ObamaCare's Unsustainable Revenue Raisers


Credit: WhiteHouse.gov

About half of ObamaCare's first-decade cost was supposed to be funded via cuts to Medicare and fees on specific segments of the health industry. Republicans responded by complaining that those cuts would decimate care for seniors, but the real problem was that those cuts, along with some of the other revenue raisers built into the law, were never likely to occur.

ObamaCare's budget, and the deficit reduction it was alleged to achieve, was in many ways an exercise in wishful thinking: If Congress and Medicare's administrators allowed the cuts and fees to go through as planned, and if the spending provisions stayed on target, then the law might raise enough revenue to break even, or possibly reduce the deficit somewhat. Well, sure. If. But the smart money was always on many of the cuts and fees and other revenue raisers being wiped from the books just before or shortly after they went into effect. It wasn't that the various revenue raisers built into the bill were impossible, exactly; it was that they weren't politically sustainable.

Three years after the law passed, we're starting to see fairly strong indications that many of ObamaCare's revenue raisers won't pan out. Just yesterday, for example, the Department of Health and Human Services bowed to pressure from the insurance industry and reversed its plan to cut payments to privately run Medicare Advantage (MA) plans. Instead of taking a 2.2 percent cut, those plans will instead be given a 3 percent increase.

Nor is this the first time that Medicare Advantage has escaped planned cuts. Prior to the election, the administration delayed a series of MA cuts built into the health care overhaul, replacing it with an unusual, and extremely expensive, pilot program that it said would help test the effect of quality bonuses. The problem was that the pilot program extended to every MA provider in the nation, and rewarded providers that didn't score high on quality. It was a pretty nakedly transparent attempt to avoid some of the cuts; the Government Accountability Office stated flatly that the pilot program couldn't possibly test the effect of quality bonuses as the administration said it would, and called for the administration to end the pilot.

What makes this even more revealing is that these are cuts that ought to be relatively easy to achieve: The administration, along with many Democrats, has long argued that Medicare Advantage providers are overpaid. Yet we've now seen it backtrack on multiple occasions.

ObamaCare's Medicare Advantage cuts aren't the only revenue raisers that didn't survive. A tax reporting provision that was supposed to raise $17 billion but would have resulted in big paperwork headaches for small businesses was repealed.*  So was the CLASS Act, a long-term care initiative that was responsible for about $70 billion of the deficit reduction that was projected to occur in ObamaCare's first 10 years.

More recently, a bipartisan majority in the Senate voted to repeal the law's medical device tax. That vote was nonbinding, and the House hasn't followed suit. But most observers I've spoken with think that the device tax isn't long for this world.

The critics who warned that the law's cuts and revenue projections might not be sustainable are looking increasingly prescient. I suspect that what we're seeing now is only the beginning. Health insurers will continue to push to repeal the fee on their industry, and if implementation of the law coincides with higher premiums for a large enough number of individual, they may well have some success. In 2018, the "Cadillac tax"—a tax on expensive health insurance plans—will kick in. Union lobbying already delayed the start date for that provision by several years, and it's likely that they will renew their opposition in a few years.

The revenue mechanisms built into the law are starting to fall apart. The spending, of course, remains. 

*Update—September 2013: I should note that while this revenue provision was repealed, it was also paid for by clawing back some of Obamacare's insurance subsidies, as I originally noted here


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  1. “I’m glad I’ve been promoted Scientist-in-Chief,” Obama said to laughter at the White House. “Given my grades in physics, I’m not sure it’s deserving. But I hold science in proper esteem, so maybe that gives me a little credit.”


    1. “Obama said he brought together a lot of smart people, which would help grow the economy.”

      That’s not how that works.

      1. Math departments are hotbeds of economic growth!

    2. Imagine someone who can’t do arithmetic having problems in physics.

      1. Imagine an idiot having problems.

    3. 1) I seriously thought that was an April Fools article leftover.

      2) How would we know your physics grades when you won’t release your transcripts?

      1. They can be slowly pieced together with these occasional revelations.

        1. Ain’t nobody got time for that shit!

          1. I agree, but Obama is president and can do whatever he wants.

  2. The spending, of course, remains.

    This remains to be seen. Roughly half the states are rejecting the Medicaid extension and many patients in other states won’t receive care due to Medicaid provider shortages.

    I stand by my earlier prediction that Obamacare will be a big ‘So what’ in by 2016.

    1. Another perfectly nonsensical shreeky post!

      Without the spending it fails. Without the projected revenues it fails. How does more fail lead to a ‘big”So what”‘?

      I mean other than the run of the mill democrat failure we all deal with daily.

      1. How does more fail lead to a ‘big”So what”‘?

        This is America, Jack. Here we ignore failure for generations with a big “so what?”. Shriek’s right in the sense that nobody will care by 2016.

    2. Obama lied. Sick folks died.

    3. “I stand by my earlier prediction that Obamacare will be a big ‘So what’ in by 2016.”

      You idiot! That’s not a prediction, it’s an opinion

    4. Yes, most people will forget their outrage over Obamacare. After all, most people pay an effective tax rate of 30% or more and don’t complain too much. If at some point they had paid 0% then the raise to 30% would be initially met with anger.

      Acceptance doesn’t make anything right though.

    5. Lol right, and all those 20 somethings making $25000 a year who all of a sudden face the prospect of forking over $5000 a year for health insurance or $2000 a year for the penalty are just gonna pay up quietly.

      Of course there won’t be any spikes in 20 something unemployment around that time either

    6. due to Medicaid provider shortages.

      Mighty weasally way of saying GPs are refusing to take Medicaid.

  3. Maybe John Roberts saw all of this coming and couldn’t resist the potential giggles he would get?

    1. Right. He’s actually the director of BuSab. Suuure.

  4. Jesus, Pete. I give you negative reinforcement when you skip the alt-text and positive reinforcement when you include it. What more do you need to learn?

    1. A teacher with a Masters in Education earning at least $75,000 a year in base salary with a benefits package worth another $40,000 a year.

      At least according to the NEA that is.

  5. I knew a couple in college that had a pair of ferrets — cute little animals.

    The husband had lost his leg beneath the knee and used a prosthetic to walk around. At bed time he would take off the prosthetic and just hop around the apartment on one foot. Then they only had one ferret.

    1. Wrong thread 🙁

  6. Decimate literally means cut by 10%. Thus the “dec” part.

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