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Budget Committee Chairman Paul
Ryan: Hiding
Spending Doesn't Reduce Spending :

Paul Ryan: Health care law is a fiscal house of

Paul Ryan raises a point of order:
"OBAMACARE is the mother of all Unfunded
This is three and three-quarter minutes’ worth of Rep. Ryan
ripping apart last year’s useless CBO report on Obamacare costs,
with some additional commentary added in on how you can
reconcile said CBO report claiming that Obamacare will reduce
the deficit while the CBO is saying elsewhere that Obamacare
will increase the debt. Short version: when looking at the deficit
the CBO was forced by the then-majority party to make
assumptions that they couldn’t make while looking at the debt.

The Impact of Obamacare: From
the Frontlines of Our Health Care
Posted January 10th, 2011

The fight against Obamacare has begun on a new front as the
House of Representatives prepares to consider H.R. 2, a measure
to repeal the health care overhaul in its entirety. New Members
of Congress campaigned on a promise to fight the unpopular new
law, and this is the first step to making good on that promise.
Meanwhile, proponents of Obamacare continue to claim that
repeal would hurt Americans and increase the federal deficit. In
fact, the reverse is true. The negative impact of the health law
will be felt by every American citizen. For example:
• Obamacare creates trillions in new spending and will add to
the federal deficit, putting future taxpayers on the hook.
• 16 million more Americans will be added to the 58 million
receiving Medicaid, a program for low-income citizens that
incoming New York Governor Andrew Cuomo called
“dysfunctional on many levels” and in need of “a desperate
overhaul.” Millions more will remain uninsured.
• Expanding Medicaid will put already-suffering state budgets
further in the red, while the overreach of the federal
government threatens state autonomy under our federalist
• Increased enrollment in government health programs, new
regulations, and less reimbursement all mean that physicians
face more obstacles to the practice of medicine.
• Cuts to Medicare mean that seniors face reduced access to
services, fewer benefits, and higher premiums.
• New taxes and penalties will make it harder for businesses to
create jobs and continue offering health benefits.
• Government intrusion into family life reaches new heights,
as federally funded projects aimed at reducing teen
pregnancy deny families any knowledge about the services
their children receive.
Our contribution to the debate has not been limited to
researching the facts. Heritage has also highlighted the stories of
ordinary citizens already dealing with the consequences of
“reform” or awaiting worse to come. Our new brochure, “The
Impact of Obamacare: From the Frontlines of Our Health Care
Crisis,” provides a glimpse into the lives of affected individuals
and highlights why the best way forward for all Americans is to
fully repeal Obamacare and then start over to get health care
reform right.
To learn more about how everyday citizens will be affected by
Obamacare and the need for repeal, we invite you to check out
our new brochure and the research papers, charts, graphs, and
impact calculator that accompany it.

Author: Kathryn Nix


Obamacare: Impact on Seniors
Published on May 20, 2010 by Robert Moffit, Ph.D. WebMemo #2908

According to surveys, no group of Americans is more skeptical of
Obamacare than senior citizens[1]—and with good reason.
While bits and pieces of the massive law are designed to appeal to
seniors—more taxpayer subsidies for the Medicare drug benefit,
for example—much of the financing over the initial 10 years is
siphoned off from an estimated $575 billion in projected savings
to the Medicare program. Unless Medicare savings are captured
and plowed right back into the Medicare program, however, the
solvency of the Medicare program will continue to weaken. The
law does not provide for that. Medicare is already burdened by
an unfunded liability of $38 trillion.
Medicare Advantage plans,[2] which currently attract almost one
in four seniors, will see enrollment cut roughly in half over the
next 10 years. Senior citizens will thus be more dependent on
traditional Medicare than they are today and will have fewer
health care choices.
Initial Provisions
Under the Medicare Modernization Act of 2003, Congress
deliberately created a gap in Medicare drug coverage (the so-
called “donut hole”) in which seniors would be required to pay
100 percent of drug costs up to a specified amount. Obamacare
provides a $250 rebate for seniors who fall into the “donut hole”
and requires drug companies to provide a 50 percent discount on
brand name prescriptions filled in the hole.
In 2011, Obamacare will also impose a new tax (a “fee”) on the
sale of these brand name drugs in Medicare and other
government health programs, ranging from $2.5 billion in 2011
to $4.1 billion in 2018. Meanwhile, the law will freeze payments
to Medicare Advantage plans and restrict physicians from
referring seniors in Medicare to specialty hospitals where
physicians have an ownership interest. In 2013, the law
eliminates the tax deductibility of the generous federal subsidy
for employers who provide drug coverage for retirees. This could
further undercut provision of employment-based prescription
drug coverage for seniors.
Fewer Plan Choices
With the freezing of Medicare Advantage payments in 2011,
Congress has set the stage for a progressive reduction in seniors’
access to, and choice of, the popular Medicare Advantage health
In 2012, the law will begin reducing the federal benchmark
payment for these plans. In 2014, these health plans must
maintain a medical loss ratio of 85 percent, and the Secretary of
Health and Human Services is to suspend and even terminate
enrollment in plans that miss this target.
Enrollment in Medicare Advantage by 2017 is estimated to be cut
roughly in half, from a projected 14.8 million (under current
law) to 7.4 million.[3] Since there are serious gaps in Medicare
coverage, including the absence of catastrophic protection,
roughly nine out of 10 seniors on traditional Medicare already
need to purchase supplemental insurance, such as Medigap.
Without Medicare Advantage, millions more seniors will have to
go through the cumbersome process of paying two separate
premiums for two health plans.
Less Access to Physicians
In 2011, the new law provides a 10 percent Medicare bonus
payment for primary care physicians and general surgeons in
“shortage” areas. This is a tepid response to a growing problem.
With the retirement of 77 million baby boomers beginning in
2011, the Medicare program will have to absorb an
unprecedented demand for medical services. For the next
generation of senior citizens, finding a doctor will be more
difficult and waiting times for doctor appointments are likely to
be longer. The American Association of Medical Colleges
projects a shortage of 124,000 doctors by 2025.[4]
Obamacare has not ameliorated the growing problem of
projected physician shortages and has surely made it worse.
Under the new law, physicians will be even more dependent on
flawed government payment systems for their reimbursement.
Moreover, the congressionally designed Medicare physician
payment update formula, the Sustainable Growth Rate (SGR),
initiates cuts that are so draconian that Congress goes through
annual parliamentary gyrations to make sure its own handiwork
does not go into effect.[5]
The new law also dramatically expands Medicaid, a poorly
performing welfare program with low physician reimbursement
rates, and this expansion will account for roughly half of the 34
million newly insured Americans.[6] Furthermore, the law
creates an Independent Payment Advisory Board, which will
recommend measures to reduce Medicare spending. Formally,
the board is forbidden to make recommendations that ration
care, increase revenues, or change Medicare beneficiaries’
benefits, cost-sharing, eligibility, or subsidies. For the board,
reimbursement for doctors and other medical professionals
seems the only target left. But payment cuts can effectively ration
More Medicare Payment Cuts
According to the Centers for Medicare and Medicaid Services
Over time, a sustained reduction in payment updates, based on
productivity expectations that are difficult to attain, would cause
Medicare payment rates to grow more slowly than, and in a way
that was unrelated to, the providers cost of furnishing services to
beneficiaries. Thus, providers for whom Medicare constitutes a
substantive portion of their business could find it difficult to
remain profitable and, absent legislative intervention, might end
their participation in the program (possibly jeopardizing access
to care for beneficiaries).[7]
Indeed, creating a real problem for seniors, the CMS Actuary
estimates that roughly 15 percent of Medicare Part A providers
—the part of the Medicare program that pays hospital costs—
would become unprofitable within 10 years.[8]
Higher Taxes
Under the new law, seniors are going to pay higher taxes. The
higher taxes on drugs (effective in 2011) and medical devices
(effective in 2013) will affect seniors especially, as they are more
heavily dependent on those very products. Older people, of
course, have higher health costs than younger people. But the
existing tax deduction for medical expenses will be raised from
7.5 to 10 percent of adjusted gross income in 2013. The reduced
tax deductibility of medical expenses is waived for seniors only
from 2013 to 2016. Likewise, older people have larger
investments than younger people, and thus high income older
persons will be more heavily impacted by the new 3.8 percent
Medicare tax imposed on unearned or investment income
(effective 2013).
New federal health insurance taxes—both the premium taxes and
the excise taxes—will also impact older workers and retirees. The
federal premium tax (effective 2014) will be applicable to
Medicare Advantage plans and health plans offered to federal
retirees in the Federal Employees Health Benefit Program
(FEHBP). Likewise, starting in 2018, there is a new 40 percent
federal excise tax on “Cadillac” health plans (defined as $10,220
for individual coverage and $27,500 for family coverage). This
will also apply to FEHBP plans, which enroll federal retirees.
A Better Policy
Forcing doctors and hospitals to comply with new rules and
shaving reimbursement for treating senior citizens is not real
reform. If Congress is going to reduce Medicare and impose a
hard cap on Medicare payment to restrain per capita cost
growth, at the very least it ought to channel those savings right
back into the program to enhance Medicare’s solvency and lay
the fiscal foundation for real reform. Seniors deserve better than
what Obamacare gives them.
Robert E. Moffit, Ph.D., is Director of the Center for Health Policy Studies at The
Heritage Foundation.

About the Author

Robert Moffit, Ph.D. Senior Fellow

Obamacare: Impact on Taxpayers
Abstract: The hodgepodge of new taxes that have already or will
soon take effect as a result of the Patient Protection and Affordable
Care Act may not all show up in the income tax tables, but their
huge cost is still very real. This cost will become most apparent in
lost wages and international competitiveness, and it reduces
middle- and low-income families' wages just as surely as an
income tax hike would. These taxes break President Barack
Obama's promise not to raise taxes on families making less than
$250,000 per year.
Now that the Patient Protection and Affordable Care Act
(PPACA) of 2010 has been passed by Congress and signed into
law by President Barack Obama, substantial tax increases can be
expected in the near future. Combined, all of these tax increases
(including those on employers that do not provide health
insurance for their employees and on individuals who do not buy
health insurance) will cost taxpayers $503 billion between 2010
and 2019.[1]
These tax hikes will slow economic growth, reduce employment,
and suppress wages. Further, in an act reminiscent of George H.
W. Bush breaking his "no new taxes" pledge in 1991, the tax
hikes in the PPACA will raise taxes on middle-income families in
direct violation of President Obama's oft-stated pledge not to do
so. And by delaying the effective date for most of these new taxes,
the President and Congress have shown themselves unwilling to
implement these taxes on their own watch, raising doubts as to
whether future Presidents and Congresses will be willing to do
so. This increases even further the likelihood that this bill will
substantially increase the deficit, which would break another
Obama promise.
Major New Tax Increases in the PPACA
Three major tax increases make up a majority of new revenue in
the PPACA.
1. A new 40 percent excise tax on health insurance plans. This
will apply to plans valued in excess of $10,200 for individuals
and $27,500 for families. It will take effect in 2018 and is
projected to raise $32 billion by 2019.
The PPACA could have fixed one of the health care system's
most serious flaws: the inefficient tax treatment of employer-
sponsored health insurance. Done rightly, a serious reform
of the federal tax treatment of health insurance could have
expanded opportunities for Americans to own and control
their own health insurance, created true portability of
coverage, stimulated intense competition within the health
insurance market, and reduced overspending on health care
by making workers more attuned to their health care costs.
[2] Instead, the new excise tax will make health insurance
more costly and complex, while leaving the perverse
incentives and inequities of the existing system in place. In
addition, this hidden tax will do nothing to make costs more
Many families that make far less than $250,000 a year have
high-end health plans and will be subject to the excise tax
when it goes into effect in 2018, breaking President Obama's
pledge not to tax these families. The threshold above which
an insurance plan will be hit by the tax is indexed to increase
at inflation plus 1 percent, which is below the rate of medical
cost inflation. This means that more and more health
insurance plans that Congress never intended to tax will fall
above the threshold in future years. Many of these plans will
also belong to families making less than $250,000 a year,
further shattering President Obama's pledge.[3]
2. An increase in the Hospital Insurance (HI) portion of the
payroll tax. This will increase the employee's portion from
1.45 percent to 2.35 percent for families making more than
$250,000 a year ($200,000 for singles). Combined with the
employer's portion, the total rate will be 3.8 percent when
the tax hike takes effect in 2013.
There is a long-standing tradition that the payroll tax should
be used exclusively to fund Social Security and Medicare.
The increased HI rate not only breaks this principle, but
also, and for the first time, will fund a new, separate
entitlement. With this precedent broken, future Congresses
will be tempted to use payroll tax increases to pay for other
new programs that the tax was never intended to fund.
The $250,000 threshold is not indexed for inflation, so in
inflation-adjusted terms, families making less than $250,000
a year today will pay the tax when it takes effect in 2013. As
inflation increases, more and more middle-income families
will be hit by the tax. This tax hike also breaks President
Obama's pledge not to raise taxes on these families.
3. Payroll taxes on investment. The PPACA applies the new
higher 3.8 percent HI tax to investment income, including
capital gains, dividends, rents, and royalties, effective in
For the first time, a portion of the payroll tax will apply to
investment income--a sharp departure from the nature and
history of social insurance programs and another dangerous
precedent for future policy. This will discourage investment
and lead to slower economic growth, fewer jobs, and lower
wages.[4] Tax policy should work to reduce the growth-
depleting tax on capital income, not to increase that burden.
Together, these payroll tax hikes will raise $210 billion between
2013 and 2019.
Mandates on Individuals and Businesses Raise Taxes
In essence, the mandates on individuals to purchase health
insurance will raise taxes on families. When fully implemented in
2016, the individual penalty for not complying will reach up to
$695 per person (for up to three people or $2,085 per household)
or 2.5 percent of taxable income.[5] Many healthy but uninsured
individuals will now be forced to buy insurance plans under the
PPACA. This added cost--whether as new premiums or as a
penalty for not purchasing insurance--is a de facto tax increase
for these individuals.
Employers also have a new mandate to provide health insurance
for their employees. Employers with more than 50 employees
that do not offer coverage and have at least one full-time
employee who receives a premium tax credit will pay a fine of
$2,000 per employee (excluding the first 30) or $3,000 per
employee receiving the premium tax subsidy.
As with the individual mandate, families will feel the bite of these
tax increases in two ways:
1. If an employer begins to offer insurance, the wages of those
employees to be covered will drop by the amount that the
newly provided health insurance plan costs the employer.
2. If the employer fails to offer coverage, it will pay the tax, and
the employee's compensation will fall by that amount.
Either way, workers' total compensation does not change; only
its composition changes. But because workers will be forced to
take more of their compensation in the form of health insurance,
their cash wages will fall, and they will have less flexibility to use
their earnings as they wish. Even though their total
compensation will not change, lower cash income will negatively
affect middle- and low-income families.
Other PPACA Tax Increases
The health legislation includes a myriad of smaller tax hikes,
many of which will also fall on middle- and lower-income
Americans. Many of them will not take effect until after Obama's
potential second term. These hikes include:
• A reduction in the number of medical products that
taxpayers can purchase using health savings accounts
(HSAs) and flexible spending accounts (FSAs).
• An increase in the penalty for purchasing disallowed
products with HSAs to 20 percent.
• A limit on the amount that taxpayers can deposit in FSAs to
$2,500 a year after 2013.
• A requirement that corporations report more information on
their business activities, the theory being that if corporations
must report more about their activities, they will be less
likely to try to avoid taxation.
• An annual fee on manufacturers and importers of branded
drugs based on each individual company's share of the total
market. The tax starts at $2.5 billion in 2011 and goes to $2.8
billion in 2012-2013, $3.0 billion in 2014-2016, $4.0 billion in
2017, $4.1 billion in 2018, and $2.8 billion per year
• A 2.3 percent excise tax on manufacturers and importers of
certain medical devices.
• An annual fee on health insurance providers based on each
company's share of the total market. Since health insurance
companies stand to get more customers because of the
individual and employer mandates, Congress forced them to
share some of the revenue increase with the federal
government. The tax raises $8 billion in 2014, $11.3 billion in
2015-2016, $13.9 billion in 2017, and $14.3 billion in 2018.
After 2018, it will raise $14.3 billion, indexed to medical cost
• Elimination of the corporate deduction for prescription
expenses for retirees. This provision has caused many large
companies to announce write-downs of their future earnings.
• An increase in the floor on the deduction for medical
expenses from 7.5 percent of adjusted gross income to 10
• A limit on the amount that health insurance companies can
deduct from their taxes to $500,000 of compensation paid to
officers, employees, directors, and service providers.
• Repeal of the special deduction for expenses related to claims
adjustments and administrative expenses specifically for
Blue Cross/Blue Shield organizations.
• A 10 percent excise tax on indoor tanning services.
• Exclusion of unprocessed fuels from the existing cellulosic
biofuel producer credit. Some industries that do not make
biofuels were able to claim the credit because of byproducts
produced during their manufacturing process. This credit is
an unjustified use of the tax code that encourages certain
kinds of energy production at the cost of others. Congress
might better have scrapped the credit altogether.
• A change in the definition of which business activities are for
economic purposes and which are strictly to avoid taxation--
many of which were perfectly legal--along with penalties for
underpayments due to the latter.
Broken Promises to the Middle Class
President Obama repeated again and again during the campaign
that he would not raise taxes on any family making less than
$250,000 a year. He broke that promise early in his presidency
when he increased cigarette taxes, and he has done so in a far
grander way with this health care legislation. Not only will the
higher HI taxes cost middle-income families jobs and suppress
their wages, but the excise tax on high-cost plans will hit them
Several of the taxes listed above, while not targeting middle-
income families, will ultimately be passed on to them through
higher prices. These include the fees on medical device
manufacturers, pharmaceutical companies, and health insurance
companies and the new tax on tanning services.
Restricting how much taxpayers can set aside in HSAs and FSAs
will increase the income taxes paid by middle- and low-income
families, because income that they now set aside tax-free in these
accounts above the new threshold will now be subject to income
tax. Limiting the types of products that taxpayers can buy with
the funds in these accounts will cause middle- and low-income
taxpayers to put aside less money in their HSAs and FSAs,
increasing their income tax liability.
The mandates on individuals to purchase health insurance will
also function as a tax on middle- and low-income families that
are currently not covered. Even those who do have coverage will
be forced to buy more expensive insurance because of mandates
that require certain levels of coverage. As a result of the
employer mandate, middle- and low-income families will see
their wage income fall even as their total compensation remains
the same.
A Steep Price to Pay
Over time, the hodgepodge of new taxes in effect now or in the
future will substantially slow economic growth and affect
taxpayers from all walks of life. This will become most apparent
in lost wages and international competitiveness.
These lost wages, largely out of the pockets of low- and middle-
income families, represent a huge cost of this legislation that does
not show up in any official tables, but this cost is every bit as real.
It reduces families' incomes just as surely as an income tax hike
would and breaks the promise that President Obama made when
he said he would not raise their taxes.
Curtis S. Dubay is a Senior Analyst in Tax Policy in the Thomas A. Roe Institute for
Economic Policy Studies at The Heritage Foundation. Vivek Rajasekhar, an intern
in the Center for Health Policy Studies, contributed to this paper.

About the Author

Curtis Dubay Senior Policy Analyst, Tax Policy
Request an interview >>

Obamacare and its Impact on Doctors
Published on June 14, 2010 by Robert Moffit, Ph.D.

Don’t expect doctors to give the Patient Protection and
Affordable Care Act a clean bill of health. The act will reinforce
the worst features of existing third-party payment arrangements
in both the private and public sectors — arrangements that
already compromise the professional independence and integrity
of the medical profession.
Doctors will find themselves subject to more, not less,
government regulation and oversight. Moreover, they will
become increasingly dependent on unreliable government
reimbursement for medical services. Medicare and Medicaid
payment, including irrational government payment updates, are
preserved (though shaved) and expanded to larger portions of
the population.
The Act creates even more bureaucracies with authority over the
kinds of health benefits, medical treatments and procedures that
Americans get through public and private health insurance. The
new law provides no serious relief for tort liability. Not
surprisingly, various surveys reveal deep dissatisfaction and
demoralization among medical professionals.
Under the new law, an estimated 18 million of the 34 million who
would gain coverage over the next 10 years would be enrolled in
Medicaid, a welfare program jointly administered and funded by
the federal government and the states.
Such a massive Medicaid expansion will displace private health
coverage, and expand government control over health care
financing and delivery. Physician payments in the major
entitlement programs, Medicare and Medicaid, are well below
the prevailing rates in the private sector. On average, doctors in
Medicare are paid 81 percent of private payment; physicians in
Medicaid are paid 56 percent of private payment. Needless to
say, today there are sporadic access issues for patients in
Medicare, and major access problems for patients in Medicaid.
The new law does not substantially change the general pattern of
the government’s systems of physician payment. Indeed, it only
expands their reach and adds new regulatory restrictions. For
example, beginning this year, the new law will prohibit
physicians from referring patients to hospitals in which they
have ownership, with the exception of hospitals that treat a large
number of county patients enrolled in Medicaid.
In 2011, Medicare primary care physicians and general surgeons
will receive a 10 percent bonus payment. In 2013, the law
prescribes that primary care physicians participating in
Medicaid will get Medicaid payment no less than 100 percent of
the Medicare payment rates for their services for two years, 2013
and 2014. For the incremental costs to the states of these
required increases, the new law authorizes 100 percent of
additional federal taxpayer funding. There is no provision for
continued federal taxpayer funding beyond these two years.
Medicare authorizes a set of administrative payment systems for
doctors and hospitals. For physicians, the basic Medicare fee
schedule is based on a formula called the Resource Based
Relative Value Scale (RBRVS), which pays physicians based on
the estimated “inputs” to provide a medical service, such as the
time, energy and effort required to provide a medical service.
Medicare physician payment is annually updated on the basis of
the Sustainable Growth Rate (SGR) formula, which ties annual
physician payment increases to the performance of the general
economy. Under the SGR, without congressional intervention,
the initial Medicare pay cut would amount to 21.3 percent. The
impact is not hard to fathom.
For example, the Fairfield County Medical Association in
Connecticut reported that, if such cuts were to take effect, 41
percent of county doctors would stop taking new Medicare
patients, and nearly one out of four doctors would drop
Medicare altogether. Congress has shown no inclination to fix
this problem without adding to the federal deficit, and thus can
be expected to continue resorting to stop-gap measures to stop its
own Medicare payment formula from actually going into effect.
On top of existing payment rules, regulations and guidelines, the
new law creates numerous new federal agencies, boards and
commissions. There are three that have direct relevance to
physicians and the practice of medicine, and the nature and
scope of the regulatory regime will be decisive.
Under section 6301, the new law creates a “non-profit” Patient-
Centered Outcomes Research Institute. It will be financed
through a Patient Centered Outcomes Research Trust Fund,
with initial funding starting at $10 million this year, and
reaching $150 million annually in Fiscal Year 2013, with
additional revenues from insurance fees.
In effect, the Institute will be examining clinical effectiveness of
medical treatments, procedures, drugs and medical devices.
Much will depend upon how the findings and recommendations
are implemented, and whether the recommendations are
accompanied by financial incentives or penalties or regulatory
Under section 3403, there will be an Independent Payment
Advisory Board, with 15 members appointed by the president.
The goal of the board is to reduce the per capita growth rate in
Medicare spending, and make recommendations for slowing
growth in non-federal health programs. It’s hard to imagine any
other outcome other than continued payment cuts.
Under section 3002, the law extends the Physician Quality
Reporting Initiative. Focused on the quality of care delivered to
Medicare beneficiaries, it is elemental to the time-consuming
compliance with Medicare pay for performance rules and
incentive payments. Much depends upon federal rules of
implementation and enforcement. In any case, this is not a
prescription for medical innovation.
Notwithstanding the American Medical Association’s high-
profile endorsement of the massive Senate health bill bill (now
the law of the land), recent polling underscores deep discontent
among doctors. For example, according to a recent survey of
physicians conducted by Athena Health and Sermo, 79 percent of
physicians are less optimistic about the future of medicine; 66
percent indicated that they would consider dropping out of
government health programs; and 53 percent would consider
opting out of insurance altogether. More ominously, with
America already facing a shortage of physicians, particularly in
geriatrics and primary care, many physicians also say they would
leave the profession.
But, based on earlier polling and surveys of physician sentiment,
none of this should be surprising. The new law doesn’t address
doctors’ most pressing concerns, such as tort reform. And it
worsens the already painful problems with third-party payment
and government red tape.
A key goal of health care reform should be to restore the
traditional doctor-patient relationship. In such a relationship,
doctors would be the key decision-makers in the delivery of care,
and patients would be the key decision-makers in the financing of
care. This cannot be achieved unless and until patients control
health care dollars and decisions, and third party insurance
executives are directly accountable to those who pay the health
care bills. Obviously, Congress needs to start over and get it
Robert E. Moffit is director of the Center for Health Policy Studies at The Heritage

About the Author

Robert Moffit, Ph.D. Senior Fellow


Obamacare: Impact on the Family
Published on April 12, 2010 by Chuck Donovan WebMemo #2857

Families have good reason to be concerned about how the Patient
Protection and Affordable Care Act (PPACA) of 2010[1] will
affect them. While the law will deliver a health insurance
entitlement to millions of individuals and families, many of its
provisions weaken family choice of coverage, undermine parental
participation in minor children’s health care decisions, penalize
the decision to marry, and undercut family values in health care.
More Families Covered but Less Family Choice
Millions of families gain an entitlement to health insurance under
the mandates on individuals and employers in PPACA. The law’s
creation of new affordability tax credits will ease the purchase of
health insurance for middle-income Americans.
But the new credits go hand in hand with increased regulation of
private health plans. Moreover, families gained nothing from
PPACA that will permit them to purchase better or cheaper
plans across state lines.[2] The new law also does nothing to
increase the variety of insurance available in the market, which
could include family-friendly options like health plans managed
by professional associations, unions, and faith-based groups. Nor
will families be able to purchase health plans that exclude
coverage for services to which they ethically object or which they
do not need.
Undermining the Role of Parents
PPACA expands several funding streams that undermine
parental responsibility and authority to direct the upbringing of
their children. The law lavishes federal dollars on programs like
school-based health centers and a new “Personal Responsibility
Education” (PRE)[3] program that deny parents knowledge of
sensitive services their children receive in federally funded
First, PPACA creates a new $50 million per year appropriation
for school-based health centers, many of which either offer
contraception on site or refer for contraception and even
abortion. The law states that the recipient clinics must honor
“parental consent and notification laws that are not inconsistent
with Federal law.”[4] However, the federal Medicaid and Title X
(Public Health Service Act) laws stipulate that the confidentiality
of teens obtaining services must be respected, nullifying any state
or local parental notice or consent policies.[5]
Second, the new PRE program provides $75 million per year for
grants to help states reduce pregnancies and births to teenagers.
Unlike the 1996 welfare reform, however, the new program does
not incentivize states to reach these goals without increasing their
abortion rates.
Penalizing Marriage
Another disturbing feature of PPACA is the fact that it imposes
—across a broad range of income and age—significant financial
penalties on the decision to marry.
The marriage penalty imposed by the law could exceed $10,000
per year for certain couples.[6] This is because the affordability
tax credit phases out rapidly as income rises.
Not only does this health insurance marriage penalty dissuade a
younger, low-income couple from getting married—which is one
of the most beneficial life decisions they can make for themselves
and for their children—but it also provides older couples, some
of the hardest hit by this law, with an incentive to obtain a
“divorce of convenience.”
For example, a 60-year-old couple, each with an income of
$15,000 per year and purchasing insurance in the non-group
market, would gain $4,212 in tax savings if they obtained a sham
divorce and bought insurance separately. A similar couple, each
making $30,000, per year would realize $10,425 in tax savings if
they divorce and cohabit rather than remain married.
Undercutting Freedom of Conscience
As health care reform proceeded, strong majorities of Americans
supported protecting provider and insurer rights of conscience as
well as limiting the use of tax funds for abortion. In March 2009,
87 percent of respondents to a national poll supported ensuring
“that healthcare professionals in America are not forced to
participate in procedures and practices to which they have moral
objections.”[7] A January 2010 Quinnipiac Survey found that 67
percent of Americans oppose public funding of abortion.[8]
Conscience Protections. PPACA does make clear that no
qualified health care plan can be required to cover abortion as
an “essential” benefit. It also ensures that no health care plan
that participates in the state-based exchanges may discriminate
against a health care facility or provider because of its
unwillingness “to provide, pay for, provide coverage of, or refer
for abortion.”[9]
The law does not, however, prevent the federal and state
governments from practicing this same discrimination. An effort
to add such an amendment to the bill failed in a Senate
committee in September 2009. While there is an annual
appropriations rider to this effect on the bill funding the
Department of Health and Human Services, it lacks permanent
force, and regulations to implement it were suspended by
President Obama in March 2009 as a step toward its likely
Abortion Funding. Currently, every health care plan in the
Federal Employees Health Benefits Program may not as a matter
of law include coverage of elective abortion. Under PPACA,
health care plans that cover elective abortion may participate in
the state-based exchanges provided they require each enrollee to
pay a separate premium of not less than $12 per year for elective
abortion coverage.[10]
The Executive Order. On March 24, President Obama signed an
executive order that attempts to apply conscience protections and
abortion funding limits to the full text of PPACA. Regardless of
the order’s intent, judicial rulings for the past 35 years have
made it clear that public funding of elective abortions in federal
programs cannot be barred without the kind of direct ban that
Congress failed to include in many parts of PPACA.[11]
Reason for Disappointment
Advocates of family values in health care reform have reason to
be deeply disappointed with the overall impact of PPACA. The
passage of legislation that increases parental control and choice
regarding health care insurance, avoids marriage penalties,
guarantees conscience protections, and limits taxpayer support
for controversial practices like abortion must await a future
Chuck Donovan is Senior Research Fellow in the Richard and Helen DeVos Center
for Religion and Civil Society at The Heritage Foundation.

About the Author

Chuck Donovan Senior Research Fellow
Request an interview >>

Obamacare: Impact on the Uninsured
Published on April 20, 2010 by Kathryn Nix WebMemo #2873

The Administration’s health policy agenda—embodied in
Congress’s two giant health care bills (H.R.3590 and H.R.4872)
—is now law. The justification for the new law’s burdensome
taxes, unprecedented mandates, deficit spending, and stifling
government regulation is that millions of Americans will now be
insured. But the real impact Obamacare will have on the
uninsured is not what many Americans might have expected.
The Wrong Way to Expand Coverage
The Congressional Budget Office (CBO) is reporting that the
new health care law will decrease the number of uninsured in
2019 by 32 million.[1] However, this does not mean that universal
coverage will be achieved—23 million Americans will remain
without coverage, including illegal immigrants.
Of those Americans that do become insured, 16 million will be
added to Medicaid, and 24 million will obtain coverage in the
newly-created exchanges. Moreover, an estimated 3 million
Americans will lose their current employer-based insurance, and
another 5 million will lose their current non-group or other form
of coverage.
Obamacare expands coverage by increasing the size of
government. Rather than making health insurance markets more
responsive to Americans’ personal wants and needs, lawmakers
enacted a top-down approach that will impose their will on the
rest of the country. This “reform” will result in less choice and
competition for health care consumers and, although more
Americans will be “covered,” the quality of this coverage will
decrease. Moreover, certain provisions of the new laws will make
obtaining health insurance less desirable by increasing costs,
causing even more Americans to drop or lose coverage.
Millions of Americans Dumped into Medicaid
In order to cover low-income uninsured citizens, Obamacare
expands eligibility for Medicaid to include all Americans that fall
under 133 percent of the federal poverty level. However,
Medicaid is a low-performing, low-quality federal program that
fails to meet the needs of its beneficiaries. For example,
Medicaid’s failure to cover the cost to providers of seeing
Medicaid patients has greatly reduced the number of doctors
who will see Medicaid patients.
As a result, Medicaid beneficiaries have become even more
reliant on emergency care than the uninsured. According to the
Centers for Disease Control’s National Center for Health
Statistics, Medicaid patients comprised 25.5 percent of all
emergency room visits in 2006, while the uninsured made up only
17.4 percent. What is more, the emergency room visit rate among
Medicaid patients was higher than that of the uninsured:
Medicaid’s emergency room visit rate was 82 per 100 Medicaid
patients, while that of the uninsured was 48 per 100 uninsured
Increasing the number of Americans reliant on Medicaid will
further compound its current shortfalls. States are currently
facing serious budget cuts due to decreasing revenues, a trend
that is expected to continue in the years to come.[3] Though
under new law, the federal government will cover the cost of
expanding benefits in the initial years, states will have to pay the
additional administrative costs of the expansion. And after 2017,
the states will begin to pay a portion of the benefits expansion as
This increasing financial burden will force state legislators to
make budget cuts, either to other state programs or to Medicaid
itself, which would mean reduced benefits or even further
reduced physician reimbursement rates. Both of these outcomes
would be disastrous for Medicaid beneficiaries’ access to quality
care. Under new law, the federal government will pay to increase
primary care physician reimbursement rates to equal those paid
by Medicare—but only for two years, leaving Medicaid in the
same lurch it started in.
Finally, examples of state Medicaid expansions, such as the
expansion of TennCare in Tennessee, have shown that adding the
uninsured to Medicaid does not increase positive health
outcomes. For instance, Heritage Health Policy Fellow Brian
Blase found that following TennCare expansion, health outcomes
in Tennessee actually deteriorated and Tennessee’s mortality
rate declined at a much slower rate than in surrounding states
that did not expand their Medicaid programs.[4]
Increasing Premiums Will Reduce the Number of Newly Insured
Strict new insurance regulations will cause the cost of coverage to
skyrocket, encouraging the currently uninsured to remain
uninsured. According to Heritage analysts Rea Hederman and
Paul Winfree, attempting to micromanage the insurance industry
by “trying to fix one flawed policy (the rating restrictions and
guaranteed issue requirements) by adding another flawed policy
(the mandate and costly subsidies) only makes the policy
outcome even worse.”[5] In this case, bad policy will adversely
affect the new law’s ability to increase the number of insured.
A guaranteed-issue provision will allow Americans to wait until
they are sick to seek out insurance, causing insurance premiums
to soar. The individual mandate is intended to combat this by
forcing Americans into the insurance market before they are
sick. However, since the individual mandate penalty will be
significantly less expensive than the cost of an insurance plan,
this provision will not achieve universal coverage, and insurance
risk pools will begin to consist more exclusively of only those who
need insurance the most: the sick and the elderly. Younger,
healthier Americans will likely choose to pay the penalty,
purchasing insurance only if needed.
The effects this will have on premiums will be exacerbated by the
inclusion of community rating, which forbids insurers to raise
premiums for older patients more than three times the amount
charged to younger patients. Young and healthy Americans will
be the losers in this equation: the Associated Press predicts that
health premiums for young adults will increase by 17 percent,
causing fewer of them to purchase insurance.[6]
Removing young and healthy patients from risk pools will in turn
result in further premium increases, as only sick and elderly
patients will be left, creating a “death spiral” as cause and effect
intertwine to result in evermore increasing premiums, causing
more Americans to drop coverage.
Finally, the new law requires that the Department of Health and
Human Services mandate benefits and services that must be
covered by all health plans. Increasing the value of all health
plans will, of course, increase their cost, further aggravating the
aforementioned problems.
Some Will Lose Current Coverage
The ranks of the currently uninsured will not simply be reduced
by the new law. Rather, as millions of Americans find themselves
newly covered, a substantial number will also find that they will
lose the coverage they currently carry as a result of the health
care overhaul. According to the CBO, 8–9 million Americans
that currently receive employer-sponsored coverage will lose it.
Of these, 1–2 million would go from receiving coverage from an
employer to obtaining coverage through the exchanges.[7]
The source of the loss of employer-sponsored insurance is that,
under the new law, businesses will pay a penalty of $2,000 for
failing to offer insurance to their employees. However, as noted
by Heritage analysts John Ligon and Robert Book, even if
employers do offer insurance, if low-income employees are
eligible to purchase insurance in the exchanges instead and opt to
do so, the employer will pay a $3,000 fine. For employers who
hire a high proportion of low-income workers, this creates a
strong incentive to drop coverage altogether, much to the
detriment of other employees who will not receive subsidies to
purchase insurance in the exchanges.[8]
Though the net effect of the new health care law will be to
increase the number of insured, several million Americans will
also lose their coverage as a direct effect of the federal overhaul.
Many Americans who would not currently be able to call
themselves uninsured may be surprised when they are able to do
so in the years to come as a result of the President’s health care
Not What Was Promised
President Obama and congressional leadership promised the
American people health care reform that would increase access
to health care while simultaneously creating greater choice and
competition and curbing increasing health expenditures Instead,
lawmakers passed into law a top-down, heavy-handed
government approach that will increase coverage at the expense
of the other two objectives, instead limiting choice and increasing
health spending.[9]
Moreover, more than half of the newly insured will find
themselves subjected to the low-quality coverage offered by
Medicaid, and several provisions in the bill will either discourage
the uninsured from seeking coverage or cause the insured to lose
the coverage they currently have.
Kathryn Nix is a Research Assistant in the Center for Health Policy Studies at The
Heritage Foundation.

About the Author
Kathryn Nix Research Assistant
Request an interview >>


Obamacare’s Impact on the States
Posted July 2nd, 2010 at 1:00pm in Health Care

State legislators and governors will face many challenges
implementing the provisions of Obamacare. In a new Heritage
Foundation study, Ed Haislmaier and I analyze the components
of Obamacare that detrimentally affect states and make
recommendations for how states should respond to the new law.
Of the many impacts on states that we analyze, there are three
key ones:
1) The Massive Medicaid Expansion
Over half of the newly insured will gain coverage through an
expansion of state Medicaid programs. Medicaid expansion
presents numerous problems for the states: additional financial
obligations and taxes, issues of access for the increased demand
on the state health care system, the creation of a new “doc fix”
for Medicaid, reduced Disproportionate Share Hospital
payments, and maintenance-of-effort requirements that limit
state flexibility.
2) The Federal Usurpation of State Authority
States will be forced to contend with the usurpation of their
longstanding authority in regulating private insurance. The
Secretary of Health and Human Services is given enormous
power to regulate health insurance to his or her specifications.
3) The Disruption of Health Insurance Markets
Obamacare—with its numerous coverage mandates, a
prohibition on pre-existing condition exclusions and on varying
premiums by health status, and limits on the age-rating of
premiums—risks an adverse selection death spiral. In the paper
we state, “The new federal insurance regulations, particularly
the provisions setting new, uniform federal benefit requirements,
will reduce coverage options for individuals and employers and
drive up health insurance premiums. They are also likely to
result in greater concentration in health insurance markets,
leaving only a few large insurers operating as public utilities with
a regulated low rate of return selling undifferentiated products
to customers with no other options.”
State lawmakers should act quickly to protect their constituents
from these and other harmful impacts of Obamacare. We argue
that “states are not mere agents of federal authority. They are
not powerless. There is absolutely nothing that requires them to
assist in implementing this misguided legislation. Rather, they
should take every opportunity to assert their rightful authority,
resist, within the confines of the law and the Constitution, any
inappropriate or unconstitutional exercise of Washington’s
power and aggressively advance their own, better solutions.”
To read more on Obamacare’s impact on states and our
recommendations for how states can best cope with the new law,
please read our paper:

Author: Brian Blase

Obamacare: The Impact on States
Published on July 1, 2010 by Edmund Haislmaier and Brian Blase Backgrounder

Abstract: If implemented as enacted, Obamacare will impose
significant new Medicaid costs on states and constitute a major
federal usurpation of long-standing state authority in regulating
private insurance. This will be expensive and disruptive for those
Americans who rely on individual or employer-based insurance for
their health insurance. While some of the most expensive and
disruptive provisions of the massive legislation do not take effect
until 2014, other provisions are already going into effect and state
lawmakers need to act right away if they are to implement their
own Medicaid and private insurance market reforms to mitigate
the harmful effects of Obamacare. State lawmakers must recognize
that states are not mere agents of the federal government. They are
not powerless, and there is nothing that requires them to assist in
implementing this new, misguided federal health care agenda.
They should assert their rightful authority, and represent and
protect their citizens by resisting the disruptions entailed in
Obamacare—taking actions that pressure the next Congress to
scrap or redesign this harmful federal legislation.
The recently enacted Patient Protection and Affordable Care
Act, the federal government’s sweeping health care legislation,
will impose significant new costs on state government budgets,
while also constituting a significant usurpation by the federal
government of long-standing state authority over health
insurance regulation.
The immediate task for state lawmakers is to find ways to protect
their constituents—including state taxpayers, health insurance
policyholders, and individuals who depend on public health care
programs—from the adverse effects of Obamacare.
The fact that some of the most expensive and disruptive
provisions of Obamacare do not take effect until 2014 should not
lull state lawmakers into thinking that they can wait for the
results of the Obama Administration’s regulatory
implementation or the outcome of the renewed health care
legislative battle in the next Congress before acting. Some
significant provisions took effect upon enactment and a number
of others will go into effect later this year or next year.
Thus, governors and state legislators need to start planning their
responses and start drafting any applicable legislation for
consideration in their next legislative sessions—now. Failure to
do so means surrendering control over a large share of their
states’ current budgets to federal officials and becoming passive
bystanders as—faced with an onslaught of new federal regulation
—private insurers scramble to position themselves for an
Obamacare market by taking steps that will likely result in less
insurer competition, fewer plan choices, and higher coverage
costs, all beginning next year.
The wisest approach for state lawmakers is to take steps that
better position their states for either of two possibilities: a new
Congress that repeals Obamacare, or a protracted, multi-year
political and legal battle conducted against the backdrop of an
Administration attempting to implement the legislation as
A Massive Expansion of Medicaid
The Medicaid coverage provisions of the new federal health care
legislation will result in an enormous expansion of state Medicaid
rolls. This Medicaid expansion will account for over half of the
estimated reduction in the uninsured population under
Starting in 2014, the legislation requires states to extend
Medicaid eligibility to all non-elderly individuals with family
incomes below 133 percent of the federal poverty level (FPL).
This mandatory coverage expansion will principally consist of
two groups. The first group consists of parents or caregivers of
children, where the children are eligible for Medicaid. While
almost all children in families with incomes below 133 percent of
FPL are already eligible for either Medicaid or the Children’s
Health Insurance Program (CHIP),[2] only five states and the
District of Columbia extend Medicaid coverage to all parents or
caregivers with incomes below 133 percent of FPL.[3] An
additional 15 states now provide Medicaid, or similar coverage—
or in some cases more limited coverage—to some, but not all,
parents with incomes below 133 percent of FPL.[4]
The second, and much larger, group of new enrollees will consist
of non-elderly, non-disabled adults without dependent children,
who have incomes below 133 percent of FPL. Until now,
Medicaid coverage could only be extended to able-bodied adults
without dependent children as part of a demonstration waiver
program. The new health care law not only permits states to
extend Medicaid coverage to such individuals beginning
immediately, but also requires states to cover them starting in
Table 1 provides Heritage Foundation state-level enrollment
projections for 2014—the first year of the mandatory-coverage
expansion— derived from national estimates from the Centers
for Medicare and Medicaid Services (CMS) Office of the
Actuary. The CMS Actuary projects that national Medicaid
enrollment in 2014 will be 30.4 percent higher as a result of the
required coverage expansion than it otherwise would be absent
those provisions.
At the state level, Heritage estimates that the growth in Medicaid
caseloads will range from an 8.7 percent increase in
Massachusetts to a 65.6 percent increase in Nevada.

What Medicaid Expansion Will Cost States
Obamacare attempted to appease state lawmakers by
committing federal taxpayers to paying for the entire benefit
costs of the Medicaid expansion from 2014 to 2016. In 2017, state
taxpayers will be on the hook for 5 percent of the benefit costs
for the additional enrollees, with each state’s share then
increasing to 6 percent in 2018, 7 percent in 2019, and 10 percent
in 2020 and thereafter.[5]
Beyond the benefits costs of the expansion, there will be
additional administrative costs to both the federal and state
governments. The added costs are not included in the estimates
prepared by the Congressional Budget Office (CBO) and the
Centers for Medicare and Medicaid Services, but they will be a
significant expense for states. Administrative costs are divided
between state governments and the federal government at
separate, uniform match rates. The standard administrative cost
match rate is 50 percent, though the federal government provides
higher match rates (in most cases 75 percent) for a few, discrete
administrative expense items, such as certification of nursing
facilities or operation of a state Medicaid fraud control unit.[6]
The most recent available data show that administrative
expenses add an average of 5.5 percent in addition to total
(federal and state) benefit costs, and that, on average, the federal
government pays 55 percent of total administrative costs, with
the other 45 percent paid by the states.[7] Thus, every $100
increase in benefit spending can be expected to generate another
$5.50 in administrative costs, of which states would pay $2.48.
Because the legislation does not change the match rates for
administrative costs, states will still have to pay their share of
administrative costs, even during the initial three years of the
expansion when the federal government is funding all of the
benefit costs.

As shown in Table 2, The Heritage Foundation’s initial estimates
are that the Medicaid expansion will increase state tax
obligations by just under $33.5 billion for federal fiscal years
(FY) 2014 through 2020. Of that amount, $21.5 billion will be the
states’ share of the benefit costs, and just under $12 billion will
be the states’ share of the added administrative costs. Indeed, the
state share of administrative costs for the expansions will exceed
$100 million a year in each of the four biggest states—California,
Florida, New York, and Texas. In fact, the complexity of the
system with separate rules for three classes of individuals— those
who qualify for Medicaid under prior rules, those who qualify
under the new expanded Medicaid eligibility rules, and those
who instead qualify for the new subsidized coverage
administered by the exchanges—will likely produce actual
administrative costs that are higher than these estimates.
It is also important to emphasize that the total cost (federal and
state) of the Medicaid expansion— which, based on CBO and
CMS estimates, will likely be between $400 billion and $500
billion over the first seven years—will be shouldered by
taxpayers. Although some state policymakers may think that the
Medicaid expansion is a relatively good fiscal deal for their states
because the federal government will pick up at least 90 percent of
the cost for newly eligible individuals, taxpayers in their states
will face higher tax bills as a result, not just for the state costs but
for the federal costs as well. Furthermore, the additional federal
taxes or borrowing needed to fund this expansion will inevitably
dampen economic activity in the states.
“Crowd Out” Effects. Under the new law, Medicaid coverage
will extend not only to those who are currently uninsured and
whose income is below 133 percent of the FPL, but will also
sweep into the program several million individuals below that
income threshold who are currently covered by private
employer-sponsored coverage or individual coverage. This
“crowding out,” or displacement, of private coverage will most
likely occur among individuals who work for businesses with
fewer than 50 employees. The reason for this is that the law
exempts the vast majority of such firms from the new mandate
on employers to provide coverage— which will apply to larger
firms starting in 2014.[8] Given that their workers will qualify
either for Medicaid or for heavily subsidized coverage through
the new health insurance exchanges, many small businesses that
currently offer coverage will likely terminate their health
insurance plans in 2014.
While the employer mandate penalties may discourage larger
employers from dropping their plans, it is likely that many of the
large firms that are still providing coverage after 2014 will offer
only the minimum level of required coverage. Thus, states can
expect that even those low-income workers who still have access
to a large employer plan will likely enroll in Medicaid as “wrap-
around” coverage.
“Woodwork” Effect. States can expect their Medicaid program
costs to further increase in 2014, as a result of what Medicaid
officials refer to as the “woodwork” effect—meaning, that
individuals who qualify under current law for Medicaid, but who
have not yet enrolled, will “come out of the woodwork” to do so.
This effect will result from the interaction of other provisions in
the legislation with the Medicaid expansion. Specifically, the
legislation establishes a new set of generous health insurance
subsidies for individuals with incomes below 400 percent of the
FPL, administered through new health insurance exchanges. The
health insurance exchanges also have the task of determining
eligibility for those new subsidies. In cases where an exchange
determines that an individual qualifies for Medicaid, instead of
for the new subsidy system, the law requires the exchange to
enroll that individual in the applicable state Medicaid program.
State Medicaid officials are required to accept such individuals
into their programs and are prohibited from conducting their
own separate eligibility determination.[9] If the individual in
question is eligible for Medicaid coverage under the eligibility
criteria for the state’s Medicaid program that is in effect
immediately before the passage of the new federal legislation,
then the state’s Medicaid costs for that individual will be
matched by the federal government according to the state’s
standard match rate. (The higher match rates will apply only to
spending for individuals considered part of the “expansion”
population under the new federal law.) Thus, states will
experience yet higher costs associated with the enrollment of
individuals who had qualified for Medicaid under prior
eligibility standards, but who had not previously enrolled in the
Exporting “Doc Fix” to the States
Another provision in the new federal legislation requires states to
increase Medicaid reimbursement rates for primary care
physicians (PCPs) to the same level as the applicable Medicare
payment rates for the 24-month period of January 1, 2013, to
December 31, 2014.[10] The legislation specifies that the federal
government will pay all of the added costs. However, this
provision will trigger a Medicaid “doc fix” issue for some states
starting January 1, 2015— when both the mandate, and the
federal funding to compensate for its costs, will expire.
Doc fix has become congressional slang for legislation to cancel
automatic reductions in Medicare physician payment rates.
Absent legislative overrides, the fees that Medicare pays doctors
would automatically decline based on a formula included in 1997
legislation that was supposed to limit Medicare spending growth.
However, since then, Congress has repeatedly bowed to political
pressure and concerns that enrollees will lose access to care by
passing legislation to cancel the physician payment cuts.
The new legislation sets up a similar political dynamic for the
Medicaid program and state lawmakers. When the mandated
increase in Medicaid primary care physician rates (and the
associated federal funding) ends, states could theoretically reduce
Medicaid PCP payment rates to their previous levels, but both
physicians and their Medicaid patients are likely to lobby against
such a move. The alternative, of course, is for states to continue
to reimburse PCPs at the higher rates, but with state taxpayers
covering the state’s share (based on normal match rates) of the
extra costs.
As Table 3 shows, increasing primary care physician payment
rates will not be an issue for the six states that already pay
Medicaid rates to PCPs equal to or in excess of the applicable
Medicare rates. Furthermore, for the 18 additional states that
pay Medicaid rates between 80 and 98 percent of Medicare rates,
the state cost impact will be minimal. However, a number of
states, most notably New York and California, would incur
significant state costs if they continued to reimburse PCPs at the
higher rates after 2014.
The states that will be most affected are those that have both low
Medicaid payment rates for primary care physicians and low
federal match rates for their Medicaid programs. For example,
New York’s Medicaid rates for PCPs are only 36 percent of
Medicare rates; New Jersey’s are 41 percent; and California’s
are 47 percent—while all three states have a 50 percent federal
match rate for their Medicaid programs. Thus, Medicaid rates
paid to PCPs in California and New Jersey will more than double
from their current levels, and rates in New York will nearly
triple, between 2013 and 2014. Continuing those payment levels
after 2014 will require taxpayers in all three states to fund half
the extra costs.
This also explains why states’ costs will increase even when the
federal government picks up the costs associated with the
expansion. Because provider reimbursement rates are uniform
across the eligibility groups, any rate increase will apply to
current enrollees as well as to the newly eligible.
In some states providers have obtained federal court injunctions
preventing the state from reducing Medicaid reimbursement
rates. For example, in March, a federal appeals court affirmed
the district court’s order of a preliminary injunction preventing
implementation of Medicaid provider payment reductions
enacted by the California General Assembly last year.[11]

Other Medicaid Costs for the States
Beyond the extra Medicaid costs that states are certain to incur,
there are some other state Medicaid cost increases that are
probable, but not definite. The two most significant items in this
category are payments to so-called Disproportionate Share
Hospitals (DSH) and payments to specialist physicians.
DSH Payment Reduction. DSH funding consists of extra, lump-
sum Medicaid payments to hospitals that treat a
“disproportionate share” of Medicaid patients. Theoretically,
DSH payments help defray those hospitals’ costs of providing
uncompensated care to the low-income uninsured, though most
states have little real accounting control over how hospitals
actually use the funds.
Under the new law, beginning with FY 2014 (October 1, 2013),
federal DSH funding will be reduced each year. The theory is
that as more of the uninsured gain coverage, hospital
uncompensated care costs will decline, with the rationale for
offsetting DSH payments diminishing as well. While this theory is
logical, in practice, state lawmakers are likely to confront
political pressure from DSH payment–dependent hospitals
seeking to maintain their revenues.
That is exactly what has happened in Massachusetts, which
under its 2006 Medicaid waiver reallocated hospital DSH
funding to pay for health insurance coverage subsidies for the
low-income uninsured through the state’s new Commonwealth
Care program. While about 175,000 uninsured Massachusetts
residents gained coverage as a result, and while the cost of their
coverage has not exceeded the total amount of the reallocated
funding, the DSH funding–dependent hospitals in that state have
successfully lobbied to preserve some of their funding stream at
an added cost to state taxpayers. The hospitals’ justifications are
that they still incur significant uncompensated costs—though
they are obviously reticent about admitting how much of those
costs are attributable to treating illegal aliens who do not qualify
for Medicaid or other subsidized coverage—and that the extra
funding helps offset the lower payment rates they receive from
Thus, under the new legislation, while states will theoretically
spend less on their share of Medicaid DSH funding, political
pressures may effectively negate any potential savings and, if
state lawmakers are pressured into replacing reduced federal
DSH funding with state funds, state costs may actually increase.
Payments to Specialty Physicians. While the provision in the new
law that requires temporary Medicaid payment rate increases
for primary care doctors will not apply to the rates paid for
procedures performed by specialty physicians, the reality is that
state lawmakers will likely find it politically difficult to limit
Medicaid payment rate increases to primary care physicians. As
with the increase in primary care payment rates, the political
and financial significance of the issue of specialty physician
payment rates will vary among the states according to their
current Medicaid physician payment levels. The states that pay
the lowest rates (relative to Medicare and private insurance) will
face the greatest political pressure to also increase specialty
physician rates and shoulder the largest added costs for such a
move. Furthermore, this issue is likely to come to the forefront in
the states’ 2012 legislative sessions, in anticipation of the
scheduled January 1, 2013, federally mandated payment rate
increase for primary care physicians.
Offsets to Costs. Other provisions of the federal legislation will
generate some offsetting Medicaid savings for states, though for
most states those savings are likely to be minimal. Only one
change is likely to produce state savings of any significance, and
only a few states stand to benefit from the applicable provision.
One provision of the federal legislation is likely to generate
savings between now and 2014 for taxpayers in some states by
enabling their state governments to shift some of their current
costs to taxpayers in other states. The new law allows states that
have health insurance programs that are funded by state tax
dollars and that already cover individuals who will qualify for
Medicaid in 2014, to enroll those individuals in Medicaid
immediately. The costs will be shared by the federal government
at normal match rates until 2014 and at the expansion match
rates thereafter.[12] Connecticut has become the first state to
take advantage of this provision, shifting an estimated $53
million in state costs for Connecticut’s next fiscal year onto
federal taxpayers in other states.[13]
Maintenance of Effort Requirement. The provisions of
Obamacare that will have the most immediate effect on state
budgets are the “maintenance of effort” (MOE) requirements in
the law that are applied to Medicaid and CHIP. Under those
provisions a state would lose all federal funding if it takes actions
that make eligibility more restrictive than the standards in effect
for the state’s program at the time the new federal legislation
was enacted. In fact, states are already subject to a similar MOE
requirement imposed as a condition of receiving a two-year
temporary increase in federal Medicaid funding (through the end
of 2010) as part of the 2009 stimulus legislation.
The bad news for states is that this federal mandate comes in the
midst of their worst fiscal situation in decades. Because Medicaid
is one of the largest items in any state budget, it is also one of the
first places where governors and legislators look for savings
when they need to trim spending to bring state budgets back into
balance. In 2008, aggregate state Medicaid spending accounted
for 20.7 percent of all state government expenditures, while
spending on elementary and secondary education represented
21.6 percent, and the share of aggregate state spending devoted
to transportation was 7.9 percent.[14]
Traditionally, states have three main tools for reducing Medicaid
expenditures: restrict eligibility, cut provider reimbursements, or
reduce benefits. The MOE requirements effectively mean that
states no longer have the first option of limiting eligibility.
However, they can still cut provider payments or scale back
program benefits.
Partly as a result of the MOE requirement in the 2009 stimulus
legislation, 41 states and the District of Columbia cut provider
reimbursements rates in 2009 or 2010, and 29 states and the
District did so in both years. Additionally, 39 states and the
District cut Medicaid pharmacy benefits, and 22 states cut
Medicaid medical benefits over the past two years.[15] All of
these cuts are likely to continue if state budget projections do not
significantly improve.
The problem is that in many states Medicaid reimbursement
rates are already quite low. That makes Medicaid beneficiaries’
access to health care providers problematic, particularly in states
such as New York, New Jersey, and California that pay
providers exceptionally low rates. In addition, setting physician
payment rates even lower will not necessarily reduce the
aggregate costs of state Medicaid programs if the result is that
more enrollees are forced to seek care in hospital emergency
rooms because they cannot find doctors willing to accept
Medicaid patients.
Even though the CHIP MOE prevents states from changing
eligibility, CHIP enrollment will decline somewhat after 2014,
resulting in some state savings. To qualify for CHIP, a child must
be uninsured. However, many children will likely become
insured through family coverage in subsidized plans offered by
the new exchanges starting in 2014, for which a state
contribution will no longer be required.
Washington’s New Insurance Market Rules
In addition to the Medicaid changes that will directly affect state
budgets, state lawmakers will also need to contend with a variety
of new federal health insurance market regulations. This federal
usurpation of long-standing state authority in regulating private
insurance will be expensive and disruptive for those who rely on
individual or employer-based commercial insurance for their
health care coverage. While the new law’s Medicaid provisions
will present governors and state legislators with fiscal challenges,
the insurance provisions will present them with policy challenges.
The task for state lawmakers will be to find ways to protect their
constituents from the adverse effects of the new federal health
insurance regulations.

The new federal health insurance regulations will
affect coverage in four major areas:
1) Benefit Requirements. The legislation gives the Department
of Health and Human Services (HHS) new authority to establish
minimum benefit requirements for all health insurance plans.
The law requires that, effective for plan years starting this fall,
health insurers and employer self-insured plans must cover
preventive services with no enrollee cost-sharing. New
prohibitions that prevent health insurance carriers and
employers from setting annual or lifetime coverage limits will
also be phased in starting this year and take full effect in 2014.
Beginning in 2014, HHS is granted additional, sweeping, and
discretionary authority to set, and periodically revise, minimum
health insurance coverage requirements for virtually all medical
services and health care providers. Furthermore, the Secretary
of Health and Human Services is even given authority to regulate
the amount and form of enrollee cost-sharing. The result will be
a uniform, comprehensive health insurance minimum benefit
package dictated by HHS.
For individuals and employers, the result of these new federal
regulations will be across-the-board increases in health insurance
costs and premiums. Those resulting premium increases will be
the product of three factors. First, reductions in enrollee cost-
sharing will mean that plans must pay more of the cost for
certain services that they already cover, thus shifting those costs
from patients to plan premiums. Second, the elimination of
enrollee cost-sharing for specific services will stimulate greater
use of those services, further increasing premiums. Third,
premiums will also increase to the extent that new federal
regulations require plans to cover benefits or services that were
previously excluded from coverage or subject to plan limitations
on the scope or duration of the services eligible for
reimbursement. These additional costs will likely exceed any
possible savings from lower administrative costs for insurers.
As state lawmakers are well aware from their own experience
with insurance benefit mandates at the state level, providers and
patient groups can be expected to exert special interest pressure
on HHS and Congress to constantly expand the scope of the
federal minimum coverage requirements. To the extent that HHS
or Congress bows to that political pressure, the cost of health
insurance will escalate still further after 2014.
2) Coverage Rules. The federal legislation also establishes some
new coverage rules. Effective this fall, insurers and employers
must allow young adults to retain dependent coverage on a
parent’s policy until age 26, and plans are prohibited from
imposing pre-existing condition exclusions on dependent
children. However, the effects of those two changes are expected
to be modest, as they will apply to relatively few individuals.[16]
Much more significant is that, starting in 2014, Obamacare will
prohibit the application of pre-existing condition exclusions
under any circumstances.
Current law specifies that individuals who already have
employer-sponsored insurance cannot be denied new coverage,
be subjected to pre-existing condition exclusions, or be charged
higher premiums because of their health status when switching
to different coverage.[17] Thus, in the employment-based health
insurance market, pre-existing condition exclusions may only be
applied to those without prior coverage, or to those who wait
until they need medical care to enroll in their employer’s plan.
These existing rules represent a fair and balanced approach:
Those who do the right thing (getting and keeping coverage) are
rewarded; those who do the wrong thing (waiting until they are
sick to buy coverage) are penalized. A modest and sensible
reform would be to simply apply the same set of rules to the
individual health insurance market.
But by prohibiting the application of pre-existing condition
exclusions under any circumstances, the new law mindlessly
wrecks this careful balance and creates a recipe for disaster.
Since heath plans will also be required to extend coverage to any
qualified applicant, and will not be allowed to vary premiums
based on individual health status, the effect will be to encourage
healthier individuals to wait until they are sick before they buy
health insurance. With fewer healthy individuals buying
coverage, premiums will need to rise to cover the costs of the
sick, which in turn will drive even more individuals in good, or
even fair, health to drop coverage—knowing that if they become
sick they can buy insurance later—thus driving premiums yet
higher. The result could be a classic insurance plan “death
Rather than ditching this bad idea in favor of a more sensible
and balanced approach, congressional leaders tried to limit its
inevitable disastrous effects by adding an individual mandate to
buy health insurance or pay an income tax fine. A large part of
the rationale offered for the mandate was the need to prevent
healthier individuals from dropping their coverage.
Setting aside the merits of challenges to the individual mandate’s
constitutionality, the practical reality is that the mandate will be
ineffective and unenforceable due to the way Congress wrote the
specific provisions. For most individuals, the tax penalty for not
buying coverage will be modest. More important, in response to
strong and widespread public opposition to the mandate,
Congress added provisions that explicitly bar the IRS from using
its normal tax enforcement powers of property liens and criminal
penalties to collect the fines imposed on individuals who do not
comply. Thus, when faced with escalating health insurance
premiums, individuals who do not want to pay for coverage not
only can ignore the mandate, but, by making minor changes in
their federal income tax withholding payments, can also avoid
paying most, or even all, of the penalties for noncompliance.
Because the blanket prohibition of pre-existing condition
exclusions and the individual mandate provisions do not take
effect until 2014, there is still time for a future Congress to
prevent a health insurance market destabilization by repealing
this disastrous legislation. At that point Congress can then
consider making more sensible changes. However, until Congress
acts, state policymakers face the looming threat of a health
insurance market meltdown.
3) Rate Regulations. In addition to the indirect effects on
insurance premiums of new federal benefit mandates and
coverage rules, health insurance premiums will also be directly
affected by new federal rate regulation provisions. The largest
effect will come from a provision that limits age-rating of
premiums to a ratio of no more than three to one. This provision
will take effect in 2014 and means that plans will not be allowed
to charge a 64-year-old more than three times the premium
charged an 18-year-old for the same coverage. In contrast, the
natural variation in coverage cost is about five to one— meaning
that the oldest group of (non-Medicare) individuals normally
consumes about five times as much medical care as the youngest
This mandated “compression” in the age-rating of coverage
means that insurers must charge older individuals premiums
that are less than the actuarial value of their coverage, with the
result that insurers will need to compensate by charging younger
individuals premiums that are higher than the actuarial value of
their coverage. Thus, this federally mandated under-pricing of
coverage for older individuals will further increase premiums for
the young— who, because of their generally good health status
and lower earnings, are the group that is most sensitive to
changes in the price of coverage and most likely to decline
Obamacare also creates new federal rules— “minimum loss
ratio” regulations—for how insurers spend premium dollars.
Starting in 2011, plans must spend a minimum amount of
premium income on medical care and “activities that improve
health care quality,” or refund the difference to policyholders.
The minimum levels will be 85 percent for large group plans and
80 percent for small group and individual plans. In addition,
HHS is given new power to conduct annual reviews “of
unreasonable increases in premiums for health insurance
4) Imposing New Federal Schemes. Moreover, Congress
included four new health care coverage schemes that further
compound the problems of the legislation:
a) Temporary Federal High-Risk Pools. The law instructs
HHS to establish temporary federal high-risk pools starting in
2010 to cover uninsured individuals between now and 2014, with
$5 billion authorized for the program.[19] State governments are
invited to contract with HHS as vendors to administer the new
federal high-risk pools in their states, but are prevented from
shifting into them individuals currently enrolled in other
coverage, including those covered by existing state high-risk
pools. The CMS Office of the Actuary projects that the available
funding for the program will be exhausted by 2012.[20] That will
force HHS either to set enrollment limits for the program at the
outset or to subsequently terminate coverage for enrollees, unless
the next Congress authorizes additional funding.
b) Health Insurance Exchanges. The legislation requires HHS
to establish operational health insurance exchanges in every state
by 2014. Again, states are invited to act as vendors to administer
a federal program according to a detailed set of federal rules and
regulations, but are not allowed to exercise any meaningful
discretion in administering the exchanges. The main purpose of
the exchanges will not be to give consumers greater choice of
coverage, since the coverage offered through them will be a
limited number of standardized plans. Rather, their principal
purpose will be to administer a new set of federal health
insurance subsidies for those with incomes up to four times the
federal poverty level, and to regulate the coverage purchased
with those subsidies. The exchanges are also empowered to enroll
anyone in Medicaid they determine eligible for the program, with
states forced to share the resulting costs but prohibited from
conducting their own eligibility determinations or verifying the
accuracy of the eligibility determinations made by the exchanges.
Large employers will be fined if their workers receive subsidized
coverage through an exchange, but firms with 50 or fewer
employees are exempted from those fines. The likely result is that
many small employers who currently offer coverage will dump
their plans beginning in 2014, since their workers will then
qualify for either Medicaid or the new subsidies. Even large
employers are likely to dump their plans if most of their workers
qualify for subsidized alternative coverage and the savings to the
employer are greater than the fines for not offering coverage.
c) New National Health Insurance Plans. The new law
instructs the federal government’s Office of Personnel
Management (OPM), which administers the Federal Employees
Health Benefits Program (FEHBP), to contract with health
insurers “to offer at least 2 multi-State qualified health plans
through each Exchange in each State,” and further stipulates
that at least one of the contracts is to be with a non-profit
insurer.[21] Of particular concern to state officials is that from
the way Congress wrote these provisions the extent to which state
insurance regulators will be able to require the OPM-sponsored
plans to meet state insurer financial regulations, and thus ensure
that the plans remain solvent, is unclear.
d) New CO-OP Plans. The legislation also instructs HHS to
promote the creation in each state of at least one non-profit,
member-controlled, “consumer-operated and oriented plan”
(CO-OP) health insurer. Both the CO-OP provisions and the
provisions instructing OPM to sponsor “multi-state” plans were
added as part of efforts by Senate Democratic leaders to bridge
the sharp division within their caucus over whether the
legislation should include a new government-run health insurer
—the so-called public option. Thus, both sets of provisions are
primarily political in nature and, from a policy perspective,
poorly designed and drafted.
The bad news for state officials is that Congress appropriated $6
billion for loans and grants to establish CO-OPs and instructed
the Secretary of Health and Human Services to keep promoting
the program until every state has one. The good news is that CO-
OPs—unlike OPM-sponsored multi-state plans—are explicitly
required by the legislation to comply with state insurance laws
and regulations. As a practical matter, it is uncertain whether
any CO-OP insurers will actually be created, as there is no
obvious market demand. The statute imposes several restrictions
that make it difficult to establish and operate one, and the
legislation expressly prohibits the most likely and sensible path to
setting one up, namely, a divestiture or conversion by an existing
health insurer.
How State Officials Should Respond
Obamacare creates significant fiscal and policy challenges for
states. The broad effects of the legislation, if implemented as
enacted, will be to impose significant new Medicaid costs on state
taxpayers, disrupt state health insurance markets and the
current coverage of tens of millions of Americans, and usurp
state authority. The new federal insurance regulations,
particularly the provisions setting new, uniform federal benefit
requirements, will reduce coverage options for individuals and
employers and will likely drive up health insurance premiums.
They are also likely to result in greater concentration in health
insurance markets, leaving only a few large insurers operating as
public utilities with a regulated low rate of return selling
undifferentiated products to customers with no other options.
Maryland’s experience is instructive in this regard. In 1993, the
state of Maryland imposed on its small-group health insurance
market a minimum package of standardized benefits, annually
updated by a state commission—a design similar to that in the
new federal law. One result was that competition has declined to
the point where the same two carriers have now covered more
than 90 percent of all individuals in Maryland’s small-group
market for years.
State lawmakers now face the task of finding ways to protect
their constituents—including state taxpayers, health insurance
policyholders, and individuals who depend on public health care
programs—from the adverse effects of Obamacare. Governors
and state legislators need to start planning their responses now
and begin drafting any applicable legislation for consideration in
their next legislative session. The wisest approach is to move
reform measures that better position their states under either of
two possible scenarios: a new Congress that repeals Obamacare,
or a protracted, multi-year political and legal battle conducted
against the backdrop of an Administration attempting to
implement the legislation as enacted. Specifically, state
lawmakers should immediately and aggressively pursue the
following strategies:
• Shift non-elderly Medicaid and CHIP enrollees into
premium support.
The combination of recession-induced lower state tax revenues
and the new law’s Medicaid MOE requirements puts state
lawmakers in a fiscal bind. Because the MOE requirements
prevent them from controlling Medicaid spending by reducing
eligibility, many state lawmakers assume that their only options
are to cut provider reimbursements or further limit program
However, there is another—and better—option that states should
pursue. The most effective tool for states to control their
Medicaid and CHIP spending is to shift their programs from
directly paying providers to subsidizing private coverage for
enrollees. Not only will this “premium support” approach help
states control spending; in many states it will also increase
beneficiary access to physicians.[22]
States should immediately begin designing and implementing
Medicaid and CHIP premium support initiatives for non-
institutionalized beneficiaries. In doing so they should take
advantage of the flexibility remaining in federal law by adopting
all “benchmark plan” designs, providing for maximum allowable
enrollee cost-sharing, and replacing the individual cost-
effectiveness test with an average cost-effectiveness test. States
should also pursue contracting with one or more private insurers
to create supplemental policies that cover required “wrap-
around” benefits for Medicaid beneficiaries enrolled thorough
premium support in less comprehensive private plans. Then the
state can simply pay the premiums for those supplemental
policies as well.
The advantages of premium support for enrollees are that they
will likely get better access to physicians and more appropriate
medical care. In addition, subsidized private coverage is free of
the “welfare stigma” associated with traditional Medicaid, or
even Medicaid managed-care plans, since providers will only see
the private coverage—not the subsidies behind it.
Premium support will also help expand and strengthen a state’s
private insurance market—particularly its small-employer
coverage market—by adding a large number of mainly healthy
and younger individuals to the market.
From a state budget perspective, cost savings from premium
support are likely to come in four forms: (1) savings from
increased enrollee cost-sharing, (2) efficiency savings from
covering under a single policy all members of a family currently
covered separately by different combinations of public or private
plans, (3) administrative savings achieved by significantly
reducing the need for the state’s Medicaid and CHIP programs
to operate systems that directly reimburse providers and verify
claims, and (4) likely the biggest source of savings will come from
more appropriate use of medical care. While private plans pay
doctors higher rates, if Medicare and CHIP beneficiaries with
premium support get earlier and more coordinated physician
care, their historic practice of over-using expensive hospital
emergency room services should decline—thus, offsetting the
increased spending on physician care while also addressing the
problem of emergency room over-crowding.
Finally, states should craft their “premium support” initiatives
as state-plan amendments to their programs, rather than
submitting waiver requests to HHS. Unlike the waiver process,
over which the Secretary of Health and Human Services is
granted broad discretionary authority, Medicaid and CHIP state
plan amendments can only be disallowed if the Secretary finds
that they would violate statutory federal requirements for how
states operate their programs.
Furthermore, unlike with waiver determinations, a state has
legal recourse to appeal an adverse determination by HHS about
a state plan amendment in federal court. Although states have
lost some flexibility in using premium assistance under both the
CHIP reauthorization legislation and the Obama
Administration’s newly issued regulations on benchmark plans
and cost sharing, premium support is still a worthwhile strategy
for states to pursue.
• Refuse to administer the new federal high-risk pools.
To date, 18 governors have wisely refused to let their state
governments administer the new federal high-risk pool.[23]
There are sound reasons for their decisions, as the new high-risk
pools are poorly designed.
Any U.S. citizen or lawful resident with a pre-existing medical
condition who has been uninsured for at least six months will be
eligible for coverage. Congress gave the Secretary of Health and
Human Services complete discretion in determining which pre-
existing medical conditions will qualify—no matter how minor.
Thus, unless the Secretary decides to limit eligibility only to those
individuals with expensive conditions, it is certain that demand
will quickly outstrip the available funding.
Furthermore, the law stipulates that an enrollee in a new high-
risk pool cannot be charged a premium higher than the
applicable standard rate for the same coverage in the general
market. In contrast, all of the 34 states with existing state high-
risk pools follow the long-standing guidance of the National
Association of Insurance Commissioners (NAIC) to charge high-
risk pool enrollees premiums that are at least 125 percent of
standard rates.[24] Specifying that premiums charged to
enrollees in the new pools not exceed standard rates means that,
relative to existing state high-risk pools, the new pools will
provide more generous subsidies (at a higher cost) and will likely
attract many more applicants, particularly individuals with
relatively minor pre-existing medical conditions.
Finally, another major concern with state governments
administering the program is that when the federal funding runs
out, state lawmakers will be faced with either terminating the
coverage of enrollees or continuing to fund the program with
state tax dollars. From the perspective of state officials, they are
better off letting the Department of Health and Human Services
administer the program, either directly or through private-sector
contractors. That way, federal officials will be the ones who are
unambiguously responsible for any adverse funding or
enrollment decisions.
• Decline federal “premium review” grants.
The provisions instructing the Department of Health and Human
Services to conduct health insurance premium reviews also
authorizes HHS to distribute up to $250 million in grants to
states to assist HHS in implementing those provisions. In
exchange, however, state insurance departments must provide
HHS with insurer data and collaborate with HHS in
administering rate regulations. To preserve the integrity and
independence of their own insurance departments and insurance
laws, state officials would be well advised to decline this offer of
federal funding. The rate review provisions are not only poorly
drafted, but were politically motivated additions to the
legislation. Statements by Administration officials since the
enactment indicate that implementation of the provisions by the
Obama Administration is likely to also be driven more by
political considerations than by sound policy or genuine
consumer protection.
For example, both the statute and subsequent comments by
Administration officials refer to “unreasonable premium
increases.” What is missing is any recognition that another key
aspect of proper insurance regulation is to prevent the problems
that occur if insurers under-price their products. If an insurer
fails to charge enough in premiums to cover its expected claims
costs, then it is at risk of being unable to make good on the
promises made to its customers. As any state insurance regulator
understands, ensuring that carriers have sufficient premium
income to cover future claims costs is an important consumer
Also missing from the new federal law is any recognition of the
equity issues involved in setting rules for insurers that cross-
subsidize different lines of coverage. For example, is it “fair” if
regulators require an insurer to limit premium increases on its
individual market policies, but as a result the carrier then has to
further increase rates for group policies to make up the
difference, or vice-versa? Of course, there is no single “correct”
set of answers to these kinds of questions, but state lawmakers
and state insurance regulators at least have the benefit of decades
of experience addressing such issues, while the federal
government has none whatsoever.
To be sure, insurance companies (including non-profit ones) are
not altruistic enterprises, and state insurance regulation is no
more immune to political considerations than is federal
regulation. However, given the demonstrated propensity of
congressional leaders and Obama Administration officials to
blame insurers for the adverse consequences of their own
legislation, the vast disparity between the state and federal
governments in experience and expertise in insurance regulation,
and the inherent conflicts that will arise between the new federal
rate regulations and existing state insurer solvency regulations, it
is important that state lawmakers preserve the independence of
their own insurance laws and state insurance departments. That
means states should not accept federal funding with strings
attached that compromise their independence or make their
insurance departments mere branch offices of HHS.
• Implement state health insurance market reforms and
exchanges based on state, not federal, designs.
Obamacare will drive up health insurance costs with new
coverage mandates while simultaneously trying to hold down
premiums with politicized rate regulation. The federal
standardization of coverage will also limit the ability of insurers
to differentiate themselves in the market or offer their customers
lower-cost benefit designs, while the minimum loss ratio
regulations will reduce incentives for insurers to be more
efficient in managing or paying for care—as insurers will be able
to retain little, if any, of the savings that might result.
Faced with this impending regulatory “squeeze play,” insurers
are already evaluating their options and can be expected to act in
some predictable ways: Insurers with other lines of business
(such as property or life insurance) will likely discontinue or sell
their health insurance book of business to a competitor and exit
the market. Carriers that offer only health coverage will look to
mergers and acquisitions as the path to becoming “too big to
fail.” Their logic will be that if the federal government is going to
turn private health insurance into a regulated utility with a low
rate of return, then the way to survive is to be one of the
remaining few large insurers that the federal government needs
to keep in business in order to administer the system.
Thus, absent initiatives by state governments to counter these
effects by expanding choice and competition, state health
insurance markets will begin to see fewer carriers and plan
options—most likely starting next year.
The best response for state lawmakers is to immediately move in
the opposite direction of the new federal legislation by first
determining their state’s needs and priorities, and then enacting
their own reforms that increase health insurance choice,
competition, and coverage while also reducing costs. Lawmakers
in each state can select from the following broad strategies the
elements that offer the best approach for addressing their state’s
particular needs and circumstances: (1) increase consumer
choice by creating a “defined contribution” option for employer-
sponsored health insurance coverage, (2) reduce coverage costs
and allow more variety in plan design by repealing unnecessary
state-mandated health insurance benefit requirements, (3)
encourage insurer participation by lowering barriers to market
entry through statewide risk adjustment mechanisms collectively
designed and administered by the carriers selling health
insurance in the state, (4) expand coverage options by creating a
“premium aggregation” mechanism that enables individuals to
buy coverage using contributions from multiple employers (such
as when a family has two earners or an individual has two part-
time jobs), and, in the case of low-income families, Medicaid or
CHIP premium support payments from the state, and (5) provide
consumers with greater price and quality transparency with
respect to insurance coverage and physician and hospital
The fact that the federal legislation perverts the intent of a health
insurance exchange—replacing its original purpose as a state tool
for increasing consumer choice and encouraging greater variety
and competition in health insurance with the new purpose of
administering federal coverage uniformity, and supplanting state
insurance regulators—should not dissuade state lawmakers from
pursuing their own designs for exchanges (consistent with the
original intent of the concept) or other administrative
mechanisms as tools for implementing their own reforms to
promote consumer choice and enhanced health plan competition.
For example, Utah officials and stakeholders determined in their
assessment process that their state’s small businesses coverage
offer rate was well below the national average and that Utah has
a significant number of workers with two or more part-time jobs
who do not qualify for employer group coverage offered to full-
time employees. Thus, they decided to make defined contribution
and premium aggregation using a state health insurance
exchange key elements of Utah’s reform strategy. They also
devised an implementation strategy that relies on existing private
vendors to provide the necessary administrative services at a
negligible cost to the state’s budget.[26] Other states can also use
private vendors to quickly design and implement similar
solutions customized to their own particular needs and
By enacting their own insurance market reforms and creating
their own exchanges, or similar administrative mechanisms,
based on their own designs now, states can make it politically
more difficult for federal officials to implement provisions of the
new federal legislation (such as minimum federal benefit
standards) that will drive up premiums and reduce coverage
choices. State-designed exchanges can also serve as the
administrative platform for implementing Medicaid and CHIP
premium support initiatives and, if the legislation is not repealed
by then, for organizing alternative coverage arrangements for
individuals and employers who refuse to comply with the new
federal mandates that also take effect in 2014.
• Insist that federal officials explain publicly how they
will administer Obamacare.
State legislators should convene public hearings and summon the
federal Secretary of Health and Human Services, members of
their state’s congressional delegation, and other federal officials
to explain how they intend to implement the numerous
provisions of the legislation that will affect their state’s Medicaid
and CHIP programs and the private health insurance plans of
individuals and employers. Obviously, state lawmakers cannot
override the federal regulatory process, but they can force more
of it out into the open and subject it to heightened public
scrutiny. They can put federal officials on notice that if they
assert their new authority, then states will force them to accept
responsibility for the results—and that state lawmakers will
ensure that their constituents know who is to blame when state
revenues have to be diverted from other priorities to fund
expanded health care coverage, or individuals see their health
insurance premiums increase or their employer drop their
coverage. If federal officials refuse to testify before state
legislatures, their refusals will themselves be public testimony.
• Conduct and publicize “benchmark” analyses.
States should immediately conduct “benchmark” analyses to
provide “baseline” projections for at least the next five years for
key metrics, and then use the results to measure the effects of
various provisions of Obamacare. The results can also serve as a
baseline for estimating the effects of any alternative state reform
proposals. Key metrics include:
• Projected annual enrollment and per capita spending for
Medicaid and CHIP, by eligibility category under current
• Projected growth in average premiums in the state’s
individual, small, and large group health insurance markets
under current law;
• Projected average premiums by age in the state’s individual
and small group markets under current law; and
• Current and projected health insurance coverage status of
the state’s residents by source of coverage under current
The utility and integrity of the results will be greatly enhanced if
state lawmakers ensure that the process for conducting these
benchmark analyses is open and nonpolitical, and that the
resulting reports clearly explain the methodologies and
assumptions used. Where appropriate, the analyses should also
provide upper-bound and lower-bound estimates to account for
the inherent uncertainty of key assumptions, such as underlying
medical cost growth rates or changes in the states’ resident
populations. States can contract with recognized actuarial and
econometric consulting firms to conduct these studies.
Developing a state-specific baseline is the essential precursor to
constructing state-specific estimates of the effects of the new
federal law. State officials will want to construct their own
estimates because, if for no other reason, national level estimates
will not be sufficiently precise for state planning purposes.
Variations among the states in the composition of their
populations, economies, health systems, public programs and
insurance rules mean that, in any given state, the actual effects of
a particular provision of the new law may differ significantly
from the projected national effects estimated by federal officials.
Indeed, significant disparities in the effects among states are
likely to arise with respect to even minor provisions of the new
Case in point: The requirement to extend dependent coverage to
age 26 is a minor provision that is projected to have modest
effects on cost and coverage at the national level. However, the
most recent Census data show that while 18- to 24-year-olds (the
Census age breakout that most closely aligns with the group
affected by the provision) account for 9.79 percent of the U.S.
population, that age group as a share of resident population in
the states varies from a low of 8.17 percent in Nevada to a high of
12.88 percent in North Dakota. Thus, among the states there is a
57 percent variation between the two with the lowest and highest
shares of young adults in their populations. That demographic
difference alone will be a key variable in explaining any variation
between those two states in the cost and coverage effects of just
this one, relatively minor, provision.
With their own, state-specific benchmark analyses in place, states
will be able to more precisely estimate the effects of the new
federal law and state lawmakers will be able to demonstrate to
their constituents what portion of a particular result—such as an
increase in insurance premiums—is attributable to the federal
health care legislation and what portion is attributable to other
The enactment of the massive Patient Protection and Affordable
Care Act will not only alter the relationship between individuals
and the federal government, it will also alter the relationship
between the federal government and the states. Under the terms
and conditions of the act, the states would be reduced to mere
agencies of federal authority, carrying out the policy agenda of
the Secretary of the U.S. Department of Health and Human
Some of the relevant provisions of this law that directly affect the
states will not go into effect for four years, and by that time, the
law may be substantially, changed, amended, or repealed.
In the meantime, state officials should recognize one simple fact:
States are not mere agents of federal authority. They are not
powerless. There is absolutely nothing that requires them to
assist in implementing this misguided legislation. Rather, they
should take every opportunity to assert their rightful authority,
resist, within the confines of the law and the Constitution, any
inappropriate or unconstitutional exercise of Washington’s
power and aggressively advance their own, better solutions. In
other words, they have a duty to represent their citizens.
—Edmund F. Haislmaier is Senior Research Fellow and Brian C.
Blase is Policy Analyst in the Center for Health Policy Studies at
The Heritage Foundation.
Appendix Methodology
Table 1. Projected Medicaid/CHIP Enrollment, by State in 2014.
National enrollment estimates by the CMS Office of the Actuary
were distributed among the states according to each state’s share
of total Medicaid/CHIP enrollment in June 2009 (for current
eligibility) and according to each state’s share of the total
uninsured population in 2007–2008 below 133 percent of FPL
(for the eligibility expansion) based on Medicaid/CHIP
enrollment data and census data as reported on
Table 2. Estimated State Costs for Medicaid Expansion, by State,
Cumulative for FY 2014– 2020. National enrollment and federal
spending estimates by the CMS Office of the Actuary were used
to derive the average federal cost per enrollee, per year, which
were then distributed among the states according to each state’s
share of the total uninsured population in 2007–2008 below 133
percent of FPL. State costs were then calculated off the federal
cost estimates using the applicable match rates for each state as
adjusted by the provisions of the legislation. The added
administrative cost load was calculated by applying current
ratios for total administrative costs as a percent of total benefit
spending and then apportioning those costs between the federal
and state governments based on historical data that indicate an
average effective Federal Medical Assistance Percentage (FMAP)
of 55 percent for all administrative costs.
Table 3. Estimated State Costs for Medicaid “Doc Fix,” by State.
The federal cost of the mandated increase in primary care
physician (PCP) rates in FY 2014 (when it is entirely paid for by
the federal government) are estimated at $3 billion (CBO) to $5.5
billion (CMS). Continuing that policy in 2015 and thereafter
would require states to assume their shares of the total cost of the
payment rate increase. The cost to an individual state will vary
based on three factors: the state’s aggregate spending on PCP
services; the ratio of the state’s current Medicaid PCP payment
rates relative to Medicare rates; and the state’s FMAP.
Projected state costs were constructed as follows: (1) A weighting
for each state’s share of total (federal and state) national
Medicaid spending on all physician services was calculated. (2)
Each state’s share of physician spending was then divided by the
state’s Medicaid-to-Medicare reimbursement ratio to obtain a
state burden index, after first removing from the equation states
that already have Medicaid PCP reimbursement rates that are
equal to or greater than Medicare rates. (3) The initial state
burden index was then re-weighted so that all the weights of the
affected states summed to one. (4) The re-weighted state burden
index was then applied to the CBO and CMS federal cost
estimates to distribute the total federal costs among the affected
states. (5) Finally, state costs were estimated by multiplying each
state’s share of the federal funding by one minus the state’s
applicable FMAP.
When summed, the projected aggregate state costs are about $1.3
billion (using CBO estimates) and $2.3 billion (using CMS
estimates), or approximately 43 percent of the total cost. That
ratio is consistent with the national distribution between federal
and state governments of total Medicaid spending.
About the Author

Edmund Haislmaier Senior Research Fellow, Health Policy
Request an interview >>
Brian Blase Policy Analyst
Request an interview >>

Revitalizing Federalism: The High Road Back
to Health Care Independence
Published on June 30, 2010 by Robert Moffit, Ph.D. Backgrounder #2432
Our Country is too large to have all its affairs directed
by a single government.
—Thomas Jefferson, Letter to Gideon Granger,
August 13, 1800
Abstract: The Patient Protection and Affordable Care Act
represents more than a federal takeover of health care; it is a direct
threat to federalism itself. Never before has Congress exercised its
power under Article I, Section 8 of the Federal Constitution to
force American citizens to purchase a private good or a service.
Congress is also intruding deeply into the internal affairs of the
states, commandeering their officers, specifying in minute detail
how they are to arrange health insurance markets within their
borders, and determining the products that will be sold to their
citizens. If allowed to stand, this unprecedented concentration of
political power in Washington will reduce the states to mere
instruments of federal health policy. State legislatures and
sympathetic Members of Congress should consider (among other
actions) crafting a constitutional amendment to guarantee the
personal liberty of every citizen in the area of health care. Given
the trajectory of federal policy, state officials should take the lead
in the next phase of the national health care debate, reclaim their
rightful authority, and change the facts on the ground for
Congress and the White House.
An Unprecedented Challenge
Americans face a direct and historic challenge to their personal
liberty and to their unique citizenship in a federal republic.
Though its enactment of the massive Patient Protection and
Affordable Care Act (PPACA), official Washington is not merely
engineering a federal takeover of health care, but is also radically
altering the relationships between individuals and the
government as well as the national government and the states.
In other words, the PPACA is a direct threat to federalism itself.
As Jonathan Turley, professor of law at George Washington
University, has argued, “Federalism was already on life support
before the individual mandate. Make no mistake about it, this
plan might provide a bill of good health for the public, but it
could amount to a ‘do not resuscitate’ order for federalism.”[1]
Never before has Congress exercised its power under Article I,
Section 8 of the Federal Constitution to force American citizens
to purchase a private good or a service, such as a health
insurance policy.[2] Congress is also intruding deeply into the
internal affairs of the states, commandeering their officers,
specifying in minute detail how they are to arrange health
insurance markets within their borders, and determining the
products that will be sold to their citizens.
If allowed to stand, this unprecedented concentration of political
power in Washington will result in the states being reduced to
mere instruments of federal health policy rather than “distinct
and independent sovereigns,” as James Madison described them
in Federalist No. 40.[3]
A Pivotal Role for State Officials
The officers and citizens of the states, however, have plenty of
options. These include the filing of lawsuits against the
imposition of the federal mandates on individuals and the states
themselves, and many are already pursuing that course of action.
They can also enact legislation that can facilitate a constitutional
challenge to excessive federal power, and bills have already been
filed in 38 states to accomplish that objective.
Legislators can also pass resolutions and memorials to be
transmitted to Congress petitioning for relief for their citizens
from the terms and conditions of the federal law that they
determine to be onerous, damaging, or excessively burdensome
to their people, their health care delivery systems, and their
economic life. On the great issues that have defined crucial eras
of American history, state legislators have often passed
resolutions and memorials dealing with such questions as
slavery, the right of women to vote, and Prohibition.
State legislators can also hold public hearings and invite United
States Senators, who are charged under the Constitution with
representing the states, to explain their support for or opposition
to the national health care law. Senators would have an
opportunity to clarify their own views on such matters as the
mandatory Medicaid expansions, the implementation of health
insurance exchanges, or projected premium or tax increases that
will affect the citizens of their states. Likewise, in preparation for
the implementation of the national health law, state legislators
can invite federal officials in charge of that implementation to
appear at special hearings to respond to their concerns and
answer questions about the impact of their regulatory changes on
the citizens of their states.
Finally, as the administrative and judicial processes unfold, state
officials and their congressional delegations may find it necessary
to amend the Constitution itself to ensure the protection of
personal liberty and the integrity of the states in the vital area of
health care.
The High Stakes
The Founders in 1787 crafted fundamental law for a large
Federal Republic, bucking the conventional wisdom of political
science. In the classical sense, a republic means limited
government; it underscores a sharp distinction between res
publica (public affairs) and res privata (private affairs). In a
republic, political authority is held as a public trust, not as a
private right, and is to be exercised only over public affairs.[4]
America’s Founders authorized a clear division of authority
between a national government, focused on general concerns,
and the particular governments of the states, focused on
particular concerns.[5] They thus recognized the astonishing
unity and profound diversity of the people of the United States.
In a free society, the people are sovereign, but in this instance,
they are the people of the states united. National and state
governments, under the Constitution, are supreme within their
own spheres; neither can encroach upon the other without
violating the constitutional order itself.
While Article VI declares the supremacy of federal law, its
supremacy is confined to those limited and enumerated powers
that are granted to the national government; the Tenth
Amendment unambiguously affirms that the residual powers of
the American Republic are left to the people in and through their
several state governments. In Federalist No. 45, James Madison
The powers delegated by the proposed constitution to the federal
government are few and defined. Those which are to remain in
the state governments, are numerous and indefinite…. The
powers reserved to the several states will extend to all the objects,
which, in the ordinary course of affairs, concern the lives,
liberties, and properties of the people; and the internal order,
improvement and prosperity of the state.[6]
The Arrogance of Power
The Constitution is ultimately a political document, and the
health care debate is ultimately a philosophical debate on the
scope of political authority. If one’s health care and medical
treatment is a personal matter and an exercise of personal
responsibility, then the new law is quintessentially un-republican;
for all practical purposes, it renders these intensely personal
affairs a public concern. The imposition of an individual
mandate to purchase health insurance is likewise an unconstitu-
tional restriction on personal liberty, pregnant with potential
abuses far beyond a mandate for health insurance.[7]
Under the new law, states are compelled to expand Medicaid.[8]
Equally troublesome is the congressional mandate on the states
to establish federally supervised health insurance exchanges
within their borders where government-sponsored plans and co-
ops will compete against private insurance.
Under Section 1311(b)(1), “Each state shall, not later than
January 1, 2014, establish an American Health Benefit Exchange
[emphasis added].” The exchange is either to be a governmental
agency or a nonprofit entity. Under Section 1321(c), if a state
does not establish such an exchange, the Secretary of Health and
Human Services will establish and operate an exchange within
the state. In the “state-based” exchanges, of course, only
federally approved heath plans would be allowed to compete.
The states, in other words, would be vehicles of federal health
policy. This is underscored by the highly prescriptive
requirements imposed on the states, governing everything from
the simple presentation of health plan information down to the
formatting of state Web sites. The statute authorizes over a
dozen regulatory interventions by the Secretary of HHS and
other federal officials.
At the very least, this is a profoundly undesirable alteration in
the relationship between the federal government and the officers
and citizens of the states—precisely the concentration of power
that the Founders feared—and it is also constitutionally suspect.
It is one thing to require state officials to obey federal law; it is
quite another to compel them to administer it and force their
citizens to bear the expense of that administration.[9] Our
constitutional tradition limits federal power and does not
sanction national intrusion into citizens’ personal, private, or
domestic relations. As Madison affirmed, law in these areas of
domestic life is properly within the jurisdiction of the states; this
latest act of Congress is a bold challenge to that jurisdiction.
State Legislators as Tribunes of the People
The states have emerged as the institutional centers of resistance
to the new health law. Twenty-one states have filed suit against
the individual mandate to purchase health insurance on the
ground that it is an unconstitutional burden on their citizens.[10]
Even legal specialists who have expressed sympathy for the
objectives of the new law fully acknowledge the broader issues at
stake in this national debate. According to Jonathan Turley:
Though the federal government has the clear advantage in such
litigation, these challenges should not be dismissed as baseless
political maneuvering. There is a legitimate concern for many
that this mandate constitutes the greatest (and perhaps the most
lethal) challenge to states’ rights in U.S. history. With this
legislation, Congress has effectively defined an uninsured 18-
year-old man in Richmond as an interstate problem like a
polluting factory. It is an assertion of federal power that is
inherently at odds with the original vision of the Framers. If a
citizen who fails to get health insurance is an interstate problem,
it is difficult to see the limiting principle as Congress seeks to
impose other requirements on citizens.[11]
Likewise, 13 states have filed suits against the Medicaid mandate.
[12] While these legal challenges work their way through the
judicial process, state governors and legislators, allied with their
aggrieved citizens, can and should pursue a broader political
strategy to repeal, resist, or roll back this unjustified expansion
of federal power. Because of the potential damage to the states
from these costly federal mandates and regulations, the national
health law should emerge as an issue in state politics.
State legislators can serve as the true tribunes of the people. They
can help to redefine and frame the terms of the national debate.
Thus far, legislators in 38 states have already introduced
“Freedom of Choice in Health Care Acts” based on model legis-
lation proposed by the American Legislative Exchange Council
(ALEC), the leading national association of conservative state
legislators. The proposals would generally allow persons to pay
directly for medical services if they wished to do so and block the
imposition of penalties on those who did not enroll in a particular
health plan. Such measures obviously invite a constitutional
Playing Offense
Under the Tenth Amendment to the Constitution, the powers not
granted to the national government are reserved to the states and
to the people. There is a large role that states can play in making
health care policy, especially over the next four years.
Furthermore, inaction by the states is an invitation to the federal
government to take over their legitimate power when there is a
popular demand for action.[13]
State legislators can and should move ahead with their own
agenda for health reform, not just play a waiting game until
2014, listening for Washington to tell them what to do and how to
do it.[14] State legislators should seize every inch of territory in
the health policy debate within the law, such as health insurance
market reform, and challenge every transgression of their
legitimate authority if and when federal officials violate it.
State legislators should also hold their own public hearings on
the impact of the federal law on their citizens, employers,
employees, insurers and medical professionals, and state
agencies. U.S. Senators who voted to impose costly mandates on
their states should be invited to state legislative hearings to give
an account of their actions and explain why they believe that
such mandates advance the true interests of the states they
Likewise, state legislators should invite federal officials to appear
and explain how they intend to implement mandates and make
them justify their proposed rules in broad daylight. State
legislators, in cooperation with colleagues in sister states, should
make it clear that dumping hundreds of pages of complex federal
rules into the Federal Register for public notice and comment is
no longer sufficient.
Alexander Hamilton, writing in Federalist No. 28, anticipated
such cooperation among the states in resisting unjust federal
Projects of usurpation cannot be masked under pretences so
likely to escape the penetration of select bodies of men, as of the
people at large. The legislatures will have better means of
information; they can discover the danger at a distance; and
possessing all the organs of civil power, and the confidence of the
people, they can at once adopt a regular plan of opposition, in
which they can combine all the resources of the community. They
can readily communicate with each other in different states; and
unite their common forces, for the protection of their common
The Rebirth of Liberty
The enactment of the massive Patient Protection and Affordable
Care Act was a direct repudiation of the popular will and,
equally, a bold challenge to the continued viability of the federal
political order. There are no guarantees of victory either, in Con-
gress or in the courts, but the United States is still a federal
republic, not a unitary state or a mass democracy.
It is crucial that state officials make a compelling argument
against the concentration of power on the basis of first
principles: It is an argument that can succeed.[17] Anticipating a
political establishment insulated from popular will and feeling on
vital national issues, the Founders also provided the people of the
states with a final remedy for ills besetting the Federal Republic:
constitutional amendment.
Given the rapid and continuing growth of the already enormous
health care sector of the economy, as well as the gravity of this
threat to liberty in such a vital area of personal life, state
legislatures, in league with sympathetic Members of Congress,
should consider crafting a constitutional amendment to
guarantee the personal liberty of every citizen in the area of
health care. Prudential considerations, of course, would govern
the timing and content of such an action.
Given the trajectory of federal policy, state officials should take
the leadership role in the next phase of the national health care
debate, reclaim their rightful authority, and change the facts on
the ground for Congress and the White House.
—Robert E. Moffit, Ph.D., is Senior Fellow in Domestic and Economic Policy
Studies at The Heritage Foundation.

About the Author
Robert Moffit, Ph.D. Senior Fellow
Request an interview >>

Obamacare: Impact on Businesses
Published on April 27, 2010 by John Ligon WebMemo #2883

While President Obama continues traveling the U.S. heralding
the passage of the Patient Protection and Affordable Care Act
and the Health Care and Education Reconciliation Act,
businesses across the U.S. are growing more and more discontent
—and for good reason.
The new health care law will impose new compliance regulations,
employer mandate taxes, taxes on business “flow-through” and
investment income, and numerous indirect costs on small- and
medium-size companies. Altogether, these constraints will
dramatically affect companies’ per-employee costs, firm-level
allocation of labor, desire to take on health coverage, and
motivation to grow both in terms of income and employment.
Congress should repeal this massive statute, start over, and get
health care reform right.
Medium-Size Business Under Fire
Obamacare will dramatically impact the behavior of medium-
size firms in the U.S.—specifically, those companies with 50–199
workers.[1] Beginning in 2014, Obamacare will begin imposing
taxes—to help offset the cost of individual employees receiving
premium subsidies through the to-be-established state health
insurance exchanges—on companies with 50 “full-time
equivalents” that do not offer an “acceptable” level of health
insurance coverage.[2] These mandates will force companies—
including companies below the 50-employee threshold—to react
to eventual overall cost increases.
These changes will likely produce upward pressure on health
insurance premiums in the “fully insured market”—and this will
disproportionately affect these medium-size companies as well as
smaller companies.[3] Employees will likely bear most of the
burden since these costs will likely be passed on to them in the
form of reduced wages, discontinued hiring, or loss of
employment. Instead of adding more regular full-time
employees, some businesses will simply increase hours for
current employees, hire low-skilled and low-income labor, or opt
for more temporary or seasonal workers.
Health Reform Penalizing Small Business
President Obama and congressional leadership repeatedly claim
that Obamacare is good health reform policy for small businesses
(companies with 50 or fewer workers), but this claim is not
supported by the facts.[4] Instead, Obamacare will likely
exacerbate many of the concerns of small businesses—
particularly small business owners—in at least four ways.
1. Higher Health Care Costs. Obamacare does nothing to “bend
down the cost curve” that small businesses face relating to
providing health insurance coverage. In fact, it is likely that the
endless regulations, mandates, fees, and taxes will put upward
pressure on premium prices—particularly in the “fully insured”
market, where 88 percent of workers and dependents at small
businesses purchase health insurance.[5] Heritage analysis
estimates that roughly 54.5 percent of the total “premium tax”
on health insurers will be paid by workers and dependents
covered by these employer group policies.[6]
Additionally, the increased costs of health insurance will cause
many firms with 50 or fewer employees—perhaps most—to
either not offer coverage or drop coverage if they currently offer
it. There is nothing currently in Obamacare that will stop them
from doing so.
2. Ineffective Small Business Tax Credit. Even accounting for the
“cost-reducing” tax credits—which the Congressional Budget
Office estimates will impact at most 12 percent of businesses with
25 or fewer workers and expire after two years beginning in 2014
—Obamacare will not address the many uncertainties small
businesses face in deciding whether to offer health insurance
coverage to its workers.
Essentially, after all exclusions the only eligible firms for the
heralded “small business tax credit” are those with 10 or fewer
workers and those with low-income workers—and most of these
workers will qualify for premium subsidies in the state
exchanges. These small firms are the least likely to offer coverage
even with a significant price reduction.
3. Higher Regulation Compliance Costs. Small businesses do not
have the capacity to easily take on additional administrative
complexities. Many small companies will have to hire additional
workers—and incur higher external accounting expenses—to
handle not only the enhanced compliance regulations on health
insurance plans but also stricter tax compliance regulations
relating to business-to-business transactions.[7]
4. Medicare Taxes on “Flow-Through” and Investment Income.
Obamacare will increase the Medicare payroll tax and establish
a new Medicare non-payroll (“investment”) tax. This tax will
apply perversely on “flow-through income”—thus reaching a
significant share of small businesses.[8] Moreover, the wage
thresholds on this tax increase are not indexed to inflation and,
consequently, will push more small business owners into this
higher tax group.[9] The Medicare “investment” tax will also
lead to greater deterrence on investment—and passive income—
which will suppress economic growth.
Penalizing Business Growth and Success
Businesses will not take much comfort from the passage of this
“historic” health care bill. The President and many lawmakers in
Washington are consistently proposing and passing legislation
that hurts these businesses, and Obamacare is one more example.
Obamacare fails to appropriately address the concerns of small-
and medium-size businesses relating to health care reform, and it
will force many companies to react to new cost burdens. The
intended consequences of this poorly constructed bill are harmful
enough, but the many unintended consequences are even worse.
John L. Ligon is Policy Analyst in the Center for Data Analysis at The Heritage

About the Author

John Ligon Policy Analyst
Request an interview >>

Obamacare: Impact on the Economy
Published on September 22, 2010 by Karen Campbell, Ph.D. , Guinevere Nell and
Paul Winfree WebMemo #3022

The Patient Protection and Affordable Care Act (PPACA), the
health care bill signed into law by President Obama in March,
will overhaul the current health insurance system by enforcing
mandates on individuals and businesses, expanding Medicaid,
and introducing new taxes and fines to help pay for the increased
“federal budgetary commitment to health care.”
Contrary to a key intention of the legislation, the combination of
mandates and taxes will not help to reduce the deficit. In fact, the
PPACA will likely increase the deficit by an average $75 billion
per year, and as a result, the nation’s publicly held debt will be
$753 billion higher at the end of 2020. Such astronomical debt
crowds out other productive investments and will lead to an
estimated 670,000 lost job opportunities per year.
Dynamic Analysis Confirms Fears
It was the goal of health care reform to be deficit neutral—as
scored by the Congressional Budget Office (CBO)—within the
first 10 years of enactment. In order to achieve this goal, the new
law immediately imposes a combination of new taxes on high-
income individuals, medical devices, and pharmaceuticals and
Medicare spending cuts. In addition, the PPACA delays subsidy
payments to help make insurance affordable for those with lower
incomes and Medicaid expansions to cover more of the
However, the static budget analysis is limited in that it does not
account for how the policy combination of spending and taxes
alters the macroeconomic performance of the economy and feeds
back onto the budget. A dynamic simulation shows that the
higher initial costs are not an investment that pays off with a
higher return in later years. Indeed, these front-loaded costs slow
economic growth with higher inflation and higher interest rates,
which overwhelm the benefits the proposal hoped to gain in later
The bill’s taxes, penalties, and fees on investors and businesses
will decrease the amount of investment in the economy. This
reduced investment will in turn lead to a decline in productivity,
causing the economy to produce $706 billion less worth of goods
and services. A smaller economic pie means that workers earn
lower wages and salaries. Higher taxes on investment also put
upward pressure on interest rates as investors seek to achieve
their after-tax desired rate of return.[1]
Lower wages reduce the amount of taxable income that could
otherwise have been achieved. This will both increase the deficit
and grow the total debt—which in turn puts upward pressure on
interest rates and crowds out some savings that could have gone
to new productive business investments.
Higher interest rates mean that more American tax dollars will
go toward paying the interest on the federal debt rather than
paying down the principal. Simulations using dynamic analysis
estimate that the government would spend an average $23 billion
more per year on interest rate payments over the 2010–2020 year
window than it would without the PPACA.
Once the government begins paying for health insurance for
individuals through subsidies and bringing people into the
government insurance programs in the latter half of the decade,
this growing debt will balloon. By the end of the 10 years, debt
held by the public will be $753 billion higher than it otherwise
would have been.
Higher Premiums
In its analysis of the PPACA, the CBO estimates that health
insurance premiums for the non-group market will increase
significantly, primarily because of a mandate requiring plans to
provide a more generous level of coverage than most do now
while virtually eliminating the option of catastrophic coverage.
In addition, significantly more individuals will face these higher
premiums after the creation of the insurance exchanges begins
crowding out the employer-sponsored market and after the
individual mandate begins prodding the currently uninsured into
buying coverage.[2] The result will be an overall increase in the
absolute amount of health spending on premiums (that is, private
and public).
The premium and medical spending increases put upward
pressure on prices. Thus nominal spending (i.e., the actual
dollars spent) that the government anticipates in subsides and
payments for increased Medicaid enrollees will actually purchase
a lower level of medical care. In turn, the government will have
to spend more money to provide adequate insurance to
individuals or further ration payments to medical providers.
This unanticipated increase in spending further widens the
deficit that contributes to the federal debt.
The dynamic analysis shows that the new law will result in
670,000 net job losses, many of which would be in the health
services industry. These losses represent both cutbacks in jobs
and jobs that are simply never created as talented individuals
choose to specialize in other industries that are not subject to the
government’s payment squeezes. At the same time, newly
enrolled and subsidized individuals on the government’s rolls
will cause the demand for health services to increase. In turn,
prices will rise even more than anticipated, and greater rationing
will occur. Thus, this legislation will fail to meet its primary goal:
to enable greater access to health care while “bending the cost
curve downward.”
Taxing the Job Creators
The PPACA also increases the Medicare hospital insurance
component of the payroll tax on wages and self-employment
income in excess of $200,000 ($250,000 joint) by 0.9 percentage
points—a provision that will raise around $18 billion per year.
This “tax on the rich,” however, will actually affect small
businesses as well as salary earners, because the hospital
insurance tax applies to “flow-through income” of those small
businesses that file taxes as individuals. In fact, almost $16 billion
out the total $18 billion of revenue will come from filers with at
least some flow-through income. Small businesses at all earning
levels that file individually—even those already facing losses—
will see a tax increase.
In a time when firms are making hard decisions about layoffs,
successful businesses could face tax increases of thousands of
dollars. The overall average tax increase faced by small
businesses filing individually would be about $600.
Repeal Is Needed
Mandates add rigidities to the economy, which in turn reduce the
ability of the economy to make the needed adjustments to ever-
changing economic conditions. These inflexibilities reduce
economic growth by stifling the new innovations that a dynamic
population demands, resulting in slower economic growth, longer
periods of unemployment, and reduced opportunities for savings
and investment used to build nest eggs for households.
A combination of mandates and taxes will not reduce health care
costs or ensure that all citizens have good access to health care.
Instead, mandates will burden already struggling businesses with
new costs and punish individuals for not having high-paying
jobs. New taxes will burden small businesses as well as large ones
and force many firms to make layoffs, further hurting workers.
The best way to prevent further erosion of the economy is to
repeal the new law.
Karen A. Campbell, Ph.D. , is Policy Analyst in Macroeconomics, Guinevere Nell is
Research Programmer, and Paul L. Winfree is a Senior Policy Analyst in the Center
for Data Analysis at The Heritage Foundation.

Microeconomic Simulation. Personal income tax provisions of
the PPACA were simulated using the Center for Data Analysis
Individual Income Tax Model in order to estimate effects on
revenue and distribution of tax burden. The model simulates the
effect of tax law changes on a representative sample of taxpayers.
Data for these taxpayers are extrapolated (or “aged”) to reflect
detailed taxpayer characteristics through 2016. The data are
aged for consistency with the CBO baseline forecast from the
Global Insight model in order to produce effective and marginal
tax rate estimates with which to forecast dynamic effects of the
changes in tax burden.
Two simulations were run for comparison: (1) current law prior
to the PPACA, and (2) current law with the addition of the
individual income tax provisions of the PPACA. The provisions
affecting individual income that were simulated were the
increase in the Medicare hospital insurance component of the
payroll tax on wages and self-employment income and the
increase in the adjusted gross income floor of the medical
expenses deduction from 7.5 to 10 percent. These were run
together in a single simulation and compared with the simulation
of current law in order to determine revenue, effective tax rate,
and distributional effects.
For the purpose of presenting tax policy effects on small
businesses, a small business is defined as a business that reported
income using a Schedule C or reported income as a partnership
or S-corporation.
Macroeconomic Simulation. Heritage analysts used the
IHS/Global Insight February 2010 short-term model of the U.S.
economy to estimate the overall net economic effects of the
PPACA.[3] The baseline represents the most likely path of the
U.S. economy in the next 10 years. The relationships in the model
are calibrated by historical U.S. data and mainstream economic
The model is a tool that gives insight into the likely magnitude
and direction of the policy changes in a dynamic world where
many indirect effects can play out. This gives policymakers the
information they need to determine which policies will lead to a
stronger, more robust economy and which policies will weaken
the economy and lead to fewer opportunities for citizens in the
The simulation was conducted by estimating the direct price
changes that would likely occur in the health care markets. The
price changes were calculated using estimates of the aggregate
changes in premiums and coverage by the CBO as well as data
on insurance coverage type from the 2009 March Supplement of
the Current Population Survey and the 2007 Household
Component of the Medical Expenditure Panel Survey.[4] The
percentage change in prices was factored into the health care
price index variable and the benefits portion of employment cost
index. (The former was a price increase, the latter a slight
The excise tax on high-premium plans affects prices in the health
care markets and was therefore accounted for in the price index
The hospital insurance taxes on high income and investment
income affect individual average tax rates. The CBO estimated
revenue from these taxes. These estimates were used to calculate
the implied change in average effective tax rates. The implied
changes were factored into the average effective personal tax rate
variable. The tax changes were also simulated in the tax
microsimulation model. The rates estimated from the
microsimulation were used to check the macrosimulation of the
overall effective rate. Both the dynamic macro- and static
microsimulation estimated similar changes to average effective
rates (in the range of 0.1 percentage point).
Penalties and fees on businesses and taxes on medical devices and
pharmaceutical drugs were assumed to affect corporate taxes.
The CBO’s estimated revenues were used to calculate an implied
change in the corporate tax rate.
The net changes in Medicaid spending per year, estimated by the
CBO, were used as a proxy for real federal grants to state and
local governments for Medicaid in the model.
About the Author

Karen Campbell, Ph.D. Policy Analyst, Macroeconomics
Request an interview >>
Guinevere Nell Research Programmer
Request an interview >>

Paul Winfree Senior Policy Analyst, Simulations
Request an interview >>

Obamacare: Impact on Future Generations
Published on June 1, 2010 by James C. Capretta WebMemo #2921

President Obama and other proponents of the recently passed
health care law argue that the legislation was desperately needed
to improve the nation’s health system for both today’s citizens as
well as future generations.
But there are many reasons to be concerned that this new law
will instead deliver both a lower quality health system and more
costly and burdensome government for those paying taxes in
future years.
Another Runaway Entitlement Program
The centerpiece of the new legislation is a large-scale coverage
expansion. The Medicaid program is expanded to cover all
households with incomes up to 133 percent of the federal poverty
level (FPL), and subsidized insurance is provided for families
with incomes between 133 and 400 percent FPL. The
Congressional Budget Office (CBO) estimates that these two
expansions will bring 34 million people onto the federal
entitlement rolls by 2017.[1] Moreover, by 2019, CBO says the
cost of these “coverage” provisions is likely to escalate very
rapidly and in line with the rising costs of existing health
entitlement programs, including Medicare.
Proponents claim that the tax hikes and spending reductions in
the bill will be more than sufficient to pay for the added costs of
another large expansion in federal spending. And, in fact, CBO’s
cost estimate shows a net deficit reduction from the health-
related provisions of the bill at $124 billion over the period 2010–
But, for many reasons, the impact on future taxpayers is likely to
be much more adverse than CBO’s estimates indicate.
The True Cost of the Legislation
Omission of the Medicare “Doc Fix.” The Obama
Administration and leaders in Congress chose to use all of the tax
hikes and spending cuts they could find to create another new
entitlement instead of paying for a fix for Medicare physician
fees (the so-called “doc fix”). Under current law, those fees are
set to get cut by 21 percent in June. The Obama Administration
wants to undo the cut permanently, but it does not provide any
offsetting savings. The result will be a spending increase of
between $250 billion and $400 billion over a decade. Passing an
unfinanced “doc fix” wipes out all of the supposed savings from
the new legislation and greatly adds to the burden on future
The CLASS Act Gimmick. The new health law creates a
voluntary long-term care insurance program, called the
Community Living Assistance Services and Supports (CLASS)
Act. Those who sign up for it must pay premiums for five years
before becoming eligible for benefit payments. Consequently,
premiums paid by enrollees build a small surplus—about $70
billion over 10 years according to CBO—which the health law’s
proponents claim as deficit reduction. But these premiums will
be needed in short order to pay actual claims.
Moreover, the Chief Actuary of the Medicare program predicts
that the program will experience severe adverse selection.[2]
When that happens, the program will either need to dramatically
cut benefits or get a major federal bailout. Thus, not only is it
inappropriate to claim the $70 billion in premiums as savings,
but this program will almost certainly become a huge new
unfinanced burden on future taxpayers.
Medicare Cuts. CBO and the Chief Actuary for the Medicare
program have both stated that Medicare spending cuts cannot be
counted twice—to pay for a new entitlement expansion and to
claim that Medicare’s financial outlook has improved.[3] But
that is exactly what the proponents of the new legislation do. If
the Medicare cuts and tax hikes for the hospital trust fund (about
$400 billion over 10 years, according to CBO[4]) are used solely
to improve the capacity of the government to pay future
Medicare claims, then the health law becomes a massive exercise
in deficit spending.
But the problems do not end there. Many of the assumptions
used to build the official cost projections are likely to prove
entirely too optimistic.
Estimates of Employees Dropped from Job-Based Coverage. The
new insurance arrangements in the state-based exchanges will
provide massive new subsidies to low- and moderate-wage
households. For instance, at 200 percent FPL, the subsidy for a
family of four will reach nearly $11,000 in 2014. But CBO
estimates that only 3 million Americans will move from job-
based insurance into the exchanges to take advantage of the
subsidies, even though there are about 130 million Americans
under age 65 with incomes between 100 and 400 percent FPL.
Douglas Holtz-Eakin and Cameron Smith of the American
Action Forum have estimated that as many as 35 million people
will be moved out of job-based coverage and into subsidization.
If that is the case, the 10-year cost of the coverage expansion
provisions would jump by $400 billion more.[5]
Upward Pressure on Health Care Inflation. If, as CBO projects,
some 30 million or more people get heavily subsidized
comprehensive insurance coverage, it is certain that higher
demand for services will put upward pressure on the prices
charged for those services. Of course, in government-regulated
insurance such as Medicaid, the fees are not as flexible. But in
private plans, there is nothing to stop the added demand from
pushing fees higher in coming years.
Arbitrary Government Payment Rate Reductions
The President has spoken often of the need to “bend the cost
curve” of health care with “delivery system reform.” But the
provisions in Medicare aimed at changing the way doctors and
hospitals are organized and provide services are mainly small
and untested pilot projects that are very unlikely to
fundamentally change the cost structure of American medicine.
The real cost-cutting in the law comes in the form of payment
rate reductions in the Medicare program that are applied across
the board and without regard to any assessment of quality of the
care. The Chief Actuary of the Medicare program believes that
these cuts will lead to large-scale abandonment of Medicare by
hospitals that can no longer afford to take patients at the
government’s below-cost rates.[6]
The Opposite Effect
The President and congressional leaders have argued that a
primary benefit from the health law will be reduced long-term
budget pressure and thus a brighter future for coming
generations of taxpayers. But when the cost estimate is adjusted
for omissions, gimmicks, double-counting, and unrealistic
assumptions, it is clear that the new health law will increase the
burden, not lessen it.
One recent estimate projects the bill will add more than $500
billion to the deficit over the next 10 years and $1.5 trillion in the
decade following.[7] And any cost-cutting that does occur under
the new law will come in the form of arbitrary governmental
controls that will put up barriers to care in future years.
James C. Capretta is a Fellow at the Ethics and Public Policy Center.

About the Author

James C. Capretta Visiting Fellow
Request an interview >>

Repealing Obamacare and Getting Health
Care Right
Published on November 9, 2010 by Nina Owcharenko WebMemo #3053

Americans want health care reform—but not the reforms put in
place under the Patient Protection and Affordable Health Care
Act (PPACA). The new law moves America’s health care system
in the wrong direction, transferring vast powers to Washington
bureaucrats who will control the dollars and decisions that
should be in the hands of individual patients and their families. It
is no surprise that most Americans continue to oppose the new
law and that clear majorities want it repealed. A recent
Rasmussen poll, for example, found that 53 percent of likely
voters favor repeal.[1]
Congress must repeal the new law. Congress cannot build sound
market-based health care reform on the PPACA foundation,
which is utterly incompatible with a health care system based on
consumer choice and free markets.
Beyond the unprecedented mandates, new taxes, massive
entitlement expansion, unworkable and costly insurance
provisions, and its failure to control costs,[2] the new law
concentrates enormous power in the U.S. Department of Health
and Human Services (HHS). It creates a giant network for the
federal micromanagement of health plans, benefits, insurance
markets, and unprecedented intervention into the details of
health care financing and the delivery of medical care.[3]
The early result is a veritable flood of controversial rules and
regulations, administrative decisions, and guidelines directly
affecting the lives of millions of Americans. This regulatory
regime, administered by unelected bureaucrats, is even more
onerous because of the fundamental flaws of the hastily enacted
legislation itself, including undefined provisions and unrealistic
timeliness. Those with the knowledge, access, and influence with
the Administration are more likely to obtain exemptions than
those who are not so fortunate. The new law allows the HHS
Secretary to apply the provisions of the law and to enforce it as
she sees fit, thus granting the Secretary the right to determine
winners and losers.
Keeping Up the Pressure
While working to achieve full repeal, Members should continue
to focus on the failures and consequences of the new law, block
its implementation at every opportunity, and exert strong
oversight over the implementation process.
Block. The most straightforward approach to blocking the new
law is for Members of Congress to stop funding for key
provisions. For example, they could prohibit funding from going
toward the Internal Revenue Service for enforcing the individual
In addition, Members should also look at triggers or other
mechanisms to stop or delay key provisions from going into
effect. This should include reliance on the Congressional Review
Act,[4] a law enabling Congress to block or halt onerous rules
and regulations before they do damage to businesses or other
sectors of the health care economy.
Oversight. A new Congress should also pursue fair, open, and
thorough hearings on the implementation of the new law. With
its rush toward passage of the new law in March, Congress left
numerous questions unanswered, and these issues have broad
implications for employers, employees, states, doctors and
hospitals, and other key players in the health care sector of the
For example, the Administration’s use of waivers and
exemptions from its own rules deserve scrutiny; so does the
impact of the law on state budgets, the workforce, and the overall
economy. In addition, Congress should conduct a robust review
of the regulatory process itself, the main engine through which
much of the law is being enforced and finalized.
Getting Health Care Reform Back on Track
There are many policy options Congress should consider, after
repeal of PPACA, to begin moving the system in the right
direction and put the country on the right path toward market-
based health care change that gives people better choices and
allows them to take account of the price and value of health care.
For example, Congress should:
• Provide individual tax relief for all persons purchasing
private health insurance, regardless of where they work;
• Eliminate barriers to individuals purchasing health care
coverage that best suits their personal needs across state
• Allow employers to convert their health care compensation
from a defined benefit package to a defined contribution
• Promote new group purchasing arrangements based on
individual membership organizations and various
associations, including union, fraternal, ethnic, and
religiously based groups;
• Improve consumer-directed health options (such as health
savings accounts, health reimbursement arrangements, and
flexible spending accounts) that encourage greater
transparency and consumer control over health care
• Extend rational pre-existing condition protections in the
non-group health insurance markets for those with
continuous creditable coverage, thus rewarding responsible
persons who buy and maintain coverage;
• Set up a fair competitive bidding process to determine
government payment in traditional Medicare fee-for-service
and Medicare Advantage programs;
• Review Medicare rules and regulations and eliminate those
that unduly burden doctors and patients, such as the
restriction preventing doctors and patients to contract
privately for medical services outside of the traditional
Medicare program;
• Encourage the states to set up mechanisms such as high-risk
pools and risk transfer models that help lessen the problems
of individuals who are difficult to insure;
• Expand states’ ability to develop consumer-based reforms
that enable states to customize solutions for their citizens;
• Strengthen premium assistance in Medicaid to enable young
families to obtain private health insurance coverage;
• Improve patient-centered health care models for those on
• Increase federal and state efforts to combat fraud and abuse
in Medicaid, including tightening eligibility loopholes in
Medicaid for long-term-care services;
• Encourage personal savings and the development of a robust
private insurance market for long-term-care needs;
• Make the ban on taxpayer-funded abortion permanent and
government-wide and extend a similar permanent policy to
ensure protection of the right of conscience among medical
providers and personnel; and
• Stop new tax increases and promote tax cuts that would
expand private insurance coverage and grow the economy.
The Right Way Forward for America
After repeal of PPACA, Congress should pursue targeted policy
solutions that address practical problems faced by millions of
Americans in a step-by-step and fully transparent legislative
process. This would move the health care system in the right
In the end, fundamental policy issues must be tackled to achieve
lasting health care reform. These include promoting personal
control through tax equity, ensuring portability of health
insurance, fixing financially troubled and underperforming
government health care programs, and engaging in a federal–
state partnership to address the particular challenges faced by
very different states.[6] These elements are at the core of
transforming today’s health care economy into one where
individuals and families can control their own dollars and make
their own decisions.
Nina Owcharenko is Director of the Center for Health Policy Studies at The
Heritage Foundation.

About the Author

Nina Owcharenko Director, Health Policy Studies
Request an interview >>

America’s health care system needs reform, but not the sort of
changes enacted under the new health care law.
The Patient Protection and Affordable Care Act (commonly
referred to as “Obamacare”) moves our health care system in the
wrong direction. This highly unpopular law asserts federal
control over health care benefits and financing, establishes a
complex one-size-fits-all health system, and centralizes America’s
health care decisions in Washington.
Instead, Congress should transform the health care system into
one that empowers individuals and families—not Washington—
to control more of their health care decisions.
For up-to-the-minute news on Obamacare, interactive tools to
explore the fiscal impact of changing our health care system, and
proposed solutions from experts at The Heritage Foundation, log
on to
The Impact on the Uninsured The Impact on States
The Impact on
The Impact on Families
The Impact on Your
The Impact on Seniors
The Impact on Doctors Repealing Obamacare

The Impact of Obamacare on the Uninsured
The real impact Obamacare will have on the uninsured is not what
many Americans might have expected.
- Those who gain coverage will be enrolled in Medicaid, the
welfare program for the poor, or in a health plan designed by the
- The millions who remain uninsured will still depend on
overcrowded emergency rooms for routine care.
- Give tax relief or direct assistance and provide portability for
those who buy their own health care coverage, allowing
individual Americans to take their insurance coverage from job
to job.
- Obamacare: Impact on the Uninsured by Kathryn Nix
- Obamacare's Big Surprises for the Uninsured

The Impact of Obamacare on Families
Many provisions of the new law weaken family choice of coverage,
undermine parental participation in minor children’s health care
decisions, and penalize the decision to marry.
- Obamacare provides $125 million per year for school-based
health centers and a new program to reduce teen pregnancy,
with no requirement to reduce abortions.
- These federally funded projects deny parents any knowledge
about the services their children receive.
- Rather than bureaucrats and lobbyists prescribing health care
benefits and services, respect the role of families in moral
decisions involving their health care.
- Obamacare: Impact on the Family by Chuck Donovan
- Obamacare: Impact on the Family
- Interview with Larry Patterson, Father of Four Children

The Impact of Obamacare on Seniors
According to surveys, no group of Americans is more skeptical of
Obamacare than senior citizens—and with good reason.
- Nearly one-quarter of all seniors rely on Medicare Advantage,
the private health care option in Medicare. However, Obamacare
makes such deep cuts to that program that half of those covered
will no longer be able to keep the coverage they have.
- New taxes on drug companies ($27 billion) and medical device
makers ($20 billion), as well as new reporting requirements and
regulations imposed on physicians, will make access to health
care and services more costly and difficult for seniors under
- Give seniors greater choice of doctors, private health plans, and
services under Medicare.
- Obamacare: Impact on Seniors by Robert Moffit
- Obamacare: Impact on Taxpayers by Curtis Dubay
- Seniors Will Lose Big Under Obamacare
The Impact of Obamacare on Doctors
The new health care law reinforces the worst features of existing
third-party payment arrangements in both the private and public
- Obamacare expands government’s role as the primary payer of
health care by adding 18 million people to the Medicaid
program, which on average reimburses doctors only 56 percent
of the market rate for medical procedures.
- Due to increased regulation and less reimbursement, 66 percent
of doctors are considering no longer accepting government
health programs.
- To make the costs of health care more predictable and
sustainable for providers, fix Medicare and Medicaid by allowing
patients to choose the coverage that best suits them.
- Obamacare and its Impact on Doctors by Robert Moffit
- A Hard Pill to Swallow for Physicians
- Interview with Dr. Martha Boone, Physician in Atlanta
The Impact of Obamacare on States
Obamacare will impose significant new Medicaid costs on states
and constitute a major federal usurpation of long-standing state
authority in regulating private insurance.
- By 2019, over 80 million people will be on the Medicaid
program—requiring billions of dollars from state budgets and
- Twenty-one State Attorneys General have filed suits to protect
their citizens from being forced, in violation of the Constitution,
to purchase government-approved health insurance.
- Because no two states are alike, promote federal–state
partnerships to accommodate the unique and diverse health care
challenges facing the states.
- Obamacare: Impact on States by Edmund Haislmaier and Brian
- Revitalizing Federalism: The High Road Back to Health Care
Independence by Robert Moffit
- Obamacare’s Impact on the States
- Interview with Mitch Daniels, Governor of Indiana
- Interview with Ken Cuccinelli, Attorney General of Virginia

The Impact of Obamacare on Businesses
The new health care law will impose new compliance regulations,
employer mandate taxes, and numerous indirect costs on small-
and medium-size companies.
- $52 billion in new taxes will be imposed on businesses by
mandating that employers provide health insurance.
- New IRS reporting requirements and other business-related
taxes and regulations will also penalize growth and success.
- Encourage portability of health insurance so that workers own
their health care plan regardless of job or job status, and allow
employers to decide how much they wish to contribute toward
their employees’ health care costs.
- Obamacare: Impact on Businesses by John Ligon
- Obamacare: Impact on the Economy by Karen Campbell, Ph.D. ,
Guinevere Nell and Paul Winfree
- No Friend of Small Business
The Impact of Obamacare on Your Future
Families like yours should have complete control of their health
care dollars and decisions. In addition to portability of health
insurance (see previous page), policymakers should press for
transparency in health care—with prices of medical goods and
services clear and uncorrupted by excessive government
Health plans and providers should compete on a level playing field
in a free, open, interstate market. Following this path, you would
be able to buy the health insurance plan you want, at a price you
are willing to pay, and ultimately receive better quality health care
at lower cost.
- Obamacare adds a trillion dollars in new health care spending,
creating prohibitively expensive new entitlements for long-term
care and a subsidy scheme that discourages work and penalizes
- Obamacare will impose about a half a trillion dollars in new
taxes and will increase the deficit by $500 billion over the next 10
years, a massive burden on the next generation of taxpayers.
- Rein in runaway spending and deficits. Rather than creating
new government-run health care programs, implement sound
fiscal policies to avert the crisis facing America’s existing
entitlements (Medicare, Medicaid, and Social Security).
- Obamacare: Impact on Future Generations by James C.
- Kicking the Can Down the Road to Future Generations

Repealing Obamacare and Getting Health Care
Despite what was promised, Obamacare clearly does not establish a
patient-focused health care system that saves money. But could
America reform our existing system and get there? Absolutely.
- Congress must repeal the new law. Congress cannot build
sound market-based health care reform on this crumbling
foundation, which is utterly incompatible with consumer choice
and free markets.
- While working to achieve full repeal, Congress can block
implementation at every opportunity by stopping funding for key
provisions. For example, Congress could prohibit funding from
going toward the Internal Revenue Service for enforcing the
individual mandate.
- Congress has a constitutional mandate to provide oversight to
the executive branch. Congress should pursue fair, open, and
thorough hearings on the implementation of the new law. For
example, the Obama Administration’s use of waivers and
exemptions from its own rules deserves scrutiny.
- As stated throughout this report, there are policy solutions
Congress should consider to get health care right. We should
promote personal control through tax equity, ensure portability
of health insurance, fix our financially troubled government
health care programs, and engage in federal–state partnerships
to address the particular challenges faced by very different
- Repealing Obamacare and Getting Health Care Right by Nina
- Repealing Obamacare and Getting Health Care Right
After repeal of Obamacare, Congress should pursue targeted
policy solutions that address practical problems faced by millions
of Americans in a step-by-step and fully transparent legislative
process. The elements outlined above are at the core of
transforming today’s health care economy into one where
individuals and families can control their own dollars and make
their own decisions.

Top Ten Side Effects of 2010
Posted December 31st, 2010 at 11:00am

Within days of Obamacare’s passage, The Heritage Foundation
began documenting all of the ill Side Effects the new law was
inflicting on our country. It has been The Foundry’s most
popular feature by far. The Side Effects index page is the third
highest trafficked page on the blog. Continuing our Top Ten in
2010 series, here are the Top Ten Side Effects of 2010 ranked by
pageviews with the 10th most popular post on top, and the most
popular post at the bottom.
10. Doctor Participation May Vary
9. Congress Regulates Themselves Out of Coverage
8. Medical Devices Tax Will Costs Jobs
7. Higher Health Insurance Taxes
6. Get Ready to Change Your Insurance
5. Young to Pay Higher Health Insurance Premiums
4. Obamacare Fueling Higher Insurance Costs
3. Obamacare Doesn’t Work on Children After All
2. Obamacare May Be Fatal for Your HSA
1. Laws No Longer Mean What They Say

Author: Conn Carroll
.Side Effects: Ball Drop Brings Bad News for Consumer-
Driven Health Plan Users
• Side Effects: Number of Waivers Grows As a Result of
Obamacare Authors’ Sloppy Handiwork
• Side Effects: AARP Employees Face Premium Hikes As
Result of New Law
• Side Effects: Obamacare Accelerates Hospital Job Losses
• Side Effects: Obamacare Encourages States to Drop

The Side Effects of OBAMACARE

.Side Effects: Ball Drop Brings Bad News for Consumer-
Driven Health Plan Users
Posted December 31st, 2010 at 12:00pm in Health Care

This year, as the clock strikes twelve on New Year’s Eve,
Americans who depend on health savings accounts (HSAs) to
make medical expenditures more affordable will experience
first-hand yet another adverse side effect of Obamacare.
Starting in 2011, American families will no longer be able to
use HSAs to purchase over-the-counter drugs, such as cough
[...] More
Top Ten Side Effects of 2010
Posted December 31st, 2010 at 11:00am in Health Care

Within days of Obamacare’s passage, The Heritage
Foundation began documenting all of the ill Side Effects the
new law was inflicting on our country. It has been The
Foundry’s most popular feature by far. The Side Effects
index page is the third highest trafficked page on the blog.
Continuing our Top Ten in 2010 series, [...] More
Side Effects: Number of Waivers Grows As a Result of
Obamacare Authors’ Sloppy Handiwork
Posted December 10th, 2010 at 2:00pm in Health Care

Jamie Dupree recently reported for the Atlanta Journal-
Constitution that the number of waivers granted by the
Obama Administration for a certain provision in the new
health care law has now reached 222. That’s double the
amount of just three weeks ago. The waivers apply to a
provision of Obamacare prohibiting annual limits on health
plans. [...] More
Side Effects: AARP Employees Face Premium Hikes As Result of
New Law
Posted November 16th, 2010 at 5:00pm in Health Care

Health care reform was supposed to “bend the cost curve” in
health care and reduce the amount that American families
pay in health care premiums. This was the message the
nation received from proponents of the new law, which
included organizations such as AARP. But now the group,
whose membership includes 40 million Americans over [...]
Side Effects: Obamacare Accelerates Hospital Job Losses
Posted November 15th, 2010 at 4:00pm in Health Care

Repeatedly, reports have shown that Obamacare will
increase job loss. But what happens when those who are laid
off are the workers meant to enable the health care law’s
expanded access of care: namely, hospital employees?
According to one hospital, layoffs of workers have already
begun as a result of the new law. Leaders of [...] More
Side Effects: Obamacare Encourages States to Drop Medicaid
Posted November 9th, 2010 at 3:07pm in Health Care

Because of Obamacare, states are considering dropping out
of Medicaid, the federal-state health program for the poor,
rather than deal with the additional fiscal strain resulting
from the health law. One of the main drivers behind health
care reform was to reduce the nation’s number of
uninsured. Under the new law, this will be partially [...]
Side Effects: Bad News for New Mexico Residents Who Like
Their Current Health Plan
Posted November 3rd, 2010 at 11:00am in Health Care

Once again, the promise that Americans can keep the health
coverage they like under Obamacare has been broken.
National Health Insurance, Aetna, John Alden, and Principle
have reported that they “need to make adjustments in their
business to accommodate the nation’s new federal health
care law.” The National Health Insurance Co. (NHIC), a
Dallas-based insurer, [...] More
Side Effects: Now Even Democrats Are Voicing Concern About
Obamacare’s Consequences
Posted November 2nd, 2010 at 2:00pm in Health Care

Imagine that one day, your boss takes you out to coffee. You
offer to pick up the tip as a contribution. The two of you
head down the street and are faced with quite the
conundrum: two coffee shops to choose from! Both offer a
delicious cup of joe for the same price, but in [...] More
Side Effects: Obamacare Strengthens Compliance-Based
Posted October 22nd, 2010 at 4:00pm in Health Care

Obamacare alters the practice medicine by putting a
stronger emphasis on adherence to government-determined
measures of quality. The Centers for Medicare and Medicaid
Services (CMS) already offers hospitals financial incentives
to report on their compliance with certain measures of care.
These are posted on Hospital Compare, a site where,
according to Kaiser Health News, “patients [...] More
Side Effects: Obamacare Hurts Low-Income Workers
Posted October 21st, 2010 at 1:00pm in Health Care

With a struggling economy and stagnant unemployment
rate, the last thing the United States needs is any public
policy that will hurt job growth. Unfortunately,
Obamacare’s new federally mandated, essential benefits
package will diminish new job opportunities, especially for
low-income workers. This is expected to occur because the
new law requires employers to offer health [...] More
Side Effects: How Government Micromanagement Could
Discourage Access to Some Preventive Services
Posted October 14th, 2010 at 2:00pm in Health Care

A recent letter from the Congressional Research Service
(CRS) reveals how Obamacare will erode patients’ access to
certain preventive services. The new health care law requires
insurers to cover all preventive measures rated “A” or “B”
by the United States Preventive Services Task Force
(USPSTF) with zero cost-sharing. Otherwise, “a plan or
issuer has the [...] More
Side Effects: Obamacare Compels More Employers to Dump
Posted October 6th, 2010 at 11:00am in Health Care

Obamacare has struck again. Last week, 3M announced
plans to drop health benefits for retirees, citing the new law’s
impact as a contributor in its decision. In 2013, 3M retirees
who qualify for Medicare will lose their current employer-
sponsored health benefits, and instead receive a health
reimbursement account (HRA) with which to buy a
Medicare [...] More
Side Effects: Obamacare Fails to Halt Rising Premiums
Posted October 4th, 2010 at 4:00pm in Health Care

President Obama and his supporters have said that one of
the major benefits of the Patient Protection and Affordable
Care Act would be a drop in health insurance premiums. But
a new Hewitt Associates study shows that insurance costs
will continue to rise for 2011. The study projects an 8.8
percent average premium increase for [...] More
Side Effects: Massachusetts Seniors Will Lose Medicare
Advantage Plans in 2011
Posted September 30th, 2010 at 1:00pm in Health Care

President Barack Obama’s promise that “if you like it you
can keep it” may be this generation’s “read my lips—no new
taxes,” claim. New Centers for Medicare and Medicaid
Administrator Dr. Donald Berwick recently said “Medicare
Advantage remains strong and a robust option for millions
of seniors who choose to enroll or stay in a [...] More
Side Effects: Doughnut Hole Deal Not so Sweet
Posted September 28th, 2010 at 5:30pm in Health Care

Currently 3.4 million Americans seniors covered by
Medicare find themselves in a giant “doughnut hole,” but
despite the tasty terminology, there’s nothing sweet about it.
The doughnut hole refers to a gap in prescription drug
coverage under Medicare Part D. As David Hilzenrath
explains, “…beneficiaries enter the coverage gap when their
prescription tab hits $2,830, [...] More
Side Effects: Fuzzy Math Won’t Bend the Health Care Cost
Posted September 16th, 2010 at 4:00pm in Health Care

Obamacare will force health care spending to rise faster and
higher over the next decade than if Congress had just left the
nation’s health system unchanged. That’s according to a
recent report from the Office of the Actuary at the Center
for Medicare and Medicaid Services. The report projects the
new law will inflate national [...] More
Side Effects: More Americans Will Feel the Pain of Medicaid’s
Posted September 15th, 2010 at 3:00pm in Health Care
Lawmakers shoved through Obamacare on the promise that
it would decrease the number of uninsured Americans. The
new law does this by expanding Medicaid’s eligibility to
cover an additional 16 million Americans by 2019, according
to the Congressional Budget Office (CBO). However, recent
analysis from former CBO director Douglas Holtz-Eakin
and American Action Forum analyst [...] More
Side Effects: Obamacare Widens Health Care Disparities
Posted September 14th, 2010 at 1:00pm in Health Care

In a recent op-ed in the Spanish media, President Barack
Obama espoused the new health reform law would ensure
that minorities like Latinos would have access to health care
services through better coverage options. However, the
President left out that the bulk of this “coverage” is pushing
many Hispanic and African Americans into an inefficient [...]
Side Effects: Obamacare’s Small Business Tax Credits Won’t Go
The Distance
Posted September 13th, 2010 at 1:00pm in Health Care

Will more small businesses be able to offer their workers
health coverage under Obamacare? The legislation creates a
tax credit to encourage just that. But a new report from The
Commonwealth Fund says it probably won’t help much.
Though small firms eligible for some level of the tax credit
employ approximately 16.6 million employees, the [...] More
Side Effects: More Bad News for Those Who Like Their Current
Posted September 9th, 2010 at 2:00pm in Health Care

When House Speaker Nancy Pelosi (D-CA) said Americans
would have to wait until Congress passed Obamacare to find
out what was in it, she wasn’t kidding. Since the passage of
the Patient Protection and Affordable Car Act nearly six
months ago, Americans have been faced daily reality checks
from the health care overhaul, and none [...] More

Side Effects: Obamacare Raises Your Premiums
Posted September 8th, 2010 at 5:00pm in Health Care

Health Insurers Plan Hikes. That’s the headline of today’s
Wall Street Journal story which reports: “Health insurers
say they plan to raise premiums for some Americans as a
direct result of the health overhaul in coming weeks,
complicating Democrats’ efforts to trumpet their signature
achievement before the midterm elections. Aetna Inc., some
BlueCross BlueShield plans [...] More
Side Effects: Future of Private Insurance Rests in Secretary
Sebelius’ Hands
Posted September 1st, 2010 at 11:00am in Health Care

Obamacare requires insurers to meet a federally-specified
medical loss ratio. That is, they must spend a certain
percentage of premiums on medical expenses. The
remainder can be used to cover administrative costs and, if
there’s anything left, profits. But if insurers don’t shell out
enough in medical losses to meet the requirement, they’ll
have to [...] More
Side Effects: College Students May Lose Health Care Option
Under Obamacare
Posted August 25th, 2010 at 2:00pm in Health Care

Health care isn’t something most students worry about.
Government stats show about 80 percent of college students
are covered under a parents’ plan. For them, Obamacare
may mean they can keep the insurance they already have for
a few years beyond college, but it won’t affect the coverage
they carry during school. But what about [...] More
Side Effects: What Obamacare and the Death Star have in
Posted August 20th, 2010 at 11:00am in Health Care
So far, 21 states have filed lawsuits challenging the
constitutionality of Obamacare. As they move forward, it’s
worth pondering what would happen to the health care
overhaul if they succeed. Could one lawsuit be the proton
torpedo that blows up the Obamacare Death Star? Typically,
courts can deem a legislative provision unconstitutional
without it spelling [...] More
Side Effects: Obamacare Puts States Between a Rock and a Hard
Posted August 17th, 2010 at 3:00pm in Health Care

Obamacare creates a host of new federal requirements billed
as consumer protections. But enacting these policies falls not
on the feds, but on the states. Some of these provisions were
among the more popular components of Obamacare:
guaranteed issue for children; letting individuals remain on
their parents’ health plan up to age 26; requiring insurers
[...] More
Side Effects: Obamacare Spreads the Wealth by Cutting
Posted August 6th, 2010 at 11:30am in Health Care

Is Granny “disposable”? Some seniors may get that
impression once Obamacare kicks in. As noted in a recent
Wall Street Journal article, the new law cuts $200 billion
from Medicare Advantage, a public-private “hybrid” of
Medicare. As a result, more than 11 million seniors will
likely see their Medicare Advantage premiums rise
significantly or their [...] More
Side Effects: Obamacare Causes Some Insurers to Stop Offering
Coverage for Kids
Posted August 4th, 2010 at 11:00am in Health Care

The effects of Obamacare are getting weirder with each
passing month. Now, new requirements created by the law
are causing some insurers to consider no longer offering
“child-only” policies to avoid having to raise rates. Most
children are covered by parents’ employer-provided
insurance or by government programs. But some parents
buy individual health insurance coverage [...] More
Side Effects: Small Businesses Won’t Find a Friend in
Posted July 30th, 2010 at 10:00am in Health Care

One of the promises of Obamacare was that it would give
folks working in small businesses access to affordable
care. Unfortunately, like so much else in the law, it doesn’t
look like that’s going to work very well. To solve the
problems small firms have with finding affordable health
coverage, Obamacare created a small-business tax credit.
[...] More
Side Effects: Premium Hikes for Arizona State Employees,
Courtesy of Obamacare
Posted July 29th, 2010 at 8:00pm in Health Care

Arizona v. President Obama. This time it’s not about
immigration but health care. A recent letter from the
Arizona Department of Administration to 135,000 state
employees informed them that, depending on their type of
coverage, they can expect their monthly health insurance
costs to jump by as much as 37 percent. The letter cites the
[...] More
Side Effects: Obamacare Encouraging Insurers to Cut Corners
Posted July 22nd, 2010 at 5:00pm in Health Care
With or without Obamacare, health insurance costs are on
the rise. And that has businesses searching for more
affordable options. One increasingly popular option: health
plans covering services provided by a relatively small
number of participating doctors and hospitals. These plans
are most attractive to small employers, but The New York
Times reports, “Large employers, [...] More
Side Effects: House Fix Is Just the Beginning to Plugging the
Holes in Obamacare
Posted July 21st, 2010 at 3:30pm in Health Care
Though Democrats’ health care bill has already been signed
into law, work on the Patient Protection and Affordable
Care Act (PPACA) is anything but complete. Last
Wednesday, the House passed a bill that would make several
technical corrections to the health bill hastily passed last
March. The authors of the PPACA never expected the
version [...] More
Side Effects: Obamacare Could Punish Docs for Better Quality
Posted July 16th, 2010 at 11:00am in Health Care

“Pay-for-performance” medicine has gained popularity in
recent years, and Obamacare makes it a reality for Medicare
enrollees. But that’s not necessarily a good thing. Pay-for-
performance allows third parties to pay physicians based on
treatment outcomes. In theory, this sounds like a great way
to encourage doctors to improve outcomes. But in practice,
it’s a bit [...] More
Side Effects: Medicaid Reimbursement Crisis Hits Texas
Posted July 14th, 2010 at 4:00pm in Health Care

Obamacare promises that, some years down the road, every
American will have health insurance. But the whole point of
having health insurance is to get medical care when you need
it, and that’s not part of the Obamacare promise. The new
law aims to use Medicaid to cover 16 million otherwise
uninsured Americans in 2019. [...] More
Side Effects: IRS and Businesses Unite Against Obamacare?
Posted July 13th, 2010 at 4:00pm in Health Care

The Internal Revenue Service (IRS) recently unearthed yet
another undesirable side effect of Obamacare—one that will
hit the taxman as well as business owners. The Taxpayer
Advocate Service, “an independent organization within the
IRS whose employees assist taxpayers,” reports that both the
IRS and taxpayers will have trouble complying with the
health care law’s extensive [...] More
Side Effects: Obamacare’s Exploding Medicaid Costs
Posted July 7th, 2010 at 4:00pm in Health Care

The states are in Big Trouble. While Americans are fearful
of record federal deficits, the states also are facing increased
costs. Most of the exponential growth comes from increased
Medicaid costs, and the taxpayers in the states are going to
pay for it. A new Deloitte study gives predictions that by
2030 Medicaid costs could [...] More
Side Effects: Obamacare Shifts Costs to the Privately Insured
Posted July 6th, 2010 at 5:15pm in Health Care

President Obama promised to address the growing costs in
health care with passage of his “reform” bill. But instead of
reducing costs, Obamacare will succeed only at shifting the
burden to taxpayers and the privately insured. Americans
with private health insurance will indirectly subsidize care
received by those reliant on Medicare and Medicaid. It is [...]
Side Effects: White House Misses Deadline for Creating High
Risk Pools
Posted June 24th, 2010 at 6:30pm in Health Care

We’ve all heard it before — the age-old saying “Better late
than never.” Well, get ready to hear it again, this time from
Health and Human Services Secretary Kathleen Sebelius,
regarding the creation of high-risk pools under Obamacare.
The pools were supposed to provide coverage for individuals
who cannot get health insurance due to chronic [...] More
Side Effects: Bureaucracy in a Bind
Posted June 22nd, 2010 at 12:00pm in Health Care

Health care is a life-and-death matter. It’s also a huge part
of our economy (one-sixth, to be exact). With so much at
stake, it makes sense to “go slow,” when it comes to
reforming the system. But rather than take the time to get it
right, the liberal leaders of Congress rammed through a
wholesale [...] More
Side Effects: Obamacare Discourages Docs
Posted June 18th, 2010 at 3:00pm in Health Care

The United States faces a major physician shortage, and it
will only get worse. Aging baby boomers will create a
growing demand for medical services at the same time
Obamacare comes on line with its new demands.
Complicating matters is the fact that many physicians are
also baby boomers—meaning part of the solution will
increasingly [...] More
Side Effects: Regulatory Pillow to Smother Grandfathered Plans
Posted June 16th, 2010 at 1:00pm in Health Care

The Department of Health and Human Services has rolled
out regulations governing health plans in effect prior to the
passage of Obamacare. You know, the plans that “if you like
it, you can keep it?” The new regs will mostly affect the 170
million-plus Americans who carry employer-sponsored
coverage. The vast majority of them (82 [...] More

 Side Effects: Donut Hole Hold-Up
Posted June 14th, 2010 at 1:00pm in Health Care

Last Thursday, the White House trumpeted Obamacare’s first
step in closing the Medicare “donut hole.” Checks in the amount
of $250 were sent to 80,000 seniors in the “hole”—a gap in
Medicare’s coverage of prescription drug benefits for seniors.
Ultimately, Washington will cut 4 million of these checks,
totaling $1 billion, to help paper over [...] More
 Side Effects: Obamacare Adds to the Ranks of the Uninsured
Posted June 11th, 2010 at 6:00pm in Health Care

Imagine if Washington applied Obamacare’s regulatory
approach to car sales. Forget choosing your ride based on your
own needs and what you can afford. Instead, your wheels would
be dictated by what Uncle Sam thought was best for you. For
example, you might want—and be willing to pay for—a
Mercedes, but Obamacare Motors would let [...] More
 Side Effects: Like Your HSA? Enjoy it While You Can
Posted June 9th, 2010 at 3:00pm in Health Care

All presidential assurances to the contrary, you can’t keep what
no longer exists—not even health coverage you like. Millions of
people like Health Savings Accounts (HSAs) paired with high-
deductible insurance plans. The approach is so popular, in fact,
that it’s the fastest growing type of coverage in the country. But
this coverage may not be [...] More
 Side Effects: Obamacare Creates a Costly Drop in Employer
Health Coverage
Posted June 2nd, 2010 at 2:00pm in Ongoing Priorities

The President repeatedly promised that if you liked your health
plan, you would be able to keep it. Nothing would change. Fat
chance. In fact, millions of Americans of Americans will lose or
be transitioned out of their existing employer based health
insurance. The official Actuary at HHS- who doesn’t speak for
the Administration- said [...] More
 Side Effects: HSAs an Endangered Species under Obamacare
Posted June 1st, 2010 at 11:00am in Health Care

Why is there so much excessive—indeed, downright wasteful—
spending in health care? One reason is the disconnection
between patients’ wallets and their health care bills. Most
Americans get health insurance through their employers. They
neither witness nor control the flow of their dollars from
employer to insurer to health care provider. Yes, those health
care dollars [...] More
 Side Effects: Cost Of Medicaid Expansion Going Nowhere
But Up
Posted May 27th, 2010 at 3:00pm in Health Care

In passing Obamacare, Congress has put the states in quite a
pickle. To sharply expand health coverage, Obamacare flung
wide the gates of Medicaid eligibility. It envisions a massive
expansion of the federal-state health program that, historically,
delivers low-quality care to low-income Americans. Not a smart
move. States were already struggling to meet their share [...]
 Side Effects: Seniors Will Lose Big Under Obamacare
Posted May 24th, 2010 at 1:00pm in Health Care

Passage of Obamacare will have negative consequences for
practically all Americans. However, it is the nation’s senior
citizens who will get the short end of the stick after enactment of
the President’s health care agenda. In a recent paper, Heritage
health policy expert Robert Moffit, Ph.D., lays out the specific
provisions of Obamacare that will hurt seniors: [...] More
 Side Effects: ER Overload Will Only Get Worse
Posted May 21st, 2010 at 3:00pm in Health Care

Remember how Obamacare was going to save big bucks and
reduce wait time in emergency rooms? The idea was that millions
of previously uninsured Americans accustomed to using ERs for
basic medical treatment would snatch up Obamacare coverage
and start getting primary care from regular (and cheaper)
medical practices. Nice thought. But it doesn’t look [...] More
 Side Effects: Small Businesses Still Left Empty-Handed
Posted May 18th, 2010 at 11:00am in Health Care

One of the great promises of Obamacare, you’ll recall, was that it
would give folks working in small businesses better access to
affordable care. “It works for small business owners,” Nancy
Pelosi announced, “providing access to affordable group rates
and creating a tax credit for them to help them insure their
employees.” This sounded [...] More
 Side Effects: Fewer Flippin’ Hamburgers at White Castle
Posted May 17th, 2010 at 3:00pm in Ongoing Priorities

Yesterday we saw how Obamacare is leading large employers to
contemplate dropping their coverage of employees. Today we
learn it will cripple businesses’ ability to create jobs for entry
level workers. Thanks to Obamacare, low-skilled job seekers will
find it even harder to find work. And low-income areas will find
it even more difficult to [...] More
 Side Effects: What’s a Medical Expense?
Posted May 12th, 2010 at 12:00pm in Health Care

Vague statutory language can make laws hard to interpret and
enforce. And that’s certainly true of the recently-passed Patient
Protection and Affordable Care Act. Exhibit A: Obamacare
requires insurers to spend at least 85 percent of group market
premiums–and 80 percent of individual market premiums–on
medical expenses. The remainder goes to administrative costs
and profits. But what does–and doesn’t–count as a [...] More
 Side Effects: Higher Premiums from Adult “Children” on
Parents’ Health Plans
Posted May 11th, 2010 at 2:00pm in Ongoing Priorities

This week, the White House issued rules for health insurers to
extend dependent coverage to “children” up to 26 years old.
Beyond keeping the “Big Kids” dependent on Mommy and
Daddy, it also directly undercuts the President’s famous
campaign promise that American families would see a $2,500
reduction in their annual premiums. Now, we learn [...] More
 Side Effects: Get Ready to Change Your Insurance
Posted May 10th, 2010 at 5:00pm in Health Care

Remember the White House’s insistence that, under Obamacare,
you keep your insurance plan if you like it? We didn’t believe it
then. Turns out we were right. CNN reports that AT&T,
Verizon, John Deere and others may well drop the health care
coverage they now offer their employees. Obamacare makes it
much cheaper for these [...] More
 Side Effects: Physician-Owned Hospitals Face New
Regulations, Limits on Growth
Posted May 6th, 2010 at 4:30pm in Health Care

Obamacare was going to expand access to higher-quality health
care for all Americans, right? Well, though the legislation can
purport to extend health insurance for millions of currently
uninsured Americans, when it comes to access to high-quality
care, Obamacare is more likely to have the opposite effect. One
way the President’s health plan will kill [...] More
 Side Effects: Let the Employer Penalties Begin
Posted May 4th, 2010 at 1:00pm in Health Care
Fans of Obamacare promised it would be good for small and
large employers alike. They should’ve checked with employers
first. Mercer, a human resources consultancy, did just that. Its
latest annual survey of businesses finds that “[38 percent] of the
nation’s employers…have at least some employees for whom
coverage would be considered ‘unaffordable’ under the [...] More
 Side Effects: Stay Single and Save 15 Percent or More on
Health Insurance
Posted May 3rd, 2010 at 3:00pm in Education

No, this isn’t a Geico commercial. Come 2013, America’s
bachelors may want to think twice before popping the question.
Thanks to Obamacare, some couples can save thousands on
health insurance just by opting to cohabit rather than marry.
How? The subsidy system erected in the complicated new health
law manages to create a brand new [...] More
 Side Effects: State Reluctant to Swim in National High-Risk
Posted April 30th, 2010 at 12:00pm in Health Care

Obamacare aims to insure the uninsured. To do that, the law
bars insurers from denying coverage to people with pre-existing
conditions—but not until 2014. In the meantime, the law calls
for a national high-risk pool to offer coverage to the otherwise
“uninsurable.” Under the new law, an important deadline looms.
By Friday, states must declare [...] More
 Side Effects: The Beginning of the End for FSAs
Posted April 29th, 2010 at 6:00pm in Health Care

“If you like your current health coverage, you can keep it.” It
was a key promise of Obamacare. But the new law gives
government a say in everything from the benefits you carry to
the treatment you receive. And that means very real changes to
existing coverage. One of those many changes derive from new
[...] More
 Side Effects: Floridians Will Lose Medicare Advantage
Posted April 28th, 2010 at 12:00pm in Health Care

On the stump, Candidate Obama identified government
entitlement spending on Medicare, Medicaid, and Social Security
as the largest contributor to the federal deficit. If Congress
doesn’t rein in the costs of these programs, he said,, these three
programs will “consume all of the federal budget.” Candidate
Obama was right. (Still is: just check out The [...] More
 Side Effects: Special Treatment for Congress
Posted April 27th, 2010 at 12:00pm in Ongoing Priorities

As we noted last week, Congress screwed up the language of their
health care bill at their own expense. But, thanks to Obama
administration lawyers, members and their immediate personal
staff might be able to keep their existing health insurance
coverage — for now. The problem, as Heritage and others noted,
is that the bill’s [...] More

 Side Effects: It’s Official- Higher Health Care Costs
Posted April 23rd, 2010 at 4:00pm in Health Care

Yesterday, the actuaries at the Centers for Medicare and
Medicaid Services (CMS), the agency that runs the giant
entitlement programs, released their analysis of the new health
care law. The AP reports that “White House officials have
repeatedly complained that such analyses have been too
pessimistic and lowball the law’s potential to achieve savings,”
but [...] More
 Side Effects: The Catch 22 of Obamacare Risk Pools
Posted April 22nd, 2010 at 2:00pm in Health Care

It was one of the most oft-repeated promises of Obamacare: It
will cover people, regardless of pre-existing conditions. But when
it came time to make good on that promise, Congress came up
short. Yes, in 2014, the new law prohibits insurers from
discriminating against pre-existing conditions—starting in 2014.
But what about the next four years? [...] More
 Side Effects: Congress Regulates Themselves Out of
Posted April 21st, 2010 at 4:30pm in Health Care
In the mad dash to meet their strictly political deadline for
passing Obamacare, lawmakers wound up victimizing many
people. Including themselves. Members of Congress and
Congressional staff currently enjoy a wide variety of excellent
health insurance options, courtesy of the Federal Employees
Health Benefits Program (FEHBP). One of the more
commonplace campaign promises of federal [...] More
 Side Effects: IRS Could Eat Your Refund
Posted April 20th, 2010 at 4:00pm in Health Care

Obamacare requires all individuals to carry health insurance for
themselves and their families. Those who don’t will have to pay
a penalty. And the IRS is the agency charged with making sure
the uninsured pony up. Just how will the IRS do that? It’s not
something lawmakers got around to actually, you know, writing
down [...] More
 Side Effects: The Doctor Is NOT In
Posted April 19th, 2010 at 1:00pm in Health Care

Doctors are becoming increasingly demoralized. And no
wonder! They are losing control over their professional
independence and the Washington lobbyists they hire to
represent them are collaborators with an increasingly hostile
Washington political establishment. While the President
repeatedly told Americans that his health agenda would not
interfere with their relationship with their doctors, the reality
[...] More
 Side Effects: Get Ready to Wait for Your Health Care
Posted April 15th, 2010 at 4:00pm in Health Care

Patience will be more than a virtue, under Obamacare. It’ll be a
necessity. A recent article from ABC News outlines why
Americans can expect longer and longer waits before they see a
doctor. One reason is that there just won’t be enough doctors to
get the job done. ABC reports that 10 years from now, [...] More
 Side Effects: Obamacare’s “Donut Hole” for Young Adults
Posted April 14th, 2010 at 12:00pm in Health Care

College seniors are eagerly ordering caps and gowns for May
graduation ceremonies. But graduation day often brings loss as
well as gain. Many graduates will lose coverage under their
parents’ health plans as soon as they get their diplomas. It wasn’t
supposed to be that way. Obamacare promised to let “children”
remain on their parents’ [...] More
 Side Effects: Pre-Existing Physician Payment Problems
Posted April 12th, 2010 at 1:00pm in Health Care

No one can criticize the Obamacare legislation for being too
short. But even at 2K+ pages, the new law fails to address some
major problems with the health system. One of these is the
flawed formula Congress created years ago to determine how
much the Medicare payment physicians receive for services
rendered. Year after year, [...] More
 Side Effects: Doctor Participation May Vary
Posted April 9th, 2010 at 6:00pm in Health Care

In recent years, the United States has faced a growing shortage of
physicians. Under Obamacare, it will only get worse. Industry
experts predict a 40,000 shortfall in doctors over the next decade
There are two factors at play here. First, the existing supply of
primary care physicians will not be able to keep up with [...]
 Side Effects: States Will Feel the Effects of Obamacare
Posted April 8th, 2010 at 12:00pm in Health Care

The national health reform rammed through Congress is giving
state officials headaches. Writing in The Wall Street Journal,
Indiana Governor Mitch Daniels outlines several problems states
will have to deal with as a result of Obamacare. For example,
Daniels now faces the prospect of terminating a popular
insurance program for low-income Indiana residents. The
“Healthy [...] More
 Side Effects: New Tanning Tax Burns Business Owners
Posted April 7th, 2010 at 1:00pm in Health Care
In the days and weeks following the signing of Obamacare into
law, Administration officials have attempted to promote all of the
legislation’s immediate impacts. Owners of tanning salons across
the country are already seeing one of those immediate impacts—
a whopping 10% tax. One salon owner in Western Oregon
laments in an interview with a local TV station, “10% [...] More
 Side Effects: New Entitlement Compounds Debt Problems of
Existing Entitlement
Posted April 7th, 2010 at 11:00am in Health Care

Obamacare was sold as a way to improve benefits and expand
coverage. But it doesn’t seem to be panning out that way. Almost
immediately, major companies offering excellent health coverage
to both active workers and retirees said the new law would cost
them a bundle. AT&T alone said they’d have to set aside an
extra [...] More
 Side Effects: Obamacare Fueling Higher Insurance Costs
Posted April 5th, 2010 at 12:00pm in Health Care

Despite all the talk about how Obamacare would lower health
care costs, it’s already becoming clear that it just won’t be the
case. The Indianapolis Star reports that companies can expect
employee health insurance costs to rise even faster. “Driven by
worries about the economy and possibly the effects of health-care
reform, [health insurers] are [...] More
 Side Effects: Laws No Longer Mean What They Say
Posted April 1st, 2010 at 4:00pm in Health Care

Major flaws in the gargantuan Obamacare bill started to emerge
almost immediately after it was signed into law. One of the most
embarrassing: failure to ensure immediate coverage for kids
with pre-existing conditions—something Obamacare supporters
had constantly promised was part of the bill. Looking to provide
cover for those who wrote the bill, Secretary of [...] More
 Side Effects: Obamacare May Be Fatal for Your HSA
Posted March 31st, 2010 at 3:00pm in Health Care

President Obama promised Americans that “If you like the plan
you have now, you can keep it.” It was a fundamental promise of
Obamacare. But if the coverage you like comes via a Health
Savings Account (HSA) or a Flexible Spending Account (FSA),
that promise may not hold. A recent analysis from HSA
Consulting Services [...] More
 Side Effects: Medical Devices Tax Will Costs Jobs
Posted March 30th, 2010 at 6:00pm in Health Care

There’s only one way to pull the economy out of the doldrums.
We need more jobs. Now. As Obamacare inched its way toward
passage, boosters of the radical legislation began making bold
new claims about its virtues. The bill, they said, would do far
more than simply fix the health care system; it would create [...]
 Side Effects: Young to Pay Higher Health Insurance
Posted March 30th, 2010 at 4:15pm in Health Care

Remember those lower health insurance premiums Obamacare
would bring us? Don’t count on it—especially if you’re young.
The Associated Press reports that a new analysis by Rand Health
predicts premiums for young adults could rise as much as 17
percent under the new law. The new age rating requirement is
the culprit. It bars insurers [...] More
 Side Effects: Obamacare the Television Ad
Posted March 30th, 2010 at 11:30am in Health Care

Facing an American public that hates their new health care law,
the Obama administration and their union/corporatist allies are
planning a multi-million dollar television ad campaign to sell the
benefits of Obamacare. While Food and Drug Administration
regulations require all advertising for prescription drug to
"present side effect information in a manner similar to that used
for the benefit information," the Obama administration faces no
such hurdle when making their pitch. But if it did, this is what a
typical pro-Obamacare ad would look like. More
 Side Effects: Higher Health Insurance Taxes
Posted March 30th, 2010 at 8:01am in Health Care with 56 comments
Union bosses howled about one Obamacare tax hike: the levy on
“Cadillac” health plans (expensive plans rich in benefits). The
problem with this tax, as they see it, is that it hits the very plans
often enjoyed by their rank-and-file. Ever eager to please the
unions, Democratic leaders added a “fix” to the reconciliation
bill [...] More
 Side Effects: Obamacare Doesn’t Work on Children After
Posted March 29th, 2010 at 8:39pm in Health Care

A signature achievement of Obamacare, we were told, was that it
would provide immediate protection for children with pre-
existing conditions. In the brave new world of Obamacare, no
ailing child could be denied coverage. Turns out, that just ain’t
so. According to the Associated Press, “Under the new law,
insurance companies still would be able [...] More

Exclusive from Cancer Journal: Concerns on the
New Health Care Law:


Health Care Voters Overwhelming Favor
Repealing Obamacare
Posted November 9th, 2010 at 2:24pm in Health Care
The Kaiser Family Foundation polled 1,502 adults ages 18 and
older, including 1,017 adults who say they voted, in the days after
last Tuesday’s election. KFF allowed respondents to name, in
their own words, the biggest factors influencing their vote for
Congress. The top response was economy/jobs (29%), followed
by voting for or against a specific party (25%), and then voting
for a specific candidate (21%). Health care came in fourth at
But among those voters who said health care was the top factor
influencing their vote, repealing all or parts of Obama was
extremely popular. A full 71% of health care voters either want
to repeal Obamacare entirely (45%) or repeal parts of the law
(26%). Only 11% of health care voters (and only 16% of all
voters) want to leave the law as is. Obamacare is not very
popular among the entire population either KFF reports:
Just a quarter of the public (25 percent) now says they expect
their own families to be better off under the health reform law,
which is the lowest share since KFF began tracking this question.
About a third each continue to think their own family will be
worse off under the law (31 percent) or that it won’t make much
difference (34 percent). The public remains split on whether the
country as a whole will be better (38 percent) or worse off (36
percent) under the law, while 16 percent say it won’t make much
You can read The Heritage Foundation Guide to Repealing
Obamacare, here.

Author: Conn Carroll


Highlights From This Initiative

• The Prospects for Ending Obamacare: Learning
from Health Policy History
• Get to Work, New Congress—and Repeal

• The Impact of Obamacare: Read the Papers
Featured in the Pamphlet

• Exclusive from Cancer Journal: Concerns on the
New Health Care Law

• Judge Rules Obamacare Individual Mandate is

• Repeal It, Voters say Loud and Clear

• Interactive Tool to Evaluate Health Care
Policy – Try It Today!

• Top 10 Health Care Blog Posts of 2010

 Repealing Obamacare and Getting Health Care

 Solutions for America: Our Forward-Looking
Vision for Health Care

 How Obamacare is Breaking State Budgets… and
What State Lawmakers Can Do to Restore Fiscal Sanity

 Do Doctors Cause Medicare’s High Costs?
Answers from Texas