the government’s program to provide access to abortion-inducing drugs,” said Sister Loraine Marie, a superior of one of the American provinces of the Little Sisters community.

“The Sisters should obviously be exempted as ‘religious employers,’ but the government has refused to expand its definition,” said Becket Fund senior counsel Mark Rienzi. “These women just want to take care of the elderly poor without being forced to violate the faith that animates their work. The money they collect should be used to care for the poor like it always has―and not to pay the IRS.”

According to the Becket Fund, the lawsuit “is the first of its kind both because it is a class-action suit that will represent hundreds of Catholic non-profit ministries with similar beliefs and because it is the first on behalf of benefits providers who cannot comply with the Mandate.”

Jefferson explained to the Ursuline nuns that American law would protect them and their institutions, regardless of the differences among American citizens:

Whatever the diversity of shade may appear in the religious opinions of our fellow citizens, the charitable objects of your institution cannot be indifferent to any; and its furtherance of the wholesome purposes of society, by training up its younger members in the way they should go, cannot fail to ensure it the patronage of the government it is under. Be assured it will meet all the protection which my office can give it.

“I salute you, holy sisters, with friendship and respect.”

Like the Ursuline nuns of Jefferson’s time, the Little Sisters of the Poor seek to secure their right to live out their faith through service to those in need. Catholic sisters do not give up their religious freedom when they establish nursing homes―or any other ministry. We can imagine what Thomas Jefferson might think of American women having to sue the Obama Administration to defend their First Amendment rights. But can we doubt he would be dismayed by how intrusive and coercive the federal government has become since the day he wrote so cordially to a group of French nuns about the safeguards of the American Constitution?

Kathryn Hickok is Publications Director at Cascade Policy Institute, Oregon’s free market public policy research organization.

Seven Steps to Replace ObamaCare with Something That Works

By Sally C. Pipes

Under the Affordable Care Act, state health insurance exchanges open for business October 1 (although the executive director of Cover Oregon has admitted Oregon’s exchange will experience some delays). While ObamaCare remains a controversial―as well as logistically catastrophic―law, President Obama took a shot at its opponents recently, saying, “There’s not even a pretense now that they’re going to replace it with something better.”

Au contraire. Ideas for “something better” abound—but the president hasn’t shown interest in them. He has instead remained devoted to his eponymous law, which promises higher costs and worse care. At this point, ObamaCare’s critics have to play the long game―and press for delays in the law’s implementation, whether by rolling back certain parts of the law or defunding it through a continuing resolution, until the White House has a new occupant.

Here are seven provisions that should be part of a replacement agenda that would ensure that all Americans have affordable, accessible, quality health care.

First, change the federal tax code so that individuals can purchase insurance with pre-tax dollars, just like businesses can. Most Americans don’t realize the full cost of their health care because they get employer-subsidized insurance. Consequently, they over-consume health care. That drives up costs. To offset the cost of insurance for those who don’t get coverage through work, Congress could institute a refundable tax credit.

Second, it’s long past time to expand the availability of health savings accounts, where patients can save pretax dollars for health services. And, HSAs must be combined with catastrophic coverage. Doing so would encourage Americans to shop smartly for their care, as they’d be spending their own money.

Third, Congress should allow the purchase of insurance across state lines. Insurance policies issued in Rhode Island cost 2.5 times what they do in Alabama. People should be able to purchase a plan that suits their needs. Such a move would increase competition and lower costs.

Fourth, policymakers need to increase funding for high-risk pools. Such pools were functioning well in many states before ObamaCare―providing affordable coverage to those with pre-existing conditions without raising premiums for everyone else.

Fifth, federal electronic health records (EHR) mandates have to go. The average initial cost of an EHR system is $44,000 per physician, with ongoing maintenance estimated at $8,500 annually. Those costs are passed on to patients. Instead, let providers implement EHR systems when it makes financial sense for them to do so on their own.

Sixth, Congress should scrap the essential health benefits mandates that require all policies to cover a battery of health services. Such mandates can raise the cost of insurance anywhere from 10 to 50 percent.

And seventh, state-level medical malpractice reform is long overdue. Each year, more than $100 billion in health care expenditures are driven by doctors’ and hospitals’ worries about medical liability. Common sense tort reform that immunizes providers from frivolous lawsuits would usher in lower costs for patients.

Of course, all these reforms are contingent on repealing ObamaCare. The House of Representatives has certainly tried to move that effort forward, voting 40 times to do so.

Death by a thousand cuts may be more realistic, at least in the short term. In June, the House voted to repeal ObamaCare’s medical device tax, with 37 Democrats joining Republicans to pass the bill.

And in the past three months, 22 House Democrats have signed onto legislation repealing the Independent Payment Advisory Board (IPAB)―ObamaCare’s doomed plan to have 15 unelected bureaucrats dictate Medicare spending with no real congressional oversight or control.

Public opinion and legislative momentum favor ObamaCare’s delay, if not its outright repeal. And contrary to the president’s assertion, there is a plan to replace ObamaCare with something better. Once the president is no longer standing in the way, Congress should implement that plan―and fix American health care for real.

But if lawmakers allow ObamaCare to stand, the next stop will be a single-payer system, where government controls the health care system entirely. Senate Majority Leader Harry Reid has admitted as much. When asked in August if he felt the United States should abandon insurance as a means of accessing the health care system, Reid replied, “Yes, yes. Absolutely yes.” This will put America on the road to serfdom, and there will be no off-ramp.

Sally C. Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute in San Francisco. She is a guest contributor for Cascade Policy Institute. A version of this article was originally published by The Washington Examiner.

As the Expense of ObamaCare Sets In, Companies Cut Health Benefits

By Sally C. Pipes

Implementation of the Affordable Care Act continues this fall and winter, and employees of shipping giant United Parcel Service recently got an unexpected delivery. The company announced that it would stop offering health coverage to the spouses of 15,000 workers.

UPS’s workers and their families can thank ObamaCare for this special delivery. And UPS isn’t alone. American businesses are discovering that the president’s signature law will raise health costs for them and their employees in short order.

In a memo explaining the decision to employees, UPS stated that increasing medical costs “combined with the costs associated with the Affordable Care Act, have made it increasingly difficult to continue providing the same level of health care benefits to our employees at an affordable cost.”

One day before UPS’s big announcement, the University of Virginia announced that it would cut benefits for spouses who have access to health care through jobs of their own. The rationale was similar. Delta Airlines recently revealed that ObamaCare will increase its direct health costs by $38 million next year. After taking into account the indirect costs of the law, the company is looking at a 2014 health bill that’s $100 million higher.

Increasingly, large employers who aren’t dropping spousal health benefits are requiring their employees to pay monthly surcharges in the neighborhood of $100 per spouse. Many small businesses are dropping family coverage altogether because they expect that ObamaCare’s new tax on insurers will be passed on to them in the form of higher premiums. One Colorado-based business received notice from its insurer that the tax would increase premiums more than 20 percent.

The story is similar in Massachusetts. One new report concludes that over 45,000 small businesses in the Bay State will see premium increases in excess of 30 percent. In all, more than 60 percent of firms in the state will see their premiums go up.

Last month in California, the largest insurer for small businesses, Anthem, declared that it would not participate in the state’s small-business health insurance “marketplace,” Covered California. Only two years ago, Anthem covered one-third of small businesses in California. Anthem’s exit represents one less choice for consumers—and a sign that competition may not be as robust in the exchanges as the Obama Administration promised.

Small businesses are responding to these higher premiums by trimming their labor costs in other ways. That’s not good news for workers. Seventy-four percent of small employers plan to have fewer staff because of ObamaCare, according to a recent U.S. Chamber of Commerce survey. Twenty-seven percent are looking to cut full-time employees’ hours, 24 percent to reduce hiring, and 23 percent to replace full-time with part-time employees.

One in four small companies say that ObamaCare was the single biggest reason not to hire new workers. For almost half, it’s the biggest business challenge they face. These findings are consistent with a recent Gallup Poll showing that 41 percent of small businesses have already stopped hiring because of ObamaCare. Another 19 percent intend to make job cuts because of the law.

All this tumult in the labor market is fueled by more than the increase in premiums engendered by ObamaCare. The law effectively encourages companies to cut full-time jobs. ObamaCare requires employers with 50 or more workers to provide health insurance to all who are on the job for 30 or more hours per week. The law originally called for this “employer mandate” to take effect in 2014, but the Administration decided in July to delay enforcement of the mandate until 2015.

Employers are responding by doing just enough to avoid ObamaCare’s dictates. Administrators at Youngstown State University in Ohio recently told adjunct instructors, “[Y]ou cannot go beyond twenty-nine work hours a week….If you exceed the maximum hours, YSU will not employ you the following year.” A week prior the Community College of Allegheny County in Pittsburgh made a similar announcement.

Hundreds of employees at Wendy’s franchises have seen their hours reduced for the same reason. And part-time employees of Trader Joe’s, which has eight locations in the Portland area, are losing their company-sponsored health insurance. Trader Joe’s has offered health and dental coverage for years, but now part-time workers are being directed to the state health insurance exchanges.

Meanwhile, companies with fewer than 50 employees are thinking twice about expanding—and thus being ensnared by ObamaCare’s requirement that they provide health insurance. The cost of each additional employee could be staggering. A firm with 51 employees that declined to provide health coverage would face $42,000 in new taxes every year—and an additional $2,000 tax for with each new hire. Providing coverage, of course, would be even more expensive.

As private firms large and small grapple with ObamaCare-fueled cost increases, one large employer—the federal government—has been quietly exempting itself from portions of the law. Top congressional staffers like their current benefits under the Federal Employee Health Benefits Plan (FEHBP), wherein the government pays up to 75 percent of the premiums. But the law requires those who work in lawmakers’ personal offices to enter the exchanges. And in many cases, staffers make too much to qualify for health insurance subsidies through the exchanges. So they’d be facing a hefty cut in their compensation.

Fearing a mass exodus of congressional staffers from Capitol Hill, the Obama Administration fudged the law to permit lawmakers’ employees to receive special taxpayer-funded subsidies of $4,900 per person and $10,000 per family. Yet only three months ago, Senate Majority Leader Harry Reid (D-Nev.) claimed that Congress wouldn’t make exceptions for itself.

President Obama no doubt knows that these congressional favors won’t go over well with ordinary Americans. So he’s called on his most popular deputy—former President Bill Clinton—to try to sell the law to the public once again. But unless the former president can lower employer health costs with little more than the power of his words, his sales pitch will likely fall flat.

Sally C. Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute in San Francisco. She is a guest contributor for Cascade Policy Institute. A version of this article was originally published byForbes.

For Small Business Owners, The ObamaCare Reality Bites

By Sally C. Pipes

More than 40 percent of small businesses have frozen hiring because of ObamaCare, according to a new poll from Gallup. A fifth have actually cut their workforces as a direct result of the health care reform law.

That’s not exactly the future President Obama forecast in 2009, when he told an audience of small-business owners that his health care reform package was “being written with the interests of Americans like you and your employees in mind.” He boasted that he had “no doubt [the law] would benefit millions of small businesses.”

Instead, small-business owners are learning that ObamaCare will drive the cost of insurance up without providing the choice of policies it promised. The law intended to make purchasing insurance easier for small businesses by creating exchanges, where firms could band together with their peers in one statewide risk pool—and thus leverage their buying power to secure lower premiums and access to a wide variety of plans. The Congressional Budget Office projected that two million people would get insurance through the small-business exchanges.

Insurers would compete for small businesses’ allegiance, driving down prices further. Employers would name a benefits level, and then their employees could choose from among several plan options at that level. Under the status quo, by contrast, they may be stuck with the plan their employer picks for them—if they even get insurance at all.

But the exchanges aren’t unfolding as planned.

For starters, it’s not clear that the exchanges will be ready by the October 1 deadline set by ObamaCare. Creating these government-directed insurance marketplaces in all 50 states plus the District of Columbia has proved far more complicated than bureaucrats anticipated.

Maryland, which was one of the first states to embrace ObamaCare, announced in April that it would delay the launch of its small-business exchange by at least three months. A recent Government Accountability Office report said that all 16 states and the District of Columbia building their own exchanges are behind schedule—missing deadlines on 44 percent of the key activities needed to get them up and running. In Oregon, the state’s largest health insurer and three others are steering clear of the state exchange designed to serve small employers.*

In the mad dash to get the exchanges built, officials are cutting corners. The promised choice of plans has been the first casualty. This June, the federal government announced that every business owner shopping in the 33 federally run exchanges will have to pick one plan for all his full-time employees.

In some states, there may only be one choice for every single small business in the state—as insurers have been reluctant to participate. Just one insurer signed up to provide small-business coverage in Washington’s exchange. Ditto for New Hampshire and North Carolina. In Mississippi, not a single insurance company has signed up for the federally run exchange. That lack of competition will no doubt yield higher premiums. ObamaCare’s many mandates will exacerbate their upward march.

The health care reform law requires all policies to cover preventive care free of charge—along with a host of other “essential” benefits. Policies cannot cap annual or lifetime health care spending, and annual deductibles cannot exceed $2,000 for an individual or $4,000 for a family in the small-group market.

Businesses are starting to see the result of all these mandates and regulations. An analysis of 11 states by the insurer WellPoint projects that small-group premiums will jump an average of 13-23 percent.

In Rhode Island, insurers want to boost small business premiums by 14 percent, on average. Maryland’s biggest insurer, CareFirst BlueCross BlueShield, is pushing for an average small-business rate hike of 15 percent. And a survey by the American Action Forum earlier this year found that major insurers in five big cities were expecting small-business premiums to more than double for small firms with healthier employees. So rather than freeing small businesses from the burden of having to manage their own health benefits, ObamaCare has raised the prices they’ll pay and limited their options.

It’s no wonder that small businesses are cutting benefits, putting off hiring—or even firing workers. A quarter of small firms say they’re considering whether to drop insurance coverage, and 18 percent have reduced their employees’ hours to part-time. Thirty-eight percent say that ObamaCare has caused them to pull “back on their plans to grow their business.” So much for writing the law with the “interests” of small businesses and their employees in mind.

The Obama Administration just announced that they’d delay the implementation of the employer mandate, which would require all businesses with more than 50 full-time employees to offer health insurance. Hopefully, ObamaCare’s small-business exchanges will be the next component of the law to be delayed.

* “Insurers skip Oregon’s small employer insurance exchange—for now,” Business Journal, May 3, 2013 (http://www.bizjournals.com/portland/blog/2013/05/insurers-steer-clear-of-oregons-small.html?page=all).

Sally C. Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute in San Francisco. She is a guest contributor for Cascade Policy Institute. A version of this article was originally published by Forbes.

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