Tuesday, June 09, 2009

Obama's Pay Go Means Citizens Pay for Health Care Reform?

President Obama proposed binding "pay as you go" rules for Congress. No new spending can occur without new revenue or expense cuts to offset the expenditure. The timing of his proposal impacts health care reform.

Despite a recent Christina Romer "schlocky" assertion, the Obama clearly wants health care reform to save U.S. employers on health insurance costs. President Obama, Larry Summers, David Axelrod and Rahm Emanuel stated the burden of employer sponsored health insurance harmed companies in the global economy. Who should we believe, the President and his top advisers or one member of his economic squad?

Any increased coverage under PAYGO must be funded, or savings generated within the existing system to pay for insurance for millions of Americans. Here are the tea leaves:

1. Roughly one third of the uninsured can afford coverage, but cannot or don't buy it. Many want coverage but can't get it due to pre-existing conditions.

2. Roughly one fifth won't qualify for coverage as they are undocumented immigrants. These patients will remain a burden on safety net facilities

3. That leaves almost half of the uninsured as candidates for coverage. Some 15 million Americans don't file taxes, despite a legal requirement. To the extent, the uninsured and the non-filing overlap, a significant number of citizens will be non-compliant with any legal requirement to have coverage, even with penalties.

4. Expect the Obama plan to subsidize insurance for 10-15 million, out of a projected 50 million uninsured. The plan will be implemented over time, a period of years.

5. Businesses clearly want to shed responsibility for that pesky health insurance benefit. Up to 25% plan to shift more costs to employees, some plan to eliminate the benefit entirely.

It will be interesting to see the rate of employer shedding during the reform phase in period. What new revenue sources are on the table?

a. Taxing employer health insurance benefits-no one has said who pays this tax, the employee or the employer. Also, the individual tax treatment of health insurance has huge policy implications. If the employer loses the deduction, but the worker retains it, expect businesses to dump the benefit cost onto the employee.

b. Taxing nonprofit community hospitals. Recall that the uninsured are not going away, not even by half. Safety net facilities are already stressed. Removing disproportionate share funding and adding a tax burden will bankrupt many nonprofit community hospitals. They will be available for sale to their for-profit brethren.

c. Adding a value added tax, roughly a national sales tax.

Assume some new revenue, but not enough to cover costs for covering 10-15 million. That means cuts to existing programs, Medicare, Medicaid, & CHIP. Medicare could be means tested, i.e. wealthy pay for their Medicare coverage. Pete Peterson and Denny Shelton sit in this corner. Blackstone Group co-founder Pete Peterson doesn't have Medicare. He buys health insurance from his billions. Legacy Health Partners CEO Denny Shelton is willing to pay for his Medicare coverage. That $42 million from the sale of Triad Hospitals means Denny has the skins to pay. Obama's White House Health Czar made $1.4 million from Triad's sale.

President Obama's proposal of PAYGO is promoted as deference to Blue Dog Democrats, but it's really a shout out to Pete Peterson and his fellow big money boys. Mr. Peterson donated $1 billion of his private equity underwriting (PEU) proceeds to a foundation bearing his name. It wants the U.S. to cut entitlement spending and not raise taxes for the wealthy. Mr. Peterson appointed Tim Geithner to head the New York Federal Reserve Bank. At a gathering of the financial elite, Geithner remarked that due to Mr. Peterson, there are no fiscal doves left.

President Obama's hawkishness is his latest pander to the PEU boys. Did Rahm Emanuel preview this line of thought to Carlyle Group co-founder David Rubenstein over dinner at the Blue Duck Tavern? If only it was named the Blue Dog Trough!

Watch the details of health care reform. Foxes are in the hen house.

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